<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
XOOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7310 88-0361536
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
300 MONTGOMERY STREET, SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
(415) 445-2525
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
---------------
CHRIS KITZE
CHAIRMAN
XOOM, INC.
300 MONTGOMERY STREET, SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
(415) 445-2525
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------
COPIES TO:
BRUCE ALAN MANN, ESQ. NORA L. GIBSON, ESQ.
KRISTIAN E. WIGGERT, ESQ. RANDALL M. LAKE, ESQ.
HANS J. BRASSELER, ESQ. BARBARA SKAGGS GALLAGHER, ESQ.
JOEL S. FISCH, ESQ. Brobeck, Phleger & Harrison LLP
Morrison & Foerster LLP Spear Street Tower
425 Market Street One Market
San Francisco, California 94105-2482 San Francisco, California 94105
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $ .0001 par value per
share............................... $46,000,000 $13,570
========================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 28, 1998
PRELIMINARY PROSPECTUS
SHARES
[XOOM LOGO]
COMMON STOCK
All of the shares of Common Stock, par value $0.0001 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by XOOM, Inc.
("Xoom" or the "Company"). Prior to the Offering, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price for the Common Stock will be between $ and
$ per share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. Application has
been made for quotation of the Common Stock on the Nasdaq National Market under
the symbol "XOOM."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,700,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock on the same terms and
conditions set forth above, to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ , $ and
$ respectively. See "Underwriting."
-----------
The shares of Common Stock are being offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters
against payment therefor and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and
to reject orders in whole or in part. It is expected that delivery of the
shares will be made against payment therefor on or about , 1998 at
the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York
10167.
-----------
BEAR, STEARNS & CO. INC. DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
The date of this Prospectus is , 1998
<PAGE>
[INSIDE FRONT COVER GRAPHICS]
[DEPICTION OF XOOM WEB SITE AND SELECTION OF LOGOS OF STRATEGIC ALLIANCE
PARTNERS;
PROCEDURE FOR HOW MEMBERS JOIN, EXAMPLES OF COMMUNITIES, PRODUCTS, AND XOOM
BACK OFFICE OPERATIONS.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information including "Risk Factors" and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. The discussion in this Prospectus contains forward-looking
statements. The outcome of the events described in such forward-looking
statements is subject to risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Factors that may cause or contribute to such differences include those
discussed in "Risk Factors," "Management's Discussion And Analysis Of Financial
Condition And Results Of Operations" and "Business" as well as those discussed
elsewhere in this Prospectus. The information in this Prospectus reflects the
assumed exercise of all outstanding warrants for shares of Common Stock prior
to the closing of the Offering and assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Xoom is one of the fastest growing direct marketing companies on the
Internet. The Company attracts members to its community site with a variety of
free services, including homepages, e-mail, chat rooms, clip art and software
libraries and online greeting cards. Xoom members can also join topical
communities where they can exchange ideas and information. Upon registration,
members agree to receive periodic offers of products and services via e-mail.
These offerings are competitively priced and continuously updated, and include
computer software, computer accessories and peripherals, consumer electronics
and clip art on CD-ROM. New product offerings will include a DVD movie club,
gift items, health-related products and a travel club. Xoom believes that its
rapidly growing base of self-qualified members provides the Company with highly
attractive and effective electronic commerce opportunities. In addition, the
Company believes that its high levels of traffic and online reach present an
attractive platform for advertising.
Xoom was the second fastest growing site on the Web measured by online reach
in the first half of 1998 and the seventeenth most trafficked site in July
1998, according to Media Metrix. Xoom's reach increased to over 10% in July
1998 from less than 2% in January 1998, according to Relevant Knowledge. Xoom
had approximately 3.0 million members as of August 26, 1998, adding an average
of over 20,000 new members per day for the last thirty days. In the first six
months of 1998, 72% of the Company's net revenue was derived from electronic
commerce and approximately 36% of net revenue was derived from non-U.S. sales.
IDC estimates that the number of Web users will grow from approximately 69
million worldwide in 1997 to approximately 320 million worldwide by the end of
2002 and that transactions on the Internet are expected to increase from
approximately $12 billion in 1997 to approximately $426 billion in 2002. In
addition, the percentage of users that are buyers of products and services is
expected to increase from 26% to 40% in the same period. The same advantages
that facilitate the growth of electronic commerce make the Internet a
compelling medium for direct marketing campaigns. Direct marketing over the
Internet uses e-mail to reach prospective buyers worldwide, potentially
offering them a significantly broader selection of products and services than
is available locally. Internet-based direct marketing also allows marketers to
rapidly collect meaningful demographic information and feedback from consumers,
and to use this information to tailor new messages quickly. Further, the costs
of direct marketing via e-mail are dramatically lower than those of traditional
direct marketing techniques. As a result, Internet-based direct marketing
campaigns can be profitable at response rates that are a fraction of the rates
required for traditional campaigns.
By offering its members a variety of compelling free services and communities
and competitively priced product offerings, the Company believes it has created
an innovative online sales channel with low customer acquisition costs. The key
elements of Xoom's approach are to: (i) utilize the cost-effective direct
marketing capabilities of the Web to sell products to the Xoom customer base;
(ii) rapidly formulate effective direct
marketing campaigns utilizing proprietary campaign management software,
allowing the Company to maximize
3
<PAGE>
response rates and minimize inventory costs; (iii) provide free services to
attract a growing membership base; (iv) develop a detailed member database; (v)
continue to grow online reach and membership to create an attractive
advertising platform; and (vi) provide customer convenience to encourage
purchasing.
The Company's objective is to be the world's largest community-based direct
selling channel on the Internet. In order to accomplish this objective, the
Company intends to continue to focus on growing its membership base and
building strong brand recognition of the Xoom name. The Company believes that
promoting repeat usage and member loyalty through free services will help
establish Xoom as a preferred destination among Web users. The Company intends
to make acquisitions and enter into strategic alliances in order to increase
its reach and membership. In addition, the Company intends to increase its
advertising revenue as a result of its growth in online reach.
"XOOM" and the "X-in-circle" are trademarks of the Company. This Prospectus
contains other product names, trade names and trademarks of the Company and of
other organizations, which are the property of their respective owners. The
Company was incorporated in Delaware on April 16, 1996 under the name Atomsoft,
Inc., and changed its name to Xoom, Inc. in February of 1998. The principal
executive offices of the Company are located at 300 Montgomery Street, Suite
300, San Francisco, California 94104, and its telephone number at this address
is (415) 445-2525.
----------------
This Prospectus includes statistical data regarding the Internet industry.
Such data is taken or derived from information published by sources including
Media Metrix, Inc. ("Media Metrix") and Relevant Knowledge, Inc., media
research firms specializing in market and technology measurement on the
Internet, Jupiter Communications, LLC, a media research firm focusing on the
Internet industry ("Jupiter Communications"), and International Data
Corporation, a provider of market information and strategic information for the
information technology industry ("IDC"). Although the Company believes that
such data are generally indicative of the matters reflected therein, such data
are inherently imprecise and investors are cautioned not to place undue
reliance on such data.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered.................................. shares
Common Stock to be outstanding after the Offering (1). shares
Use of proceeds....................................... For repayment of certain
indebtedness, and for
general corporate
purposes, including
working capital, capital
expenditures and
potential acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol................ XOOM
</TABLE>
- --------
(1) Based on the number of shares outstanding as of June 30, 1998. Excludes (i)
2,457,542 shares of Common Stock issuable upon the exercise of options then
outstanding with a weighted average exercise price of $0.76 per share; (ii)
2,592,180 shares of Common Stock reserved for issuance under the Company's
1998 Stock Incentive Plan (the "1998 Plan") as of such date; and (iii)
300,000 shares of Common Stock reserved for issuance under the Company's
1998 Employee Stock Purchase Plan (the "Stock Purchase Plan"). Assumes (i)
the exercise of all outstanding warrants to purchase 459,593 shares of
Common Stock prior to the closing of the Offering at an exercise price of
$2.22 per share; (ii) 77,868 shares of Common Stock issued in July pursuant
to modifications of earn-outs in connection with certain of the Company's
acquisitions; and (iii) shares of Common Stock with an aggregate fair
value of $600,000 issuable pursuant to modifications of earn-outs in
connection with certain of the Company's acquisitions. See
"Capitalization," "Management--Benefit Plans" and Notes 4 and 8 of Notes to
the Company's Consolidated Financial Statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated financial data for the
Company. This information should be read in conjunction with the Consolidated
Financial Statements and Notes related thereto and the Selected Unaudited Pro
Forma Condensed Consolidated Financial Information and Notes related thereto
appearing elsewhere in this Prospectus. See "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
PRO FORMA
PERIOD FROM
APRIL 16 SIX MONTHS ENDED SIX MONTHS
(INCEPTION) TO YEAR ENDED JUNE 30, ENDED
DECEMBER 31, DECEMBER 31, ------------------ JUNE 30,
1996 1997 1997 1998 1998(2)
-------------- ------------ -------- -------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenue:
Electronic commerce... $ -- $ 327 $ 21 $ 1,834 $ 2,043
Advertising........... -- 60 7 355 406
License fees and
other................ -- 454 172 376 404
------ ------- -------- -------- -------
Total net revenue...... -- 841 200 2,565 2,853
Gross profit........... -- 522 41 1,639 1,881
Loss from operations... (440) (3,132) (1,361) (3,721) (4,027)
Net loss............... $ (440) $(3,132) $ (1,361) $ (3,721) $(4,051)
====== ======= ======== ======== =======
Net loss per share--
basic and diluted(1).. $(0.59) $ (0.43) $ (0.20) $ (0.39) $ (0.39)
====== ======= ======== ======== =======
Number of shares used
in per share
calculation--basic and
diluted(1)............ 745 7,311 6,777 9,604 10,305
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------ ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash..................................... $4,091 $ 3,941 $
Working capital.......................... 1,826 374
Total assets............................. 9,660 10,823
Acquisition notes payable, less current
portion................................. 1,119 1,119
Total stockholders' equity............... 5,428 5,270
</TABLE>
- --------
(1) See Note 1 of Notes to the Company's Consolidated Financial Statements for
an explanation of the determination of the number of shares used to compute
basic and diluted net loss per share and Note D of Notes to the Company's
Selected Unaudited Pro Forma Condensed Consolidated Statements of
Operations for an explanation of the determination of the number of pro
forma shares used to compute pro forma net loss per share--basic and
diluted.
(2) Pro Forma Condensed Consolidated Statement of Operations data for the six
months ended June 30, 1998 reflects certain adjustments to reflect the
acquisition of Paralogic Corporation, Global Bridges Technologies, Inc. and
Pagecount, Inc. as if the acquisitions had occurred on January 1, 1998. See
Selected Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the six months ended June 30, 1998. The pro forma condensed
consolidated statement of operations data does not include amortization of
$191,000 related to the purchase of assets of Revolutionary Software, Inc.
and ArcaMax which would have been incurred if these assets were purchased
on January 1, 1998.
(3) Pro Forma Condensed Consolidated Balance Sheet Data reflects certain
adjustments to reflect the acquisition of Pagecount, Inc. as if it occurred
on June 30, 1998. See Selected Unaudited Condensed Consolidated Balance
Sheet at June 30, 1998.
(4) Adjusted to reflect (i) the assumed exercise of all outstanding warrants
for 459,593 shares of Common Stock prior to the closing of the Offering at
an exercise price of $2.22 per share; (ii) the repayment of approximately
$1.4 million of notes payable related to acquisitions; (iii) the sale of
the shares of Common Stock offered hereby after deducting the
underwriting discount and estimated offering expenses; and (iv) the
issuance of shares of Common Stock with an aggregate fair value of
$600,000 and the payment of $390,000 in cash, upon the completion of the
Offering, pursuant to modifications of earn-outs in connection with certain
of the Company's acquisitions. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
The Offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock of the Company. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all forward-looking statements wherever
they appear in this Prospectus. The Company's actual results could differ
materially from the results discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY; ANTICIPATED LOSSES
The Company was incorporated in April 1996, and began generating revenue in
the first quarter of 1997. Accordingly, the Company has a limited operating
history upon which to evaluate the Company, its current business and
prospects. In addition, the Company's revenue model is evolving and relies
substantially upon electronic commerce, primarily through the use of direct e-
mail marketing, licensing and the sale of advertising on its Web site. The
Company's business must be considered in light of the risks, expenses and
problems frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets such
as online commerce and the Internet. Specifically, such risks include, without
limitation, the inability of the Company to maintain and increase levels of
traffic on the Xoom site, the lack of acceptance by consumers of e-mail direct
marketing as a medium of electronic commerce, the failure by the Company to
continue to develop and extend the Xoom brand, the lack of broad acceptance of
the community model on the Internet, the inability of the Company to attract
or retain members, the inability of the Company to generate significant Web-
based commerce revenue or premium service revenue from its members, the
inability of the Company to meet minimum guaranteed impressions under
advertising agreements, the failure of the Company to anticipate and adapt to
a developing market, the level of use of the Internet and online services and
consumer acceptance of the Internet and other online services for the purchase
of consumer products such as those offered by the Company, the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner, the inability to effectively
manage rapidly expanding operations, the level of traffic on the Company's Web
site, the failure of its server and networking systems to efficiently handle
the Company's Web traffic, technical difficulties, system downtime or Internet
brownouts, the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations and
infrastructure, the level of merchandise returns experienced by the Company,
competition, dependence on the Internet, the introduction and development of
different or more extensive communities by direct and indirect competitors,
particularly in light of the fact that many of such competitors are much
larger and have greater financial, technical and marketing resources than the
Company, reductions in market prices for Web-based advertising as a result of
competition or otherwise, the inability of the Company to maintain or achieve
higher rates for advertising, governmental regulation and general economic
conditions and economic conditions specific to the Internet and the online
commerce industry. To address these risks, the Company must, among other
things, maintain and increase its membership base and rates of growth,
implement and successfully execute its business and marketing strategies,
continue to develop and upgrade its technology and transaction-processing
systems, improve its Web site, provide superior customer service and order
fulfillment, respond to competitive developments, and attract, retain and
motivate qualified personnel. There can be no assurance that the Company will
be successful in addressing such risks, and any failure to do so could have a
material adverse effect on the Company's business, results of operations and
financial condition.
As of June 30, 1998, the Company had an accumulated deficit of $7.3 million.
Although the Company has experienced growth in net revenue, members, customers
and reach in recent periods, such growth rates are not sustainable, will
decrease in the future and are not indicative of actual growth rates the
Company may experience. The Company has not achieved profitability on a
quarterly or annual basis to date, and the Company anticipates that it will
incur net losses for the foreseeable future. The extent of these losses will
be dependent, in part, on
7
<PAGE>
the amount and rates of growth in the Company's net revenue from electronic
commerce and advertising. The Company expects its operating expenses to
increase significantly, especially in the areas of sales and marketing and
brand promotion, and, as a result, it will need to generate increased
quarterly net revenue if profitability is to be achieved. The Company believes
that period-to-period comparisons of its operating results are not meaningful
and that the results for any period should not be relied upon as an indication
of future performance. To the extent that net revenue does not grow at
anticipated rates or that increases in its operating expenses precede or are
not subsequently followed by commensurate increases in net revenue, or that
the Company is unable to adjust operating expense levels accordingly, the
Company's business, results of operations and financial condition will be
materially and adversely affected. There can be no assurance that the
Company's operating losses will not increase in the future or that the Company
will ever achieve or sustain profitability.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY; UNPREDICTABILITY OF
FUTURE NET REVENUE
The Company expects operating results to fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of the
Company's control. These factors include demand for the products the Company
sells through its Web site, consumers' acceptance of electronic commerce and,
in particular, direct e-mail marketing as a medium for the purchase of goods
and services, demand for Web-based advertising, advertisers' market acceptance
of the Web as an advertising medium, the level of traffic on the Xoom site,
the budgeting cycles of advertisers, the amount and timing of capital
expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new or enhanced services by the Company or its
competitors, the timing and number of new hires, the availability of desirable
products and services for sale through the Company's Web site, the accuracy of
the Company's predictions regarding optimal inventory levels for products,
pricing changes for Web-based advertising as a result of competition or
otherwise, the loss of a key advertising contract or relationship by the
Company, changes in the Company's pricing policy or those of its competitors,
the mix of products, services and advertisements sold by the Company,
engineering or development fees that may be paid in connection with adding new
Web site development and publishing tools, technical difficulties with the
Xoom site, incurrence of costs relating to future acquisitions, general
economic conditions, and economic conditions specific to the Internet or all
or a portion of the technology market. As a strategic response to changes in
the competitive environment, the Company may from time to time make certain
pricing, service or marketing decisions or business combinations that could
have a material adverse effect on the Company's business, results of
operations and financial condition. In order to accelerate the promotion of
the Xoom brand, the Company intends to significantly increase its marketing
budget, which could materially and adversely affect the Company's business,
results of operations and financial condition. The Company expects to
experience seasonality in its business, with user traffic on the Xoom site
potentially being lower during the summer and year-end vacation and holiday
periods when overall usage of the Web is lower. Additionally, seasonality may
significantly affect the Company's advertising revenue during the first and
third calendar quarters, as advertisers historically spend less during these
periods. Because Web-based commerce and advertising is an emerging market,
additional seasonal and other patterns may develop in the future as the market
matures. Any seasonality is likely to cause quarterly fluctuations in the
Company's operating results, and there can be no assurance that such patterns
will not have a material adverse effect on the Company's business, results of
operations and financial condition.
As a result of the Company's limited operating history, the Company has
limited meaningful historical financial data upon which to base planned
operating expenses. Accordingly, the Company's expense levels are based in
part on its expectations as to future revenue from sales of products and
services, commerce revenue-sharing arrangements, advertising, and anticipated
growth in membership and are, to a large extent, fixed. Sales and operating
results from product sales generally depend on the volume of, timing of and
ability to fulfill orders received, which are difficult to forecast. In
addition, there can be no assurance that the Company will be able to
accurately predict its net revenue, particularly in light of the intense
competition for the sale of products and services on the Web, sales of Web-
based advertisements, revenue-sharing opportunities, the Company's limited
operating history and the uncertainty as to the broad acceptance of the Web as
a commerce and advertising medium. The Company may be unable to adjust
spending in a timely manner to compensate for
8
<PAGE>
any unexpected revenue shortfall. Any failure by the Company to accurately
make such predictions would have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company derives a material portion of its net revenue from the sale of
advertising under short-term contracts, averaging one to two months in length.
As a result, the Company's quarterly net revenue and operating results are, to
a significant extent, dependent on advertising revenue from contracts entered
into within the quarter, as well as on the Company's ability to adjust
spending in a timely manner to compensate for any unexpected net revenue
shortfall. To date, a significant portion of the Company's advertising revenue
in any given period has been attributable to a small group of customers, the
composition of which generally changes from period to period. During the six
months ended June 30, 1998, the Company's five largest advertising customers
accounted for approximately 44% of advertising revenue (approximately 6% of
total net revenue). The Company expects this situation to continue in the
future. The cancellation or deferral of existing advertising or commerce
contracts or the failure to obtain new contracts in any quarter could
materially and adversely affect the Company's business, results of operations
and financial condition for that quarter and future periods. Furthermore, the
Company's advertising revenue is based in part on the amount of traffic on the
Xoom site. Accordingly, any significant shortfall in traffic on the Xoom site
in relation to the Company's expectations or the expectations of existing or
potential advertisers would have a material adverse effect on the Company's
business, results of operations and financial condition. In addition,
substantially all of the Company's advertising contracts require the Company
to guarantee a minimum number of impressions. In the event that these minimum
impressions are not met, the Company could be required to provide credit for
additional impressions and the ability of the Company to sell advertising to
new or existing advertisers could be adversely affected, and the Company could
be forced to reduce advertising rates.
Due to the foregoing factors, the Company's quarterly net revenue and
operating results are difficult to forecast. Consequently, the Company
believes that period to period comparisons of its operating results will not
necessarily be meaningful and should not be relied upon as an indication of
future performance. It is likely that in some future quarter or quarters the
Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the trading price of the Company's
Common Stock would likely be materially and adversely affected.
UNPROVEN BUSINESS MODEL; DEPENDENCE ON MEMBERS
The Company's business model depends upon its ability to leverage its
community platform and generate multiple revenue streams. The potential
profitability of this business model is unproven, and, to be successful, the
Company must, among other things, develop and market solutions that achieve
broad market acceptance by its members, Internet advertisers, commerce vendors
and Internet users. The Company's business model is substantially dependent
upon its member-generated content, the "grass-roots" promotional efforts of
its members and the voluntary involvement of its members in the maintenance of
communities to attract Web users to its site and to reduce the demands on
Company personnel. There can be no assurance that the Company's member-
generated content or the promotional efforts of its members will continue to
attract users to the Company's Web site. There can also be no assurance that
the Company's community members will continue to devote their time voluntarily
to improving its communities. Moreover, there can be no assurance that
communities on the Internet, direct marketing of products on the Internet or
the Company's services and brand will achieve broad market acceptance.
Accordingly, no assurance can be given that the Company's business model will
be successful or that it can sustain net revenue growth or achieve or sustain
profitability.
RISKS OF CAPACITY CONSTRAINTS; SYSTEM FAILURES; TECHNOLOGICAL RISKS
The performance of the Company's server and networking hardware and software
infrastructure is critical to the Company's business and reputation and its
ability to attract Web users, advertisers, new members and commerce partners
to the Company's Web site. Any system failure that causes an interruption in
service or a
9
<PAGE>
decrease in responsiveness of the Company's Web site could result in less
traffic on the Company's Web site and, if sustained or repeated, could impair
the Company's reputation and the attractiveness of its brand. The Company
entered into Web hosting agreements with Exodus Communications, Inc.
("Exodus") and Frontier Global Center ("Frontier") and relies on Exodus and
Frontier for its Internet connectivity as well as monitoring and managing of
power and environmentals for the Company's server and networking equipment.
Any disruption in Internet access or any failure of the Company's server and
networking systems to handle current or higher volumes of traffic would have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company has in the past experienced system failures
related to capacity constraints. An increase in the use of the Company's Web
site could strain the capacity of its systems, which could lead to slower
response time or system failures. System failures or slowdowns adversely
affect the speed and responsiveness of the Company's Web site and would
diminish the experience for the Company's members and visitors and reduce the
number of impressions received by advertisers, and, thus, could reduce the
Company's commerce and advertising revenue. The ability of the Company to
provide effective Internet connections or of its systems to manage
substantially larger numbers of customers at higher transmission speed is as
yet unknown, and, as a result, the Company faces risks related to its ability
to scale up to its expected customer levels while maintaining superior
performance. If Xoom's usage of bandwidth increases, Xoom will need to
purchase additional servers and networking equipment and rely more heavily on
its equipment and on Exodus and Frontier and their services to maintain
adequate data transmission speeds, the availability of which may be limited or
the cost of which may be significant. The successful delivery of the Company's
services is also dependent in substantial part upon the ability of Exodus,
Frontier and the Company to protect Xoom's server and network infrastructure
against damage from human error, fire, flood, power loss, telecommunications
failure, sabotage, intentional acts of vandalism and similar events. In
addition, substantially all of the Company's server and network infrastructure
is located in Northern California, an area susceptible to earthquakes, which
also could cause system outages or failures if one should occur. Despite
precautions taken by the Company, Exodus and Frontier, the occurrence of other
natural disasters or other unanticipated problems at their respective
facilities could result in interruption in the services provided by the
Company or significant damage to Xoom's equipment. Despite the implementation
of network security measures by the Company, its servers are vulnerable to
computer viruses, break-ins, and similar disruptions from unauthorized
tampering. The Company has experienced attempts by experienced programmers or
"hackers" to penetrate the Company's network security, some of which have
succeeded, and expects these attempts to continue to occur from time to time.
The occurrence of any of these events could result in interruptions, delays or
cessations in service, which could have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, the Company's reputation and the Xoom brand could be materially and
adversely affected.
RISK OF RELIANCE ON INTERNALLY DEVELOPED SYSTEMS
The Company uses an internally developed system for its Web site and
substantially all aspects of its transaction processing and order management
systems. The Company's inability to modify this system as necessary to
accommodate increased traffic on its Web site or increased volume through its
transaction processing and order management systems may cause unanticipated
system disruptions, slower response times, impaired quality and speed of order
fulfillment, degradation in customer service, and delays in reporting accurate
financial information. Any of these events could have a material adverse
effect on the Company's business, results of operations and financial
condition.
DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE; DEPENDENCE ON DIRECT SALES
The Company's future success is substantially dependent upon continued
growth in the use of the Internet and the Web. Use of the Internet as a means
of effecting retail transactions is at an early stage of development, and
demand and market acceptance for recently introduced services and products
over the Internet is uncertain. For the year ended December 31, 1997 and the
six months ended June 30, 1998, respectively, electronic commerce revenue
represented approximately 39% and 72% of the Company's total net revenue. The
Company cannot predict the extent to which consumers will be willing to shift
their purchasing habits from traditional
10
<PAGE>
retailers to online retailers. The Internet may not prove to be a viable
commercial marketplace for a number of reasons, including lack of acceptable
security technologies, lack of access and ease of use, congestion of traffic,
inconsistent quality of service and lack of availability of cost-effective,
high-speed service, potentially inadequate development of the necessary
infrastructure, excessive governmental regulation, uncertainty regarding
intellectual property ownership or timely development and commercialization of
performance improvements, including high speed modems. In addition, adverse
publicity and consumer concern about the security of transactions conducted on
the Internet and the privacy of users may also inhibit the growth of commerce
on the Internet. If the use of the Internet does not continue to grow or grows
more slowly than expected, the Company's business, financial condition and
results of operations may be adversely affected.
RELIANCE ON CERTAIN VENDORS
The Company's primary provider of warehousing and order fulfillment is Banta
Corporation ("Banta"). The Company has no fulfillment operation or facility of
its own and, accordingly, is dependent upon maintaining its existing
relationship with Banta or establishing a new fulfillment relationship with
one of the few other fulfillment operations. The Company does not have a
written agreement with Banta, and there can be no assurance that the Company
will maintain its relationship with Banta, or that it will be able to find an
alternative, comparable vendor capable of providing fulfillment services on
terms satisfactory to the Company should its relationship with Banta
terminate. An unanticipated termination of the Company's relationship with
Banta, particularly during the fourth quarter of the calendar year in which
typically a high percentage of sales are made, could materially adversely
affect the Company's results of operations even if the Company was able to
establish a relationship with an alternative vendor. To date, Banta has
satisfied the Company's requirements on a timely basis. However, to the extent
that Banta does not have sufficient capacity and is unable to satisfy on a
timely basis increasing requirements of the Company, the Company would be
materially adversely affected. Moreover, despite precautions taken by the
Company and Banta, the occurrence of natural disasters or other unanticipated
problems at its facilities to which it is susceptible, such as damage from
human error, fire, flood, power loss, telecommunications failure, sabotage,
intentional acts of vandalism and similar events could result in interruption
in the services provided by the Company. In addition, the success of the
Company's e-mail direct marketing campaigns is dependent upon the ability of
suppliers of the products and services that are the subject of such campaigns
to supply adequate amounts of inventory on a timely basis. In particular, the
Company relies upon Nimbus CD Manufacturing, Inc. ("Nimbus") to procure the
majority of the CD-ROMs, Digital Versatile Discs ("DVDs") and DVD-ROMs that
contain software, clip art and classic movies. The failure of Nimbus or such
other suppliers to meet their commitments would have a material adverse effect
on the Company's business, results of operations and financial condition.
SALES TAX COLLECTION
The Company does not currently collect sales or other similar taxes in
respect to shipments of goods into states other than California and New York.
However, one or more states or foreign countries may seek to impose sales tax
collection obligations on out-of-state or foreign companies such as the
Company which engage in online commerce. In addition, any new operation in
states outside California and New York could subject shipments into such
states to state or foreign sales taxes. A successful assertion by one or more
states or any foreign country that the Company should collect sales or other
similar taxes on the sale of merchandise could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. See "--Government Regulation And Legal Uncertainties."
MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT; DEPENDENCE
ON KEY PERSONNEL
The Company has experienced and may continue to experience rapid growth,
which has placed, and could continue to place, a significant strain on the
Company's managerial, financial and operational resources. The Company is
required to manage multiple relationships with various strategic partners,
technology licensors, members, advertisers and other third parties. These
requirements will be strained in the event of further growth
11
<PAGE>
of the Company or in the number of third party relationships, and there can be
no assurance that the Company's systems, procedures or controls will be
adequate to support the Company's operations or that Company management will
be able to manage any growth effectively. To effectively manage its potential
growth, the Company must continue to implement and improve its operational,
financial and management information systems and to expand, train and manage
its employee base. As of June 30, 1998, the Company's headcount had grown to
39 full-time employees from 4 as of March 31, 1997 and the Company anticipates
that the number of its employees will increase significantly in the next 12
months.
The Company's performance is substantially dependent on the performance of
its executive officers and other key employees, most of whom have worked
together only a short period of time. In particular, the Company's Chief
Financial Officer joined the Company in August 1998. In addition, the majority
of the Company's sales personnel have recently joined the Company, and there
can be no assurance that they will be successful in increasing the Company's
level of sales. The Company does not currently have "key person" life
insurance policies on any of its employees. The loss of the services of any of
its executive officers or other key employees could have a material adverse
effect on the business, results of operations and financial condition of the
Company. Competition for senior management, experienced media sales and
marketing personnel, qualified Web engineers and other employees is intense,
and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The Company has experienced
difficulty from time to time in hiring and retaining the personnel necessary
to support the growth of its business, and there can be no assurance that the
Company will not experience similar difficulty in the future. The failure of
the Company to successfully manage its personnel requirements would have a
material adverse effect on the Company's business, results of operations and
financial condition.
DEPENDENCE ON WEB INFRASTRUCTURE
The success of the Xoom site will depend in large part upon the continued
development of a Web infrastructure, such as a reliable network backbone with
the necessary speed, data capacity and security, and timely development of
complementary products such as high speed modems for providing reliable Web
access and services. Because global commerce and online exchange of
information on the Web and other similar open wide area networks are new and
evolving, it is difficult to predict with any assurance whether the Web will
support increasing use or will prove to be a viable commercial marketplace.
The Web has experienced, and is expected to continue to experience,
significant growth in the number of users and the amount of content. To the
extent that the Web continues to experience increased numbers of users,
frequency of use or increased bandwidth requirements of users, there can be no
assurance that the Web infrastructure will continue to be able to support the
demands placed on it by this continued growth or that the performance or
reliability of the Web will not be adversely affected by this continued
growth. In addition, the Web could lose its viability or effectiveness due to
delays and the development or adoption of new standards and protocols to
handle increased levels of activities or due to increased government
regulation. There can be no assurance that the infrastructure or complementary
products or services necessary to make the Web a viable commercial marketplace
will be developed, or, if they are developed, that the Web will achieve broad
acceptance. If the necessary infrastructure standards, protocols or
complementary products, services or facilities are not developed, the
Company's business, results of operations and financial condition will be
materially and adversely affected. Even if such infrastructure, standards or
protocols or complementary products, services or facilities are developed and
the Web becomes a viable commercial marketplace, there can be no assurance
that the Company will not be required to incur substantial expenditures in
order to adapt its services to changing Web technologies, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
The Company believes that establishing and maintaining the Xoom brand is
critical to attracting and expanding its member base and Web traffic and
advertising and commerce relationships. The Company believes that the
importance of brand recognition will increase due to the growing number of
Internet sites and the low
12
<PAGE>
barriers to entry. In order to attract and retain members, Internet users,
advertisers and commerce partners, and to promote and maintain the Xoom brand
in response to competitive pressures, the Company intends to increase
substantially its financial commitment to creating and maintaining distinct
brand loyalty among these groups, including Web advertising and marketing and
traditional media advertising campaigns in print, radio, billboards and
television. Promotion and enhancement of the Xoom brand will also depend, in
part, on the Company's success in providing a high-quality community
experience, which success cannot be ensured. If the Company does not generate
a corresponding increase in net revenue as a result of its branding efforts or
otherwise fails to promote its brand successfully, or if the Company incurs
excessive expenses in an attempt to promote and maintain its brand, the
Company's business, results of operations and financial condition, will be
materially and adversely affected. If members, visitors to the Xoom site,
advertisers or businesses do not perceive the Company's existing services to
be of high quality, or if the Company alters or modifies its brand image,
introduces new services or enters into new business ventures that are not
favorably received by such parties, the value of the Company's brand could be
diluted, thereby decreasing the attractiveness of its Web site to such
parties.
RAPID TECHNOLOGICAL CHANGE
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of its site and develop new
features to meet customer needs. Introducing new technology into the Company's
systems involves numerous technical challenges and substantial amounts of
personnel resources, and often times takes many months to complete. There can
be no assurance that the Company will be successful at integrating such
technology into its Web site on a timely basis or without degrading the
responsiveness and speed of its Web site or that, once integrated, such
technology will function as expected. In addition, the Internet is
characterized by rapid technological change, changes in user and customer
requirements and preferences, frequent new product and service introductions
and the emergence of new industry standards and practices that could render
the Company's existing Web site, technology and systems obsolete. The
Company's success will depend, in part, on its ability to license leading
technologies useful in its business, enhance its existing services, develop
new services and technology that address the needs of its customers, and
respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. If the Company is unable to
use new technologies effectively or adapt its Web site, proprietary technology
and transaction-processing systems to customer requirements or emerging
industry standards, it would be materially adversely affected.
SECURITY RISKS
The Company has experienced attempts by experienced programmers or "hackers"
to penetrate the Company's network security, some of which have succeeded, and
expects these attempts to continue to occur from time to time. If successful,
such actions could have a material adverse effect on the Company's business,
results of operations and financial condition. A party who is able to
penetrate the Company's network security could misappropriate proprietary
information or cause interruptions in the Company's Web site. The Company may
be required to expend significant capital and resources to protect against the
threat of such security breaches or to alleviate problems caused by such
breaches. Concerns over the security of Internet transactions and the privacy
of users may also inhibit the growth of the Internet generally, particularly
as a means of conducting commercial transactions. Security breaches or the
inadvertent transmission of computer viruses could expose the Company to a
risk of loss or litigation and possible liability. There can be no assurance
that contractual provisions attempting to limit the Company's liability in
such areas will be successful or enforceable, or that other parties will
accept such contractual provisions as part of the Company's agreements which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
RELIANCE ON ADVERTISING REVENUE; UNCERTAIN ADOPTION OF THE WEB AS AN
ADVERTISING MEDIUM
The Company has derived a material portion of its net revenue to date from
the sale of advertisements, including banner advertising revenue. For 1997 and
the six months ended June 30, 1998, advertising revenue
13
<PAGE>
represented 7% and 14%, respectively, of the Company's total net revenue.
During the six months ended June 30, 1998, the Company's five largest
advertising customers accounted for approximately 44% of advertising revenue
(approximately 6% of total net revenue). The Company's strategy is to continue
to emphasize advertising as a method of generating net revenue. The Internet
as a marketing and advertising medium has not been available for a sufficient
period of time to gauge its effectiveness as compared with traditional media.
Many of the Company's suppliers and advertisers have only limited experience
with the Web as a sales and advertising medium, and advertisers have not yet
devoted a significant portion of their advertising budgets to Web-based
advertising and may not find such advertising to be effective for promoting
their products and services relative to traditional print and broadcast media.
For 1997, advertising on the Web represented less than 0.5% of overall
advertising revenue in the United States according to industry sources. The
Company's ability to generate significant net revenue from advertising will
also depend on, among other things, the development of a large base of users
of the Company's services, the formulation of effective direct marketing
campaigns, the responsiveness of members to such campaigns, the acquisition of
members possessing demographic characteristics attractive to advertisers and
the ability of the Company to develop or acquire effective marketing and
advertising delivery and measurement systems.
The adoption of Web-based advertising, particularly by those entities that
have historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business and exchanging information.
Entities that already have invested substantial resources in other methods of
conducting business may be reluctant to adopt a new strategy that may limit or
compete with their existing efforts. There can be no assurance that the market
for Web advertising will continue to emerge or become sustainable. If the
market develops more slowly than expected, the Company's business, results of
operations and financial condition could be materially and adversely affected.
No standards have been widely accepted for the measurement of the
effectiveness of Web-based advertising, and there can be no assurance that
such standards will develop sufficiently to support the Web as an effective
advertising medium. There can be no assurance that advertisers will accept the
Company's or other third-party measurements of impressions, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, there is intense competition in the sale of
advertising on the Web resulting in a wide variety of pricing models, rate
quotes and advertising services, making it difficult to project future levels
of advertising revenue and rates. It is also difficult to predict which
pricing models, if any, will achieve broad acceptance among advertisers. The
Company has traditionally based its advertising rates on providing advertisers
with a guaranteed number of impressions, and any failure of the Company's
advertising model to achieve broad market acceptance would have a material
adverse effect on the Company's business, results of operations and financial
condition.
There can be no assurance that current advertisers will continue to purchase
advertising space and services from the Company at current levels or at all,
or that impressions sufficient to generate net revenue will be achieved, or
that the Company will be able to successfully attract additional advertisers.
Furthermore, with the rapid growth of available advertising space on the
Internet and the intense competition among sellers of such space, it is
difficult to project pricing models that will be adopted by the industry or
individual companies. The Company's ability to generate significant
advertising revenue will depend, in part, on the ability of the Company to
leverage additional platforms within its community for new advertising
programs without diluting the perceived value of its existing programs.
It is possible that in the future certain Internet access providers will act
to block or limit the use of e-mail direct marketing solicitations, whether at
their own behest or at the request of users. Members may also choose not to
receive e-mail offerings from the Company or may fail to respond to such
offerings. Either of these developments would have a material adverse effect
on the Company's ability to generate electronic commerce revenue. Moreover,
"filter" software programs that limit or remove advertising from a Web user's
desktop are available; and widespread adoption or increased use of such
software by users could have a material adverse effect upon the viability of
advertising on the Web and on the Company's business, results of operations
and financial condition. There can be no assurance that the Company will be
successful in generating significant future direct marketing or advertising
revenue or other sources of net revenue, and any failure to do so would have a
material adverse effect on the Company's business, results of operations and
financial condition.
14
<PAGE>
INTENSE COMPETITION
The market for community-based direct selling channels on the Internet is
new and rapidly evolving, and competition for members, consumers, visitors and
advertisers is intense and is expected to increase significantly in the
future. Barriers to entry are relatively insubstantial. The Company believes
that the principal competitive factors for companies seeking to create
communities on the Internet are critical mass, functionality, brand
recognition, member affinity and loyalty, broad demographic focus and open
access for visitors. Other companies who are primarily focused on creating
Web-based communities on the Internet and with whom the Company competes are
Tripod, Inc., a subsidiary of Lycos, Inc. ("Tripod"), GeoCities ("GeoCities"),
WhoWhere Inc. ("WhoWhere") (through the WhoWhere and Angelfire Web sites) and
theglobe.com, Inc. ("theglobe"). The Company could also face competition in
the future from Web directories, search engines, shareware archives, content
sites, commercial online service providers ("OSPs"), sites maintained by
Internet service providers ("ISPs"), traditional media companies and other
entities that attempt to or establish communities on the Internet by
developing their own community or acquiring one of the Company's competitors.
Further, there can be no assurance that the Company's competitors and
potential competitors will not develop communities that are equal or superior
to those of the Company or that achieve greater market acceptance than the
Company's communities. The Company also competes for visitors with many
Internet content providers and ISPs, including Web directories, search
engines, shareware archives, content sites, commercial online services and
sites maintained by ISPs, as well as thousands of Internet sites operated by
individuals and government and educational institutions. These competitors
include free information, search and content sites or services, such as
America Online, Inc. ("AOL"), CNET, Inc. ("CNET"), CNN/Time Warner, Inc.
("CNN/Time Warner"), Excite, Inc. ("Excite"), Infoseek Corporation
("Infoseek"), Lycos, Inc. ("Lycos"), Netscape Communications Corporation
("Netscape"), Microsoft Corporation ("Microsoft") and Yahoo! Inc. ("Yahoo!").
The Company also competes with many companies for advertisers, including those
companies with whom the Company competes for visitors as well as traditional
forms of media such as newspapers, magazines, radio and television. The
Company believes that the principal competitive factors in attracting
advertisers include the amount of traffic on its Web site, brand recognition,
customer service, the demographics of the Company's members and viewers, the
Company's ability to offer targeted audiences and the overall cost-
effectiveness of the advertising medium offered by the Company. The Company
believes that the number of Internet companies that obtain revenue from Web-
based advertising will increase substantially in the future. Accordingly, the
Company will likely face increased competition, resulting in increased pricing
pressures on its advertising rates which could in turn have a material adverse
effect on the Company's business, results of operations and financial
condition.
The Company also expects to encounter intense competition in the online
commerce market. The Company currently or potentially competes with a variety
of other companies. These competitors include various traditional computer
retailers including CompUSA, Inc. ("CompUSA") and Micro Electronics, Inc.'s
MicroCenter ("MicroCenter"), various mail-order retailers including CDW
Computer Centers, Inc. ("CDW"), Micro Warehouse, Inc. ("MicroWarehouse"),
Insight Enterprises, Inc. ("Insight"), PC Connection, Inc. ("PC Connection")
and Creative Computers, Inc. ("Creative Computers"), various Internet-focused
retailers including Amazon.com, Inc. ("Amazon.com"), Egghead, Inc.'s
Egghead.com (Egghead.com), software.net Corporation ("software.net"), and New
England Circuit Sales, Inc.'s NECX Direct ("NECX Direct"), various
manufacturers that sell directly over the Internet including Dell Computer
Corporation ("Dell"), Gateway 2000, Inc. ("Gateway"), Apple Computer, Inc.
("Apple") and many software companies, a number of online service providers
including AOL and the Microsoft Network that offer computer products directly
or in partnership with other retailers, some non-computer retailers such as
Wal-Mart Stores, Inc. ("Wal-Mart") that sell a limited selection of computer
products in their stores and computer products distributors which may develop
direct channels to the consumer market. Increased competition from these and
other sources could require the Company to respond to competitive pressures by
establishing pricing, marketing and other programs or seeking out additional
strategic alliances or acquisitions which may be less favorable to the Company
than would otherwise be established or obtained, and thus could have a
material adverse effect on the business, prospects, financial condition and
results of operations of the Company.
15
<PAGE>
Many of the Company's existing and potential competitors, including Web
directories and search engines and large traditional media companies, have
longer operating histories in the Web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than the Company. Such competitors are able to undertake more
extensive marketing campaigns for their brands and services, adopt more
aggressive advertising pricing policies and make more attractive offers to
potential employees, distribution partners, commerce companies, advertisers
and third-party content providers. There can be no assurance that Internet
content providers and ISPs, including Web directories, search engines,
shareware archives, sites that offer professional editorial content,
commercial online services and sites maintained by ISPs will not be perceived
by advertisers as having more desirable Web sites for placement of
advertisements. In addition, substantially all of the Company's current
advertising customers and strategic partners also have established
collaborative relationships with certain of the Company's competitors or
potential competitors, and other high-traffic Web sites. Accordingly, there
can be no assurance that the Company will be able to grow its membership base,
traffic levels and advertiser customer base at historical levels or retain its
current members, traffic levels or advertiser customers, or that competitors
will not experience greater growth in traffic than the Company as a result of
such relationships which could have the effect of making their Web sites more
attractive to advertisers, or that the Company's strategic partners will not
sever or elect not to renew their agreements with the Company. There can also
be no assurance that the Company will be able to compete successfully against
its current or future competitors or that competition will not have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Competition."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
For the six months ended June 30, 1998, approximately 36% of the Company's
total net revenue was derived from sales outside the United States. A part of
the Company's strategy is to continue to grow the Xoom community model in
international markets. There can be no assurance that acceptance of the
Internet or the Company's community model will continue to expand
significantly in any international markets. If net revenue from international
operations is not adequate to cover the investments in such activities, the
Company's business, results of operations and financial condition could be
materially and adversely affected. The Company may experience difficulty in
managing international operations as a result of difficulty in locating an
effective foreign partner, competition, technical problems, distance and
language and cultural differences, and there can be no assurance that the
Company or its international partners will be able to successfully market and
operate the Company's community model in foreign markets. The Company also
believes that in light of substantial anticipated competition, it will be
necessary to move quickly into international markets in order to effectively
obtain market share, and there can be no assurance that the Company will be
able to do so. There are certain risks inherent in doing business on an
international level, such as unexpected changes in regulatory requirements,
trade barriers, difficulties in staffing and managing foreign operations,
fluctuations in currency exchange rates, longer payment cycles in general,
problems in collecting accounts receivable, difficulty in enforcing contracts,
political and economic instability, seasonal reductions in business activity
in certain other parts of the world and potentially adverse tax consequences.
There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's future international operations and,
consequently, on the Company's business, results of operations and financial
condition.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISKS OF INFRINGEMENT; LIABILITY
FOR ONLINE CONTENT
The Company regards its technology as proprietary and attempts to protect it
by relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. The
Company currently has no patents or patents pending and does not anticipate
that patents will become a significant part of the Company's intellectual
property in the foreseeable future. The Company also generally enters into
confidentiality or license agreements with its employees and consultants, and
generally controls access to and distribution of its documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's proprietary
information without authorization or to develop similar technology
independently. The Company pursues the
16
<PAGE>
registration of its trademarks and service marks in the United States and
internationally, and has applied for registration in the United States and
certain other countries for a number of its trademarks and service marks,
including "Xoom" and the Xoom "X-in-circle" logo. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which the Company's services are distributed or made available
through the Internet, and policing unauthorized use of the Company's
proprietary information is difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of the Company. There can be no
assurance that the steps taken by the Company have prevented or will prevent
misappropriation or infringement of its proprietary information. Any such
infringement or misappropriation, should it occur, might have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation might result in substantial costs and diversion of
resources and management attention and could have a material adverse effect on
the Company's business, results of operations and financial condition.
There can be no assurance that the Company's business activities will not or
have not infringed upon the proprietary rights of others, or that other
parties will not assert infringement claims against the Company. From time to
time, the Company has been, and expects to continue to be, subject to claims
in the ordinary course of its business including claims of alleged
infringement of the trademarks, service marks and other intellectual property
rights of third parties by the Company and the content generated by its
members. Such claims and any resultant litigation, should it occur, might
subject the Company to significant liability for damages and might result in
invalidation of the Company's proprietary rights and even if not meritorious,
could be time consuming and expensive to defend and could result in the
diversion of management time and attention, any of which might have a material
adverse effect on the Company's business, results of operations and financial
condition. In January 1998, Xoom became aware that Imageline, Inc.
("Imageline"), a Virginia corporation, claimed to own the copyright in certain
images that an unrelated third party had licensed to Xoom. See "--Legal
Proceedings" and "Business--Legal Proceedings."
The Company currently licenses from third parties certain technologies
incorporated into the Company's Web site. As it continues to introduce new
services that incorporate new technologies, it may be required to license
additional technology from others. There can be no assurance that these third-
party technology licenses will continue to be available to the Company on
commercially reasonable terms, if at all. The inability of the Company to
obtain any of these technology licenses could result in delays or reductions
in the introduction of new services or could adversely affect the performance
of its existing services until equivalent technology is identified, licensed
and integrated.
The Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no
assurance that such licensees will not take actions that might materially
adversely affect the value of the Company's proprietary rights or reputation,
which could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. There can be no
assurance that the steps taken by the Company to protect its proprietary
rights will be adequate, or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks and similar proprietary
rights.
In addition, the Company believes that its success to date and its future
success will depend in part upon its ability to provide reviews and other
information about the products that it sells. As an online publisher, the
Company may face potential liability for copyright, trademark or patent
infringement, defamation or other claims based on the nature and content of
materials that the Company publishes or distributes. Defending such claims, or
liability arising out of such claims, could have a material adverse effect on
the Company. Moreover, because
17
<PAGE>
of the interconnectivity currently provided on the Company's Web site, and
because the Company expects to greatly expand such interconnectivity in the
future, the Company could be exposed to liability with respect to content that
it does not control on member Web sites, in member chat rooms and from other
services available currently or in the future. Insurance carried by the
Company may not be sufficient to offset liability arising from these types of
liabilities, and any liability in excess of such coverage could have a
material adverse effect on the Company. See "Business--Intellectual Property
And Proprietary Rights."
LEGAL PROCEEDINGS
Xoom acquires rights to license and distribute software clips, including
clip art, and movies from third parties. In June 1997, Sprint Software Pty Ltd
("Sprint"), an Australian company, licensed to Xoom certain clip art. In
January 1998, Xoom became aware that Imageline claimed to own the copyright in
certain images that Sprint had licensed to Xoom. Some clip art images that
Imageline alleged infringed Imageline's copyright were included by Xoom in
versions of Xoom's Web Clip Empire product and licensed by Xoom to third
parties, including other software clip publishers. Xoom's contracts with such
publishers require Xoom to indemnify the publisher if copyrighted material
licensed from Xoom infringes a copyright. Xoom and Imageline have engaged in
discussions, but were unable to reach any agreement regarding a resolution of
this matter. On August 27, 1998 Xoom filed a lawsuit in the United States
District Court for the Eastern District of Virginia against Imageline, certain
parties affiliated with Imageline, and Sprint regarding Xoom's and its
licensees' alleged infringement on Imageline's copyright in certain clip art
that Xoom licensed from Sprint. The lawsuit seeks, among other relief,
disclosure of information from Imageline concerning the alleged copyright
infringement, a declaratory judgement concerning the validity and
enforceability of Imageline's copyrights and copyright registrations, a
declaratory judgement regarding damages, if any, owed by Xoom to Imageline,
and indemnification from Sprint for damages, if any, owed by Xoom to
Imageline.While the Company is seeking indemnification from Sprint for
damages, there can be no assurance that Sprint will be able to fulfill the
indemnity obligations under its license agreement with Xoom. There can be no
assurance as to the outcome of the claims asserted by Imageline and the
related litigation. Such claims or litigation could result in a decision
adverse to the Company. A decision adverse to the Company in any of these
matters could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, litigation,
regardless of its merits could result in substantial costs to the Company and
divert management's attention from the Company's operations. In light of the
Imageline claim and the resulting litigation the Company is evaluating it
policies and procedures regarding its licensing and distribution of software
clips. There can be no assurance that third parties will not assert
infringement claims against the Company. Any misappropriation or infringement
could result in litigation which could have a material adverse effect on the
Company's business, results of operations and financial condition. See "--
Dependence On Intellectual Property Rights; Risks Of Infringement; Liability
For Online Content."
RISKS ASSOCIATED WITH ACQUISITIONS
Since March 1998, the Company has acquired three businesses: Paralogic
Corporation ("Paralogic"), Global Bridges Technologies, Inc. ("Global
Bridges") and Pagecount, Inc. ("Pagecount"). The Company has also entered into
an exclusive perpetual license with ArcaMax, Inc. ("ArcaMax") for Greetings
Online, a free online greeting card service and purchased certain assets of
Revolutionary Software, Inc. ("Revolutionary Software"). The Company's future
performance will in part depend on its ability to integrate these acquisitions
and leverage them into additional traffic, members or sources of revenue.
Acquisitions involve numerous risks and uncertainties, including adverse
effects on the Company's reported results of operations from acquisition-
related charges and amortization of goodwill and purchased technology, the
inability of the Company to maintain customers or goodwill of an acquired
business, difficulties in the integration of operations, personnel,
technologies, products and the information systems of the acquired companies,
diversion of management's attention from other business concerns, risks of
entering geographic and business markets in which the Company has no or
limited prior experience and potential loss of key employees of acquired
organizations. The Company is currently facing all of these challenges with
respect to its acquisitions and its ability to meet them over the long term
has not been established. As a result, there can be no assurance that the
Company will be able to
18
<PAGE>
integrate the acquired businesses or otherwise successfully leverage the
acquisitions into additional traffic, members or sources of revenue. Such
failure would have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company's past acquisitions have been accounted for using the purchase
method of accounting. Because most Internet business acquisitions involve the
purchase of significant amounts of intangible assets, acquisitions of such
businesses also result in goodwill and purchased technology and significant
charges for purchased in-process research and development. For example, as a
result of the acquisitions of Paralogic and Pagecount, as well as the purchase
of certain assets of Revolutionary Software, as of July 31, 1998, the Company
had incurred charges relating to purchased in-process research and development
of approximately $1.2 million for 1998 and has recorded an aggregate of $5.9
million in goodwill and purchased technology. In addition, certain of the
Company's acquisition agreements contain provisions that allow for the
issuance of additional shares of Common Stock or cash. Specifically, in
connection with the acquisition of Global Bridges, the Company has issued
25,956 shares of Common Stock. In addition, upon the completion of the
Offering, the Company is required to issue Common Stock at the Offering price
with an aggregate value of $200,000, together with $130,000 in cash. In
connection with the Company's purchase of certain assets of Revolutionary
Software, the Company has issued 51,912 shares of Common Stock. In addition,
upon the completion of the Offering, the Company is required to issue Common
Stock at the Offering price with an aggregate value of $400,000, together with
an additional cash consideration of $260,000. As part of the license agreement
entered into with ArcaMax, a payment of approximately $180,000 will be payable
within ten days of the completion of the Offering. See "Use of Proceeds." If
the Company were to incur additional charges for purchased in-process research
and development and amortization of goodwill and other intangible assets with
respect to future acquisitions, the Company's business, results of operations
and financial condition would be materially adversely affected.
As part of its business strategy, the Company may make acquisitions of
complementary businesses, products or technologies. The successful
implementation of this strategy depends on the Company's ability to identify
suitable acquisition candidates, acquire such companies on acceptable terms,
integrate their operations or technologies successfully, and retain customers
and maintain the goodwill of the acquired business. There can be no assurance
that the Company will be able to identify additional suitable acquisition
candidates, acquire any such candidates on acceptable terms, integrate their
operations or technologies successfully, or retain customers or maintain the
goodwill of the acquired business, particularly in light of the Company's own
limited operating experience. Moreover, the Company may compete for
acquisition targets with other companies with similar growth strategies. Some
of these competitors may be larger and have greater financial and other
resources than the Company. Competition for these acquisition targets likely
could also result in increased prices of acquisition targets and a diminished
pool of companies available for acquisition. If the Company chooses to use a
material amount of cash for acquisition consideration, the Company may be
required to obtain additional financing, and there can be no assurance that
such financing will be available on favorable terms, if at all. In addition,
if the Company issues equity securities as consideration for any future
acquisitions, stockholders will experience further ownership dilution and such
equity securities could have preferences, privileges or other rights superior
to those of the Common Stock. In addition, the Company would likely face the
same integration issues described above with respect to the Paralogic, Global
Bridges and Pagecount. Due to all of the foregoing, the Company's execution of
an acquisition strategy or any individual completed or future acquisition may
have a material adverse effect on the Company's business, results of
operations and financial condition.
RELIANCE ON STRATEGIC RELATIONSHIPS
Although the Company views its strategic relationships as a key factor in
its overall business strategy, there can be no assurance that its strategic
partners will view their relationships with the Company as significant to
their own business or that they will not reassess their commitment to the
Company in the future. There can be no assurance that any party to a strategic
alliance agreement with the Company will perform its obligations as agreed or
that any strategic agreement would be specifically enforceable by the Company.
The Company's arrangements with its strategic partners generally do not
establish minimum performance requirements for the
19
<PAGE>
Company's strategic partners but instead rely on their voluntary efforts. In
addition, most of the Company's agreements with its strategic partners may be
terminated by either party with little notice. Therefore, there can be no
assurance that these relationships will be successful. In the event that a
strategic relationship is discontinued for any reason, the Company's business,
results of operations and financial condition may be materially adversely
affected.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. The Company is currently engaged in a two-phase process to
evaluate its internal status with respect to the Year 2000 issue. In the first
phase, which the Company expects to complete in the first quarter of 1999, the
Company is conducting an evaluation of its systems, including both information
technology ("IT") systems and non-IT systems such as hardware containing
embedded technology, for Year 2000 compliance. The Company has completed a
significant portion of this phase to date, and systems that have been
evaluated are either Year 2000 compliant or are expected to be made compliant
at an immaterial cost to the Company. Although the Company does not expect
that the impact of the Year 2000 issue will be material in systems still under
evaluation, there can be no assurance that the Company will not discover Year
2000 issues in the course of its evaluation process that would have a material
adverse effect on the business, results of operations or financial condition
of the Company.
Phase two of the process, which is expected to be completed during the third
quarter of 1999, will involve taking any needed corrective action to bring
systems into compliance and to develop a contingency plan in the event any
non-compliant critical systems remain by January 1, 2000. As part of this
phase, the Company will attempt to quantify the impact, if any, of the failure
to complete any necessary corrective action. Although the Company cannot
currently estimate the magnitude of such impact, if systems material to the
Company's operations have not been made Year 2000 compliant upon completion of
this phase, the Year 2000 issue could have a material adverse effect on the
Company's business, results of operations and financial condition.
To date, the costs incurred by the Company with respect to this process have
not been material. Future costs will remain difficult to estimate until the
completion of phase one; however, the Company does not currently anticipate
that such costs will be material.
Concurrently with the two-phase analysis of its internal systems, the
Company will survey third-party entities with which the Company transacts
business, including critical vendors and financial institutions, for Year 2000
compliance. The Company expects to commence this survey in the fourth quarter
of 1998 and complete this survey in the second quarter of 1999. At this time
the Company cannot estimate the effect, if any, that non-compliant systems at
these entities could have on the business, results of operations or financial
condition of the Company, and there can be no assurance that the impact, if
any, would not be material. See "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations--Year 2000 Compliance."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there
are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use of
the Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations,
and it is possible that a number of laws or regulations may be adopted with
respect to the Internet relating to such issues as user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership. The adoption of any such laws or regulations may decrease
the growth in the use of the Internet, which could in turn decrease the demand
for the Company's community, increase the
20
<PAGE>
Company's cost of doing business, or otherwise have a material adverse effect
on the Company's business, results of operations and financial condition.
Moreover, the applicability to the Internet of existing laws governing issues
such as property ownership, copyright, trademark, trade secret, obscenity,
libel and personal privacy is uncertain and developing. Any new legislation or
regulation, or application or interpretation of existing laws, could have a
material adverse effect on the Company's business, results of operations and
financial condition. Legislation like the recently enacted Communications
Decency Act (the "CDA") could hamper the growth in use of the Web generally
and decrease the acceptance of the Web as a communications and commercial
medium, and could, thereby, have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, a number
of proposals have been made at the federal, state and local level that would
impose additional taxes on the sale of goods and services over the Internet
and certain states have taken measures to tax Internet-related activities.
Currently, Congress is considering various legislative proposals the enactment
of which would place a moratorium of a number of years on any new taxation of
Internet commerce. There can be no assurance that any such legislation will be
adopted by Congress or that new taxes will not be imposed upon Internet
commerce after any moratorium adopted by Congress expires or that current
attempts at taxing or regulating commerce over the Internet would not
substantially impair the growth of commerce and as a result adversely affect
the Company's opportunity to derive financial benefit from such activities.
Even if a moratorium is in place with respect to the United States, there can
be no assurance that foreign countries will not also seek to tax Internet
transactions. Particularly because a substantial portion of the Company's net
revenues is derived from international sales, any such taxes would have a
material adverse effect on the Company's business, results of operations and
financial condition.
Several telecommunications carriers are seeking to have telecommunications
over the Web regulated by the Federal Communications Commission (the "FCC") in
the same manner as other telecommunications services. In addition, because the
growing popularity and use of the Web has burdened the existing
telecommunications infrastructure and many areas with high Web use have begun
to experience interruptions in phone service, local telephone carriers, such
as Pacific Bell, have petitioned the FCC to regulate ISPs and OSPs in a manner
similar to long distance telephone carriers and to impose access fees on the
ISPs and OSPs. If either of these petitions is granted, or the relief sought
therein is otherwise granted, the costs of communicating on the Web could
increase substantially, potentially slowing the growth in use of the Web,
which could in turn decrease demand for the Company's community or increase
the Company's cost of doing business.
Due to the global nature of the Web, it is also possible that, although
transmissions by the Company over the Internet originate primarily in the
State of California, the governments of other states and foreign countries
might attempt to regulate the Company's transmissions or prosecute the Company
for violations of their laws. There can be no assurance that violations of
local laws will not be alleged or charged by state or foreign governments,
that the Company might not unintentionally violate such laws or that such laws
will not be modified, or new laws enacted, in the future. Any of the foregoing
developments could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, as the Company's
products and services are available over the Internet in multiple states and
foreign countries, such jurisdictions may claim that the Company is required
to qualify to do business as a foreign corporation in each such state or
foreign country. The Company is qualified to do business only in California
and New York, and failure by the Company to qualify as a foreign corporation
in a jurisdiction where it is required to do so could subject the Company to
taxes and penalties and could result in the inability of the Company to
enforce contracts in such jurisdictions. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business, or the application of
existing laws and regulations to the Internet and other online services could
have a material adverse effect on the Company's business, results of
operations and financial condition.
The Federal Trade Commission (the "FTC") is considering regulation regarding
the collection and use of personal identifying information obtained from
individuals, including children, when accessing Web sites, such as the
Company's. Such regulation may include a requirement that companies establish
certain procedures to, among other things: (i) give adequate notice to
consumers regarding information collection and disclosure
21
<PAGE>
practices, (ii) provide consumers with the ability to have personal
identifying information deleted from a company's database, (iii) clearly
identify affiliations or lack thereof with third parties which may collect
information or sponsor activities on a company's Web site, and (iv) obtain
express parental consent prior to collecting and using personal identifying
information obtained from children under 13 years of age. While the Company
has implemented or intends to implement programs designed to enhance the
protection of the privacy of its members, including children, there can be no
assurance that such programs will conform with any regulation adopted by the
FTC. Moreover, even in the absence of such regulation, the FTC has begun
investigations into the privacy practices of companies that collect
information on the Internet. One such investigation has resulted in a consent
decree pursuant to which an Internet company has agreed to establish programs
to implement the four principles noted above. There can be no assurance that
the Company will not become subject to such an investigation, or that the
FTC's regulatory and enforcement efforts will not adversely affect the
Company's ability to collect demographic and personal information from
members, which could have an adverse effect on its ability to target product
offerings and attract advertisers. Any such developments would have a material
adverse effect on the Company's business, results of operations and financial
condition.
In addition, at the international level, the European Union (the "EU") has
adopted a directive (the "Directive") that will impose restrictions on the
collection and use of personal data, effective October 1998. The Directive
could, among other things, affect U.S. companies that collect information over
the Internet from individuals in EU member countries, and may impose
restrictions that are more stringent than current Internet privacy standards
in the United States. There can be no assurance that the Directive will not
adversely affect the activities of entities such as the Company that engage in
data collection from users in EU member countries.
Because materials may be downloaded by members and other users of the
Company's Web site and subsequently distributed to others, there is a
potential that claims will be made against the Company for defamation,
negligence, copyright or trademark infringement, personal injury or other
theories based on the nature, content, publication and distribution of such
materials. Such claims have been brought, sometimes successfully, against OSPs
in the past. The Company has received inquiries on a regular basis from third
parties regarding such matters, including the claim made by Imageline. See "--
Dependence On Intellectual Property Rights; Risks Of Infringement; Liability
For Online Content." In addition, the increased attention focused upon
liability issues as a result of these lawsuits and legislative proposals could
impact the overall growth of Internet use. The Company could also be exposed
to liability with respect to the offering of third party content that may be
accessible through the Company's Web site, or through content and materials
that may be posted by members on their personal Web sites or chat rooms, or
bulletin boards offered by the Company. Such claims might include, among
others, that by directly or indirectly providing hyperlink text links to Web
sites operated by third parties, the Company is liable for copyright or
trademark infringement or other wrongful actions by such third parties through
such Web sites. It is also possible that if any third-party content
information provided on the Company's Web site contains errors, third parties
could make claims against the Company for losses incurred in reliance on such
information. The Company also offers e-mail services, which exposes the
Company to potential risk, such as liabilities or claims resulting from
unsolicited e-mail (spamming), lost or misdirected messages, illegal or
fraudulent use of e-mail or interruptions or delays in e-mail service. Even to
the extent such claims do not result in liability to the Company, the Company
could incur significant costs in investigating and defending against such
claims. The imposition on the Company of potential liability for information
carried on or disseminated through its systems could require the Company to
implement measures to reduce its exposure to such liability, which may require
the expenditure of substantial resources and limit the attractiveness of the
Company's services to members and users. Although the Company carries general
liability insurance, the Company's insurance may not cover all potential
claims to which it is exposed or may not be adequate to indemnify the Company
for all liability that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the increased attention focused upon
liability issues as a result of these lawsuits and legislative proposals could
impact the overall growth of Internet use.
22
<PAGE>
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market for the Common Stock
will develop or be sustained following the closing of the Offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price, which may bear no
relationship to the price at which the Common Stock will trade upon completion
of the Offering, will be determined by negotiations between the Company and
the representatives of the Underwriters based upon factors that may not be
indicative of future market performance. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price.
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to variations in the Company's quarterly results of
operations, the gain or loss of significant advertisers, changes in earnings
estimates by analysts, announcements of technological innovations or new
solutions by the Company or its competitors, general conditions in the
technology and Internet sectors and in Internet-related industries, other
matters discussed elsewhere in this section of the Prospectus and other events
or factors, many of which are beyond the Company's control. In addition, the
stock market in general and the technology and Internet sectors in particular
have experienced extreme price and volume fluctuations which have affected the
market price for many companies in industries similar or related to that of
the Company and which have been unrelated to the operating performance of
these companies. These market fluctuations, as well as general economic,
political and market conditions, may have a material adverse effect on the
market price of the Company's Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such companies. Such
litigation, if instituted, and irrespective of the outcome of such litigation,
could result in substantial costs and a diversion of management's attention
and resources and have a material adverse effect on the Company's business,
results of operations and financial condition.
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, the directors, executive officers and
principal stockholders of the Company and their respective affiliates will, in
the aggregate, beneficially own approximately % of the outstanding Common
Stock ( % if the Underwriters' over-allotment option is exercised in full).
As a result, these stockholders will possess significant influence over the
Company, giving them the ability, among other things, to elect a majority of
the Company's Board of Directors and approve significant corporate
transactions. Such share ownership and control may also have the effect of
delaying or preventing a change in control of the Company, impeding a merger,
consolidation, takeover or other business combination involving the Company or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company which could have a material
adverse effect on the market price of the Company's Common Stock.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that the net proceeds of the Offering,
together with a line of credit currently being negotiated, and available funds
will be sufficient to meet its anticipated needs for working capital and
capital expenditures for at least the next 12 months. The Company may need to
raise additional funds in the future in order to fund more aggressive brand
promotions and more rapid expansion, to develop newer or enhanced services, to
respond to competitive pressures or to acquire complementary businesses,
technologies or services. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of the
stockholders of the Company will be reduced, stockholders may experience
additional dilution and such securities may have rights, preferences or
privileges senior to those of the rights of the Company's Common Stock. There
can be no assurance that additional financing will be available on terms
favorable to the Company, or at all. If adequate funds are not available or
not available on acceptable terms, the Company may not be able to fund its
expansion, promote its brand as the Company desires, take advantage of
unanticipated acquisition opportunities, develop or enhance services or
respond to competitive pressures. Any such inability could have a material
adverse effect on the Company's business, results of operations and financial
condition.
23
<PAGE>
INTRODUCTION OF EURO
Beginning in January 1999, a new currency called the "euro" is scheduled to
be introduced in certain European countries that are part of the Economic and
Monetary Union ("EMU"). During 2002, all EMU countries are expected to be
operating with the euro as their single currency. A significant amount of
uncertainty exists as to the effect the euro will have on the marketplace.
Additionally, all of the final rules and regulations have not yet been defined
and finalized by the European Commission with regard to the euro currency. The
Company is assessing the effect the euro introduction will have on its
internal systems and the sale of its products. The Company expects to take
appropriate actions based on the results of such assessment. The Company has
not yet determined the costs of addressing this issue and there can be no
assurance that this issue and its related costs will not have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion And Analysis Of Financial Condition
And Results Of Operations--Impact Of Euro Introduction."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAWS; POSSIBLE ISSUANCE OF
PREFERRED STOCK
Following the closing of the Offering, the Company's Board of Directors will
have the authority to issue up to 1,000,000 shares of Preferred Stock without
any further vote or action by the stockholders, and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
such shares. The rights of the holders of Common Stock would be subject to,
and may be adversely affected by, the rights of the holders of any such
Preferred Stock. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids of the Company's Common Stock at a premium over the market
price of the Common Stock, and may adversely affect the market price of, and
the voting and other rights of, the Common Stock. The Company has no current
plans to issue shares of Preferred Stock. In addition, certain provisions of
the Company's Certificate of Incorporation and Bylaws will have the effect of
delaying, deferring or preventing a change of control of the Company. These
provisions provide, among other things, that stockholders may not take actions
by written consent and that the ability of stockholders to call special
meetings will be restricted. In addition, the Company will be subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which will prohibit the Company from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The Company's
indemnification agreements, Certificate of Incorporation and Bylaws provide
that the Company will indemnify officers and directors against losses that
they may incur in investigations and legal proceedings resulting from their
services to the Company, which may be broad enough to include services in
connection with takeover defense measures. Such provisions may have the effect
of preventing changes in the management of the Company. See "Description Of
Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of Common Stock in the public market after the
Offering or the perception that such sales will occur could materially and
adversely affect the market price of the Common Stock or the future ability of
the Company to raise capital through an offering of its equity securities. Of
the shares of Common Stock to be outstanding upon the closing of the
Offering (assuming no exercise of the Underwriters' over-allotment option),
the shares offered hereby will be eligible for immediate sale in the
public market without restriction, unless the shares are purchased by
"affiliates" of the Company within the meaning of Rule 144 promulgated under
the Securities Act. The remaining 13,465,363 shares of Common Stock held by
existing stockholders upon the closing of the Offering (based on the number of
shares of Common Stock outstanding as of June 30, 1998) will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act. The Company's directors, officers,
stockholders and holders of options to purchase Common Stock have agreed that
they will not sell, directly or indirectly, any Common Stock without the prior
written consent of Bear, Stearns & Co. Inc. for a period of 180 days from the
date of this Prospectus. Bear, Stearns & Co. Inc. may however, in its sole
discretion
24
<PAGE>
and at anytime without notice, release all or any portion of the shares
subject to lock-up agreements. Subject to the provisions of Rules 144, 144(k)
and 701, shares will be eligible for sale 180 days after the date of this
Prospectus upon the expiration of the lock-up agreements.
The Company intends to file, as of the date of this Prospectus, Form S-8
registration statements under the Securities Act to register all shares of
Common Stock issuable pursuant to outstanding options and all shares of Common
Stock reserved for issuance under the Company's 1998 Plan and Stock Purchase
Plan. Such registration statements are expected to become effective
immediately upon filing, and shares covered by those registration statements
will thereupon be eligible for sale in the public markets, subject to the
lock-up agreements described above and Rule 144 limitations applicable to
affiliates. As of June 30, 1998, there were outstanding options to purchase up
to 2,457,542 shares of Common Stock which will be eligible for sale in the
public market following the Offering from time to time subject to becoming
exercisable and the expiration of the lock-up agreements, and an additional
2,892,180 shares of Common Stock reserved for issuance under the Company's
1998 Plan and Stock Purchase Plan. See "Shares Eligible For Future Sale."
BROAD DISCRETION IN USE OF PROCEEDS
The Company intends to use a portion of the net proceeds of the Offering to
repay a note issued in connection with the Pagecount acquisition in the
principal amount of $1.2 million and to pay the remaining balance of
approximately $180,000 due under the license agreement with ArcaMax, which
payment is due and payable within ten days of the completion of the Offering.
The remaining net proceeds of the Offering will be used for general corporate
purposes, including working capital, capital expenditures and potential
acquisitions. As of the date of this Prospectus, the Company cannot specify
with certainty the particular uses for the majority of the net proceeds to be
received upon completion of the Offering. Accordingly, the Company's
management will have broad discretion in the application of the net proceeds.
The failure of management to apply such funds effectively could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Use Of Proceeds."
DILUTION; ABSENCE OF DIVIDENDS
Investors purchasing shares of Common Stock in the Offering will incur
immediate and substantial dilution in net tangible book value per share of the
Common Stock from the initial public offering price in the amount of $ per
share (based upon an assumed initial offering price of $ per share). To the
extent outstanding options or warrants to purchase Common Stock are exercised,
there will be further dilution. In addition, the Company does not anticipate
paying any cash dividends in the foreseeable future. See "Dividend Policy" and
"Dilution."
25
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby are estimated to be approximately $
(approximately $ if the Underwriters' over-allotment option is
exercised in full) at an assumed initial public offering price of $ per
share, and after deducting the estimated underwriting discount and offering
expenses. The primary purposes of the Offering are to obtain additional
capital, create a public market for the Company's Common Stock and facilitate
future access by the Company to public equity markets.
The Company intends to use a portion of the net proceeds to repay a note
payable issued in connection with the Pagecount acquisition in the principal
amount of $1.2 million, which bears interest at a rate of seven percent (7%)
per annum compounded monthly, and which is payable in full upon the Closing of
the Offering, and to pay the remaining balance of approximately $180,000 due
under the license agreement with ArcaMax, which payment is due and payable
within ten days of the completion of the Offering. The remainder of the net
proceeds shall be used for general corporate purposes, including working
capital, capital expenditures and potential acquisitions. The amounts actually
expended by the Company for such purposes may vary significantly and will
depend on a number of factors, including the amount of the Company's future
revenue and cash generated by operations and the other factors described under
"Risk Factors." Accordingly, the Company's management will retain broad
discretion in the allocation of the net proceeds of the Offering. A portion of
the net proceeds may also be used to acquire or invest in complementary
businesses, technologies or product offerings. In the ordinary course of
business, the Company evaluates potential acquisitions of such businesses,
technologies and product offerings. However, the Company has no current
agreements or commitments with respect to any such acquisitions. Pending such
uses, the net proceeds of the Offering will be invested in short-term,
interest-bearing, investment grade securities. See "Risk Factors--Risks
Associated With Potential Acquisitions" and "Broad Discretion In Use Of
Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock to date and does not anticipate paying any cash dividends on its capital
stock in the foreseeable future.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 (i) on an actual basis; (ii) pro forma to reflect certain adjustments
related to the acquisition of Pagecount as if it occurred on June 30, 1998;
and (iii) on an as adjusted basis to give effect to the assumed exercise of
all outstanding warrants for shares of Common Stock prior to the closing of
the Offering, the sale of the shares of Common Stock offered hereby at
an assumed initial public offering price of $ per share, the issuance of
shares of Common Stock with an aggregate fair value of $600,000 and the
payment of $390,000 in cash, upon completion of the Offering, pursuant to
modifications of earn-outs in connection with certain of the Company's
acquisitions and the repayment of $1.4 million of certain indebtedness
associated with certain acquisitions, after deducting the underwriting
discount and estimated offering expenses and the application of the net
proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Current portion of acquisition notes payable.... $ 717 $1,917 $
======= ====== ======
Acquisition notes payable, less current portion. $ 1,119 $1,119 $
------- ------ ------
Stockholders' equity:
Convertible preferred stock, $0.0001 par value;
1,000,000 shares authorized; no shares issued
and outstanding, actual pro forma and
as adjusted................................... -- -- --
Common Stock, $0.0001 par value; 20,000,000
shares authorized,
actual and pro forma; 40,000,000 shares
authorized, as adjusted; 13,005,770 shares
issued and outstanding, actual and pro forma;
shares issued and outstanding, as
adjusted(1)................................... 13,189 13,189
Deferred compensation.......................... (469) (469)
Accumulated deficit............................ (7,292) (7,450)
------- ------ ------
Total stockholders' equity.................... 5,428 5,270
------- ------ ------
Total capitalization......................... $ 6,547 $6,389
======= ====== ======
</TABLE>
- --------
(1) Based on the number of shares outstanding as of June 30, 1998. Excludes
(i) 2,457,542 shares of Common Stock issuable upon the exercise of options
then outstanding with a weighted average exercise price of $0.76 per
share; (ii) 2,592,180 shares of Common Stock reserved for issuance under
the 1998 Plan as of such date; and (iii) 300,000 shares of Common Stock
reserved for issuance under the Stock Purchase Plan. Shares issued and
outstanding, as adjusted, assumes (i) the exercise of all outstanding
warrants to purchase 459,593 shares of Common Stock prior to the closing
of the Offering at an exercise price of $2.22 per share; (ii) 77,868
shares of Common Stock issued in July pursuant to modifications of earn-
outs in connection with certain of the Company's acquisitions; and (iii)
shares of Common Stock with an aggregate fair value of $600,000
issuable pursuant to modifications of earn-outs in connection with certain
of the Company's acquisitions. See "Management--Benefit Plans" and Notes 4
and 8 of Notes to the Company's Consolidated Financial Statements.
27
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1998 was
approximately $160,000 or $0.01 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of total pro forma
tangible assets less total pro forma liabilities, divided by the pro forma
shares of Common Stock outstanding as of June 30, 1998. After giving effect to
the assumed exercise of all outstanding warrants for shares prior to the
closing of the Offering, the issuance and sale of the shares of
Common Stock offered hereby (after deducting the underwriting discount and
estimated offering expenses), the repayment of $1.4 million of certain
indebtedness associated with certain acquisitions, the issuance of shares
of Common Stock with an aggregate fair value of $600,000 and the payment of
$390,000 in cash, upon completion of the Offering, pursuant to modifications
of earn-outs in connection with certain of the Company's acquisitions, the
Company's pro forma net tangible book value as of June 30, 1998 would have
been $ million, or $ per share. This represents an immediate increase
in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share as of June 30,
1998......................................................... $0.01
Increase in pro forma net tangible book value per share
attributable to new investors................................
-----
Pro forma net tangible book value per share after offering......
-----
Dilution per share to new investors............................. $
=====
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1998,
the difference between existing stockholders and the purchasers of shares in
the Offering (at an assumed initial public offering price of $ per share
and before deducting the underwriting discount and estimated offering
expenses) with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 13,465,363 % $14,348,851 % $ 1.07
New investors.......... % % $
---------- ----- ----------- -----
Total................ 100.0% $ 100.0%
========== ===========
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of June 30, 1998. As of June 30, 1998, there were (i) options
outstanding to purchase a total of 2,457,542 shares of Common Stock with a
weighted average exercise price of $0.76 per share; (ii) 2,592,180 shares of
Common Stock reserved for issuance under the 1998 Plan as of such date; and
(iii) 300,000 shares of Common Stock reserved for issuance under the Stock
Purchase Plan. Assuming the exercise of these outstanding options, the pro
forma net tangible book value per share after the Offering would be $ , and
the dilution per share to new investors would be $ . The foregoing assumes
the (i) exercise of all outstanding warrants to purchase 459,593 shares of
Common Stock prior to the closing of the Offering at an exercise price of
$2.22 per share; (ii) 77,868 shares of Common Stock issued in July pursuant to
modifications of earn-outs in connection with certain of the Company's
acquisitions; and (iii) shares of Common Stock with an aggregate fair
value of $600,000 issuable pursuant to modifications of earn-outs in
connection with certain of the Company's acquisitions. See "Risk Factors--
Dilution," "Capitalization," "Management--Benefit Plans" and Notes 4 and 8 of
Notes to the Company's Consolidated Financial Statements.
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference
to, and should be read in conjunction with, the Company's Consolidated
Financial Statements and the Notes thereto and "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations" appearing elsewhere
in this Prospectus. The selected consolidated statements of operations data
presented below for the period from April 16, 1996 (the Company's inception)
through December 31, 1996 and for the year ended December 31, 1997 and the
selected consolidated balance sheet data at December 31, 1997 are derived from
consolidated financial statements of the Company that have been audited by
Ernst & Young LLP, independent auditors, included elsewhere in this
Prospectus. The selected consolidated statement of operations data for the six
months ended June 30, 1997 and 1998, and the selected consolidated balance
sheet data as of June 30, 1998, are derived from unaudited consolidated
financial statements of the Company included elsewhere in this Prospectus. The
selected consolidated pro forma statement of operations data for the six
months ended June 30, 1998, are derived from selected unaudited pro forma
condensed consolidated financial statements included elsewhere in this
Prospectus. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of
operations for these periods. The consolidated financial data for the six
months ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998 or any other future
period.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996 PRO FORMA
(INCEPTION) SIX MONTHS ENDED SIX MONTHS
THROUGH YEAR ENDED JUNE 30, ENDED
DECEMBER 31, DECEMBER 31, ------------------ JUNE 30,
1996 1997 1997 1998 1998
-------------- ------------ -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenue:
Electronic commerce.... $ -- $ 327 $ 21 $ 1,834 $ 2,043
Advertising............ -- 60 7 355 406
License fees and other. -- 454 172 376 404
------ ------- -------- -------- -------
Total net revenue..... -- 841 200 2,565 2,853
Cost of net revenue:
Cost of electronic
commerce.............. -- 171 54 899 899
Cost of license fees
and other............. -- 148 105 27 73
------ ------- -------- -------- -------
Total cost of net
revenue.............. -- 319 159 926 972
------ ------- -------- -------- -------
Gross profit........... -- 522 41 1,639 1,881
Costs and expenses:
Operating and
development........... 266 1,150 746 1,349 1,371
Sales and marketing.... 24 292 120 718 722
General and
administrative........ 150 721 282 1,099 1,299
Purchased in-process
research and
development(1)........ -- -- -- 1,070 580
Amortization of
deferred compensation. -- 248 11 806 806
Amortization of
intangible assets..... -- -- -- 318 1,130
Non-recurring charges.. -- 1,243 243 -- --
------ ------- -------- -------- -------
Total costs and
expenses............. 440 3,654 1,402 5,360 5,908
------ ------- -------- -------- -------
Loss from operations... (440) (3,132) (1,361) (3,721) (4,027)
Other expense ......... -- -- -- -- (24)
------ ------- -------- -------- -------
Net loss............... $ (440) $(3,132) $ (1,361) $ (3,721) $(4,051)
====== ======= ======== ======== =======
Basic and diluted net
loss per share(2)..... $(0.59) $ (0.43) $ (0.20) $ (0.39) $ (0.39)
====== ======= ======== ======== =======
Number of shares used
in per share
calculation--basic and
diluted(2)............ 745 7,311 6,777 9,604 10,305
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1996 1997 1998
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash.................................................. $ 1 $ 6 $4,091
Working capital (deficit)............................. 156 (1,400) 1,826
Total assets.......................................... 705 782 9,660
Acquisition notes payable, less current portion....... -- -- 1,119
Total stockholders' equity (deficit).................. 560 (873) 5,428
</TABLE>
(footnotes appear on the following page)
29
<PAGE>
- --------
(1) Purchased in-process research and development relates to the costs of in-
process research and development acquired by the Company in connection
with the acquisitions of Paralogic and Pagecount (pro forma only) as well
as the purchase of certain assets of Revolutionary Software. See Note 8
of Notes to the Company's Consolidated Financial Statements.
(2) See Note 1 of Notes to the Company's Consolidated Financial Statements for
an explanation of the determination of the number of shares used to
compute net loss per share and Note D of Notes to the Selected Unaudited
Pro Forma Condensed Consolidated Statements of Operation for an
explanation of the determination of the number of pro forma shares used to
compute pro forma net loss per share--basic and diluted.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with, and is
qualified in its entirety by, the more detailed information including the
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from the results discussed in the forward-looking statements. Factors that may
cause or contribute to such differences include those discussed in "Risk
Factors," as well as those discussed elsewhere in this Prospectus.
OVERVIEW
Xoom is one of the fastest growing direct marketing companies on the
Internet. The Company attracts members to its community site with a variety of
free services, including homepages, e-mail, chat rooms, clip art and software
libraries and online greeting cards. Xoom members can also join topical
communities where they can exchange ideas and information. Upon registration,
members agree to receive periodic offers of products and services via e-mail.
These offerings are competitively priced and continuously updated, and include
computer software, computer accessories and peripherals, consumer electronics
and clip art on CD-ROM. New product offerings will include a DVD movie club,
gift items, health-related products and a travel club. Xoom believes that its
rapidly growing base of self-qualified members provides the Company with
highly attractive and effective electronic commerce opportunities. In
addition, the Company believes that its high levels of traffic and online
reach present an attractive platform for advertising.
The Company was incorporated in April 1996 and commenced offering products
for sale on its Web site in March 1997. From inception through December 1996,
the Company had no sales and its operating activities related primarily to the
development of the necessary computer infrastructure, recruiting personnel,
raising capital and initial planning and development of the Xoom site and
operations. For the period beginning with the operation of the Xoom site
through December 31, 1997, the Company continued these activities and focused
on building sales momentum, establishing relationships with manufacturers,
marketing the Xoom brand and establishing customer service and fulfillment
operations.
The Company generates net revenue from electronic commerce, primarily
through the use of direct e-mail marketing, licensing and the sale of
advertising on its Web site. Total net revenue was $841,000, $849,000 and $1.7
million for the year ended December 31, 1997 and the quarters ended March 31,
1998 and June 30, 1998 respectively. The increase in total net revenue was
primarily due to expansion in Xoom's membership base, which resulted in
increases in electronic commerce revenue, Web-based advertising revenue and,
to a lesser extent, an increase in license fees and other. Cost of net revenue
increased substantially in absolute dollars and as a percentage of total net
revenue during the same period, reflecting the Company's increased sales
volume. As the Company has grown, its operating expenses have increased, and
the Company expects that its operating expenses will continue to increase as a
result of its acquisitions and in connection with its sales and marketing
efforts, its increased funding of site development, technology and operating
infrastructure, and the increased general and administrative staff needed to
support the Company's growth.
From inception through June 30, 1998, Xoom has generated total net revenue
of approximately $3.4 million. Over the past twelve months, quarterly net
revenue has increased from approximately $171,000 to $1.7 million. Since
January 1998, the number of members has grown from 100,000 to approximately
3.0 million as of August 26, 1998.
As of June 30, 1998, the Company had an accumulated deficit of $7.3 million.
Although the Company has experienced growth in net revenue, members, customers
and reach in recent periods, such growth rates are not sustainable, will
decrease in the future and are not indicative of future growth rates the
Company may experience.
31
<PAGE>
The Company has not achieved profitability on a quarterly or annual basis to
date, and the Company anticipates that it will incur net losses for the
foreseeable future. The extent of these losses will be contingent, in part, on
the amount and rates of growth in the Company's net revenue from electronic
commerce and advertising. The Company expects its operating expenses to
increase significantly, especially in the areas of sales and marketing and
brand promotion, and, as a result, it will need to generate increased
quarterly net revenue if profitability is to be achieved. The Company believes
that period-to-period comparisons of its operating results are not meaningful
and that the results for any period should not be relied upon as an indication
of future performance. To the extent that net revenue does not grow at
anticipated rates or that increases in its operating expenses precede or are
not subsequently followed by commensurate increases in net revenue, or that
the Company is unable to adjust operating expense levels accordingly, the
Company's business, results of operations and financial condition will be
materially and adversely affected. There can be no assurance that the
Company's operating losses will not increase in the future or that the Company
will ever achieve or sustain profitability. See "Risk Factors--Limited
Operating History; No Assurance Of Profitability; Anticipated Losses."
To date, the Company has entered into a number of acquisitions, license
arrangements and strategic alliances in order to build its communities,
provide community-specific content, generate additional traffic, increase
membership and establish additional sources of net revenue. In March 1998, the
Company acquired Paralogic, a chat service, for a purchase price of
approximately $3.0 million (consisting of 1,023,613 shares of Common Stock
with a fair value of $1.54 per share, $1.4 million of debt, and $61,000 of
acquisition costs). Through its purchases of Global Bridges and certain assets
of Revolutionary Software in June 1998, the Company acquired Sitemail, an
HTML-based e-mail product. Global Bridges, which the Company purchased for
approximately $709,000 (consisting of 275,140 shares of Common Stock with a
fair value of $2.22 per share, $12,500 in cash, a note payable for $62,500 and
approximately $23,000 of acquisition costs), owned the exclusive selling
rights to Sitemail. Revolutionary Software, from which the Company purchased
certain assets for approximately $701,000 (consisting of 192,077 shares of
Common Stock with a fair value of $2.22 per share, $12,500 in cash and a note
payable for $262,500, along with certain earnout provisions), developed
Sitemail and had licensed it to Global Bridges. Also in June 1998, the Company
purchased an exclusive, perpetual license to use Greetings Online, an online
greeting card service, from ArcaMax for approximately $644,000 (consisting of
200,000 shares of Common Stock with a fair value of $2.22 per share, $20,000
in cash and a note payable for $180,000). Additionally, in July 1998, the
Company acquired Pagecount, a Web page counter and guestbook service, for
approximately $1.5 million (consisting of $200,000 in cash, a note payable for
$1.2 million and $60,000 of acquisition costs). In addition, certain of the
Company's acquisition agreements contain provisions that allow for the
issuance of additional shares of Common Stock or cash. Specifically, in
connection with the acquisition of Global Bridges, the Company has issued
25,956 shares of Common Stock. In addition, upon the completion of the
Offering, the Company is required to issue Common Stock at the Offering price
with an aggregate value of $200,000, together with $130,000 in cash. In
connection with the Company's purchase of certain assets of Revolutionary
Software, the Company has issued 51,912 shares of Common Stock. In addition,
upon the completion of the Offering, the Company is required to issue Common
Stock at the Offering price with an aggregate value of $400,000, together with
an additional cash consideration of $260,000. As part of the license agreement
entered into with ArcaMax, the note payable for $180,000 will be due within
ten days of the completion of the Offering. Because most Internet business
acquisitions involve the purchase of significant amounts of intangible assets,
acquisitions of such businesses also result in goodwill and significant
charges for purchased in-process research and development. See "Business--
Acquisitions And Strategic Alliances."
The Company intends to continue making acquisitions to increase reach and
membership and to seek additional strategic alliances with content and
distribution partners, including alliances that create co-branded sites
through which Xoom markets its services. Acquisitions carry numerous risks and
uncertainties, including difficulties in the integration of operations,
personnel, technologies, products and the information systems of the acquired
companies, diversion of management's attention from other business concerns,
risks of entering geographic and business markets in which the Company has no
or limited prior experience and potential loss of key employees of acquired
organizations. No assurance can be given as to the ability of the Company to
successfully integrate any businesses, products, technologies or personnel
that might be acquired in the future,
32
<PAGE>
and the failure of the Company to do so could have a material adverse effect
on the Company's business, results of operations and financial condition. In
addition, there can be no assurance that the Company will be successful in
identifying potential acquisition candidates. See "Risk Factors--Risks
Associated With Acquisitions."
International sales comprised approximately 30% and 36% of total net revenue
for the year ended December 31, 1997 and the six months ended June 30, 1998,
respectively. This consisted of $252,000 and $918,000 in net revenues,
respectively, during such periods. As of July 31, 1998, the Company had
approximately 1.2 million members outside of the United States. The Company
intends to enter into partnerships with companies in local markets in order to
increase its international presence and sales. There can be no assurance,
however, that acceptance of the Internet or the Company's community model will
continue to expand significantly in any international markets. If net revenue
from international operations is not adequate to cover the investments in such
activities, the Company's business, results of operations and financial
condition could be materially and adversely affected. There are also certain
risks inherent in doing business on an international level, such as unexpected
changes in regulatory requirements, trade barriers, difficulties in staffing
and managing foreign operations, fluctuations in currency exchange rates,
longer payment cycles in general, problems in collecting accounts receivable,
difficulty in enforcing contracts, political and economic instability,
seasonal reductions in business activity in certain other parts of the world
and potentially adverse tax consequences. There can be no assurance that one
or more of such factors will not have a material adverse effect on the
Company's future international operations and, consequently, on the Company's
business, results of operations and financial condition. See "Risk Factors--
Risks Associated With International Operations And Expansion."
The Company has recorded deferred stock compensation charges of $462,000,
$696,000 and $365,000 during the period from April 16, 1996 through December
31, 1996 ( the "Inception Period"), the year ended December 31, 1997 and for
the six months ended June 30, 1998, respectively, for the difference between
the exercise price and the deemed fair value of certain stock options granted
by the Company to its employees. Amortization of deferred stock compensation
expense of $248,000 and $806,000 was recorded in the year ended December 31,
1997, and the six months ended June 30, 1998, respectively. The Company
expects to amortize deferred stock compensation expenses of approximately $1.0
million, $160,000 and $48,000 in the years ended December 31, 1998, 1999 and
2000, respectively, and additional deferred compensation expenses in
subsequent years, relating to such stock option grants through June 30, 1998.
In addition, the Company expects to record additional deferred compensation
charges of approximately $500,000 in the three months ended September 30,
1998. The Company expects this additional deferred compensation charge to
result in additional amortization of approximately $200,000, $200,000 and
$100,000 in the years ended December 31, 1998, 1999 and 2000, respectively,
relating to options granted subsequent to June 30, 1998. There can be no
assurance, however, that additional charges will not accrue for other reasons
or that the Company's current estimates of such charges will prove accurate,
either of which events could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company will need to increase its inventory levels in the future to
support a wider base of electronic commerce products and to take advantage of
volume purchase discounts. The Company contracts with a third party
warehousing and order fulfillment company to stock inventory and ship products
directly to customers. The Company takes title to this inventory, has
responsibility for this inventory, and records inventory on its balance sheet
until the final shipment to customers or other disposition of the inventory.
There are inherent risks and costs in stocking inventory and coordinating with
a third party warehousing and order fulfillment company, including but not
limited to, product obsolescence, excess inventory, inventory shortages
resulting in unfulfilled orders, which could materially adversely affect
operating results in the future. See "Risk Factors--Reliance On Certain
Vendors" and "--Risk Of Reliance On Internally Developed Systems."
RESULTS OF OPERATIONS
From inception through the first quarter of 1997, the Company's operations
were limited and consisted primarily of start-up activities. Accordingly, the
Company believes that year-to-year comparisons of 1996 against
33
<PAGE>
1997, and period-to-period comparisons of the six months ended June 30, 1998
against the comparable period in 1997, are not meaningful.
The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue. From
inception through December 31, 1996, the Company had no net revenue as
operations were limited and consisted primarily of start-up activities.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------
1997 1997 1998
------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenue:
Electronic commerce...................... 38.9 % 10.5 % 71.5 %
Advertising.............................. 7.1 3.5 13.8
License fees and other................... 54.0 86.0 14.7
------ ------ ------
Total net revenue......................... 100.0 100.0 100.0
Cost of net revenue(1):
Cost of electronic commerce.............. 20.3 27.0 35.0
Cost of license fees and other........... 17.6 52.5 1.1
------ ------ ------
Cost of net revenue....................... 37.9 79.5 36.1
------ ------ ------
Gross profit.............................. 62.1 20.5 63.9
Costs and expenses:
Operating and development................ 136.8 373.0 52.7
Sales and marketing...................... 34.7 60.0 28.0
General and administrative............... 85.7 141.0 42.8
Purchased in-process research and
development............................. -- -- 41.7
Amortization of deferred compensation.... 29.5 5.5 31.4
Amortization of intangible assets........ -- -- 12.4
Non-recurring charges.................... 147.8 121.5 --
------ ------ ------
Total costs and expenses.................. 434.5 701.0 209.0
------ ------ ------
Net loss.................................. (372.4)% (680.5)% (145.1)%
====== ====== ======
</TABLE>
- --------
(1) There are no material costs of advertising revenue.
Net Revenue
The Company began generating net revenue in the first quarter of 1997. The
Company's total net revenue increased from $200,000 in the six months ended
June 30, 1997 to $2.6 million in the six months ended June 30, 1998, and was
$841,000 for the year ended December 31, 1997. Net revenue is composed of
electronic commerce product sales (which includes outbound shipping and
handling fees) advertising revenue and licensing fees and other. The increase
in net revenue was primarily due to the expansion of the Company's membership
base, increased frequency of e-mail offerings and broader product offerings,
which resulted in an increase in product sales through electronic commerce, an
increase in web-based advertising as the Company was able to leverage its Web
site traffic, and to a lesser extent an increase in license fees. One
licensing customer accounted for 12% of total net revenue for the year ended
December 31, 1997 and no customer accounted for more than 10% of total net
revenue for the six months ended June 30, 1998.
Electronic Commerce. Electronic commerce revenue increased from $21,000 in
the six months ended June 30, 1997 to $1.8 million in the six months ended
June 30, 1998, and was $327,000 for the year ended December 31, 1997. The
increase in net revenue was primarily due to the expansion of the Company's
membership base, which resulted in an increase in product sales, as well as
expansion of the breadth of products
34
<PAGE>
offered. The percentage of the Company's total net revenue attributable to
electronic commerce revenue increased from 10.5% in the six months ended June
30, 1997 to 71.5% in the six months June 30, 1998, and was 38.9% of total net
revenue for the year ended December 31, 1997. The Company expects electronic
commerce revenue to continue to account for a large percentage of net revenue
as it expands its product offerings and increases its direct marketing
response rates through better member demographic information and targeting of
product offers.
Advertising. Advertising revenue increased from $7,000 in the six months
ended June 30, 1997 to $355,000 in the six months ended June 30, 1998, and was
$60,000 for the year ended December 31, 1997. The increase in advertising
revenue is primarily a result of the increase in the Company's membership,
site traffic and expansion of its advertising sales force. The percentage of
the Company's total net revenue attributable to advertising revenue increased
from 3.5% in the six months ended June 30, 1997 to 13.8% in the six months
June 30, 1998, and was 7.1% of total net revenue for the year ended December
31, 1997.
License Fees and Other. License fees and other revenue increased from
$172,000 in the six months ended June 30, 1997 to $376,000 in the six months
ended June 30, 1998, and was $454,000 for the year ended December 31, 1997.
The increase in license fees and other revenue is primarily a result of
additional clip art and other utilities the Company was able to license to
third parties. The percentage of the Company's total net revenue attributable
to license fees decreased from 86.0% in the six months ended June 30, 1997 to
14.7% in the six months ended June 30, 1998, and was 54.0% of total net
revenue for the year ended December 31, 1997. As the Company expands its
electronic commerce and advertising revenue, license fees and other revenue
will continue to represent a smaller percentage of net revenue.
Cost of Net Revenue
Gross margins increased from 20.5% in the six months ended June 30, 1997 to
63.9% in the six months ended June 30, 1998, as a result of the increase in
advertising and electronic commerce revenue as a percentage of total net
revenue. Gross margins were 62.1% for the year ended December 31, 1997. There
are no material costs of net revenue associated with advertising.
Electronic Commerce. Cost of electronic commerce consists primarily of the
costs of merchandise sold to customers, credit card commissions, product
fulfillment, and outbound shipping and handling costs. Cost of electronic
commerce was $171,000, $54,000 and $899,000 for the year ended December 31,
1997, and the six months ended June 30, 1997 and 1998, respectively. As a
percentage of electronic commerce revenue, cost of electronic commerce was
52.3%, 257.1% and 49.0% for the year ended December 31, 1997, and the six
months ended June 30, 1997 and 1998, respectively.
License Fees and Other. Cost of license fees and other consists primarily of
royalties on net revenue of license fees. Cost of license fees were $148,000,
$105,000 and $27,000 for the year ended December 31, 1997, and the six months
ended June 30, 1997 and 1998, respectively. As a percentage of license fees
and other, cost of license fees and other were 32.6%, 61.0% and 7.2% for the
year ended December 31, 1997, and the six months ended June 30, 1997 and 1998,
respectively. Cost of license fees and other for the six months ended June 30,
1997 included $81,000 in amortization of prepaid royalties related to a
product which was subsequently discontinued in 1997.
The Company believes that offering its customers attractive prices is an
essential component of its business strategy. The Company may in the future
increase the discounts it offers its customers and may otherwise alter its
pricing structures and policies. The Company anticipates that any increase in
discounts or price reductions will reduce gross margins below those
experienced for the year ended December 31, 1997 and the six months ended June
30, 1998.
Gross margins will be impacted by the mix of products sold by the Company,
and the overall mix of electronic commerce revenue, advertising revenue and
license fees. The Company typically recognizes higher gross margins on
advertising revenue and license fees and other which are expected to comprise
a lower
35
<PAGE>
percentage of total net revenue in the future. Therefore, the Company expects
shifts in the mix of sales will adversely impact the Company's overall gross
margin and could materially adversely impact the Company's business, results
of operations and financial condition.
Operating and Development Expenses. Operating and development expenses
consist principally of payroll and related expenses for development,
editorial, and network operations personnel and consultants, costs related to
systems infrastructure including Web site hosting, and costs of acquired
content to enhance the functionality of the Company's Web site. Operating and
development expenses increased from $746,000 in the six months ended June 30,
1997 to $1.3 million in the six months ended June 30, 1998, and increased from
$266,000 in the Inception Period in 1996 to $1.2 million in 1997. From
inception to the quarter ended June 30, 1997 the Company incurred significant
costs relating to the development of a product, apart from its Web site, which
was subsequently abandoned. From June 30, 1997 the absolute dollar increases
from quarter to quarter in operating and development expenses were primarily
attributable to increases in the number of personnel and associated costs
related to enhancing the functionality and content of the Company's Web site.
Operating and development costs decreased as a percentage of total net revenue
from 373.0% in the six months ended June 30, 1997 to 52.7% in the six months
ended June 30, 1998, and represented 136.8% for the year ended December 31,
1997. The Company believes operating costs will increase significantly in the
future, especially in regards to Web site hosting costs, as its membership
grows thus requiring additional bandwidth to support the many free services
offered to members. The Company believes that significant investments in its
Web site are required to remain competitive. Therefore, the Company expects
that its operating and development expenses will continue to increase in
absolute dollars for the foreseeable future.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of payroll and related expenses for personnel engaged in marketing, selling,
licensing and order support, advertising and promotional expenditures. Sales
and marketing expenses increased from $120,000 in the six months ended June
30, 1997 to $718,000 in the six months ended June 30, 1998, and increased from
$24,000 in the Inception Period in 1996 to $292,000 in 1997. The absolute
dollar increases from period to period in sales and marketing expenses were
primarily attributable to increased personnel and related expenses required to
implement the Company's marketing strategy and increased public relations,
advertising and other promotional expenses. Sales and marketing costs
decreased as a percentage of total net revenue from 60.0% in the six months
ended June 30, 1997 to 28.0% in the six months ended June 30, 1998, and
represented 34.7% for the year ended December 31, 1997. The Company expects to
continue hiring additional personnel and to pursue a branding and marketing
campaign. Therefore, it expects marketing and sales expenses to increase
significantly in absolute dollars. Sales and marketing expenses as a
percentage of net revenues have decreased because of the growth in net
revenue.
General and Administrative Expenses. General and administrative expenses
consist primarily of payroll and related costs for general corporate
functions, including finance, accounting, business development, facilities and
administration, legal, and fees for professional services. General and
administrative expenses increased from $282,000 in the six months ended June
30, 1997 to $1.1 million in the six months ended June 30, 1998, and increased
from $150,000 in the Inception Period in 1996 to $721,000 in 1997. The
absolute dollar increases from period to period in general and administrative
expenses were primarily due to increases in the number of general and
administrative personnel, professional services, and facility expenses to
support the growth of the Company's operations. General and administrative
expenses decreased as a percentage of total net revenue from 141.0% in the six
months ended June 30, 1997 to 42.8% in the six months ended June 30, 1998, and
represented 85.7% for the year ended December 31, 1997. The Company expects
general and administrative expenses to increase in absolute dollars in future
periods as the Company expands its staff, incurs additional costs related to
its operations, and is subject to the requirements of being a publicly traded
company.
Purchased In-Process Research and Development. For the six months ended June
30, 1998, the Company recognized the cost of purchased in-process research and
development of $490,000 in connection with the acquisition of Paralogic, and
$580,000 in connection with the purchase of certain assets of Revolutionary
Software. The Company did not recognize such charges for the Inception Period
or the year ended December 31, 1997. See Note 8 of Notes to Consolidated
Financial Statements.
36
<PAGE>
Amortization of Deferred Compensation. Deferred compensation expense
reflects the amortization of stock compensation charges resulting from stock
options and restricted stock purchase agreements. Stock compensation charges
were $248,000, $79,000 and $727,000 for the year ended December 31, 1997, and
the quarters ended March 31, 1998 and June 30, 1998, respectively. The
increase in the quarter ended June 30, 1998 is primarily due to the
modification of certain options which required the Company to accelerate the
amortization of the related deferred compensation.
Amortization of Intangible Assets. Amortization of intangible assets totaled
$318,000 for the quarter ended June 30, 1998. This amount represents
amortization of intangible assets and goodwill resulting from the Company's
acquisition of Paralogic, amortized over 24 months.
Non-recurring Charges. Non-recurring charges totaled approximately $1.2
million in the year ended December 31, 1997, consisting of a $243,000 write-
off of costs associated with a discontinued product, and a $1.0 million
provision for a legal dispute for a copyright infringement claim from
Imageline relating to certain clip art images which the Company had licensed
from an unrelated third party. Although this claim has not resulted in
litigation to date, this claim and any resultant litigation, should it occur,
might subject the Company to significant liability for damages and might
result in invalidation of the Company's proprietary rights and even if not
meritorious, could be time consuming and expensive to defend and could result
in the diversion of management time and attention, any of which might have a
material adverse impact on the Company's business, results of operations, cash
flows and financial condition.
Income Taxes. There was no provision for federal or state income taxes for
any period as the Company has incurred operating losses. As of December 31,
1997, the Company had net operating loss carryforwards for federal income tax
purposes of approximately $1.4 million. There can be no assurance that the
Company will realize the benefit of the net operating loss carryforwards. The
federal net operating loss carryforwards will expire at various dates
beginning in the fiscal year 2011 through 2012 if not utilized. Due to the
"change of ownership" provisions of the Internal Revenue Code, the
availability of the Company's net operating loss and credit carryforwards may
be subject to an annual limitation against taxable income in future periods if
a change in ownership of more than 50% of the value of the Company's stock
should occur over a three year period, which could substantially limit the
eventual tax utilization of these carryforwards. See Note 3 of Notes to
Consolidated Financial Statements.
37
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain consolidated statements of operations
data for the Company's six most recent quarters ended June 30, 1998 in dollars
and as a percentage of net revenue. In management's opinion, this unaudited
information has been prepared on the same basis as the audited annual
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of the unaudited
information for the quarters presented. This information should be read in
conjunction with the consolidated financial statements, including the notes
thereto, included elsewhere herein. The results of operations for any quarter
are not necessarily indicative of results that may be expected for any
subsequent periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
Electronic commerce.... $ 9 $ 12 $ 38 $ 268 $ 677 $ 1,157
Advertising............ -- 7 14 39 83 272
License fees and other. 20 152 169 113 89 287
----- ----- ------- ----- ------- -------
Total net revenue..... 29 171 221 420 849 1,716
----- ----- ------- ----- ------- -------
Cost of net revenue(1):
Cost of electronic
commerce.............. 4 50 18 99 278 621
Cost of license fees
and other............. 82 23 31 12 8 19
----- ----- ------- ----- ------- -------
Total cost of net
revenue.............. 86 73 49 111 286 640
----- ----- ------- ----- ------- -------
Gross profit............ (57) 98 172 309 563 1,076
Costs and expenses:
Operating and
development........... 397 349 133 271 576 773
Sales and marketing.... 37 84 51 121 262 456
General and
administrative........ 152 130 195 244 316 783
Purchased in-process
research and
development........... -- -- -- -- 490 580
Amortization of
deferred compensation. 5 6 100 137 79 727
Amortization of
intangible assets..... -- -- -- -- -- 318
Non-recurring charges.. -- 243 1,000 -- -- --
----- ----- ------- ----- ------- -------
Total costs and
expenses............. 591 812 1,479 773 1,723 3,637
----- ----- ------- ----- ------- -------
Net loss................ $(648) $(714) $(1,307) $(464) $(1,160) $(2,561)
===== ===== ======= ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENT OF NET REVENUE
---------------------------
THREE MONTHS ENDED
------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
Electronic commerce.... 31.0 % 7.0 % 17.2 % 63.8 % 79.7 % 67.4 %
Advertising............ -- 4.1 6.3 9.3 9.8 15.9
License fees and other. 69.0 88.9 76.5 26.9 10.5 16.7
-------- ------ ------ ------ ------ ------
Total net revenue..... 100.0 100.0 100.0 100.0 100.0 100.0
-------- ------ ------ ------ ------ ------
Cost of net revenue(1):
Cost of electronic
commerce.............. 13.8 29.2 8.2 23.5 32.8 36.2
Cost of license fees
and other............. 282.8 13.5 14.0 2.9 0.9 1.1
-------- ------ ------ ------ ------ ------
Total cost of net
revenue.............. 296.6 42.7 22.2 26.4 33.7 37.3
-------- ------ ------ ------ ------ ------
Gross profit............ (196.6) 57.3 77.8 73.6 66.3 62.7
Costs and expenses:
Operating and
development........... 1,369.0 204.1 60.2 64.6 67.8 45.0
Sales and marketing.... 127.6 49.1 23.1 28.8 30.9 26.6
General and
administrative........ 524.1 76.0 88.2 58.1 37.2 45.6
Purchased in-process
research and
development........... -- -- -- -- 57.7 33.8
Amortization of
deferred compensation. 17.2 3.5 45.2 32.6 9.3 42.4
Amortization of
intangible assets..... -- -- -- -- -- 18.5
Non-recurring charges.. -- 142.1 452.5 -- -- --
-------- ------ ------ ------ ------ ------
Total costs and
expenses............. 2,037.9 474.8 669.2 184.1 202.9 211.9
-------- ------ ------ ------ ------ ------
Net loss................ (2,234.5)% (417.5)% (591.4)% (110.5)% (136.6)% (149.2)%
======== ====== ====== ====== ====== ======
</TABLE>
- --------
(1) There are no material costs of advertising revenue.
38
<PAGE>
The Company's operating expenses have increased significantly in absolute
dollar amounts in each quarter during 1996 and 1997 and in the first two
quarters of 1998 as the Company has transitioned from the development stage to
the commercialization of its services and products and expansion of its
business. The Company expects operating expenses will continue to increase in
the future as the Company continues to seek to expand its business. To the
extent that these expenses are not accompanied by an increase in net revenue,
the Company's business, results of operations and financial condition could be
materially adversely affected.
The Company expects operating results to fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of the
Company's control. These factors include demand for the products the Company
sells through its Web site, consumers' acceptance of electronic commerce and,
in particular, direct e-mail marketing as a medium for the purchase of goods
and services, demand for Web-based advertising, advertisers' market acceptance
of the Web as an advertising medium, the level of traffic on the Xoom site,
the budgeting cycles of advertisers, the amount and timing of capital
expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new or enhanced services by the Company or its
competitors, the timing and number of new hires, the availability of desirable
products and services for sale through the Company's Web site, the accuracy of
the Company's predictions regarding optimal inventory levels for products,
pricing changes for Web-based advertising as a result of competition or
otherwise, the loss of a key advertising contract or relationship by the
Company, changes in the Company's pricing policy or those of its competitors,
the mix of products, services and advertisements sold by the Company,
engineering or development fees that may be paid in connection with adding new
Web site development and publishing tools, technical difficulties with the
Xoom site, incurrence of costs relating to future acquisitions, general
economic conditions, and economic conditions specific to the Internet or all
or a portion of the technology market. As a strategic response to changes in
the competitive environment, the Company may from time to time make certain
pricing, service or marketing decisions or business combinations that could
have a material adverse effect on the Company's business, results of
operations and financial condition. In order to accelerate the promotion of
the Xoom brand, the Company intends to significantly increase its marketing
budget, which could materially and adversely affect the Company's business,
results of operations and financial condition. The Company expects to
experience seasonality in its business, with user traffic on the Xoom site
potentially being lower during the summer and year-end vacation and holiday
periods when overall usage of the Web is lower. Additionally, seasonality may
significantly affect the Company's advertising revenue during the first and
third calendar quarters, as advertisers historically spend less during these
periods. Because Web-based commerce and advertising is an emerging market,
additional seasonal and other patterns may develop in the future as the market
matures. Any seasonality is likely to cause quarterly fluctuations in the
Company's operating results, and there can be no assurance that such patterns
will not have a material adverse effect on the Company's business, results of
operations and financial condition.
Due to the foregoing factors, the Company's quarterly net revenues and
operating results are difficult to forecast. Consequently, the Company
believes that period to period comparisons of its operating results will not
necessarily be meaningful and should not be relied upon as an indication of
future performance. It is likely that in some future quarter or quarters the
Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the trading price of the Company's
Common Stock would likely be materially and adversely affected. See "Risk
Factors--Potential Fluctuations In Quarterly Results; Seasonality;
Unpredictability Of Future Net Revenue."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the private placement of Common Stock. As of June 30, 1998, the
Company had approximately $4.1 million in cash.
Net cash used in operating activities for the Inception Period, the year
ended December 31, 1997 and the six months ended June 30, 1997 and 1998 was
$635,000, $1.4 million, $971,000 and $939,000, respectively. Cash used in
operating activities in each of these periods was primarily the result of net
losses.
39
<PAGE>
Net cash used in investing activities for the Inception Period, the year
ended December 31, 1997 and the six months ended June 30, 1997 and 1998 was
$64,000, $393,000, $25,000 and $493,000, respectively. Cash used in investing
activities in each period was primarily related to purchases of fixed assets,
except for the six months ended June 30, 1998, in which cash used in investing
activities also included $76,000 of net cash for business acquisitions.
Additionally, from time to time the Company expects to evaluate the
acquisition of products, businesses and technologies that complement the
Company's business, for which a portion of the net proceeds may be used.
Net cash provided by financing activities of $700,000, $1.8 million, $1.0
million, and $5.5 million for the Inception Period, the year ended December
31, 1997 and the six months ended June 30, 1997 and 1998, respectively, was
primarily attributable to net proceeds from the issuance of Common Stock and
the issuance of notes payable to stockholders.
As of June 30, 1998, the Company's principal commitments consisted of
obligations outstanding under operating leases. Although the Company has no
material commitments for capital expenditures, it anticipates a substantial
increase in its capital expenditures and lease commitments consistent with
anticipated growth in operations, infrastructure and personnel. Also, in the
future, the Company may require a larger merchandise inventory in order to
provide better availability to customers and achieve purchasing efficiencies.
As of June 30, 1998, the Company had a total of $1.8 million in notes
payable relating to its acquisitions, $717,000 of which is due within one
year. This includes a non interest bearing note payable in the amount of $1.4
million payable to the shareholders of Paralogic in minimum monthly
installments of $30,000 through September 1999 including additional payments
up to $860,000 based on performance measurements, notes payable of $62,500 and
$262,500 which bear an interest rate of 5% and are due in equal monthly
payments of $2,500 and $10,500 between July 1998 and August 2000 to the
shareholders of Global Bridges and Revolutionary Software, respectively, and a
$180,000 interest free note payable to ArcaMax, which is due in equal monthly
installments of $15,000 from July 1998 to June 1999 unless the Company
executes an initial public offering or completes a sale of substantially all
of its assets, in which case the entire unpaid balance at that time shall
become immediately due and payable. See Note 8 of Notes to Consolidated
Financial Statements.
In July 1998, the Company acquired Pagecount for approximately $1.5 million
consisting of cash, a promissory note and related acquisition costs. Purchase
consideration of $200,000 was paid at closing and the balance is due under a
recourse promissory note bearing interest at an annual rate of 7% amortized
over a 24-month schedule, with all amounts due and payable nine months after
the closing of the agreement, unless the Company completes an initial public
offering or a sale of substantially all of its assets, then the entire unpaid
balance at that time shall become immediately due and payable.
The Company intends to use a portion of the net proceeds to repay the note
payable issued in connection with the Pagecount acquisition in the principal
amount of $1.2 million, which bears interest at a rate of seven percent (7%)
per annum compounded monthly, and which is payable in full upon the closing of
the Offering, and to pay the remaining balance of approximately $180,000 due
under the license agreement with ArcaMax, which payment is due and payable
within ten days of the completion of the Offering.
In the six months ended June 30, 1998, the Company issued warrants to
purchase a total of 459,593 shares of Common Stock at a price of $2.22 per
share. These warrants are immediately exercisable and expire on the earlier of
the successful completion of an initial public offering or the year 2003. See
Note 4 of Notes to Consolidated Financial Statements.
The Company's capital requirements depend on numerous factors, including
market acceptance of the Company's services, the amount of resources the
Company devotes to investments in the Xoom communities, the resources the
Company devotes to marketing and selling its services and its brand
promotions, the amount of inventory the Company must carry to support
electronic commerce sales, and other factors. The Company has experienced a
substantial increase in its capital expenditures since its inception
consistent with the growth in the Company's operations and staffing, and
anticipates that this will continue for the foreseeable future particularly
relating to the Company's Web site and systems infrastructure. The Company
believes that the net proceeds from
40
<PAGE>
the Offering, together with its current cash and cash equivalents, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures and business expansion for the next 12 months. Thereafter if cash
generated from operations is insufficient to satisfy the Company's liquidity
requirements, the Company may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to the
Company's stockholders. There can be no assurance that financing will be
available in amounts or on terms acceptable to the Company, if at all. See
"Risk Factors--Future Capital Needs; Uncertainty Of Additional Financing."
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. The Company is currently engaged in a two-phase process to
evaluate its internal status with respect to the Year 2000 issue. In the first
phase, which the Company expects to complete in the first quarter of 1999, the
Company is conducting an evaluation of its systems, including both IT systems
and non-IT systems such as hardware containing embedded technology, for Year
2000 compliance. The Company has completed a significant portion of this phase
to date, and systems that have been evaluated are either Year 2000 compliant
or are expected to be made compliant at an immaterial cost to the Company.
Although the Company does not expect that the impact of the Year 2000 issue
will be material in systems still under evaluation, there can be no assurance
that the Company will not discover Year 2000 issues in the course of its
evaluation process that would have a material adverse effect on the business,
results of operations or financial condition of the Company.
Phase two of the process, which is expected to be completed during the third
quarter of 1999, will involve taking any needed corrective action to bring
systems into compliance and to develop a contingency plan in the event any
non-compliant critical systems remain by January 1, 2000. As part of this
phase, the Company will attempt to quantify the impact, if any, of the failure
to complete any necessary corrective action. Although the Company cannot
currently estimate the magnitude of such impact, if systems material to the
Company's operations have not been made Year 2000 compliant upon completion of
this phase, the Year 2000 issue could have a material adverse effect on the
Company's business, results of operations and financial condition.
To date, the costs incurred by the Company with respect to this process have
not been material. Future costs will remain difficult to estimate until the
completion of phase one; however, the Company does not currently anticipate
that such costs will be material.
Concurrently with the two-phase analysis of its internal systems, the
Company has begun to survey third-party entities with which the Company
transacts business, including critical vendors and financial institutions, for
Year 2000 compliance. The Company expects to complete this survey in the
second quarter of 1999. At this time the Company cannot estimate the effect,
if any, that non-compliant systems at these entities could have on the
business, results of operations or financial condition of the Company, and
there can be no assurance that the impact, if any, would not be material. See
"Risk Factors--Year 2000 Compliance."
IMPACT OF EURO INTRODUCTION
Beginning in January 1999, a new currency called the "euro" is scheduled to
be introduced in certain European countries that are part of the Economic and
Monetary Union ("EMU"). During 2002, all EMU countries are expected to be
operating with the euro as their single currency. A significant amount of
uncertainty exists as to the effect the euro will have on the marketplace.
Additionally, all of the final rules and regulations have not yet been defined
and finalized by the European Commission with regard to the euro currency. The
Company is assessing the effect the euro introduction will have on its
internal systems and the sale of its products. The Company expects to take
appropriate actions based on the results of such assessment. The Company has
not yet determined the costs of addressing this issue and there can be no
assurance that this issue and its related costs will not have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Risk Factors--Introduction Of Euro."
41
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted, SFAS 130, "Reporting
Comprehensive Income" which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. The adoption of this standard has had no impact on the
Company's consolidated financial position, stockholders' equity, results of
operations or cash flows.
Additionally, the Financial Accounting Standards Board issued SFAS 131,
"Disclosure about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report
information in annual statements and interim financial reports regarding
operating segments, products and services, geographic areas, and major
customers. SFAS 131 was issued and will be effective for 1998. The Company is
evaluating additional disclosures, if any, which may result from this
pronouncement.
42
<PAGE>
BUSINESS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Xoom is one of the fastest growing direct marketing companies on the
Internet. The Company attracts members to its community site with a variety of
free services, including homepages, e-mail, chat rooms, clip art and software
libraries and online greeting cards. Xoom members can also join topical
communities where they can exchange ideas and information. Upon registration,
members agree to receive periodic offers of products and services via e-mail.
These offerings are competitively priced and continuously updated, and include
computer software, computer accessories and peripherals, consumer electronics
and clip art on CD-ROM. New product offerings will include a DVD movie club,
gift items, health-related products and a travel club. Xoom believes that its
rapidly growing base of self-qualified members provides the Company with
highly attractive and effective electronic commerce opportunities. In
addition, the Company believes that its high levels of traffic and online
reach present an attractive platform for advertising.
Xoom was the second fastest growing site on the Web measured by online reach
in the first half of 1998 and the seventeenth most trafficked site in July
1998, according to Media Metrix. Xoom's reach increased to over 10% in July
1998 from less than 2% in January 1998, according to Relevant Knowledge. Xoom
had approximately 3.0 million members as of August 26, 1998, adding an average
of over 20,000 new members per day for the last thirty days. In the first six
months of 1998, 72% of the Company's net revenue was derived from electronic
commerce and approximately 36% of net revenue was derived from non-U.S. sales.
Over the past twelve months, quarterly net revenue has increased from
approximately $171,000 to $1.7 million, representing compound quarterly sales
growth of approximately 78%. See "Risk Factors--Limited Operating History; No
Assurance Of Profitability; Anticipated Losses."
INDUSTRY BACKGROUND
Growth of the Internet
The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business
electronically. IDC estimates that the number of Web users will grow from
approximately 69 million worldwide in 1997 to approximately 320 million
worldwide by the end of 2002. This growth is expected to be driven by the
large and growing number of PCs installed in homes and offices, the decreasing
cost of PCs, easier, faster and cheaper access to the Internet, improvements
in network infrastructure, the proliferation of Internet content and the
increasing familiarity with and acceptance of the Internet by businesses and
consumers. The Internet possesses a number of unique characteristics that
differentiate it from traditional media: a lack of geographic or temporal
limitations; real-time access to dynamic and interactive content; and
instantaneous communication with a single individual or with groups of
individuals. As a result of these characteristics, Web usage is expected to
continue to grow rapidly. The proliferation of users, combined with the Web's
reach and lower cost of marketing, has created a powerful direct sales and
marketing channel.
Electronic Commerce and Advertising
The growing adoption of the Web represents a significant opportunity for
businesses to conduct commerce over the Internet. According to IDC,
transactions on the Internet are expected to increase from approximately $12
billion in 1997 to approximately $426 billion in 2002, with the number of
users that are buyers of products and services rising from 26% to 40% in the
same period. One factor in this projected growth is the increasing variety of
transactions that take place on the Web. Initially, companies focused on
facilitating Internet transactions between businesses. More recently, however,
a number of companies have targeted business-to-
43
<PAGE>
consumer transactions. These companies typically use the Internet to offer
standard products and services that can be easily described with graphics and
text and that do not necessarily require a physical presence for purchase,
such as software, books, music CDs, videocassettes, home loans, airline
tickets and online banking and stock trading. The Internet allows these
companies to develop one-to-one relationships with customers worldwide without
making significant investments in traditional infrastructure such as retail
outlets, distribution networks and sales personnel.
Growth in the Web has also created an important new advertising channel.
Tools not available in traditional advertising media, such as real-time
measurement of "click-through" on advertising banners, further increase the
attractiveness of Web advertising by giving advertisers real-time feedback on
campaigns. Jupiter Communications projects that the dollar value of
advertising on the Web is expected to increase from approximately $940 million
in 1997 to approximately $7.7 billion in 2002. To date, businesses and
advertisers have typically used traditional navigational sites and
professionally-created content sites for the sale and marketing of their
products and services online. In addition, online community sites provide more
detailed demographic data and self-selected groups of consumers with an
affinity for particular products. Advertisers can thus more easily deliver
targeted messages in cost-effective manner.
The Direct Marketing Opportunity on the Internet
The same advantages that facilitate the growth of electronic commerce and
advertising make the Internet a compelling medium for direct marketing
campaigns. Direct marketing over the Internet uses e-mail to reach potential
buyers worldwide, potentially offering them a significantly broader selection
of products and services than is available locally. Internet-based direct
marketing also allows marketers to rapidly collect meaningful demographic
information and feedback from consumers, and to use this information to tailor
new messages quickly. Registration information typically collected by Web
sites, and user involvement in topical communities of interest, provide
additional demographic information. This offers businesses the chance to
increase the effectiveness of their direct marketing campaigns, which may
translate into higher sales. Further, the costs of direct marketing via e-mail
are dramatically lower than those of traditional direct marketing techniques.
As a result, Internet-based direct marketing campaigns can be profitable at
response rates that are a fraction of the rates for traditional campaigns.
The Growth of Online Communities
Traditional use of the Web has consisted largely of one-way communications
in which users "surf" and view different Web sites containing professionally-
created content on topics of general interest such as news, sports and
weather. Internet search engines and navigational sites serve a valuable
function for users seeking to browse the Internet and locate Web sites of
interest. However, these services are not primarily focused on providing a
platform for publishing and aggregating the rapidly increasing volume of
personalized content created by users or enabling such users to interact with
each other.
In particular, users who publish Web sites have had limited means of
attracting visitors to their sites or interacting with such visitors, and, as
a result, there is a growing demand for online community sites where users can
publish content and engage in community activities. According to statistics,
online community sites have recently been one of the fastest growing sectors
of the Web. Statistics published by Media Metrix indicate that the combined
reach of the four leading Web communities (including Xoom) increased from 32%
to 62% from May 1997 to July 1998. Additionally, Web users are increasingly
seeking access to unique, personalized content and interaction with others who
share similar interests. Online communities provide a medium for such access
and interaction.
THE XOOM SOLUTION
Xoom uses the unique characteristics of the Web to cost-effectively market
products and services to its rapidly growing member base. By offering its
members a variety of compelling free services and communities
44
<PAGE>
and competitively priced product offerings, the Company believes it has
created an innovative online sales channel with low customer acquisition
costs. The key elements of Xoom's approach are:
Cost-Effective Direct Marketing Capability
Xoom applies a sophisticated direct marketing approach, modeled after
traditional direct mail campaigns, to generate product sales. Unlike
traditional direct marketing campaigns, which typically use paper-based
promotional materials delivered by mail, Xoom's campaigns use regular e-mails
to communicate offers to members, significantly reducing the cost of reaching
the consumer. The interactive nature of the Web and the ability to display
attractive graphics to users clicking through on product offerings enable Xoom
to present such offerings in a more complete and dynamic manner than allowed
by paper-based delivery systems.
Rapid Formulation of Effective Direct Marketing Campaigns
Prior to introducing new product offerings to its entire membership base,
Xoom selects a subset of members for the purpose of test-marketing a campaign.
The Company has developed campaign-management software that uses statistical
techniques to analyze a test campaign and to predict the expected response
rate to such a campaign if it is rolled out to a larger group of members. The
Company can also analyze the effects of variations in price, graphics and
copy. Results are usually available in less than one day. On the basis of
these tests, Xoom selects product offers for a larger audience and modifies
them to maximize response rates, sales, profitability and member retention.
Testing also increases the accuracy of the Company's forecasts of product
demand. As a result, the Company is typically able to carry small amounts of
inventory, thus lowering overhead and the risk of write-offs.
Provision of Free Services to Attract a Growing Membership Base
The Company offers its members a variety of free services, including Web
site creation and hosting, e-mail, chat rooms, online clip art and online
greeting cards. Xoom provides members with 11 megabytes of disk space on its
servers to develop personal Web sites or to use as personal Web storage space.
The Company also allows members to access proprietary software in order to
quickly create a Web page, as well as ready-made multimedia tools that can be
used to develop a fully-customized, content-rich site. Members can join one or
more of over 200 communities free of charge. Members also promote their Web
sites elsewhere on the Internet, using hyperlinks on other individual sites as
well as listings on directories and search engines, resulting in millions of
new visitors to the Xoom site. The Company believes that the provision of free
services is critical to maintaining membership growth.
Development of Detailed Member Database
To date, the Company has gathered a significant base of information about
its members through registration information, responses to promotional
campaigns and purchasing information obtained from third parties. As more
members join Xoom and participate in its topical communities, and as the
Company obtains additional purchasing history data, the level of information
regarding Xoom's members will continue to grow. Xoom intends to use this
growing database to target offers, increase its range of product offerings and
encourage future transactions and involvement with the Xoom site.
Attractive Advertising Platform
Xoom's free services and extensive community offerings create high volumes
of traffic, enabling business advertisers to cost-effectively promote their
products and services on the Xoom site. The Company's community structure also
provides valuable demographic information and affinity-based member
segmentation that increase advertisers' ability to target campaigns. Further,
the diversity of interest groups among members creates potential markets for a
broad range of products and services, resulting in a correspondingly broad
range of advertising customers.
45
<PAGE>
Customer Convenience
Using e-mail technology as a direct marketing tool, the Company creates
attractive electronic commerce opportunities for potential purchasers. Xoom's
order processing services are available 24 hours a day, seven days a week,
which facilitates on-demand ordering. Purchasers can reach the Xoom site from
the home or office. The Company ships products directly to the customer's
address, without the need to travel to a store, thereby enhancing convenience,
particularly for customers in international or rural locations where
traditional retail distribution cannot be supported.
STRATEGY
The Company's objective is to be the world's largest community-based direct
selling channel on the Internet. Key strategies to achieve this objective
include:
Focus on Membership Growth
The Company plans to increase membership by: (i) maintaining a large and
diverse range of active communities focused on special interest categories;
(ii) offering a broad and expanding array of free services; and (iii)
marketing its free services through the Internet. In addition, the Company
intends to continue to seek acquisitions and strategic alliances to increase
membership.
Build Strong Brand Recognition
The Company believes that establishing and leveraging the Xoom brand is
critical to its ultimate success. The Company has already benefited from word-
of-mouth marketing of its brand through interactions between existing and
prospective members. The Company intends to increase brand equity through
effective marketing and promotion, improved customer service and the
completion of strategic acquisitions and alliances.
Promote Repeat Usage and Member Loyalty
The Company believes that community-based Web sites have an inherent
potential for creating and retaining a loyal membership base, particularly
when combined with free service offerings such as those provided by the
Company. As members invest time and energy in Xoom's services, members may
become less inclined to switch to alternate services. The Company intends to
promote repeat usage and member loyalty by maintaining and improving its range
of communities and free services, expanding the breadth and depth of its
product offerings and remaining responsive to member suggestions.
Effectively Convert Traffic and Membership Into Commerce Revenue
Xoom intends to leverage its community structure and direct marketing
capabilities to increase revenue. The Company has developed a number of
community categories whose members potentially have common purchasing needs
(e.g., Web cameras for groups that wish to communicate by video conference).
The Company also believes that there are opportunities for cross-selling
complementary merchandise or upselling related products into existing
communities. In addition, the Company intends to make further product offers
via e-mail and to continue providing convenient access for purchasers in order
to induce immediate purchases.
Offer New Products and Services
The Company's primary product offerings currently include computer software,
computer accessories and peripherals, consumer electronics and clip art on CD-
ROM. In the fourth quarter of 1998, the Company intends to introduce a DVD
movie club, gift items, health-related products and a travel club. Future
offerings may include educational products, books, housewares, pet supplies,
office supplies and other items that appeal to members and are profitable to
the Company.
46
<PAGE>
Increase Advertising Revenue
The Company intends to increase its advertising revenue by focusing on a
number of key strategies, including expanding its advertising customer base,
increasing advertising rates, page views and the average size and length of
advertising contracts, hiring additional direct sales representatives and
continuing to invest in improving its ad serving and targeting technology. The
Company also intends to offer special sponsorship and events-driven
promotional advertising programs to build brand awareness, generate leads and
drive traffic to an advertiser's site and to sell sponsorships of special
interest pages where topically focused content is aggregated on a permanent
area within a community.
Expand Internationally
The Company believes that the anticipated international growth of Internet
usage has the potential to generate significant additional revenue for Xoom.
According to IDC, the number of Web users outside of the United States is
projected to increase from approximately 30 million in 1997 to approximately
184 million in 2002. For the six months ended June 30, 1998, international
sales comprised 36% of the Company's total net revenue and 50% of electronic
commerce revenue. The Company believes that it is particularly well-positioned
to benefit from international sales growth because, unlike traditional
retailers, the Company is not encumbered with an international distribution
infrastructure that can depress margins. In addition, the Company believes
that it has a distinct advantage over catalog and store-based retailers
located in the United States because such retailers are typically prohibited
from shipping products internationally due to restrictions in their agreements
with product manufacturers. The Company intends to enter into partnerships
with local companies in order to increase its international presence and
sales.
Pursue Strategic Acquisitions and Alliances
To date, the Company has entered into a number of acquisitions, license
arrangements and strategic alliances in order to build its membership base and
services, provide community-specific content, generate additional traffic and
establish additional sources of net revenue. These include the acquisition of
a chat service, an HTML-based e-mail product, a Web page counter and guestbook
service, as well as an exclusive license arrangement with an online greeting
card service. Xoom has also formed alliances with Phillips Publishing for
developing a co-branded investing community, ZDNET for clip-art marketing, and
USA Today for Web-based community services, among others. A typical alliance
provides the partner with branding flexibility, incremental traffic, potential
increases in membership and revenue and integration of service offerings at no
extra cost to the partner. The Company intends to continue making acquisitions
to increase reach and membership and to seek additional strategic alliances
with content and distribution partners, including alliances that create co-
branded sites through which Xoom markets its services.
Maintain and Improve Technological Focus and Expertise
The Company believes that highly advanced functionality and performance of
its Xoom site are critical to its ultimate success. The Company is committed
to site reliability and accessibility, and intends to make continuous
enhancements to its technology, such as upgrading and expanding server and
networking infrastructure, increasing fault tolerance and improving Internet
connections. In addition, the Company intends to increase the efficiency of
its transaction processing and fulfillment operations and the sophistication
of its direct marketing campaign management software.
XOOM PRODUCTS AND SERVICES
By offering free services, Xoom creates a diverse range of communities and a
critical mass of members with whom to interact. Xoom provides each member with
11 megabytes of disk space on its servers and the use of powerful Web
publishing tools for the rapid creation of a personalized Web site.
Additionally, the Company offers members free e-mail, chat, online clip art
and online greeting cards, while also providing excellent customer service and
high-quality site performance. Members can participate in one or more of over
47
<PAGE>
200 communities and link to their personal Web sites, allowing them to take
advantage of the Company's services without the need to access the Xoom site
directly.
How Visitors Become Members
To become a member, a visitor must give a valid e-mail address as well as
permission to be re-contacted with targeted news and product offers by e-mail.
A new member can then use one or more of Xoom's free services, such as
building a Web page, joining a community or sending an online greeting card,
or can purchase products at a discount. Xoom's services are designed so that
their use attracts new members. For example, online greeting cards contain a
message that informs the recipient of the card's origins and provides
information on how the recipient can learn more about Xoom and become a
member. The Company also encourages members to link their Web sites and
communities to users outside of Xoom, thereby increasing Xoom's visibility
among potential members.
Converting Membership Into Commerce Revenue
Following membership registration, Xoom sends the new member an e-mail with
password and membership confirmation, along with an initial product offer.
Thereafter, Xoom sends the member an e-mail approximately once a week,
containing product offerings or informational newsletters. Each e-mail
contains directions for removal from Xoom's address list, should the member
wish to stop receiving offers. Product offers are made to members worldwide
using direct marketing techniques. Currently, the Company typically makes
product offers to its entire membership base. In the future, as more members
join topical communities and the Company further develops its member database,
the Company believes it will be able to effectively target consumers having an
affinity for certain products and services. Frequent directed e-mail offers,
combined with ease of ordering, provide a context for on-demand purchases of
products and services. The following chart details Xoom's major product
offerings for the six months ended June 30, 1998 and prices for each category:
PRODUCT CATEGORY PRICE RANGE PRODUCTS OFFERED
Computer Software $15-$50 Photo editing
software, Web
utilities
Computer Accessories $69-$99 Modems, computer video
and Peripherals cameras
Consumer Electronics $179 Digital cameras
Clip Art $19-$79 CD-ROM clip art
collections
ACQUISITIONS AND STRATEGIC ALLIANCES
The Company has entered into a number of acquisitions, license arrangements
and strategic alliances in order to increase its free service offerings,
provide community-specific content, generate additional traffic, increase
membership and establish additional sources of revenue. The Company intends to
evaluate acquisition opportunities and to seek additional strategic alliances
with content and distribution partners. The Company believes that alliances
will prove attractive to potential partners because they are designed to
provide them with branding flexibility, incremental traffic, potential
increases in membership and revenue and integration of service offerings at no
extra cost to the partner.
48
<PAGE>
Acquisitions and License Arrangements
. Paralogic Chat Network. In March 1998, the Company acquired Paralogic
and obtained a perpetual license to Paralogic's chat software. This
transaction provided Xoom with chat functionality and a ready-made base
of approximately 140,000 member chat rooms. Since this acquisition, the
total number of member chat rooms has increased to approximately
250,000, and chat rooms have generated over 1.6 million new Xoom
members.
. Sitemail. In June 1998, the Company acquired Sitemail, an HTML-based e-
mail product, through its acquisition of Global Bridges and the purchase
of certain technology from Revolutionary Software, thereby expanding the
Company's suite of member services. The Company believes that through
its ownership of the Sitemail technology and the hosting of member
mailboxes, it will gain an increased ability to e-mail customized offers
or offers with enhanced features, such as graphics, to members who use
the Sitemail service.
. Greetings Online. In June 1998, the Company entered into an exclusive,
perpetual license with ArcaMax that gave the Company the ability to
offer Greetings Online, a free online greeting card service, to members.
The Company believes that in the future the Greetings Online service
will allow it to bundle offers of gift items to users of the service.
. Pagecount. In July 1998, the Company acquired the assets of Pagecount, a
Web page counter and guestbook service, which provides Xoom with
promotional space on a network of approximately 250,000 Web sites. The
Company believes that this network has the potential to expand Xoom's
reach significantly.
Acquisitions carry numerous risks and uncertainties, including difficulties
in the integration of operations, personnel, technologies, products and the
information systems of the acquired companies, diversion of management's
attention from other business concerns, risks of entering geographic and
business markets in which the Company has no or limited prior experience and
potential loss of key employees of acquired organizations. No assurance can be
given as to the ability of the Company to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future, and the failure of the Company to do so could have a material adverse
effect on the Company's business, results of operations and financial
conditions. In addition, there can be no assurance that the Company will be
successful in identifying potential acquisition candidates. See "Risk
Factors--Risks Associated With Acquisitions."
Strategic Alliances
The Company has entered into a number of strategic alliances, including the
following:
. Phillips Publishing. Xoom is developing a co-branded investing community
with Phillips Publishing, the largest publisher of newsletters in the
U.S. The site will feature 15 investment advisers and their newsletter
content, a ticker and portfolio service and subscription, and other
merchandise offerings. Xoom and Phillips will share revenue from
advertising and product and service sales in this co-branded investing
community.
. ZDNet. Xoom has created and hosts a co-branded site, with the look and
feel of the ZDNet Web site, that markets Xoom's clip art to ZDNet
visitors. Xoom and ZDNet share revenue from advertising and product
sales on the co-branded site.
. USA Today. Xoom has created and hosts a co-branded site, with the look
and feel of the USA Today site, that provides the USA Today audience
with the use of Xoom's services. The Company has the opportunity to sign
up visitors to this site. Xoom and USA Today share revenue from
advertising and product sales on the co-branded site.
. Ulead Systems, Inc. Xoom has an agreement with Ulead Systems to use its
database of over 300,000 e-mail addresses and to market products to
persons on this list. The Company has licensed a number
49
<PAGE>
of Ulead Systems' products for inclusion in bundled product offerings to
Xoom members, customers in Ulead Systems' e-mail database and other e-
mail lists owned or licensed by the Company. Additionally, Ulead Systems
markets Xoom products directly from its Web site and receives a
commission on any sales.
. Entertainment Drive LLC. Xoom has an agreement with Entertainment Drive
LLC ("Entertainment Drive") where Entertainment Drive will create and
host a co-branded site, with the look and feel of the Xoom site, that
will market Entertainment Drive's online Cranky Critic Movie Reviews,
Entertainment News and Celebrity Profiles. Additionally, Xoom will
create and host a co-branded site, with the look and feel of the
Entertainment Drive site, that will market Xoom's online streaming
classic movies. Both Xoom and Entertainment Drive will create links and
promotions on their respective sites to promote each other's co-branded
site. This agreement also gives Xoom the right to use Entertainment
Drive's database of about 300,000 e-mail addresses in order to market
products to persons on this list. Xoom and Entertainment Drive share
revenue from sales made using Entertainment Drive's database.
In addition to the above relationships, the Company also has relationships
with InfoSpace, Inc., Netopia, Inc. and Sausage Software Ltd. Although the
Company views its strategic relationships as a key factor in its overall
business strategy, there can be no assurance that its strategic partners will
view their relationships with the Company as significant to their own business
or that they will not reassess their commitment to the Company in the future.
There can be no assurance that any party to a strategic alliance agreement
with the Company will perform its obligations as agreed or that any strategic
agreement would be specifically enforceable by the Company. The Company's
arrangements with its strategic partners generally do not establish minimum
performance requirements for the Company's strategic partners but instead rely
on their voluntary efforts. In addition, most of the Company's agreements with
its strategic partners may be terminated by either party with little notice.
Therefore, there can be no assurance that these relationships will be
successful. In the event that a strategic relationship is discontinued for any
reason, the Company's business, results of operations and financial condition
may be materially adversely affected. In addition, there can be no assurance
that the Company will be successful in establishing additional strategic
relationships. See "Risk Factors--Reliance On Strategic Relationships."
SALES AND MARKETING
The Company's sales and marketing strategy is designed to strengthen
awareness of the Xoom brand, increase online traffic, build member loyalty,
maximize repeat purchases, increase the size and frequency of electronic
commerce transactions and develop additional revenue opportunities.
Marketing the Xoom Site
Historically, the Company's marketing of its services has been primarily by
word-of-mouth and indirect promotions by members with links to the Xoom site
and through the use of its services. For example, each e-mail that a member
sends using Xoom's e-mail service contains a message from Xoom that promotes
Xoom's service offerings. The Company believes that such relationship
marketing will continue to generate a substantial amount of additional traffic
and new members. To augment these marketing efforts, the Company intends to
initiate a more formal, aggressive brand promotional campaign to enhance
membership growth and draw additional advertisers and commerce partners. The
Company may use a portion of the net proceeds from the offering to launch a
number of promotional campaigns, some of which may be in traditional media,
including print, radio, billboard and television and some of which may be
through the Web. All promotions will be designed to increase traffic and brand
awareness and an understanding of the Company's community model. The Company
also intends to introduce a number of other brand awareness and membership
retention programs on its own site to leverage its large and growing member
base and visitor traffic. See "Risk Factors--Reliance On Strategic
Relationships."
50
<PAGE>
Product Marketing
Xoom applies a sophisticated direct marketing program, modeled after
traditional direct mail campaigns, to generate product sales. Regular e-mails
communicate targeted offers to members at an extremely low cost to the
Company. As Xoom gathers additional information about its members, it intends
to further target its offers and increase its range of product offerings. The
Company has developed marketing campaign-management software that uses
statistical techniques to analyze a test campaign and to predict the expected
response rate to such campaign if it is rolled out to a larger group of
members. Results are usually available in less than one day. This allows the
Company to quickly and efficiently test-market potential product offerings. On
the basis of these tests, Xoom selects product offers for a larger audience
and tests price to maximize response, sales or profitability. Tests also allow
the Company to structure campaigns that maximize member retention.
Advertising
The Company has a direct sales organization, located in New York and San
Francisco, that is dedicated to developing and maintaining close relationships
with top advertisers and leading advertising agencies nationwide. The Company
also has arrangements with a number of third-party advertising sales
representatives. The Company's sales organization is focused solely on selling
advertising on all Xoom properties. The Company's sales organization consults
regularly with advertisers and agencies on design and placement of their Web-
based advertising, provides advertisers with advertising measurement analysis
and focuses on providing a high level of customer service and satisfaction.
Currently, advertisers and advertising agencies enter into short-term
agreements, on average one to two months, pursuant to which they receive a
guaranteed number of impressions for a fixed fee. Advertising on Xoom
currently consists primarily of banner-style advertisements that are
prominently displayed at the top of pages on a rotating basis throughout the
Xoom site. From each banner advertisement, viewers can hyperlink directly to
the advertiser's own Web site, thus providing the advertiser an opportunity to
directly interact with an interested customer. The Company's standard rate
card cost per thousand impressions ("CPM") for banner advertisements currently
ranges from $8 to $12, depending upon location of the advertisement and the
extent to which it is targeted for a particular audience. Discounts from
standard CPM rates may be provided for higher volume, longer-term advertising
contracts.
Advertising Customers
During the first six months of 1998, Xoom had over 40 advertisers on its Web
site. During the six months ended June 30, 1998, the Company's five largest
advertising customers accounted for approximately 44% of advertising revenue
(approximately 6% of total net revenue). The following is a list of the
Company's top 15 advertising customers by net revenue for the six months ended
June 30, 1998:
<TABLE>
<S> <C> <C>
3Com Corporation Hotel Reservations Network SimpleNet, Inc.
Amazon.com i-traffic, Inc. Spree.com Corporation
Cyberian Outpost, Inc. One & Only USA Net, Inc.
Datek Holdings
Corporation QSpace, Inc. VisiCom, Inc.
DLJDirect Inc. Real Networks, Inc. Visual Properties L.L.C.
</TABLE>
CUSTOMER SERVICE AND SUPPORT
The Company believes that the strength of its customer service and technical
support operations is critical to its success in maintaining its membership
base, increasing membership and encouraging repeat usage and purchases. The
Company has established a team of customer service and technical support
professionals who process inquiries and monitor the status of orders,
shipments and payments, operating from 7 a.m. to 6 p.m. Pacific time Monday
through Friday. Members can access customer service by e-mail and customers
can access a toll-free telephone number. The Company intends to enhance and
automate the e-mail response portions of its customer service and technical
support operations in the near future.
51
<PAGE>
WAREHOUSING AND FULFILLMENT
The Company has no fulfillment operation or warehouse facility of its own,
and currently relies solely on Banta for all warehousing and fulfillment
services. As a result of its product testing, the Company does not generally
carry large amounts of inventory of any given product. All shipments are made
from Banta's warehouse in Orem, Utah. In the event that the Company's product
sales increase substantially, particularly abroad, Banta has facilities within
and outside of the United States that can handle additional shipment and
warehousing needs. See "Risk Factors--Reliance On Certain Vendors."
The Company uses automated interfaces for accepting, sorting and processing
orders to enable it to achieve the most rapid and economical purchase and
delivery terms. Approximately 95% of orders are processed online, with the
remainder by telephone, fax or mail. Once the Company receives an order, it
sends a confirmation by e-mail to the customer. At the end of each day, the
Company sends all orders to Banta for processing. Banta then packs and ships
orders, providing confirmation to Xoom along with UPS shipping information for
all ground-shipped US orders. International orders are sent by international
air mail. Xoom forwards shipping information by e-mail to customers, along
with a link to UPS for package tracking.
TECHNOLOGY AND INFRASTRUCTURE
The Company has developed an open standard hardware and software system that
is designed for reliability. System architecture is based on a distributed
model that is highly scalable, flexible and modular, emphasizing extensive
automation and a high degree of redundancy that is designed to minimize single
points of failure. The system integrates site management, customer
interaction, inventory management, network monitoring, quality assurance,
transaction processing and fulfillment services. Currently, the system has 2.5
terabytes of unformatted disk space, supports over 25 million hits per day,
has a peak bandwidth of over 90 megabits per second and transfers 350
megabytes of data each day.
The Company uses network servers that are housed separately by application
at Exodus in Santa Clara, California and Frontier in Sunnyvale, California,
third-party and public domain server software optimized internally by the
Company and internally developed tools and utilities. Requests for files are
distributed to the appropriate servers using F5 Labs Big IP load distribution
and balancing hardware. The Company also employs in-house monitoring software
that includes automated diagnostic programs and intelligent agents, which test
and measure system response, create reports for evaluation by technical staff
and generate pager calls in the event of system failures. Additional software
monitors abuse of the site by members and potential hackers. Reporting and
tracking systems generate daily membership, order and campaign reports.
Membership and mailing engines allow for efficient deployment of member data
and targeting of e-mail campaigns.
Member-generated content is stored on a redundant array of independent
disks. Member profile information is stored on multiple disk arrays using
Oracle database software and backed up to long-term tape storage devices on a
daily basis. The Company will continue to upgrade and expand its server and
networking infrastructure in an effort to improve its fast and reliable access
to the Company's Web site and communities. Any system failure that causes an
interruption in service or a decrease in responsiveness of the Company's Web
site could result in less traffic on the Company's Web site and, if sustained
or repeated, could impair the Company's reputation and the attractiveness of
its brand.
Site connectivity to the Internet is provided via multiple DS-3 and OC-3
links on a 24 hour-a-day, seven days per week basis by Exodus and Frontier.
Exodus and Frontier also provide and manage power and environmentals for the
Company's networking and server equipment. The Company manages and monitors
its servers and network remotely from its headquarters in San Francisco,
California. The Company strives to rapidly develop and deploy high-quality
tools and features into its system without interruption or degradation in
service. Any disruption in the Internet access provided by Exodus or Frontier,
or any interruption in the service that Exodus or Frontier receives from other
providers, or any failure of Exodus or Frontier to handle higher volumes of
Internet users to the Xoom site could have a material adverse effect on the
Company's business, results of operations and financial condition.
52
<PAGE>
See "Risk Factors--Risks Of Capacity Constraints; System Failures;
Technological Risks" and "Risk Of Reliance On Internally Developed Systems."
COMPETITION
The market for community-based direct selling channels on the Internet is
new and rapidly evolving, and competition for members, consumers, visitors and
advertisers is intense and is expected to increase significantly in the
future. Barriers to entry are relatively insubstantial. The Company believes
that the principal competitive factors for companies seeking to create
communities on the Internet are critical mass, functionality, brand
recognition, member affinity and loyalty, broad demographic focus and open
access for visitors. Other companies who are primarily focused on creating
Web-based communities on the Internet and with whom the Company competes are
Tripod, GeoCities, WhoWhere (through the WhoWhere and Angelfire Web sites) and
theglobe. The Company could also face competition in the future from Web
directories, search engines, shareware archives, content sites, commercial
OSPs, sites maintained by ISPs, traditional media companies and other entities
that attempt to or establish communities on the Internet by developing their
own community or acquiring one of the Company's competitors. Further, there
can be no assurance that the Company's competitors and potential competitors
will not develop communities that are equal or superior to those of the
Company or that achieve greater market acceptance than the Company's
communities. The Company also competes for visitors with many Internet content
providers and ISPs, including Web directories, search engines, shareware
archives, content sites, commercial online services and sites maintained by
ISPs, as well as thousands of Internet sites operated by individuals and
government and educational institutions. These competitors include free
information, search and content sites or services, such as AOL, CNET, CNN/Time
Warner, Excite, Infoseek, Lycos, Netscape, Microsoft and Yahoo!. The Company
also competes with many companies for advertisers, including those companies
with whom the Company competes for visitors as well as traditional forms of
media such as newspapers, magazines, radio and television. The Company
believes that the principal competitive factors in attracting advertisers
include the amount of traffic on its Web site, brand recognition, customer
service, the demographics of the Company's members and viewers, the Company's
ability to offer targeted audiences and the overall cost-effectiveness of the
advertising medium offered by the Company. The Company believes that the
number of Internet companies that obtain revenue from Web-based advertising
will increase substantially in the future. Accordingly, the Company will
likely face increased competition, resulting in increased pricing pressures on
its advertising rates which could in turn have a material adverse effect on
the Company's business, results of operations and financial condition.
The Company also expects to encounter intense competition in the online
commerce market. The Company currently or potentially competes with a variety
of other companies. These competitors include various traditional computer
retailers including CompUSA and MicroCenter, various mail-order retailers
including CDW, Micro Warehouse, Insight, PC Connection and Creative Computers,
various Internet-focused retailers including Amazon.com, Egghead.com,
software.net, NECX Direct, various manufacturers that sell directly over the
Internet including Dell, Gateway, Apple and many software companies, a number
of online service providers including AOL and the Microsoft Network that offer
computer products directly or in partnership with other retailers, some non-
computer retailers such as Wal-Mart that sell a limited selection of computer
products in their stores and computer products distributors which may develop
direct channels to the consumer market. Increased competition from these and
other sources could require the Company to respond to competitive pressures by
establishing pricing, marketing and other programs or seeking out additional
strategic alliances or acquisitions which may be less favorable to the Company
than would otherwise be established or obtained, and thus could have a
material adverse effect on the business, prospects, financial condition and
results of operations of the Company.
Many of the Company's existing and potential competitors, including Web
directories and search engines and large traditional media companies, have
longer operating histories in the Web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than the Company. Such competitors are able to undertake more
extensive marketing campaigns for their brands and
53
<PAGE>
services, adopt more aggressive advertising pricing policies and make more
attractive offers to potential employees, distribution partners, commerce
companies, advertisers and third-party content providers. There can be no
assurance that Internet content providers and ISPs, including Web directories,
search engines, shareware archives, sites that offer professional editorial
content, commercial online services and sites maintained by ISPs will not be
perceived by advertisers as having more desirable Web sites for placement of
advertisements. In addition, substantially all of the Company's current
advertising customers and strategic partners also have established
collaborative relationships with certain of the Company's competitors or
potential competitors, and other high-traffic Web sites. Accordingly, there
can be no assurance that the Company will be able to grow its membership base,
traffic levels and advertiser customer base at historical levels or retain its
current members, traffic levels or advertiser customers, or that competitors
will not experience greater growth in traffic than the Company as a result of
such relationships which could have the effect of making their Web sites more
attractive to advertisers, or that the Company's strategic partners will not
sever or elect not to renew their agreements with the Company. There can also
be no assurance that the Company will be able to compete successfully against
its current or future competitors or that competition will not have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Risk Factors--Competition."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards its technology as proprietary and attempts to protect it
by relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. The
Company currently has no patents or patents pending and does not anticipate
that patents will become a significant part of the Company's intellectual
property in the foreseeable future. The Company also generally enters into
confidentiality or license agreements with its employees and consultants, and
generally controls access to and distribution of its documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's proprietary
information without authorization or to develop similar technology
independently. The Company pursues the registration of its service marks in
the United States and internationally, and has applied for and obtained the
registration in the United States and certain other countries for a number of
its service marks, including "Xoom" and the Xoom "X-in-circle" logo. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which the Company's services are distributed or
made available through the Internet, and policing unauthorized use of the
Company's proprietary information is difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of the Company. There can be no
assurance that the steps taken by the Company will prevent misappropriation or
infringement of its proprietary information. Any such infringement or
misappropriation, should it occur, might have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation might result in substantial costs and diversion of resources and
management attention and could have a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company's business activities will not infringe upon the
proprietary rights of others, or that other parties will not assert
infringement claims against the Company. From time to time, the Company has
been, and expects to continue to be, subject to claims in the ordinary course
of its business including claims of alleged infringement of the trademarks,
service marks and other intellectual property rights of third parties by the
Company and the content generated by its members. Such claims and any
resultant litigation, should it occur, might subject the Company to
significant liability for damages and might result in invalidation of the
Company's proprietary rights and even if not meritorious, could be time
consuming and expensive to defend and could result in the diversion of
management time and attention, any of which might have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Risk Factors--Legal Proceedings."
54
<PAGE>
The Company currently licenses from third parties certain technologies
incorporated into the Company's Web site. As it continues to introduce new
services that incorporate new technologies, it may be required to license
additional technology from others. There can be no assurance that these third-
party technology licenses will continue to be available to the Company on
commercially reasonable terms, if at all. The inability of the Company to
obtain any of these technology licenses could result in delays or reductions
in the introduction of new services or could adversely affect the performance
of its existing services until equivalent technology is identified, licensed
and integrated.
The Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no
assurance that such licensees will not take actions that might materially
adversely affect the value of the Company's proprietary rights or reputation,
which could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. There can be no
assurance that the steps taken by the Company to protect its proprietary
rights will be adequate, or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks and similar proprietary
rights.
In addition, the Company believes that its success to date and its future
success will depend in part upon its ability to provide reviews and other
information about the products that it sells. As an online publisher, the
Company may face potential liability for copyright, trademark or patent
infringement, defamation or other claims based on the nature and content of
materials that the Company publishes or distributes. Defending such claims, or
liability arising out of such claims, could have a material adverse effect on
the Company. Moreover, because of the interconnectivity currently provided on
the Company's Web site, and because the Company expects to greatly expand such
interconnectivity in the future, the Company could be exposed to liability
with respect to content that it does not control on member Web sites, in
member chat rooms and from other services available currently or in the
future. Insurance carried by the Company may not be sufficient to offset
liability arising from these types of liabilities, and any liability in excess
of such coverage could have a material adverse effect on the Company. See
"Risk Factors--Dependence On Intellectual Property Rights; Risks Of
Infringement; Liability For Online Content."
LEGAL PROCEEDINGS
Xoom acquires rights to license and distribute software clips, including
clip art, and movies from third parties. In June 1997, Sprint, an Australian
company, licensed to Xoom certain clip art. In January 1998, Xoom became aware
that Imageline claimed to own the copyright in certain images that Sprint had
licensed to Xoom. Some clip art images that Imageline alleged infringed
Imageline's copyright were included by Xoom in versions of Xoom's Web Clip
Empire product and licensed by Xoom to third parties, including other software
clip publishers. Xoom's contracts with such publishers require Xoom to
indemnify the publisher if copyrighted material licensed from Xoom infringes a
copyright. Xoom and Imageline have engaged in discussions, but were unable to
reach any agreement regarding a resolution of this matter. On August 27, 1998
Xoom filed a lawsuit in the United States District Court for the Eastern
District of Virginia against Imageline, certain parties affiliated with
Imageline, and Sprint regarding Xoom's and its licensees' alleged infringement
on Imageline's copyright in certain clip art that Xoom licensed from Sprint.
The lawsuit seeks, among other relief, disclosure of information from
Imageline concerning the alleged copyright infringement, a declaratory
judgement concerning the validity and enforceability of Imageline's copyrights
and copyright registrations, a declaratory judgement regarding damages, if
any, owed by Xoom to Imageline, and indemnification from Sprint for damages,
if any, owed by Xoom to Imageline. While the Company is seeking
indemnification from Sprint for damages, there can be no assurance that Sprint
will be able to fulfill the indemnity obligations under its license agreement
with Xoom. There can be no assurance as to the outcome of the claims asserted
by Imageline and the related litigation. Such claims or litigation could
result in a decision adverse to the Company. A decision adverse to the Company
in any of these matters could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition,
litigation, regardless of its merits could result in substantial costs to the
Company
55
<PAGE>
and divert management's attention from the Company's operations. In light of
the Imageline claim and the resulting litigation the Company is evaluating it
policies and procedures regarding its licensing and distribution of software
clips. There can be no assurance that third parties will not assert
infringement claims against the Company. Any misappropriation or infringement
could result in litigation which could have a material adverse effect on the
Company's business, results of operations and financial condition. See "Risk
Factors--Dependence On Intellectual Property Rights; Risks Of Infringement;
Liability For Online Content."
EMPLOYEES
As of June 30, 1998, the Company had 39 full-time employees, including 11 in
marketing and sales, 19 in operating and development and 9 in finance and
administration. The Company's future success will depend, in part, on its
ability to continue to attract, retain and motivate highly qualified technical
and management personnel, for whom competition is intense. From time to time,
the Company also employs independent contractors to support its research and
development, marketing, sales and support and administrative organizations.
The Company's employees are not covered by any collective bargaining
agreement, and the Company has never experienced a work stoppage. The Company
believes its relations with its employees are good.
FACILITIES
The Company's headquarters are currently located in a leased facility in San
Francisco, California, consisting of approximately 18,700 square feet of
office space, which is under a lease that expires September 30, 2007. The
Company's former headquarters were located in a leased facility in San
Francisco, California, consisting of approximately 6,500 square feet of office
space, which is under a lease that expires January 31, 1999. The Company has
entered into a sublease with a third party for 2,800 square feet of this
space. The Company has also leased approximately 1,000 square feet of office
space in New York through May 31, 2001 for its East Coast sales offices.
56
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company and their
respective ages as of June 30, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Chris Kitze(1)................39. Chairman of the Board, Secretary and Director
Laurent Massa...............38... Chief Executive Officer, President and Director
John Harbottle..............43... Vice President, Finance and Chief Financial Officer
Vijay Vaidyanathan..........33... Chief Technology Officer and Director
Russell S. Hyzen............32... Vice President, Business Development
Alicia Marziali.............33... Vice President, Advertising Sales
Janine Popick...............30... Vice President, Direct Marketing
Bob Ellis...................62... Publisher and Director
James Heffernan(1)(2).......56... Director
Jeffrey Ballowe(1)..........42... Director
Philip Schlein(2)...........64... Director
Robert C. Harris, Jr........51... Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Chris Kitze co-founded the Company and has served as Chairman of the Board
and Secretary since that time. From April 1996 until December 1996, Mr. Kitze
also served as the Company's President and Chief Executive Officer. In June
1995, Mr. Kitze co-founded Point Communications Corporation ("Point
Communications"), a Web directory company, which was acquired by Lycos in
October 1995, after which Mr. Kitze served as Lycos' Vice President of
Marketing until June 1996. From June 1994 until June 1995, Mr. Kitze served as
Publisher at Softkey International (now The Learning Company). In September
1991, Mr. Kitze co-founded Aris Entertainment, a CD-ROM publishing company and
served as its President until June 1994. Mr. Kitze holds a B.S. in Chemical
Engineering from the University of Colorado.
Laurent Massa co-founded the Company and has served as its Chief Executive
Officer and President since December 1996. Mr. Massa has also served on the
Company's Board of Directors since February 1998. From September 1996 to June
1998, Mr. Massa also served as the Company's Chief Financial Officer. From May
1995 until September 1996, Mr. Massa served as Vice President of New Ventures
of Olivetti Telemedia, a telecommunications company based in Milan. Prior to
joining Olivetti, Mr. Massa joined WordStar International in March 1991 as
Director of Marketing, Europe, and became Vice President, International of
Softkey International (now The Learning Company), following Softkey's merger
with WordStar and Spinaker in February, 1993. Mr. Massa holds an MBA from the
European Business School.
John Harbottle has served as the Company's Vice President, Finance and Chief
Financial Officer since August 1998. From February 1996 to February 1998, Mr.
Harbottle was the Vice President of Finance and Chief Financial Officer of
Mastering Computers, Inc., an information technology training and CBT software
development and manufacturing company and then worked as an independent
consultant for Mastering Computers, Inc. from February to July 1998. From
October 1994 to February 1996, Mr. Harbottle was the Vice President of Finance
and Chief Financial Officer of Zenger-Miller, an international
management/leadership training, consulting and education company. From January
1992 to October 1994, Mr. Harbottle was the Vice President of Finance and
Chief Financial Officer of IFS, an international consumer products and direct
marketing company. Mr. Harbottle is a director of WebSoftware Corporation. Mr.
Harbottle holds a B.S. in Business Administration from the University of
California, Berkeley.
57
<PAGE>
Vijay Vaidyanathan has served as the Company's Chief Technology Officer and
as a Director since March 1998. Prior to joining the Company, Mr. Vaidyanathan
co-founded Paralogic Corporation, an internet software company, and served as
its President and Chief Executive Officer from January 1995 until its
acquisition by the Company in March 1998. Prior to founding Paralogic
Corporation Mr. Vaidyanathan served as Engineering Manager at Frontline Design
Automation, an electronic design automation company from July 1994 until
December 1994 and as Engineering Manager at Zycad Corporation, an electronic
design automation company from February 1991 until July 1994. Mr. Vaidyanathan
also serves on the board of Paralogic Software Corporation, a software
company, and Santa Clara Valley School, Inc., a non-profit school he co-
founded in 1995. Mr. Vaidyanathan holds an M.S. in Instrumentation Technology
from the Birla Institute of Technology and Science in India and an M.S. in
Computer Science from the State University of New York at Albany.
Russell S. Hyzen has served as the Company's Vice President of Business
Development since December 1997 and as the Company's director of Business
Development from November 1996 to December 1997. Prior to joining the Company,
Mr. Hyzen served as Business Development Manager for Quote.com, an Internet
Financial Services Company, from December 1995 to October 1996. From November
1993 to December 1995, he worked as an independent consultant. In August 1991,
Mr. Hyzen founded Pacific Coast Lending, a mortgage brokerage company, and he
served as its President until November 1993. Mr. Hyzen holds a B.S. in
Business Administration from California State University, Northridge.
Alicia Marziali has served as the Company's Vice President, Advertising
Sales, since December 1997. From October 1995 to November 1997, Ms. Marziali
held a number of management positions with Lycos most recently as Director of
Sales, Eastern Region. From December 1994 until September 1995, Ms. Marziali
served as Director of Network Sales for Point Communications. Prior to joining
Point Communications, Ms. Marziali was a Regional Sales Manager for College
Bound Magazine from September 1993 until October 1994. From February 1992 to
August 1993, she was employed as a Senior Account Manager for Linnette &
Harrison, an advertising agency. From January 1990 to December 1992, she
worked as an Account Manager for Chalek & Chalek, an advertising agency. Ms.
Marziali holds a B.A. in Communications from Montclair State University.
Janine Popick has served as the Company's Vice President of Direct Marketing
since April 1998. From November 1997 until April 1998, Ms. Popick served as
Manager of Direct Marketing for FileMaker, Inc., a wholly-owned subsidiary of
Apple Computer. From January 1996 to November 1997, Ms. Popick served as
Manager of Direct Marketing of Insignia Solutions, a computer software
company. Prior to joining Insignia Solutions, Ms. Popick served as Manager of
Direct Marketing of Claris Corporation, a computer software company, from
September 1994 to January 1996. From December 1993 to August 1994, Ms Popick
served as Manager of Direct Marketing for Symantec Corporation, a software
company. She was an account executive at JDA Corp., an enterprise software
solutions company, from September 1993 to December 1993. Ms Popick holds a
B.A. in Communications and English from Hofstra University.
Bob Ellis has served as a director of the Company and as publisher since
August 1997. From July 1995 to July 1997, Mr. Ellis was President of Paris
Productions, an online publishing company. In January 1988, he founded Compact
Publishing Company ("Compact"), a publishing company and served as its Chief
Executive Officer until its acquisition by Softkey International (now The
Learning Company) in July 1994, after which he served as Vice President of
Publishing of Softkey until July 1995. Prior to founding Compact, Mr. Ellis
was a Vice President of Time-Life, Inc. and President of Time-Life Software.
Mr. Ellis holds a B.A. in Philosophy from Yale and an M.A. in History from the
University of Chicago.
James J. Heffernan has served as a director of the Company since June 1998.
Mr. Heffernan co-founded USWeb Corporation, an internet professional services
company in December 1995 and has served as its Executive Vice President, Chief
Financial Officer, Secretary and a Director since that time. From May 1993 to
July 1994, he worked as an independent consultant and then joined Interlink
Computer Sciences, Inc. in July 1994 as Chief Financial Officer, where he
served until January 1996. From March 1992 to May 1993, Mr. Heffernan served
as Chief Financial Officer and Chief Operating Officer of Serius. Mr.
Heffernan has also served as an officer of several other technology companies,
including Software Publishing Corp., Zital Inc. and
58
<PAGE>
Measurex Corp. Mr. Heffernan is a director of Savoir Technology Group, Inc and
USWeb Corporation. Mr. Heffernan has a B.S. in Business and an MBA from Santa
Clara University.
Jeffrey Ballowe has served as a director of the Company since July 1998.
From 1991 to December 1997, Mr. Ballowe served in magazine publishing sales at
Ziff-Davis, including as Publisher of PC Magazine and held a number of
corporate positions in which he was responsible for establishing Ziff-Davis
European operations, managing Ziff-Davis' largest magazine group, launching
Ziff-Davis' Internet publications, creating ZDNet and launching ZDTV. At his
retirement from Ziff-Davis in December 1997, Mr. Ballowe was President of the
Ziff-Davis Interactive Media and Development Group, in charge of Ziff-Davis'
Internet publications, ZDNet, ZDTV and all development at Ziff-Davis. Prior to
working at Ziff-Davis, Mr. Ballowe worked as a marketing executive at various
technology and marketing services companies. Currently, Mr. Ballowe is
Chairman of the Board of Directors of Dejanews, serves on the boards of USWeb,
Personalogic and VerticalNet, and is an Internet Capital Group Venture
Partner. Mr. Ballowe holds a B.A. in French from Lawrence University, an M.A.
in French from the University of Wisconsin-Madison, and an MBA from the
University of Chicago.
Philip Schlein has served as a Director of the Company since July 1998.
Since April 1985, Mr. Schlein has been a general partner of U.S.
VenturePartners, a venture capital firm specializing in retail and consumer
products companies. From January 1974 to January 1985, Mr. Schlein served as
President and Chief Executive Officer of Macy's California, a division of R.
H. Macy & Co., Inc., a department store chain. Mr. Schlein also serves on the
Board of Directors of Ross Stores, Inc., ReSound Corporation, Quick Response
Services, Burnham Pacific Properties, Inc. and Bebe Stores. Mr. Schlein holds
a B.S. in Economics from the University of Pennsylvania.
Robert C. Harris, Jr. has served as a director of the Company since August
1998. Mr. Harris is a Senior Managing Director of Bear, Stearns & Co. Inc.
From 1989 to October 1997, he was a co-founder and Managing Director of
Unterberg Harris. From 1984 to 1989, he was a General Partner, Managing
Director and Director of Alex. Brown & Sons Inc. Mr. Harris is also a director
of N2K, Inc., MDSI Mobile Data Solutions, Inc. and SoftNet Systems, Inc. Mr.
Harris holds a B.S. and MBA from the University of California at Berkeley.
All Directors hold office until the next annual meeting of the stockholders
and until their successors have been duly elected and qualified. Executive
Officers are elected by and serve at the direction of the Board of Directors.
There are no family relationships among any of the Directors or Executive
Officers of the Company other than between Mr. Kitze and Ms. Marziali, who is
Mr. Kitze's sister-in-law.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of Chris Kitze, James J. Heffernan
and Jeffrey Ballowe, recommends the selection of independent public
accountants to the Board of Directors, reviews the scope and results of the
audit and other services provided by the Company's independent accountants,
and reviews the Company's accounting practices and its systems of internal
accounting controls.
The Compensation Committee, consisting of James J. Heffernan and Philip
Schlein, reviews and approves the salaries, bonuses and other compensation
payable to the Company's executive officers and administers and makes
recommendations concerning the Company's employee benefit plans. See "Certain
Transactions."
DIRECTOR COMPENSATION
The Company's directors receive no cash compensation for their services as
Board members or committee members and are not reimbursed for expenses
incurred in connection with attending Board and committee meetings. On May 15,
1998, Mr. Heffernan, an outside director, entered into a consulting agreement
with the Company pursuant to which he is entitled to receive compensation in
the form of Common Stock and options to purchase Common Stock for his
services, which such services include serving as a member of the Board of
Directors. See "Certain Transactions."
59
<PAGE>
On August 4, 1997, Bob Ellis, one of the Company's outside directors,
entered into a letter agreement (the "Ellis Agreement") with the Company
pursuant to which Mr. Ellis agreed to provide certain services to the Company,
including serving as a member of the Board of Directors. The Ellis Agreement
provides for compensation in the form of options to buy 333,333 shares of the
Company's Common Stock at an exercise price of $0.02 per share, which will
vest ratably over an 18 month period. The Ellis Agreement will terminate after
18 months, on February 3, 1999.
On July 28, 1998, Jeffrey Ballowe, one of the Company's outside directors,
entered into a letter agreement (the "Ballowe Agreement") with the Company
pursuant to which Mr. Ballowe agreed to provide certain services to the
Company, including serving as a member of the Board of Directors. The Ballowe
Agreement provides for compensation in the form of options to buy 35,000
shares of the Company's Common Stock at an exercise price of $4.50 per share,
which will vest monthly over a two year period or immediately upon a sale of
the Company. Mr. Ballowe also receives a monthly fee of $10,000 as
compensation for consulting services to be provided to the Company. Prior to
the Offering, this fee is payable in options to purchase shares of the
Company's Common Stock, at an exercise price of $4.50 per share, and following
the Offering, this fee will be payable in shares of Common Stock based upon
the stock's trading price. Mr. Ballowe will also receive compensation equal to
5% of all funds raised by him for the Company, payable in options to purchase
shares of the Company's Common Stock prior to the Offering or, following the
Offering, payable in the Company's Common Stock.
On July 28, 1998, Phillip Schlein, one of the Company's outside directors,
entered into a letter agreement (the "Schlein Agreement") with the Company
pursuant to which Mr. Schlein agreed to provide certain services to the
Company, including serving as a member of the Board of Directors. The Schlein
Agreement provides for compensation in the form of options to buy 35,000
shares of the Company's Common Stock at an exercise price of $4.50 per share,
which will vest monthly over a two year period or immediately upon a sale of
the Company. Mr. Schlein also receives a monthly fee of $10,000 payable in the
Company's Common Stock as compensation for consulting services to be provided
to the Company.
On July 28, 1998, Robert Harris, one of the Company's outside directors,
entered into a letter agreement (the "Harris Agreement") with the Company
pursuant to which Mr. Harris agreed to provide certain services to the
Company, including serving as a member of the Board of Directors. The Harris
Agreement provides for compensation in the form of options to buy 35,000
shares of the Company's Common Stock at an exercise price of $4.50 per share,
which will vest monthly over a two year period or immediately upon a sale of
the Company. Mr. Harris also receives a monthly fee of $10,000 payable in the
Company's Common Stock as compensation for consulting services to be provided
to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of the Company's Chief Executive Officer and each of the other most highly
compensated executive officers of the Company whose aggregate salary, bonus
and other compensation exceeded $100,000 during the fiscal year ended
December 31, 1997 (collectively, the "Named Executive Officers").
60
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS/SARS (#)
- --------------------------- ---------- -------------------------
<S> <C> <C> <C>
Laurent Massa............................. $ 175,000 -- 125,000
President and Chief Executive Officer
Russell S. Hyzen.......................... $ 120,000 $ 3,333 80,000
Vice President, Business Development
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants to
purchase shares of Common Stock to each of the Named Executive Officers during
the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(3)
OPTIONS FISCAL YEAR PRICER PER EXPIRATION --------------------
NAME GRANTED(1) 1997(2) SHARE DATE 0%($) 5% ($) 10% ($)
- ---- ---------- ------------ ---------- ---------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Laurent Massa........... 125,000 13.2% $0.02 3/15/07 -- -- --
Russell S. Hyzen........ 80,000 8.4% $0.02 11/02/07 -- -- --
</TABLE>
- --------
(1) Represents options granted outside the Company's stock option plans.
(2) Based on options to purchase an aggregate of 949,472 shares of Common
Stock granted during fiscal 1997.
(3) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), shown are the hypothetical gains or "option spreads"
that would exist for the respective options. These gains are based on
assumed rates of annual compounded stock price appreciation of 0%, 5% and
10% from the date the option was granted over the full option term. The
0%, 5% and 10% assumed rates of appreciation are mandated by the
Commission and do not represent the Company's estimate or projection of
future increases in the price of its Common Stock.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information as of December 31, 1997
concerning exercisable and unexercisable stock options held by each of the
Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Laurent Massa........... -- -- 228,906 / 283,594 $276,976 / 343,149
Russell S. Hyzen........ -- -- 88,333 / 116,667 106,883 / 141,167
</TABLE>
- --------
(1) Based on the fair market value of the Company's Common Stock at December
31, 1997, of $1.23 per share (as determined by the Company's Board of
Directors), less the exercise price for such shares.
61
<PAGE>
EMPLOYMENT AGREEMENTS
On July 1, 1998, Laurent Massa, the Company's President and Chief Executive
Officer, entered into an employment agreement (the "Massa Agreement") with the
Company. The Massa Agreement provides for an annual salary of $216,000. Mr.
Massa is also eligible for an annual bonus of up to 33% of his base salary,
paid quarterly based on the following criteria: (i) exceeding quarterly
revenue goals: 50% of the eligible Bonus; (ii) achieving specific management
team goals: 25% of the eligible bonus and (iii) achieving personal objectives
that improve the organization: 25% of the eligible bonus. The goals will be
set and reviewed quarterly by the Compensation Committee of the Board. Should
the Company terminate Mr. Massa without Cause (as defined in the Massa
Agreement), the Company is required to provide Mr. Massa 180 days' advanced
written notice, and the Company may in its discretion terminate Mr. Massa's
employment at any time prior to the end of such notice period, provided the
Company pays Mr. Massa an amount equal to the base compensation plus benefits
Mr. Massa would have earned through the balance of the above notice period. In
the event the Company exercises it right to terminate Mr. Massa without Cause,
Mr. Massa shall be immediately entitled to exercise 100% of any stock options
granted to him by the Company that had not previously vested. If Mr. Massa is
terminated by the Company without Cause, after the beginning of trading of the
Company's stock on a public market, he may exercise his vested stock option
for a four month period from the date Mr. Massa is notified by the Company of
the intention to terminate his employment. Should the Company terminate Mr.
Massa for Cause, the Company is required to pay Mr. Massa all compensation due
on the date of termination. In the event of a Change in Control or Corporate
Transaction (as defined in the Massa Agreement) pursuant to which Mr. Massa's
employment with the Company is involuntarily terminated, with or without
cause, Mr. Massa will be entitled to payment of an amount equal to one year's
base compensation plus benefits and any and all stock options previously
granted to Mr. Massa by the Company will immediately become fully vested and
exercisable. Pursuant to the terms of the Massa Agreement, Mr. Massa may
terminate his employment with the Company at any time for any reason by
providing the Company with thirty days written advance notice. Should Mr.
Massa's employment with the Company terminate for any reason, the Massa
Agreement further provides that Mr. Massa (i) will not use any Proprietary
Information of the Company with the Company's prior written consent, (ii) will
not use any Confidential Information to compete against the Company or any of
its employees and (iii) will not, for one year following termination, solicit
any customer or employee of the Company. Mr. Massa will be eligible for an
annual review of the Massa Agreement no later than July 20, 1999. Pursuant to
a letter agreement entered into prior to the Massa Agreement, the Company
granted to Mr. Massa options to purchase up to an aggregate of 512,500 shares
of Common Stock at a per share exercise price of $0.02.
On August 4, 1998, John Harbottle, the Company's Chief Financial Officer,
entered into an employment agreement (the "Harbottle Agreement") with the
Company. The Harbottle Agreement provides for an annual salary of $144,000.
Mr. Harbottle is also eligible for a discretionary quarterly bonus of up to
$10,000. Should the Company terminate Mr. Harbottle without Cause (as defined
in the Harbottle Agreement), the Company is required to provide Mr. Harbottle
180 days' advanced written notice, and the Company may in its discretion
terminate Mr. Harbottle's employment at any time prior to the end of such
notice period, provided the Company pays Mr. Harbottle an amount equal to the
base compensation plus benefits Mr. Harbottle would have earned through the
balance of the above notice period. In the event the Company exercises it
right to terminate Mr. Harbottle without Cause, Mr. Harbottle shall be
immediately entitled to exercise 100% of any stock options granted to him by
the Company that had not previously vested. If Mr. Harbottle is terminated by
the Company without Cause after the beginning of trading of the Company's
stock on a public market, he may exercise his vested stock options for a four
month period after being notified by the Company of the intention to terminate
his employment. Should the Company terminate Mr. Harbottle for Cause, the
Company is required to pay Mr. Harbottle all compensation due on the date of
termination. In the event of a Change in Control or Corporate Transaction (as
defined in the Harbottle Agreement) pursuant to which Mr. Harbottle's
employment with the Company is involuntarily terminated, with or without
cause, Mr. Harbottle will be entitled to payment of an amount equal to 6
months base compensation plus benefits and all stock options previously
granted to Mr. Harbottle by the Company will immediately become fully vested
and exercisable. Pursuant to the terms of the Harbottle Agreement, Mr.
Harbottle may terminate his employment with the Company at any time for any
62
<PAGE>
reason by providing the Company with thirty days written advance notice.
Should Mr. Harbottle's employment with the Company terminate for any reason,
the Harbottle Agreement further provides that Mr. Harbottle (i) will not use
any Proprietary Information of the Company with the Company's prior written
consent, (ii) will not use any Confidential Information to compete against the
Company or any of its employees and (iii) will not, for one year following
termination, solicit any customer or employee of the Company. Pursuant to a
letter agreement entered into prior to the Harbottle Agreement, the Company
granted to Mr. Harbottle options to purchase up to 130,000 shares of Common
Stock at a per share exercise price of $4.50 and options to purchase up to
30,000 shares of Common Stock at a per share exercise price of $8.00.
The Company has entered into an employment agreement (the "Vaidyanathan
Agreement"), dated March 10, 1998, as amended on August 12, 1998, with Vijay
Vaidyanathan, its Chief Technical Officer. The Agreement provides that Mr.
Vaidyanathan receives a yearly salary of $120,000. Mr. Vaidyanathan is also
entitled to participate in the Company's medical, dental and vision insurance
plan and in any other employee benefit plan adopted by the Company. Should the
Company terminate Mr. Vaidyanathan without Cause (as defined in the
Vaidyanathan Agreement), the Company is required to provide Mr. Vaidyanathan
90 days' advanced written notice, and the Company may in its discretion
terminate Mr. Vaidyanathan's employment at any time prior to the end of such
notice period, provided the Company pays Mr. Vaidyanathan an amount equal to
the base compensation plus benefits Mr. Vaidyanathan would have earned through
the balance of the above notice period. In the event the Company exercises it
right to terminate Mr. Vaidyanathan without Cause, Mr. Vaidyanathan shall be
immediately entitled to exercise 100% of any stock options granted to him by
the Company that had not previously vested. If Mr. Vaidyanathan is terminated
by the Company without Cause after the beginning of trading of the Company's
stock on a public market, he may exercise his vested stock options for a four
month period after being notified by the Company of the intention to terminate
his employment. Should the Company terminate Mr. Vaidyanathan for Cause, the
Company is required to pay Mr. Vaidyanathan all compensation due on the date
of termination. In the event of a Change in Control or Corporate Transaction
(as defined in the Vaidyanathan Agreement) pursuant to which Mr.
Vaidyanathan's employment with the Company is involuntarily terminated, with
or without cause, Mr. Vaidyanathan will be entitled to payment of an amount
equal to 6 months base compensation plus benefits and all stock options
previously granted to Mr. Vaidyanathan by the Company will immediately become
fully vested and exercisable. Pursuant to the terms of the Vaidyanathan
Agreement, Mr. Vaidyanathan may terminate his employment with the Company at
any time for any reason by providing the Company with thirty days written
advance notice. Should Mr. Vaidyanathan's employment with the Company
terminate for any reason, the Vaidyanathan Agreement further provides that Mr.
Vaidyanathan (i) will not use any Proprietary Information of the Company with
the Company's prior written consent, (ii) will not use any Confidential
Information to compete against the Company or any of its employees and (iii)
will not, for one year following termination, solicit any customer or employee
of the Company. Mr. Vaidyanathan will be eligible for an annual review of the
Vaidyanathan Agreement no later than August 12, 1999. Under the Vaidyanathan
Agreement, the Company granted to Mr. Vaidyanathan options to purchase up to
140,000 shares of Common Stock at a per share exercise price of $1.54.
On July 20, 1998, Russell S. Hyzen, the Company's Vice President Business
Development, entered into an employment agreement (the "Hyzen Agreement") with
the Company. The Hyzen Agreement provides for an annual salary of $120,000 and
a discretionary bonus of up to $10,000 per quarter to be paid upon achievement
of personal and company targets to be defined. Should the Company terminate
Mr. Hyzen without Cause (as defined in the Hyzen Agreement), the Company is
required to provide Mr. Hyzen 90 days' advanced written notice, and the
Company can, in its discretion, terminate Mr. Hyzen's employment at any time
prior to the end of such notice period, provided the Company pays Mr. Hyzen an
amount equal to the base compensation Mr. Hyzen would have earned through the
balance of the above notice period plus benefits. In the event the Company
exercises it right to terminate Mr. Hyzen without Cause, Mr. Hyzen shall be
immediately entitled to exercise 100% of any stock options granted to him by
the Company that had not previously vested. If Mr. Hyzen is terminated by the
Company without Cause, after the beginning of trading of the Company's stock
on a public market, he may exercise his vested stock option for a four month
period after being informed by the Company of the intention to terminate his
employment. Should the Company terminate Mr. Hyzen for Cause, the Company
63
<PAGE>
is required to pay Mr. Hyzen all compensation due on the date of termination.
In the event of a Change in Control or Corporate Transaction (as defined in
the Hyzen Agreement) pursuant to which Mr. Hyzen's employment with the Company
is involuntarily terminated for any reason, with or without cause, Mr. Hyzen
will be entitled to payment of an amount equal to six month's base
compensation plus benefits and any and all stock options previously granted to
Mr. Hyzen by the Company will immediately become fully vested and exercisable.
Pursuant to the terms of the Hyzen Agreement Mr. Hyzen may terminate his
employment with the Company at any time for any reason by providing the
Company with thirty days written advance notice. Should Mr. Hyzen's employment
with the Company terminate for any reason, the Hyzen Agreement further
provides that Mr. Hyzen (i) will not use any Proprietary Information of the
Company with the Company's prior written consent, (ii) will not use any
Confidential Information to compete against the Company or any of its
employees and (iii) will not, for one year following termination, solicit any
customer or employee of the Company. Mr. Hyzen will be eligible for an annual
review of the Hyzen Agreement no later than November 30, 1998. Pursuant to a
letter agreement entered into prior to the Hyzen Agreement, the Company
granted to Mr. Hyzen options to purchase up to 205,000 shares of Common Stock
at a per share exercise price of $0.02. In June 1998, the Company granted Mr.
Hyzen options to purchase up to an additional 20,000 shares of Common Stock at
a per share exercise price of $2.22.
BENEFIT PLANS
1998 Stock Incentive Plan
The Company's 1998 Plan was approved by the Board of Directors and by the
Company's stockholders in February 1998. The 1998 Plan provides for the grant
of options intended to qualify as "incentive stock options" under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified
stock options and stock appreciation rights. The 1998 Plan also provides for
the transfer or sale of Common Stock to selected individuals in connection
with the performance of services to the Company or its affiliates. A total of
3,500,000 shares of Common Stock have been reserved for issuance under the
1998 Plan. As of June 30, 1998, no shares of Common Stock had been issued upon
exercise of options granted under the 1998 Plan, 907,820 shares remained
reserved for future issuance upon the exercise of outstanding options, and
2,592,180 shares remained available for future grant. The Board of Directors
or a committee designated by the Board is authorized to administer the 1998
Plan, including the selection of individuals eligible for grants of options,
issuances of Common Stock, the terms of such grants or issuances, possible
amendments to the terms of such grants or issuances and the interpretation of
the terms of, and adoption of rules for, the 1998 Plan. The maximum term of
any stock option granted under the 1998 Plan is ten years, except that with
respect to incentive stock options granted to a person possessing more than
10% of the combined voting power of the Company (a "10% Stockholder"), the
term of such stock options shall be for no more than five years.
The exercise price of nonqualified stock options and incentive stock options
granted under the 1998 Plan must be at least 85% and 100%, respectively, of
the fair market value of the Common Stock on the grant date except that the
exercise price of incentive stock options granted to a 10% Stockholder must be
at least 110% of such fair market value on the grant date. The aggregate fair
market value on the date of grant of the Common Stock for which incentive
stock options are exercisable for the first time by an employee during any
calendar year may not exceed $100,000. The purchase price of shares of Common
Stock granted under the 1998 Plan must be at least 85% of the fair market
value of the Common Stock on the grant date except that the purchase price of
shares of Common Stock granted to a 10% Stockholder must be at least 100% of
such fair market value on the grant date. The individual agreements under the
1998 Plan may provide for repurchase rights for the Company under the terms
and conditions set forth in the 1998 Plan. The 1998 Plan will terminate in
2008, unless earlier terminated by the Board.
In the event of a merger in which the Company is not the surviving entity,
the sale of all or substantially all of the Company's assets or a reverse
merger resulting in a change of control of the Company, each grant which is at
the time outstanding under the Plan shall, unless the Administrator in its
discretion decides differently, immediately prior to the specified effective
date of such transaction, automatically become fully vested and
64
<PAGE>
exercisable with respect to 75% of the unvested shares at the time represented
by such grant. To the extent it has not been previously exercised, the grant
will terminate immediately prior to the consummation of such proposed
transaction, unless the grant is assumed or an equivalent grant is substituted
by the successor corporation.
1998 Employee Stock Purchase Plan
The Company's Stock Purchase Plan was approved by the Board of Directors in
August 1998 and will be submitted to the Company's stockholders for approval
prior to the Offering. The Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code in order to
provide employees of the Company with an opportunity to purchase Common Stock
through payroll deductions. An aggregate of 300,000 shares of the Company's
Common Stock has been reserved for issuance under the Stock Purchase Plan and
available for purchase thereunder, plus annual increases equal to the lesser
of (i) 500,000 shares, (ii) 4% of the outstanding shares on such dates or
(iii) a lesser amount determined by the Board, subject to adjustment in the
event of a stock split, stock dividend or other similar change in the Common
Stock or the capital structure of the Company. All employees of the Company
(and employees of "subsidiary corporations" and "parent corporations" of the
Company (as defined by the Code) designated by the administrator of the Stock
Purchase Plan) whose customary employment is for more than five months in any
calendar year and more than 20 hours per week are eligible to participate in
the Stock Purchase Plan. Employees hired after the consummation of the
Offering are eligible to participate in the Stock Purchase Plan, subject to a
six-month waiting period after hiring. Non-employee directors, consultants,
and employees subject to the rules or laws of a foreign jurisdiction that
prohibit or make impractical the participation of such employees in the Stock
Purchase Plan are not eligible to participate in the Stock Purchase Plan.
The Stock Purchase Plan designates Purchase Periods, Accrual Periods and
Exercise Dates. Purchase Periods are generally overlapping periods of 24
months. The initial Purchase Period begins on the effective date of the Stock
Purchase Plan, which is the effective date of the Company's Registration
Statement relating to the Offering, and ends on December 31, 2000. Additional
Purchase Periods will commence each July 1 and January 1. Accrual Periods are
generally six month periods, with the initial Accrual Period commencing on the
effective date of the Stock Purchase Plan and ending on June 30, 1999.
Thereafter, Accrual Periods will commence each July 1 and January 1. Exercise
Dates are the last day of each Accrual Period. In the event of a merger of the
Company with or into another corporation, the sale of all or substantially all
of the assets of the Company, or certain other transactions in which the
stockholders of the Company before the transaction own less than 50% of the
total combined voting power of the Company's outstanding securities following
the transaction, the administrator of the Stock Purchase Plan may elect to
shorten the Purchase Period then in progress.
On the first day of each Purchase Period, a participating employee is
granted a purchase right which is a form of option to be automatically
exercised on the forthcoming Exercise Dates within the Purchase Period during
which deductions are to be made from the pay of participants (in accordance
with their authorizations) and credited to their accounts under the Stock
Purchase Plan. When the purchase right is exercised, the participant's
withheld salary is used to purchase shares of Common Stock of the Company. The
price per share at which shares of Common Stock are to be purchased under the
Stock Purchase Plan during any Accrual Period is the lesser of (a) 85% of the
fair market value of the Common Stock on the date of the grant of the option
(the commencement of the Purchase Period) or (b) 85% of the fair market value
of the Common Stock on the Exercise Date (the last day of an Accrual Period).
The participant's purchase right is exercised in this manner on both Exercise
Dates arising in the Purchase Period unless, on the first day of any Accrual
Period, the fair market value of the Common Stock is lower than the fair
market value of the Common Stock on the first day of the Purchase Period. If
so, the participant's participation in the original Purchase Period is
terminated, and the participant is automatically enrolled in the new Purchase
Period effective the same date.
Payroll deductions may range from 1% to 10% (in whole percentage increments)
of a participant's regular base pay and bonuses, exclusive of overtime, shift-
premiums or commissions. Participants may not make direct cash payments to
their accounts. The maximum number of shares of Common Stock which any
employee may
65
<PAGE>
purchase under the Stock Purchase Plan during an Accrual Period is 1,250
shares. Certain additional limitations on the amount of Common Stock which may
be purchased during any calendar year are imposed by the Code.
The Stock Purchase Plan will be administered by the Board of Directors or a
committee designated by the Board, which will have the authority to terminate
or amend the Stock Purchase Plan (subject to specified restrictions) and
otherwise to administer the Stock Purchase Plan and to resolve all questions
relating to the administration of the Stock Purchase Plan.
Option Grants Outside the 1998 Stock Incentive Option Plan
In the period between August 1996 and March 1998, options to purchase
1,549,722 shares of Common Stock were granted to the Company's directors,
officers and all of the Company's employees, as well as to a number of
consultants. The options were granted outside the 1998 Plan by the Board of
Directors pursuant to individual stock option agreements under substantially
similar terms as the options granted under the 1998 Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and
other agents to the fullest extent permitted by the Delaware Business
Corporations Act, as amended. The Company may enter into indemnification
agreements with its directors and officers and is also empowered under its
Bylaws to purchase insurance on behalf of any person whom it is required or
permitted to indemnify. The Company has entered into indemnification
agreements with each of its directors and executive officers and intends to
obtain a policy of directors' and officers' liability insurance that insures
such persons against the cost of defense, settlement or payment of a judgment
under certain circumstances.
In addition, the Company's Certificate of Incorporation provides that the
liability of the Company's directors for monetary damages shall be eliminated
to the fullest extent permissible under the Delaware Business Corporations
Act, as so amended. This provision in the Certificate of Incorporation does
not eliminate a director's duty of care, and in appropriate circumstances
equitable remedies such as an injunction or other forms of non-monetary relief
would remain available. Each director will continue to be subject to liability
for breach of the director's duty of loyalty to the Company, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for acts or omissions that the director believes to be
contrary to the best interests of the Company or its stockholders, for any
transaction from which the director derived an improper personal benefit, for
improper transactions between the director and the Company and for improper
distributions to stockholders and loans to directors and officers. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
66
<PAGE>
CERTAIN TRANSACTIONS
Following the incorporation of the Company, Chris Kitze, one of the
Company's founders, purchased 500,000 shares of Common Stock and, pursuant to
a Common Stock Purchase Agreement dated August 26, 1996, Naveen Jain, an
affiliate of the Company, purchased 500,000 shares of the Company's Common
Stock. In connection with these transactions, the Company entered into a
Stockholders' Agreement with Mr. Kitze and Mr. Jain. This Stockholders'
Agreement was terminated on February 10, 1998. Pursuant to a Common Stock
Purchase Agreement dated December 31, 1996, Chris Kitze and Naveen Jain
purchased an additional 3,500,000 and 1,500,000 shares, respectively, of the
Company's Common Stock in exchange for the cancellation of promissory notes in
the amount of $700,000 and $300,000, respectively. In the same agreement,
Naveen Jain contributed 1,000,000 shares of Common Stock to the Company.
Pursuant to Common Stock Purchase Agreements dated February 13, 1997 and
November 23, 1997, respectively, Flying Disc Investments Limited Partnership
("Flying Disc"), of which Mr. Kitze is general partner, purchased an aggregate
2,141,666 shares of Common Stock from the Company at $0.60 per share. An
additional 194,805 shares of Common Stock were purchased by Flying Disc in
February 1998 pursuant to a Common Stock Purchase Agreement at a price of
$1.54 per share. Under a Common Stock and Warrant Purchase Agreement dated as
of April 25, 1998, Flying Disc purchased 45,045 shares of Common Stock at a
per share price of $2.22 along with a warrant to purchase an additional 9,009
shares at $2.22 per share. Under a Common Stock and Warrant Purchase Agreement
dated as of June 18, 1998, Internet Investments, LLC ("Internet Investments")
purchased 45,045 shares of Common Stock at a per share price of $2.22 along
with a warrant to purchase an additional 9,009 shares at $2.22 per share.
Mr. Jain is the managing member of Internet Investments.
Pursuant to a Stock Purchase Agreement dated February 13, 1997, Bob Ellis,
one of the Company's directors, purchased 83,333 shares of the Company's
Common Stock at a price of $1.20 per share. On August 4, 1997, due to a
revaluation of the shares purchased by Mr. Ellis, he was awarded an additional
83,333 shares of Common Stock at the new price of $0.60 per share. In
addition, on the same date, Mr. Ellis purchased an additional 333,333 shares
of Common Stock at $0.60 per share.
The Company has entered into a Consulting Agreement, dated May 15, 1998,
with James J. Heffernan, an outside director of the Company. The Consulting
Agreement will terminate on November 15, 1999. The Agreement provides for Mr.
Heffernan to receive a monthly compensation of $10,000, paid in the form of
Common Stock and options to buy 25,000 shares of the Company's Common Stock at
an exercise price of $2.22 per share. Mr. Heffernan will be granted stock
options to buy an additional 25,000 shares of Common Stock upon completion of
the Company's initial public offering. In addition, Mr. Heffernan is entitled
to a finder fee, payable in shares of the Company's Common Stock, of 5% of any
investment he secures on behalf of the Company between May 15, 1998 and June
30, 1998. Under this arrangement, Mr. Heffernan received 62,755 shares of
Common Stock. See "Director Compensation."
The Company has entered into a Content License Agreement dated February 22,
1998, with Classic Media Holdings, whereby the Company was granted certain
non-exclusive perpetual, world-wide licensing rights in connection with
Classic Media Holdings' library of public domain movies. As consideration for
the license, the Company issued 64,935 shares of the Company's Common Stock to
Classic Media Holdings' principals. Mr. Kitze, the Company's Secretary and
Chairman of the Board of Directors is a principal of Classic Media Holdings.
The Company has entered into employment agreements, Indemnification
Agreements and certain consulting arrangements with certain of its directors
and officers. See "Management--Employment Agreements," "Director Compensation"
and "Limitation Of Liability And Indemnification Matters."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company intends that all future transactions,
including loans, between the Company and its officers, directors, principal
stockholders and their affiliates will be approved by a majority of the Board
of Directors, including a majority of the independent and disinterested
outside directors on the Board of Directors and be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
67
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of June 30,
1998 and as adjusted to reflect the sale of the shares offered hereby, by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, and (iv) all executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
NUMBER OF SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY OWNED ------------------------------
NAME OF BENEFICIAL OWNER PRIOR TO OFFERING(1) BEFORE OFFERING AFTER OFFERING
- ------------------------ -------------------- --------------- --------------
<S> <C> <C> <C>
Chris Kitze(2)............. 6,282,526 46.6%
Naveen Jain(3)............. 1,054,054 7.8%
Vijay Vaidyanathan(4)...... 872,950 6.5%
Bob Ellis(5)............... 722,222 5.3%
Laurent Massa(6)........... 346,093 2.5%
James J. Heffernan(7)...... 237,890 1.8%
Russell S. Hyzen(8)........ 142,291 1.0%
John Harbottle(9).......... 15,000 *
Philip Schlein(10)......... 2,847 *
Robert C. Harris, Jr.(11).. 2,847 *
Jeffrey Ballowe(12)........ 1,612 *
All executive officers and
directors as a group
(10 persons)(13).......... 8,626,278 60.6%
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of June 30,
1998 and warrants to purchase shares of Common Stock that are exercisable
within 60 days of June 30, 1998 are deemed outstanding. Percentage of
beneficial ownership is based upon 13,465,363 shares of Common Stock
outstanding prior to the Offering and shares of Common Stock
outstanding after the Offering, as of , 1998 and assuming no
exercise of the Underwriters' over-allotment option. To the Company's
knowledge, except as set forth in the footnotes to this table and subject
to applicable community property laws, each person named in the table has
sole voting and investment power with respect to the shares set forth
opposite such person's name. Except as otherwise indicated, the address
of each of the persons in this table is as follows: c/o Xoom, Inc., 300
Montgomery Street, Suite 300, San Francisco, California 94104.
(2) Includes 6,273,517 shares of Common Stock and warrants to purchase 9,009
shares of Common Stock held by Flying Disc, of which Mr. Kitze is a
general partner. Mr. Kitze may be deemed to be the beneficial owner of
the shares held by Flying Disc.
(3) Includes 45,045 shares of Common Stock and warrants to purchase 9,009
shares of Common Stock held by Internet Investments. Mr. Jain is the
managing member of Internet Investments and may be deemed to be the
beneficial owner of the shares held by Internet Investments.
(4) Includes 120,000 shares of Common Stock held by Mr. Vaidyanathan's
Family Trust (the "Vaidyanathan Trust"). Mr. Vaidyanathan may be deemed
to be the beneficial owner of the shares of Common Stock held by the
Vaidyanathan Trust.
(5) Includes options exercisable for 222,222 shares of Common Stock
exercisable within 60 days after June 30, 1998.
(6) Includes options exercisable for 346,093 shares of Common Stock
exercisable within 60 days after June 30, 1998.
68
<PAGE>
(7) Includes options exercisable for 28,125 shares of Common Stock
exercisable within 60 days after June 30, 1998. Also includes 65,000
shares of Common Stock and warrants to purchase 13,000 shares Common
Stock held by J.J. Heffernan, LLC ("Heffernan LLC"), of which Mr.
Heffernan is the managing member, and 121,765 shares of Common Stock and
warrants to purchase 10,000 shares of Common Stock held by the Heffernan
Family Trust ("Heffernan Trust"). Mr. Heffernan may be deemed to be the
beneficial owner of the shares and warrants to purchase shares of Common
Stock held by the Heffernan LLC and the Heffernan Trust.
(8) Includes options exercisable for 124,791 shares of Common Stock
exercisable within 60 days after June 30, 1998.
(9) Includes options exercisable for 15,000 shares of Common Stock
exercisable within 60 days after June 30, 1998.
(10) Includes options exercisable for 1,458 shares of Common Stock
exercisable within 60 days after June 30, 1998.
(11) Includes options exercisable for 1,458 shares of Common Stock exercisable
within 60 days after June 30, 1998.
(12) Includes options exercisable for 1,612 shares of Common Stock
exercisable within 60 days after June 30, 1998.
(13) Includes options exercisable for 740,759 shares of Common Stock
exercisable within 60 days after June 30, 1998 and warrants to purchase
32,009 shares of Common Stock.
69
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering, the Company will be authorized to issue up
to 40,000,000 shares of Common Stock, $0.0001 par value per share, and
1,000,000 shares of Preferred Stock, $0.0001 par value per share.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation, which is included as an exhibit to the Registration Statement
of which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of June 30, 1998, there were 13,465,363 shares of Common Stock
outstanding that were held of record by approximately 86 stockholders
(assuming conversion of all warrants outstanding as of June 30, 1998). There
will be shares of Common Stock outstanding (assuming no
exercise of the Underwriters' over-allotment option and no exercise of
outstanding options) after giving effect to the sale of Common Stock offered
to the public by the Company hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The Company
does not have cumulative voting rights in the election of directors, and
accordingly, holders of a majority of the shares voting are able to elect all
of the directors. Subject to preferences that may be granted to any then
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of
funds legally available therefor as well as any distributions to the
stockholders. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets of the Company remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive or other subscription of
conversion rights. There are no redemption or sinking fund provisions
applicable to the Common Stock.
PREFERRED STOCK
Effective upon the closing of the Offering and pursuant to the Company's
Certificate of Incorporation, the Board of Directors will have the authority,
without further action by the stockholders, to issue up to 1,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, any or all of which may be greater than the rights of Common
Stock, without any further vote or action by stockholders. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock after consummation of the Offering.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
Upon completion of the Offering, the Company's Certificate of Incorporation
will provide that all stockholder action must be effected at a duly called
meeting of stockholders and not by a consent in writing; the Certificate of
Incorporation will also provide that only the Company's Chief Executive
Officer and the President of the Company may call a special meeting of
stockholders.
This provision will make it more difficult for the Company's existing
stockholders to replace the Board of Directors as well as for another party to
obtain control of the Company by replacing the Board of Directors. Since the
Board of Directors has the power to retain and discharge officers of the
Company, these provisions could also make it more difficult for existing
stockholders or another party to effect a change in management.
70
<PAGE>
These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. These
provisions are intended to enhance the likelihood of continued stability in
the composition of the Board of Directors and in the policies furnished by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of the Company. These
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal. The provisions also are intended to
discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result
from actual or rumored takeover attempts. Such provisions also may have the
effect of preventing changes in the management of the Company. See "Risk
Factors--Antitakeover Effects Of Certain Charter And Bylaws; Possible Issuance
Of Preferred Stock."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the Board of Directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested holder, (ii) upon consummation of the transaction that that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of the stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder, (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock or any class or
series of the corporation beneficially owned by the interested stockholder or
(v) the receipt by the interested stockholder of the benefit of any loss,
advances, guarantees, pledges or other financial benefits by or through the
corporation. In general, Section 203 defines interested stockholder as an
entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation an any entity or person affiliated with or
controlling or controlled by such entity or person. See "Risk Factors--
Antitakeover Effects Of Certain Charter And Bylaws; Possible Issuance Of
Preferred Stock."
LISTING
Application has been made for quotation of the Company's Common Stock on The
Nasdaq National Market under the symbol XOOM.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe. Its address is 150 Royall Street, Canton, Massachusetts 02021, and
its telephone number is (617) 575-6127.
71
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the Offering
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through the sale of equity securities.
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares offered hereby
will be freely tradable without restriction under the Securities Act, unless
they are held by "affiliates" of the Company defined under the Securities Act.
The remaining outstanding shares were sold by the Company in
reliance on exemptions from the registration requirements of the Securities
Act and are "restricted securities" within the meaning of Rule 144 under the
Securities Act. of these shares will be eligible for sale in the
public market as of the Effective Date under Rule 144, subject in some cases
to certain volume restrictions and other conditions imposed thereby. An
additional shares will become eligible for sale 90 days after the
date of this Prospectus pursuant to Rule 144 and Rule 701 under the Securities
Act. Beginning 180 days after the date of this Prospectus, approximately
additional shares will become eligible for sale subject to the
provisions of Rule 144 or Rule 701 upon the expiration of agreements not to
sell such shares entered into with the Company's stockholders and option
holders. The remainder of the shares will be eligible for sale from time to
time thereafter upon expiration of their respective one-year holding period,
subject in each case to the restrictions on such sales by affiliates of the
Company. Beginning 180 days after the date of this Prospectus, approximately
additional shares subject to vested options as of the date of this
Prospectus will be available for sale subject to compliance with Rule 144 and
Rule 701 and upon the expiration of agreements not to sell such shares entered
into with the company's stockholders or option holders. The remainder of the
shares will be eligible for sale from time to time thereafter upon expiration
of their respective one year holding periods, subject in each case to the
restrictions on such sales by affiliates of the Company. Any shares subject to
lock-up agreements may be released by Bear, Stearns & Co. Inc. at any time
without notice.
As soon as practicable after the Effective Date, the Company intends to file
a registration statement on Form S-8 under the Securities Act to register
approximately shares of Common Stock reserved for issuance under the
1998 Plan and the Stock Purchase Plan, thus permitting the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act unless subject to lock-up agreements. Such registration
statement will become effective immediately upon filing. See "Management--
Stock Plans."
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts in the open market may
adversely affect the market price of the Common Stock offered hereby. See
"Risk Factors--Potential Effect Of Shares Eligible For Future Sale."
72
<PAGE>
UNDERWRITING
The Underwriters of the Offering named below (the "Underwriters"), for whom
Bear, Stearns & Co. Inc., and Dain Rauscher Wessels, are acting as
representatives, have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement (the form of which has been filed
as an exhibit to the Registration Statement on Form S-1 of which this
Prospectus is a part), to purchase from the Company the aggregate number of
shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Dain Rauscher Wessels ......................................
------
Total.....................................................
======
</TABLE>
The nature of the respective obligations of the Underwriters is such that
all of the shares of Common Stock must be purchased if any is purchased. Those
obligations are subject, however, to various conditions, including the
approval of certain matters by counsel. The Company has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, and, where such indemnification is unavailable, to contribute
to payments that the Underwriters may be required to make in respect of such
liabilities.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock directly to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain selected
dealers at such price less a concession not to exceed $ per share, that
the Underwriters may allow, and such selected dealers may reallow, a
concession to certain other dealers not to exceed $ per share and that
after the commencement of the Offering, the public offering price and the
concessions may be changed.
The Company has granted to the Underwriters an option to purchase in the
aggregate up to additional shares of Common Stock to be sold in the
Offering solely to cover over-allotments, if any. The option may be exercised
in whole or in part at any time within 30 days after the date of this
Prospectus. To the extent the option is exercised, the Underwriters will be
severally committed, subject to certain conditions, including the approval of
certain matters by counsel, to purchase the additional shares of Common Stock
in proportion to their respective purchase commitments as indicated in the
preceding table.
The Underwriters have reserved for sale at the initial public offering price
up to shares of Common Stock for sale to certain directors, officers and
employees of the Company, business affiliates and related persons who have
expressed an interest in purchasing shares. The number of shares available for
sale to the general public will be reduced to the extent any reserved shares
are purchased. Any reserved shares not so purchased will be offered by the
Underwriters on the same basis as the other shares offered hereby.
73
<PAGE>
The Underwriters do not expect sales of Common Stock to any accounts over
which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
The Company and its executive officers, directors and all of its current
stockholders have agreed that, subject to certain limited exceptions, for a
period of 180 days after the date of this Prospectus, without the prior
written consent of Bear, Stearns & Co. Inc., they will not, directly or
indirectly, issue, sell, offer or agree to sell or otherwise dispose of any
shares of Common Stock (or securities convertible into, exchangeable for or
evidencing the right to purchase shares of Common Stock).
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price was determined through
negotiations among the Company and the representatives of the Underwriters.
Among the factors considered in making such determination were the Company's
financial and operating history and condition, its prospects and prospects for
the industry in which it does business in general, the management of the
Company, prevailing equity market conditions and the demand for securities
considered comparable to those of the Company.
In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock during and after the Offering.
Specifically, the Underwriters may over-allot or otherwise create a short
position in the Common Stock for their own account by selling more shares of
Common Stock than have been sold to them by the Company. The Underwriters may
elect to cover any such short position by purchasing shares of Common Stock in
the open market or by exercising the over-allotment option granted to the
Underwriters. In addition, the Underwriters may stabilize or maintain the
price of the Common Stock by bidding for or purchasing shares of Common Stock
in the open market and may impose penalty bids, under which selling
concessions allowed to syndicate members or other broker-dealers participating
in the Offering are reclaimed if shares of Common Stock previously distributed
in the Offering are repurchased in connection with stabilization transactions
or otherwise. The effect of these transactions may be to stabilize or maintain
the market price of the Common Stock at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morrison & Foerster LLP, San Francisco, California. Certain legal
matters in connection with the Offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of Xoom, Inc. as of December 31, 1996
and 1997 and for the period from April 16, 1996 (Inception) to December 31,
1996 and for the year ended December 31, 1997; the financial statements of
Paralogic, Inc. as of December 31, 1996 and 1997 and each of the two years in
the period ended December 31, 1997; the financial statements of Global Bridges
Technology, Inc. as of December 31, 1996 and 1997 and for the period from July
23, 1996 (inception) to December 31, 1996 and for the year ended December 31,
1997; and the financial statements of Pagecount, Inc. as of December 31, 1997
and for the period from January 23, 1997 (inception) to December 31, 1997
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports
given upon authority of such firm as experts in accounting and auditing.
74
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with Securities and Exchange Commission (the
"Commission") in Washington, D.C. a registration statement (together with all
amendments, the "Registration Statement") on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus, filed as
part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules
thereto, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and to such exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, reference is made to the copy
of such contract, agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement and the exhibits and schedules
thereto may be inspected by anyone without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661. Copies of all or any part of
such materials may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission. Such reports and other information may also
be inspected without charge at a web site maintained by the commission. The
address of such site is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing unaudited summary financial information for each
of the first three quarters of each fiscal year.
75
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
XOOM, INC.
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)................. F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-8
PARALOGIC CORPORATION
Report of Ernst & Young LLP, Independent Auditors......................... F-23
Balance Sheets............................................................ F-24
Statements of Operations.................................................. F-25
Statements of Shareholders' Equity (Deficit).............................. F-26
Statements of Cash Flows.................................................. F-27
Notes to Financial Statements............................................. F-28
GLOBAL BRIDGES TECHNOLOGIES, INC.
Report of Ernst & Young LLP, Independent Auditors......................... F-32
Balance Sheets............................................................ F-33
Statements of Operations.................................................. F-34
Statements of Shareholders' Equity (Deficit).............................. F-35
Statements of Cash Flows.................................................. F-36
Notes to Financial Statements............................................. F-37
PAGECOUNT, INC.
Report of Ernst & Young LLP, Independent Auditors......................... F-41
Balance Sheets............................................................ F-42
Statements of Income...................................................... F-43
Statements of Stockholders' Equity ....................................... F-44
Statements of Cash Flows.................................................. F-45
Notes to Financial Statements............................................. F-46
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Introduction.............................................................. F-50
Selected Pro Forma Condensed Consolidated Balance Sheet at June 30, 1998.. F-51
Notes to Selected Unaudited Pro Forma Condensed Consolidated Balance
Sheet.................................................................... F-52
Selected Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the twelve months ended December 31, 1997................. F-53
Selected Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended June 30, 1998........................ F-54
Notes to Selected Unaudited Pro Forma Condensed Consolidated Statements of
Operations............................................................... F-55
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Xoom, Inc.
We have audited the accompanying consolidated balance sheets of Xoom, Inc.
as of December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the period from
April 16, 1996 (inception) through December 31, 1996 and for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Xoom, Inc. at
December 31, 1996 and 1997, and the consolidated results of its operations and
its cash flows for the period from April 16, 1996 (inception) through December
31, 1996 and for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
Palo Alto, California
July 24, 1998
except as to the last paragraph of Note 8, as to which the date is,
July 28, 1998
F-2
<PAGE>
XOOM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 1,052 $ 5,587 $ 4,091,161
Accounts receivable, net of allowance for
doubtful accounts of $48,702 in 1997 and
$146,936 in 1998........................ -- 173,223 457,202
Stock subscription receivable from
related parties......................... 300,000 -- --
Stock subscription receivable............ -- 75,000 260,480
Inventories.............................. -- -- 64,950
Other current assets..................... -- 906 65,351
---------- ----------- -----------
Total current assets...................... 301,052 254,716 4,939,144
Fixed assets, net......................... 61,657 413,685 755,101
Intangible assets, net.................... -- -- 3,752,510
Prepaid royalties and licenses............ 324,000 53,556 84,000
Other assets.............................. 18,544 59,713 129,276
---------- ----------- -----------
Total assets.............................. $ 705,253 $ 781,670 $ 9,660,031
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable......................... $ 136,122 $ 461,931 $ 840,888
Accrued compensation and related
expenses................................ 8,906 38,391 168,855
Other accrued liabilities................ -- 4,700 386,072
Note payable to stockholder.............. -- 150,000 --
Acquisition notes payable................ -- -- 717,431
Contingency accrual...................... -- 1,000,000 1,000,000
---------- ----------- -----------
Total current liabilities................. 145,028 1,655,022 3,113,246
Acquisition notes payable, less current
portion.................................. -- -- 1,119,000
Commitments and contingencies.............
Stockholders' equity (deficit):
Convertible preferred stock, $0.0001 par
value:
Authorized shares--1,000,000
Issued and outstanding shares--none in
1996, 1997 or 1998..................... -- -- --
Common stock, $0.0001 par value:
Authorized shares--20,000,000
Issued and outstanding shares--
5,000,000, 8,312,035 and 13,005,770 in
1996, 1997 and 1998, respectively...... 1,462,200 3,608,106 13,189,239
Deferred compensation.................... (462,000) (909,606) (468,749)
Accumulated deficit...................... (439,975) (3,571,852) (7,292,705)
---------- ----------- -----------
Total stockholders' equity (deficit)...... 560,225 (873,352) 5,427,785
---------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)................................ $ 705,253 $ 781,670 $ 9,660,031
========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
XOOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER ------------------------
1996 31, 1997 1997 1998
-------------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue:
Electronic commerce..... $ -- $ 327,080 $ 20,841 $ 1,834,179
Advertising............. -- 60,251 7,050 354,896
License fees and other.. -- 453,556 171,662 375,641
--------- ----------- ----------- -----------
Total net revenue........ -- 840,887 199,553 2,564,716
--------- ----------- ----------- -----------
Cost of net revenue:
Cost of electronic
commerce............... -- 170,957 53,790 898,710
Cost of license fees and
other ................. -- 148,375 105,022 27,292
--------- ----------- ----------- -----------
Total cost of net reve-
nue..................... -- 319,332 158,812 926,002
--------- ----------- ----------- -----------
Gross profit............. -- 521,555 40,741 1,638,714
--------- ----------- ----------- -----------
Costs and expenses:
Operating and
development............ 265,769 1,150,299 746,682 1,348,519
Sales and marketing..... 23,719 291,675 119,591 717,728
General and
administrative......... 150,487 720,534 282,187 1,098,782
Purchased in-process
research and
development............ -- -- -- 1,070,000
Amortization of deferred
compensation........... -- 247,924 10,712 806,087
Amortization of
intangible assets...... -- -- -- 318,451
Non-recurring charges... -- 1,243,000 243,000 --
--------- ----------- ----------- -----------
Total costs and expenses. 439,975 3,653,432 1,402,172 5,359,567
--------- ----------- ----------- -----------
Net loss................. $(439,975) $(3,131,877) $(1,361,431) $(3,720,853)
========= =========== =========== ===========
Net loss per share--basic
and diluted............. $ (0.59) $ (0.43) $ (0.20) $ (0.39)
========= =========== =========== ===========
Number of shares used in
per share
calculation--basic and
diluted................. 745,098 7,311,471 6,776,852 9,603,621
========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
XOOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
---------------------- DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT COMPENSATION DEFICIT (DEFICIT)
---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common
stock to founders at
inception............. 1,000,000 $ 200 $ -- $ -- $ 200
Issuance of common
stock in exchange for
cancellation of notes
payable to
stockholders.......... 4,000,000 1,000,000 -- -- 1,000,000
Deferred compensation
related to grant of
stock options......... -- 462,000 (462,000) -- --
Net loss............... -- -- -- (439,975) (439,975)
---------- ----------- --------- ----------- -----------
Balances at December 31,
1996................... 5,000,000 1,462,200 (462,000) (439,975) 560,225
Issuance of common
stock for cash........ 2,871,668 1,223,000 -- -- 1,223,000
Issuance of common
stock in exchange for
cancellation of notes
payable to
stockholders.......... 58,333 35,000 -- -- 35,000
Issuance of common
stock in exchange for
stock subscription
receivable............ 382,034 175,000 -- -- 175,000
Issuance of stock
options to
consultants........... -- 17,376 -- -- 17,376
Deferred compensation
related to grant of
stock options......... -- 695,530 (695,530) -- --
Amortization of
deferred compensation. -- -- 247,924 -- 247,924
Net loss............... -- -- -- (3,131,877) (3,131,877)
---------- ----------- --------- ----------- -----------
Balances at December 31,
1997................... 8,312,035 3,608,106 (909,606) (3,571,852) (873,352)
Issuance of common
stock for cash, net of
issuance costs of
$139,316 (unaudited).. 2,723,235 5,532,596 -- -- 5,532,596
Issuance of common
stock in exchange for
Classic Media Holdings
license rights
(unaudited)........... 64,935 100,000 -- -- 100,000
Issuance of common
stock in connection
with acquisitions
(unaudited)........... 1,690,830 3,057,586 -- -- 3,057,586
Issuance of common
stock in exchange for
cancellation of notes
payable to
stockholders
(unaudited)........... 97,403 150,000 -- -- 150,000
Issuance of common
stock in exchange for
stock subscription
receivable
(unaudited)........... 117,332 260,480 -- -- 260,480
Issuance of stock
options to consultants
(unaudited)........... -- 115,241 -- -- 115,241
Deferred compensation
related to grant of
stock options
(unaudited)........... -- 365,230 (365,230) -- --
Amortization of
deferred compensation
(unaudited)........... -- -- 806,087 -- 806,087
Net loss (unaudited)... -- -- -- (3,720,853) (3,720,853)
---------- ----------- --------- ----------- -----------
Balances at June 30,
1998 (unaudited)....... 13,005,770 $13,189,239 $(468,749) $(7,292,705) $ 5,427,785
========== =========== ========= =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
XOOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH USED IN OPERATING
ACTIVITIES:
Net loss................. $(439,975) $(3,131,877) $(1,361,431) $(3,720,853)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Charge for purchased
in-process research
and development....... -- -- -- 1,070,000
Depreciation and
amortization.......... 2,496 254,077 24,013 262,899
Amortization of
intangible assets..... -- -- -- 318,451
Amortization of
deferred compensation. -- 247,924 10,712 806,087
Write-off of prepaid
royalties............. -- 243,000 243,000 --
Issuance of common
stock in exchange for
Classic Media Holdings
license rights........ -- -- -- 100,000
Issuance of stock
options to
consultants........... -- 17,376 3,117 115,241
Changes in operating
assets and
liabilities:
Accounts receivable... -- (173,223) (78,133) (275,555)
Inventories........... -- -- -- (64,950)
Other current assets.. -- (906) -- (60,029)
Prepaid royalties and
licenses............. (324,000) (185,815) (40,303) (168,116)
Other assets.......... (18,544) (41,169) 54,865 (69,563)
Accounts payable...... 136,122 325,809 172,015 373,839
Accrued compensation
and related expenses. 8,906 29,485 1,080 90,198
Other accrued
liabilities.......... -- 4,700 559 283,276
Contingency accrual... -- 1,000,000 -- --
--------- ----------- ----------- -----------
Net cash used in
operating activities.... (634,995) (1,410,619) (970,506) (939,075)
CASH USED IN INVESTING
ACTIVITIES:
Purchases of fixed
assets.................. (64,153) (392,846) (25,322) (416,531)
Business combinations,
net of cash acquired.... -- -- -- (63,916)
Cash paid in connection
with the purchase of
certain assets from
Revolutionary Software,
Inc. ................... -- -- -- (12,500)
--------- ----------- ----------- -----------
Net cash used in
investing activities.... (64,153) (392,846) (25,322) (492,947)
CASH PROVIDED IN
FINANCING ACTIVITIES:
Proceeds from issuance of
common stock............ 200 1,223,000 700,000 5,532,596
Proceeds from issuance of
notes payable to
stockholders............ 700,000 185,000 -- --
Proceeds from repayment
of stock subscriptions
receivable.............. -- 400,000 300,000 75,000
Repayment of acquisition
note payable............ -- -- -- (90,000)
--------- ----------- ----------- -----------
Net cash provided by
financing activities.... 700,200 1,808,000 1,000,000 5,517,596
--------- ----------- ----------- -----------
Net increase in cash..... 1,052 4,535 4,172 4,085,574
Cash at beginning of
period.................. -- 1,052 1,052 5,587
--------- ----------- ----------- -----------
Cash at end of period.... $ 1,052 $ 5,587 $ 5,224 $ 4,091,161
========= =========== =========== ===========
</TABLE>
F-6
<PAGE>
XOOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1997 1997 1998
-------------- ------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Non-cash transactions:
Non-cash transactions
Issuance of common stock
in exchange for stock
subscriptions receivable.. $ -- $175,000 $100,000 $ 260,480
========== ======== ======== ==========
Issuance of notes payable
to stockholders for
stock subscription
receivable.............. $ 300,000 $ -- $ -- $ --
========== ======== ======== ==========
Issuance of common stock
in exchange for
cancellation of notes
payable to stockholders. $1,000,000 $ 35,000 $ -- $ 150,000
========== ======== ======== ==========
Deferred compensation
resulting from grant of
stock options........... $ 462,000 $695,530 $ -- $ 365,230
========== ======== ======== ==========
Issuance of common stock
in conjunction with
acquisitions:
Paralogic Corporation... $ -- $ -- $ -- $1,576,364
========== ======== ======== ==========
Global Bridges
Technologies, Inc. .... $ -- $ -- $ -- $ 610,811
========== ======== ======== ==========
Revolutionary Software,
Inc.................... $ -- $ -- $ -- $ 426,411
========== ======== ======== ==========
ArcaMax, Inc............ $ -- $ -- $ -- $ 444,000
========== ======== ======== ==========
Issuance of notes payable
in conjunction with
acquisitions:
Paralogic Corporation... $ -- $ -- $ -- $1,400,000
========== ======== ======== ==========
Global Bridges
Technologies, Inc. .... $ -- $ -- $ -- $ 62,500
========== ======== ======== ==========
Revolutionary Software,
Inc.................... $ -- $ -- $ -- $ 262,500
========== ======== ======== ==========
ArcaMax, Inc............ $ -- $ -- $ -- $ 180,000
========== ======== ======== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
XOOM, Inc. (the "Company"), was formerly known as Xoom Software, Inc. and
originally incorporated as Atomsoft, Inc. in the State of Delaware on April
16, 1996.
The Company provides free community services such as Web site hosting, e-
mail, on-line chat networks and free proprietary content such as clip art and
greeting cards. The Company uses these free services and content to build a
membership base to direct market goods and services targeted to the interests
of its members. The Company derives a substantial portion of its revenue from
electronic commerce, and to a lesser extent from advertising and licensing.
Export sales were 30% and 36% of net revenues for the year ended December 31,
1997 and the six month period ended June 30, 1998, respectively.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
The Company began operations on April 16, 1996 and has financed its
operations through sales of common stock and issuances of notes payable which
have subsequently been converted to common stock. The Company incurred
operating losses for the period from April 16, 1996 (inception) through
December 31, 1996 and for the year ended December 31, 1997. The Company's
ability to continue as a going concern is dependent upon successful expansion
of marketplace acceptance of its product offerings, the level of revenue
growth, if any, and securing additional equity financing. From January through
June 1998, the Company issued common stock, resulting in net proceeds of
$5,532,596. If the Company cannot expand marketplace acceptance of its product
offerings and increase revenue or is unable to secure additional financing,
management has the intent and the ability to delay or reduce expenditures so
as not to require additional financial resources if such resources are not
available. Should the Company be required to delay or reduce expenditures it
may not be able to fund its expansion, promote its brand, take advantage of
acquisition opportunities, develop or enhance services or respond to
competitive pressures.
Dependence on Certain Vendors
The Company currently depends on one vendor to provide warehousing and order
fulfillment. Although the Company believes that there are alternative vendors
for warehousing and order fulfillment, there can be no assurance that the
Company will maintain its relationship with this vendor as the agreement is
cancelable at any time. The loss of this relationship could have a material
adverse effect on the Company's financial condition and results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported results of operations during the reporting period. Actual
results could differ from those estimates.
Interim Financial Information
The interim financial information as of June 30, 1998 and for the six months
ended June 30, 1997 and 1998 is unaudited but has been prepared on the same
basis as the audited financial statements and includes all
F-8
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interim Financial Information (continued)
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of its financial position at such
date and its results of operations and cash flows for those periods. Operating
results for the six months ended June 30, 1998 are not necessarily indicative
of results that may be expected for any future periods.
Cash
The Company maintains its cash in depository accounts with one financial
institution.
Concentrations of Credit Risk and Credit Evaluations
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and trade accounts receivable. The Company
maintains its cash in a domestic financial institution with a high credit
standing. The Company performs periodic evaluations of the relative credit
standing of this institution. The Company conducts business with companies in
various industries throughout the United States and with individuals over the
Internet. The Company performs ongoing credit evaluations of its corporate
customers and generally does not require collateral. Sales to individuals are
principally paid for via credit cards. Reserves are maintained for potential
credit losses and such losses to date have been within management's
expectations.
For the year ended December 31, 1997, one customer accounted for $100,000 or
12% of total net revenue. No balances were receivable from that customer at
December 31, 1997.
Inventories
Inventories are carried at the lower of cost (determined on the first-in
first-out basis) or market. Inventories consist of products available for
sale.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
three years.
Intangible Assets, Net
Intangible assets consist of purchased technology and goodwill related to
acquisitions accounted for by the purchase method. See Note 8. Amortization of
these purchased intangibles is provided on the straight-line basis over the
respective useful lives of the assets, generally, one to two years. Acquired
in-process research and development without alternative future use is expensed
when acquired.
The Company identifies and records impairment losses on intangible assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
Prepaid Royalties and Licenses
Prepaid royalties represent prepayments of royalties due upon the sale or
sublicense of software technologies. Prepaid royalties are amortized as units
are sold or over estimated useful lives of one to two years,
F-9
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prepaid Royalties and Licenses (continued)
whichever is shorter. Licenses represent amounts paid to developers for fully
paid licenses to resell certain software. These licenses are amortized over
the estimated useful lives which are generally less than one year.
Amortization of prepaid royalties and licenses, which is included in cost of
electronic commerce and cost of license fee revenue, totaled $0 and $213,259
for the period from April 16, 1996 (inception) through December 31, 1996 and
for the year ended December 31, 1997, respectively.
During the second quarter of 1997, the Company discontinued the sale of
certain products where royalty prepayments had been made and accordingly,
recorded a write-off of prepaid royalties included in non-recurring charges
totaling $243,000.
Other Assets
Other assets consist of non-current deposits relating to various ongoing
agreements entered into by the Company.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based
on differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
Stock-Based Compensation
The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123").
Advertising Expense
All advertising costs are expensed when incurred. Advertising costs, which
are included in sales and marketing expense, were $0 and $50,000 for the
period from April 16, 1996 (inception) through December 31, 1996 and for the
year ended December 31, 1997, respectively.
Revenue Recognition
Electronic Commerce
The Company recognizes revenue from electronic commerce sales when the
products are shipped to customers, net of allowances for returns.
Advertising
Advertising revenues are derived from the sale of banner advertisements and
sponsorships under short-term contracts. Through June 30, 1998, the duration
of the Company's advertising commitments has been principally
F-10
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising (continued)
from one to two months. Advertising revenue on banner contracts are recognized
ratably in the period in which the advertisement is displayed, provided that
no significant Company obligations remain and collection of the resulting
receivable is probable. Company obligations typically include the guarantee of
a minimum number of "impressions" or times that an advertisement appears in
pages viewed by the users of the Company's online properties. To the extent
minimum guaranteed impressions are not met, the Company defers recognition of
the corresponding revenue until the remaining guaranteed impression levels are
achieved.
License Fees
The Company licenses software under non-cancelable license agreements to
end-users and non-cancelable sub-license agreements to resellers. License fee
revenues are recognized when a non-cancelable license agreement has been
signed, the product has been delivered, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable, collection is
considered probable and all significant contractual obligations have been
satisfied.
Computation of Net Loss Per Share
The Company adopted Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share," ("FAS 128") during the year ended December 31, 1997. FAS
128 replaced the calculation of primary and fully diluted net loss per share
with basic and diluted net loss per share. In accordance with FAS 128, basic
net income (loss) per share excludes dilutive common stock equivalents and is
calculated as net income (loss) divided by the weighted average number of
common shares outstanding. Diluted net income (loss) per share is computed
using the weighted average number of common shares outstanding and dilutive
common stock equivalents outstanding during the period. Common equivalent
shares from stock options and warrants (using the treasury stock method) are
excluded from the calculation of net loss per share as their effect is anti-
dilutive.
Recent Accounting Pronouncements
As of January 1, 1998 the Company adopted, Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("FAS 130") which
establishes standards for reporting and displaying comprehensive income and
its components in a full set of general-purpose financial statements. The
adoption of this standard has had no impact on the Company's consolidated
financial position, stockholders' equity, results of operations or cash flows.
Accordingly, the Company's comprehensive loss for the six months ended June
30, 1998 is equal to its reported loss.
Additionally, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 131, "Disclosure about Segments of an
Enterprise and Related Information" which establishes standards for the way
public business enterprises report information in annual statements and
interim financial reports regarding operating segments, products and services,
geographic areas, and major customers. The Company is evaluating additional
disclosures, if any, which may result from this pronouncement which is
effective for and will be reflected in the Company's December 31, 1998
financial statements.
F-11
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------ -----------
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computers and equipment......................... $ 64,153 $456,999 $ 957,598
Accumulated depreciation........................ (2,496) (43,314) (202,497)
-------- -------- ---------
$ 61,657 $413,685 $ 755,101
======== ======== =========
</TABLE>
3. INCOME TAXES
There has been no provision for U.S. federal or state income taxes for any
period as the Company has incurred operating losses.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 1,000 $ 537,000
Capitalized start up costs.......................... 140,000 112,000
Prepaid royalties and licenses...................... 23,000 257,000
Accrued liabilities................................. -- 398,000
Other............................................... 11,000 17,000
--------- -----------
Total deferred tax assets............................ 175,000 1,321,000
Valuation allowance.................................. (175,000) (1,321,000)
--------- -----------
Net deferred tax assets.............................. $ -- $ --
========= ===========
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance.
During fiscal year 1996 and 1997 the valuation allowance of the deferred tax
assets increased by $175,000 and $1,146,000, respectively.
As of December 31, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $1,436,000. There can be no
assurance that the Company will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforwards will expire at
various dates beginning in the fiscal year 2011 through 2012 if not utilized.
Due to the "change of ownership" provisions of the Internal Revenue Code,
the availability of the Company's net operating loss and credit carryforwards
will be subject to an annual limitation against taxable income in future
periods if a change in ownership of more than 50% of the value of the
Company's stock should occur over a three year period, which could
substantially limit the eventual utilization of these carryforwards.
F-12
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY
The Company is authorized to issue 20,000,000 shares of common stock and
1,000,000 shares of preferred stock, each with a par value of $.0001 per
share.
Stock Split
In February, 1998, the Company completed a one-for-two reverse stock split
of the outstanding shares of common stock. All share information and per share
amounts in the accompanying consolidated financial statements has been
retroactively adjusted to reflect the effect of this stock split.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock, none
of which is issued or outstanding. The Board of Directors has the authority to
issue the preferred stock in one or more series and to fix the designations,
powers, preferences, rights, qualifications, limitations and restrictions with
respect to any series of preferred stock and to specify the number of shares
of any series of preferred stock without any further vote or action by the
shareholders.
Founders Stock
Pursuant to a common stock Purchase Agreement dated August 26, 1996 and
following the incorporation of the Company, two of the Company's founders each
purchased 500,000 shares (1,000,000 shares in total) of the Company's common
stock for an aggregate of $200 in cash. Pursuant to a common stock Purchase
Agreement dated December 31, 1996, the founders purchased an additional
3,500,000 and 1,500,000 shares, respectively, of the Company's common stock in
exchange for the cancellation of promissory notes that the Company owed to the
stockholders/founders in the amount of $700,000 and $300,000, respectively. In
the same agreement, one of the founders contributed 1,000,000 shares of his
common stock back to the Company.
Stock Option Plan
The Company has reserved 3,500,000 shares of common stock under the
Company's Stock Option Plan (the "Plan"). The Plan provides for incentive
stock options, as defined by the Internal Revenue Code, to be granted to
employees, at an exercise price not less than 100% of the fair value at the
grant date as determined by the Board of Directors. The Plan also provides for
nonqualified stock options to be issued to non-employee officers, directors
and consultants at an exercise price of not less than 85% of the fair value at
the grant date. Option vesting schedules are determined by the Board of
Directors at the time of issuance. Stock options generally vest over different
periods ranging from immediately to 25% at the end of the first year and
monthly thereafter up to a maximum of four years. Upon a change of control, as
defined in the Plan, 75% of unvested options become immediately exercisable.
Certain options' vesting can also accelerate based on the achievement of
specified performance criteria.
F-13
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plan (continued)
A summary of the option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Balance at April 16, 1996............................... -- $ --
Granted............................................... 660,000 0.02
Exercised............................................. -- --
Canceled.............................................. -- --
--------- -----
Balance at December 31, 1996............................ 660,000 0.02
Granted............................................... 949,472 0.03
Exercised............................................. -- --
Canceled.............................................. (142,500) 0.02
--------- -----
Balance at December 31, 1997............................ 1,466,972 0.03
Granted (unaudited)................................... 990,570 1.84
Exercised (unaudited)................................. -- --
Canceled (unaudited).................................. -- --
--------- -----
Balance at June 30, 1998 (unaudited).................... 2,457,542 $0.76
========= =====
</TABLE>
The following table summarizes information about options outstanding and
exercisable at June 30, 1998 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICE SHARES LIFE (IN YEARS) PRICE SHARES PRICE
-------- --------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.02 1,527,222 8.9 $0.02 827,243 $0.02
$ 0.60 17,500 8.6 0.60 17,500 0.60
$ 1.54 303,545 9.7 1.54 82,410 1.54
$ 2.22 609,275 9.9 2.22 114,317 2.22
--------- ---------
2,457,542 9.2 1,041,470
========= =========
</TABLE>
Deferred Compensation
The Company has recorded deferred compensation expense of $462,000, $695,530
and $365,230 during the period from April 16, 1996 (inception) through
December 31, 1996, the year ended December 31, 1997 and for the six months
ended June 30, 1998, respectively, for the difference between the exercise
price and the deemed fair value of certain stock options granted by the
Company. These amounts are being amortized by charges to operations, using the
accelerated method, over the vesting periods of the individual stock options,
which range from three months to four years. In June 1998 certain options were
modified from vesting upon certain events to vesting upon the earlier of an
event or two years. As a result, the related compensation charge was
determined in June 1998.
Options Issued to Consultants
The Company granted options to purchase 124,709 shares of common stock to
consultants at exercise prices ranging from $.02 to $2.22 per share during the
period from January 1, 1997 through June 30, 1998. These
F-14
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Options Issued to Consultants (continued)
options were granted in exchange for consulting services performed. The
Company valued these options using the estimated fair value of the services
performed which amounted to $0, $20,277 and $179,511, for the period from
April 16, 1996 (inception) through December 31, 1996, for the year ended
December 31, 1997 and for the six month period ended June 30, 1998
respectively. These amounts are being amortized by charges to operations over
the respective consulting periods. The amounts charged to operations were $0,
$17,376 and $115,241 for the period from April 16, 1996 (inception) through
December 31, 1996, for the year ended December 31, 1997 and for the six month
period ended June 30, 1998, respectively.
Pro Forma Disclosure of the Effect of Stock-Based Compensation
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Pro forma information regarding net income (loss) and net
income (loss) per share is required by FAS 123. This information is required
to be determined as if the Company has accounted for its employee stock
options under the fair value method of FAS 123. Under this method, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- ------------
<S> <C> <C>
Risk-free interest rate.......................... 6.5% 6.5%
Expected life of the option...................... 5 years 5 years
Expected volatility.............................. 0% 0%
Expected dividend yield.......................... 0% 0%
</TABLE>
Because FAS 123 is applicable only to options granted since inception, its
adjusted effect will not be fully reflected until 2000.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimates, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
The weighted-average fair value of options granted to employees during the
period from April 16, 1996 (inception) through December 31, 1996, the year
ended December 31, 1997 and for the six months ended June 30, 1998 were $0.01,
$0.24 and $0.54, respectively.
F-15
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Pro Forma Disclosure of the Effect of Stock-Based Compensation (continued)
The effect of applying the FAS 123 fair value method to the Company's stock-
based awards results in net loss and net loss per share as follows:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996
(INCEPTION) YEAR ENDED
THROUGH DECEMBER
DECEMBER 31, 31,
1996 1997
-------------- -----------
<S> <C> <C>
Net loss, as reported........................... $(439,975) $(3,131,877)
Net loss, pro forma............................. (441,946) (3,231,131)
Net loss per share--basic and diluted, as
reported....................................... (0.59) (0.43)
Net loss per share--basic and diluted, pro
forma.......................................... (0.59) (0.44)
</TABLE>
5. COMMITMENTS
The Company leases its facilities under operating lease arrangements. The
future minimum lease payments under the Company's non cancelable operating
leases with an initial term longer than one year at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Fiscal years ending December 31:
1998.............................................................. $44,220
1999.............................................................. 4,638
2000.............................................................. 821
-------
Total minimum lease payments........................................ $49,679
=======
</TABLE>
Total rent expense under operating lease arrangements for the period from
April 16, 1996 (inception) through December 31, 1996 and the year ended
December 31, 1997 totaled $5,400 and $43,125, respectively.
6. CONTINGENCY ACCRUAL
In January 1998, the Company became aware that Imageline, Inc. ("Imageline")
claimed to own the copyright in certain images that a third party, Sprint
Software Pty Ltd ("Sprint") had licensed to the Company. Some clip art images
that Imageline alleged infringed Imageline's copyright were included by the
Company in versions of the Company's Web Clip Empire product and licensed by
the Company to third parties, including other software clip publishers. The
Company's contracts with such publishers require the Company to indemnify the
publisher if copyrighted material licensed from the Company infringes a
copyright. The Company and Imageline have engaged in discussions, but were
unable to reach any agreement regarding a resolution of this matter. Based on
the discussions with Imageline, the Company believes the range of liability
related to this matter is none to $10,000,000; however, the Company believes
it is unlikely that the liability would exceed $1,000,000. Accordingly, the
Company reserved $1,000,000 for this potential liability, the expense of which
is included in non-recurring charges for the year ended December 31, 1997. If
not successful in defending this claim, the resulting outcome could have a
material adverse impact on the Company's business, results of operations, cash
flows and financial condition.
F-16
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
6. CONTINGENCY ACCRUAL (CONTINUED)
On August 27, 1998, the Company filed a lawsuit in the United States
District Court for the Eastern District of Virginia against Imageline, certain
parties affiliated with Imageline, and Sprint regarding the Company's and its
licensees' alleged infringement on Imageline's copyright in certain clip art
that the Company licensed from Sprint. The lawsuit seeks, among other relief,
disclosure of information from Imageline concerning the alleged copyright
infringement, a declaratory judgment concerning the validity and
enforceability of Imageline's copyrights and copyright registrations, a
declaratory judgment regarding damages, if any, owed by the Company to
Imageline, and indemnification from Sprint for damages, if any, owed by the
Company to Imageline. While the Company is seeking indemnification from Sprint
for damages, if any, there can be no assurance that Sprint will be able to
fulfill the indemnity obligations under its license agreements with the
Company.
7. RELATED PARTY TRANSACTIONS
During the period from April 16, 1996 (inception) through December 31, 1996,
the year ended December 31, 1997 and the six months ended June 30, 1998, the
Company issued stock subscriptions receivable to related parties and to
investors in exchange for shares of common stock and, in some cases, notes
payable. These subscriptions receivable are due upon demand and bear no
interest. All amounts due under subscriptions receivable at June 30, 1998 were
repaid in July 1998.
During the period from April 16, 1996 (inception) through December 31, 1996,
the year ended December 31, 1997 and the six months ended June 30, 1998, the
Company issued notes payable to related parties in exchange for cash advances
and stock subscriptions receivable. These notes payable are due upon demand
and bear no interest. All notes payable issued through June 30, 1998 have been
converted into shares of common stock.
The Company entered into a Consulting Agreement, dated May 15, 1998, with an
outside director of the Company. The Consulting Agreement will terminate on
November 15, 1999. The Agreement provides for the director to receive monthly
compensation of $10,000, paid in the form of common stock. The director also
received options to buy 25,000 shares of the Company's common stock. The
options vest at the rate of 12.5% per quarter over two years. The value of the
options on the date of issue was $100,000. This amount was charged to
operating and development during the six months ended June 30, 1998. The
director will be granted stock options to buy an additional 25,000 shares of
common stock upon completion of the Company's initial public offering.
The Company has entered into a Content License Agreement dated February 22,
1998, with Classic Media Holdings, whereby the Company was granted certain
non-exclusive perpetual, world-wide licensing rights in connection with
Classic Media Holdings' library of public domain movies. As consideration for
the license, the Company issued 64,935 shares of the Company's common stock to
Classic Media Holdings' principals. The stock was valued using the intrinsic
value method which yielded a value of $100,000 which was charged to operating
and development in the six-month period ended June 30, 1998. A director of the
Company is a principal of Classic Media Holdings.
8. SUBSEQUENT EVENTS
Retirement Plan
On March, 26, 1998, the Company established a qualified 401(k) Profit
Sharing Plan (the "Plan") available to all employees who meet the Plan's
eligibility requirements. Employees may elect to contribute from 1% to 25% of
their eligible earnings to the Plan subject to certain limitations. This
defined contribution plan provides that the Company may, at its discretion,
make contributions to the Plan on a periodic basis. The Company has not made
contributions to the Plan.
F-17
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
Equity Financings
In the six months ended June 30, 1998, the Company received net proceeds of
$5,532,596 from the issuance of 2,723,235 shares of common stock. In
connection with the issuance of common stock in the six months ended June 30,
1998, the Company issued warrants to purchase a total of 459,593 shares of
common stock at an average price of $2.22 per share. These warrants are
immediately exercisable and expire on the earlier of the successful completion
of an initial public offering or 2003.
Business Combinations and Technology Acquisitions
During the six months ended June 30, 1998, the Company made the acquisitions
described in the paragraphs that follow, each of which has been accounted for
as a purchase. The consolidated financial statements include the operating
results of each business from the date of acquisition.
The amounts allocated to purchased research and development were determined
through established valuation techniques in the high-technology Internet
industry and were expensed upon acquisition, because technological feasibility
had not been established and no future alternative uses existed. Research and
development costs to bring the products from the acquired companies to
technological feasibility are not expected to have a material impact on the
Company's future results of operations or cash flows. Amounts allocated to
goodwill and other intangible assets are amortized on a straight-line basis
over a two-year period.
Paralogic Corporation
On March 11, 1998, the Company acquired 100% of the outstanding shares of
Paralogic Corporation ("Paralogic"). Paralogic provides free communication
between members via a chat Web site network (i.e., chat rooms). The purchase
consideration was $3,037,607 consisting of 1,023,613 shares of common stock
with a fair value of $1.54 per share, $1,400,000 of debt, and $61,243 of
acquisition costs. Contingent consideration, which the Company does consider
probable of paying, consists of an additional $860,000, included in debt
above, which will be paid if certain performance criteria are met.
The purchase consideration to the acquired assets and assumed liabilities
based on fair values as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 33,055
Accounts receivables and other current assets................... 8,725
Net fixed assets................................................ 50,112
Purchased in-process research and development charged to
operations in the quarter ended March 31, 1998................. 490,000
Purchased technology............................................ 160,000
Goodwill........................................................ 2,378,929
Liabilities assumed............................................. (83,214)
----------
Total purchase consideration.................................... $3,037,607
==========
</TABLE>
Global Bridges Technologies, Inc.
On June 11, 1998, the Company acquired 100% of the outstanding shares of
Global Bridges Technologies, Inc. ("GBT"). GBT, owns the exclusive selling
rights to Sitemail, an HTML-based e-mail product thus expanding the Company's
suite of member services. The purchase consideration was $709,077 consisting
of
F-18
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
Global Bridges Technologies, Inc. (continued)
275,140 shares of common stock with a fair value of $2.22 per share, $12,500
cash, a note payable of $62,500 with fixed payment terms and $23,267 of
acquisition costs. The common shares issued in connection with this
acquisition are subject to repurchase by the Company at the fair market value
of the shares at the time the former shareholder of GBT proposes to sell the
common shares. This repurchase option lapses upon the Company's successful
completion of an initial public offering.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows:
<TABLE>
<S> <C>
Other current assets............................................... $ 4,153
Goodwill........................................................... 766,621
Liabilities assumed................................................ (61,697)
--------
Total purchase consideration....................................... $709,077
========
</TABLE>
In July 1998, the Company amended the purchase agreement with GBT to provide
for the issuance of an additional 25,956 shares of common stock with a fair
value of $7.20 per share. In addition, the Company modified the terms of the
earn out agreement. If the Company completes an initial public offering or a
sale of substantially all of its assets, GBT will receive $200,000 of the
Company's common stock, based on the fair market value on the date of the
initial public offering and additional cash consideration up to $130,000. If
the Company has not completed an initial public offering or a sale of
substantially all of its assets prior to GBT achieving the performance
criteria, then GBT will receive 25,956 shares of common stock upon the
achievement of the performance criteria.
Revolutionary Software, Inc.
On June 11, 1998, the Company purchased certain technology of Revolutionary
Software, Inc. ("RSI"). RSI is the developer of the Sitemail technology and
had licensed Sitemail to GBT. The purchase consideration was $701,411,
consisting of 192,077 shares of common stock with a fair value of $2.22 per
share, $12,500 cash and a note payable of $262,500 with fixed payment terms.
Initially, RSI may earn up to an additional 51,912 shares of common stock if
certain performance targets are met. The common stock issued in connection
with this acquisition is subject to repurchase by the Company at the fair
market value of the shares at the time RSI proposes to sell the common shares.
This repurchase right lapses upon the Company's successful completion of an
initial public offering.
The purchase consideration of the acquired assets was allocated based on
fair values as follows:
<TABLE>
<S> <C>
Purchased in-process research and development charged to
operations in the quarter ended June 30, 1998.................... $580,000
Purchased technology.............................................. 121,411
--------
Total purchase consideration...................................... $701,411
========
</TABLE>
In July 1998, the Company amended the agreement with RSI to provide for the
issuance of an additional 51,912 shares of common stock with a fair value of
$7.20 per share. In addition, the Company modified the terms of the earn out
agreement. If the Company completes an initial public offering or a sale of
substantially all
F-19
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
Revolutionary Software, Inc. (continued)
of its assets, RSI will earn $400,000 of the Company's common stock, based on
the fair market value on the date of the initial public offering and
additional cash consideration of $260,000. If the Company has not completed an
initial public offering or a sale of substantially all of its assets prior to
RSI achieving the performance criteria, then RSI will receive 51,912 shares of
common stock.
ArcaMax, Inc.
In June, 1998, the Company purchased certain intellectual property and
licensed certain technology from ArcaMax, Inc. ("ArcaMax") for $644,000,
consisting of 200,000 shares of common stock with a fair value of $2.22 per
share, $20,000 cash and a note payable of $180,000 with fixed payment terms.
This technology acquisition gave the Company the ability to offer a free
online greeting card service to members. The Company recorded this amount as
purchased technology and is amortizing it over its estimated useful life of
two years. The common stock issued in connection with this acquisition is
subject to repurchase by the Company at the fair market value of the shares at
the time the former shareholder of ArcaMax proposes to sell the common shares.
This repurchase right lapses upon the Company's successful completion of an
initial public offering.
Pagecount, Inc.
On July 24, 1998, the Company acquired substantially all of the assets of
Pagecount, Inc. ("Pagecount"). The consideration was $1,460,000 and consisted
of, $200,000 cash, a note payable of $1,200,000 with fixed payment terms and
estimated acquisition costs of $60,000. The Company will account for the
acquisition using the purchase method. If the Company successfully executes an
initial public offering or completes a sale of substantially all of its
assets, then the entire unpaid balance of the note payable at that time shall
become immediately due and payable.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 31,598
Accounts receivable and other current assets.................... 19,154
Net fixed assets................................................ 20,866
Purchased in-process research and development charged to
operations in the quarter ended September 30, 1998............. 160,000
Purchased technology............................................ 140,000
Goodwill........................................................ 1,133,970
Liabilities assumed............................................. (45,588)
----------
Total purchase consideration.................................... $1,460,000
==========
</TABLE>
Purchased Intangible Assets
Values assigned to purchased in-process research and development and
purchased technology were generally determined by independent appraisals using
an income approach. To determine the value of in-process research and
development, the Company considered, among other factors, the state of
development of each project, the time and cost needed to complete each
project, expected income, and associated risks which included
F-20
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
Purchased Intangible Assets (continued)
the inherent difficulties and uncertainties in completing the project and
thereby achieving technological feasibility and risks related to the viability
of and potential changes to future target markets. This analysis results in
amounts assigned to in-process research and development projects that had not
yet reached technological feasibility (as defined and utilized by the Company
in assessing software capitalization) and does not have alternative future
uses. To determine the value of the purchased technology, the expected future
cash flows of each existing technology product were discounted taking into
account risks related to the characteristics and applications of each product,
existing and future markets and assessments of the life cycle stage of the
product. Based on the analysis, the existing technology that had reached
technological feasibility was capitalized.
<TABLE>
<CAPTION>
JUNE 30,
1998
-----------
(UNAUDITED)
<S> <C>
Purchased technology............................................ $ 925,411
Goodwill........................................................ 3,145,550
----------
4,070,961
Accumulated amortization........................................ (318,451)
----------
Acquired intangible assets...................................... $3,752,510
==========
</TABLE>
The total purchased in-process research and development that had no
alternative future use, and as such was charged to operations in the six month
period ended June 30, 1998 is summarized below (unaudited):
<TABLE>
<S> <C>
Paralogic Corporation............................................ $ 490,000
Revolutionary Software, Inc...................................... 580,000
----------
Total purchased in-process research and development.............. $1,070,000
==========
</TABLE>
The following unaudited pro forma summary represents the consolidated
results of operations as if the acquisitions of Paralogic, GBT and Pagecount
had occurred at the beginning of the periods presented and are not intended to
be indicative of future results.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1997 1998
------------ --------------
<S> <C> <C>
Pro forma net revenue........................... $ 1,371,101 $ 2,853,492
Pro forma net loss.............................. $(5,656,144) $(4,051,091)
Pro forma net loss per share--basic and diluted. $ (0.66) $ (0.39)
Number of shares used in pro forma per share
calculation--basic and diluted................. 8,610,224 10,304,657
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire period
presented and are not intended to be a projection of future results.
F-21
<PAGE>
XOOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
Purchased Intangible Assets (continued)
Notes payable and other amounts due issued in connection with the
acquisitions described above consist of the following at June 30, 1998
(unaudited):
<TABLE>
<S> <C>
Note payable and other amounts due to the former shareholders
of Paralogic Corporation. The note is non-interest bearing
and payable in minimum monthly installments of $30,000
through September, 1999. Additional payments are required for
the $860,000 of contingent payable as the amounts are
earned....................................................... $1,310,000
Note payable to the former shareholder of Global Bridges
Technologies, Inc. bearing interest of 5% annually. The note
is due in 25 monthly payments of $2,500 through July 2000.... 62,500
Note payable to Revolutionary Software, Inc. bearing interest
of 5% annually. The note is due in 25 monthly payments of
$10,500 through July 2000.................................... 262,500
Note payable to ArcaMax, Inc. The note is non-interest bearing
and due in 12 monthly installments of $15,000 through June,
1999. If the Company successfully executes an Initial Public
Offering or completes a sale of substantially all of its
assets, then the entire unpaid balance at that time shall
become immediately due and payable........................... 180,000
Note payable to former shareholder of GBT which is due upon
demand..................................................... 21,431
----------
1,836,431
Less amounts due within one year.............................. (717,431)
----------
Long-term acquisition notes payable........................... $1,119,000
==========
</TABLE>
Scheduled maturities of acquisition notes payable and other amounts due are
as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998............................................................ $ 369,431
1999............................................................ 1,376,000
2000............................................................ 91,000
----------
Total........................................................... $1,836,431
==========
</TABLE>
Proposed Public Offering of Common Stock
In June 1998, the Board of Directors authorized management of the Company to
file a Registration Statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. In
addition, the Company's Board of Directors authorized an increase in the
number of authorized shares of common stock from 20,000,000 to 40,000,000 upon
completion of its initial public offering, subject to stockholder approval.
1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan was adopted by the Board of
Directors in August 1998 to be effective upon the completion of the Company's
initial public offering of its common stock, subject to stockholder approval.
The Company has reserved a total of 300,000 shares of common stock for
issuance under the plan. Eligible employees may designate up to 100% of their
compensation subject to certain limitations as described in the Plan, as
defined by the plan, to be deducted each pay period for the purchase of common
stock at 85% of the lesser of the fair market value of the Company's common
stock on the first day of the applicable purchasing period or the last day of
the applicable accrual period.
F-22
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Paralogic Corporation
We have audited the accompanying balance sheets of Paralogic Corporation as of
December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paralogic Corporation at
December 31, 1996 and 1997, and the results of its operations and its cash
flows for years then ended, in conformity with generally accepted accounting
principles.
Palo Alto, California
July 20, 1998
F-23
<PAGE>
PARALOGIC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $29,680 $ 26,910
Accounts receivable, net of allowance for doubtful accounts
of $375 in 1996 and $11,314 in 1997........................ 10,946 24,362
Income taxes receivable..................................... -- 836
------- ---------
Total current assets......................................... 40,626 52,108
Fixed assets, net............................................ 40,429 40,086
------- ---------
Total assets................................................. $81,055 $ 92,194
======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................ $15,202 $ 27,719
Accrued compensation and related expenses................... 27,155 12,641
Income taxes payable........................................ 2,261 --
Deferred revenue............................................ -- 64,210
Contingency accrual......................................... -- 164,802
Deferred income taxes....................................... 2,026 --
------- ---------
Total current liabilities.................................... 46,644 269,372
------- ---------
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $1.00 par value:
Authorized shares--1,000,000;
Issued and outstanding shares--5,000 in 1996 and 5,250 in
1997...................................................... 5,000 11,000
Retained earnings (accumulated deficit)..................... 29,411 (188,178)
------- ---------
Total shareholders' equity (deficit)......................... 34,411 (177,178)
------- ---------
Total liabilities and shareholders' equity (deficit)......... $81,055 $ 92,194
======= =========
</TABLE>
See accompanying notes.
F-24
<PAGE>
PARALOGIC CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR
ENDED DECEMBER 31,
------------------
1996 1997
-------- ---------
<S> <C> <C>
Net revenue:
Services.................................................. $132,569 $ 215,917
License fees.............................................. 39,074 --
Advertising............................................... 1,379 34,028
-------- ---------
Total net revenue.......................................... 173,022 249,945
Cost of net revenue:
Cost of services.......................................... 80,019 117,963
-------- ---------
Gross profit............................................... 93,003 131,982
Costs and expenses:
Operating and development................................. 38,529 45,875
Sales and marketing....................................... 26,129 86,097
General and administrative................................ 11,591 45,757
Contingency accrual....................................... -- 164,802
-------- ---------
Total costs and expenses................................... 76,249 342,531
-------- ---------
Income (loss) before provision for income taxes............ 16,754 (210,549)
Provision for income taxes................................. 3,666 7,040
-------- ---------
Net income (loss).......................................... $ 13,088 $(217,589)
======== =========
</TABLE>
See accompanying notes.
F-25
<PAGE>
PARALOGIC CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
-------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
------ ------- ------------ ---------
<S> <C> <C> <C> <C>
Balances at December 31, 1995........... 5,000 $ 5,000 $ 16,323 $ 21,323
Net income............................. -- -- 13,088 13,088
----- ------- --------- ---------
Balances at December 31, 1996........... 5,000 5,000 29,411 34,411
Issuance of common stock in exchange
for consulting services............... 250 6,000 -- 6,000
Net loss............................... -- -- (217,589) (217,589)
----- ------- --------- ---------
Balances at December 31, 1997........... 5,250 $11,000 $(188,178) $(177,178)
===== ======= ========= =========
</TABLE>
See accompanying notes.
F-26
<PAGE>
PARALOGIC CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................. $ 13,088 $ (217,589)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 11,794 29,321
Common stock issued in exchange for consulting
services......................................... -- 6,000
Changes in operating assets and liabilities:
Accounts receivable.............................. 7,379 (13,416)
Accounts payable................................. 4,366 12,517
Accrued compensation and related expenses........ 10,265 (14,514)
Income tax payable/ receivable................... (238) (3,097)
Deferred revenue................................. -- 64,210
Contingency accrual.............................. -- 164,802
Deferred income taxes............................ (1,115) (2,026)
----------- ------------
Net cash provided by operating activities.......... 45,539 26,208
INVESTING ACTIVITIES:
Purchases of fixed assets.......................... (42,066) (28,978)
----------- ------------
Net cash used in investing activities.............. (42,066) (28,978)
----------- ------------
Net change in cash................................. 3,473 (2,770)
Cash at beginning of year.......................... 26,207 29,680
----------- ------------
Cash at end of year................................ $ 29,680 $ 26,910
=========== ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes......................... $ 5,019 $ 10,812
=========== ============
</TABLE>
See accompanying notes.
F-27
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Paralogic Corporation (the "Company"), was incorporated in the State of
California on January 12, 1995.
The Company is a provider of chat room software and various online services.
Basis of Presentation
The Company has negative working capital and an accumulated deficit at
December 31, 1997. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. On March 11, 1998,
the Company agreed to be acquired by Xoom, Inc.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Cash
The Company maintains cash in depository accounts with two financial
institutions.
Concentrations of Credit Risk
The Company conducts business primarily with companies throughout the United
States. Management believes that any risk of accounting loss is mitigated by
the Company's ongoing credit evaluations of its customers. The Company
generally does not require collateral. The Company analyzes the need for
reserves for potential credit losses and records reserves when necessary.
For the year ended December 31, 1996, four customers accounted for $41,000,
$35,320, $29,625 and $28,000 or 24%, 20%, 17% and 16% of net revenue; of
these, one customer owed the Company $8,020 at December 31, 1996. There was no
single customer that accounted for more than 10% of net revenue for the year
ended December 31, 1997.
Fixed Assets
Fixed assets are recorded at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three years.
Revenue Recognition
Service
The majority of the Company's service revenue is from fees related to
fees charged for chat network hosting and are recognized when the services
are performed.
License Fees
The Company licenses software under non-cancelable license agreements to
end-users. License fee revenue is recognized when a non-cancelable license
agreement has been signed, the product has been delivered, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable, collection is considered probable and all significant
contractual obligations have been satisfied.
F-28
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
Advertising revenue are derived from the sale of banner advertisements
under short-term contracts. Advertising revenue on banner contracts are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain and collection of
the resulting receivable is probable. Company obligations typically include
the guarantee of a minimum number of "impressions" or times that an
advertisement appears in pages viewed by the users of the Company's online
properties. To the extent minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenue until the remaining
guaranteed impression levels are achieved.
Advertising Expense
All advertising costs are expensed when incurred. Advertising costs which
are included in sales and marketing expense for the years ended December 31,
1996 and 1997 were $0 and $9,377, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based
on differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("FAS 130"), and Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these statements in fiscal year 1998.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these statements is expected to
have no impact on the Company's consolidated financial position, results of
operations or cash flows.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Computer equipment....................................... $ 49,122 $ 78,100
Office equipment......................................... 5,413 5,413
-------- --------
54,535 83,513
Accumulated depreciation................................. (14,106) (43,427)
-------- --------
$ 40,429 $ 40,086
======== ========
</TABLE>
F-29
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES
Significant components of the provision (benefit) for income taxes
attributable to operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1997
-------- -------
<S> <C> <C>
Current:
Federal................................................. $ 2,770 $ 2,242
State................................................... 2,011 1,824
Foreign................................................. -- 5,000
-------- -------
4,781 9,066
Deferred:
Federal................................................. (368) (2,266)
State................................................... (747) 240
-------- -------
(1,115) (2,026)
-------- -------
Total provision........................................... $ 3,666 $ 7,040
======== =======
</TABLE>
A reconciliation of income taxes at the statutory federal income tax rate to
net income taxes included in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1997
------- --------
<S> <C> <C>
U.S. federal taxes at statutory rate..................... $ 4,774 $(72,658)
Impact of graduated U.S. statutory rate.................. (3,055) (2,098)
State taxes, net of federal benefit...................... 1,264 (12,261)
Foreign withholding taxes................................ -- 5,000
Foreign tax deduction.................................... -- (1,700)
Valuation allowance...................................... -- 89,586
Other.................................................... 683 1,171
------- --------
Total tax provision...................................... $ 3,666 $ 7,040
======= ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and tax
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- --------
<S> <C> <C>
Deferred tax assets:
Cash to accrual adjustment............................... $ 1,431 $ 97,518
Depreciation............................................. (3,457) (7,932)
------- --------
Net deferred tax assets (liabilities)..................... (2,026) 89,586
Valuation allowance....................................... -- (89,586)
------- --------
Total net deferred tax assets (liabilities)............... $(2,026) $ --
======= ========
</TABLE>
The valuation allowance increased by $89,586 in 1997.
F-30
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. SHAREHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue 1,000,000 shares of common stock, with a
par value of $1.00 per share.
During 1997, the Company issued shares of common stock to consultants in
exchange for consulting services. The Company valued the common stock using
the estimated fair value of the services performed which amounted to $6,000.
This amount was amortized by charges to operations over the consulting period.
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company has entered into certain operating leases for office space. At
December 31, 1997, the Company had no future commitments for noncancelable
operating leases.
The Company's rental expense under operating leases for the years ended
December 31, 1996 and 1997 totaled $300 and $3,900, respectively.
Contingency Accrual
Due to the nature of its business, Paralogic Corporation is subject to
various threatened or filed legal actions. At December 31, 1997, there were
certain legal proceedings pending against the Company. These legal disputes
were settled in 1998 in connection with the business combination which is
described in Note 6. The settlement consisted of an issuance to the plaintiff
of 107,014 shares of the acquiror's common stock, valued at approximately
$164,802. This settlement amount associated with this dispute was accrued for
at December 31, 1997.
6. SUBSEQUENT EVENT
In March 1998, the Company spun off certain components of the business into
a new company named Paralogic Software, Inc. ("PSI"). The shareholders of the
Company retained the same ownership privileges and rights in PSI as were in
effect for the Company at the time of the spin off. PSI retained the Company's
advertising and services businesses as well as the ownership of the Paralogic
chat technology. The Company retained a perpetual right to use and license the
Paralogic chat technology and all of the tangible assets and liabilities.
Effective March 11, 1998, the Company entered into merger agreement with
Xoom, Inc. under which the outstanding shares of common stock of the Company
were exchanged for common shares of Xoom, Inc. and the right to receive
certain cash distributions from Xoom, Inc. The financial statements do not
include any adjustments to the recorded amounts of assets and liabilities
which may result from this transaction.
7. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company believes that it will not be required to modify or replace any
portion of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter.
F-31
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Global Bridges Technologies, Inc.
We have audited the accompanying balance sheets of Global Bridges
Technologies, Inc. as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity (deficit) and cash flows for
the period from July 23, 1996 (inception) through December 31, 1996 and for
the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Global Bridges Technologies,
Inc. at December 31, 1996 and 1997, and the results of its operations and its
cash flows for the period from July 23, 1996 (inception) through December 31,
1996 and for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
Palo Alto, California
July 10, 1998
F-32
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ -- $ 1,036 $ 230
Note receivable from shareholder................ 3,404 -- --
------- -------- --------
Total current assets............................. 3,404 1,036 230
Deposits......................................... 712 712 712
------- -------- --------
Total assets..................................... $ 4,116 $ 1,748 $ 942
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses........... $19,466 $ 47,557 $ 46,131
Note payable to shareholder..................... -- 2,446 13,746
------- -------- --------
Total current liabilities........................ 19,466 50,003 59,877
Commitments
Shareholders' equity (deficit):
Preferred stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--none in 1996,
1997 or 1998.................................. -- -- --
Common stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--630,000, 500,000
and 500,000 in 1996, 1997 and 1998,
respectively.................................. 5,000 5,000 5,000
Accumulated deficit............................. (20,350) (53,255) (63,935)
------- -------- --------
Total shareholders' equity (deficit)............. (15,350) (48,255) (58,935)
------- -------- --------
Total liabilities and shareholders' equity
(deficit)....................................... $ 4,116 $ 1,748 $ 942
======= ======== ========
</TABLE>
See accompanying notes.
F-33
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1996
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1997 1997 1998
------------- ------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue................. $ 49,153 $ 27,937 $ 8,500 $ --
Cost of net revenue......... 38,885 23,718 7,302 --
-------- -------- -------- --------
Gross profit................ 10,268 4,219 1,198 --
Costs and expenses:
Operating and development.. 3,457 19,300 4,634 6,595
Sales and marketing........ 5,991 3,841 2,836 --
General and administrative. 18,716 13,983 5,826 4,085
-------- -------- -------- --------
Total costs and expenses.... 28,164 37,124 13,296 10,680
-------- -------- -------- --------
Loss before provision for
income taxes............... (17,896) (32,905) (12,098) (10,680)
Provision for income taxes.. 2,454 -- -- --
-------- -------- -------- --------
Net loss.................... $(20,350) $(32,905) $(12,098) $(10,680)
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-34
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
Issuance of common stock at inception
to founders........................... 630,000 $5,000 $ -- $ 5,000
Net loss............................... -- -- (20,350) (20,350)
-------- ------ -------- --------
Balances at December 31, 1996........... 630,000 5,000 (20,350) (15,350)
Repurchase of common stock in September
1997 in exchange for future royalties. (130,000) -- -- --
Net loss............................... -- -- (32,905) (32,905)
-------- ------ -------- --------
Balances at December 31, 1997........... 500,000 5,000 (53,255) (48,255)
Net loss (unaudited)................... -- -- (10,680) (10,680)
-------- ------ -------- --------
Balances at March 31, 1998 (unaudited).. 500,000 $5,000 $(63,935) $(58,935)
======== ====== ======== ========
</TABLE>
See accompanying notes.
F-35
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1996
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1997 1997 1998
------------- ------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................... $(20,350) $(32,905) $(12,098) $(10,680)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Deposits................. (712) -- -- --
Accounts payable and
accrued expenses........ 19,466 28,091 17,512 (1,426)
-------- -------- -------- --------
Net cash provided by (used
in) operating activities.. (1,596) (4,814) 5,414 (12,106)
INVESTING ACTIVITIES:
Cash advanced to
shareholder in exchange
for note receivable....... (3,404) -- -- --
Payment received from
shareholder............... -- 3,404 -- --
-------- -------- -------- --------
Net cash provided by (used
in) investing activities.. (3,404) 3,404 -- --
FINANCING ACTIVITIES:
Capital contributed by
founders.................. 5,000 -- -- --
Proceeds from note payable
to shareholder............ -- 2,446 -- 11,300
-------- -------- -------- --------
Net cash provided by
financing activities...... 5,000 2,446 -- 11,300
-------- -------- -------- --------
Net change in cash......... -- 1,036 5,414 (806)
Cash at beginning of
period.................... -- -- -- 1,036
-------- -------- -------- --------
Cash at end of period...... $ -- $ 1,036 $ 5,414 $ 230
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes. $ -- $ -- $ 2,454 $ --
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-36
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Global Bridges Technologies, Inc. (the "Company"), formerly known as Dream
Fabrications and Design, Inc., was incorporated in California on July 23,
1996.
The Company designs, develops and markets games, educational, and on-line
titles on behalf of publishers and developers. It also hosts and operates its
subscribers' branded web-based e-mail service using Sitemail, a web-based e-
mail solution which enables the integration of computer software for use in
the field of Internet based e-mail, advertising and commerce, and intranet
based content distribution.
Basis of Presentation
The Company began operations on July 23, 1996 and has incurred operating
losses through December 31, 1997. On June 11, 1998, the Company sold all of
its stock to Xoom, Inc.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported results of operations during the reporting period. Actual
results could differ from those estimates.
Interim Financial Information
The interim financial information as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 is unaudited but has been prepared on the
same basis as the audited financial statements and includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at such date and
its results of operations and cash flows for those periods. Operating results
for the three months ended March 31, 1998 are not necessarily indicative of
results that may be expected for any future periods.
Cash
The Company maintains its cash in depository accounts with one financial
institution.
Concentrations of Credit Risk
The Company conducts business primarily with companies in various industries
throughout the United States. The Company generally does not require
collateral.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes" ("FAS 109"), which requires the use of the liability method in
accounting for income taxes. Under FAS 109, deferred tax assets and
liabilities are measured using enacted rates and laws that will be in effect
when the differences are expected to reverse.
F-37
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company generally recognizes revenue from consulting services as such
services are performed and when collection is determined to be probable.
Advertising Expense
All advertising costs are expensed when incurred. Advertising costs, which
are included in sales and marketing expense, for the period from July 23, 1996
(inception) through December 31, 1996 and the year ended December 31, 1997
were $205 and $397, respectively.
Recent Accounting Pronouncements
As of January 1, 1998 the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("FAS 130") which
establishes standards for reporting and displaying comprehensive income and
its components in a full set of general-purpose financial statements. The
adoption of this standard had no impact on the Company's financial position,
shareholders' equity (deficit), results of operations or cash flows.
2. NOTE RECEIVABLE FROM AND PAYABLE TO SHAREHOLDER
At December 31, 1996 the note receivable from shareholder represents cash
advances to the shareholder by the Company. The note receivable is repayable
on demand and bears no interest.
The note payable to shareholder as of December 31, 1997 represented amounts
funded to the Company by the shareholder for working capital purpose and is
repayable on demand. The note payable bears no interest.
3. INCOME TAXES
Significant components of the provision for income taxes attributable to
operations are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1996
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
<S> <C> <C>
Current:
Federal......................................... $1,656 $ --
State........................................... 798 --
------ ----
$2,454 $ --
====== ====
</TABLE>
F-38
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
3. INCOME TAXES (CONTINUED)
A reconciliation of income taxes at the statutory federal income tax rate to
net income taxes included in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1996
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
<S> <C> <C>
U.S. federal taxes at statutory rate.............. $(6,085) $(11,188)
Impact of graduated U.S. statutory rate........... (1,919) 192
State taxes, net of federal benefit............... (397) (1,862)
Pre incorporation operations...................... 4,545 --
Valuation allowance............................... 6,331 12,064
Other............................................. (21) 794
------- --------
$ 2,454 $ --
======= ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and tax
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- --------
<S> <C> <C>
Deferred tax assets:
Cash to accrual adjustment............................... $ 5,667 $ 17,053
Depreciation............................................. 664 1,283
Net operating loss and tax credit carryovers............. -- 59
------- --------
Total deferred tax assets................................. 6,331 18,395
Valuation allowance....................................... (6,331) (18,395)
------- --------
Total net deferred tax assets............................. $ -- $ --
======= ========
</TABLE>
The valuation allowance increased by $6,331 and $12,064 in 1996 and 1997
respectively.
As of December 31, 1997, the Company has state net operating loss
carryforwards of approximately $1,000 that will expire in 2004. Due to the
change in ownership provisions of the Internal Revenue Code, the availability
of the Company's net operating loss carryforwards will be subject to an annual
limitation due to its acquisition by Xoom. This limitation could cause these
losses to expire prior to utilization by the Company.
4. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock, no
par value, none of which is issued or outstanding. The Board of Directors has
the authority to issue preferred stock in one or more series and to fix the
designations, powers, preferences, rights, qualifications, limitations and
restrictions with respect to any series of preferred stock and to specify the
number of shares of any series of preferred stock without any further vote or
action by the shareholder.
F-39
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock
The Company is authorized to issue 10,000,000 shares of common stock, no par
value.
In July 1996, the Company issued 630,000 shares of its common stock in
exchange for cash of $5,000. During September 1997, the Company repurchased
130,000 shares of its common stock from a shareholder in exchange for
royalties to be paid on the future sales of certain products. No payments
under this royalty agreement have been made through December 31, 1997 and
March 31, 1998 as no sales of the products bearing royalties were made in
those periods.
5. LEASE COMMITMENTS
The Company leases its operating facilities under a noncancelable operating
lease agreement that expires in 1998.
Total rent expense for the period from July 23, 1996 (inception) through
December 31, 1996 and the year ended December 31, 1997 totaled $4,605 and
$4,642, respectively.
6. RELATED PARTY TRANSACTIONS
During the period from July 23, 1996 (inception) through December 31, 1996
the Company paid certain expenses, totaling $3,918, on behalf of another
company which shares common ownership with the Company. All owed amounts were
reimbursed to the Company as of December 31, 1996.
7. SUBSEQUENT EVENTS
In April 1998, the Company issued 500,000 shares of its common stock to a
shareholder in exchange for cancellation of a note payable due to him of
$3,929 and the assignment of a software license to the Company.
In May 1998, the operating lease agreement for the lease of the Company's
facilities was assigned by the Company to the stockholder. As a result, all
rental payments are made to the stockholder. The minimum monthly rental
payments did not change from the original lease agreement with the lessor.
Effective June 11, 1998, the Company entered into a merger agreement with
Xoom, Inc. under which the outstanding shares of common stock of the Company
were exchanged for common shares of Xoom, Inc. and the right to receive
certain cash distributions from Xoom, Inc. The financial statements do not
include any adjustments to the recorded amounts of assets and liabilities
which may result from this transaction.
8. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This situation
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
F-40
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pagecount, Inc.
We have audited the accompanying balance sheet of Pagecount, Inc. as of
December 31, 1997, and the related statements of income, stockholders' equity
and cash flows for the period from January 23, 1997 (inception) through
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pagecount, Inc. at December
31, 1997, and the results of its operations and its cash flows for the period
from January 23, 1997 (inception) through December 31, 1997, in conformity
with generally accepted accounting principles.
Palo Alto, California
July 7, 1998,
except for Note 6, as to which the date is,
July 24, 1998
F-41
<PAGE>
PAGECOUNT, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $14,627 $50,145
Accounts receivable................................... 16,827 15,573
Unbilled receivables.................................. 4,931 2,133
Other current assets.................................. 725 725
------- -------
Total current assets................................... 37,110 68,576
Fixed assets, net...................................... 16,661 20,597
------- -------
Total assets........................................... $53,771 $89,173
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 7,237 $29,475
Accrued compensation and related expenses............. 9,037 11,709
Other accrued liabilities............................. 10,051 --
Deferred revenue...................................... -- 12,500
Income taxes payable.................................. 2,443 3,991
Deferred income taxes................................. 3,042 3,042
------- -------
Total current liabilities.............................. 31,810 60,717
------- -------
Commitment
Stockholders' equity:
Common stock, $1.00 par value:
Authorized shares--5,000
Issued and outstanding shares--115................... 650 650
Retained earnings..................................... 21,311 27,806
------- -------
Total stockholders' equity............................. 21,961 28,456
------- -------
Total liabilities and stockholders' equity............. $53,771 $89,173
======= =======
</TABLE>
See accompanying notes.
F-42
<PAGE>
PAGECOUNT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, JANUARY 23,
1997 1997
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED JUNE
DECEMBER 31, JUNE 30, 30,
1997 1997 1998
------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $252,332 $111,200 $208,689
Cost of net revenue....................... 45,634 36,075 14,314
-------- -------- --------
Gross profit.............................. 206,698 75,125 194,375
Costs and expenses:
Sales and marketing...................... 1,519 -- 2,371
General and administrative............... 178,513 58,907 184,023
-------- -------- --------
Total costs and expenses.................. 180,032 58,907 186,394
-------- -------- --------
Income from operations.................... 26,666 16,218 7,981
Other income.............................. 130 -- 62
-------- -------- --------
Income (loss) before provision for income
taxes.................................... 26,796 16,218 8,043
Provision for income taxes................ 5,485 3,122 1,548
-------- -------- --------
Net income................................ $ 21,311 $ 13,096 $ 6,495
======== ======== ========
</TABLE>
See accompanying notes.
F-43
<PAGE>
PAGECOUNT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ -------- -------
<S> <C> <C> <C> <C>
Issuance of common stock to founders in January
1997.......................................... 115 $650 $ -- $ 650
Net income..................................... -- -- 21,311 21,311
---- ---- ------- -------
Balances at December 31, 1997................... 115 650 21,311 21,961
Net income (unaudited)......................... -- -- 6,495 6,495
---- ---- ------- -------
Balances at June 30, 1998 (unaudited)........... 115 $650 $27,806 $28,456
==== ==== ======= =======
</TABLE>
See accompanying notes.
F-44
<PAGE>
PAGECOUNT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, JANUARY 23,
1997 1997
(INCEPTION) (INCEPTION)
THROUGH THROUGH SIX MONTHS
DECEMBER 31, JUNE 30, ENDED JUNE
1997 1997 30, 1998
------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income............................... $ 21,311 $ 13,096 $ 6,495
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation............................ 2,689 878 3,876
Changes in operating assets and
liabilities:
Accounts receivable.................... (16,827) (23,909) 1,254
Unbilled receivables................... (4,931) (2,112) 2,798
Other current assets................... (725) (725) --
Accounts payable....................... 7,237 4,119 22,238
Accrued compensation and related
expenses.............................. 9,037 8,951 2,672
Other accrued liabilities.............. 10,051 22,595 (10,051)
Deferred revenue....................... -- -- 12,500
Income taxes payable................... 2,443 3,122 1,548
Deferred income taxes.................. 3,042
-------- -------- --------
Net cash provided by operating activi-
ties.................................... 33,327 26,015 43,330
CASH USED IN INVESTING ACTIVITIES
Purchases of computer equipment.......... (19,350) (6,535) (7,812)
CASH PROVIDED BY FINANCING ACTIVITIES
Issuance of common stock for cash........ 650 650 --
-------- -------- --------
Net increase in cash..................... 14,627 20,130 35,518
Cash at beginning of period.............. -- -- 14,627
-------- -------- --------
Cash at end of period.................... $ 14,627 $ 20,130 $ 50,145
======== ======== ========
</TABLE>
See accompanying notes.
F-45
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Pagecount, Inc. (the "Company") was incorporated in the State of Maryland on
January 23, 1997.
The Company provides statistical counters which generate the number of times
a user views a customer's web site.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported results of operations during the reporting period. Actual
results could differ from those estimates.
Interim Financial Information
The interim financial information as of June 30, 1998 and for the period
from January 23, 1997 (inception) through June 30, 1997 and the six months
ended June 30, 1998 is unaudited but has been prepared on the same basis as
the audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, that the Company considers necessary for a
fair presentation of its financial position at such date and its results of
operations and cash flows for those periods. Operating results for the six
months ended June 30, 1998 are not necessarily indicative of results that may
be expected for any future periods.
Cash
The Company maintains its cash in depository accounts with one financial
institution.
Unbilled Receivables
Unbilled receivables represent amounts earned as revenue but not yet billed
to customers.
Concentrations of Credit Risk
The Company conducts business primarily with companies in various industries
throughout the United States. The Company generally does not require
collateral.
For the period from January 23, 1997 (inception) to December 31, 1997, three
customers accounted for 35%, 15%, and 11% of total revenue, and three
customers accounted for 27%, 20%, and 12% of accounts receivable at December
31, 1997.
For the six months ended June 30, 1998, two customers accounted for 42% and
12% of total revenue, and three customers accounted for 51%, 14%, and 10% of
accounts receivable at June 30, 1998.
Fixed assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, which is estimated to be three years.
F-46
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes" ("FAS 109"), which requires the use of the liability method in
accounting for income taxes. Under FAS 109, deferred tax assets and
liabilities are measured based on differences between the financial reporting
and tax bases of assets and liabilities using enacted rates and laws that will
be in effect when the differences are expected to reverse.
Revenue Recognition
Advertising revenue is derived from the sale of banner advertisements under
short-term contracts. To date, the duration of the Company's advertising
commitments has been from one to seven months. Advertising revenue on banner
contracts is recognized ratably in the period in which the advertisement is
displayed, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include the guarantee of a minimum number of "impressions" or times
that an advertisement appears in pages viewed by the users of the Company's
online properties. To the extent minimum guaranteed impressions are not met,
the Company defers recognition of the corresponding revenue until the
remaining guaranteed impression levels are achieved.
Advertising Expense
All advertising costs are expensed when incurred. Advertising costs, which
are included in sales and marketing expense, for the period from January 23,
1997 (inception) through December 31, 1997 were $1,124.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("FAS 130"), and Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these statements in fiscal year 1998.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these statements is expected to
have no impact on the Company's consolidated financial position, results of
operations or cash flows.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Computer equipment.................................. $19,350 $27,162
Accumulated depreciation............................ (2,689) (6,565)
------- -------
$16,661 $20,597
======= =======
</TABLE>
F-47
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
3. COMMITMENTS
The Company has entered into certain operating leases for office space. The
future minimum lease payments under the Company's noncancelable operating
leases at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................................................. $4,100
</TABLE>
The Company's rental expense under operating leases for the period from
January 23, 1997 (inception) through December 31, 1997 totaled $8,725.
4. COMMON STOCK
Common stock consists of the following at December 31, 1997:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
CLASS AUTHORIZED AND OUTSTANDING
----- ---------- ---------------
<S> <C> <C>
A................................................. 500 100
B................................................. 4,500 15
----- ---
5,000 115
===== ===
</TABLE>
5. INCOME TAXES
Significant components of the provision for income taxes attributable to
operations are as follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, JANUARY 23,
1997 1997
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current:
Federal............................... $1,808 $2,311 $1,146
State................................. 635 811 402
------ ------ ------
2,443 3,122 1,548
------ ------ ------
Deferred:
Federal............................... 2,281 -- --
State................................. 761 -- --
------ ------ ------
3,042 -- --
------ ------ ------
Total provision......................... $5,485 $3,122 $1,548
====== ====== ======
</TABLE>
F-48
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
5. INCOME TAXES (CONTINUED)
A reconciliation of income taxes at the statutory federal income tax rate to
net income taxes included in the accompanying statements of income is as
follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, JANUARY 23,
1997 1997
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
U.S. federal taxes at statutory rate... $ 9,111 $ 5,514 $ 2,735
Impact of graduated U.S. tax at 15%
statutory rate........................ (5,092) (3,081) (1,589)
State income taxes, net of federal
benefit............................... 1,139 689 402
Other.................................. 327 -- --
------- ------- -------
$5,485 $ 3,122 $ 1,548
======= ======= =======
</TABLE>
The principal source of the Company's deferred tax liabilities is the use of
accelerated depreciation methods for tax purposes.
6. SUBSEQUENT EVENT
Effective July 24, 1998, the Company entered into an asset sale agreement
under which it sold substantially all of its net assets to Xoom, Inc. The
financial statements do not include any adjustments to the recorded amounts of
assets and liabilities which may result from this transaction.
7. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company has determined they will not be
required to modify or replace any portion of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter.
F-49
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The selected unaudited pro forma condensed consolidated financial
information for the Company, gives effect to the acquisition of Paralogic
Corporation ("Paralogic"), Global Bridges Technologies, Inc. ("Global
Bridges") and Pagecount, Inc. ("Pagecount"). The historical financial
information has been derived from, and is qualified by reference to, the
financial statements of the Company, Paralogic, Global Bridges and Pagecount
and should be read in conjunction with those financial statements and the
notes thereto included elsewhere herein. The selected unaudited pro forma
condensed consolidated balance sheet information as of June 30, 1998, gives
effect to the Pagecount acquisition as if it had occurred on June 30, 1998. No
unaudited pro forma condensed consolidated balance sheet information is
included for the Paralogic and Global Bridges acquisitions as those balances
are included in the Company's June 30, 1998 condensed consolidated balance
sheet. The selected unaudited pro forma condensed consolidated balance sheet,
reflects certain adjustments, including allocation of the purchase price of
the Pagecount acquisition. The selected unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1997 and
the six months ended June 30, 1998, give effect to the acquisitions as if they
occurred on January 1, 1997 and January 1, 1998, respectively. The selected
unaudited pro forma condensed consolidated statements of operations, reflect
certain adjustments, including adjustments to reflect the amortization of the
intangible assets. The information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected unaudited pro forma condensed consolidated financial
information, does not purport to represent what the consolidated results of
operations or financial condition of the Company would actually have been if
the acquisitions had in fact occurred on such date or to project the future
consolidated results of operations or financial condition of the Company.
F-50
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
AT JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
BUSINESS
XOOM PAGECOUNT COMBINATION PRO FORMA
JUNE 30, 1998 JUNE 30, 1998 ADJUSTMENTS COMBINED
------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ 4,091,161 $50,145 $ (200,000)(1) $ 3,941,306
Accounts receivable,
net................... 457,202 17,706 -- 474,908
Stock subscription
receivable............ 260,480 -- -- 260,480
Inventories............ 64,950 -- -- 64,950
Other current assets... 65,351 725 -- 66,076
----------- ------- ---------- -----------
Total current assets.... 4,939,144 68,576 (200,000) 4,807,720
Fixed assets, net....... 755,101 20,597 -- 775,698
Intangible assets, net.. 3,752,510 -- 1,273,970 (2) 5,026,480
Other assets............ 213,276 -- -- 213,276
----------- ------- ---------- -----------
Total assets............ $ 9,660,031 $89,173 $1,073,970 $10,823,174
=========== ======= ========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 840,888 $29,475 $ 60,000 (3) $ 930,363
Accrued compensation
and related expenses.. 168,855 11,709 -- 180,564
Other accrued
liabilities........... 386,072 -- -- 386,072
Deferred revenue....... -- 12,500 -- 12,500
Acquisition notes
payable............... 717,431 -- 1,200,000 (1) 1,917,431
Income taxes payable... -- 3,991 -- 3,991
Deferred income taxes.. -- 3,042 -- 3,042
Contingency accrual.... 1,000,000 -- -- 1,000,000
----------- ------- ---------- -----------
Total current
liabilities............ 3,113,246 60,717 1,260,000 4,433,963
Acquisition notes
payable, less current
portion................ 1,119,000 -- -- 1,119,000
Stockholders' equity:
Common stock........... 13,189,239 650 (650)(4) 13,189,239
Deferred compensation.. (468,749) -- -- (468,749)
Accumulated deficit.... (7,292,705) 27,806 (185,380)(4)(5) (7,450,279)
----------- ------- ---------- -----------
Total stockholders'
equity................. 5,427,785 28,456 (186,030) 5,270,211
----------- ------- ---------- -----------
Total liabilities and
stockholders' equity... $ 9,660,031 $89,173 $1,073,970 $10,823,174
=========== ======= ========== ===========
</TABLE>
F-51
<PAGE>
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
Pro forma balance sheet adjustments for June 30, 1998 are as follows:
1. Cash paid of $200,000 and notes payable of $1,200,000 issued to
complete the acquisition of Pagecount.
2. Recognition of the excess purchase costs of $1,273,970 over the fair
value of net assets acquired.
3. Merger and acquisitions costs of $60,000
4. The elimination of the historical stockholders' equity accounts of
Pagecount.
5. Recognition of purchased in-process research and development of
$160,000.
F-52
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PAGECOUNT
FOR THE
PERIOD FROM
GLOBAL JANUARY 23,
XOOM PARALOGIC BRIDGES 1997 PRO FORMA
FOR THE FOR THE FOR THE (INCEPTION) PRO FORMA FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED TO BUSINESS YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, COMBINATION DECEMBER 31,
1997 1997 1997 1997 COMBINED ADJUSTMENTS 1997
------------ ------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Electronic commerce.... $ 327,080 $ -- $ -- $ -- $ 327,080 $ -- $ 327,080
Advertising............ 60,251 34,028 -- 252,332 346,611 -- 346,611
License fees and other. 453,556 -- -- -- 453,556 -- 453,556
Services............... -- 215,917 27,937 -- 243,854 -- 243,854
----------- --------- -------- -------- ----------- ----------- -----------
Total net revenues...... 840,887 249,945 27,937 252,332 1,371,101 -- 1,371,101
Cost of net revenues:
Cost of electronic
commerce.............. 170,957 -- -- -- 170,957 -- 170,957
Cost of advertising.... -- -- -- 45,634 45,634 -- 45,634
Cost of license fees
and other............. 148,375 -- -- -- 148,375 -- 148,375
Cost of services....... -- 117,963 23,718 -- 141,681 -- 141,681
----------- --------- -------- -------- ----------- ----------- -----------
Cost of net revenue..... 319,332 117,963 23,718 45,634 506,647 -- 506,647
Gross profit............ 521,555 131,982 4,219 206,698 864,454 -- 864,454
Costs and expenses:
Operating and
development........... 1,150,299 45,875 19,300 -- 1,215,474 -- 1,215,474
Sales and marketing.... 291,675 86,097 3,841 1,519 383,132 -- 383,132
General and
administrative........ 720,534 45,757 13,983 178,513 958,787 -- 958,787
Amortization of
deferred compensation. 247,924 -- -- -- 247,924 -- 247,924
Amortization of
intangible assets..... -- -- -- -- -- 2,259,760 (A) 2,259,760
Non-recurring charges.. 1,243,000 164,802 -- -- 1,407,802 -- 1,407,802
----------- --------- -------- -------- ----------- ----------- -----------
Total costs and
expenses............... 3,653,432 342,531 37,124 180,032 4,213,119 2,259,760 6,472,879
Income (loss) from
operations............. (3,131,877) (210,549) (32,905) 26,666 (3,348,665) (2,259,760) (5,608,425)
Interest (expense)
income -- -- -- 130 130 (47,849)(B) (47,719)
----------- --------- -------- -------- ----------- ----------- -----------
Income (loss) before
income taxes........... (3,131,877) (210,549) (32,905) 26,796 (3,348,535) (2,307,609) (5,656,144)
Income tax expense...... -- 7,040 -- 5,485 12,525 (12,525)(C) --
----------- --------- -------- -------- ----------- ----------- -----------
Net Income (loss)....... $(3,131,877) $(217,589) $(32,905) $ 21,311 $(3,361,060) $(2,295,084) $(5,656,144)
=========== ========= ======== ======== =========== =========== ===========
Net loss per share--
basic and diluted...... (D) $ (0.66)
===========
Number of shares used in
per share calculation--
basic and diluted...... (D) 8,610,224
===========
</TABLE>
F-53
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
GLOBAL
XOOM PARALOGIC BRIDGES PAGECOUNT PRO FORMA
FOR THE SIX FOR THE TWO FOR THE FIVE FOR THE SIX PRO FORMA FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED BUSINESS MONTHS ENDED
JUNE 30, FEBRUARY 28, MAY 31, JUNE 30, COMBINATION JUNE 30,
1998 1998 1998 1998 COMBINED ADJUSTMENTS 1998
------------ ------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenue:
Electronic commerce.... $ 1,834,179 $ -- $ -- $208,689 $ 2,042,868 $ -- $ 2,042,868
Advertising............ 354,896 51,071 -- -- 405,967 -- 405,967
License fees and other. 375,641 -- -- -- 375,641 -- 375,641
Services............... -- 29,016 -- -- 29,016 -- 29,016
----------- ------- -------- -------- ----------- --------- -----------
Total net revenue....... 2,564,716 80,087 -- 208,689 2,853,492 -- 2,853,492
Cost of net revenues:
Cost of electronic
commerce.............. 898,710 -- -- -- 898,710 -- 898,710
Cost of advertising.... -- -- -- 14,314 14,314 -- 14,314
Cost of license fees
and other............. 27,292 -- -- -- 27,292 -- 27,292
Cost of services....... -- 31,438 -- -- 31,438 -- 31,438
----------- ------- -------- -------- ----------- --------- -----------
Cost of net revenues... 926,002 31,438 -- 14,314 971,754 -- 971,754
Gross profit............ 1,638,714 48,649 -- 194,375 1,881,738 -- 1,881,738
Costs and expenses:
Operating and
development........... 1,348,519 12,227 10,526 -- 1,371,272 -- 1,371,272
Sales and marketing.... 717,728 2,091 -- 2,371 722,190 -- 722,190
General and
administrative........ 1,098,782 12,440 4,292 184,023 1,299,537 -- 1,299,537
Purchased in-process
research and
development........... 1,070,000 -- -- -- 1,070,000 (490,000)(E) 580,000
Amortization of
deferred compensation. 806,087 -- -- -- 806,087 -- 806,087
Amortization of
intangible assets..... 318,451 -- -- -- 318,451 811,429 (A) 1,129,880
----------- ------- -------- -------- ----------- --------- -----------
Total costs and
expenses............... 5,359,567 26,758 14,818 186,394 5,587,537 321,429 5,908,966
Income (loss) from
operations............. (3,720,853) 21,891 (14,818) 7,981 (3,705,799) (321,429) (4,027,228)
Interest (expense)
income................. -- -- -- 62 62 (23,925)(B) (23,863)
----------- ------- -------- -------- ----------- --------- -----------
Income (loss) before
income taxes........... (3,720,853) 21,891 (14,818) 8,043 (3,705,737) (345,354) (4,051,091)
Income tax expense...... -- -- -- 1,548 1,548 (1,548)(C) --
----------- ------- -------- -------- ----------- --------- -----------
Net Income (loss)....... $(3,720,853) $21,891 $(14,818) $ 6,495 $(3,707,285) $(343,806) $(4,051,091)
=========== ======= ======== ======== =========== ========= ===========
Net loss per share--
basic and diluted...... (D) $ (0.39)
===========
Number of shares used in
per share calculation--
basic and diluted...... (D) 10,304,657
===========
</TABLE>
F-54
<PAGE>
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
Pro forma adjustments for statements of operations for the year ended
December 31, 1997 and for the six months ended June 30, 1998 are as
follows:
A. Reflects the amortization of intangible assets acquired in the
Paralogic, Global Bridges and Pagecount in the amounts of acquisitions
of $2,538,929, $766,621 and $1,273,970 respectively, amortized over a
two year period.
B. Interest charges of $47,849 and $23,925 for the year ended December
31, 1997 and the six months ended June 30, 1998, respectively, for
notes payable of $2,572,500, related to the acquisitions at interest
rates up to 7%.
C. Reduction of federal income taxes related to the foregoing adjustments
and operations as if the Companies were combined.
D. Basic and diluted net loss per share amounts have been adjusted to
reflect the issuance of 1,023,613 and 275,140 shares as part of the
Paralogic and Global Bridges acquisitions, respectively, as if the
shares had been outstanding for all periods presented.
E. Purchased in-process research and development of $490,000 has been
excluded from net loss for the six months ended June 30, 1998 as it
represents non recurring charges relating to the Paralogic
acquisition.
F-55
<PAGE>
[INSIDE BACK COVER PAGE]
<PAGE>
================================================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 26
Dividend Policy........................................................... 26
Capitalization............................................................ 27
Dilution.................................................................. 28
Selected Consolidated Financial Data...................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
Business.................................................................. 43
Management................................................................ 57
Certain Transactions...................................................... 67
Principal Stockholders.................................................... 68
Description of Capital Stock.............................................. 70
Shares Eligible for Future Sale........................................... 72
Underwriting.............................................................. 73
Legal Matters............................................................. 74
Experts................................................................... 74
Additional Information.................................................... 75
Index to Financial Statements............................................. F-1
</TABLE>
----------------
UNTIL , (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS AND SUBSCRIPTIONS.
================================================================================
================================================================================
SHARES
[XOOM, INC. LOGO APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS,
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
Securities and Exchange Commission Filing Fee.................... $ 13,570
NASD Filing Fee.................................................. 5,100
Nasdaq National Market Listing Fee............................... 90,000
Accounting Fees and Expenses..................................... 500,000
Blue Sky Fees and Expenses....................................... 5,000
Legal Fees and Expenses.......................................... 600,000
Transfer Agent and Registrar Fees and Expenses................... 15,000
Printing Expenses................................................ 200,000
Miscellaneous Expenses........................................... 271,330
----------
Total.......................................................... $1,700,000
==========
</TABLE>
- --------
* All amounts are estimates except the SEC filing fee, the NASD filing fee
and the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Bylaws (Exhibit 3.2 hereto) also provide for mandatory indemnification of its
directors and executive officers, and permissive indemnification of its
employees and agents, to the fullest extent permissible under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation (Exhibit
3.1 hereto) provides that the liability of its directors for monetary damages
shall be eliminated to the fullest extent permissible under Delaware law.
Pursuant to Delaware law, this includes elimination of liability for monetary
damages for breach of the directors' fiduciary duty of care to the Registrant
and its stockholders. These provisions do not eliminate the directors' duty of
care and, in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware
law. In addition, each director will continue to be subject to liability for
breach of the director's duty of loyalty to the Registrant, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director's responsibilities under any other laws, such
as the federal securities laws or state or federal environmental laws.
The Registrant has entered into agreements with its directors and certain of
its executive officers that require the Registrant to indemnify such persons
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person
may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From its incorporation to June 30, 1998, the Registrant has granted or
issued and sold the following unregistered securities:
1. An aggregate of 18,905,091 shares of the Registrant's Common Stock in the
five rounds of private equity financing described below for an aggregate
purchase price of $10,345,598:
<TABLE>
<CAPTION>
NUMBER
OF AGGREGATE
ROUND SHARES PURCHASE PRICE
----- ---------- --------------
<S> <C> <C>
1. 5,333,334 $1,200,200
2. 2,333,333 800,000
3. 596,665 358,000
4. 686,425 1,006,685
5. 2,365,183 5,250,707
---------- ----------
11,314,940 $8,615,592
</TABLE>
2. Stock options to employees, directors and consultants exercisable for up
to an aggregate of 1,549,722 shares of the Registrant's Common Stock at a
nominal exercise price.
3. Stock options to employees, directors and consultants under its 1998
Stock Incentive Plan exercisable for up to an aggregate of 907,820 shares of
the Registrant's Common Stock, at exercise prices ranging from $1.54 to $2.22
per share, with a weighted average exercise price of $1.99 per share.
4. An aggregate of 1,690,830 shares in connection with its acquisition
transactions with Paralogic, Global Bridges, Revolutionary Software and
ArcaMax.
The issuances of the securities in the transactions above were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act or Regulation D promulgated thereunder as transactions
by an issuer not involving a public offering, where the purchasers represented
their intention to acquire the securities for investment only not with a view
to distribution and received or had access to adequate information about the
Registrant, or Rule 701 promulgated thereunder as transactions pursuant to a
compensatory benefit plan or a written contract relating to compensation.
II-2
<PAGE>
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No Underwriters were employed in any
of the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The exhibits are as set forth in the Exhibit Index.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statements or
related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California on the 27th day of August, 1998.
XOOM, INC.
By /s/ Laurent Massa
___________________________________
Laurent Massa
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Chris Kitze and Laurent Massa, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933 and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Laurent Massa Principal Executive Officer August 27, 1998
______________________ and Director
Laurent Massa
/s/ John Harbottle Principal Financial and August 27, 1998
______________________ Accounting Officer
John Harbottle
/s/ Chris Kitze Chairman August 27, 1998
______________________
Chris Kitze
/s/ Vijay Vaidyanathan Director August 27, 1998
______________________
Vijay Vaidyanathan
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Bob Ellis Director August 27, 1998
______________________
Bob Ellis
/s/ James J. Heffernan Director August 27, 1998
______________________
James J. Heffernan
/s/ Jeffrey Ballowe Director August 27, 1998
______________________
Jeffrey Ballowe
/s/ Philip Schlein Director August 27, 1998
______________________
Philip Schlein
/s/ Robert Harris Director August 27, 1998
______________________
Robert Harris
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
------- -------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*.......................
3.1 Amended and Restated Certificate of Incorporation of
the Registrant*.......................................
3.2 Registrant's Bylaws*..................................
4.1 Reference is made to Exhibits 3.1 and 3.2.............
5.1 Opinion of Morrison & Foerster LLP as to the legality
of the Common Stock*..................................
10.1 Form of Indemnification Agreement between the
Registrant and each of its executive officers and
directors.............................................
10.2 Agreement of Sublease between the Registrant and
Cornerstone Internet Solutions Company d/b/a USWeb
Cornerstone dated August, 1998........................
10.3 Assignment of Lease by Xaos Tools, Inc. and Acceptance
of Assignment and Assumption of Lease by the
Registrant, dated July 31, 1998.......................
10.4 Registrant's 1998 Stock Incentive Plan, including
forms of agreements thereunder........................
10.5 Registrant's 1998 Employee Stock Purchase Plan,
including forms of agreements thereunder*.............
10.6 Employment Agreement between the Registrant and
Russell Hyzen dated July 20, 1998.....................
10.7 Employment Agreement between the Registrant and Vijay
Vaidyanathan, dated March 10, 1998 and Addendum No. 1
thereto, dated August 12, 1998........................
10.8 Employment Agreement between the Registrant and
Laurent Massa, dated
July 1, 1998..........................................
10.9 Employment Agreement between the Registrant and John
Harbottle dated
August 4, 1998........................................
10.10 Agreement and Plan of Merger, among the Registrant,
XOOM Chat, Inc., Paralogic Corporation and
shareholders of Paralogic Corporation, dated March 10,
1998..................................................
10.11 Agreement and Plan of Merger, among the Registrant,
Xoom GBT Merger Corp., Global Bridges Technologies,
Inc. and Robert Kohler, dated June 11, 1998...........
10.12 Asset Purchase Agreement, between the Registrant and
Revolutionary Software, Inc., dated June 11, 1998.....
10.13 Purchase and License Agreement between the Registrant
and ArcaMax, Inc., dated June 18, 1998................
10.14 Asset Purchase Agreement between the Registrant and
Pagecount, Inc., dated as of July 24, 1998*...........
10.15 First Amendment, dated July 28, 1998, to Agreement and
Plan of Merger, among Registrant, Xoom GBT Merger
Corp., Global Bridges Technologies, Inc. and Robert
Kohler, dated June 11, 1998*..........................
10.16 First Amendment, dated July 27, 1998, to Asset
Purchase Agreement, between the Registrant and
Revolutionary Software, Inc., dated June 11, 1998*....
21.1 Subsidiaries of the Registrant........................
23.1 Consent of Morrison & Foerster LLP. Reference is made
to Exhibit 5.1*.......................................
23.2 Consent of Ernst & Young LLP, Independent Auditors....
24.1 Powers of Attorney. Reference is made to Page II-4....
27.1 Financial Data Schedule...............................
</TABLE>
- --------
*To be filed by amendment
II-6
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of _______________, 1998, by
and between Xoom, Inc., a Delaware corporation (the "Company"), and
__________________________________________ ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims currently being asserted against directors and
officers of corporations;
WHEREAS, the Certificate of Incorporation and Bylaws of the Company require
the Company to indemnify and advance expenses to its directors and officers to
the fullest extent permitted under Delaware law, and the Indemnitee has been
serving and continues to serve as a director and/or officer of the Company in
part in reliance on the Company's Certificate of Incorporation and Bylaws; and
WHEREAS, in recognition of Indemnitee's need for (i) substantial protection
against personal liability based on Indemnitee's reliance on the aforesaid
Certificate of Incorporation and Bylaws, (ii) specific contractual assurance
that the protection promised by the Certificate of Incorporation and Bylaws will
be available to Indemnitee (regardless of, among other things, any amendment to
or revocation of the Certificate of Incorporation and Bylaws or any change in
the composition of the Company's Board of Directors or acquisition transaction
relating to the Company), and (iii) an inducement to provide effective services
to the Company as a director and/or officer, the Company wishes to provide in
this Agreement for the indemnification of and the advancing of expenses to
Indemnitee to the fullest extent (whether partial or complete) permitted under
Delaware law and as set forth in this Agreement, and, to the extent insurance is
maintained, to provide for the continued coverage of Indemnitee under the
Company's directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the above premises and of Indemnitee
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties agree as
follows:
<PAGE>
1. Certain Definitions:
-------------------
(a) Board: the Board of Directors of the Company.
-----
(b) Affiliate: any corporation or other person or entity that
---------
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
(c) Change in Control: shall be deemed to have occurred if (i) any
-----------------
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 30% or more of the
total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board and any new director whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets.
(d) Expenses: any expense, liability, or loss, including attorneys'
--------
fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be
paid in settlement, any interest, assessments, or other charges imposed thereon,
any federal, state, local, or foreign taxes imposed as a result of the actual or
deemed receipt of any payments under this Agreement, and all other costs and
obligations, paid or incurred in connection with investigating, defending, being
a witness in, participating in (including on appeal), or preparing for any of
the foregoing in, any Proceeding relating to any Indemnifiable Event.
(e) Indemnifiable Event: any event or occurrence that takes place
-------------------
either prior to or after the execution of this Agreement, related to the fact
that Indemnitee is or was a director or officer of the Company, or while a
director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise, or was a director, officer, employee, or agent of a foreign
or domestic corporation that was a predecessor corporation of the Company or of
another enterprise at the request of such
2
<PAGE>
predecessor corporation, or related to anything done or not done by Indemnitee
in any such capacity, whether or not the basis of the Proceeding is alleged
action in an official capacity as a director, officer, employee, or agent or in
any other capacity while serving as a director, officer, employee, or agent of
the Company, as described above.
(f) Independent Counsel: the person or body appointed in connection
-------------------
with Section 3.
(g) Proceeding: any threatened, pending, or completed action, suit, or
----------
proceeding (including an action by or in the right of the Company), or any
inquiry, hearing, or investigation, whether conducted by the Company or any
other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, or proceeding, whether civil, criminal,
administrative, investigative, or other.
(h) Reviewing Party: the person or body appointed in accordance with
---------------
Section 3.
(i) Voting Securities: any securities of the Company that vote
-----------------
generally in the election of directors.
(j) Potential Change in Control: shall be deemed to have occurred if
---------------------------
(i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions that, if consummated, would constitute a Change in Control; (iii)
any person (other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
who is or becomes the Beneficial Owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's then outstanding Voting Securities, increases his beneficial ownership
of such securities by 5% or more over the percentage so owned by such person on
the date hereof, or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
2. Agreement to Indemnify.
----------------------
(a) General Agreement. In the event Indemnitee was, is, or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Proceeding by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from
and against any and all Expenses to the fullest extent permitted by law, as the
same exists or may hereafter be amended or interpreted (but in the case of any
such amendment or interpretation, only to the extent that such amendment or
3
<PAGE>
interpretation permits the Company to provide broader indemnification rights
than were permitted prior thereto). The parties hereto intend that this
Agreement shall provide for indemnification in excess of that expressly
permitted by statute, including, without limitation, any indemnification
provided by the Company's Certificate of Incorporation, its Bylaws, vote of its
shareholders or disinterested directors, or applicable law.
(b) Initiation of Proceeding. Notwithstanding anything in this
------------------------
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Proceeding initiated by
Indemnitee against the Company or any director or officer of the Company unless
(i) the Company has joined in or the Board has consented to the initiation of
such Proceeding; (ii) the Proceeding is one to enforce indemnification rights
under Section 5; or (iii) the Proceeding is instituted after a Change in Control
[(other than a Change in Control approved by a majority of the directors on the
Board who were directors immediately prior to such Change in Control)] and
Independent Counsel has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the Company shall
----------------
advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"); provided that, (i) such an Expense Advance
shall be made only upon delivery to the Company of an undertaking by or on
behalf of the Indemnitee to repay the amount thereof if it is ultimately
determined that Indemnitee is not entitled to be indemnified by the Company, and
(ii) if and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid. If Indemnitee has commenced
or commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, as
provided in Section 4, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding, and Indemnitee shall not be required to reimburse the Company
for any Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or have lapsed). Indemnitee's obligation to reimburse the Company for Expense
Advances shall be unsecured and no interest shall be charged thereon.
(d) Mandatory Indemnification. Notwithstanding any other provision of
-------------------------
this Agreement (other than Section 2(f) below), to the extent that Indemnitee
has been successful on the merits or otherwise in defense of any Proceeding
relating in whole or in part to an Indemnifiable Event or in defense of any
issue or matter therein, Indemnitee shall be indemnified against all Expenses
incurred in connection therewith.
(e) Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
4
<PAGE>
(f) Prohibited Indemnification. No indemnification pursuant to this
--------------------------
Agreement shall be paid by the Company on account of any Proceeding in which
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended,
or similar provisions of any federal, state, or local laws.
3. Reviewing Party. Prior to any Change in Control, the Reviewing Party
---------------
shall be any appropriate person or body consisting of a member or members of the
Board or any other person or body appointed by the Board who is not a party to
the particular Proceeding with respect to which Indemnitee is seeking
indemnification; after a Change in Control, the Independent Counsel referred to
below shall become the Reviewing Party. With respect to all matters arising
after a Change in Control (other than a Change in Control approved by a majority
of the directors on the Board who were directors immediately prior to such
Change in Control) concerning the rights of Indemnitee to indemnity payments and
Expense Advances under this Agreement or any other agreement or under applicable
law or the Company's Certificate of Incorporation or Bylaws now or hereafter in
effect relating to indemnification for Indemnifiable Events, the Company shall
seek legal advice only from Independent Counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld), and
who has not otherwise performed services for the Company or the Indemnitee
(other than in connection with indemnification matters) within the last five
years. The Independent Counsel shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement. Such counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent the Indemnitee should be permitted
to be indemnified under applicable law. The Company agrees to pay the
reasonable fees of the Independent Counsel and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities,
loss, and damages arising out of or relating to this Agreement or the engagement
of Independent Counsel pursuant hereto.
4. Indemnification Process and Appeal.
----------------------------------
(a) Indemnification Payment. Indemnitee shall be entitled to
-----------------------
indemnification of Expenses, and shall receive payment thereof, from the Company
in accordance with this Agreement as soon as practicable after Indemnitee has
made written demand on the Company for indemnification, unless the Reviewing
Party has given a written opinion to the Company that Indemnitee is not entitled
to indemnification under applicable law.
(b) Suit to Enforce Rights. Regardless of any action by the Reviewing
----------------------
Party, if Indemnitee has not received full indemnification within thirty days
after making a demand in accordance with Section 4(a), Indemnitee shall have the
right to enforce its indemnification rights under this Agreement by commencing
litigation in any court in the State of California or the State of Delaware
having subject matter jurisdiction thereof seeking an initial
5
<PAGE>
determination by the court or challenging any determination by the Reviewing
Party or any aspect thereof. The Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
not challenged by the Indemnitee shall be binding on the Company and Indemnitee.
The remedy provided for in this Section 4 shall be in addition to any other
remedies available to Indemnitee at law or in equity.
(c) Defense to Indemnification, Burden of Proof, and Presumptions. It
-------------------------------------------------------------
shall be a defense to any action brought by Indemnitee against the Company to
enforce this Agreement (other than an action brought to enforce a claim for
Expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Company) that it is not
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed. In connection with any such action or any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proving such a defense or determination
shall be on the Company. Neither the failure of the Reviewing Party or the
Company (including its Board, independent legal counsel, or its stockholders) to
have made a determination prior to the commencement of such action by Indemnitee
that indemnification of the claimant is proper under the circumstances because
Indemnitee has met the standard of conduct set forth in applicable law, nor an
actual determination by the Reviewing Party or Company (including its Board,
independent legal counsel, or its stockholders) that the Indemnitee had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the Indemnitee has not met the applicable standard of
conduct. For purposes of this Agreement, the termination of any claim, action,
suit, or proceeding, by judgment, order, settlement (whether with or without
court approval), conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
5. Indemnification for Expenses Incurred in Enforcing Rights. The Company
---------------------------------------------------------
shall indemnify Indemnitee against any and all Expenses that are incurred by
Indemnitee in connection with any action brought by Indemnitee for
(i) indemnification or advance payment of Expenses or Expense Advances by
the Company under this Agreement or any other agreement or under
applicable law or the Company's Certificate of Incorporation or Bylaws
now or hereafter in effect relating to indemnification for
Indemnifiable Events, and/or
(ii) recovery under directors' and officers' liability insurance policies
maintained by the Company, but only in the event that Indemnitee
ultimately is determined to be entitled to such indemnification,
Expense Advances, or insurance recovery, as the case may be. In
addition, the Company shall, if so requested by Indemnitee, advance
the foregoing expenses to Indemnitee, subject to and in accordance
with Section 2(c).
6
<PAGE>
6. Notification and Defense of Proceeding.
--------------------------------------
(a) Notice. Promptly after receipt by Indemnitee of notice of the
------
commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability that it may have to Indemnitee, except as
provided in Section 6(c).
(b) Defense. With respect to any Proceeding as to which Indemnitee
-------
notifies the Company of the commencement thereof, the Company will be entitled
to participate in the Proceeding at its own expense and except as otherwise
provided below, to the extent the Company so wishes, it may assume the defense
thereof with counsel reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of its election to assume the defense of any
Proceeding, the Company shall not be liable to Indemnitee under this Agreement
or otherwise for any Expenses subsequently incurred by Indemnitee in connection
with the defense of such Proceeding other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ legal
counsel in such Proceeding, but all Expenses related thereto incurred after
notice from the Company of its assumption of the defense shall be at
Indemnitee's expense unless: (i) the employment of legal counsel by Indemnitee
has been authorized by the Company, (ii) Indemnitee has reasonably determined
that there may be a conflict of interest between Indemnitee and the Company in
the defense of the Proceeding, (iii) after a Change in Control (other than a
Change in Control approved by a majority of the directors on the Board who were
directors immediately prior to such Change in Control), the employment of
counsel by Indemnitee has been approved by the Independent Counsel, or (iv) the
Company shall not in fact have employed counsel to assume the defense of such
Proceeding, in each of which cases all Expenses of the Proceeding shall be borne
by the Company. The Company shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Company or as to which Indemnitee
shall have made the determination provided for in (ii)[, (iii) and (iv)] above.
(c) Settlement of Claims. The Company shall not be liable to
--------------------
indemnify Indemnitee under this Agreement or otherwise for any amounts paid in
settlement of any Proceeding effected without the Company's written consent,
such consent not to be unreasonably withheld; provided, however, that if a
Change in Control has occurred [(other than a Change in Control approved by a
majority of the directors on the Board who were directors immediately prior to
such Change in Control)], the Company shall be liable for indemnification of
Indemnitee for amounts paid in settlement if the Independent Counsel has
approved the settlement. The Company shall not settle any Proceeding in any
manner that would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Neither the Company nor the Indemnitee will
unreasonably withhold their consent to any proposed settlement. The Company
shall not be liable to indemnify the Indemnitee under this Agreement with regard
to any judicial award if the Company was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action; the
Company's liability hereunder shall not be excused if participation in the
Proceeding by the Company was barred by this Agreement.
7
<PAGE>
7. Establishment of Trust. In the event of a Change in Control
----------------------
(other than a Change in Control approved by a majority of the directors on the
Board who were directors immediately prior to such Change in Control) or a
Potential Change in Control the Company shall, upon written request by
Indemnitee, create a Trust for the benefit of the Indemnitee and from time to
time upon written request of Indemnitee shall fund the Trust in an amount
sufficient to satisfy any and all Expenses reasonably anticipated at the time of
each such request to be incurred in connection with investigating, preparing
for, participating in, and/or defending any Proceeding relating to an
Indemnifiable Event. The amount or amounts to be deposited in the Trust
pursuant to the foregoing funding obligation shall be determined by the
Independent Counsel. The terms of the Trust shall provide that (i) the Trust
shall not be revoked or the principal thereof invaded without the written
consent of the Indemnitee, (ii) the Trustee shall advance, within ten business
days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and
the Indemnitee hereby agrees to reimburse the Trust under the same circumstances
for which the Indemnitee would be required to reimburse the Company under
Section 2(c) of this Agreement), (iii) the Trust shall continue to be funded by
the Company in accordance with the funding obligation set forth above, (iv) the
Trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in the Trust shall revert to the Company
upon a final determination by the Independent Counsel or a court of competent
jurisdiction, as the case may be, that the Indemnitee has been fully indemnified
under the terms of this Agreement. The Trustee shall be chosen by the
Indemnitee. Nothing in this Section 7 shall relieve the Company of any of its
obligations under this Agreement. All income earned on the assets held in the
Trust shall be reported as income by the Company for federal, state, local, and
foreign tax purposes. The Company shall pay all costs of establishing and
maintaining the Trust and shall indemnify the Trustee against any and all
expenses (including attorneys' fees), claims, liabilities, loss, and damages
arising out of or relating to this Agreement or the establishment and
maintenance of the Trust.
8. Non-Exclusivity. The rights of Indemnitee hereunder shall be in
---------------
addition to any other rights Indemnitee may have under the Company's Certificate
of Incorporation, Bylaws, applicable law, or otherwise. To the extent that a
change in applicable law (whether by statute or judicial decision) permits
greater indemnification than would be afforded currently under the Company's
Certificate of Incorporation, Bylaws, applicable law, or this Agreement, it is
the intent of the parties that Indemnitee enjoy by this Agreement the greater
benefits so afforded by such change.
9. Liability Insurance. To the extent the Company maintains an
-------------------
insurance policy or policies providing general and/or directors' and officers'
liability insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
10. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of the Company or any
Affiliate of the Company against
8
<PAGE>
Indemnitee, Indemnitee's spouse, heirs, executors, or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, or such longer period as may be required by state law
under the circumstances. Any claim or cause of action of the Company or its
Affiliate shall be extinguished and deemed released unless asserted by the
timely filing and notice of a legal action within such period; provided,
however, that if any shorter period of limitations is otherwise applicable to
any such cause of action, the shorter period shall govern.
11. Amendment of this Agreement. No supplement, modification, or
---------------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be binding unless in the form of a writing signed by the party against
whom enforcement of the waiver is sought, and no such waiver shall operate as a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver. Except as specifically provided herein,
no failure to exercise or any delay in exercising any right or remedy hereunder
shall constitute a waiver thereof.
12. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
13. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable
hereunder.
14. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Company), assigns, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while serving
in an indemnified capacity pertaining to an Indemnifiable Event even though he
may have ceased to serve in such capacity at the time of any Proceeding.
15. Severability. If any provision (or portion thereof) of this
------------
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, or otherwise unenforceable, the
9
<PAGE>
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void, or otherwise unenforceable,
that is not itself invalid, void, or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void, or
unenforceable.
16. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to its
principles of conflicts of laws.
17. Notices. All notices, demands, and other communications required
-------
or permitted hereunder shall be made in writing and shall be deemed to have been
duly given if delivered by hand, against receipt, or mailed, postage prepaid,
certified or registered mail, return receipt requested, and addressed to the
Company at:
Xoom, Inc.
433 California St., #910
San Francisco, CA 94104
Attention: [CEO]
and to Indemnitee at:
__________________________
__________________________
__________________________
__________________________
Notice of change of address shall be effective only when given in accordance
with this Section. All notices complying with this Section shall be deemed to
have been received on the date of hand delivery or on the third business day
after mailing.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day specified above.
XOOM, INC.
BY: _______________________
NAME:
TITLE:
INDEMNITEE
___________________________
[SIGNATURE]
___________________________
[PRINT NAME]
11
<PAGE>
EXHIBIT 10.2
SUBLEASE
AGREEMENT OF SUBLEASE ("SUBLEASE"), made as of the ___ day of August,
1998, by and between Cornerstone Internet Solutions Company formerly known as
Enteractive, Inc., d/b/a US Web Cornerstone, a Delaware corporation (hereinafter
referred to as "SUBLESSOR"), having an office at 584 Broadway, Suite 505, New
York, New York 10012 and Xoom, Inc., a Delaware corporation (hereinafter
referred to as "SUBLESSEE"), having an address at 433 California Street, Suite
910, San Francisco, California 94104.
WITNESSETH:
WHEREAS, pursuant to a certain lease dated as of April 1, 1996, by and
between Harrow Realty, Inc., as landlord ("LANDLORD"), and Utopia, Inc.
Sublessor's assignor pursuant to an assignment dated December 12, 1997, as
tenant, as amended on May 1, 1996 (collectively, the "LEASE") Landlord leased to
Sublessor certain space (the "DEMISED PREMISES") in the building ("BUILDING")
located at 25 West 45th Street, New York, New York 10076; and
WHEREAS, Sublessor desires to sublease to Sublessee and Sublessee
desires to sublet from Sublessor a portion of the Demised Premises which is more
particularly set forth as the area cross-hatched on Exhibit A which is annexed
hereto (the "SUBLEASED PREMISES"), and Sublessee desires to take and hire the
Subleased Premises from Sublessor;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. LEASE. Sublessee hereby acknowledges receipt of a copy of the Lease
-----
with certain portions not material to this Sublease intentionally excluded, a
copy of which is annexed hereto as Exhibit B. The terms and conditions of the
Lease are incorporated by reference into this Sublease and made a part hereof as
if herein set forth at length, Sublessor being substituted for "Landlord" under
the Lease, Sublessee being substituted for "Tenant" under the Lease and the
Subleased Premises being substituted for the "Premises" under the Lease.
Notwithstanding the foregoing, any inconsistencies between the terms of this
Sublease and the Lease which shall result from the foregoing incorporation shall
be resolved in favor of this Sublease; provided however, that if such
construction of terms would cause Sublessor to be in default under the terms of
the Lease, then such inconsistency shall be resolved in favor of the Lease. To
the extent that the definitions of the Lease incorporated by reference herein
differ from or are inconsistent with the definitions contained in this Sublease,
the definitions set forth in this Sublease shall prevail.
2. DEMISE AND TERM. (A) Sublessor hereby leases to Sublessee and
---------------
Sublessee hereby takes and hires from Sublessor the Subleased Premises for the
term and upon the terms and conditions set forth herein, subject to the
provisions of Section 41 of the Lease, and contingent upon the written consent
of the Landlord to this Sublease pursuant to Section 41 of the Lease including
the Landlord's consent to the use of the Subleased Premises set forth in
paragraph 7 hereof ("CONSENT TO SUBLEASE").
1
<PAGE>
(B) The term ("TERM") of this Sublease shall commence on August 15,
1998 ("COMMENCEMENT DATE"), except as otherwise provided herein, and end on May
30, 2001 ("EXPIRATION DATE"), unless sooner terminated pursuant to the
provisions of this Sublease or the Lease. Sublessor warrants and represents that
the term of the Lease extends beyond the Expiration Date. Promptly after
execution and delivery of this Sublease, Sublessor shall request the Consent to
Sublease. In the event that on or before August 10, 1998, Sublessor shall not
have obtained the Consent to Sublease, both Sublessor and Sublessee shall have
the right to cancel this Sublease upon two (2) days written notice to the other,
and thereupon this Sublease shall cease and terminate as if the date of such
cancellation was the Expiration Date as herein defined. Notwithstanding the
foregoing, Sublessee shall not have the right to possession of the Subleased
Premises until (i) Landlord has signed the Consent to Sublease, (ii) Sublessor
has received the Security in the full amount required under Section 25 of this
Sublease and (iii) Sublessor has received the sum of, $3,250.00 representing the
first one and one half installments of monthly Fixed Rent payable pursuant to
paragraph 3(A) of this Sublease.
3. RENT. The rents reserved under this Sublease for the Term, shall be
----
and consist of:
(A) "FIXED RENT" in the amount of (a) Twenty-Six Thousand Dollars
($26,000.00) per annum, for the period beginning on August 15, 1998, through and
including May 30, 2001 payable in equal monthly installments of Two Thousand One
Hundred Sixty-Six and 67/100 Dollars ($2,166.67) on the first day of each month
Fixed Rent payable for any partial month shall be prorated.
(B) "ADDITIONAL RENT" consisting of all such other sums of money as
shall become due from, and payable by, Sublessee to Sublessor hereunder
including but not limited to 25.83% of sums payable by Sublessor to Landlord
pursuant to the Porter's Wage Escalation Rider and Section 43 ("Real Estate
Taxes") of the Lease utilizing a 1998 Calendar year for the base of Porter's
Wage Escalation and a fiscal 1998/99 year for the base of Real Estate Tax
Escalations (for default in payment of which Sublessor shall have the same
remedies as for default in payment of Fixed Rent); all to be paid to Sublessor
at its address hereunder referred to, or such other place, or to such agent and
at such place, as Sublessor may designate by notice to Sublessee, in lawful
money of the United States of America. The terms "rent", "rents" and "rental,"
as used herein, shall include Fixed Rent and Additional Rent.
4. PAYMENT OF ADDITIONAL RENT.
--------------------------
Sublessee shall make all payments of Additional Rent required to be
made pursuant to this Sublease within ten (10) business days after Sublessor
furnishes Sublessee with a statement of the amount payable by Sublessee to
Sublessor. Sublessee shall have the right to reasonably request from Sublessor
copies of any applicable Landlord's statement received by Sublessor, and
Sublessor shall furnish same upon request, but same shall not affect Sublessee's
obligations to make the required payments hereunder. In the event that any items
payable by Sublessor under the Lease, in respect of which Sublessor shall have
received payments from Sublessee hereunder, are subject to adjustment by
Landlord at the end of a year or other period pursuant to the terms thereof,
then (a) if there has been a corresponding underpayment in the payments made by
Sublessee, Sublessee shall pay to Sublessor, no later than ten (10) days after
Sublessor furnishes
2
<PAGE>
to Sublessee a copy of the statement received by Sublessor from Landlord, an
amount equal to such underpayment; or (b) if there has been an overpayment in
such payments made by Sublessee, Sublessor shall credit against the next
payment of Additional Rent coming due hereunder an amount equal to such
overpayment, except that if no further payments of Additional Rent shall be
due hereunder, then Sublessor shall refund such amount to Sublessee within ten
(10) days. The obligation to pay any amount payable by Sublessee, or to
Sublessee as provided for in the immediately preceding sentence, shall survive
the end of the term of this Sublease and shall be payable by or to Sublessee,
as the case may be, in the same manner as if the Term of this Sublease had not
expired or terminated.
5. ACCEPTANCE OF SUBLEASED PREMISES. Sublessee has inspected the
--------------------------------
Subleased Premises and Sublessee agrees to accept the Subleased Premises on the
Commencement Date in the condition in which the Subleased Premises exists on the
Commencement Date, "as is", and further agrees that neither Sublessor nor
Landlord shall have any obligation to perform any work, supply any materials,
incur any expenses or make any installations, in order to prepare the Subleased
Premises for Sublessee's occupancy.
6. PERFORMANCE OF COVENANTS IN THE LEASE. Except as expressly set forth
-------------------------------------
herein, during the Term of this Sublease, Sublessee shall observe and perform
all of the terms, covenants, conditions, and agreements contained in the Lease
to be performed and observed on the part of Sublessor, as the tenant thereunder,
insofar as same pertain to the Subleased Premises, and to the extent that the
same are not modified by the Sublease and all of such terms, covenants,
conditions and agreements are imposed upon Sublessee, whether or not
specifically set forth or referred to herein, Sublessor being substituted for
"Landlord" under the Lease, Sublessee being substituted for "Tenant" under the
Lease and the Subleased Premises being substituted for the "Premises" under the
Lease, provided, however, that Sublessor shall not be liable for any defaults by
the Landlord under the Lease and Sublessee shall not be bound by or subject to
the provisions of the Lease that are not incorporated by reference into this
Sublease. Sublessee hereby agrees (i) to refrain from doing or causing to be
done, or suffering or permitting any thing or act to be done (except for any act
or omission of Sublessor, its officers, directors, employees, agents, guests and
invitees), which constitutes a default under the Lease or causes the Lease, to
be canceled, terminated, forfeited or surrendered, or which makes Sublessor, as
tenant under the Lease, liable for any damages, claims or penalty, and (ii) to
indemnify and hold Sublessor harmless against any loss or expense suffered by
Sublessor by reason of Sublessee's failure to perform Sublessee's obligations
under this Sublease. Sublessor hereby agrees (i) that it will not take, or omit
to take, any action which will have the effect of causing a default under the
Lease, or of causing a substantial interruption in any of the services provided
by Landlord to the Subleased Premises under the Lease, and (ii) to indemnify and
hold Sublessee harmless against any loss or expense suffered by Sublessee by
reason of Sublessor's failure to perform its obligations under this Sublease and
under the Lease (except where such loss or expense is due to a default caused by
Sublessee under this Sublease). Provided Sublessee is not in default under this
Sublease beyond the giving of any required notice and the expiration of any
grace period, Sublessor agrees not to cancel or surrender voluntarily the Lease
as it affects the Subleased Premises, without the prior written consent of
Sublessee. If the Lease is terminated for any reason whatsoever, whether by
operation of law or otherwise, except where due to default of Sublessor (other
than a default of Sublessor under the Lease caused by Sublessee under this
Sublease), Sublessor shall not be liable in any manner whatsoever for such
termination.
3
<PAGE>
Sublessor shall promptly forward to Sublessee any default or termination
notice with respect to the Lease received by Sublessor from Landlord and this
Sublease shall terminate in the event of any such termination of the Lease. A
termination of the Lease to the default of Sublessor, other than Sublessor's
default under the Lease caused by Sublessee under this Sublease, shall be
considered a voluntary cancellation or surrender of the Lease hereunder. This
Sublease is subject and subordinate in all respects to the Lease and to the
matters to which the Lease is subject and subordinate. This Sublease shall
Also be subject to any amendments, modifications and supplements to the Lease
hereafter made between Landlord and Sublessor, provided that any such
amendments, modifications or supplements to the Lease hereafter made between
Landlord and Sublessor will not prevent, limit, restrict or adversely affect
the use by Sublessee of the Subleased Premises or increase any of the
Sublessee's monetary obligations or in any material respect its duties,
obligations, responsibilities and liabilities or decrease Sublessee's rights
under and in accordance with the terms of this Sublease.
7. USE. Sublessee hereby agrees that the Subleased Premises will be
---
occupied and used only for general and executive office use and for no other
purpose, and in a manner consistent in all respects with the provisions of the
Lease.
8. SERVICES UNDER THE LEASE. Except as otherwise provided either in
------------------------
this Paragraph 8 or elsewhere in this Sublease, Sublessee shall be entitled,
during the Term hereof, to receive all services, utilities, repairs and
facilities to be provided by Landlord under the Lease insofar as such services,
utilities, repairs and facilities pertain to the Subleased Premises. Sublessor
shall use its reasonable efforts to secure the performance by Landlord of its
obligations under the Lease with respect to the Subleased Premises for the
delivery, provision and/or performance of such services, utilities, repairs and
facilities as are required to be provided by Landlord under the Lease, except
for such services, utilities, repairs and facilities for which Sublessor,
Sublessee or any other tenant is responsible; provided, however, Sublessor shall
in no event be required to commence or maintain litigation to enforce such
obligations of Landlord under the Lease, or to incur any cost or expense
whatsoever to secure such performance. In the event that Sublessor fails or
refuses to commence or maintain any such litigation to enforce obligations of
Landlord under the Lease, then and in that event, Sublessee shall have the right
to do so, at Sublessee's sole cost and expense, as Sublessor's attorney-in-fact
and/or assignee pursuant hereto. Sublessee agrees that Sublessor shall have no
liability of any nature whatsoever to Sublessee as a consequence of Landlord's
failure or delay in performing its obligations under the Lease, including,
without limitation, Landlord's breach of the covenant of quiet enjoyment,
provided that such failure, delay or breach is not the result of any default by
the Sublessor under the Lease, and provided further, that Sublessor shall have
had an opportunity to cure such default. Sublessee's obligations hereunder shall
not be impaired nor shall the performance thereof be excused because of any
failure or delay on Landlord's part in performing it obligations under the Lease
unless such failure or delay results from Sublessor's being in default under the
Lease and Sublessor's default thereunder is not due to a default of Sublessee
hereunder.
9. ALTERATIONS. Except as otherwise herein provided, Sublessee shall
-----------
make no alterations, installations, additions or improvements (collectively,
"ALTERATIONS") into or about the Subleased Premises except in accordance with
the applicable provisions of the Lease, including but not limited to Section 3
thereof.
4
<PAGE>
10. INSURANCE. (A) Sublessee, at Sublessee's own cost and expense,
---------
shall maintain all policies of insurance with respect to the Subleased Premises,
in favor of Sublessor and Sublessee, which Sublessor is required to maintain in
favor of Landlord under the Lease, including but not limited to Sections 44
thereof, and shall comply with all requirements of the Lease with respect to
such insurance policies, including but not limited to types and amounts of
insurance.
(B) In the event that Sublessee shall fail to take out or continuously
maintain in force the insurance policies required hereunder, Sublessor may, at
its option, effect such insurance and charge the cost actually incurred by
Sublessor to Sublessee, who shall pay, as Additional Rent, such sums to
Sublessor.
(C) Each of the above described policies shall contain the following
endorsement, to the extent available, "It is understood and agreed that the
premiums for these policies are due and payable from Sublessee only."
11. FULL FORCE AND EFFECT OF THE LEASE. Sublessor represents that the
----------------------------------
copy of the Lease delivered to Sublessee is a true and correct copy thereof,
except for the portions intentionally excluded as set forth above, none of which
excluded portions are relevant in any material respect to Sublessee's
obligations under this Sublease. Sublessor represents further that (a) there
have been no further amendments to nor modifications of the Lease, (b) to the
best of Sublessor's knowledge, neither Landlord nor Sublessor are in default
under the Lease, (c) Sublessor has not received any default notices from
Landlord, and (d) Sublessor has not sent any default notices to Landlord.
12. NO REPRESENTATIONS. Sublessor has made no representations,
------------------
agreements or promises with respect to the Building or the Subleased Premises or
the use thereof other than those expressly set forth in this Sublease and no
rights are to be deemed acquired by Sublessee, by implication or otherwise,
except those expressly granted herein. This Sublease contains the entire
agreement between Sublessor and Sublessee with respect to the Subleased Premises
and all prior negotiations and agreements are merged in this Sublease. Any
executory agreement hereafter made between Sublessor and Sublessee shall be
ineffective to change, modify, waive, release, discharge, terminate or effect an
abandonment or surrender of this Sublease, in whole or in part, unless such
agreement is in writing and signed by the party against whom enforcement thereof
is sought.
13. DEFAULT. (A) This Sublease and the term and estate herein granted
-------
are subject to the limitations that:
(i) if, Sublessee shall default in the observance or performance
of any term, covenant or condition of the Lease on Sublessee's part to be
observed or performed, which default results in a notice of default by
Landlord to Sublessor and such default shall continue for a period of five (5)
days after delivery to Sublessee of a true and complete copy of Landlord's
notice of default, or if such default is of a nature that it cannot be
completely remedied within said five (5) day period if Sublessee fails to
commence to cure such default within said five (5) day period and thereafter
diligently prosecute to completion all steps necessary to remedy such default;
or
5
<PAGE>
(ii) if, Sublessee shall default in the payment when due of
any installment of Fixed Rent or in the payment when due of any Additional Rent,
and such default shall continue for a period of three (3) days after notice by
Sublessor to Sublessee of such default; or
(iii) if, Sublessee shall default in the observance or
performance of any term, covenant or condition of this Sublease on Sublessee's
part to be observed or performed (other than the covenants for the payment of
Fixed Rent and Additional Rent) and Sublessee shall fail to remedy such
default within ten (10) days after notice by Sublessor to Sublessee of such
default, or if such default is of a nature that it cannot be completely
remedied within said ten (10) day period, if Sublessee shall not commence
within said ten (10) day period and thereafter diligently prosecute to
completion all steps necessary to remedy such default; or
(iv) if, the Subleased Premises shall become deserted or
abandoned; or
(v) if, Sublessee's interest in this Sublease shall devolve
upon or pass to any person, whether by operation of law or otherwise, except as
may be expressly permitted under Paragraph 19 hereof; or
(vi) if, Sublessee shall file a voluntary petition in
bankruptcy or insolvency, or shall be adjudicated a bankrupt or insolvent, or
shall file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
the present or any future federal bankruptcy act or any other statute or law,
or shall make an assignment for the benefit of creditors or shall seek or
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Sublessee or of all or any part of Sublessee's property; or
(vii) if, within sixty (60) days after the commencement of any
proceeding against Sublessee, whether by the filing of a petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or future applicable federal,
state or other statute or law, such proceeding shall not have been dismissed, or
if, within sixty (60) days after the appointment of any trustee, receiver or
liquidator of Sublessee, or of all or any part of Sublessee's property, without
the consent or acquiescence of Sublessee, such appointment shall not have been
vacated or otherwise discharged, or if any lien, execution or attachment shall
be filed or issued against Sublessee or all or any part of Sublessee's property
pursuant to which the Subleased Premises shall be taken or occupied or attempted
to be taken or occupied by someone other than Sublessee (except as provided in
Paragraph 19 hereof);
then, upon the occurrence, at any time prior to or during the
----
Term, of any one or more of such events, Sublessor may, at any time thereafter,
at Sublessor's sole option, give to Sublessee a five (5) days' notice of
cancellation of this Sublease and, in such event, this Sublease and the Term
shall come to an end and expire (whether or not the Term shall have commenced)
upon the expiration of said five (5) day period with the same force and effect
as if the date were the Expiration Date stated herein and Sublessee shall then
quit and surrender the Subleased Premises to Sublessor, but Sublessee shall
remain liable for damages as provided in Paragraph 27 hereof. Sublessor shall
have with respect to any such default any and all of such rights and remedies as
are given to Landlord under the Lease with respect to defaults by the
6
<PAGE>
tenant thereunder, all with the same force and effect as though the provisions
of the Lease with respect to defaults and the rights and remedies of Landlord
were set forth at length herein. If Sublessee shall default in the performance
of any of Sublessee's obligations hereunder or under the provisions of the
Lease, after the giving of notice and opportunity to cure as provided above,
Sublessor, without thereby waiving such default, may, at Sublessor's option,
perform the same for the account and at the expense of Sublessee. If Sublessor
makes any expenditures or incurs any obligations for the payment of money,
including without limitation, reasonable attorneys' fees and expenses in
instituting, prosecuting or defending any action or proceeding, by reason of
any default of Sublessee hereunder after giving of notice and opportunity to
cure as provided above, such sums paid or obligations incurred, with interest
at the rate of 4% per annum above the then current prime rate charged by
Citibank, N.A. or its successor, shall be deemed to be Additional Rent and
shall be paid by Sublessee to Sublessor on demand.
(B) If Sublessor shall default in the observance or performance of any
term, covenant or condition of this Sublease on Sublessor's part, to be observed
or performed, and Sublessor shall fail to remedy such default within ten (10)
days after notice by Sublessee to Sublessor of such default, or if such default
is of a nature that it cannot be completely remedied within said ten (10) day
period, if Sublessor shall not commence within said ten (10) day period and
thereafter diligently prosecute to completion all steps necessary to remedy such
default, then if Sublessee makes any expenditures or incurs any obligations for
the payment of money, including without limitation, reasonable attorney's fees
and expenses instituting, prosecuting or defending any action or proceeding, by
reason of such default of Sublessor hereunder, after the giving of notice and an
opportunity to cure as provided above, Sublessor shall reimburse to Sublessee on
demand all such sums paid by Sublessee, with interest at the rate of 4% per
annum above the then current prime rate charged by Citibank, N.A. or its
successor.
14. INDEMNITY AND HOLD HARMLESS. (A) Neither Sublessor, nor its agents,
---------------------------
shall be liable to Sublessee, its employees, agents, contractors, licensees,
servants, invitees or visitors and Sublessee shall save Sublessor and its agents
harmless from and against any and all liabilities, obligations, penalties,
fines, suits, claims, demands, actions, costs and expenses of any kind or nature
(including, without limitation, reasonable attorneys' fees and expenses),
incurred in connection with or arising from any injury to Sublessee, its
employees, agents, contractors, licensees, servants, invitees or visitors or to
any other person on the Subleased Premises in or about the Subleased Premises,
or from any injury or damage to or loss (by theft or otherwise) of, any of
Sublessee's property and/or of the property of any other person irrespective of
the cause of such injury, damage or loss, other than injury, damage or loss
caused by Sublessor's willful acts or omissions or negligence. Sublessee agrees
to indemnify and save Sublessor and its agents harmless from and against any and
all liabilities obligations, suits, claims, demands, actions, costs and expenses
of any kind or nature by anyone whomsoever (including, without limitation,
reasonable attorneys' fees and expenses), incurred in connection with or arising
from (i) any default by Sublessee in the observance or performance of any of the
terms, covenants, conditions or agreements of this Sublease on Sublessee's part
to be observed or performed, beyond the expiration of any applicable grace
period, or (ii) the use or occupancy or manner of use or occupancy of the
Subleased Premises by Sublessee or any person claiming through or under
Sublessee, other than as permitted under this Sublease, or (iii) the condition
of the Subleased premises (ordinary wear and tear excepted), except if created
by Sublessor, or (iv) any improper acts, omissions or negligence of Sublessee,
or the employees, agents, contractors, licensees,
7
<PAGE>
servants, invitees or visitors of Sublessee, in or about the Subleased
Premises or the Building, during the Term. If any action or proceeding shall
be brought against Sublessor by reason of any such claim, Sublessee, upon
notice from Sublessor, agrees to resist or defend such action or proceeding
and to employ counsel therefor reasonably satisfactory to Sublessor. Sublessee
shall pay to Sublessor on demand, as Additional Rent, all sums which may be
owing to Sublessor by reason of the provisions of this Paragraph 14.
Sublessee's obligations under this Paragraph 14 shall survive the Expiration
Date or sooner termination of the Term.
(B) Sublessor agrees to indemnify and save Sublessee and its agents
harmless from and against any and all liabilities, obligations, penalties,
fines, suits, claims, demands, actions, costs and expenses of any kind or nature
by anyone whomsoever (including, without limitation, reasonable attorneys' fees
and expenses), incurred in connection with or arising from (i) any default by
Sublessor in the observance or performance of any of the terms, covenants,
conditions or agreements of this Sublease on Sublessor's part to be observed or
performed, beyond the expiration of any applicable grace period, or (ii) the use
or occupancy or manner of use or occupancy of the portion of the Demised
Premises occupied only by Sublessor other than as permitted in the Lease, or
(iii) any acts, omissions or negligence of Sublessor, or the employees, agents,
contractors, licensees, servants, invitees, or visitors of Sublessor in or about
the Demised Premises or the Building, during the Term.
15. NOTICES. Any notice, demand, request or other document which, under
-------
the terms of this Sublease or under any statute, must of may be given or made by
the parties hereto, must be in writing, and shall be either personally delivered
(provided a written receipt therefor is obtained), or sent by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party for whom intended at its address as set forth on page 1 hereof, and, if to
Sublessor, with a copy to Alter Bartfeld & Mantel LLP, 90 Park Avenue, New York,
New York 10016, Attention: Arnold L. Bartfeld, Esquire or if to Sublessee, with
a copy to: Morrison & Foerster LLP, 425 Market Street, San Francisco, California
94105 Attention: Craig Etlin, Esq. (provided, however, the failure to forward a
copy of any notice to counsel shall not be deemed to make such notice
defective). Either party, however, may designate a new or other address by
written notice given in accordance with this Paragraph 15. Any notice personally
delivered shall be deemed given upon the signing of a receipt therefor, and any
notice so addressed and mailed shall be deemed to be given either when
delivered, or, if delivery is refused, five (5) business days after the date
mailed, as the case may be. Any notice, demand or request given or made by
counsel for a party shall be deemed given or made by such party.
16. COUNTERCLAIM. Sublessee hereby waives the right to interpose a
------------
counterclaim (other than mandatory counterclaims) in any summary proceeding
initiated by Sublessor to remove Sublessee from the Subleased Premises.
17. END OF TERM. On the Expiration Date, or upon any earlier
-----------
termination of this Sublease, Sublessee shall quit and surrender the Subleased
Premises to Sublessor broom-clean and in as good order, condition and repair as
the Subleased Premises existed upon the Commencement Date except for ordinary
wear and tear, any restoration of the Subleased Premises not required pursuant
hereto, damage or destruction by fire and other casualty and such other damage
the repair of which is not Sublessee's obligation hereunder (provided no such
damage shall be due to Sublessee's negligence or misconduct), and otherwise in
accordance with
8
<PAGE>
the applicable provisions of the Lease. Sublessee recognizes that Sublessor
may suffer substantial damage if Sublessee fails to surrender and vacate the
Subleased Premises on the Expiration Date. Sublessee, therefore, agrees that
if Sublessee shall hold-over or remain in possession beyond the Expiration
Date of this Sublease, Sublessee shall in addition to the provisions of
Paragraph 31 below, be liable for all compensatory damages directly related
thereto and arising therefrom, including any damages arising out of any lost
opportunities ( and/or new leases) in connection with such holding over. All
damages to Sublessor by reason of such holding-over by Sublessee may be the
subject of a separate action and need not be asserted by Sublessor in any
summary proceeding against Sublessee. Sublessee further agrees to indemnify
Sublessor against and from any and all losses, liabilities, damages, costs and
expenses (including reasonable attorneys' fees) Sublessor incurs to dispossess
Sublessee, or otherwise, resulting from Sublessee's failure to vacate the
Subleased Premises on the Expiration Date. Sublessee's obligations under this
Paragraph 17 shall survive the termination of this Sublease.
18. QUIET ENJOYMENT. Sublessor covenants with Sublessee that as long as
---------------
Sublessee shall pay the Fixed Rent and Additional Rent and shall duly perform
all of the terms, covenants, conditions and agreements of this Sublease on its
part to be performed, Sublessee shall, subject to the terms hereof and of the
Lease, peaceably have, hold and enjoy the Subleased Premises during the Term
provided herein without hindrance or molestation by Sublessor or any party
claiming by, through or under Sublessor.
19. ASSIGNMENT AND SUBLETTING. Sublessee, for itself, and its
-------------------------
successors and assigns, expressly covenants that it shall not assign this
Sublease, nor underlet, nor suffer, nor permit the Subleased Premises or any
part thereof to be used or occupied by others, except upon the prior written
consent of both (i) Sublessor, which consent shall not be unreasonably withheld
or delayed, and (ii) Landlord; and provided further that any such attempted
assignment, subletting, use or occupancy shall be subject to compliance with all
of the terms and conditions contained in Section 41 of the Lease and to the
rights of Landlord thereunder.
20. EFFECT OF TERMINATION OF THE LEASE. Notwithstanding the provisions
----------------------------------
of Paragraph 2 hereof, the Term of this Sublease shall end one day prior to the
Term of the Lease if Landlord shall terminate the Lease in accordance with its
terms. Upon receipt of written notice from Landlord terminating the Lease,
Sublessor shall notify Sublessee of Landlord's intention to terminate the Lease
and the date such termination shall be effective. In the event of such early
termination by Landlord ("EARLY TERMINATION"), Sublessor shall return to
Sublessee any prepaid Fixed Rent, any prepaid Additional Rent or Additional Rent
covering any period following Early Termination and the Security provided in
Paragraph 25 hereof, or balance of the Security as the case may be, and
thereafter this Sublease shall terminate as finally and completely as if the
date set forth in the Early Termination notice shall be the Expiration Date set
forth herein for the termination of the Sublease Term.
21. EFFECT OF TERMINATION OF THIS SUBLEASE. References in this Sublease
--------------------------------------
to "termination" of this Sublease include expiration or earlier termination of
the Term hereof or cancellation of this Sublease pursuant to any of the
provisions of this Sublease, the Lease or pursuant to law. Upon the termination
of this Sublease, the term and estate granted by this Sublease shall end at noon
on the date of termination as if such date were the Expiration Date hereof, and
neither party shall have any further obligation or liability to the other after
such
9
<PAGE>
termination except as shall be expressly provided in this Sublease, any
liability for a payment which shall have accrued with respect to any period
ending prior to or at the time of termination shall survive the termination of
this Sublease.
22. REMEDIES CUMULATIVE. Each right and remedy of Sublessor and
-------------------
Sublessee provided for in this Sublease shall be cumulative and shall be in
addition to every other right and remedy provided for in this Sublease now or
hereafter existing at law or in equity or by statute or otherwise.
23. BINDING EFFECT. The terms, covenants, conditions and agreements
--------------
contained in this Sublease shall bind and inure to the benefit of Sublessor and
Sublessee and their respective successors and assigns, except that no violation
of the provisions of Paragraph 19 hereof shall operate to vest any rights in any
successor or assignee of Sublessee. It is understood and agreed that the
obligations of Sublessor under this Sublease shall not be binding upon Sublessor
with respect to any period subsequent to the transfer of its interest in the
Lease, and that in the event of such transfer said obligations shall thereafter
be binding upon the transferee of the Sublessor's interest as tenant under the
Lease.
24. [INTENTIONALLY DELETED]
25. SECURITY. A. On or before the date that is three days after
--------
Sublessor notifies Sublessee that Sublessor has received the Consent to
Sublease, Sublessee shall deposit and shall thereafter maintain at all times
with Sublessor until the date that is thirty (30) days after the expiration of
the Term, as a security deposit (the "Security") for the faithful performance
and observance by Sublessee of the covenants, agreements, terms, provisions and
conditions of this Sublease, the sum of Three Thousand Eight Hundred Thirty
Three and 34/100 Dollars ($3,833.34).
B. It is agreed that in the event Sublessee defaults in respect of any
of the covenants, agreements, terms, provisions and conditions of this Sublease
(after notice and the expiration of any applicable grace period), Sublessor may
use, apply or retain such part of the Security as shall be equal to the sum as
to which Sublessee is in default or for any sum which Sublessor may expend or
may be required to expend by reason of Sublessee's default in respect of any of
the covenants, agreements, terms, provisions and conditions of this Sublease,
including, but not limited to, any damages or deficiency in the re-letting of
the Subleased Premises, whether such damages or deficiency occurred before or
after summary proceedings or other re-entry by Sublessor. Sublessor shall not be
required to so use, apply or retain any part of the Security, but if any part
thereof is so used, applied or retained in accordance with the provisions of
this Section, Sublessee shall, upon demand, immediately deposit with Sublessor
an amount equal to the amount so used, applied or retained.
C. In the event that Sublessee shall fully and faithfully comply with
all of the terms, provisions, covenants, agreements and conditions of this
Sublease, any unapplied Security shall be returned to Sublessee within ten (10)
days after the date fixed as the end of this Sublease and after delivery of the
entire possession of the Subleased Premises to Sublessor.
26. Intentionally deleted.
10
<PAGE>
27. RE-ENTRY BY SUBLESSOR; REMEDIES. (A)(I) If this Sublease and the
-------------------------------
Term shall expire and come to an end as provided in Paragraph 13 hereof:
(a) Sublessor and its agents may immediately, or at any time
thereafter, reenter the Subleased Premises or any part thereof, either by
summary proceedings, or by any other applicable court action or judicial
proceeding (without being liable to indictment, prosecution or damages
therefor), and may repossess the Subleased Premises and the Furniture and remove
any and all of their property and effects from the Subleased Premises; and
(b) Sublessor, at its option, may relet the whole or any part or parts
of the Subleased Premises, at any time or from time to time, either in the name
of Sublessor or otherwise, to such subtenant or subtenants, for such term or
terms ending before, on or after the Expiration Date, at such rental or rentals
and upon such other conditions, which may include concessions and free rent
periods, as Sublessor, in its sole discretion, may determine. Sublessor shall
have no obligation to relet the Subleased Premises or any part thereof and shall
in no event be liable for refusal or failure to relet the Subleased Premises or
any part thereof, or, in the event of any such reletting, for refusal or failure
to collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Sublessee of any liability under this Sublease or
otherwise to affect any such liability. Sublessor, at its option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Subleased Premises as Sublessor, in its
sole discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Sublessee of any liability
under this Sublease or otherwise affecting any such liability.
(ii) Sublessee, on its own behalf and on behalf of all persons
claiming through or under Sublessee, including all creditors, does further
hereby waive any and all rights which Sublessee and all such persons might
otherwise have under any present or future law to (a) redeem the Subleased
Premises, or re-enter or repossess the Subleased Premises, or (b) restore the
operation of this Sublease, after (1) Sublessee shall have been dispossessed by
a judgment or by warrant of any court or judge, (2) any re-entry by Sublessor,
or (3) any expiration or termination of this Sublease and the Term, whether such
dispossess, re-entry, expiration or termination shall be by operation of law or
pursuant to the provisions of this Sublease. The words "re-enter", "re-entry"
and "re-entered" as used herein shall not be deemed to be restricted to their
technical legal meanings. The right to invoke the remedies hereinbefore set
forth are cumulative and shall not preclude Sublessor from invoking any other
remedy allowed at law or in equity.
(B) In the event of any breach or threatened breach by Sublessee or any
person claiming through or under Sublessee, of any of the terms of this Sublease
(whether or not the Term shall have commenced), Sublessor shall be entitled to
enjoin such breach or threatened breach and shall have the right to invoke any
other remedy allowed at law or in equity, by statute or otherwise, as if
re-entry, summary proceedings or other specific remedies were not provided for
in this Sublease.
(C) (i) If this Sublease and the Term shall expire and come to an end
as provided in Paragraph 13 hereof, or by or under any summary proceeding or any
other action or proceeding, or if Sublessor shall re-enter the Subleased
Premises as provided in this Paragraph 27 and
11
<PAGE>
elsewhere in this Sublease, or by or under any summary proceeding or any other
action or proceeding, then, in any of said events:
(a) Sublessee shall Pay to Sublessor all Fixed Rent, Additional Rent
and other charges payable under this Sublease by Sublessee to Sublessor to the
date upon this Sublease and the Term shall have expired and come to an end or to
the date of re-entry upon the Subleased Premises by Sublessor, as the case may
be;
(b) All monies, if any, theretofore paid by Sublessee to Sublessor,
whether as advanced Fixed Rent, Additional Rent, Security, or otherwise, shall
be credited by Sublessor against any damages payable by Sublessee to Sublessor,
and any surplus, if any, shall be refunded to Sublessee;
(c) Sublessee also shall be liable for and shall pay to Sublessor, as
damages, any deficiency (hereafter referred to as "DEFICIENCY") between the
Fixed Rent and Additional Rent reserved in this Sublease for the period which
otherwise would have constituted the unexpired portion of the Term (conclusively
presuming the Additional Rent to be the same as was payable for the year
immediately preceding such termination or re-entry) and the net amount, if any,
of rents collected under any reletting for any part of such period (first
deducting from the rents collected under any such reletting all of Sublessor's
expenses in connection with the termination of this Sublease, and Sublessor's
re-entry upon the Subleased Premises and with such reletting, including, but not
limited to, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees and disbursements, alteration costs and other expenses of
preparing the Subleased Premises for such reletting). Any such Deficiency shall
be paid in monthly installments by Sublessee on the days specified in this
Sublease for payment of installments of Fixed Rent. Sublessor shall be entitled
to recover from Sublessee each monthly Deficiency as the same shall arise, and
no suit to collect the amount of the Deficiency for any month shall prejudice
Sublessor's right to collect the Deficiency for any subsequent month by a
similar proceeding;
(ii) If the Subleased Premises, or any part thereof, shall be
relet together with other space in the Demised Premises, rents collected or
reserved under any such reletting and the expenses of any such reletting shall
be equitably apportioned for the purposes of Section C.(i) hereof. In no event
whatsoever shall Sublessee be entitled to any rents collected or payable under
any reletting, whether or not such rents shall exceed the Fixed Rent and
Additional Rent reserved in this Sublease. Nothing contained in Paragraph 13
hereof or this Paragraph 27 shall be deemed to limit or preclude the recovery by
Sublessor from Sublessee of the maximum amount allowed to be obtained as damages
by any statute or rule of law, or of any sums or damages to which Sublessor may
be entitled in addition to the damages set forth in Section C.(i) hereof.
28. CERTIFICATES. Sublessor and Sublessee shall, without charge, at
------------
reasonable intervals, and from time to time, within ten (10) business days after
requests by the other, deliver a written instrument to any person, firm or
corporation specified by them, duly executed and acknowledged, certifying:
(a) that this Sublease is unmodified and in full force and effect, if
there have been any modifications, that the same are in full force and effect as
modified and stating any such
12
<PAGE>
modifications and if the Sublease is not then in full force and effect, so
stating and setting forth in reasonable detail the nature of any default,
deficiency or changed circumstance;
(b) whether or not there are then existing set-offs or defenses against
the enforcement of any of the agreements, terms, covenants or conditions of this
Sublease and any modifications thereof on the part of Sublessee to be performed
or complied with, and, if so, specifying the same;
(c) the dates to which the Fixed Rent and Additional Rent, and other
charges hereunder, have been paid; and
(d) whether the term of this Sublease has commenced and rent is payable
thereunder and whether Sublessee has accepted possession of the Subleased
Premises.
29. EXECUTION OF SUBLEASE. Submission by Sublessor of the within
---------------------
Sublease for execution by Sublessee shall confer no rights nor impose any
obligations on either party unless and until both Sublessor and Sublessee shall
have executed this Sublease, duplicate originals thereof shall have been
delivered to the respective parties and Landlord shall have delivered to
Sublessor the Consent to Sublease and Sublessor shall have promptly notified
Sublessee of its receipt of Landlord's Consent to Sublease.
30. ELECTRICITY. The cost of electric current provided to the Subleased
-----------
Premises is included in the Fixed Rent.
31. HOLDING OVER. If Sublessee holds over in possession after the
------------
expiration or sooner termination of the original Term or of any extended term of
this Sublease, such holding over shall not be deemed to extend the Term or renew
the Sublease, but such holding over thereafter shall continue upon the covenants
and conditions herein set forth, except that the charge for use and occupancy of
such holding over for each calendar month or part thereof (even if such part
shall be a small fraction of a calendar month) shall be the sum of:
(a) 1/12 of the annual Fixed Rent set forth in this Sublease, times
2.0, plus
(b) 1/12 of all other items of annual Additional Rent which would have
been payable pursuant to this Sublease had this Sublease not expired, plus
(c) those other items of Additional Rent (not annual Additional Rent)
which would have been payable pursuant to this Sublease, had this Sublease not
expired, which total sum Sublessee agrees to pay to Sublessor promptly upon
demand, in full, without set-off or deduction. Neither the billing nor the
collection of use and occupancy in the above amount shall be deemed a waiver of
any right of Sublessor to collect damages for Sublessee's failure to vacate the
Subleased Premises after the expiration or sooner termination of this Sublease.
The aforesaid provisions of this Section shall survive the expiration or sooner
termination of this Sublease.
32. LATE CHARGES. If Sublessor does not receive payment of any Fixed
------------
Rent or Additional Rent within five (5) days after any such Fixed Rent or
Additional Rent is due, then Sublessee shall pay to Sublessor, as a "late
charge", interest at the lesser of (i) two percent (2%) per annum above the then
current prime rate charged by Citibank, N.A. or its successor, or
13
<PAGE>
(ii) the maximum rate permitted by applicable law on the amount of Fixed Rent
and/or Additional Rents overdue until such rental payment is made and such
"late charge" shall be collectible as Additional Rent by Sublessor.
33. ATTORNEYS' FEES. In case it shall be necessary for Sublessor to
---------------
institute any action or proceeding against Sublessee for the nonpayment of rent
or for the violation of any of the covenants or provisions of this Sublease or
for the recovery of possession of the Subleased Premises or should Sublessor be
compelled to intervene in any action or proceeding wherein Sublessee is a party
in order to enforce Sublessor's interest or rights hereunder, then and in any of
such events, if Sublessor shall obtain a judgment or order in its favor on the
merits, sustained on appeal if one is taken, in such action or proceeding,
Sublessee shall be obligated to pay to Sublessor reasonable attorneys' fees,
costs and disbursements incurred for the institution and prosecution of any such
action, proceeding or intervention.
34. See Rider attached hereto and made a part hereof.
35. See Rider attached hereto and made a part hereof.
36. See Rider attached hereto and made a part hereof.
37. NO BROKER. Sublessor and Sublessee represent and warrant that they
---------
have dealt with no broker or finder in connection with this Sublease other than
Wharton Property Advisors, Inc. Sublessor shall pay a commission to Wharton
Property Advisors, Inc. pursuant to a separate written agreement. Sublessor and
Sublessee each shall indemnify, defend and save harmless the other from and
against all claims arising from any breach by such party of the foregoing
representation, warranty or covenant. The indemnity set forth herein shall
survive the expiration or earlier termination of this Sublease.
14
<PAGE>
IN WITNESS WHEREOF, Sublessor and Sublessee have duly executed this
Sublease as of the day and year first above written.
SUBLESSOR:
CORNERSTONE INTERNET SOLUTIONS COMPANY
By: /s/ Kenneth Gruber
----------------------------------
Name: Kenneth Gruber
Title: Vice President
SUBLESSEE:
XOOM, INC.
By: /s/ Laurent Massa
-----------------------------------
Name: Laurent Massa
Title: CEO
15
<PAGE>
RIDER TO SUBLEASE DATED AS OF AUGUST __, 1998, BETWEEN
CORNERSTONE INTERNET SOLUTIONS COMPANY, AS SUBLESSOR, AND
XOOM, INC., AS SUBLESSEE, FOR A PORTION OF THE
THIRD FLOOR AT 25 WEST 45TH STREET
34. If any conflict shall arise between any of the provisions of this Rider and
any of the terms, printed or typewritten, of the printed portion of the Sublease
to which this Rider is attached, all such conflicts shall be resolved in favor
of the provisions of this Rider.
35. Except as otherwise expressly set forth herein, all of the terms, covenants,
conditions and agreements contained in the Lease are incorporated and made a
part of this Sublease as though fully set forth herein and shall apply to the
Subleased Premises to the extent that the same are applicable. Notwithstanding
the foregoing:
(i) the following provisions of the Lease are not incorporated into this
Sublease;
(A) all of the lead-in on page 1 prior to Article 1.
(B) Articles 30, 32, 47, 50, the Work Letter attached to the Lease, and
the Electricity Rider attached to the Lease.
(ii) Article 43 of the Lease, as incorporated into this Sublease is modified by
inserting the phrase "which the demised premises are a part thereof in the (A)
13th line after the word "building", (B) 32nd line after the word "building" and
(C) 34th line after the word "building", respectively.
(iii) The amendment to the Lease dated May 1, 1996, as incorporated into this
Sublease, is modified by deleting the sentence "For and in consideration of such
additional service exclusively, Tenant agrees that its annual (base) rent
payable shall be increased during the term of this lease by an addition amount
of $_______________ per annum or $__________ per month, pro rata, always subject
to future increase or decrease as provided by said lease."
(iv) The Additional Clauses attached to the Lease dated December 12, 1997, as
incorporated into this Sublease, are modified by deleting the provisions therein
captioned "Term", Rental", Electricity", "Work" and "Miscellaneous".
36. Notwithstanding anything contrary contained herein, Sublessor's consent
shaft not be required for assignments, subleases, or other transfer transactions
(i) with a corporation into or with which Sublessee is merged or consolidated or
with a person or entity to which substantially all of Sublessee's assets are
transferred or to which a majority of the issued and outstanding capital stocks
of a corporate tenant or subtenant, or of the total interests in a partnership
tenant or subtenant, or of control in a limited partnership tenant or subtenant
is transferred (provided such merger or transfer is for a legitimate business
purpose and not principally for the purpose of transferring the subleasehold
estate created by this Sublease), and (ii) with an entity that is an affiliate
of Sublessee or is controlled by, under common control with or controls
Sublessee. The reorganization of Sublessee named in this Sublease to a publicly
traded corporation (whether or not a change in control of such Sublessee is
thereby effected) and the transfer of all of the
16
<PAGE>
partnership interests in, or outstanding stock of, Sublessee named in this
Sublease to a publicly traded corporation shall not require Sublessor's
consent Sublessor, upon Sublessee's request, shall use best efforts to cause
Landlord to promptly deliver Landlord's consent to the foregoing
transaction(s).
17
<PAGE>
EXHIBITS TO SUBLEASE
--------------------
Subleased Premises Exhibit A
Lease Exhibit B
18
<PAGE>
EXHIBIT A
---------
SUBLEASED PREMISES
19
<PAGE>
(diagram of subleased premises)
Suite 301 - 1000 rsf
25 West 45th Street
20
<PAGE>
EXHIBIT B
---------
LEASE
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
21
<PAGE>
EXHIBIT 10.3
ASSIGNMENT OF LEASE
-------------------
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, XAOS
TOOLS, INC. ("ASSIGNOR"), as Tenant under that certain Office Space Lease dated
as of August 1, 1997, as amended by the First Amendment to Lease dated as of
August 1, 1997 and the Second Amendment to Lease dated as of August 1, 1998
(said Office Space Lease and First Amendment to Lease and Second Amendment to
Lease hereinafter collectively referred to as the "Lease"), entered into by and
between ASSIGNOR as Tenant and 300 Montgomery Associates ("300 MONTGOMERY") as
Landlord, covering the premises commonly known as Suite 300, 300 Montgomery
Street, San Francisco, California (the "Premises"), hereby assigns and transfers
to Xoom, Inc. ("ASSIGNEE"), all of its right, title and interest in and to the
Lease and gives possession of the Premises to ASSIGNEE in a broom-clean
condition and otherwise ready for use, effective on August 1, 1998 (the
"Effective Date"), provided that Landlord consents thereto as evidenced by its
signature below. ASSIGNOR releases all claims to the security deposit in the
amount of One Hundred Thousand One Hundred Ninety-three and 25/100 Dollars
($100,193.25) which 300 MONTGOMERY now holds as Landlord, and ASSIGNOR agrees
that such security deposit shall be held by 300 MONTGOMERY and applied subject
to the provisions of the Lease and shall be returned to ASSIGNEE after the
expiration of the Term in accordance with the Lease, as such may be amended
and/or modified. ASSIGNOR agrees that 300 MONTGOMERY will in no event be
required to charge or credit or make any other adjustment as between ASSIGNOR
and ASSIGNEE on account of any other sums paid either before or after the
Effective Date under the Lease by ASSIGNOR or ASSIGNEE. ASSIGNOR hereby
represents and warrants to ASSIGNEE and 300 MONTGOMERY that, as of the Effective
Date, (a) the Lease is in full force and effect, and (b) there are no defaults
on the part of 300 MONTGOMERY. ASSIGNOR acknowledges that, notwithstanding this
assignment or any further assignments, ASSIGNOR continues to be bound by the
Lease and liable for the performance of each and every term, covenant,
condition, obligation and agreement of the Lease to be kept, performed and
fulfilled by the Tenant thereunder. ASSIGNOR further agrees to indemnify, defend
(with counsel reasonably acceptable to ASSIGNEE) and hold ASSIGNEE harmless from
and against any and all claims, costs, liabilities, losses, damages or expenses,
including, without limitation, reasonable attorneys's fees, which claims, costs,
liabilities, losses, damages or expenses originate on or prior to the Effective
Date and arise out of ASSIGNOR'S obligations under the Lease. ASSIGNEE agrees to
immediately notify ASSIGNOR of any actual or intended default under the terms of
the Lease. ASSIGNEE further agrees to indemnify, defend (with counsel reasonably
acceptable to ASSIGNOR) and hold ASSIGNOR harmless from and against any and all
claims, costs, liabilities, losses, damages or expenses, including, without
limitation, reasonable attorneys's fees, which claims, costs, liabilities,
losses, damages or expenses originate on or after the Effective Date and arise
out of ASSIGNEE'S obligations under the Lease. ASSIGNOR understands and agrees
that notwithstanding ASSIGNOR's continuing liability under the Lease subsequent
to this assignment, ASSIGNOR retains no right of reversion or re-entry under the
Lease and no right to cure any default of ASSIGNEE thereunder. ASSIGNOR waives
all presentments, demands for payment or performance under the Lease, and all
other notices, including those of nonperformance or
1
<PAGE>
default, and further waives any right to require 300 MONTGOMERY to enforce its
rights or remedies against ASSIGNEE under the Lease or to proceed against
ASSIGNEE or any other person, to proceed against or exhaust any security held
from ASSIGNEE or any other person, or to pursue any other remedy in 300
MONTGOMERY's power whatsoever. ASSIGNOR represents that its current address is
300 Montgomery Street, Suite 300, California 94104 and promises that it will
immediately notify 300 MONTGOMERY in writing of any change in such address.
DATED: 7/31/98
"ASSIGNOR"
XAOS TOOLS, INC.
By: /s/ Robert L. Batty
--------------------
Name: Robert L. Batty Name:
--------------- -------------
Title: President Title:
--------- ------------
2
<PAGE>
ACCEPTANCE OF ASSIGNMENT AND ASSUMPTION OF LEASE
------------------------------------------------
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
ASSIGNEE accepts the foregoing assignment of all of ASSIGNOR's right, title and
interest in and to the Lease and in addition expressly assumes and agrees, as a
direct obligation to 300 MONTGOMERY, from the date the assignment becomes
effective, to keep, perform and fulfill all the terms, covenants, conditions,
obligations and agreements required to be kept, performed, and fulfilled by
ASSIGNOR as Tenant thereunder, including, but not limited to, the timely making
of all payments due to or payable on behalf of 300 MONTGOMERY as Landlord under
the Lease when due and payable. ASSIGNEE acknowledges that it has inspected the
Premises and knows the present condition thereof and of the Office Building of
which the Premises are a part, and accepts the Premises in the condition
disclosed by such inspection. ASSIGNEE agrees that no representations or
agreements of any kind, express or implied, including respecting the Premises,
the Lease or the Office Building, have been made by 300 MONTGOMERY or any agent,
employee or representative of 300 MONTGOMERY, and ASSIGNEE is not accepting the
Premises or the Lease in reliance upon any representations or nondisclosures on
the part of 300 MONTGOMERY or 300 MONTGOMERY'S agents, employees or
representatives. ASSIGNEE acknowledges that a security deposit in the amount of
$100,193.25 is (or, as of the Effective Date, will be) held by 300 MONTGOMERY as
Landlord to be applied subject to the provisions of the Lease, and that no rent
has been prepaid under the Lease except for the current month. ASSIGNEE agrees
that 300 MONTGOMERY will in no event be required to charge or credit or make any
other adjustment as between ASSIGNOR and ASSIGNEE on account of any other sums
paid either before or after the Effective Date under the Lease by ASSIGNOR or
ASSIGNEE. ASSIGNEE further acknowledges that it has read the entire Lease and
fully understands its provisions, including, but not limited to, the provisions
of Article IX of the Lease dealing with assignment and subletting, and the
provisions of Article 14.7 of the Lease waiving right to trial by jury. Attached
hereto as Exhibit "A" and incorporated herein by reference are the most recent
financial statements (the "Financial Statements") of ASSIGNEE, consisting of a
balance sheet and related materials for the period ending June 30, 1998 and
December 31, 1997. ASSIGNEE represents, warrants and covenants to 300 MONTGOMERY
that the Financial Statements are in all material respects true and complete
statements of the financial condition of ASSIGNEE for the period therein
specified, contain and reflect all material adjustments so as to present a full,
accurate and complete statement of ASSIGNEE's current financial condition, and
do not fail to disclose any fact or facts which might materially and adversely
affect ASSIGNEE's financial condition. ASSIGNEE further represents, warrants and
covenants that since the last date covered by the Financial Statements, there
has not been any change in the financial condition of ASSIGNEE or any other
event or condition of any character that has had or might reasonably be expected
to have a materially adverse effect or impact on the financial condition of
ASSIGNEE. ASSIGNEE acknowledges that 300 MONTGOMERY is materially relying on the
truthfulness, accuracy and completeness of the Financial Statements and would
not consent to the within assignment of the Lease if it did not believe that
such Financial Statements were true, accurate and complete. ASSIGNEE
3
<PAGE>
further agrees to immediately give 300 MONTGOMERY written notice of any material
adverse change in its financial condition occurring prior to the Effective Date,
including litigation commenced, tax liens filed, defaults claimed under its
indebtedness for borrowed money, or bankruptcy proceedings commenced by or
against it.
DATED: 7/31/98
"ASSIGNEE"
By: /s/ Laurent Massa By:
----------------- ------------------
Name: Laurent Massa Name:
--------------- ----------------
Title: C.E.O. Title:
-------------- ---------------
4
<PAGE>
LANDLORD'S CONSENT TO ASSIGNMENT
--------------------------------
As Landlord under the Lease, 300 MONTGOMERY hereby consents to the
foregoing assignment and assumption without waiver of the restrictions in the
Lease concerning further assignment and without waiver of any of its rights or
remedies under the Lease as to ASSIGNOR or ASSIGNEE, and this consent shall not
in any respect release, relieve or discharge ASSIGNOR from liability for the
performance of any of the Tenant's responsibilities, obligations, covenants or
agreements under the Lease. This consent of 300 MONTGOMERY is further
conditioned upon its receipt of the payment to 300 MONTGOMERY of the sum of Five
Hundred Dollars ($500.00) pursuant to Article 9.1 (e) of the Lease. To the best
of its knowledge as of the Effective Date, 300 MONTGOMERY (a) is not aware of
any current defaults on the part of ASSIGNOR, (b) believes the Lease to be in
full force and effect, and (c) knows of no events which with the passage of time
or the giving of notice could become defaults on the part of ASSIGNOR.
DATED: 7/31/98
"LANDLORD"
300 MONTGOMERY ASSOCIATES
By: KENNEDY-WILSON MANAGEMENT GROUP, its Managing Agent
By: /s/ Eric M. Bender
------------------
By: Eric M. Bender
Its: Director of Property Management
5
<PAGE>
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT to Lease ("Amendment") is dated as of the first day
of August, 1998, by and between 300 Montgomery Associates, a California
partnership ("Landlord"), and XAOS Tools, Inc., a California corporation
("Tenant").
A. Landlord and Tenant entered into that certain Office Space Lease dated
as of August 1, 1997 and the First Amendment to Lease dated as of August 1, 1997
(herein collectively the "Lease") for certain premises more particularly
described therein as Suite 300 ("Premises") in the building commonly known as
300 Montgomery Street, San Francisco, California ("Building").
B. Landlord and Tenant desire to amend the Lease in accordance with the
terms and conditions set forth in this Amendment.
C. All capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein Landlord and Tenant hereby modify, amend and supplement the Lease
as follows:
1. Paragraph One of the First Amendment to Lease regarding the Security
Deposit is hereby deleted in its entirety.
2. The last sentence of Section 4.3 of the Lease is modified as follows:
"Provided Tenant has not been in default of any provision of this Lease
during the Term, twenty nine thousand nine hundred forty-seven and 51/100
dollars ($29,947.51) of the Security Deposit will be returned to the Tenant
during the twenty-fifth (25th) month of the Term and twenty nine thousand
nine hundred forty-seven and 51/100 dollars ($29,947.51) of the Security
Deposit will be returned to the Tenant during the thirty-seventh (37th)
month of the Term.
1
<PAGE>
All other terms and conditions of the Lease shall remain in full force and
effect.
AGREED AND ACCEPTED BY:
TENANT: LANDLORD:
XAOS TOOLS, INC. 300 MONTGOMERY ASSOCIATES
GROUP,
By: /s/ Robert L. Batty By: KENNEDY-WILSON MANAGEMENT
-------------------
its Managing Agent
Its: President By: /s/ Eric M. Bender
------------------ ------------------
Date: 7/31/98 Its: Dir. Prop. Mgt.
----------------- -----------------
Date: 7/31/98
-----------------
By:
-------------------
Its:
-----------------
Date:
-----------------
2
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT to Lease ("Amendment") is dated as of the first day of
August, 1997, by and between 300 Montgomery Associates, a California partnership
("Landlord"), and XAOS Tools, Inc., a California corporation ("Tenant").
A. Landlord and Tenant entered into that certain Office Space Lease dated
as of August 1, 1997 (herein "Lease") for certain premises more particularly
described therein as Suite 300 ("Premises") in the building commonly known as
300 Montgomery Street, San Francisco, California ("Building").
B. Landlord and Tenant desire to amend the Lease in accordance with the
terms and conditions set forth in this Amendment.
C. All capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein Landlord and Tenant hereby modify, amend and supplement the Lease
as follows:
1. SECURITY DEPOSIT.
The last sentence of Section 4.3 of the Lease is modified as follows:
"Provided Tenant has not been in default of any provision of this Lease
during the Term, Landlord agrees to credit $66,795.50 of the Security
Deposit towards Basic Rent upon Tenant providing acceptable documentation
to Landlord showing satisfaction of one of the following:
(a) Audited financial statements prepared by a CPA firm acceptable to
Landlord showing a net worth of Tenant of at least $6,000,000; or
(b) Completion of an Initial Public Offering of stock on either the
New York Stock Exchange, the American Stock Exchange, or the
NASDAQ market."
2. RIGHT OF FIRST OFFER.
Subject to the conditions set forth hereinbelow and any similar rights
granted any other tenants in the Building, Landlord agrees that in the
event any space in excess of 3,000 square feet in the Building becomes
available, during the initial term of the Lease, for releasing to third
parties after the expiration or other termination of the lease of the then
tenant of such space, and provided that such then-existing tenant elects to
vacate (or has already vacated) such space, Landlord shall notify Tenant of
the availability of such space and (if applicable) the anticipated date on
which such space will be vacated by the then-existing tenant. Landlord
shall further notify Tenant of the then-current scheduled rental rate
(including annual or other periodic escalations thereof) and other basic
terms and conditions for leasing available office space in the Building.
For a period of ten
3
<PAGE>
(10) days following receipt of Landlord's written notice containing such
information, Tenant shall have the one-time only right of first offer to
lease such space at the rental rate and on the other terms and conditions
set forth in Landlord's notice. If Tenant fails to timely exercise the
right of first offer set forth herein, such right of first offer shall
expire and be of no further force or effect. In such an event, Landlord has
the right to lease any third party at such term and conditions as Landlord
deems appropriate. Notwithstanding any provision of this Paragraph 3 to the
contrary, the right granted herein shall be personal to Tenant and may not
be exercised or assigned voluntarily or involuntarily by or to any person
or entity other than the original Tenant, and shall not be assignable
separate and apart from this Lease. The right of first offer granted by
this Paragraph 3 shall be void and of no further force or effect if Tenant
shall at any time default in the performance or observance of any of the
terms, covenants, conditions or provisions of the Lease.
3. BASE BUILDING IMPROVEMENTS.
Notwithstanding anything to the contrary contained in this Amendment or the
Lease, Landlord agrees to complete certain improvements to the Building's
common areas on the third (3rd) floor of the Building. This work is limited
in scope to include certain work necessary to comply with the American With
Disabilities Act (ADA) for one (1) women's and one (1) men's common
restrooms on the third floor, building code requirements in the common
elevator lobby seismically securing the existing ceiling.
All other terms and conditions of the Lease shall remain in full force and
effect.
AGREED AND ACCEPTED BY:
TENANT: LANDLORD:
XAOS TOOLS, INC. 300 MONTGOMERY ASSOCIATES
By: /s/ Robert L. Batty By: /s/ 300 Montgomery Associates
------------------- -----------------------------
Its: President Its:
------------------ -----------------------------
Date: 9/3/97 Date: 9/4/97
----------------- ----------------------------
4
<PAGE>
OFFICE SPACE LEASE
BETWEEN
300 MONTGOMERY ASSOCIATES
A CALIFORNIA PARTNERSHIP
AND
XAOS TOOLS, INC.
A CALIFORNIA CORPORATION
1
<PAGE>
INDEX TO LEASE
ARTICLE I. BASIC LEASE PROVISIONS....................................... 1
ARTICLE II. PREMISES..................................................... 4
SECTION 2.1 LEASED PREMISES................................ 4
SECTION 2.2 ACCEPTANCE OF PREMISES......................... 4
SECTION 2.3 RELOCATION RIGHT............................... 4
ARTICLE III. TERM......................................................... 5
SECTION 3.1 GENERAL........................................ 5
SECTION 3.2 DELAY IN POSSESSION............................ 5
SECTION 3.3 OPTION TO RENEW................................ 5
ARTICLE IV. RENT AND OPERATING EXPENSES.................................. 7
SECTION 4.1 BASIC RENT..................................... 7
SECTION 4.2 OPERATING EXPENSE INCREASE..................... 8
SECTION 4.3 SECURITY DEPOSIT............................... 10
ARTICLE V. USES......................................................... 10
SECTION 5.1 USE............................................ 10
SECTION 5.2 SIGNS.......................................... 11
ARTICLE VI. LANDLORD SERVICES ARTICLE.................................... 12
SECTION 6.1 UTILITIES AND SERVICES......................... 12
SECTION 6.2 OPERATION AND MAINTENANCE OF COMMON FACILITIES. 12
SECTION 6.3 USE OF COMMON FACILITIES....................... 12
SECTION 6.4 CHANGES AND ADDITIONS BY LANDLORD.............. 13
ARTICLE VII. MAINTAINING THE PREMISES..................................... 13
SECTION 7.1 TENANT'S MAINTENANCE AND REPAIR................ 13
SECTION 7.2 LANDLORD'S MAINTENANCE AND REPAIR.............. 13
SECTION 7.3 ALTERATIONS.................................... 14
SECTION 7.4 MECHANIC'S LIENS............................... 15
SECTION 7.5 ENTRY AND INSPECTION........................... 15
SECTION 7.6 SPACE PLANNING AND SUBSTITUTION................ 15
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PREMISES................... 16
ARTICLE IX. ASSIGNMENT AND SUBLETTING.................................... 16
SECTION 9.1 RIGHTS OF PARTIES.............................. 16
SECTION 9.2 EFFECT OF TRANSFER............................. 18
SECTION 9.3 SUBLEASE REQUIREMENTS.......................... 18
ARTICLE X. INSURANCE AND INDEMNITY...................................... 19
SECTION 10.1 TENANT'S INSURANCE............................. 19
SECTION 10.2 LANDLORD'S INSURANCE........................... 19
SECTION 10.3 TENANT'S INDEMNITY............................. 20
SECTION 10.4 LANDLORD'S NONLIABILITY........................ 20
1
<PAGE>
ARTICLE XI. DAMAGE OR DESTRUCTION........................................ 21
SECTION 11.1 RESTORATION.................................... 21
SECTION 11.2 LEASE GOVERNS.................................. 21
ARTICLE XII. EMINENT DOMAIN............................................... 22
SECTION 12.1 TOTAL OR PARTIAL TAKING........................ 22
SECTION 12.2 TEMPORARY TAKING............................... 22
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE.......................... 22
SECTION 13.1 SUBORDINATION SECTION.......................... 22
SECTION 13.2 ESTOPPEL CERTIFICATE........................... 23
ARTICLE XIV. DEFAULTS AND REMEDIES........................................ 23
SECTION 14.1 TENANT'S DEFAULTS.............................. 23
SECTION 14.2 LANDLORD'S REMEDIES............................ 25
SECTION 14.3 LATE PAYMENTS.................................. 27
SECTION 14.4 RIGHT OF LANDLORD TO PERFORM................... 27
SECTION 14.5 DEFAULT BY LANDLORD............................ 28
SECTION 14.6 EXPENSES AND LEGAL FEES........................ 28
SECTION 14.7 WAIVER OF JURY TRIAL........................... 28
ARTICLE XV. END OF TERM.................................................. 29
SECTION 15.1 HOLDING OVER................................... 29
SECTION 15.2 MERGER ON TERMINATION.......................... 29
SECTION 15.3 SURRENDER OF PREMISES; REMOVAL OF PROPERTY..... 29
ARTICLE XVI. PAYMENTS AND NOTICES......................................... 30
ARTICLE XVII. RULES AND REGULATIONS........................................ 30
ARTICLE XVIII. BROKER'S COMMISSION.......................................... 31
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST.............................. 31
ARTICLE XX. INTERPRETATION............................................... 31
SECTION 20.1 GENDER AND NUMBER.............................. 31
SECTION 20.2 HEADINGS....................................... 31
SECTION 20.3 JOINT AND SEVERAL LIABILITY.................... 32
SECTION 20.4 SUCCESSORS..................................... 32
SECTION 20.5 TIME OF ESSENCE................................ 32
SECTION 20.6 CONTROLLING LAW................................ 32
SECTION 20.7 SEVERABILITY................................... 32
SECTION 20.8 WAIVER AND CUMULATIVE REMEDIES................. 32
SECTION 20.9 INABILITY TO PERFORM........................... 33
SECTION 20.10 ENTIRE AGREEMENT............................... 33
SECTION 20.11 QUIET ENJOYMENT................................ 33
SECTION 20.12 SURVIVAL....................................... 33
ARTICLE XXI. EXECUTION AND RECORDING...................................... 33
SECTION 21.1 COUNTERPARTS................................... 33
SECTION 21.2 CORPORATE AND PARTNERSHIP AUTHORITY............ 34
2
<PAGE>
SECTION 21.3 EXECUTION OF LEASE; NO OPTION OR OFFER......... 34
SECTION 21.4 RECORDING SECTION.............................. 34
SECTION 21.5 AMENDMENTS..................................... 34
ARTICLE XXII. MISCELLANEOUS................................................ 34
SECTION 22.1 NONDISCLOSURE OF LEASE TERMS................... 34
SECTION 22.2 REPRESENTATIONS BY TENANT...................... 35
SECTION 22.3 CHANGES REQUESTED BY LENDER.................... 35
SECTION 22.4 MORTGAGEE PROTECTION........................... 35
SECTION 22.5 COVENANTS AND CONDITIONS....................... 35
SECTION 22.6 TENANT SERVICES................................ 35
ARTICLE I. BASIC LEASE PROVISIONS....................................... 1
ARTICLE II. PREMISES..................................................... 4
SECTION 2.1 LEASED PREMISES................................ 4
SECTION 2.2 ACCEPTANCE OF PREMISES......................... 4
SECTION 2.3 RELOCATION RIGHT............................... 4
ARTICLE III. TERM......................................................... 5
SECTION 3.1 GENERAL........................................ 5
SECTION 3.2 DELAY IN POSSESSION............................ 5
SECTION 3.3 OPTION TO RENEW................................ 5
ARTICLE IV. RENT AND OPERATING EXPENSES.................................. 7
SECTION 4.1 BASIC RENT..................................... 7
SECTION 4.2 OPERATING EXPENSE INCREASE..................... 8
SECTION 4.3 SECURITY DEPOSIT............................... 10
ARTICLE V. USES......................................................... 10
SECTION 5.1 USE............................................ 10
SECTION 5.2 SIGNS.......................................... 11
ARTICLE VI. LANDLORD SERVICES ARTICLE.................................... 12
SECTION 6.1 UTILITIES AND SERVICES......................... 12
SECTION 6.2 OPERATION AND MAINTENANCE OF COMMON FACILITIES. 12
SECTION 6.3 USE OF COMMON FACILITIES....................... 12
SECTION 6.4 CHANGES AND ADDITIONS BY LANDLORD.............. 13
ARTICLE VII. MAINTAINING THE PREMISES..................................... 13
SECTION 7.1 TENANT'S MAINTENANCE AND REPAIR................ 13
SECTION 7.2 LANDLORD'S MAINTENANCE AND REPAIR.............. 13
SECTION 7.3 ALTERATIONS.................................... 14
SECTION 7.4 MECHANIC'S LIENS............................... 15
SECTION 7.5 ENTRY AND INSPECTION........................... 15
SECTION 7.6 SPACE PLANNING AND SUBSTITUTION................ 15
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PREMISES................... 16
ARTICLE IX. ASSIGNMENT AND SUBLETTING.................................... 16
3
<PAGE>
SECTION 9.1 RIGHTS OF PARTIES.............................. 16
SECTION 9.2 EFFECT OF TRANSFER............................. 18
SECTION 9.3 SUBLEASE REQUIREMENTS.......................... 18
ARTICLE X. INSURANCE AND INDEMNITY...................................... 19
SECTION 10.1 TENANT'S INSURANCE............................. 19
SECTION 10.2 LANDLORD'S INSURANCE........................... 19
SECTION 10.3 TENANT'S INDEMNITY............................. 20
SECTION 10.4 LANDLORD'S NONLIABILITY........................ 20
ARTICLE XI. DAMAGE OR DESTRUCTION........................................ 21
SECTION 11.1 RESTORATION.................................... 21
SECTION 11.2 LEASE GOVERNS.................................. 21
ARTICLE XII. EMINENT DOMAIN............................................... 22
SECTION 12.1 TOTAL OR PARTIAL TAKING......................... 22
SECTION 12.2 TEMPORARY TAKING................................ 22
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE.......................... 22
SECTION 13.1 SUBORDINATION SECTION.......................... 22
SECTION 13.2 ESTOPPEL CERTIFICATE........................... 23
ARTICLE XIV. DEFAULTS AND REMEDIES........................................ 23
SECTION 14.1 TENANT'S DEFAULTS.............................. 23
SECTION 14.2 LANDLORD'S REMEDIES............................ 25
SECTION 14.3 LATE PAYMENTS.................................. 27
SECTION 14.4 RIGHT OF LANDLORD TO PERFORM................... 27
SECTION 14.5 DEFAULT BY LANDLORD............................ 28
SECTION 14.6 EXPENSES AND LEGAL FEES........................ 28
SECTION 14.7 WAIVER OF JURY TRIAL........................... 28
ARTICLE XV. END OF TERM.................................................. 29
SECTION 15.1 HOLDING OVER................................... 29
SECTION 15.2 MERGER ON TERMINATION.......................... 29
SECTION 15.3 SURRENDER OF PREMISES; REMOVAL OF PROPERTY..... 29
ARTICLE XVI. PAYMENTS AND NOTICES......................................... 30
ARTICLE XVII. RULES AND REGULATIONS........................................ 30
ARTICLE XVIII. BROKER'S COMMISSION.......................................... 31
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST.............................. 31
ARTICLE XX. INTERPRETATION............................................... 31
SECTION 20.1 GENDER AND NUMBER.............................. 31
SECTION 20.2 HEADINGS....................................... 31
SECTION 20.3 JOINT AND SEVERAL LIABILITY.................... 32
SECTION 20.4 SUCCESSORS..................................... 32
SECTION 20.5 TIME OF ESSENCE................................ 32
SECTION 20.6 CONTROLLING LAW................................ 32
4
<PAGE>
SECTION 20.7 SEVERABILITY................................... 32
SECTION 20.8 WAIVER AND CUMULATIVE REMEDIES................. 32
SECTION 20.9 INABILITY TO PERFORM........................... 33
SECTION 20.10 ENTIRE AGREEMENT............................... 33
SECTION 20.11 QUIET ENJOYMENT................................ 33
SECTION 20.12 SURVIVAL....................................... 33
ARTICLE XXI. EXECUTION AND RECORDING...................................... 33
SECTION 21.1 COUNTERPARTS................................... 33
SECTION 21.2 CORPORATE AND PARTNERSHIP AUTHORITY............ 34
SECTION 21.3 EXECUTION OF LEASE; NO OPTION OR OFFER......... 34
SECTION 21.4 RECORDING SECTION.............................. 34
SECTION 21.5 AMENDMENTS..................................... 34
ARTICLE XXII. MISCELLANEOUS................................................ 34
SECTION 22.1 NONDISCLOSURE OF LEASE TERMS................... 34
SECTION 22.2 REPRESENTATIONS BY TENANT...................... 35
SECTION 22.3 CHANGES REQUESTED BY LENDER.................... 35
SECTION 22.4 MORTGAGEE PROTECTION........................... 35
SECTION 22.5 COVENANTS AND CONDITIONS....................... 35
SECTION 22.6 TENANT SERVICES................................ 35
EXHIBIT A 1
EXHIBIT B UTILITIES AND SERVICES FOR THE BUILDING ATTACHED TO AND MADE
A PART OF THIS LEASE............................................ 1
EXHIBIT C TENANT'S INSURANCE.............................................. 1
EXHIBIT D RULES AND REGULATIONS FOR THE BUILDING ATTACHED TO AND MADE
A PART OF THIS LEASE........................................... 1
EXHIBIT E WORK LETTER..................................................... 1
5
<PAGE>
OFFICE SPACE LEASE
THIS LEASE is made as of the 1st day of August, 1997, by and between 300
Montgomery Associates, a California partnership, hereinafter called "Landlord,"
and Xaos Tools, Inc., a California corporation, herein after called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
<TABLE>
<C> <S> <C> <C> <C> <C>
1 Tenant's Name and Trade Name: Xaos Tools, Inc.
2 Premises: Suite No. 300 (the Premises are more
particularly described in Section 2.1).
Address of Office Building: 300 Montgomery Street
San Francisco, California 94104
3 Use of Premises: General Office Use
4 Estimated Commencement Date: October 1, 1997
5 Lease Term: Ten (10) years
6 Basic Rent per month, full service gross:
Months 1 - 12 $28,006.50 Months 61 - 72 $33,841.19
Months 13 - 24 $28,784.46 Months 73 - 84 $35,397.10
Months 25 - 36 $29,562.42 Months 85 - 96 $36,953.02
Months 37 - 48 $30,729.35 Months 97 - 108 $38,664.53
Months 49 - 60 $31,740.70 Months 109 - 120 $40,298.24
Other Rental Adjustments: Landlord shall abate one-half of the
Basic Rent during each of the first four
7 Operating Expense Base Year: Fiscal year 1997-1998, passthroughs
-----------------------------------
effective January 1, 1999.
-------------------------
Expense Recovery Period: Every 12-month period during the Term
(or portion thereof for the first and last
Lease years) immediately following the
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Operating Expense Base Year
commencing January 1 and ending
December 31.
8 Floor Area of Premises: Approximately 18,671 rentable square feet.
9 Security Deposit: $100,193.25
10 Broker(s): Broker Representing Tenant: Whitney
Cressman Limited
Broker Representing Landlord: Whitney
Cressman Limited
11 Plan Approval Date: N/A
12. Address for Payments and Notices:
LANDLORD TENANT
300 Montgomery Associates Prior to the Commencement Date:
c/o Kennedy-Wilson Mgmt. Group Xaos Tools, Inc.
300 Montgomery Street, Suite 788 55 Hawthorne St.
San Francisco, California 94104 San Francisco, CA 94105
Attn: Building Manager Attn: Brian H. Jones
With a copy to: After the Commencement Date:
Kennedy-Wilson Management Group Xaos Tools, Inc.
818 West 7th Street, Suite 980 300 Montgomery Street, Suite 300
Los Angeles, CA 90017 San Francisco, CA 94104
Attention: Director of Property
Management Attn: Brian H. Jones
13. Parking: N/A
14. Tenant's Construction Representative: Brian H. Jones
15. Tenant's Percentage: 8.81% calculated by dividing the Floor Area of Premises
(numerator) by the rentable area of the Office Building
(denominator) and expressing the resulting quotient as a
percentage. Tenant's Percentage shall be increased
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
during the Term in proportion to any increase in the
area of the Premises in accordance with the formula
stated herein.
</TABLE>
3
<PAGE>
ARTICLE II. PREMISES
SECTION 2.1 LEASED PREMISES.
Landlord leases to Tenant and Tenant rents from Landlord the premises shown
in Exhibit A (the Premises) containing the floor area set forth in Item 8 of the
Basic Lease Provisions and known by the suite number identified in Item 2 of the
Basic Lease Provisions. The Premises are located in the office building
identified in Item 2 of the Basic Lease Provisions (which together with the
underlying real property is called the Office Building).
SECTION 2.2 ACCEPTANCE OF PREMISES.
Tenant acknowledges that neither Landlord nor any representative of
Landlord has made any representation or warranty with respect to the Premises or
the Office Building or the suitability or fitness of either for any purpose
except as set forth in this Lease. The taking of possession or use of the
Premises by Tenant for any purpose other than construction shall conclusively
establish that the Premises and the Office Building were in satisfactory
condition and in conformity with the provisions of this Lease in all respects
except for those matters which Tenant shall have brought to Landlord's attention
on a written punch list delivered to Landlord. The list shall be limited to any
items required to be accomplished by Landlord under the Work Letter (if any)
attached as Exhibit H and shall be delivered to Landlord within ten (10) days
after the term (Term) of this Lease commences as provided in Article III below.
If there is no Work Letter, or if no items are required of Landlord under the
Work Letter, by taking possession of the Premises Tenant accepts the
Improvements in their existing condition and waives any right or claim against
Landlord arising out of the condition of the Premises. Nothing contained in this
Section shall affect the commencement of the Term or the obligation of Tenant to
pay rent. Landlord shall diligently complete all punch list items of which it is
notified as provided above for which it is liable. Landlord to be responsible
for code compliance of the building standard drop ceiling and building light
fixtures.
SECTION 2.3 RELOCATION RIGHT.
If Landlord requires the Premises for use in conjunction with another suite
or for other reasons connected with Landlord's planning program for the Office
Building, upon notifying Tenant in writing, Landlord shall have the right to
move Tenant to other space in the Office Building, provided such space is not
more than ten percent (10%) larger or smaller than the Premises. Landlord shall
pay for (a) all direct, out of pocket reasonable expenses of Tenant in moving
from the Premises to the new space and (b) the cost of improving the new space
so that the level of improvements in the new space is comparable to the level of
improvements in the Premises. Landlord will also pay for reasonable costs to
change of stationery, telephones and business cards, but not to exceed
4
<PAGE>
$5,000. All the terms and conditions of the original Lease shall remain in full
force and effect.
ARTICLE III. TERM
SECTION 3.1 GENERAL.
The term of this Lease ("Term") shall be for the period shown in Item 5 of
the Basic Lease Provisions. The Term shall commence (Commencement Date) on the
earlier of (a) subject to the provisions of Section 3.2, the Estimated
Commencement Date as set forth in Item 4 of the Basic Lease Provisions or (b)
the date Tenant acquires possession or commences use of the Premises for any
purpose other than construction. Within ten (10) days after the Commencement
Date, the parties shall memorialize on a form provided by Landlord the actual
Commencement Date and the expiration date (Expiration Date) of this Lease.
Tenant's failure to execute that form shall not affect the validity of
Landlord's determination of those dates.
SECTION 3.2 DELAY IN POSSESSION.
If Landlord, for any reason whatsoever, cannot deliver possession of the
Premises to Tenant on or before the Estimated Commencement Date, this Lease
shall not be void or voidable nor shall Landlord be liable to Tenant for any
resulting loss or damage. However, Tenant shall not be liable for any rent and
the Commencement Date shall not occur until Landlord delivers possession of the
Premises and the Premises are in fact ready for occupancy as defined below,
except that if Landlord's failure to so deliver possession on the Estimated
Commencement Date is attributable to any action or in-action by Tenant
(including without limitation any Tenant Delay described in the Work Letter, if
any, attached to this Lease), then the Commencement Date shall not be advanced
to the date on which possession of the Premises is tendered to Tenant, and
Landlord shall be entitled to full performance by Tenant (including the payment
of rent) from the date Landlord would have been able to deliver the Premises to
Tenant but for Tenant's delay(s).
SECTION 3.3 OPTION TO RENEW.
Tenant shall have one (1) option to renew (the "Option") the Lease for one
five (5) year term, at the Prevailing Market Rent (as hereinafter defined), plus
Tenant's Percentage of all Operating Costs and Taxes, and all other charges
pursuant to the Lease, provided that Tenant: (i) is not in currently in default;
and (ii) has not been in default of any term or provision of the Lease two or
more times during the initial Lease Term, regardless of whether any of the
defaults were cured (timely or otherwise) or remained uncured with or without
the acquiescence of Lessor with the exception of payment of Basic Rent or
Additional Rent which may not be more than five (5) days late twice within a
twelve (12) month period. The Option may be exercised only by Tenant delivering
to
5
<PAGE>
Landlord written notice of Tenant's unconditional exercise of the Option;
provided, however, that the Option shall be exercised no later than nine (9)
months but not more than twelve (12) months prior to the expiration of the
original term. If Tenant fails to timely exercise the Option in the manner
herein specified, then the Option shall immediately and automatically terminate
and be of no further force or effect. Time is of the essence with respect to the
exercise of the Option. Except as otherwise specifically provided herein, all
provisions of the Lease, this Addendum and all other exhibits to the Lease shall
continue in full force and effect during the Option Period; provided, however,
that the Base Rent for the initial year of the Option Period shall be set at the
Prevailing Market Rent (as such term is defined below).
The Option is personal to Tenant and may not be exercised or assigned,
voluntarily or involuntarily, by, or to, any person or entity other than Tenant.
The Option is not assignable separate and apart from this Lease. In the event
that at the time the Option is exercisable by Tenant, this Lease has been
assigned, or a sublease exists as to twenty percent (20%) or more of the
Premises, the Option shall be deemed null and void and Tenant, any assignee, or
any sublessee, shall not have the right to exercise the Option.
Landlord and Tenant shall have 30 days following the exercise of the Option
in which to agree as to the Prevailing Market Rent for the Premises as of the
first month of the Option Period. In the event Landlord and Tenant are unable to
agree on the Prevailing Market Rent within such thirty (30) day period, the
Prevailing Market Rent shall be determined as follows:
a. Within 15 days following the expiration of such 30 day period for
Landlord and Tenant to agree on the Prevailing Market Rent for the
Premises, Landlord and Tenant shall each give written notice to the
other designating by name, address and telephone number an MAI
appraiser or commercial real estate broker with no less than ten (10)
years of retail leasing experience, collectively "the appraisers"
familiar with retail rentals in commercial high-rise properties in the
downtown San Francisco financial district (the "Comparison Area").
Within 15 days following the selection of the second appraiser to be
designated, the first two appraisers shall select a third MAI
appraiser. The employment of each appraiser shall be conditioned on
such appraiser's agreement to comply with the provisions of this
Section 3.3. Within 30 days after the selection of the third
appraiser, the three appraisers so selected shall determine the
Prevailing Market Rent for the Premises and shall each notify Landlord
and Tenant, in writing, within such 30 day period of the Prevailing
Market Rent for the Premises determined by such appraisal. The
Prevailing Market Rent for the Premises shall be determined by
applying the following criteria:
i. The Prevailing Market Rent shall be based on the gross monthly
rent projected to be paid by tenants which shall take into
consideration rental
6
<PAGE>
increases, if any, for qualifying five (5) year lease
transactions similar in length to the Option Period, based on
leases executed not earlier than six months prior to the date the
appraisers shall meet, for retail space in commercial high-rise
properties in the downtown San Francisco financial district
comparable to the Building in size, quality, age and amenities,
for premises which are comparable to the Premises in size (plus
or minus 20%), height, location and cosmetic condition, and with
comparable tenant improvements as are in the Premises whether
paid for by Landlord or Tenant, and "free" rent, if any is then
generally being offered in the marketplace (other than free rent
given in substitution of other rent concessions such as, but not
limited to, tenant improvements) [collectively referred to herein
as "PMR Criteria"], for buildings in the Comparison Area.
ii. The two appraisals for the Prevailing Market Rent which
arithmetically are the closest shall be added together and
divided by two. The third appraisal shall be disregarded. The
quotient so derived shall be the initial monthly Base Rent for
the Option Period.
b. In addition to monthly Base Rent, Tenant shall be obligated to pay
Tenant's Share of Operating Expenses pursuant to Paragraph 4.2 of the
Lease.
c. Landlord and Tenant shall each pay the costs and fees of the appraiser
selected by it. Landlord and Tenant shall share equally the costs and
fees of the third appraiser. In the event that either Landlord or
Tenant does not identify an appraiser within the first fifteen day
(15) period set forth in this Section 3.3 above, the appraiser
appropriately and timely identified shall alone render the appraisal
based on the PMR Criteria.
d. The terms and conditions of the extension shall be negotiated directly
between Landlord and Tenant. If Tenant requires the service of an
agent, the payment of such service shall be the responsibility of
Tenant.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1 BASIC RENT.
From and after the Commencement Date, Tenant shall pay to Landlord without
deduction or offset the Basic Rent for the Premises in the total amount shown
(including subsequent adjustments, if any) in Item 6 of the Basic Lease
Provisions. Any rental adjustment shown in Item 6 shall be deemed to occur on
the specified monthly anniversary of the Commencement Date whether or not that
date occurs at the end of a calendar month. The rent shall be due and payable in
advance commencing on the Commencement Date (as prorated for any partial month)
and continuing thereafter on the
7
<PAGE>
first day of each successive calendar month of the Term. No demand notice or
invoice shall be required. An installment of rent in the amount of six (6)
month's Basic Rent at the initial rate specified in Item 6 of the Basic Lease
Provisions, as such Basic Rent may be abated as described below, shall be
delivered to Landlord concurrently with Tenant's execution of this Lease and
shall be applied against the Basic Rent first due hereunder. Notwithstanding the
foregoing, for each of months 1 - 4, so long as Tenant is not in default
hereunder, Tenant shall pay only 1/2 of the Basic Rent specified in Item 6 of
the Basic Lease Provisions (i.e. one half of the Basic Rent per month shall be
abated for the first four (4) months of the term of this Lease). In all events,
Tenant shall pay one hundred percent (100%) of all additional rent pursuant to
Section 4.2; provided, however, that in the event of a default by Tenant under
this Lease, the portion of the Basic Rent so abated shall be deemed to be not
abated, and shall become immediately due and payable by Tenant.
SECTION 4.2 OPERATING EXPENSE INCREASE.
(a) Tenant shall reimburse Landlord as additional rent for Tenant's
Percentage of Operating Expenses, for each year after the Operating Expense Base
Year, incurred by Landlord in the operation of the Office Building. Tenant
acknowledges Landlord's rights to make changes or additions to the Office
Building from time to time pursuant to Section 6.5 below, in which event the
total rentable square footage within the Office Building may be adjusted.
(b) Commencing prior to the start of the first full Expense Recovery Period
of the Lease (as set forth in Item 7 of the Basic Lease Provisions), and prior
to the start of each full or partial Expense Recovery Period thereafter,
Landlord shall give Tenant a written estimate of the amount of Tenant's
proportionate share of Operating Expenses for the Expense Recovery Period or
portion thereof. Tenant shall pay the estimated amount to Landlord in equal
monthly installments in advance with Basic Rent. If Landlord has not furnished
its written estimate for any Expense Recovery Period by the time set forth
above, Tenant shall continue to pay cost reimbursements at the rates established
for the prior Expense Recovery Period, if any; provided that when the new
estimate is delivered to Tenant, Tenant shall, at the next monthly payment date,
pay any accrued cost reimbursements based upon the new estimate.
(c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall endeavor to furnish to Tenant a statement
showing in reasonable detail the actual or prorated Operating Expenses incurred
by Landlord during the period and the parties shall, within thirty (30) days
thereafter, make any payment or allowance necessary to adjust Tenant's estimated
payments, if any, to Tenant's actual proportionate share as shown by the annual
statement. Any amount due Tenant shall be credited against installments next
coming due under this Section 4.2, and any deficiency shall be paid by Tenant
together with the next installment. If Tenant has not made estimated payments
during the Expense Recovery Period, any amount owing by Tenant
8
<PAGE>
pursuant to subsection (a) above shall be paid to Landlord in accordance with
Article XVI. Should Tenant fail to object in writing to Landlord's determination
of actual Operating Expenses within thirty (30) days following delivery of
Landlord's expense statement, Landlord's determination of actual Operating
Expenses for the applicable Expense Recovery Period shall be conclusive and
binding on the parties within thirty days following delivery of Landlord's
expense statement.
(d) Even though the Lease has terminated and the Tenant has vacated the
Premises when the final determination is made of Tenant's share of Operating
Expenses for the Expense Recovery Period in which the Lease terminates, Tenant
shall, upon notice, pay the entire increase due over the estimated expenses
paid. Conversely, any overpayment made in the event expenses decrease shall be
rebated by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one or more of
the Operating Expenses are increased to a rate(s) or amount(s) in excess of the
rate(s) or amount(s) used in calculating the estimated expenses for the year,
then Tenant's estimated share of Operating Expenses shall be increased for the
month in which the increase becomes effective and for all succeeding months by
an amount equal to Tenant's proportionate share of the increase. Landlord shall
give Tenant written notice of the amount or estimated amount of the increase,
the month in which the increase will become effective, Tenant's monthly share
thereof, and the months for which the payments are due. Tenant shall pay the
increase to Landlord as a part of Tenant's monthly payments of estimated
expenses, as provided in paragraph (b) above, commencing with the month in which
effective.
(f) The term Operating Expenses shall include all expenses of operation and
maintenance of the Office Building , together with all appurtenant Common
Facilities (as defined in Section 6.2), and shall include the following charges
by way of illustration but not limitation: water and sewer charges; taxes;
insurance premiums or reasonable premium equivalents, should Landlord elect to
self-insure any risk that Landlord is authorized to insure hereunder; license
permit and inspection fees; heat; light; power; janitorial services; air
conditioning; supplies; materials; equipment; tools; programs instituted to
comply with transportation management requirements; tenant services;
amortization of capital investments reasonably intended to produce a reduction
in operating charges or energy conservation; amortization of capital investments
necessary to bring the Office Building into compliance with applicable laws and
building codes enacted subsequent to the completion of construction of the
Office Building; labor; reasonably allocated wages and salaries fringe benefits
and payroll taxes for administrative and other personnel directly applicable to
the Office Building, including both Landlord's personnel and outside personnel
but exclusive of personnel above the level of building manager; any expense
incurred pursuant to Sections 6.1, 6.2, 7.2 and 10.2 and Exhibits B and C
below; and a reasonable overhead/management fee. It is understood that Operating
Expenses shall include competitive charges for direct services
9
<PAGE>
provided by any subsidiary or division of Landlord. The term "taxes," as used
herein shall include the following: (i) all real estate taxes or personal
property taxes, as such property taxes may be reassessed from time to time; (ii)
other taxes, documentary transfer fees, charges and assessments which are levied
with respect to this Lease or to the Office Building, and any improvements,
fixtures and equipment and other property of Landlord located in the Office
Building except that general net income and franchise taxes imposed against
Landlord shall be excluded; (iii) any tax surcharge or assessment which shall be
levied in addition to or in lieu of real estate or personal property taxes other
than taxes covered by Article VIII; and (iv) costs and expenses incurred in
contesting the amount or validity of any tax by appropriate proceedings. A copy
of Landlord's unaudited statement of expenses shall be made available to Tenant
upon request. The Operating Expenses may be extrapolated by Landlord to reflect
at least ninety-five percent (95%) occupancy of the rentable area of the Office
Building during any Expense Recovery Period.
SECTION 4.3 SECURITY DEPOSIT.
Concurrently with Tenant's delivery of this Lease, Tenant shall deposit
with Landlord the sum, if any, stated in Item 9 of the Basic Lease Provisions to
be held by Landlord as security for the full and faithful performance of
Tenant's obligations under this Lease (the Security Deposit ). Upon any default
by Tenant, including specifically Tenant's failure to pay rent or to abide by
its obligations under Sections 7.1 and 15.3 below, Landlord may apply all or
part of the Security Deposit as full or partial compensation for that default.
If any portion of the Security Deposit is so applied, Tenant shall, within five
(5) days after written demand by Landlord, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep this Security Deposit separate from its
general funds and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the Security
Deposit or any balance thereof shall be returned to Tenant (or at Landlord's
option to the last assignee of Tenant's interest in this Lease) after the
expiration of the Term, provided that Landlord may retain the Security Deposit
until such time as all amounts due from Tenant in accordance with this Lease
have been determined and paid in full. Provided Tenant has not been in default
of any provision of this Lease during the Term, one-third (1/3) of the Security
Deposit will be returned to the Tenant during the twenty-fifth (25th) month of
the Term and one-third (1/3) of the Security Deposit will be returned to the
Tenant during the sixty-first (61st) month of the Term.
ARTICLE V. USES
SECTION 5.1 USE.
Tenant shall use the Premises only for the purposes stated in Item 3 of the
Basic Lease Provisions. The parties agree that any contrary use shall be deemed
to cause material and irreparable harm to Landlord and shall entitle Landlord to
injunctive relief,
10
<PAGE>
in addition to any other available remedy. Tenant shall not do nor permit
anything to be done in or about the Premises which will in any way interfere
with the rights of other occupants of the Office Building or use, or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant permit any nuisance or commit any waste in the
Premises. Tenant shall not do or permit to be done anything which will
invalidate or increase the cost of any insurance policy(ies) covering the Office
Building, and/or their contents, and shall comply with all applicable insurance
underwriters' rules and the requirements of the Pacific Fire Rating Bureau or
any other organization performing a similar function. Tenant shall comply, at
its expense, with all present and future laws, ordinances, and requirements of
all governmental authorities that pertain to Tenant or its use of the Premises,
including without limitation, all federal and state occupational, health and
safety requirements and all recorded covenants, conditions and restrictions
affecting the Office Building whether or not Tenant's compliance will
necessitate expenditures or interfere with its use and enjoyment of the
Premises. Tenant shall not generate, handle, store or dispose of hazardous or
toxic materials, as such materials may be identified in any federal state or
local law or regulation, in the Premises or the Office Building without the
prior written consent of Landlord, which consent may be refused or conditioned
by Landlord in its discretion. Tenant agrees that it shall promptly complete and
deliver to Landlord any disclosure form regarding hazardous materials that may
be required by any governmental agency. Tenant shall promptly, upon demand,
reimburse Landlord for any additional insurance premium charged by reason of
Tenant's failure to comply with the provisions of this Section and shall
indemnify Landlord from any liability and/or expense resulting from Tenant's
noncompliance. Tenant acknowledges that: (a) the Office Building does not comply
in certain respects with the requirements of the Americans with Disabilities
Act; and (b) certain portions of the Office Building contain asbestos containing
materials. Landlord has been advised that these materials are non-friable and do
not represent a health risk. Tenant is invited to review reports concerning
these matters on file at the office of the Office Building.
SECTION 5.2 SIGNS.
Tenant, upon obtaining the approval of Landlord in writing, may affix a
sign (restricted solely to Tenant's name as set forth in Item 1 of the Basic
Lease Provisions or such other name as Landlord may consent to in writing)
adjacent to the entry door of the Premises and shall maintain the sign in good
condition and repair during the Term. The sign shall conform to the criteria for
signs established by Landlord and shall be ordered through Landlord at Tenant's
expense. Tenant shall not place or allow to be placed any other sign, decoration
or advertising matter of any kind that is visible from the exterior of the
Premises. Any violating sign or decoration may be immediately removed by
Landlord at Tenant's expense without notice and without the removal constituting
a breach of this Lease or entitling Tenant to claim damages.
11
<PAGE>
ARTICLE VI. LANDLORD SERVICES ARTICLE
SECTION 6.1 UTILITIES AND SERVICES.
Landlord shall furnish to the Premises the utilities and services described
in Exhibit B subject to the conditions and payment obligations and standards set
forth in this Lease. Landlord shall not be liable for any failure to furnish any
services or utilities when the failure is the result of any accident or other
cause beyond Landlord's reasonable control, nor shall Landlord be liable for
damage to Tenant's equipment resulting from power surges. Landlord's failure to
furnish any services or utilities shall not entitle Tenant to any damages,
relieve Tenant of the obligation to pay rent, or constitute a constructive or
other eviction of Tenant, except that Landlord shall diligently attempt to
restore the service or utility promptly. Tenant shall comply with all rules and
regulations which Landlord may reasonably establish for the provision of
services and utilities and shall cooperate with all reasonable conservation
practices established by Landlord. Landlord shall, at all reasonable times, have
free access to all electrical and mechanical installations of Landlord.
SECTION 6.2 OPERATION AND MAINTENANCE OF COMMON FACILITIES.
During the Term, Landlord shall operate all Common Facilities within the
Office Building. The term "Common Facilities" shall mean all areas within the
exterior boundaries of the Office Building which are not held for exclusive use
by persons entitled to occupy space, and all other appurtenant areas and
improvements provided by Landlord for the common use of Landlord and tenants and
their respective employees and invitees, including without limitation, parking
areas and structures, driveways, sidewalks, landscaped and planted areas,
hallways and interior stairwells not located within the premises of any tenant,
common entrances and lobbies, elevators and restrooms not located within the
premises of any tenant.
SECTION 6.3 USE OF COMMON FACILITIES.
The occupancy by Tenant of the Premises shall include the use of the Common
Facilities in common with Landlord and with all others for whose convenience and
use the Common Facilities may be provided by Landlord, subject, however, to
compliance with all rules and regulations as are prescribed from time to time by
Landlord. Landlord shall operate and maintain the Common Facilities in the
manner Landlord may determine to be appropriate. Landlord shall, at all times
during the Term, have exclusive control of the Common Facilities and may
restrain any use or occupancy, except as authorized by Landlord's rules and
regulations. Tenant shall keep the Common Facilities clear of any obstruction or
unauthorized use related to Tenant's operations. Nothing in this Lease shall be
deemed to impose liability upon Landlord for any damage to or loss of the
property of, or for any injury to Tenant, its invitees or employees. Landlord
may
12
<PAGE>
temporarily close any portion of the Common Facilities for repairs, remodeling
and/or alterations to prevent a public dedication or the accrual of prescriptive
rights or for any other reason deemed sufficient by Landlord.
SECTION 6.4 CHANGES AND ADDITIONS BY LANDLORD.
Landlord reserves the right to make alterations or additions to the Office
Building or to the attendant fixtures, equipment and Common Facilities. Landlord
may, at any time, relocate or remove any of the various buildings, parking areas
and other Common Facilities, and may add buildings and areas from time to time.
No change shall entitle Tenant to any abatement of rent or other claim against
Landlord, provided that the change does not deprive Tenant of reasonable access
to or use of the Premises.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1 TENANT'S MAINTENANCE AND REPAIR.
When and if needed or whenever requested by Landlord, Tenant, at its sole
expense, shall make all repairs and replacements necessary to keep the Premises
in the condition as existed on the Commencement Date (or on any later date that
the improvements may have been installed), excepting ordinary wear and tear. All
repairs and replacements shall be at least equal in quality to the original
work, shall be made only by a licensed bonded contractor approved in writing in
advance by Landlord, and shall be made only at the time or times approved by
Landlord. Any contractor utilized by Tenant shall be subject to Landlord's
standard requirements for contractors, as modified from time to time. Landlord
may impose reasonable restrictions and requirements with respect to repairs, as
provided in Section 7.3, and the provisions of Section 7.4 shall apply to all
repairs. Alternatively, Landlord may elect to make any such repair on behalf of
Tenant and at Tenant's expense, and Tenant shall promptly reimburse Landlord for
all costs incurred upon submission of an invoice.
SECTION 7.2 LANDLORD'S MAINTENANCE AND REPAIR.
(a) Subject to Section 7.1 and Article XI, Landlord shall provide service,
maintenance and repair with respect to any air conditioning, ventilating or
heating equipment which serves the Premises and shall maintain in good repair
the roof, foundations, footings, the exterior surfaces of the exterior walls of
the Office Building, and the structural, electrical and mechanical systems,
except that Tenant, at its expense, shall make all repairs which Landlord deems
reasonably necessary as a result of the act or negligence of Tenant, its agents,
employees, invitees, subtenants or contractors. Landlord shall have the right to
employ or designate any reputable person or firm, including any employee or
agent of Landlord or any of Landlord's affiliates or divisions, to perform any
service, repair or maintenance function. Landlord need not make any other
improvements or repairs, except as specifically required under this Lease, and
nothing
13
<PAGE>
contained in this Section shall limit Landlord's right to reimbursement from
Tenant for maintenance, repair costs and replacement costs as provided elsewhere
in this Lease. Tenant understands that it shall not make repairs at Landlord's
expense or by rental offset. Unless for an emergency, Landlord will provide
prior written notice to Tenant.
(b) Except as provided in Sections 11.1 and 12.1 below, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements to any portion of the Office Building, including
repairs to the Premises, nor shall any related activity by Landlord constitute
an actual or constructive eviction; provided, however, that in making repairs,
alterations or improvements, Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises.
SECTION 7.3 ALTERATIONS.
Tenant shall make no alterations, additions or improvements to the Premises
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. If any such improvement requires approval by or notice to
the lessor of a superior lease or the holder of a mortgage, no work shall
proceed until such approval has been received or such notice has been given.
Landlord may impose, as a condition to its consent, any requirements that
Landlord, in its discretion, may deem reasonable or desirable, including but not
limited to a requirement that all work be covered by a lien and completion bond
satisfactory to Landlord and requirements as to the manner, time and contractor
for performance of the work. Landlord may require that Tenant enter into an
agreement with Landlord for the work to be performed by Landlord's contractor,
in which event Tenant shall pay to Landlord, the cost of construction as
incurred by Landlord. Should Landlord authorize Tenant to perform the work with
a contractor approved by Landlord, Tenant shall obtain all required permits for
the work and shall perform the work in `compliance with all applicable laws,
regulations and ordinances. of Under no circumstances shall Tenant make any
improvement which incorporates asbestos-containing construction materials into
the Premises. Any request for Landlord's consent shall be made in writing and
shall contain architectural plans describing the work in detail reasonably
satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all
alterations, additions or improvements affixed to the Premises (excluding
moveable trade fixtures and furniture) shall become the property of Landlord and
shall be surrendered with the Premises at the end of the Term, except that
Landlord may, by notice to Tenant given at the time of Landlord's consent to the
alteration or improvement, require Tenant to remove by the Expiration Date or
sooner termination date of this Lease all or any alterations, decorations,
fixtures, additions, improvements and the like installed either by Tenant or by
Landlord at Tenant's request, and to repair any damage to the Premises arising
from that removal. Landlord may require Tenant to remove an improvement provided
its part of the initial build-out pursuant to Exhibit H, if any, if and only if
the improvement is a non-building standard item and Tenant is notified of the
14
<PAGE>
requirement prior to the build-out. Within thirty (30) days after completion of
Tenant's alterations requiring the submission of plans to Landlord, Tenant shall
furnish to Landlord a complete set of "as-built" plans and specifications.
SECTION 7.4 MECHANIC'S LIENS.
Tenant shall keep the Premises free from any liens arising out of any work
performed, materials furnished, or obligations incurred by or for Tenant. Upon
request by Landlord, Tenant shall promptly cause any such lien to be released by
posting a bond in accordance with California Civil Code Section 3143 or any
successor statute. In the event that Tenant shall not, within thirty (30) days
following the imposition of any lien, cause the lien to be released of record
by payment or posting of a proper bond, Landlord shall have, in addition to all
other available remedies, the right to cause the lien to be released by any
means it deems proper, including payment of or defense against the claim giving
rise to the lien. All expenses so incurred by Landlord, including Landlord's
attorneys' fees, shall be reimbursed by Tenant promptly following Landlord's
demand, together with interest from the date of payment by Landlord at the
maximum rate permitted by law until paid. Tenant shall give Landlord no less
than twenty (20) days prior notice in writing before commencing construction of
any kind on the Premises so that Landlord may post and maintain notices of
nonresponsibility on the Premises.
SECTION 7.5 ENTRY AND INSPECTION.
Landlord shall at all times have the right to enter the Premises to inspect
them, to supply services in accordance with this Lease, to protect the interests
of Landlord in the Premises, and to submit the Premises to prospective or actual
purchasers or encumbrance holders or to prospective tenants, all without being
deemed to have caused an eviction of Tenant and without abatement of rent,
except as provided elsewhere in this Lease. Landlord shall at all times have and
retain a key which unlocks all of the doors in the Premises, excluding Tenant's
vaults and safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open the doors in an emergency in order to
obtain entry to the Premises, and any entry to the Premises obtained by Landlord
shall not, under any circumstances, be deemed to be a forcible or unlawful entry
into or a detainer of the Premises or any eviction of Tenant from the Premises.
SECTION 7.6 SPACE PLANNING AND SUBSTITUTION.
Landlord shall have the right, upon providing Tenant sixty (60) days
written notice, to move Tenant to other comparable space in the Office Building.
The new space shall be the same size as the Premises and provided with
comparable improvements. Landlord shall pay all of Tenant's reasonable moving
expenses following receipt of invoices from Tenant. If Landlord exercises this
right, this Lease shall remain in effect and be deemed applicable to the new
space except that the Lease shall be appropriately amended to reflect the new
space.
15
<PAGE>
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PREMISES
Tenant shall be liable for and shall pay all taxes and assessments levied
against all personal property of Tenant located in the Premises. If any taxes on
Tenant's personal property are levied against Landlord or Landlord's property,
and if Landlord pays the same or if the assessed value of Landlord's property is
increased by the inclusion of a value placed upon the personal property of
Tenant, and if Landlord pays the taxes based upon the increased assessment,
Tenant shall pay to Landlord the taxes so levied against Landlord or the
proportion of the taxes resulting from the increase in the assessment. In
calculating what portion of any tax bill which is assessed against Landlord
separately or Landlord and Tenant Jointly is attributable to Tenant's fixtures
and personal property, Landlord's reasonable determination shall be conclusive.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1 RIGHTS OF PARTIES
(a) Notwithstanding any provision of this Lease to the contrary, Tenant
will neither voluntarily nor by operation of law assign, sublet, encumber or
otherwise transfer all or any part of Tenant's interest in this Lease or permit
the Premises to be occupied by anyone other than Tenant without Landlord's prior
written consent, which consent shall not unreasonably be withheld in accordance
with the provisions of Section 9.1.(c). No assignment (whether voluntary,
involuntary or by operation of law) and no subletting shall be valid or
effective without Landlord's prior written consent and at Landlord's election
shall constitute a material default of this Lease. Landlord shall not be deemed
to have given its consent to any assignment or subletting by any other course of
action, including its acceptance of any name for listing in the Office Building
directory. To the extent not prohibited by provisions of the Bankruptcy Code 11
U.S.C. Section 101 et seq. (the Bankruptcy Code), including Section 365(f)(1),
Tenant, on behalf of itself and its creditors, administrators and assigns,
waives the applicability of Section 365(e) of the Bankruptcy Code, unless the
proposed assignee of the Trustee for the estate of the bankrupt meets Landlord's
standard for consent, as set forth in Section 9.1 (c) of this Lease. If this
Lease is assigned to any person or entity pursuant to the provisions of the
Bankruptcy Code, any and all monies or other considerations to be delivered in
connection with the assignment, shall be delivered to Landlord, shall be and
remain the exclusive property of Landlord, and shall not constitute property of
Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code shall be deemed to have assumed all of the obligations
arising under this Lease on and after the date of the assignment and shall, upon
demand, execute and deliver to Landlord an instrument confirming that
assumption.
(b) If Tenant or any guarantor of Tenant ("Tenant's Guarantor") is a
corporation or is an unincorporated association or partnership, the transfer of
any stock or
16
<PAGE>
interest in the corporation, association or partnership, which results in a
change in the voting control of Tenant or Tenant's Guarantor, if any, shall be
deemed an assignment within the meaning and provisions of this Article. In
addition, any change in the status of the entity, such as but not limited to the
withdrawal of a general partner, shall be deemed an assignment within the
meaning of this Article.
This section 9.1(b) will not apply to (i) any change in ownership as a
result of any financing within sixty (60) days of the signing of this lease,
(ii) the closing of an underwritten public offering of shares of common stock of
the company; and (iii) the merger or consolidation of substantially all of the
company in which the shareholders of the company immediately prior to the merger
or consolidation hold substantially the same percentage of ownership as after
the merger or acquisition.
(c) If Tenant desires to transfer an interest in this Lease, it shall first
notify Landlord of its desire and shall submit in writing to Landlord: (i) the
name and address of the proposed transferee; (ii) the nature of any proposed
subtenant's or assignee's business to be carried on in the Premises; (iii) the
terms and provisions of any proposed sublease or assignment; and (iv) any other
information requested by Landlord and reasonably related to the transfer. Except
as provided in Subsection (d) of this Section, Landlord shall not unreasonably
withhold its consent provided: (1) the use of the Premises will be consistent
with the provisions of this Lease and with Landlord's commitment to other
tenants of the Office Building; (2) fifty percent (50%) of any profit received
by the Tenant from the assignment or subletting, whether during or after the
Term of this Lease, shall be paid to Landlord when received; (3) at Landlord's
election, insurance requirements shall be brought into conformity with
Landlord's then current leasing practice; (4) any proposed subtenant or assignee
demonstrates that it is financially responsible by submission to Landlord of all
reasonable information as Landlord may request concerning the proposed subtenant
or assignee, including but not limited to a balance sheet of the proposed
subtenant or assignee as of a date within ninety (90) days of the request for
Landlord's consent and statements of income or profit and loss of the proposed
subtenant or assignee for the two-year period preceding the request for
Landlord's consent; (5) any proposed subtenant or assignee demonstrates to
Landlord's reasonable satisfaction a record of successful experience in
business; (6) the proposed assignee or subtenant is not an existing tenant of
the Office Building; and (7) the proposed transfer will not impose additional
burdens or adverse tax effects on Landlord. If Landlord consents to the proposed
transfer, Tenant may, within ninety (90) days after the date of the consent,
effect the transfer upon the terms described in the information furnished to
Landlord; provided that any material change in the terms shall be subject to
Landlord's consent as set forth in this Section. Landlord shall approve or
disapprove any requested transfer within thirty (30) days following receipt of
Tenant's written request and the information set forth above.
(d) Notwithstanding the provisions of Subsection (c) above, in lieu of
consenting to a proposed assignment or subletting, Landlord may elect to (i)
sublease the
17
<PAGE>
Premises (or the portion proposed to be subleased) or take an assignment of
Tenant's interest in this Lease upon the same terms as offered to the proposed
subtenant or assignee (excluding terms relating to the purchase of personal
property the use of Tenant's name or the continuation of Tenant's business); or
(ii) terminate this Lease as to the portion of the Premises proposed to be
subleased or assigned with a proportionate abatement in the rent payable under
this Lease, effective on the date that the proposed sublease or assignment would
have become effective. Landlord may, thereafter, at its option, assign or re-let
any space so recaptured to any third party, including without limitation the
proposed transferee of Tenant. Provision for 9.1(d) shall apply only to any
additional space to the initial premises.
(e) Tenant shall pay to Landlord a transfer fee of Five Hundred Dollars
($500.00) if and when any transfer requested by Tenant is approved. In addition,
should Landlord or its agents procure for Tenant a subtenant, assignee or new
tenant for all or part of the Premises, then Tenant shall pay to Landlord,
concurrently with the execution of the conveyancing documents, a leasing fee in
an amount to be agreed upon by both Landlord and Tenant.
SECTION 9.2 EFFECT OF TRANSFER.
No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its obligation to pay rent and to perform all its other
obligations under this Lease. Each assignee or subtenant of 100% premises, other
than Landlord, shall be deemed to assume all obligations of Tenant under this
Lease and shall be liable, jointly and severally, with Tenant for the payment of
all rent and for the due performance of all of Tenant's obligations under this
Lease. No transfer shall be binding on Landlord unless any document
memorializing the transfer is delivered to Landlord and both the
assignee/subtenant and Tenant deliver to Landlord an executed consent to
transfer instrument prepared by Landlord and consistent with the requirements of
this Article. The acceptance by Landlord of any payment due under this Lease
from any other person shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any transfer. Consent by Landlord
to one or more transfers shall not operate as a waiver or estoppel to the future
enforcement by Landlord of its rights under this Lease.
SECTION 9.3 SUBLEASE REQUIREMENTS.
The following terms and conditions shall apply to any subletting by Tenant
of all or any part of the Premises and shall be included in each sublease:
(a) Tenant hereby irrevocably assigns to Landlord all of Tenant's interest
in all rentals and income arising from any sublease of the Premises and Landlord
may collect such rent and income and apply same toward Tenant's obligations
under this Lease; provided, however, that until a default occurs in the
performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the
18
<PAGE>
sublease rentals. Landlord shall not, by reason of this assignment or the
collection of sublease rentals, be deemed liable to the subtenant for the
performance of any of Tenant's obligations under the sublease, Tenant hereby
irrevocably authorizes and directs any subtenant, upon receipt of a written
notice from Landlord stating that an uncured default exists in the performance
of Tenant's obligations under this Lease, to pay to Landlord all sums then and
thereafter due under the sublease. Tenant agrees that the subtenant may rely on
that notice without any duty of further inquiry and notwithstanding any notice
or claim by Tenant to the contrary. Tenant shall have no right or claim against
the subtenant or Landlord for any rentals so paid to Landlord.
(b) In the event of the termination of this Lease, Landlord may, at its
sole option, take over Tenant's entire interest in any sublease and, upon notice
from Landlord, the subtenant shall attorn to Landlord. In no event, however,
shall Landlord be liable for any previous act or omission by Tenant under the
sublease or for the return of any advance rental payments or deposits under the
sublease that have not been actually delivered to Landlord, nor shall Landlord
be bound by any sublease modification executed without Landlord's consent or for
any advance rental payment by the subtenant in excess of one month's rent. The
general provisions of this Lease, including without limitation those pertaining
to insurance and indemnification, shall be deemed incorporated by reference into
the sublease despite the termination of this Lease.
(c) Tenant agrees that Landlord may, at its sole option, authorize a
subtenant of the Premises to cure a default by Tenant under this Lease. Should
Landlord accept such cure, the subtenant shall have a right of reimbursement and
offset from and against Tenant under the applicable sublease.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1 TENANT'S INSURANCE.
Tenant, at its sole cost and expense, shall provide and maintain in effect
the insurance described in Exhibit D. Evidence of that insurance must be
delivered to Landlord prior to the Commencement Date.
SECTION 10.2 LANDLORD'S INSURANCE.
Landlord may, at its election, provide any or all of the following types of
insurance with or without deductible and in amounts and coverages as may be
determined by Landlord in its discretion: all risk property insurance subject to
standard exclusions covering the Office Building, and such other risks as
Landlord or its mortgagees may from time to time deem appropriate, including
leasehold improvements made by Landlord and comprehensive public liability
coverage. Landlord shall not be required to carry insurance of any kind on
Tenant's property, including leasehold improvements, trade fixtures,
furnishings, equipment plate glass, signs and all other items of personal
19
<PAGE>
property, and shall not be obligated to repair or replace that property should
damage occur. All proceeds of insurance maintained by Landlord upon the Office
Building shall be the property of Landlord, whether or not Landlord is obligated
to or elects to make any repairs.
SECTION 10.3 TENANT'S INDEMNITY.
To the fullest extent permitted by law, Tenant shall defend, indemnify and
hold harmless Landlord, its agents and any and all affiliates of Landlord,
including without limitation any corporations or other entities controlling,
controlled by or under common control with Landlord, from and against any and
all claims, liabilities, costs or expenses arising either before or after the
Commencement Date from Tenant's use or occupancy of the Premises, the Office
Building or the Common Facilities, or from the conduct of its business or from
any activity, work or thing done, permitted or suffered by Tenant or its agents,
employees, invitees or licensees in or about the Premises, the office Building
or the Common Facilities, or from any default in the performance of any
obligation on Tenant's part to be performed under this Lease, or from any act or
negligence of Tenant or its agents, employees, visitors, patrons, guests,
invitees or licensees. Landlord may, at its option, require Tenant to assume
Landlord's defense in any action covered by this Section through legal counsel
satisfactory to Landlord in its reasonable discretion.
SECTION 10.4 LANDLORD'S NONLIABILITY.
Landlord shall not be liable to Tenant, its employees, agents and invitees,
and Tenant hereby assumes the risk of and waives all claims against Landlord for
loss of or damage to any property or any injury to any person or loss or
interruption of business or income resulting from, but not limited, to fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak or flow from or into any part of the Premises or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works, heating and
ventilation systems, mechanical equipment , lighting or other fixtures in the
Office Building whether the damage or injury results from conditions arising in
the Premises or in other portions of the Office Building. It is understood that
any such condition may require the temporary evacuation or closure of all or a
portion of the Office Building. Neither Landlord nor its agents shall be liable
for interference with light or other similar intangible interests. The liability
of Landlord to Tenant for any default by Landlord under this Lease or arising in
connection herewith or with Landlord's operation, management, leasing, repair,
renovation, alteration or any other matter relating to the Property or the
Premises shall be limited to the interest of Landlord in the Office Building and
the rental proceeds thereof and Tenant agrees to look solely to Landlord's
interest in the Property for the recovery of judgment against Landlord, and
Landlord shall not be personally liable for any such judgment or deficiency
after execution thereon. Under no circumstances shall Landlord ever be liable
for consequential or punitive damages, including damages for lost profits or for
business interruption.
20
<PAGE>
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1 RESTORATION.
(a) If the Office Building of which the Premises are a part is damaged,
Landlord shall repair that damage as soon as reasonably possible at its expense
unless: (i) the damage is not covered by Landlord's fire and extended coverage
insurance; or (ii) Landlord reasonably determines that the cost of repair would
exceed twenty-five percent (25%) of the full replacement cost of the Office
Building (Replacement Cost); or (iii) Landlord reasonably determines that the
cost a repair would exceed ten percent (10%) of the Replacement Cost and the
damage occurs during the final twelve (12) months of the Term. Should Landlord
elect not to repair the damage for one of the preceding reasons, Landlord shall
so notify Tenant in writing within sixty (60) days after the damage occurs, and
this Lease shall terminate as of the date of notice;
(b) Unless Landlord elects to terminate this Lease in accordance with
subsection (a) above, this Lease shall continue in effect for the remainder of
the Term; provided that if the damage is so extensive as to reasonably prevent
Tenant's substantial use and enjoyment of the Premises for more than nine (9)
months, then Tenant may elect to terminate this Lease by written notice to
Landlord within the sixty-(60)-day period stated in subsection (a).
(c) Commencing on the date of any damage to the Office Building and ending
on the sooner of the date the damage is repaired or the date this Lease is
terminated, the rental to be paid under this Lease shall be abated in the same
proportion that the floor area of the Premises that is rendered unusable by the
damage from time to time bears to the total floor area of the Premises.
(d) Notwithstanding the provisions of subsections (a) (b) and (c) of this
Section, the cost of any repairs shall be borne by Tenant and Tenant shall not
be entitled to rental abatement or termination rights if the damage is due to
the fault or neglect of Tenant or its employees, subtenants, invitees or
representatives. In addition, the provisions of this Section shall not be deemed
to require Landlord to repair any improvements or fixtures that Tenant is
obligated to repair or insure pursuant to any other provision of this Lease.
SECTION 11.2 LEASE GOVERNS.
Tenant agrees that the provisions of this Lease, including without
limitation Section 11.1, shall govern any damage or destruction and shall
accordingly supersede any contrary statute or rule of law. Tenant irrevocably
waives and releases Tenant's rights under California Civil Code Sections
1932(2), 1933(4) and 1942 as the same may be modified or replaced hereafter.
21
<PAGE>
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1 TOTAL OR PARTIAL TAKING.
If all or a material portion of the Premises is taken by any lawful
authority by exercise of the right of eminent domain or sold to prevent a
taking, either Tenant or Landlord may terminate this Lease effective as of the
date possession is required to be surrendered to the authority. In the event
title to a portion of the Office Building, other than the Premises, is taken or
sold in lieu of taking, and if Landlord elects to restore the Office Building in
such a way as to alter the Premises materially, either party may terminate this
Lease by written notice to the other party effective on the date of vesting of
title. In the event neither party has elected to terminate this Lease as
provided above, then Landlord shall promptly, after receipt of a sufficient
condemnation award, proceed to restore the Premises to substantially their
condition prior to the taking and a proportionate allowance shall be made to
Tenant for the rent corresponding to the time during which and to the part of
the Premises of which Tenant is deprived on account of the taking and
restoration. In the event of a taking, Landlord shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest of
Tenant; provided that nothing in this Section shall be deemed to give Landlord
any interest in or prevent Tenant from seeking any award against the taking
authority for the taking of personal property and fixtures belonging to Tenant
or for relocation or business interruption expenses recoverable from the taking
authority.
SECTION 12.2 TEMPORARY TAKING.
No temporary taking of the Premises shall terminate this Lease or give
Tenant any right to abatement of rent, and any award specifically attributable
to a temporary taking of the Premises shall belong entirely to Tenant. A
temporary taking shall be deemed to be a taking of the use or occupancy of the
Premises for a period not to exceed ninety (90) days.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE
SECTION 13.1 SUBORDINATION SECTION
(a) At the option of Landlord this Lease shall be either superior or
subordinate to all ground or underlying leases, mortgages and deeds of trust, if
any, which may hereafter affect the Office Building, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided
that so long as Tenant is not in default under this Lease, this Lease shall not
be terminated or Tenant's quiet enjoyment of the Premises disturbed in the event
of termination of any such ground or underlying lease or the foreclosure of any
such mortgage or deed of trust to which Tenant has subordinated this Lease
pursuant to this Section. In the event of a termination or foreclosure, Tenant
shall become a tenant of and attorn to the successor-in-interest to Landlord
upon the same
22
<PAGE>
terms and conditions as are contained in this Lease and shall execute any
instrument reasonably required by Landlord's successor for that purpose. Tenant
shall also, upon written request of Landlord, execute and deliver all
instruments as may be required from time to time to subordinate the rights of
Tenant under this Lease to any ground or underlying lease or to the lien of any
mortgage or deed of trust or, if requested by Landlord, to subordinate in whole
or in part any ground or underlying lease or the lien of any mortgage or deed of
trust to this Lease.
(b) Failure of Tenant to execute any statements or instruments necessary or
desirable to effectuate the provisions of this Article within ten (10) days
after written request by Landlord, in any form that Landlord may reasonably
require (including one substantially in the form of Exhibit F hereto), shall
constitute a material default under this Lease. In that event, Landlord, in
addition to any other rights or remedies it might have, shall have the right by
written notice to Tenant to terminate this Lease as of a date not less than
twenty (20) days after the date of Landlord's notice. Landlord's election to
terminate shall not relieve Tenant of any liability for its default.
SECTION 13.2 ESTOPPEL CERTIFICATE
(a) Tenant shall, at any time upon not less than ten (10) days' prior
written notice from Landlord, execute, acknowledge and deliver to Landlord, in
any form that Landlord may reasonably require, a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or if
modified stating the nature of the modification and certifying that this Lease
as modified is in full force and effect), and the dates to which the rental,
additional rent and other charges have been paid in advance, if any; and (ii)
acknowledging that to Tenant's knowledge there are no uncured defaults on the
part of Landlord or specifying each default, if any are claimed; and (iii)
setting forth all further information that Landlord may reasonably require.
Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Office Building.
(b) Tenant's failure to deliver any estoppel statement within the provided
time shall constitute a default under this Lease and shall be conclusive upon
Tenant that (i) this Lease is in full force and effect without modification,
except as may be represented by Landlord; (ii) there are no uncured defaults in
Landlord's performance; and (iii) not more than one month's rental has been paid
in advance.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1 TENANT'S DEFAULTS.
In addition to any other event of default set forth in this Lease. the
occurrence of any one or more of the following events shall constitute a default
by Tenant:
23
<PAGE>
(a) The failure by Tenant to make any payment of rent or additional rent
required to be made by Tenant, as and when due. For purposes of these default
and remedy provisions, the term additional rent shall be deemed to include all
amounts of any type whatsoever other than Basic Rent to be paid by Tenant
pursuant to the terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the Lease by
Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means without the prior
written consent of Landlord.
(c) The discovery by Landlord that any financial statement provided by
Tenant or by any affiliate, successor or guarantor of Tenant was materially
false.
(d) The failure or inability by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant; provided, however, that any such notice
shall be in lieu of and not in addition to any notice required under California
Code of Civil Procedure Sections 1161 and 1161(a), as amended. However, if the
nature of the failure is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences the cure within thirty (30) days and thereafter diligently
pursues the cure to completion.
(e) (i) The making by Tenant of any general assignment for the benefit of
creditors; (ii) the filing by or against Tenant of a petition to have Tenant
adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty [60] days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
(f) The Tenant's failure to take possession of the Premises or to occupy
same within sixty days after the Commencement Date.
24
<PAGE>
SECTION 14.2 LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant or in the event of the
abandonment of the Premises by Tenant, then, in addition to any other remedies
available to Landlord, Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover from
Tenant:
(1) The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by which the
unpaid rent and additional rent, which would have been earned after termination
until the time of award, exceeds the amount of such loss that Tenant proves
could have been reasonably avoided;
(3) The worth at the time of award of the amount by which the
unpaid rent and additional rent for the balance of the Term after the time of
award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;
(4) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, would be likely to
result from Tenant's default, including but not limited to the cost of
recovering possession of the Premises, commissions and other expenses of
reletting, including necessary repair, renovation, improvement and alteration of
the Premises for a new tenant, the unamortized portion of any tenant
improvements and brokerage commission funded by Landlord in connection with this
Lease, the value of any free rent or other rental and monetary concessions made
or extended for or on behalf of Tenant (including, without limitation, moving
allowances and lease termination payments), reasonable attorneys' fees and any
other reasonable costs; and
(5) At Landlord's election all other amounts in addition to or in
lieu of the foregoing as may be permitted by law. The term rent, as used in this
Lease, shall be deemed to mean the Basic Rent and all other sums required to be
paid by Tenant to Landlord pursuant to the terms of this Lease. Any sum other
than Basic Rent shall be computed on the basis of the average monthly amount
accruing during the twenty-four (24) month period immediately prior to default,
except that if it becomes necessary to compute such rental before the twenty-
four (24) month period has occurred, then the
25
<PAGE>
computation shall be on the basis of the average monthly amount during the
shorter period. As used in subparagraphs (1) and (2) above, the worth at the
time of award shall be computed by allowing interest at the rate of ten percent
(10%) per annum. As used in subparagraph (3) above, the worth at the time of
award shall be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
(ii) Landlord may elect not to terminate Tenant's right to possession
of the Premises in which event Landlord may continue to enforce all of its
rights and remedies under this Lease, including the right to collect all rent as
it becomes due. Efforts by the Landlord to maintain, preserve or relet the
Premises, or the appointment of a receiver to protect the Landlord's interests
under this Lease, shall not constitute a termination of the Tenant's right to
possession of the Premises. In the event that Landlord elects to avail itself of
the remedy provided by this subsection (ii), Landlord shall not unreasonably
withhold its consent to an assignment or subletting of the Premises subject to
the reasonable standards for Landlord's consent as are contained in this Lease.
(f) Landlord shall be under no obligation to observe or perform any
covenant of this Lease on its part to be observed or performed which accrues
after the date of any default by Tenant unless and until the default is cured by
Tenant. The various rights and remedies reserved to Landlord in this Lease or
otherwise shall be cumulative and, except as otherwise provided by California
law, Landlord may pursue any or all of its rights and remedies at the same time.
(g) No delay or omission of Landlord to exercise any right or remedy shall
be construed as a waiver of the right or remedy or of any default by Tenant,
except as provided herein. The acceptance by Landlord of rent shall not be a (i)
waiver of any preceding breach or default by Tenant of any provision of this
Lease, other than the failure of Tenant to pay the particular rent accepted
regardless of Landlord's knowledge of the preceding breach or default at the
time of acceptance of rent; or (ii) a waiver of Landlord's right to exercise any
remedy available to Landlord by virtue of the breach or default. The acceptance
of any payment from a debtor-in-possession, a trustee, a receiver or any other
person acting on behalf of Tenant or Tenant's estate, shall not waive or cure a
default under Section 14.1. No payment by Tenant or receipt by Landlord of a
lesser amount than the rent required by this Lease shall be deemed to be other
than a partial payment on account of the earliest due stipulated rent, nor shall
any endorsement or statement on any check or letter be deemed an accord and
satisfaction, and Landlord shall accept the check or payment without prejudice
to Landlord's right to recover the balance of the rent or pursue any other
remedy available to it. No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept a surrender shall be valid unless in writing and
signed by Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys to the Premises prior to the termination of this
Lease and the
26
<PAGE>
delivery of the keys to any employee shall not operate as a termination of the
Lease or a surrender of the Premises.
SECTION 14.3 LATE PAYMENTS
(a) Any rent due under this Lease that is not paid to Landlord within five
(5) days of the date when due shall bear interest at the maximum rate permitted
by law from the date due until fully paid. The payment of interest shall not
cure any default by Tenant under this Lease. In addition, Tenant acknowledges
that the late payment by Tenant to Landlord of rent will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult and impracticable to ascertain. Those costs may include, but
are not limited to, administrative, processing and accounting charges, and late
charges which may be imposed on Landlord by the terms of any ground lease
mortgage or trust deed covering the Premises. Accordingly, if any rent due from
Tenant shall not be received by Landlord or Landlord's designee within five (5)
days after the date due, then Tenant shall pay to Landlord, in addition to the
interest provided above, a late charge in an amount equal to ten percent (10%)
of each delinquent payment. Acceptance of a late charge by Landlord shall not
constitute a waiver of Tenant's default with respect to the overdue amount nor
shall it prevent Landlord from exercising any of its other rights and remedies.
Should Tenant deliver to Landlord, at any time during the Term, two (2) or
more insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.
SECTION 14.4 RIGHT OF LANDLORD TO PERFORM.
All covenants and agreements to be performed by Tenant under this Lease
shall be performed at Tenant's sole cost and expense and without any abatement
of rent or right of set-off. If Tenant fails to pay any sum of money other than
rent or fails to perform any other act on its part to be performed under this
Lease, and the failure continues beyond any applicable grace period set forth in
Section 14.1, then, in addition to any other available remedies, Landlord may,
at its election, make the payment or perform the other act on Tenant's part.
Landlord's election to make the payment or perform the act on Tenant's part
shall not give rise to any responsibility of Landlord to continue making the
same or similar payments or performing the same or similar acts. Tenant shall
promptly, upon demand by Landlord, reimburse Landlord for all sums paid by
Landlord and all necessary incidental costs together with interest at the
maximum rate permitted by law from the date of the payment by Landlord. Landlord
shall have the same rights and remedies if Tenant fails to pay those amounts as
Landlord would have in the event of a default by Tenant in the payment of rent.
27
<PAGE>
SECTION 14.5 DEFAULT BY LANDLORD.
Landlord shall not be deemed to be in default in the performance of any
obligation under this Lease unless and until it has failed to perform the
obligation within thirty (30) days after written notice by Tenant to Landlord
specifying in reasonable detail the nature and extent of the failure; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for its performance, then Landlord shall not be
deemed to be in default if it commences performance within the thirty-(30)-day
period and thereafter diligently pursues the cure to completion. The directors,
officers, shareholders and employees of Landlord shall not be personally liable
for any claim or judgment against Landlord under any circumstances. If Landlord
is in default under this Lease, then Tenant shall seek only a money judgment
against Landlord and shall not attempt to seize or attach any asset of Landlord
except as otherwise provided herein. If Tenant recovers a money judgment against
Landlord, then such judgment shall be satisfied only out of the proceeds of the
sale received on execution of the judgment levied against the right, title and
interest of the Landlord in the Building or out of rent or other income from the
Building received or to be received by the Landlord. Tenant shall not attempt to
satisfy any such judgment from any other asset of Landlord under any
circumstances. Tenant acknowledges that this limitation on Landlord's liability
has been separately bargained for and that Landlord would not enter into this
Lease in the absence of this provision.
SECTION 14.6 EXPENSES AND LEGAL FEES.
Should either Landlord or Tenant bring any action in connection with this
Lease, the prevailing party shall be entitled to recover, as a part of the
action, its reasonable attorneys' fees and all other costs. The prevailing
party, for the purpose of this paragraph, shall be determined by the trier of
the facts.
SECTION 14.7 WAIVER OF JURY TRIAL.
LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE
ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY AND
EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER
PARTY HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES
AND/OR ANY CLAIM OF INJURY OR DAMAGE.
28
<PAGE>
ARTICLE XV. END OF TERM
SECTION 15.1 HOLDING OVER.
This Lease shall terminate without further notice upon the expiration of
the Term, and any holding over by Tenant after the expiration shall not
constitute a renewal or extension of this Lease or give Tenant any rights under
this Lease, except when in writing signed by both parties. If Tenant holds over
for any period after the expiration (or earlier termination) of the Term,
Landlord may, at its option, treat Tenant as a tenant at sufferance only
commencing on the first (1st) day following the termination of this Lease and
subject to all of the terms of this Lease, except that the monthly rental shall
be the greater of (a) one hundred twenty-five percent (125%) of the total
monthly rental for the month immediately preceding the date of termination, or
(b) the then currently scheduled rent for comparable space in the Office
Building. If Tenant fails to surrender the Premises upon the expiration of this
Lease, despite demand to do so by Landlord, Tenant shall indemnify and hold
Landlord harmless from all loss or liability, including without limitation any
claims made by any succeeding tenant relating to such failure to surrender.
Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's right
of re-entry or any other rights of Landlord under this Lease or at law.
SECTION 15.2 MERGER ON TERMINATION.
The voluntary or other surrender of this Lease by Tenant or a mutual
termination of this Lease shall terminate any or all existing subleases unless
Landlord, at its option, elects in writing to treat the surrender or termination
as an assignment to it of any or all subleases affecting the Premises.
SECTION 15.3 SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
Upon the Expiration Date or upon any earlier termination of this Lease,
Tenant shall quit and surrender possession of the Premises to Landlord in as
good order, condition and repair as when received or as hereafter may be
improved by Landlord or Tenant, reasonable wear and tear and repairs which are
Landlord's obligation excepted, and shall, without expense to Landlord, remove
or cause to be removed from the Premises all personal property and debris,
except for any items that Landlord may by written authorization allow to remain.
Tenant shall repair all damage to the Premises resulting from the removal, which
repair shall include the patching and filling of holes and repair of structural
damage, provided that Landlord may instead elect to repair any structural damage
at Tenant's expense. If Tenant shall fail to comply with the provisions of this
Section, Landlord may effect the removal and/or make any repairs, and the cost
to Landlord shall be additional rent payable by Tenant upon demand. If requested
by
29
<PAGE>
Landlord, Tenant shall execute, acknowledge and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right, title
and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid without deduction or
offset in lawful money of the United States to Landlord at its address set forth
in Item 12 of the Basic Lease Provisions or at any other place as Landlord may
designate in writing. Unless this Lease expressly provides otherwise, as for
example in the payment of rent pursuant to Section 4.1, all payments shall be
due and payable within five (5) days after demand. All payments requiring
proration shall be prorated on the basis of a thirty-(30)-day month and a three
hundred sixty(360)-day year. Any notice, election, demand, consent, approval, or
other communication to be given or other document to be delivered by either
party to the other may be delivered in person or by courier to the other party
or may be deposited in the United States mail, duly registered or certified
postage prepaid return receipt requested, and addressed to the other party at
the address set forth in Item 12 of the Basic Lease Provisions, or if to Tenant
at that address or from and after the Commencement Date at the Premises (whether
or not Tenant has departed from, abandoned or vacated the Premises). Either
party may, by written notice to the other served in the manner provided in this
Article, designate a different address. If any notice or other document is sent
by mail it shall be deemed served or delivered twenty-four (24) hours after
mailing. If more than one person or entity is named as Tenant under this Lease
service of any notice upon any one of them shall be deemed as service upon all
of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit H, and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good order
or cleanliness of the Premises, Office Building, and Common Facilities. Landlord
shall not be liable to Tenant for any violation of the Rules and Regulations or
the breach of any covenant or condition in any lease by any other tenant. One or
more waivers by Landlord of any breach of the Rules and Regulations by Tenant or
by any other tenant(s) shall not be a waiver of any subsequent breach of that
rule or any other. Tenant's failure to keep and observe the Rules and
Regulations shall constitute a default under this Lease. In the case of any
conflict between the Rules and Regulations and this Lease, this Lease shall be
controlling.
30
<PAGE>
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s). Tenant warrants that it has had no
dealings with any other real estate broker or agent in connection with the
negotiation of this Lease and Tenant agrees to indemnify and hold Landlord
harmless from any cost expense or liability (including reasonable attorneys'
fees) for any compensation, commissions or charges claimed by any other real
estate broker or agent employed or claiming to represent or to have been
employed by Tenant in connection with the negotiation of this Lease, The
foregoing agreement shall survive the termination of this lease.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's Interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor, in which Tenant has an interest,
shall be turned over, subject to that interest to the transferee, and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this Lease is or may be subordinate, and no landlord under a
so-called sale-leaseback, shall be responsible in connection with the Security
Deposit unless the mortgagee or holder of the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall subject to the
foregoing, be binding on Landlord, its successors and assigns only during and in
respect to their respective successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1 GENDER AND NUMBER.
Whenever the context of this Lease requires, the words "Landlord" and
"Tenant" shall include the plural as well as the singular, and words used in
neuter, masculine or feminine genders shall include the others.
SECTION 20.2 HEADINGS.
The captions and headings of the articles and sections of this Lease are
for convenience only are not a part of this Lease and shall have no effect upon
its construction or interpretation.
31
<PAGE>
SECTION 20.3 JOINT AND SEVERAL LIABILITY.
If more than one person or entity is named as Tenant, the obligations
imposed upon each shall be joint and several, and the act of or notice from or
notice or refund to or the signature of any one or more of them shall be binding
on all of them with respect to the tenancy of this Lease, including but not
limited to any renewal extension, termination or modification of this Lease.
SECTION 20.4 SUCCESSORS.
Subject to Articles IX and XIX, all rights and liabilities given to or
imposed upon Landlord and Tenant shall extend to and bind their respective
heirs, executors, administrators, successors and assigns. Nothing contained in
this Section is intended or shall be construed to grant to any person other than
Landlord and Tenant and their successors and assigns any rights or remedies
under this Lease.
SECTION 20.5 TIME OF ESSENCE.
Time is of the essence with respect to the performance of every provision
of this Lease in which time of performance is a factor,
SECTION 20.6 CONTROLLING LAW.
This Lease shall be governed by and interpreted in accordance with the laws
of the State of California.
SECTION 20.7 SEVERABILITY.
If any term or provision of this Lease, the deletion of which would not
adversely affect the receipt of any material benefit by either party or the
deletion of which is consented to by the party adversely affected, shall be held
invalid or unenforceable to any extent, the remainder of this Lease shall not
be affected and each term. and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
SECTION 20.8 WAIVER AND CUMULATIVE REMEDIES.
One or more waivers by Landlord or Tenant of any breach of any term,
covenant or condition contained in this Lease shall not be a waiver of any
subsequent breach of the same or any other term, covenant or condition. Consent
to any act by one of the parties shall not be deemed to render unnecessary the
obtaining of that party's consent to any subsequent act. No breach by Tenant of
this Lease shall be deemed to have been waived by Landlord unless the waiver is
in a writing signed by Landlord. The rights and remedies of Landlord under this
Lease shall be cumulative and in addition to any and all other rights and
remedies which Landlord may have.
32
<PAGE>
SECTION 20.9 INABILITY TO PERFORM.
In the event that either party shall be delayed or hindered in or prevented
from the performance of any work or in performing any act required under this
Lease by reason of any cause beyond the reasonable control of that party, then
the performance of the work or the doing of the act shall be excused for the
period of the delay and the time for performance shall be extended for a period
equivalent to the period of the delay. The provisions of this Section shall not
operate to excuse Tenant from the prompt payment of rent or from the timely
performance of any other obligation under this Lease within Tenant's reasonable
control.
SECTION 20.10 ENTIRE AGREEMENT.
This Lease, and its exhibits and other attachments, cover in full each and
every agreement of every kind between the parties concerning the Premises, the
Office Building,, and all preliminary negotiations, oral agreements,
understandings and/or practices, except those contained in this Lease, are
superseded and of no further effect. Tenant waives its rights to rely on any
representations or promises made by Landlord or others which are not contained
in this Lease. No verbal agreement or implied covenant shall be held to modify
the provisions of this Lease, any statute, law or custom to the contrary
notwithstanding.
SECTION 20.11 QUIET ENJOYMENT.
Upon the observance and performance of all the covenants, terms and
conditions on Tenant's part to be observed and performed and subject to the
other provisions of this Lease, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term without hindrance or interruption by Landlord or
any other person claiming by or through Landlord.
SECTION 20.12 SURVIVAL.
All covenants of Landlord or Tenant which reasonably would be intended to
survive the expiration or sooner termination of this Lease, including without
limitation any warranty or indemnity hereunder, shall so survive and continue to
be binding upon and inure to the benefit of the respective parties and their
successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1 COUNTERPARTS.
This Lease may be executed in one or more counterparts, each of which shall
constitute an original and all of which shall be one and the same agreement.
33
<PAGE>
SECTION 21.2 CORPORATE AND PARTNERSHIP AUTHORITY.
If Tenant is a corporation or partnership, each individual executing this
Lease on behalf of the corporation or partnership represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of the
corporation or partnership and that this Lease is binding upon the corporation
or partnership in accordance with its terms. Tenant shall at Landlord's request,
deliver a certified copy of its board of directors' resolution or partnership
agreement or certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3 EXECUTION OF LEASE; NO OPTION OR OFFER.
The submission of this Lease to Tenant shall be for examination purposes
only and shall not constitute an offer to or option for Tenant to lease the
Premises. Execution of this Lease by Tenant and its return to Landlord shall not
be binding upon Landlord, notwithstanding any time interval until Landlord has,
in fact, executed and delivered this Lease to Tenant, it being intended that
this Lease shall only become effective upon execution by Landlord and delivery
of a fully executed counterpart to Tenant.
SECTION 21.4 RECORDING SECTION.
Tenant shall not record this Lease without the prior written consent of
Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a
short form memorandum of this Lease for recording purposes.
SECTION 21.5 AMENDMENTS.
No amendment or termination of this Lease shall be effective unless in
writing signed by authorized signatories of Tenant and Landlord, or by their
respective successors-in-interest. No actions, policies, oral or informal
arrangements, business dealings or other course of conduct by or between the
parties shall be deemed to modify this Lease in any respect.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1 NONDISCLOSURE OF LEASE TERMS.
Tenant acknowledges and agrees that the terms of this Lease are
confidential and constitute proprietary information of Landlord. Disclosure of
the terms could adversely affect the ability of Landlord to negotiate other
leases and impair Landlord's relationship with other tenants. Accordingly,
Tenant agrees that it and its partners, officers, directors, employees and
attorneys shall not intentionally and voluntarily disclose the terms and
conditions of this Lease to any other tenant or apparent prospective tenant of
the Office Building, either directly or indirectly, without the prior written
consent of Landlord;
34
<PAGE>
provided, however, that Tenant may disclose the terms to prospective subtenants
or assignees under this Lease, unless or required by public agency.
SECTION 22.2 REPRESENTATIONS BY TENANT.
The application, financial statements, and tax returns, if any, submitted
and certified to by Tenant as an accurate representation of its financial
condition have been prepared, certified and submitted to Landlord as an
inducement and consideration to Landlord to enter into this Lease. The
application and statements are represented and warranted by Tenant to be correct
and to accurately and fully reflect Tenant's true financial condition as of the
date of execution of this Lease by Tenant. Tenant shall, during the Term,
promptly furnish Landlord with annual financial statements reflecting Tenant's
financial condition upon written request from Landlord.
SECTION 22.3 CHANGES REQUESTED BY LENDER.
If, in connection with obtaining financing for the Office Building, the
lender shall request reasonable modifications in this Lease as a condition to
the financing, Tenant will not unreasonably withhold or delay its consent,
provided that the modifications do not materially increase the obligations of
Tenant or materially and adversely affect the leasehold interest created by this
Lease.
SECTION 22.4 MORTGAGEE PROTECTION.
No act or failure to act on the part of Landlord, which would otherwise
entitle Tenant to be relieved of its obligations hereunder or to terminate this
Lease, shall result in such a release or termination, unless (a) Tenant has
given notice by registered or certified mail to any beneficiary of a deed of
trust or mortgage covering the Office Building whose address has been furnished
to Tenant, and (b) such beneficiary is afforded a reasonable opportunity to cure
the default by Landlord, including, if necessary, to effect the cure time to
obtain possession of the Office Building by power of sale or judicial
foreclosure, provided that such foreclosure remedy is diligently pursued.
SECTION 22.5 COVENANTS AND CONDITIONS.
All of the provisions of this Lease shall be construed to be conditions as
well as covenants as though the words specifically expressing or imparting
covenants and conditions were used in each separate provision.
SECTION 22.6 TENANT SERVICES.
In the event certain tenant services, including without limitation child
care services, health club facilities, valet parking and concierge services are
made available to tenants of the Office Building by a concessionaire under
contract to Landlord or by a tenant under lease with Landlord (collectively,
"Provider"), then Tenant acknowledges
35
<PAGE>
and agrees that Landlord shall not be deemed to have made any representation
regarding the availability, quality or reliability of such service and Tenant
shall have no recourse or claim against Landlord whether by abatement of rent or
otherwise for any default or liability on the part of the Provider in furnishing
the service.
CONDITIONS TO LANDLORD'S OBLIGATIONS
LANDLORD'S OBLIGATIONS UNDER THIS LEASE ARE EXPRESSLY CONTINGENT UPON THE
COMPLETE EXECUTION OF A LEASE TERMINATION AGREEMENT WITH THE EXISTING TENANT
OCCUPYING THE PREMISES, SANWA BANK, ON TERMS AND CONDITIONS ACCEPTABLE TO
LANDLORD ON OR BEFORE MONDAY, SEPTEMBER 8,1997 AT 5.00 PM PACIFIC TIME. IF SUCH
LEASE TERMINATION AGREEMENT HAS NOT BEEN SO EXECUTED BY SUCH DATE, THEN LANDLORD
SHALL HAVE THE RIGHT TO TERMINATE THIS LEASE AGREEMENT BY WRITTEN NOTICE GIVEN
TO TENANT ON OR BEFORE TUESDAY, SEPTEMBER 9,1997 AT 5:00 PM PACIFIC TIME, IN
WHICH EVENT THIS LEASE AGREEMENT SHALL BE TERMINATED AND OF NO FURTHER FORCE OR
EFFECT.
CONDITIONS TO TENANT'S OBLIGATIONS
TENANT'S OBLIGATIONS UNDER THIS LEASE ARE EXPRESSLY CONTINGENT UPON THE
COMPLETE EXECUTION OF A LEASE TERMINATION AGREEMENT OF TENANT'S PRESENT LEASE ON
TERMS AND CONDITIONS ACCEPTABLE TO TENANT ON OR BEFORE WEDNESDAY, SEPTEMBER 10,
1997 AT 5:00 PM PACIFIC TIME. IF SUCH LEASE TERMINATION AGREEMENT HAS NOT BEEN
SO EXECUTED BY SUCH DATE, THEN TENANT SHALL HAVE THE RIGHT TO TERMINATE THIS
LEASE AGREEMENT BY WRITTEN NOTICE GIVEN TO LANDLORD ON OR BEFORE THURSDAY,
SEPTEMBER 11, 1997 AT 5:00 PM PACIFIC TIME, IN WHICH EVENT THIS LEASE AGREEMENT
SHALL BE TERMINATED AND OF NO FURTHER FORCE OR EFFECT.
LANDLORD: TENANT:
300 Montgomery Associates Xaos Tools, Inc.
a California partnership a California corporation
By: /s/ Goodwin Gaw By: /s/ Robert L. Batty
--------------- -------------------
Its: Goodwin Gaw Its: Robert L. Batty
-------------- -------------------
Date: Date: President
--------------- ----------------
36
<PAGE>
EXHIBIT A
[diagram of leased space]
EXHIBIT A-1
<PAGE>
EXHIBIT B
UTILITIES AND SERVICES FOR THE BUILDING
ATTACHED TO AND MADE A PART OF
THIS LEASE
The following standards for utilities and services shall be in effect at
the Office Building. Landlord reserves the right to adopt nondiscriminatory
modifications and additions to these standards. In the case of any conflict
between these standards and the Lease, the Lease shall be controlling. Subject
to all of the provisions of the Lease, including but not limited to the
restrictions contained in Section 6.1, the following shall apply:
1. Landlord shall furnish to the Premises during the hours of 8:00 a.m. to
6:00 p.m., Monday through Friday, generally recognized national holidays and
Sundays excepted, reasonable air conditioning, heating and ventilation services.
Subject to the provisions set forth below, Landlord shall also furnish the
Office Building with elevator service (if applicable), reasonable amounts of
electric current for normal lighting by Landlord's standard, overhead
fluorescent and incandescent fixtures and for fractional horsepower office
machines, and water for lavatory and drinking purposes. Tenant will not without
the prior written consent of Landlord, consume electricity in the Premises at a
level in excess of 5 watts per square foot or otherwise increase the amount of
electricity, gas or water usually furnished or supplied for use of the Premises
as general office space; nor shall Tenant connect any apparatus machine or
device with water pipes or electric current (except through existing electrical
outlets in the Premises) for the purpose of using electric current or water.
This paragraph shall, at all times, be subject to applicable governmental
regulations.
2. Upon written request from Tenant delivered to Landlord at least 72
hours prior to the period for which service is requested, but during normal
business hours, Landlord will provide any of the foregoing building services to
Tenant at such times when such services are not otherwise available. Tenant
agrees to pay Landlord for those after-hour services at rates that Landlord may
establish from time to time. In addition, Landlord may impose a reasonable
charge for any excessive use of any utilities or services or for any substantial
recurrent use of the Premises at any time other than generally recognized
business hours of generally recognized business days. If Tenant requires
electric current in excess of that which Landlord is obligated to furnish under
this Exhibit B, Tenant shall first obtain the consent of Landlord and Landlord
may cause an electric current meter to be installed in the Premises to measure
the amount of electric current consumed. The cost of installation, maintenance
and repair of the meter shall be paid for by Tenant and Tenant shall reimburse
Landlord promptly upon demand for all electric current consumed for any special
power use as shown by the meter. The reimbursement shall be at the rates charged
for electrical power by the local public utility furnishing the current plus any
additional expense incurred in keeping account of the electric current consumed.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT B-1
<PAGE>
3. If any lights, machines or equipment (including without limitation
electronic data processing machines) are used by Tenant in the Premises which
materially affect the temperature otherwise maintained by the air conditioning
system or generate substantially more heat in the Premises than would be
generated by the building standard lights and usual fractional horsepower office
equipment Landlord shall have the right, at its election, to install or modify
any machinery and equipment to the extent Landlord reasonably deems necessary to
restore temperature balance. The cost of installation and any additional cost of
operation and maintenance shall be paid by Tenant to Landlord promptly upon
demand.
4. Landlord shall furnish water for personal hygiene, and lavatory
purposes only. If Tenant requires or uses water for any purposes in addition to
ordinary cleaning and lavatory purposes, Landlord may, in its discretion,
install a water meter to measure Tenant's water consumption. Tenant shall pay
Landlord for the cost of the meter and the cost of its installation and for
consumption throughout the duration of Tenant's occupancy. Tenant shall keep the
meter and installed equipment in good working order and repair at Tenant's own
cost and expense, in default of which Landlord may cause the meter to be
replaced or repaired at Tenant's expense. Tenant agrees to pay for water
consumed as shown on the meter and when bills are rendered, and on Tenant's
default in making that payment, Landlord may pay the charges on behalf of
Tenant. Any costs or expenses or payments made by Landlord for any of the
reasons or purposes stated above shall be deemed to be additional rent payable
by Tenant to Landlord upon demand.
5. In the event that any utility service to the Premises is separately
metered or billed to Tenant, Tenant shall pay all charges for that utility
service to the Premises and the cost of furnishing the utility to tenant suites
shall be excluded from the Operating Expenses as to which reimbursement from
Tenant is required in the Lease. If any utility charges are not paid when due
Landlord may pay them, and any amounts paid by Landlord shall immediately become
due to Landlord from Tenant as additional rent. If Landlord elects to furnish
any utility service to the Premises, Tenant shall purchase its requirements of
that utility from Landlord as long as the rates charged by Landlord do not
exceed those which Tenant would be required to pay if the utility service were
furnished it directly by a public utility.
6. Landlord shall provide janitorial services Monday through Friday,
generally recognized national holidays excepted equivalent to that furnished in
comparable office buildings and window washing as reasonably required; provided,
however, that Tenant shall pay for any additional or unusual janitorial services
required by reason of any nonstandard improvements in this.
Premises, including without limitation wall coverings and floor coverings
installed by or for Tenant or by reason of any use of Premises other than
exclusively as offices. The cleaning services provided by Landlord shall also
exclude refrigerators, eating utensils (plates, drinking containers, and
silverware) and interior glass partitions. Tenant shall pay to Landlord the cost
of removal of any of Tenant's refuse and rubbish to the extent that they exceed
the refuse and rubbish usually attendant with general office usage. Landlord
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT B-2
<PAGE>
shall not be responsible for any disposal of Tenant's equipment/furniture of any
condition.
7. Tenant shall have access to the Office Building 24 hours per day 7 days
per week 52 weeks per year; provided that Landlord may install access control
systems as it deems advisable for the Office Building. Such systems may, but
need not, include full or part-time lobby supervision, the use of a sign-
in/sign-out log, a card identification access system, building parking and
access pass system, closing hours procedures, access control stations, fire
stairwell exit door alarm system, electronic guard system, mobile paging system,
elevator control system, or any other access controls, In the event that
Landlord elects to provide any or all of those services, Landlord may
discontinue providing them at any time with or without notice. Landlord may
impose a reasonable charge for access control cards and/or keys issued to
Tenant. Landlord shall have no liability to Tenant for the provision by Landlord
of improper access control services for any breakdown in service or for the
failure by Landlord to provide access control services. Tenant further
acknowledges that Landlord's access systems may be temporarily inoperative
during building emergency and system repair periods. Tenant agrees to assume
responsibility for compliance by its employees with any regulations established
by Landlord with respect to any card key access or any other system of building
access as Landlord may establish. Tenant shall be liable to Landlord for any
loss or damage resulting from its or its employees use/misuse of any access
system.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT B-3
<PAGE>
EXHIBIT C
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at the
Office Building. Landlord reserves the right to adopt reasonable,
nondiscriminatory modifications and additions to those standards. Tenant agrees
to obtain and present evidence to Landlord that it has fully complied with the
insurance requirements.
1. Tenant shall, at its sole cost and expense commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term procure, pay for and keep in full force and effect: (i) comprehensive
general liability insurance with respect to the Premises and the operations of
or on behalf of Tenant in on or about the Premises, including but not limited to
personal injury, non-owned automobile, blanket contractual, independent
contractors, broad form property damage, fire legal liability, products
liability (if a product is sold from the Premises), liquor law liability (if
alcoholic beverages are sold served or consumed within the Premises), and cross
liability and severability of interest clauses, which policy(ies) shall be
written on an occurrence basis and for not less than $1,000,000 combined single
limit (with a $50,000 minimum limit on fire legal liability) per occurrence for
bodily injury, death and property damage liability, or the current limit of
liability carried by Tenant, whichever is greater, and subject to such increases
in amounts as Landlord may determine from time to time; (ii) workers
compensation insurance coverage as required by law, together with employers
liability insurance coverage; (iii) with respect to improvements, alterations
and the like required or permitted to be made by Tenant under this Lease
builder's all-risk insurance in amounts satisfactory to Landlord; (iv) insurance
against fire, vandalism, malicious mischief; and such other additional perils,
as may be included in a standard all risk form in general use in San Francisco,
California, insuring Tenant's leasehold improvements, trade fixtures,
furnishings, equipment and items of personal property of Tenant located in the
Premises in an amount equal to not less than ninety percent (90%) of their
actual replacement cost (with replacement cost endorsement); and (v) business
interruption insurance in amounts satisfactory to Landlord. In no event shall
the limits of any policy be considered as limiting the liability of Tenant under
this Lease.
2. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D shall be written by responsible insurance companies authorized to
do business in the State of California and with a Best's policyholder rating of
not less than "A" subject to final acceptance and approval by Landlord. Any
insurance required of Tenant may be furnished by Tenant under any blanket policy
carried by it or under a separate policy. A true and exact copy of each paid up
policy evidencing the insurance (appropriately authenticated by the insurer), or
a certificate of insurance certifying that the policy has been issued, provides
the coverage required by this Exhibit C, and contains the required provisions
shall be delivered to Landlord prior to the date Tenant is given the right of
possession of the Premises. Proper evidence of the renewal of any insurance
coverage shall also be delivered to Landlord not less than thirty (30) days
prior to the
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT C-1
<PAGE>
expiration of the coverage. Landlord may, at any time, and from time to time,
inspect and/or copy any and all insurance policies required by this Lease.
3. Each policy evidencing insurance required to be carried by Tenant,
pursuant to this Exhibit C, shall contain the following provisions and/or
clauses satisfactory to Landlord: (i) a provision that the policy and the
coverage provided shall be primary and that any coverage carried by Landlord
shall be noncontributory with respect to any policies carried by Tenant; (ii) a
provision including Landlord and any other parties in interest designated by
Landlord as an additional insured, except as to workers compensation insurance;
(iii) a waiver by the insurer of any right to subrogation against Landlord, its
agents, employees, contractors, and representatives which arises or might arise
by reason of any payment under the policy or by reason of any act or omission of
Landlord, its agents, employees, contractors or representatives; and (iv) a
provision that the insurer will not cancel or change the coverage provided by
the policy without first giving Landlord thirty (30) days prior written notice.
4. In the event that Tenant fails to procure, maintain and/or pay for, at
the times and for the durations specified in this Exhibit C, any insurance
required by this Exhibit C or fails to carry insurance required by any
governmental authority, Landlord may at its election procure that insurance and
pay the premiums in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord within ten (10) days following
Landlord's written demand to Tenant.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT C-2
<PAGE>
EXHIBIT D
RULES AND REGULATIONS FOR THE BUILDING
ATTACHED TO AND MADE A PART OF
THIS LEASE
Except as provided or required by Landlord in accordance with Building
standards, no sign, placard, picture, advertisement name or notice shall be
inscribed, displayed, printed, painted or affixed by Tenant on or to any part of
the Building or exterior of the Promises leased to tenants or to the door or
doors thereof without the written consent of Landlord first obtained and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant
2. Except as provided or required by Landlord in accordance with Building
standards, no draperies, curtains, blinds, shades, screens or other devices
shall be hung at or used in connection with any window or exterior door or doors
of the Premises.
3. The bulletin board or directory of the Building shall be used primarily
for display of the name and location of Tenants and Landlord reserves the right
to exclude any other names therefrom, to limit the number of names associated
with tenants to be placed thereon and to charge for names associated with
Tenants to be placed thereon at rates applicable to all Tenants.
4. The sidewalks, halls, passages, exits, enhances, elevators and
stairways of the Building shall not be obstructed by Tenants or used by them for
any purposes other than for ingress to and egress from their respective
Premises. The halls, passages, exits, entrances, elevators, stairways, balconies
and roof of the Building are not for the use of the general public and Landlord
in all cases reserves the right to control the same and prevent access thereto
by all persons whose presence, in the judgment of the Landlord, is or may be
prejudicial to the safety, character, reputation or interests of the Building
and its Tenants; provided however, that Landlord shall not prevent such access
to persons with whom Tenants deal in the ordinary course of business unless such
persons are engaged in illegal activities. No person shall go upon the roof of
the Building unless expressly so authorized by Landlord.
5. Tenants shall not alter any lock nor install any new or additional
locks or any bolts on any interior or exterior door of any Premises leased to
Tenant.
6. The doors, windows, light fixtures and any lights or skylights that
reflect or admit light into halls or other places of the Building shall not be
covered or obstructed. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown or
placed therein. The expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose employees
or invitees, cause such expense.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT D-1
<PAGE>
7. Tenants shall not mark, drive nails, screw or drill into the walls,
woodwork or plaster or in any way deface the Building or any Premises leased to
Tenant. Normal picture hanging excluded.
8. Furniture, freight or equipment of every kind shall be moved into or
out of the Building only at such times and in such manner as Landlord shall
designate. Landlord may prescribe and limit the weight size and position of all
equipment to be used by Tenants, other than standard office desks, chairs, and
tables and portable office machines. Safes and other heavy equipment shall, if
considered necessary by Landlord, stand on wood strips of such thickness as
Landlord deems necessary to distribute properly the weight thereof. Landlord, at
its own discretion may require an elevator technician to attend to the move at
the sole cost of the Tenant. All damage to the Building or Premises occupied by
Tenants caused by moving or maintaining any property of a Tenant shall be
repaired at the expense of such Tenant.
9. No Tenant shall employ any person, other than the janitor provided by
Landlord, for the purpose of cleaning the Premises occupied by such Tenant
unless otherwise agreed to by Landlord. Except with the written consent of
Landlord, no person shall be permitted to enter the Building for the purpose of
cleaning the same. Tenants shall not cause any unnecessary labor by carelessness
or indifference in the preservation of good order and cleanliness. Landlord
shall not be responsible to any Tenant for loss of property on the Premises,
however occurring, or for any damage to the property of my Tenant caused by the
employees or independent contractors of Landlord or by any other person. Janitor
service will not be furnished when rooms are occupied during the regular hours
when janitor service is provided. Window cleaning shall be done only at the
regular and customary times determined by Landlord for such services.
10. No Tenant shall sweep or throw or permit to be swept or thrown any
dirt or other substance into any of the corridors, halls or elevators or out of
the doors or stairways of the Building; use or keep or permit to be used or kept
any foul or noxious gas or substance; permit or suffer the Premises occupied by
such Tenant to be occupied or used in a manner offensive or objectionable to
Landlord or other Tenants by reason of noise, odors or vibrations; interfere in
any way with the other Tenants or persons having business in the Building; or
bring or keep or permit to be brought or kept in the Building any animal life
form, other than human, except seeing-eye dogs when in the company of their
masters.
11. No cooking shall be done or permitted by Tenants in their respective
Premises, nor shall Premises occupied by Tenants be used for storage or
merchandise, washing clothes, lodging or any improper, objectionable or immoral
purposes.
12. No Tenant shall use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of customary office equipment or, without Landlord's prior written approval, use
any method of heating or air-conditioning other than the supplied by Landlord.
No Tenant shall use or keep or
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT D-2
<PAGE>
permit to be used or keep any foul or noxious gas or substance in the Premises,
or permit or suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors, or vibrations, or interfere in any way with other Tenants or those having
business therein. Tenant must comply with any government imposed codes and
regulations concerning the use or storage of any substances on the Premises.
13. No boring or cutting for telephone or electric wires shall be allowed
without the consent of Landlord and any such wires permitted shall be introduced
at the place and in the manner described by Landlord. The location of
telephones, speakers, fire extinguisher and all other office equipment affixed
to Premises occupied by tenants shall be sub subject to the approval of
Landlord. Each Tenant shall pay all expenses incurred in connection with the
installation of its equipment including any telephone and electricity
distribution equipment.
14. Upon termination of occupancy of the Building each Tenant shall
deliver to Landlord all keys furnished by Landlord, end any reproductions
thereof made by or at the direction of such Tenant and in the event of loss of
any keys so furnished shall pay Landlord thereof
15. No tenant shall affix any floor covering in any manner except as
approved by the Landlord. The expense for repairing any damage caused by removal
of any such floor covering shall be borne by the Tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
16. No mail, furniture, packages, supplies, equipment, merchandise or
deliveries of any kind will be received in the Building or carried up or down in
the elevators except between such hours and in such elevators as shall be
designated by Landlord.
17. On Saturdays, Sundays and legal holidays and between the hours of 6:00
p.m. and 8:00 a.m., access to the Building may be refused unless the person
seeking access is known to the person charged with responsibility for the safety
and protection of the Building and has a pass or is properly identified. In no
case shall Landlord be liable for any loss or damage for any error with respect
to the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement or other commotion and at such times as
Landlord deems necessary for the safety and protection of the Building, its
tenants and all property located therein, Landlord may prohibit and prevent
access to the Building by all persons by any means Landlord deems appropriate.
18. Each Tenant shall see that the exterior doors of its Premises are
closed and securely locked on Sundays and legal holidays and not later than 6:00
p.m. of each other day. Each tenant shall exercise extraordinary care and
caution that all water faucets or water apparatus are entirely shut off each day
before its Premises are left unoccupied and that all electricity or gas shall
likewise be carefully shut off so as to prevent waste or damage to Landlord or
to other Tenants of the Building.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT D-3
<PAGE>
19. Landlord may exclude or expel from the Building any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or drugs,
or who shall in any manner do any act in violation of any of the rules and
regulations of the Building.
20. The requirements of Tenants will be attended to only upon application
to Landlord at the office of the Building. Employees of Landlord shall not
perform any work outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord shall be required to
admit any person (Tenant or otherwise) to any premises in the Building.
21. No vending or food or beverage dispensing machine or machines of any
description shall be installed, maintained or operated upon any premises in the
Building without the written permission of the Landlord.
22. Landlord, without notice and without liability to any Tenant, at any
time may change the name or the street address of the Building.
23. The word "Building" as used in these rules and regulations means the
Building of which a part of the Premises are leased pursuant to the Lease to
which these rules and regulations are attached. Each Tenant shall be liable to
Landlord and to each other Tenant of the Building for any loss, cost expense,
damage or liability, including attorneys fees, caused or occasioned by the
failure of such first named Tenant to comply with these rules, but Landlord
shall have no liability for such failure or for failing or being unable to
enforce compliance therewith by any tenant and such failure by Landlord or
noncompliance by any Other Tenant shall not be a ground for termination of the
Lease to which these rules and regulations are attached by the Tenant
thereunder.
24. Carpet protector pads shall be used at all desk stations.
25. Each Tenant shall maintain the portions of its Premises which are
visible from the outside of the Building or from hallways or other public areas
of the Building, in a neat, clean and orderly condition.
26. No Tenant shall temper with or attempt to adjust the temperature
control thermostats in its premises. Landlord shall adjust such thermostats as
required to maintain heat and air-conditioning at the Building standard
temperature.
27. No Tenant shall place any items whatsoever on the roof or balcony
areas of the Building without prior written consent of Landlord.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT D-4
<PAGE>
EXHIBIT E
WORK LETTER
1. Tenant Improvements; Permits and Licenses; Landlord's Allowance.
Tenant has advised Landlord that Tenant intends to make certain renovations
and improvements to, within and upon the Premises, at Tenant's sole cost and
expense (except as set forth herein). Within twenty (20) days after execution of
the Lease by both parties, Tenant shall deliver to Landlord complete and
detailed plans and specifications for the construction of improvements,
alterations and renovations to the Premises for Tenant's business. Such plans
and specifications shall be subject to the written approval of Landlord prior to
the commencement of any work by Tenant, and Landlord agrees that such approval
shall not be unreasonably withheld. There shall be no material deviations from
or changes in such plans and specifications without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. Tenant understands
and agrees that Landlord's review of plans and specifications as provided herein
is solely to protect the interests of Landlord in the Premises and the Office
Building and that Landlord shall not be deemed the guarantor of, or responsible
for, the correctness or accuracy of any such plans and specifications or the
compliance of such plans and specifications with applicable laws, ordinances, or
regulations. Upon approval of such plans and specifications and delivery of
possession of the Promises to Tenant, Tenant shall commence to construct such
improvements and shall thereafter prosecute such construction to completion in a
diligent, competent, workmanlike and expeditious manner, at Tenant's sole cost
and expense (except as set forth herein). Tenant's failure to complete such
construction and renovation work shall in no way delay the Commencement Date or
affect the rental or other obligations of Tenant under the Lease, but Tenant
shall not be deemed to be in breach of Section 14.1 of the Lease for failure to
operate the Premises if such failure is attributable to the construction and
renovation work described in this paragraph, provided that Tenant prosecutes
such construction to completion in a diligent, competent, workmanlike and
expeditious manner.
Tenant agrees that all such work will be performed and completed in
compliance with all applicable laws, building codes, ordinances, and rules and
regulations of all governmental or public authorities having jurisdiction
thereof (including, but not limited to, the Americans with Disabilities Act and
any applicable environmental protection/ hazardous materials laws). Tenant shall
also, at its sole cost and expense (including, but not limited to, the amount of
any special fees or assessments resulting from the requirements of Tenant's
operations), obtain any and all necessary building, occupancy and business
permits and licenses in connection with Tenant's construction of improvements or
the operation of Tenant's business at the Premises. Tenant shall give Landlord
at least ten (10) days' written notice prior to the commencement of any
construction on or at the Premises, in order to allow Landlord to post and
record an
<PAGE>
appropriate notice of non-responsibility pursuant to Section 3094 of the
California Civil Code.
Landlord agrees to reimburse to Tenant up to Fifty Six Thousand Thirteen
and 00/100 Dollars ($56,013.00) of the cost of such improvements and renovations
to the Premises (the "Tenant Improvements Allowance")', provided that such
Tenant Improvements Allowance shall not be used as reimbursement for the
purchase or installation of furniture, trade fixtures or equipment. (If the cost
of such Premises renovation is a sum less than $56,013.00, then the Tenant
Improvements Allowance shall be such lesser sum.) Landlord's obligation to pay
any portion of the Tenant Improvements Allowance shall be conditioned upon
Tenant's furnishing written evidence satisfactory to Landlord regarding the
amount and appropriateness of the expense for which reimbursement is being
sought, including but not limited to original invoices, receipts, vouchers,
material and labor lien releases and other documents reasonably requested by
Landlord. Payment of such Tenant Improvements Allowance shall be due within
thirty (30) days after Landlord receives an appropriate application for payment,
certified by Tenant's contractor, along with the other documents referred to
hereinabove. The Tenant Improvements Allowance shall in no way render Landlord
responsible to any contractor, suppliers, subcontractor or other third party,
and all materialmen, contractors, subcontractors, artisans, mechanics, laborers
and any other persons contracting with Tenant for the furnishing of any labor,
services, materials, supplies or equipment with respect to any portion of the
Premises and/or the office building shall be notified by Tenant (and are hereby
charged with such notice) that they must look exclusively to Tenant to obtain
payment for same.
All work in the Premises is conditioned upon the compliance by Tenant's
contractors with all requirements imposed by Landlord on third party
contractors, including without limitation the maintenance by Tenant and its
contractors and subcontractors of workers' compensation and public liability and
property damage insurance in amounts and with companies and on forms
satisfactory to Landlord, with certificates of such insurance being furnished to
Landlord prior to proceeding with any such entry. Entry to the Premises shall be
deemed to be under all of the provisions of the Lease except as to the covenants
to pay rent. Landlord shall not be liable in any way for any injury, loss or
damage which may occur to any such work being performed by Tenant, the same
being solely at Tenant's risk. In no event shall the failure of Tenant's
contractors to complete any work in the Premises extend the Commencement Date of
this Lease beyond the date that Landlord has completed its tenant improvement
work and tendered the Premises to Tenant. All materials and finishes utilized in
constructing the tenant improvements shall be Landlord's building standard.
<PAGE>
EXHIBIT 10.4
XOOM, INC.
1998 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of the Committees appointed
-------------
to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, California corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(c) "Award" means the grant of an Option, Restricted Stock, SAR or
-----
other right or benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the grant
---------------
of an Award executed by the Company and the Grantee, including any amendments
thereto.
(e) "Board" means the Board of Directors of the Company.
-----
(f) "Change in Control" means a change in ownership or control of
-----------------
the company effected through the following transaction, other than a Change in
Control that is also a sale of Common Stock to the general public pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended: the direct or
indirect acquisition (including pursuant to the issuance of authorized, but
unissued securities of the Company) by any person or related group of persons
(other than an acquisition from or by the Company or by a Company-sponsored
employee benefit plan or by a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities pursuant to a tender offer or exchange
offer made directly to the Company's stockholders that occurs after the
Registration Date.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
----
(h) "Committee" means any committee appointed by the Board to
---------
administer the Plan.
1
<PAGE>
(i) "Common Stock" means the common stock of the Company.
------------
(j) "Company" means XOOM, Inc.
-------
(k) "Consultant" means any person who is engaged by the Company or
----------
Related Entity to render consulting or advisory services as an independent
contractor and is compensated for such services.
(l) "Continuous Status as an Employee, Director or Consultant" means
--------------------------------------------------------
that the provision of services to the Company or a Related Entity in any
capacity of Employee, Director or Consultant, is not interrupted or terminated.
Continuous Status as an Employee, Director or Consultant shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change in status as long as the individual remains in the service of the Company
or a Related Entity in any capacity of Employee, Director or Consultant (except
as otherwise provided in the Award Agreement). An approved leave of absence
shall include sick leave, military leave, or any other authorized personal
leave. For purposes of Incentive Stock Options, no such leave may exceed ninety
(90) days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract.
(m) "Corporate Transaction" means any of the following stockholder-
---------------------
approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger; provided that if such merger is preceded by a
Change in Control within six (6) months of the merger, then a Corporate
Transaction will be deemed to have occurred if securities possessing more than
fifty percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred pursuant to such merger to a person or
persons different from those who held such securities immediately prior to such
Change in Control.
(n) "Director" means a member of the Board.
--------
2
<PAGE>
(o) "Employee" means any person, including an Officer or Director, who
--------
is an employee of the Company or any Related Entity. The payment of a
director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(q) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price was
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market of the type
described in paragraph (i), above, for the Common Stock, the Fair Market Value
thereof shall be determined by the Administrator in good faith and in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
(r) "Grantee" means an Employee, Director or Consultant who receives
-------
an Award under the Plan.
(s) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(t) "Non-Qualified Stock Option" means an Option not intended to
--------------------------
qualify as an Incentive Stock Option.
(u) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
------
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Incentive Plan.
----
3
<PAGE>
(y) "Registration Date" means the closing of the first sale of Common
-----------------
Stock to the general public pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(z) "Related Entity" means any Parent, Subsidiary and any business,
--------------
corporation, partnership, limited liability company or other entity in which the
Company, a Parent or a Subsidiary holds a significant ownership interest,
directly or indirectly as determined by the Plan Administrator.
(aa) "Restricted Stock" means Shares issued under the Plan to the
----------------
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(bb) "SAR" means a stock appreciation right entitling the Grantee to
---
Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(cc) "Share" means a share of the Common Stock.
-----
(dd) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
-------------------------
(a) Subject to the provisions of Section 11(a), below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is 1,750,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock. Notwithstanding the foregoing, the total
number of Shares issuable upon exercise of all outstanding Awards shall not
exceed a number of Shares which is equal to 30% of the then outstanding shares
of the Company, as calculated in accordance with the conditions and exclusions
of California Corporate Securities Rule 260.140.45, unless a percentage higher
than 30% is approved by at least two-thirds of the outstanding Shares entitled
to vote.
(b) If an Award expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Award exchange program, or
if any unissued Shares are retained by the Company upon exercise of an Award in
order to satisfy the exercise price for such Award or any withholding taxes due
with respect to such Award, such unissued or retained Shares shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to
an Award shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4
<PAGE>
4. Administration of the Plan.
--------------------------
(a) Plan Administrator. With respect to grants of Awards to
-------------------
Employees, Directors, Officers or Consultants, the Plan shall be administered by
(A) the Board or (B) a Committee (or a subcommittee of the Committee) designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws. Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. The Board may
authorize one or more Officers to grant such Awards and may limit such authority
as the Board determines from time to time.
(b) Multiple Administrative Bodies. The Plan may be administered by
------------------------------
different bodies with respect to Directors, Officers, Consultants, and Employees
who are neither Directors nor Officers.
(c) Powers of the Administrator. Subject to Applicable Laws and the
---------------------------
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
(vii) to amend the terms of any outstanding Award granted under
the Plan, including a reduction in the exercise price (or base amount on which
appreciation is measured) of any Award to reflect a reduction in the Fair Market
Value of the Common Stock since the grant date of the Award, provided that any
amendment that would adversely affect the Grantee's rights under an outstanding
Award shall not be made without the Grantee's written consent;
5
<PAGE>
(viii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be conclusive and binding on all
persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted
-----------
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees,
Directors or Consultants who are residing in foreign jurisdictions as the
Administrator may determine from time to time.
6. Terms and Conditions of Awards.
------------------------------
(a) Type of Awards. The Administrator is authorized under the Plan to
--------------
award any type of arrangement to an Employee, Director or Consultant that is not
inconsistent with the provisions of the Plan and that by its terms involves or
might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right
with an exercise or conversion privilege at a fixed or variable price related to
the Common Stock and/or the passage of time, the occurrence of one or more
events, or the satisfaction of performance criteria or other conditions, or
(iii) any other security with the value derived from the value of the Common
Stock or securities issued by a Related Entity. Such awards include, without
limitation, Options, sales or bonuses of Restricted Stock, SARs, and an Award
may consist of one such security or benefit, or two or more of them in any
combination or alternative.
(b) Designation of Award. Each Award shall be designated in the Award
--------------------
Agreement. In the case of an Option, the Option shall be designated as either
an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
-------------------
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price,
6
<PAGE>
earnings per share, total stockholder return, return on equity, return on
assets, return on investment, net operating income, cash flow, revenue, economic
value added, personal management objectives, or other measure of performance
selected by the Administrator. Partial achievement of the specified criteria may
result in a payment or vesting corresponding to the degree of achievement as
specified in the Award Agreement.
(d) Deferral of Award Payment. The Administrator may establish one or
-------------------------
more programs under the Plan to permit selected Grantees the opportunity to
elect to defer receipt of consideration upon exercise of an Award, satisfaction
of performance criteria, or other event that absent the election would entitle
the Grantee to payment or receipt of Shares or other consideration under an
Award. The Administrator may establish the election procedures, the timing of
such elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts, Shares or other consideration so deferred, and
such other terms, conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(e) Award Exchange Programs. The Administrator may establish one or
-----------------------
more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
(f) Separate Programs. The Administrator may establish one or more
-----------------
separate programs under the Plan for the purpose of issuing particular forms of
Awards to one or more classes of Grantees on such terms and conditions as
determined by the Administrator from time to time.
(g) Early Exercise. The Award may, but need not, include a provision
--------------
whereby the Grantee may elect at any time while an Employee, Director or
Consultant to exercise any part or all of the Award prior to full vesting of the
Award. Any unvested Shares received pursuant to such exercise may be subject to
a repurchase right in favor of the Company or to any other restriction the
Administrator determines to be appropriate.
(h) Term of Award. The term of each Award shall be the term stated in
-------------
the Award Agreement, provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to a Grantee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Award Agreement.
(i) Non-Transferability of Awards. Awards may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Grantee, only by the Grantee.
7
<PAGE>
(j) Time of Granting Awards. The date of grant of an Award shall for
all purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
-----------------------------------------------------------------
Options.
-------
(a) Exercise or Purchase Price. The exercise or purchase price, if
any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Non-Qualified Stock Option:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be not less than one hundred ten percent (110%)
of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person described in
the preceding paragraph, the per Share exercise price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
(iii) In the case of the sale of Shares:
(A) granted to a person who, at the time of the grant of
such Award, or at the time the purchase is consummated, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share purchase price shall be not
less than one hundred percent (100%) of the Fair Market Value per share on the
date of grant.
(B) granted to any person other than a person described in
the preceding paragraph, the per Share purchase price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
8
<PAGE>
(iv) In the case of other Awards, such price as is determined by
the Administrator.
(b) Consideration. Subject to Applicable Laws, the consideration to
-------------
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;
(iv) if the exercise occurs on or after the Registration Date,
surrender of Shares or delivery of a properly executed form of attestation of
ownership of Shares as the Administrator may require (including withholding of
Shares otherwise deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
exercise price of the Shares as to which said Award shall be exercised (but only
to the extent that such exercise of the Award would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Administrator);
(v) if the exercise occurs on or after the Registration Date,
delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Award and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee
-----
or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax
--------------
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with
9
<PAGE>
terms identical to the Award Agreement under which the Option was exercised, but
at an exercise price as determined by the Administrator in accordance with the
Plan.
8. Exercise of Award.
-----------------
(a) Procedure for Exercise; Rights as a Stockholder.
-----------------------------------------------
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement but in the case of an
Option, in no case at a rate of less than 20% per year over five (5) years from
the date the Option is granted, subject to reasonable conditions such as
continued employment. However, in the case of an Option granted to an Officer,
Director or Consultant, the Award Agreement may provide that the Option may
become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Award by the person entitled to exercise the Award and full payment for the
Shares with respect to which the Award is exercised has been received by the
Company. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to Shares subject
to an Award, notwithstanding the exercise of an Option or other Award. The
Company shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Award. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in the Award Agreement or Section 11(a), below.
(b) Exercise of Award Following Termination of Employment, Director or
------------------------------------------------------------------
Consulting Relationship. In the event of termination of a grantee's Continuous
- -----------------------
Status as an Employee, Director or Consultant for any reason other than
disability or death (but not in the event of a Grantee's change of status from
Employee to Consultant or from Consultant to Employee), such Grantee may, but
only within three (3) months after the date of such termination (but in no event
later than the expiration date of the term of such Award as set forth in the
Award Agreement), exercise his or her Award to the extent that the Grantee was
entitled to exercise it at the date of such termination or to such other extent
as may be determined by the Administrator. The Grantee's Award Agreement may
provide that upon the event of termination of the Grantee's Continuous Status as
an Employee, Director or Consultant for "Cause," the Grantee's right to exercise
the Award shall terminate concurrently with the termination of Grantee's
Continuous Status as an Employee, Director or Consultant. The term "Cause"
shall be as defined in the Award Agreement. If the Grantee should die within
three (3) months after the date of such termination, the Grantee's estate or the
person who acquired the right to exercise the Award by bequest or inheritance
may exercise the Award to the extent that the Grantee was entitled to exercise
it at the date of such termination within twelve (12) months of the Grantee's
date of death, but in no event later than the expiration date of the term of
such Award as set forth
10
<PAGE>
in the Award Agreement. In the event of a Grantee's change of status from
Employee to Consultant, an Employee's Incentive Stock Option shall convert
automatically to a Non-Qualified Stock Option on the day three (3) months and
one day following such change of status. To the extent that the Grantee is not
entitled to exercise the Award at the date of termination, or if Grantee does
not exercise such Award to the extent so entitled within the time specified
herein, the Award shall terminate.
(c) Disability of Grantee. In the event of termination of a Grantee's
---------------------
Continuous Status as an Employee, Director or Consultant as a result of his or
her disability, Grantee may, but only within twelve (12) months from the date of
such termination (and in no event later than the expiration date of the term of
such Award as set forth in the Award Agreement), exercise the Award to the
extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a Non-
Qualified Stock Option on the day three (3) months and one day following such
termination. To the extent that the Grantee is not entitled to exercise the
Award at the date of termination, or if Grantee does not exercise such Award to
the extent so entitled within the time specified herein, the Award shall
terminate.
(d) Death of Grantee. In the event of the death of a Grantee, the
----------------
Award may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Award as
set forth in the Award Agreement), by the Grantee's estate or by a person who
acquired the right to exercise the Award by bequest or inheritance, but only to
the extent that the Grantee was entitled to exercise the Award at the date of
death. If, at the time of death, the Grantee was not entitled to exercise his
or her entire Award, the Shares covered by the unexercisable portion of the
Award shall immediately revert to the Plan. If, after death, the Grantee's
estate or a person who acquired the right to exercise the Award by bequest or
inheritance does not exercise the Award within the time specified herein, the
Award shall terminate.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Award previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
----------------------------------
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or
11
<PAGE>
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any Applicable Laws.
10. Repurchase Rights. If the provisions of an Award Agreement grant to
-----------------
the Company the right to repurchase Shares upon termination of the Grantee's
Continuous Status as an Employee, Director or Consultant, the Award Agreement
shall provide that the repurchase price will be either:
(a) Not less than the Fair Market Value of the Shares to be
repurchased on the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of the termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise), and the right terminates when the Company's securities become
publicly traded; or
(b) The original purchase price, provided that the right to repurchase
at the original purchase price lapses at the rate of at least twenty percent
(20%) of the Shares subject to the Award per year over five (5) years from the
date the Award is granted (without respect to the date the Award was exercised
or became exercisable), and the right to repurchase must be exercised for cash
or cancellation of purchase money indebtedness for the Shares within ninety (90)
days of termination of the Grantee's Continuous Status as an Employee, Director
or Consultant (or in the case of Shares issued upon exercise of Awards after the
date of termination of the Grantee's Continuous Status as an Employee, Director
or Consultant, within ninety (90) days after the date of the Award exercise).
(c) In addition to the restrictions set forth in (a) and (b) above,
the Shares held by an Officer, Director or Consultant may be subject to
additional or greater restrictions.
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
-------------------------------------------------------------------
(a) Adjustments upon Changes in Capitalization. Subject to any
------------------------------------------
required action by the stockholders of the Company, the number of Shares covered
by each outstanding Award, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Award, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
12
<PAGE>
(b) Corporate Transaction. In the event of a proposed Corporate
---------------------
Transaction, the Administrator shall notify the Grantee at least fifteen (15)
days prior to such proposed Corporate Transaction and each Award which is at the
time outstanding under the Plan shall immediately prior to the specified
effective date of such Corporate Transaction, automatically become fully vested
and exercisable and be released from any restrictions on transfer and repurchase
or forfeiture rights with respect to seventy-five percent (75%) of the unvested
Shares at the time represented by such Award. Notwithstanding the foregoing,
the Administrator, in its discretion, may prevent the acceleration of vesting
and release from any restrictions on transfer and repurchase or forfeiture
rights of any outstanding Award with respect to any Corporate Transaction. To
the extent it has not been previously exercised, the Award will terminate
immediately prior to the consummation of such proposed Corporate Transaction,
unless the Award is assumed or an equivalent Award is substituted by the
successor corporation or a Parent or Subsidiary of such successor corporation.
For the purposes of this subsection, the Award shall be considered assumed if,
following the Corporate Transaction, the Award confers, for each Share subject
to the Award immediately prior to the Corporate Transaction, (i) the
consideration (whether stock, cash, or other securities or property) received in
the Corporate Transaction by holders of Common Stock for each Share subject to
the Award held on the effective date of the Corporate Transaction (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares), or (ii) the right to
purchase such consideration in the case of an Option or similar Award; provided,
however, that if such consideration received in the Corporate Transaction was
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise or exchange of the Award for
each Share subject to the Award to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the Corporate Transaction.
12. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
13. Amendment, Suspension or Termination of the Plan.
------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall not
affect Awards already granted, and such Awards shall remain in full force and
effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.
13
<PAGE>
14. Reservation of Shares.
---------------------
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment. The Plan shall not confer upon any
--------------------------------
Grantee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
16. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Award exercised
before stockholder approval is obtained shall be rescinded if stockholder
approval is not obtained within the time prescribed, and Shares issued on the
exercise of any such Award shall not be counted in determining whether
stockholder approval is obtained.
17. Information to Grantees. The Company shall provide to each Grantee,
-----------------------
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually, and all annual reports and
other information which is provided to all stockholders of the Company.
14
<PAGE>
XOOM, INC. 1998 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee's Name and Address: ____________________________________
____________________________________
____________________________________
You have been granted an option to purchase shares of Common Stock of the
Company, subject to the terms and conditions of the Plan and the Option
Agreement, as follows:
Grant Number ____________________________________
Date of Grant ____________________________________
Vesting Commencement Date ____________________________________
Exercise Price per Share $____________________________________
Total Number of Shares Granted ____________________________________
Total Exercise Price $____________________________________
Type of Option: ______ Incentive Stock Option
______ Non-Qualified Stock Option
Expiration Date: ____________________________________
Vesting Schedule:
- ----------------
Subject to other limitations set forth in the Option Agreement, the Option
may be exercised, i.e., "vest," in whole or in part, in accordance with the
following schedule:
(i) [Twenty-five percent (25%) of the Shares subject to the Option shall vest
at the end of the twelfth full month after the Vesting Commencement Date,
after which 1/48th of the Shares subject to the Option shall vest on the
last day of each calendar month thereafter];
(ii) During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds
a period of ninety (90) days. Vesting of the Option shall resume upon the
Optionee's termination of the leave of absence and return to service with
the Company or a Related Entity;
(iii) In the event of the Optionee's change in status from Employee to
Consultant, vesting of the Option shall continue only to the extent
determined by the Administrator as of such change in status.
1
<PAGE>
Termination Period:
- ------------------
The Option may be exercised as to the number of shares that are Vested on
the date of termination within three (3) months from termination of the
Optionee's Continuous Status as an Employee, Director or Consultant or such
longer period as may be applicable upon death or disability of the Optionee as
provided in the Option Agreement. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, the Option shall
remain in effect; provided, however, that in the event of a change in status
from Employee to Consultant, the Optionee's Incentive Stock Option shall cease
to be treated as an Incentive Stock Option and shall be treated as a Non-
Qualified Stock Option on the day three (3) months and one day following such
change in status. In no event shall the Option be exercised later than the
Expiration Date as provided above.
IN WITNESS WHEREOF, the Company and the Optionee have executed this Notice
of Stock Option Grant and agree that the Option is to be governed by the terms
and conditions of this Notice of Stock Option Grant, the Plan, and the Option
Agreement.
XOOM, Inc.,
a Delaware corporation
By: ____________________________________
Its: ___________________________________
THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS NOTICE OF STOCK OPTION GRANT, THE OPTION AGREEMENT, NOR IN THE
COMPANY'S 1998 STOCK INCENTIVE PLAN, SHALL CONFER UPON THE OPTIONEE ANY RIGHT
WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR
SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE THE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR
WITHOUT CAUSE.
2
<PAGE>
The Optionee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee has reviewed this Notice of Stock Option
Grant, the Plan, and the Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing the Notice of
Stock Option Grant and fully understands all provisions of this Notice of Stock
Option Grant, the Plan, and the Option Agreement. The Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board or Administrator upon any questions arising under this Notice of Stock
Option Grant, the Plan, and the Option Agreement. The Optionee further agrees
to notify the Company upon any change in the residence address indicated in this
Notice of Stock Option Grant.
Dated: ______________________ Signed: ____________________________________
Optionee
3
<PAGE>
XOOM, INC. 1998 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. XOOM, Inc., a Delaware corporation (the "Company"), hereby
---------------
grants to the Optionee named in the Notice of Stock Option Grant (the
"Optionee"), an option (the "Option") to purchase the total number of shares of
Common Stock (the "Shares") set forth in the Notice of Stock Option Grant (the
"Notice"), at the exercise price per share set forth in the Notice (the
"Exercise Price") subject to the terms, definitions and provisions of the Notice
and the Company's 1998 Stock Incentive Plan (the "Plan") adopted by the Company,
which are incorporated herein by reference. Unless otherwise defined herein,
the terms defined in the Plan shall have the same defined meanings in this
Option Agreement.
If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of
Section 422(d) of the Code, the Option shall be treated as a Non-Qualified Stock
Option.
2. Exercise of Option.
------------------
(a) Right to Exercise. The Option shall be exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. In the event of
termination of Optionee's Continuous Status as an Employee, Director or
Consultant, the Option shall be exercisable in accordance with the applicable
provisions of the Plan and this Option Agreement. The Option shall be subject to
the provisions of Section 11(b) of the Plan relating to the exercisability or
termination of the Option in the event of a Corporate Transaction. No partial
exercise of the Option may be for less than the lesser of five percent (5%) of
the total number of Shares subject to the Option or the remaining number of
Shares subject to the Option. In no event shall the Company issue fractional
Shares.
(b) Method of Exercise. The Option shall be exercisable only by delivery
------------------
of an Exercise Notice (attached as Exhibit A) which shall state the election to
---------
exercise the Option, the whole number of Shares in respect of which the Option
is being exercised, and such other provisions as may be required by the
Administrator. Such Exercise Notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company
accompanied by payment of the Exercise Price. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of the Option unless such
issuance and such exercise shall comply with all Applicable Laws. Assuming such
compliance, for income tax purposes, the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
(c) Taxes. No Shares will be issued to the Optionee or other person
-----
pursuant to the exercise of the Option until the Optionee or other person has
made arrangements acceptable to
1
<PAGE>
the Administrator for the satisfaction of foreign, federal, state and local
income and employment tax withholding obligations.
3. Optionee's Representations. In the event the Shares purchasable pursuant to
--------------------------
the exercise of the Option have not been registered under the Securities Act of
1933, as amended, at the time the Option is exercised, the Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion
the Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit B.
---------
4. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee; provided,
however, that such exercise method does not then violate an Applicable Law:
(a) cash;
(b) check;
(c) if the exercise occurs on or after the Registration Date, surrender of
Shares or delivery of a properly executed form of attestation of ownership of
Shares as the Administrator may require (including withholding of Shares
otherwise deliverable upon exercise of the Option) which have a Fair Market
Value on the date of surrender or attestation equal to the aggregate Exercise
Price of the Shares as to which the Option is being exercised (but only to the
extent that such exercise of the Option would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price);
or
(d) if the exercise occurs on or after the Registration Date, delivery of a
properly executed Exercise Notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price;
5. Restrictions on Exercise. The Option may be exercised prior to the time
------------------------
that the Plan has been approved by the stockholders of the Company; provided,
however, that all Shares issued upon any such exercise shall be rescinded if
stockholder approval is not obtained within the time prescribed, and Shares
issued on any such exercise shall not be counted in determining whether
stockholder approval is obtained. In addition, the Option may not be exercised
if the issuance of the Shares subject to the Option upon such exercise would
constitute a violation of any Applicable Laws.
6. Termination of Relationship. In the event the Optionee's Continuous Status
---------------------------
as an Employee, Director or Consultant terminates, the Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise the Option during the Termination Period set out in the Notice.
Except as provided in Sections 7 and 8, below, to the extent that the Optionee
was not entitled to exercise the Option on the Termination Date, or if the
Optionee does not exercise the Option within the Termination Period, the Option
shall terminate.
2
<PAGE>
7. Disability of Optionee. In the event the Optionee's Continuous Status as an
----------------------
Employee, Director or Consultant terminates as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the
Termination Date (and in no event later than the Expiration Date), exercise the
Option to the extent otherwise entitled to exercise it on the Termination Date;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code and the Option is an Incentive Stock
Option, such Incentive Stock Option shall cease to be treated as an Incentive
Stock Option and shall be treated as a Non-Qualified Stock Option on the day
three (3) months and one day following the Termination Date. To the extent that
the Optionee was not entitled to exercise the Option on the Termination Date, or
if the Optionee does not exercise the Option to the extent so entitled within
the time specified herein, the Option shall terminate.
8. Death of Optionee. In the event of the Optionee's death, the Option may be
-----------------
exercised at any time within twelve (12) months following the date of death (and
in no event later than the Expiration Date), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Optionee could exercise the Option at the date of
death. To the extent that the Optionee was not entitled to exercise the Option
on the date of death, or if the Option is not exercised to the extent so
entitled within the time specified herein, the Option shall terminate.
9. Non-Transferability of Option. The Option may not be transferred in any
-----------------------------
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of the Optionee only by the Optionee. The
terms of the Option shall be binding upon the executors, administrators, heirs
and successors of the Optionee.
10. Term of Option. The Option may be exercised only within the term set out
--------------
in the Notice and may be exercised during such term only in accordance with the
Plan and the terms of this Option Agreement.
11. Company's Right of First Refusal.
--------------------------------
(a) Transfer Notice. Neither the Optionee nor a transferee (either being
---------------
sometimes referred to herein as the "Holder") shall sell, hypothecate, encumber
or otherwise transfer any Shares or any right or interest therein without first
obtaining the prior written consent of the Company unless the Holder first shall
have provided the Company with written notice (the "Transfer Notice") of:
(i) The Holder's intention to transfer;
(ii) The name of the proposed transferee;
(iii) The number of Shares to be transferred; and
(iv) The proposed transfer price or value and terms thereof.
3
<PAGE>
(b) First Refusal Exercise Notice. Within 45 days after receipt of the
-----------------------------
Transfer Notice (the "Option Period") the Company and/or its assigns shall have
the right to purchase (the "Right of First Refusal") all or, as the case may be,
encumber all, but not less than all of the Shares which are described in the
Transfer Notice (the "Offered Shares") at the per share price or value and in
accordance with the terms stated in the Transfer Notice, which Right of First
Refusal shall be exercised by written notice (the "First Refusal Exercise
Notice") to the Holder setting forth the number of Offered Shares the Company
and/or its assigns elects to purchase or encumber, provided that the number
equals all of the Offered Shares.
(c) Payment Terms. The Company shall consummate the purchase of the
-------------
Offered Shares on the terms set forth in the Transfer Notice within 15 days
after delivery of the First Refusal Exercise Notice; provided, however, that in
the event the Transfer Notice provides for the payment for the Offered Shares
other than in cash, the Company and/or its assigns shall have the right to pay
for the Offered Shares by the discounted cash equivalent of the consideration
described in the Transfer Notice as reasonably determined by the Administrator.
Upon payment for the Offered Shares to the Holder or into escrow for the benefit
of the Holder, the Company or its assigns shall become the legal and beneficial
owner of the Offered Shares and all rights and interest therein or related
thereto, and the Company shall have the right to transfer the Offered Shares to
its own name or its assigns without the further action by the Holder.
(d) Assignment. Whenever the Company shall have the right to purchase
----------
Shares under this Right of First Refusal, the Company may designate and assign
one or more employees, officers, directors or stockholders of the Company or
other persons or organizations, to exercise all or a part of the Company's Right
of First Refusal.
(e) Non-Exercise. If the Company and/or its assigns do not collectively
------------
elect to exercise the Right of First Refusal within the specified 45-day period
or such earlier time if the Company and/or its assigns notifies the Holder that
it will not exercise the Right of First Refusal, then the Holder may transfer
the Shares upon the terms and conditions stated in the Transfer Notice, provided
that:
(i) The transfer is made within 120 days of the date of the Transfer
Notice; and
(ii) The transferee agrees in writing that such Shares shall be held
or encumbered subject to the provisions of this Right of First Refusal.
(f) Expiration of Transfer Period. Following such 120-day period, no
-----------------------------
transfer of the Offered Shares and no change in the terms of the transfer as
stated in the Transfer Notice (including the name of the proposed transferee)
shall be permitted without a new written Transfer Notice prepared and submitted
in accordance with the requirements of this Right of First Refusal.
(g) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's Immediate Family or a trust for the benefit of the
Optionee or the Optionee's Immediate Family shall be exempt from
4
<PAGE>
the provisions of this Right of First Refusal. "Immediate Family" as used herein
shall mean spouse, domestic partner (as determined by the Administrator), child,
including step-child, lineal descendant or antecedent, father, mother, brother
or sister and the lineal descendants of such individuals. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Right of First Refusal, and there shall be no
further transfer of such Shares except in accordance with the terms of this
Right of First Refusal.
(h) Termination of Right of First Refusal. The provisions of this Right of
-------------------------------------
First Refusal shall terminate as to all Shares upon the Registration Date.
(i) Additional Shares or Substituted Securities. In the event of any stock
-------------------------------------------
split, stock dividend, recapitalization, combination of shares, exchange of
effected without the Company's receipt of consideration, any new, substituted or
additional securities or other property which is by reason of any such
transaction distributed with respect to the Shares shall be immediately subject
to the Right of First Refusal, but only to the extent the Shares are at the time
covered by such right.
(j) Corporate Transaction. Immediately prior to the consummation of a
---------------------
Corporate Transaction, the Right of First Refusal shall automatically lapse in
its entirety, except to the extent the Right of First Refusal is to be assigned
to the successor corporation (or its parent company) in connection with such
Corporate Transaction, the right shall apply to the new capital stock or other
property received in exchange for the Shares in consummation of the Corporate
Transaction, but only to the extent the Shares are at the time covered by such
right.
12. Company's Repurchase Right.
--------------------------
(a) Grant of Repurchase Right. The Company is hereby granted the right
-------------------------
(the "Repurchase Right"), exercisable at any time (i) during the sixty (60) day
period following the Termination Date, (ii) during the sixty (60) day period
following an exercise of the Option that occurs after the Termination Date, or
(iii) during the sixty (60) day period immediately prior to a Corporate
Transaction, or the merger of the Company into or with a corporation that is a
member of a "controlled group" (within the meaning of Section 267(f) of the
Code) of which the Company is a member, to repurchase all or, at the discretion
of the Company and with the consent of the Optionee, any portion of the Shares.
(b) Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each Holder of the Shares prior to
the expiration of the applicable sixty (60) day period specified above. The
notice shall indicate the number of Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of notice. On the date on which the repurchase is to be
effected, the Company and/or its assigns shall pay to the Holder in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness) an
amount equal to the Fair Market Value on the Termination Date, if any, and if
none, on the date immediately prior to the day on which the repurchase is to be
effected, of the Shares which are to be repurchased from the Holder. Upon such
payment or into escrow for the benefit of the Holder, the Company and/or its
assigns shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest
5
<PAGE>
thereon or related thereto, and the Company shall have the right to transfer to
its own name or its assigns the number of Shares being repurchased, without
further action by the Holder.
(c) Assignment. Whenever the Company shall have the right to purchase
----------
Shares under this Repurchase Right, the Company may designate and assign one or
more employees, officers, directors or stockholders of the Company or other
persons or organizations, to exercise all or a part of the Company's Repurchase
Right.
(d) Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Shares for which it is not timely exercised. In
addition, the Repurchase Right shall terminate and cease to be exercisable with
respect to all Shares upon the Registration Date.
(e) Additional Shares or Substituted Securities. In the event of any stock
-------------------------------------------
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
effected without the Company's receipt of consideration, any new, substituted or
additional securities or other property (including money paid other than as a
regular cash dividend) which is by reason of any such transaction distributed
with respect to the Shares shall be immediately subject to the Repurchase Right,
but only to the extent the Shares are at the time covered by such right.
Appropriate adjustments to reflect the distribution of such securities or
property shall be made to the price per share to be paid upon the exercise of
the Repurchase Right in order to reflect the effect of any such transaction upon
the Company's capital structure.
(f) Corporate Transaction. Immediately prior to the consummation of a
---------------------
Corporate Transaction, the Repurchase Right shall automatically lapse in its
entirety, except to the extent the Repurchase Right is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction, the right shall apply to the new capital stock or other property
(including cash paid other than as a regular cash dividend) received in exchange
for the Shares in consummation of the Corporate Transaction, but only to the
extent the Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Company's
capital structure.
13. Stop-Transfer Notices. In order to ensure compliance with the restrictions
---------------------
on transfer referred to in the legends placed upon certificates evidencing
ownership of the Shares, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and, if the Company transfers its
own securities, it may make appropriate notations to the same effect in its own
records.
14. Refusal to Transfer. The Company shall not be required (i) to transfer on
-------------------
its books any Shares that have been sold or otherwise transferred in violation
of any of the provisions of this Option Agreement or (ii) to treat as owner of
such Shares or to accord the right to vote or pay dividends to any purchaser or
other transferee to whom such Shares shall have been so transferred.
6
<PAGE>
15. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option Agreement of some of the federal tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If the Option qualifies as an
----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of Incentive Stock Option Following Disability. If the
-------------------------------------------------------
Optionee's Continuous Status as an Employee, Director or Consultant terminates
as a result of disability that is not total and permanent disability as defined
in Section 22(e)(3) of the Code, to the extent permitted on the date of
termination, the Optionee must exercise an Incentive Stock Option within three
(3) months of such termination for the Incentive Stock Option to be qualified as
an Incentive Stock Option.
(c) Exercise of Non-Qualified Stock Option. There may be a regular
--------------------------------------
federal income tax liability upon the exercise of a Non-Qualified Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If the Optionee
is an Employee or a former Employee, the Company will be required to withhold
from the Optionee's compensation or collect from the Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(d) Disposition of Shares. In the case of a Non-Qualified Stock Option,
---------------------
if Shares are held for at least one year, any gain realized on disposition of
the Shares will be treated as long-term capital gain for federal income tax
purposes and subject to tax at a maximum rate of 28%. For Shares held more than
18 months, the maximum rate falls to 20%. In the case of an Incentive Stock
Option, if Shares transferred pursuant to the Option are held for at least one
year after receipt of the Shares and are disposed of at least two years after
the Date of Grant, any gain realized on disposition of the Shares also will be
treated as long-term capital gain for federal income tax purposes and subject to
the same tax rates and holding periods that apply to Shares acquired upon
exercise of a Non-Qualified Stock Option. If Shares purchased under an Incentive
Stock Option are disposed of within such one-year or two-year periods, any gain
realized on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the difference between the Exercise
Price and the lesser of (i) the Fair Market Value of the Shares on the date of
exercise, or (ii) the sale price of the Shares.
7
<PAGE>
16. Lock-Up Agreement.
-----------------
(a) Agreement. The Optionee, if requested by the Company and the lead
---------
underwriter of any public offering of the Common Stock or other securities of
the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after such offering) during the 180-day period following
the effective date of a registration statement of the Company filed under the
Securities Act of 1933, as amended, or such shorter period of time as the Lead
Underwriter shall specify. The Optionee further agrees to sign such documents as
may be requested by the Lead Underwriter to effect the foregoing and agrees that
the Company may impose stop-transfer instructions with respect to such Common
Stock subject until the end of such period. The Company and the Optionee
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 16.
(b) Permitted Transfers. Notwithstanding the foregoing, Section 16(a)
-------------------
shall not prohibit the Optionee from transferring any shares of Common Stock or
securities convertible into or exchangeable or exercisable for the Company's
Common Stock to the extent such transfer is not otherwise prohibited by this
Option Agreement, either during the Optionee's lifetime or on death by will or
intestacy to the Optionee's immediate family or to a trust the beneficiaries of
which are exclusively the Optionee and/or a member or members of the Optionee's
immediate family; provided, however, that prior to any such transfer, each
transferee shall execute an agreement pursuant to which each transferee shall
agree to receive and hold such securities subject to the provisions of Section
16 hereof. For the purposes of this subsection, the term "immediate family"
shall mean spouse, domestic partner (as determined by the Administrator), child,
including step-child, lineal descendant or antecedent, father, mother, brother
or sister and the lineal descendants of such individuals.
(c) No Amendment Without Consent of Underwriter. During the period from
-------------------------------------------
identification as a Lead Underwriter in connection with any public offering of
the Company's Common Stock until the earlier of (i) the expiration of the lock-
up period specified in Section 16(a) in connection with such offering or (ii)
the abandonment of such offering by the Company and the Lead Underwriter, the
provisions of this Section 16 may not be amended or waived except with the
consent of the Lead Underwriter.
17. Entire Agreement: Governing Law. The Notice, the Plan and this Option
-------------------------------
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. These agreements are
governed by California law except for that body of law pertaining to conflict of
laws.
8
<PAGE>
18. Headings. The captions used in the Notice and this Option Agreement are
--------
inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.
19. Interpretation. Any dispute regarding the interpretation of the Notice,
--------------
the Plan, and this Option Agreement shall be submitted by the Optionee or by the
Company forthwith to the Board or the Administrator that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such dispute by the Board or the Administrator shall be final and binding on all
persons.
9
<PAGE>
EXHIBIT A
---------
XOOM, INC. 1998 STOCK INCENTIVE PLAN
EXERCISE NOTICE
424 California Street, #910, San Francisco, CA 94104
Attention: Secretary
1. Exercise of Option. Effective as of today, ______________, ________________
------------------
________________, the undersigned (the "Optionee") hereby elects to exercise the
Optionee's option to purchase ___________ shares of the Common Stock (the
"Shares") of XOOM, Inc. (the "Company") under and pursuant to the Company's 1998
Stock Incentive Plan (the "Plan") and the [ ] Incentive [ ] Non-Qualified
Stock Option Agreement and Notice of Stock Option Grant dated ______________,
________ (the "Option Agreement").
2. Representations of the Optionee. The Optionee acknowledges that the
-------------------------------
Optionee has received, read and understood the Notice of Stock Option Grant, the
Plan and the Option Agreement and agrees to abide by and be bound by their terms
and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such Shares
---------------------
is issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Shares, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such stock certificate promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 11(a) of the Plan.
The Optionee shall enjoy rights as a stockholder until such time as the
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal or the Repurchase Right. Upon such exercise, the
Optionee shall have no further rights as a holder of the Shares so purchased
except the right to receive payment for the Shares so purchased in accordance
with the provisions of the Option Agreement, and the Optionee shall forthwith
cause the certificate(s) evidencing the Shares so purchased to be surrendered to
the Company for transfer or cancellation.
4. Delivery of Payment. The Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
5. Tax Consultation. The Optionee understands that the Optionee may suffer
----------------
adverse tax consequences as a result of the Optionee's purchase or disposition
of the Shares. The Optionee represents that the Optionee has consulted with any
tax consultants the Optionee deems advisable in connection with the purchase or
disposition of the Shares and that the Optionee is not relying on the Company
for any tax advice.
A-1
<PAGE>
6. Taxes. The Optionee agrees to satisfy all applicable federal, state and
-----
local income and employment tax withholding obligations and herewith delivers to
the Company the full amount of such obligations or has made arrangements
acceptable to the Company to satisfy such obligations. In the case of an
Incentive Stock Option, the Optionee also agrees, as partial consideration for
the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Grant Date or within one (1) year from the date the Shares were
transferred to the Optionee. If the Company is required to satisfy any federal,
state or local income or employment tax withholding obligations as a result of
such an early disposition, the Optionee agrees to satisfy the amount of such
withholding in a manner that the Administrator prescribes.
7. Restrictive Legends. The Optionee understands and agrees that the Company
-------------------
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by the Company or by state
or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE
OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL AND A REPURCHASE
RIGHT HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE OPTION
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES,
A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER
SUCH TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE
RIGHT ARE BINDING ON TRANSFEREES OF THESE SHARES.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Exercise Notice to single or multiple assignees, and this agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Exercise Notice shall be
binding upon the Optionee and his or her heirs, executors, administrators,
successors and assigns.
A-2
<PAGE>
9. Headings. The captions used in this Exercise Notice are inserted for
--------
convenience and shall not be deemed a part of this agreement for construction or
interpretation.
10. Interpretation. Any dispute regarding the interpretation of this Exercise
--------------
Notice shall be submitted by the Optionee or by the Company forthwith to the
Company's Board of Directors or the Administrator that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or Administrator shall be final and binding on all
persons.
11. Governing Law; Severability. This Exercise Notice shall be governed by
---------------------------
and construed in accordance with the laws of the State of California excluding
that body of law pertaining to conflicts of law. Should any provision of this
Exercise Notice be determined by a court of law to be illegal or unenforceable,
the other provisions shall nevertheless remain effective and shall remain
enforceable.
12. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. Further Instruments. The parties agree to execute such further instruments
-------------------
and to take such further action as may be reasonably necessary to carry out the
purposes and intent of this agreement.
14. Entire Agreement. The Notice of Stock Option Grant, the Plan and the
----------------
Option Agreement are incorporated herein by reference and together with this
Exercise Notice constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Optionee with respect to the subject
matter hereof, and may not be modified adversely to the Optionee's interest
except by means of a writing signed by the Company and the Optionee.
Submitted by: Accepted by:
OPTIONEE: XOOM, Inc.
By: --------------------------------
Its: -------------------------------
- --------------------------------
(Signature)
Address: Address:
- -------------------------------- -------
424 California Street, #910
- -------------------------------- San Francisco, CA 94104
A-3
<PAGE>
EXHIBIT B
---------
XOOM, INC. 1998 STOCK INCENTIVE PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: ----------------------------------
COMPANY: XOOM, INC.
SECURITY: COMMON STOCK
AMOUNT: ----------------------------------
DATE: ----------------------------------
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon among other things, the bona fide nature
of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to the Optionee, the exercise will
B-1
<PAGE>
be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, (3) the amount of Securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to public offerings which include securities
to be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
(e) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
--------------------------------
Date:
------------,------
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Agreement, dated as of July 20, 1998, is between XOOM, Inc. ("XOOM"),
and Russell Hyzen ("Mr. Hyzen"). XOOM and Mr. Hyzen agree to the following
terms and conditions of employment.
1. Position and Responsibilities. Mr. Hyzen is employed by XOOM as Vice
President Business Development and agrees to perform all services appropriate to
that position, as well as such other services as may be assigned by XOOM. Mr.
Hyzen shall devote his best efforts and full-time attention to the performance
of his duties and shall not accept any other employment or engage in any other
business, commercial, or professional activity that is or may be competitive
with XOOM, that might create a conflict of interest with XOOM, or that otherwise
might interfere with the business of XOOM or any affiliate. Mr. Hyzen may
serve as a director or as a member of the advisory board of any company provided
that he complies with the restrictions set forth in Section 1 and Section 4.
2. Compensation and Benefits. XOOM shall pay Mr. Hyzen a base salary at the
rate of One hundred twenty thousand dollars ($120,000) per year and a
discretionary bonus of up to Ten Thousand Dollars ($10,000) per quarter. Mr.
Hyzen will be eligible for an annual review of this agreement no later than
November 30, 1998.
Mr. Hyzen shall receive benefits from all present and future benefit plans set
forth in XOOM's policies and generally made available to similarly situated
employees (as these policies may be amended). XOOM may, in its sole discretion,
adjust Mr. Hyzen's compensation and benefits provided under this Agreement.
3. Termination of Employment.
(a) By Employer Not For Cause. Except as modified in section 3(c), below, at
any time, XOOM may terminate Mr. Hyzen's employment for any reason, with
or without Cause, by providing ninety (90) days' advance written notice,
and shall have the option, in its discretion, to terminate Mr. Hyzen's
employment at any time prior to the end of such notice period, provided
XOOM pays Mr. Hyzen an amount equal to the base compensation Mr. Hyzen
would have earned through the balance of the above notice period plus
benefits, thereafter all of XOOM's obligations under this Agreement shall
cease. In the event that XOOM exercises its right to terminate Mr.
Hyzen's employment upon notice under the terms of this subsection, Mr.
Hyzen shall be immediately entitled to exercise one hundred percent
(100%) of any stock options granted by XOOM that had not previously
vested. If the stock of XOOM or any parent company is publicly traded,
Mr. Hyzen's exercise of stock options subject to vesting under this
subsection must be made within four (4) months of the date upon which Mr.
Hyzen was informed of XOOM's intent to terminate his employment. In the
event XOOM's stock is not publicly traded, Mr. Hyzen's exercise of stock
options must be made within twelve (12) months of the date upon which Mr.
Hyzen was informed of
1
<PAGE>
XOOM's intent to terminate his employment. XOOM may dismiss Mr. Hyzen
with or without cause notwithstanding anything to the contrary contained
in or arising from any statements, policies, or practices of XOOM
relating to employment, discipline, or termination.
(b) By Employer For Cause. Except as modified in section 3(c), below, at any
time, XOOM may terminate Mr. Hyzen for Cause (as defined below). XOOM
shall pay Mr. Hyzen all compensation then due; thereafter, all of XOOM's
obligations under this Agreement shall cease. "Cause" shall include:
1. unsatisfactory performance, misconduct, failure to follow policies
or procedures, material breach of this Agreement, and excessive
absenteeism. XOOM shall provide at least one appropriate written
warning of specific deficiencies and provide a reasonable period
not to exceed thirty days for Mr. Hyzen to cure any such
deficiencies.
2. to the extent permitted by law, unavailability for work due to
disability for more than ninety (90) days in any one (1) year
period.
3. Committing a felony, an act of fraud against or the willful
misappropriation of property belonging to XOOM.
4. Conviction in a court of competent jurisdiction of a felony or
misdemeanor which adversely and materially affects the ability of
the executive to perform his duties, obligations and
responsibilities herein or the good name, goodwill or reputation of
XOOM.
(c) By Employer Following Change in Control or Corporate Transaction.
Notwithstanding the foregoing, in the event that Mr. Hyzen's employment
is involuntarily terminated by XOOM, or any successor or assign of XOOM,
for any reason, with or without cause (as defined above), following a
Change in Control or Corporate Transaction or the execution of a letter
of intent that, by its terms, ultimately results in a Change in Control
or Corporate Transaction, as those terms are defined in the XOOM, Inc.
1998 Stock Incentive Plan, which is incorporated by reference herein, Mr.
Hyzen shall be entitled to payment of an amount equal to six months (6)
month's base compensation plus benefits; thereafter, all obligations of
XOOM, or any successor or assign of XOOM, under this Agreement shall
cease. In the event that Mr. Hyzen's employment is terminated under the
terms of this subsection, Mr. Hyzen shall be immediately entitled to
exercise any and all stock options granted by XOOM that had not
previously vested. In the event the company effecting the change in
control or XOOM is publicly traded, any exercise of Mr. Hyzen's stock
options subject to vesting under this subsection must be made within four
(4) months of the date upon which Mr. Hyzen was informed by XOOM, or any
successor or assign of XOOM, of its intent to terminate his employment,
whether such termination is with or without notice. If the company
effecting the change in control or XOOM is not publicly traded, Mr. Hyzen
may have up to twelve (12) months from the date upon which Mr. Hyzen was
informed by XOOM, or any successor or assign of XOOM, of its intent to
terminate his employment, to exercise his options subject to vesting
under this subsection.
(d) By Employee. At any time, Mr. Hyzen may terminate his employment for any
reason, with or without cause, by providing XOOM thirty (30) days'
advance written notice. XOOM shall
2
<PAGE>
have the option, in its complete discretion, to make Mr. Hyzen's
termination effective at any time prior to the end of such notice period,
provided XOOM pays Mr. Hyzen all compensation due and owing through the
last day actually worked, plus an amount equal to the base salary Mr.
Hyzen would have earned through the balance of the above notice period,
not to exceed thirty (30) days; thereafter, all of XOOM's obligations
under this Agreement shall cease.
(e) Termination Obligations. Mr. Hyzen agrees that all property, including
tangible Proprietary Information (as defined below), documents, records,
notes, contracts, and computer-generated materials furnished to or
prepared by Mr. Hyzen related to his employment, belongs to XOOM and
shall be returned promptly to XOOM upon termination. Mr. Hyzen's
obligations under this subsection shall survive the termination of his
employment and the expiration of this Agreement.
4. Proprietary Information. "Proprietary Information" is all information and
any idea pertaining in any manner to the business of XOOM (or any affiliate),
its employees, clients, consultants, or business associates, which was produced
by any employee of XOOM in the course of his or her employment or otherwise
produced or acquired by or on behalf of XOOM. Proprietary Information shall
include, without limitation, trade secrets, product ideas, inventions,
processes, formulas, data, know-how, software and other computer programs,
copyrightable material, marketing plans, strategies, sales, financial reports,
forecasts, and customer lists. All Proprietary Information not generally known
outside of XOOM's organization, and all Proprietary Information so known only
through improper means, shall be deemed "Confidential Information." During his
employment, Mr. Hyzen shall use Proprietary Information, and shall disclose
Confidential Information, only for the benefit of XOOM and as is necessary to
perform his job responsibilities under this Agreement. Following termination,
Mr. Hyzen shall not use any Proprietary Information and shall not disclose any
Confidential Information, except with the express written consent of XOOM. By
way of illustration and not in limitation of the foregoing, following
termination, Mr. Hyzen shall not use any Confidential Information to compete
against XOOM or employ any of its employees. Mr. Hyzen further agrees that for
one (1) year following termination, he shall not solicit any customer or
employee of XOOM. Mr. Hyzen's obligations under this Section shall survive the
termination of his employment and the expiration of this Agreement.
5. Integration and Amendment. This Agreement is intended to be the final,
complete, and exclusive statement of the terms of Mr. Hyzen's employment. This
Agreement supersedes all other prior and contemporaneous agreements and
statements, whether written or oral, express or implied, pertaining in any
manner to the employment of Mr. Hyzen, and it may not be contradicted by
evidence of any prior or contemporaneous statements or agreements. To the
extent that the practices, policies, or procedures of XOOM, now or in the
future, apply to Mr. Hyzen and are inconsistent with the terms of this
Agreement, the provisions of this Agreement shall control. This Agreement may
not be amended except by a writing signed by each of the parties. Failure to
exercise any right under this Agreement shall not constitute a waiver of such
right.
6. Interpretation. This Agreement shall be governed by and construed in
accordance with the law of the State of California. This Agreement shall be
construed as a whole, according to its
3
<PAGE>
fair meaning, and not in favor of or against any party. By way of example and
not in limitation, this Agreement shall not be construed in favor of the party
receiving a benefit nor against the party responsible for any particular
language in this Agreement. If a court or arbitrator holds any provision of
this Agreement to be invalid, unenforceable, or void, the remainder of this
Agreement shall remain in full force and effect. Captions are used for
reference purposes only and should be ignored in the interpretation of the
Agreement.
7. Acknowledgment. Mr. Hyzen acknowledges that he has had the opportunity to
consult legal counsel in regard to this Agreement, that he has read and
understands this Agreement, that he is fully aware of its legal effect, and that
he has entered into it freely and voluntarily and based on his own judgment and
not on any representations or promises other than those contained in this
Agreement.
The parties have duly executed this Agreement as of the date first written
above.
/s/ RUSSELL HYZEN /s/ CHRIS KITZE
- ------------------ ----------------
By: Russell Hyzen By: Chris Kitze
Its: Vice President Business Development Its: Chairman
4
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Agreement, dated as of March 10, 1998 is between XOOM, Inc., a
California corporation ("Employer"), and Vijay Vaidyanathan ("Employee").
RECITALS
Employer and Employee wish to enter into an employment relationship on the
following terms and conditions.
Employer has spent significant time, effort, and money to develop certain
Proprietary Information (as defined below), which Employer considers vital to
its business and goodwill.
The Proprietary Information will necessarily be communicated to or acquired
by Employee in the course of his employment with Employer, and Employer wishes
to continue the employment relationship with Employee only if, in doing so, it
can protect its Proprietary Information and goodwill.
Employer anticipates that certain Invention/Ideas (as defined below) will
be conceived, developed, or reduced to practice by Employee during the course of
his employment by Employer.
Employer wishes to continue the employment relationship with Employee only
if, in doing so, it can provide for the disclosure, assignment, and protection
of these Invention/Ideas as provided in this Agreement.
ACCORDINGLY, the parties agree as follows:
1. PERIOD OF EMPLOYMENT. Employer shall continue to employ Employee to
render services to Employer in the position and with the duties and
responsibilities described in Section 2 for the period (the "Period of
Employment") commencing on the date of this Agreement and ending on the date
upon which the Period of Employment is terminated in accordance with Section 4.
2. POSITION AND RESPONSIBILITIES.
(a) POSITION. Employee accepts employment with Employer as Chief
Technical Officer and shall perform all services appropriate to that position,
as well as such other services as may be assigned by Employer. Employee shall
devote his best efforts and full-time attention to the performance of his
duties.
(b) OTHER ACTIVITY. Except as provided in Section 2(c) below,
Employee (during the Period of Employment) shall not (i) accept any other
employment; or (ii) engage, directly or indirectly, in any other business,
commercial, or professional activity (whether or not pursued for pecuniary
advantage) that is or may be competitive with Employer, that might create a
conflict of
1
<PAGE>
interest with Employer, or that otherwise might interfere with the business of
Employer, or any Affiliate, without prior consent of Employer. An "Affiliate"
shall mean any person or entity that directly or indirectly controls, is
controlled by, or is under common control with Employer.
(c) PSC RELATIONSHIP. The parties acknowledge that Employee has an
ongoing business relationship with Paralogic Software Corporation, a California
corporation ("PSC"), which may require a significant amount of his time and
effort. Employee shall be permitted to maintain his relationship with PSC
provided that Employee agrees that his primary duties will be with Employer. As
a part of Employee's involvement with PSC, he may develop certain
inventions/ideas on behalf of PSC. The parties acknowledge that nothing in this
Agreement is intended to compromise any rights that PSC may have in such
inventions and ideas, and that any enhancements to existing software owned by
PSC shall be the property of PSC. Additionally, Employee may have access to
certain information which is proprietary to PSC. The parties acknowledge that
nothing in this Agreement is intended to compromise any rights that PSC may have
in such proprietary information.
(d) NO BREACH OF THIRD PARTY AGREEMENTS. Employee represents and
warrants that performance of any of the terms of this Agreement will not breach
or conflict with any agreement to keep confidential proprietary information
acquired by Employee prior to the effective date of this Agreement. Employee
further represents and warrants that performance of this Agreement does not
conflict with any other agreement to which Employee is a party and which
concerns proprietary information, inventions or assignment of ideas. During the
Period of Employment, Employee will not disclose to Employer, or use, or induce
the Company to use, any proprietary information, inventions or assignment of
ideas.
3. COMPENSATION AND BENEFITS.
(a) COMPENSATION. In consideration of the services to be rendered
under this Agreement, Employer shall pay Employee the amount set forth in
Exhibit A hereto per year, payable semi-monthly, pursuant to the procedures
regularly established, and as they may be amended, by Employer in its sole
discretion, during the Period of Employment. Additionally, subject to approval
of the Board of Directors of Employer, Employer shall grant Employee such number
of options to purchase shares of Common Stock of Employer as is set forth in
Exhibit A. Employer shall review annually Employee's compensation and shall
determine, in its sole discretion, whether and how much the existing
compensation shall be adjusted, without regard to any policy or practice
Employer may have for adjusting salaries. All compensation and comparable
payments to be paid to Employee under this Agreement shall be less withholdings
required by law.
(b) BENEFITS. Employee shall be entitled to those benefits set forth
in Exhibit A. In addition, Employee shall be entitled to vacation leave in
accordance with Employer's standard policies. As Employee becomes eligible, he
shall have the right to participate in and receive benefits from all present and
future benefit plans specified in Employer's policies and generally made
available to similarly situated employees of Employer.
2
<PAGE>
4. TERMINATION OF EMPLOYMENT.
(a) BY DEATH. The Period of Employment shall terminate automatically
upon the death of Employee. Employer shall pay to Employee's beneficiaries or
estate, as appropriate, any compensation then due and owing, including payment
for accrued unused vacation, if any. Thereafter, all obligations of Employer
under this Agreement shall cease. Nothing in this Section shall affect any
entitlement of Employee's heirs to the benefits of any life insurance plan or
other applicable benefits.
(b) BY DISABILITY. If, by reason of any physical or mental
incapacity, Employee has been or will be prevented from properly performing his
duties under this Agreement for more than ninety (90) days in any one (1) year
period, then, to the extent permitted by law, Employer may terminate the Period
of Employment upon fourteen (14) days' advance written notice. Employer shall
pay Employee all compensation to which he is entitled up through the last
business day of the notice period; thereafter, all obligations of Employer under
this Agreement shall cease. Nothing in this Section shall affect Employee's
rights under any applicable Employer disability plan.
(c) EMPLOYMENT AT WILL. At any time, Employer or Employee may
terminate the Period of Employment for any reason, with or without cause, by
providing the other party thirty (30) days' advance written notice. If the
Employee terminates his employment pursuant to this Section 4(c), Employer shall
have the option, in its complete discretion, to terminate Employee immediately
without the running of the notice period, provided Employer pays Employee all
compensation due and owing through the last day actually worked, plus an amount
equal to the base salary Employee would have earned through the balance of the
above notice period or, if elected through the day upon which early termination
is elected pursuant to the foregoing sentence; thereafter, all of Employer's
obligations under this Agreement shall cease. Employer may dismiss Employee
without cause notwithstanding anything to the contrary contained in or arising
from any statements, policies, or practices of Employer, now or in the future,
relating to the employment, discipline, or termination of its employees.
(d) BY EMPLOYER FOR CAUSE. At any time, and without prior notice,
Employer may terminate Employee for Cause (as defined below). Employer shall
pay Employee all compensation then due and owing; thereafter, all of Employer's
obligations under this Agreement shall cease. Termination shall be for "Cause"
if Employee: (i) acts in bad faith and to the detriment of Employer; (ii)
refuses or fails to act in accordance with any specific direction or order of
Employer; (iii) exhibits in regard to his employment unfitness or unavailability
for service, unsatisfactory performance, misconduct, dishonesty, habitual
neglect, or incompetence; (iv) is convicted of a crime involving dishonesty,
breach of trust, or physical or emotional harm to any person; or (v) breaches
any material term of this Agreement.
(e) CHANGE IN EMPLOYER STATUS. To the extent permitted by law,
Employer, in its sole discretion, may terminate the Period of Employment (in
which case all of Employer's obligations under this Agreement shall cease after
payment of all compensation due and owing) upon any formal action of Employer's
management to terminate Employer's existence or
3
<PAGE>
otherwise wind up its affairs, to sell all or substantially all of its assets,
or to merge with or into another entity.
(f) TERMINATION OBLIGATIONS.
(i) Employee agrees that all property, including, without limitation,
all equipment, tangible Proprietary Information (as defined below), documents,
books, records, reports, notes, contracts, lists, computer disks (and other
computer-generated files and data), and copies thereof, created on any medium
and furnished to, obtained by, or prepared by Employee in the course of or
incident to his employment, belongs to Employer and shall be returned promptly
to Employer upon termination of the Period of Employment.
(ii) All benefits to which Employee is otherwise entitled shall cease
upon Employee's termination, unless explicitly continued either under this
Agreement or under any specific written policy or benefit plan of Employer.
(iii) The representations and warranties contained in this Agreement
and Employee's obligations under this Section 4(f) on Termination Obligations,
Section 5 on Proprietary Information, and Section 6 on Inventions and Ideas
shall survive the termination of the Period of Employment and the expiration of
this Agreement. Employee agrees that, after termination of the Period of
Employment and/or the expiration of this Agreement, Employee will not enter into
any agreement that conflicts with Employee's obligations under this Agreement
and will inform any subsequent employers of Employee's obligations under this
Agreement.
(iv) Following any termination of the Period of Employment, Employee
shall fully cooperate with Employer in all matters relating to the winding up of
pending work on behalf of Employer and the orderly transfer of work to other
employees of Employer. Employee shall also cooperate in the defense of any
action brought by any third party against Employer that relates in any way to
Employee's acts or omissions while employed by Employer.
5. PROPRIETARY INFORMATION.
(a) DEFINED. "Proprietary Information" is all information and any
idea in whatever form, tangible or intangible, pertaining in any manner to the
business of Employer, or any Affiliate, or its employees, clients, consultants,
or business associates, which was produced by any employee of Employer in the
course of his or her employment or otherwise produced or acquired by or on
behalf of Employer. All Proprietary Information not generally known outside of
Employer's organization, and all Proprietary Information so known only through
improper means, shall be deemed "Confidential Information." Without limiting the
foregoing definition, Proprietary and Confidential Information shall include,
but not be limited to: (i) formulas, teaching and development techniques,
processes, trade secrets, computer programs, electronic codes, inventions,
improvements, and research projects; (ii) any and all information about
Employer's customers and subscribers; (iii) information about costs, profits,
markets, and sales; (iv) business, marketing, and strategic plans; and (v)
employee personnel files and compensation information.
4
<PAGE>
(b) GENERAL RESTRICTIONS ON USE. During the Period of Employment,
Employee shall use Proprietary Information, and shall disclose Confidential
Information, only for the benefit of Employer and as is necessary to carry out
his responsibilities under this Agreement. Following termination, Employee
shall neither, directly or indirectly, use any Proprietary Information nor
disclose any Confidential Information, except as expressly and specifically
authorized in writing by Employer. The publication of any Proprietary
Information through literature or speeches must be approved in advance in
writing by Employer.
(c) LOCATION AND REPRODUCTION. Employee shall maintain at his work
station and/or any other place under his control only such Confidential
Information as he has a current "need to know." Employee shall return to the
appropriate person or location or otherwise properly dispose of Confidential
Information once that need to know no longer exists. Employee shall not make
copies of or otherwise reproduce Confidential Information unless there is a
legitimate business need for reproduction.
(d) THIRD-PARTY INFORMATION. Employee acknowledges that Employer has
received and in the future will receive from third parties their confidential
information subject to a duty on Employer's part to maintain the confidentiality
of this information and to use it only for certain limited purposes. Employee
agrees that he owes Employer and these third parties, during the Period of
Employment and thereafter, a duty to hold all such confidential information in
the strictest confidence and not to disclose or use it, except as necessary to
perform his obligations hereunder and as is consistent with Employer's agreement
with third parties.
(e) NON-INTERFERENCE. In order to avoid disruption of Employer's
business, Employee agrees that during the term of this Agreement and for two (2)
years after termination of the Period of Employment, he shall not, directly or
indirectly, (i) solicit any customer of Employer (or any Affiliate) for services
or products that compete with services or products of XOOM or its affiliates; or
(ii) solicit for employment any person employed by Employer (or any Affiliate).
(f) Employee acknowledges that employer considers the goodwill of
Paralogic Corporation a valuable asset and that as an inducement to enter into
this Agreement, Employee agrees that for a period of two years from the
Effective Date of the Merger, Employee shall not accept employment with, or
provide consulting services to, a Competing Business. For the purpose of this
Agreement, a "Competing Business" shall mean any business which:
(i) offers free chat room hosting to the general public, and
(ii) runs the chat server software on computer hardware which
is owned by such business or is dedicated for the use of such business, and
(iii) chat server software is licensed to such business, or to
a business in which employee or his spouse owns greater than a 2% share.
This section (f) shall not apply in the event that Xoom ceases to offer
free chat room hosting.
5
<PAGE>
6. INVENTIONS AND IDEAS.
(a) DEFINED; STATUTORY NOTICE. The term "Invention/Idea" includes
any and all ideas, processes, trademarks, service marks, inventions, technology,
computer hardware or software, original works of authorship, designs, formulas,
discoveries, patents, copyrights, products, and all improvements, know-how,
rights, and claims related to the foregoing that are conceived, developed, or
reduced to practice by Employee, alone or with others, during the Period of
Employment, except to the extent that California Labor Code Section 2870
lawfully prohibits the assignment of rights in such intellectual property.
Employee acknowledges that he understands that this definition is limited
by California Labor Code Section 2870, which provides:
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
Nothing in this Agreement is intended to expand the scope of protection
provided Employee by Sections 2870 through 2872 of the California Labor Code.
(b) DISCLOSURE. Employee shall maintain adequate and current written
records on the development of all Invention/Ideas and shall disclose promptly to
Employer all Invention/Ideas and relevant records, which records will remain the
sole property of Employer. Employee agrees that all information and records
pertaining to any idea, process, trademark, service mark, invention, technology,
computer hardware or software, original work of authorship, design, formula,
discovery, patent, copyright, product, and all improvements, know-how, rights,
and claims related to the foregoing ("Intellectual Property"), that Employee
does not believe to be an Invention/Idea, but that is conceived, developed, or
reduced to practice by Employee (alone or with others) during the Period of
Employment (or during the post-employment period set forth in Section 6(e)
below), shall be disclosed promptly to Employer (such disclosure to be received
in confidence). Employer shall examine such information to determine if in fact
the Intellectual Property is an Invention/Idea subject to this Agreement.
6
<PAGE>
(c) ASSIGNMENT. Employee agrees to, and hereby does, assign to
Employer his entire right, title, and interest (throughout the United States and
in all foreign countries), free and clear of all liens and encumbrances, in and
to each Invention/Idea, which shall be the sole property of Employer, whether or
not patentable. In the event any Invention/Idea is deemed by Employer to be
patentable or otherwise registrable, Employee shall assist Employer (at its
expense) in obtaining letters patent or other applicable registrations thereon
and shall execute all documents and do all other things necessary or proper
thereto (including testifying at Employer's expense) and to vest Employer, or
any entity or person specified by Employer, with full and perfect title thereto
or interest therein. Employee shall also take any action necessary or advisable
in connection with any continuations, renewals, or reissues thereof or in any
related proceedings or litigation. Should Employer be unable to secure
Employee's signature on any document necessary to apply for, prosecute, obtain,
or enforce any patent, copyright, or other right or protection relating to any
Invention/Idea, whether due to Employee's mental or physical incapacity or any
other cause, Employee irrevocably designates and appoints Employer and each of
its duly authorized officers and agents as Employee's agent and attorney-in-
fact, to act for and in Employee's behalf and stead and to execute and file any
such document, and to do all other lawfully permitted acts to further the
prosecution, issuance, and enforcement of patents, copyrights, or other rights
or protections with the same force and effect as if executed, delivered, and/or
done by Employee.
(d) EXCLUSIONS. To the best of Employee's knowledge, there is no
existing contract in conflict with this Agreement and there is no contract to
assign any Intellectual Property that is now in existence between Employee and
any other person or entity.
(e) POST-TERMINATION PERIOD. Because of the difficulty of establishing
when any Intellectual Property is first conceived or developed by Employee, or
whether it results from access to Confidential Information or Employer's
equipment, supplies, facilities, or data, Employee agrees that any Intellectual
Property shall be presumed to be an Invention/Idea, if reduced to practice by
Employee or with the aid of Employee within one (1) year after termination of
the Period of Employment. Employee can rebut the above presumption if he proves
that the Intellectual Property (i) was developed entirely on Employee's own time
without using Employer's equipment, supplies, facilities, or trade secret
information; (ii) was not conceived or reduced to practice during the Period of
Employment, or, if conceived or reduced to practice during this period, did not,
at the time of conception or reduction to practice, relate to Employer's
business or actual or demonstrably anticipated research or development; and
(iii) did not result from any work performed by Employee for Employer.
8. NOTICES. Any notice or other communication under this Agreement must
be in writing and shall be effective upon delivery by hand, upon facsimile
transmission to either party (but only upon receipt by the transmitting party of
a written confirmation of receipt), or three (3) business days after deposit in
the United States mail, postage prepaid, certified or registered, and addressed
to Employer or to Employee at the corresponding address or fax number below.
Employee shall be obligated to notify Employer in writing of any change in his
address. Notice of change of address shall be effective only when done in
accordance with this Section.
7
<PAGE>
Employer's Notice Address:
XOOM, Inc.
433 California Street
San Francisco, CA 94104
Employee's Notice Address:
Vijay Vaidyanathan
4242 Nerissa Circle
Fremont, CA 94555
10. INTEGRATION. This Agreement is intended to be the final, complete,
and exclusive statement of the terms of Employee's employment by Employer. This
Agreement supersedes all other prior and contemporaneous agreements and
statements, whether written or oral, express or implied, pertaining in any
manner to the employment of Employee, and it may not be contradicted by evidence
of any prior or contemporaneous statements or agreements. To the extent that
the practices, policies, or procedures of Employer, now or in the future, apply
to Employee and are inconsistent with the terms of this Agreement, the
provisions of this Agreement shall control. Any changes to this Agreement must
be in writing and approved by both parties.
11. AMENDMENTS; WAIVERS. This Agreement may not be amended except by an
instrument in writing, signed by each of the parties. No failure to exercise
and no delay in exercising any right, remedy, or power under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, or power under this Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy, or power provided
herein or by law or in equity.
13. SEVERABILITY. If any provision of this Agreement, or its application
to any person, place, or circumstance, is held by an arbitrator or a court of
competent jurisdiction to be invalid, unenforceable, or void, such provision
shall be enforced to the greatest extent permitted by law, and the remainder of
this Agreement and such provision as applied to other persons, places, and
circumstances shall remain in full force and effect.
14. EMPLOYEE'S SUCCESSORS. Without the written consent of Employer,
Employee shall not assign or transfer this Agreement or any right or obligation
under this Agreement to any other person or entity. Notwithstanding the
foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and ligatees.
8
<PAGE>
15. ATTORNEYS' FEES. In any legal action, arbitration, or other
proceeding brought to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs.
16. INJUNCTIVE RELIEF. If Employee breaches or threatens to breach any of
the covenants in Section 5 on Proprietary Information or Section 6 on Inventions
and Ideas, the parties acknowledge and agree that the damage or imminent damage
to Employer's business or its goodwill would be irreparable and extremely
difficult to estimate, making any remedy at law or in damages inadequate.
Accordingly, Employer shall be entitled to injunctive relief against Employee in
the event of any breach or threatened breach of the above provisions by
Employee, in addition to any other relief (including damages) available to
Employer under this Agreement or under law.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of California.
18. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledges that he has had the
opportunity to consult legal counsel in regard to this Agreement, that he has
read and understands this Agreement, that he is fully aware of its legal effect,
and that he has entered into it freely and voluntarily and based on his own
judgment and not on any representations or promises other than those contained
in this Agreement. Employee specifically acknowledges that he has received
notice of his statutory rights under Section 2870 of the California Labor Code,
as set forth in the above Section 6 on Inventions and Ideas.
The parties have duly executed this Agreement as of the date first written
above.
______________________________
Vijay Vaidyanathan
XOOM, Inc.
By: ________________________
Its: ________________________
9
<PAGE>
EXHIBIT A
1. $120,000 a year in base salary.
2. Reporting to XOOM's CEO, Laurent Massa
3. Participation in the Xoom employee stock option program with one and a half
percent of XOOM's Issued and outstanding shares or ______________________
(__________) shares of common stock at a purchase price of $0.77 per share,
vesting in equal amounts annually over four years. Seventy-five percent
(75%) of the total amount of these options will vest immediately in the
event of the sale of the company.
4. You agree to work for XOOM full-time at XOOM's San Francisco Headquarters,
focusing your efforts as XOOM's CTO for at least 50 hours per week.
5. A comprehensive benefits package that includes Two Weeks Vacation, Medical,
Dental, and Vision insurance coverage through TriNet.
<PAGE>
ADDENDUM NO. 1
--------------
This ADDENDUM made as of the 12th day of August, 1998 by and between XOOM, Inc.,
300 Montgomery St, San Francisco, CA 94104 ("Xoom") and Vijay Vaidyanathan, 4242
Nerissa Circle, Fremont, CA 94555 ("Employee").
BACKGROUND:
Employee and XOOM entered into an Employment Agreement made the 10th day of
March 1998 between XOOM Inc. and Vijay Vaidyanathan.
Employee and XOOM wish to amend the Agreement in accordance with the terms and
conditions set out below.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto amend the agreement as follows:
1. Period of Employment. Addendum to this paragraph: "Employee will be
eligible for an annual review of this agreement no later than one year from the
date of this agreement."
2b. Position and Responsibilities. Addendum to this paragraph: "Employee may
serve as a director or as a member of the advisory board of any company provided
that he complies with the restrictions set forth in Section 1 and Section 4."
4. Termination of Employment Substitute the paragraphs below for paragraphs (a)
through (e) in the original agreement.
(a) By Employer Not For Cause. Except as modified in section 3(c), below, at
any time, XOOM may terminate Employee's employment for any reason, with or
without Cause, by providing ninety (90) days' advance written notice, and
shall have the option, in its discretion, to terminate Employee's
employment at any time prior to the end of such notice period, provided
XOOM pays Employee an amount equal to the base compensation Employee would
have earned through the balance of the above notice period plus benefits,
thereafter all of XOOM's obligations under this Agreement shall cease. In
the event that XOOM exercises its right to terminate Employee's employment
upon notice under the terms of this subsection, Employee shall be
immediately entitled to exercise one hundred percent (100%) of any stock
options granted by XOOM that had not previously vested. If the stock of
XOOM or any parent company is publicly traded, Employee's exercise of
stock options subject to vesting under this subsection must be made within
four (4) months of the date upon which Employee was informed of XOOM's
intent to terminate his employment.
<PAGE>
In the event XOOM's stock is not publicly traded, Employee's exercise of
stock options must be made within twelve (12) months of the date upon
which Employee was informed of XOOM's intent to terminate his employment.
XOOM may dismiss Employee with or without cause notwithstanding anything
to the contrary contained in or arising from any statements, policies, or
practices of XOOM relating to employment, discipline, or termination.
(b) By Employer For Cause. Except as modified in section 3(c), below, at any
time, XOOM may terminate Employee for Cause (as defined below). XOOM shall
pay Employee all compensation then due; thereafter, all of XOOM's
obligations under this Agreement shall cease. "Cause" shall include:
1. unsatisfactory performance, misconduct, failure to follow
policies or procedures, material breach of this Agreement, and
excessive absenteeism. XOOM shall provide at least one
appropriate written warning of specific deficiencies and provide
a reasonable period not to exceed thirty days for Employee to
cure any such deficiencies.
2. to the extent permitted by law, unavailability for work due to
disability for more than ninety (90) days in any one (1) year
period.
3. Committing a felony, an act of fraud against or the willful
misappropriation of property belonging to XOOM.
4. Conviction in a court of competent jurisdiction of a felony or
misdemeanor which adversely and materially affects the ability of
the executive to perform his duties, obligations and
responsibilities herein or the good name, goodwill or reputation
of XOOM.
(c) By Employer Following Change in Control or Corporate Transaction.
Notwithstanding the foregoing, in the event that Employee's employment is
involuntarily terminated by XOOM, or any successor or assign of XOOM, for
any reason, with or without cause (as defined above), following a Change
in Control or Corporate Transaction or the execution of a letter of intent
that, by its terms, ultimately results in a Change in Control or Corporate
Transaction, as those terms are defined in the XOOM, Inc. 1998 Stock
Incentive Plan, which is incorporated by reference herein, Employee shall
be entitled to payment of an amount equal to six months (6) month's base
compensation plus benefits; thereafter, all obligations of XOOM, or any
successor or assign of XOOM, under this Agreement shall cease. In the
event that Employee's employment is terminated under the terms of this
subsection, Employee shall be immediately entitled to exercise any and all
stock options granted by XOOM that had not previously vested. In the event
the company effecting the change in control or XOOM is publicly traded,
any exercise of Employee's stock options subject to vesting under this
subsection must be made within four (4) months of the date upon which
Employee was informed by XOOM, or any successor or assign of XOOM, of its
intent to terminate his employment, whether such termination is with or
without notice. If the company effecting the change in control or XOOM is
not publicly traded, Employee may have up to twelve (12) months from the
date upon which Employee was informed by XOOM, or any successor or assign
of XOOM, of its intent to terminate his employment, to exercise his
options subject to vesting under this subsection.
<PAGE>
(d) By Employee. At any time, Employee may terminate his employment for any
reason, with or without cause, by providing XOOM thirty (30) days' advance
written notice. XOOM shall have the option, in its complete discretion, to
make Employee's termination effective at any time prior to the end of such
notice period, provided XOOM pays Employee all compensation due and owing
through the last day actually worked, plus an amount equal to the base
salary Employee would have earned through the balance of the above notice
period, not to exceed thirty (30) days; thereafter, all of XOOM's
obligations under this Agreement shall cease.
IN WITNESS WHEREOF the parties represent that they have the authority to enter
into and have executed this Addendum as of the day and year first above written.
XOOM, INC. Employee
By: /s/ Laurent Massa By: /s/ Vijay Vaidyanathan
----------------- ----------------------
Name: Laurent Massa Name: Vijay Vaidyanathan
------------- ------------------
Its: President/CEO Its: CTO
------------- ---
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Agreement, dated as of July 1, 1998, is between XOOM, Inc. ("XOOM"),
and Laurent Massa ("Mr. Massa"). XOOM and Mr. Massa agree to the following
terms and conditions of employment.
1. Position and Responsibilities. Mr. Massa is employed by XOOM as President
and CEO and agrees to perform all services appropriate to that position, as well
as such other services as may be assigned by XOOM. Mr. Massa shall devote his
best efforts and full-time attention to the performance of his duties and shall
not accept any other employment or engage in any other business, commercial, or
professional activity that is or may be competitive with XOOM, that might create
a conflict of interest with XOOM, or that otherwise might interfere with the
business of XOOM or any affiliate. Mr. Massa may serve as a director or as a
member of the advisory board of any company provided that he complies with the
restrictions set forth in Section 1 and Section 4.
2. Compensation and Benefits. XOOM shall pay Mr. Massa a base salary at the
rate of Two hundred sixteen thousand dollars ($216,000) per year. Mr. Massa
will be eligible for an annual bonus of up to 33% of his base salary, paid
quarterly based on the following criteria:
# exceeding quarterly revenue goals: 50% of the eligible bonus
# achieving specific management team goals: 25% of the eligible bonus
# achieving personal objectives that improve the organization: 25% of the
eligible bonus.
These goals will be set and reviewed quarterly by the Compensation Committee of
the Board. Mr. Massa will be eligible for an annual review of this agreement no
later than July 20, 1999.
Mr. Massa shall receive benefits from all present and future benefit plans set
forth in XOOM's policies and generally made available to employees (as these
policies may be amended). XOOM may, in its sole discretion, adjust Mr. Massa's
compensation and benefits provided under this Agreement.
3. Termination of Employment.
(a) By Employer Not For Cause. Except as modified in section 3(c), below, at
any time, XOOM may terminate Mr. Massa's employment for any reason, with
or without cause, by providing one hundred eighty (180) days' advance
written notice, and shall have the option, in its discretion, to
terminate Mr. Massa's employment at any time prior to the end of such
notice period, provided XOOM pays Mr. Massa an amount equal to the base
compensation Mr. Massa would have earned through the balance of the above
notice period plus benefits, thereafter all of XOOM's obligations under
this Agreement shall cease. In the event that XOOM exercises its right to
terminate Mr. Massa's employment upon notice under the terms of this
subsection, Mr. Massa shall be immediately entitled to exercise one
hundred percent (100%) of any stock options granted by XOOM that had not
previously vested. If the stock of XOOM or any parent company is publicly
traded, Mr. Massa's exercise of stock options
1
<PAGE>
subject to vesting under this subsection must be made within four (4)
months of the date upon which Mr. Massa was informed of XOOM's intent to
terminate his employment. In the event XOOM's or a parent company's stock
is not publicly traded, Mr. Massa's exercise of stock options must be
made within twelve (12) months of the date upon which Mr. Massa was
informed of XOOM's intent to terminate his employment. XOOM may dismiss
Mr. Massa with or without cause notwithstanding anything to the contrary
contained in or arising from any statements, policies, or practices of
XOOM relating to employment, discipline, or termination.
(b) By Employer For Cause. Except as modified in section 3(c), below, at any
time, XOOM may terminate Mr. Massa for Cause (as defined below). XOOM
shall pay Mr. Massa all compensation then due; thereafter, all of XOOM's
obligations under this Agreement shall cease. "Cause" shall include, but
not be limited to:
1. unsatisfactory performance, misconduct, failure to follow policies
or procedures, material breach of this Agreement, and excessive
absenteeism. XOOM shall provide at least one appropriate written
warning of specific deficiencies and provide a reasonable period
not to exceed thirty days for Mr. Massa to cure any such
deficiencies.
2. to the extent permitted by law, unavailability for work due to
disability for more than ninety (90) days in any one (1) year
period.
3. Committing a felony, an act of fraud against or the willful
misappropriation of property belonging to XOOM.
4. Conviction in a court of competent jurisdiction of a felony or
misdemeanor which adversely and materially affects the ability of
the executive to perform his duties, obligations and
responsibilities herein or the good name, goodwill or reputation of
XOOM.
(c) By Employer Following Change in Control or Corporate Transaction.
Notwithstanding the foregoing, in the event that Mr. Massa's employment
is involuntarily terminated by XOOM, or any successor or assign of XOOM,
for any reason, with or without cause (as defined above), following a
Change in Control or Corporate Transaction or the execution of a letter
of intent that, by its terms, ultimately results in a Change in Control
or Corporate Transaction, as those terms are defined in the XOOM, Inc.
1998 Stock Incentive Plan, which is incorporated by reference herein, Mr.
Massa shall be entitled to payment of an amount equal to one (1) year's
base compensation plus benefits; thereafter, all obligations of XOOM, or
any successor or assign of XOOM, under this Agreement shall cease. In the
event that Mr. Massa's employment is terminated under the terms of this
subsection, Mr. Massa shall be immediately entitled to exercise any and
all stock options granted by XOOM that had not previously vested. In the
event the company effecting the change in control or XOOM is publicly
traded, any exercise of Mr. Massa's stock options subject to vesting
under this subsection must be made within four (4) months of the date
upon which Mr. Massa was informed by XOOM, or any successor or assign of
XOOM, of its intent to terminate his employment, whether such termination
is with or without notice. If the company effecting the change in control
or XOOM is not publicly traded, Mr. Massa may have up to twelve (12)
months from the date upon which Mr. Massa was informed by XOOM, or any
successor or assign of XOOM, of its intent to terminate his employment,
to
2
<PAGE>
exercise his options subject to vesting under this subsection.
(d) By Employee. At any time, Mr. Massa may terminate his employment for any
reason, with or without cause, by providing XOOM thirty (30) days'
advance written notice. XOOM shall have the option, in its complete
discretion, to make Mr. Massa's termination effective at any time prior
to the end of such notice period, provided XOOM pays Mr. Massa all
compensation due and owing through the last day actually worked, plus an
amount equal to the base salary Mr. Massa would have earned through the
balance of the above notice period, not to exceed thirty (30) days;
thereafter, all of XOOM's obligations under this Agreement shall cease.
(e) Termination Obligations. Mr. Massa agrees that all property, including
tangible Proprietary Information (as defined below), documents, records,
notes, contracts, and computer-generated materials furnished to or
prepared by Mr. Massa related to his employment, belongs to XOOM and
shall be returned promptly to XOOM upon termination. Mr. Massa's
obligations under this subsection shall survive the termination of his
employment and the expiration of this Agreement.
4. Proprietary Information. "Proprietary Information" is all information and
any idea pertaining in any manner to the business of XOOM (or any affiliate),
its employees, clients, consultants, or business associates, which was produced
by any employee of XOOM in the course of his or her employment or otherwise
produced or acquired by or on behalf of XOOM. Proprietary Information shall
include, without limitation, trade secrets, product ideas, inventions,
processes, formulas, data, know-how, software and other computer programs,
copyrightable material, marketing plans, strategies, sales, financial reports,
forecasts, and customer lists. All Proprietary Information not generally known
outside of XOOM's organization, and all Proprietary Information so known only
through improper means, shall be deemed "Confidential Information." During his
employment, Mr. Massa shall use Proprietary Information, and shall disclose
Confidential Information, only for the benefit of XOOM and as is necessary to
perform his job responsibilities under this Agreement. Following termination,
Mr. Massa shall not use any Proprietary Information and shall not disclose any
Confidential Information, except with the express written consent of XOOM. By
way of illustration and not in limitation of the foregoing, following
termination, Mr. Massa shall not use any Confidential Information to compete
against XOOM or employ any of its employees. Mr. Massa further agrees that for
one (1) year following termination, he shall not solicit any customer or
employee of XOOM. Mr. Massa's obligations under this Section shall survive the
termination of his employment and the expiration of this Agreement.
5. Integration and Amendment. This Agreement is intended to be the final,
complete, and exclusive statement of the terms of Mr. Massa's employment. This
Agreement supersedes all other prior and contemporaneous agreements and
statements, whether written or oral, express or implied, pertaining in any
manner to the employment of Mr. Massa, and it may not be contradicted by
evidence of any prior or contemporaneous statements or agreements. To the
extent that the practices, policies, or procedures of XOOM, now or in the
future, apply to Mr. Massa and are inconsistent with the terms of this
Agreement, the provisions of this Agreement shall control. This Agreement may
not be amended except by a writing signed by each of the parties. Failure to
exercise any right under this Agreement shall not constitute a waiver of such
3
<PAGE>
right.
6. Interpretation. This Agreement shall be governed by and construed in
accordance with the law of the State of California. This Agreement shall be
construed as a whole, according to its fair meaning, and not in favor of or
against any party. By way of example and not in limitation, this Agreement
shall not be construed in favor of the party receiving a benefit nor against the
party responsible for any particular language in this Agreement. If a court or
arbitrator holds any provision of this Agreement to be invalid, unenforceable,
or void, the remainder of this Agreement shall remain in full force and effect.
Captions are used for reference purposes only and should be ignored in the
interpretation of the Agreement.
7. Acknowledgment. Mr. Massa acknowledges that he has had the opportunity to
consult legal counsel in regard to this Agreement, that he has read and
understands this Agreement, that he is fully aware of its legal effect, and that
he has entered into it freely and voluntarily and based on his own judgment and
not on any representations or promises other than those contained in this
Agreement.
The parties have duly executed this Agreement as of the date first written
above.
/s/ LAURENT MASSA /s/ CHRIS KITZE
- ------------------ -----------------
By: Laurent Massa By: Chris Kitze
Its: President and CEO Its: Chairman
4
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
This Agreement, dated as of August 4, 1998, is between XOOM, Inc. ("XOOM"), and
John Harbottle ("Mr. Harbottle"). XOOM and Mr. Harbottle agree to the following
terms and conditions of employment.
1. Position and Responsibilities. Mr. Harbottle is employed by XOOM as Vice
President-Finance and Chief Financial Officer and agrees to perform all services
appropriate to that position, as well as such other services as may be assigned
by XOOM. Mr. Harbottle shall devote his best efforts and full-time attention to
the performance of his duties and shall not accept any other employment or
engage in any other business, commercial, or professional activity that is or
may be competitive with XOOM, that might create a conflict of interest with
XOOM, or that otherwise might interfere with the business of XOOM or any
affiliate. Mr. Harbottle may serve as a director or as a member of the advisory
board of any company provided that he complies with the restrictions set forth
in Section 1 and Section 4.
2. Compensation and Benefits. XOOM shall pay Mr. Harbottle a base salary at the
rate of One hundred forty four thousand dollars ($144,000) per year and a
discretionary bonus of up to Ten Thousand Dollars ($10,000) per quarter to be
paid upon achievement of personal and company targets to be defined. Mr.
Harbottle will be eligible for an annual review of this agreement no later than
one year from the date of this agreement.
Mr. Harbottle shall receive benefits from all present and future benefit plans
set forth in XOOM's policies and generally made available to similarly situated
employees (as these policies may be amended). XOOM may, in its sole discretion,
adjust Mr. Harbottle's compensation and benefits provided under this Agreement.
3. Termination of Employment.
(a) By Employer Not For Cause. Except as modified in section 3(c), below, at
any time, XOOM may terminate Mr. Harbottle's employment for any reason,
with or without Cause, by providing one hundred eighty (180) days' advance
written notice, and shall have the option, in its discretion, to terminate
Mr. Harbottle's employment at any time prior to the end of such notice
period, provided XOOM pays Mr. Harbottle an amount equal to the base
compensation Mr. Harbottle would have earned through the balance of the
above notice period plus benefits, thereafter all of XOOM's obligations
under this Agreement shall cease. In the event that XOOM exercises its
right to terminate Mr. Harbottle's employment upon notice under the terms
of this subsection, Mr. Harbottle shall be immediately entitled to
exercise one hundred percent (100%) of any stock options granted by XOOM
that had not previously vested. If the stock of XOOM or any parent company
is publicly traded, Mr. Harbottle's exercise of stock options subject to
vesting under this subsection must be made within four (4) months of the
date upon which Mr. Harbottle was informed of XOOM's intent to terminate
his employment.
1
<PAGE>
In the event XOOM's stock is not publicly traded, Mr. Harbottle's exercise of
stock options must be made within twelve (12) months of the date upon which Mr.
Harbottle was informed of XOOM's intent to terminate his employment.
XOOM may dismiss Mr. Harbottle with or without cause notwithstanding anything to
the contrary contained in or arising from any statements, policies, or practices
of XOOM relating to employment, discipline, or termination.
(b) By Employer For Cause. Except as modified in section 3(c), below, at any
time, XOOM may terminate Mr. Harbottle for Cause (as defined below). XOOM
shall pay Mr. Harbottle all compensation then due; thereafter, all of
XOOM's obligations under this Agreement shall cease. "Cause" shall
include:
1. unsatisfactory performance, misconduct, failure to follow
policies or procedures, material breach of this Agreement, and
excessive absenteeism. XOOM shall provide at least one
appropriate written warning of specific deficiencies and provide
a reasonable period not to exceed thirty days for Mr. Harbottle
to cure any such deficiencies.
2. to the extent permitted by law, unavailability for work due to
disability for more than ninety (90) days in any one (1) year
period.
3. Committing a felony, an act of fraud against or the willful
misappropriation of property belonging to XOOM.
4. Conviction in a court of competent jurisdiction of a felony or
misdemeanor which adversely and materially affects the ability of
the executive to perform his duties, obligations and
responsibilities herein or the good name, goodwill or reputation
of XOOM.
(c) By Employer Following Change in Control or Corporate Transaction.
Notwithstanding the foregoing, in the event that Mr. Harbottle's
employment is involuntarily terminated by XOOM, or any successor or assign
of XOOM, for any reason, with or without cause (as defined above),
following a Change in Control or Corporate Transaction or the execution of
a letter of intent that, by its terms, ultimately results in a Change in
Control or Corporate Transaction, as those terms are defined in the XOOM,
Inc. 1998 Stock Incentive Plan, which is incorporated by reference herein,
Mr. Harbottle shall be entitled to payment of an amount equal to six
months (6) month's base compensation plus benefits; thereafter, all
obligations of XOOM, or any successor or assign of XOOM, under this
Agreement shall cease. In the event that Mr. Harbottle's employment is
terminated under the terms of this subsection, Mr. Harbottle shall be
immediately entitled to exercise any and all stock options granted by XOOM
that had not previously vested. In the event the company effecting the
change in control or XOOM is publicly traded, any exercise of Mr.
Harbottle's stock options subject to vesting under this subsection must be
made within four (4) months of the date upon which Mr. Harbottle was
informed by XOOM, or any successor or assign of XOOM, of its intent to
terminate his employment, whether such termination is with or without
notice. If the company effecting the change in control or XOOM is not
publicly traded, Mr. Harbottle may have up to twelve (12) months from the
date upon which Mr. Harbottle was informed by XOOM, or any successor or
assign of XOOM, of its intent to terminate his employment, to exercise his
options subject to vesting under this subsection.
2
<PAGE>
(d) By Employee. At any time, Mr. Harbottle may terminate his employment for
any reason, with or without cause, by providing XOOM thirty (30) days'
advance written notice. XOOM shall have the option, in its complete
discretion, to make Mr. Harbottle's termination effective at any time
prior to the end of such notice period, provided XOOM pays Mr. Harbottle
all compensation due and owing through the last day actually worked, plus
an amount equal to the base salary Mr. Harbottle would have earned through
the balance of the above notice period, not to exceed thirty (30) days;
thereafter, all of XOOM's obligations under this Agreement shall cease.
(e) Termination Obligations. Mr. Harbottle agrees that all property, including
tangible Proprietary Information (as defined below), documents, records,
notes, contracts, and computergenerated materials furnished to or prepared
by Mr. Harbottle related to his employment, belongs to XOOM and shall be
returned promptly to XOOM upon termination. Mr. Harbottle's obligations
under this subsection shall survive the termination of his employment and
the expiration of this Agreement.
4. Proprietary Information. "Proprietary Information" is all information and
any idea pertaining in any manner to the business of XOOM (or any affiliate),
its employees, clients, consultants, or business associates, which was produced
by any employee of XOOM in the course of his or her employment or otherwise
produced or acquired by or on behalf of XOOM. Proprietary Information shall
include, without limitation, trade secrets, product ideas, inventions,
processes, formulas, data, know-how, software and other computer programs,
copyrightable material, marketing plans, strategies, sales, financial reports,
forecasts, and customer lists. All Proprietary Information not generally known
outside of XOOM's organization, and all Proprietary Information so known only
through improper means, shall be deemed "Confidential Information." During his
employment, Mr. Harbottle shall use Proprietary Information, and shall disclose
Confidential Information, only for the benefit of XOOM and as is necessary to
perform his job responsibilities under this Agreement. Following termination,
Mr. Harbottle shall not use any Proprietary Information and shall not disclose
any Confidential Information, except with the express written consent of XOOM.
By way of illustration and not in limitation of the foregoing, following
termination, Mr. Harbottle shall not use any Confidential Information to compete
against XOOM or employ any of its employees. Mr. Harbottle further agrees that
for one (1) year following termination, he shall not solicit any customer or
employee of XOOM. Mr. Harbottle's obligations under this Section shall survive
the termination of his employment and the expiration of this Agreement.
5. Integration and Amendment. This Agreement is intended to be the final,
complete, and exclusive statement of the terms of Mr. Harbottle's employment.
This Agreement supersedes all other prior and contemporaneous agreements and
statements, whether written or oral, express or implied, pertaining in any
manner to the employment of Mr. Harbottle, and it may not be contradicted by
evidence of any prior or contemporaneous statements or agreements. To the extent
that the practices, policies, or procedures of XOOM, now or in the future, apply
to Mr. Harbottle and are inconsistent with the terms of this Agreement, the
provisions of this Agreement shall control.
3
<PAGE>
This Agreement may not be amended except by a written agreement signed by each
of the parties. Failure to exercise any right under this Agreement shall not
constitute a waiver of such right.
6. Interpretation. This Agreement shall be governed by and construed in
accordance with the law of the State of California. This Agreement shall be
construed as a whole, according to its fair meaning, and not in favor of or
against any party. By way of example and not in limitation, this Agreement shall
not be construed in favor of the party receiving a benefit nor against the party
responsible for any particular language in this Agreement. If a court or
arbitrator holds any provision of this Agreement to be invalid, unenforceable,
or void, the remainder of this Agreement shall remain in full force and effect.
Captions are used for reference purposes only and should be ignored in the
interpretation of the Agreement.
7. Acknowledgment. Mr. Harbottle acknowledges that he has had the opportunity
to consult legal counsel in regard to this Agreement, that he has read and
understands this Agreement, that he is fully aware of its legal effect, and that
he has entered into it freely and voluntarily and based on his own judgment and
not on any representations or promises other than those contained in this
Agreement.
The parties have duly executed this Agreement as of the date first written
above.
/s/ John Harbottle /s/ Chris Kitze
- ------------------- ---------------------
By: John Harbottle By: Chris Kitze
Its: Chief Financial Officer Its: Chairman
4
<PAGE>
EXHIBIT 10.10
AGREEMENT AND PLAN OF MERGER
AMONG
XOOM, INC.,
XOOM CHAT, INC.,
PARALOGIC CORPORATION,
AND
SHAREHOLDERS OF
PARALOGIC CORPORATION
March 10, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. THE MERGER..............................................................2
1.1 The Merger..................................................................2
1.2 The Effective Date..........................................................2
1.3 The Surviving Corporation...................................................3
1.4 Closing.....................................................................3
ARTICLE II. CONVERSION OF SHARES...................................................3
2.1 Effect on Common Stock......................................................3
2.2 Tax Withholding.............................................................3
2.3 Conversion of Shares........................................................3
2.4 The Merger Consideration....................................................4
2.5 Records Regarding Net PPN Advertising Revenues..............................4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF MERGERCO............................5
3.1 Requisite Consents; Nonviolation............................................5
3.2 Due Organization of MergerCo; Authorizations................................5
3.3 Capitalization..............................................................5
3.4 Authority; Binding Nature of Agreements.....................................5
3.5 Subsidiaries etc............................................................6
3.6 Financial Statements........................................................6
3.7 No Material Changes.........................................................6
3.8 Undisclosed Liabilities.....................................................6
3.9 Governmental Authorizations; Compliance with Laws...........................7
3.10 Litigation..................................................................7
3.11 Employee Benefit Plans......................................................7
3.12 Patent, Trademark and Related Matters.......................................8
3.13 Real and Personal Property..................................................8
3.14 Insurance...................................................................8
3.15 Taxes.......................................................................8
3.16 Environmental Matters......................................................10
3.17 Contracts..................................................................11
3.18 Accounts Receivable........................................................12
3.19 Customers and Suppliers....................................................12
3.20 Bank Accounts..............................................................12
3.21 Title to Properties; Encumbrances..........................................12
3.22 Compensation of Employees..................................................12
3.23 Tax Status of Reorganization...............................................13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS.....................................................13
4.1 Title to Common Shares...............................................13
4.2 Capacity.............................................................13
4.3 Confirmation of MergerCo's Representations and Warranties............13
4.4 Purchase Entirely For Own Account....................................14
4.5 Disclosure of Information............................................14
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND XOOM..................................................14
5.1 Due Incorporation; Requisite Power and Authority.....................14
5.2 Due Organization of XOOM and the Company.............................15
5.3 Requisite Consents; Nonviolation.....................................15
5.4 XOOM Stock...........................................................15
5.5 Capitalization.......................................................15
5.6 Financial Statements.................................................16
5.7 No Material Changes..................................................16
5.8 Undisclosed Liabilities..............................................16
5.9 Litigation...........................................................16
5.10 Patent, Trademark and Related Matters................................17
5.11 Contracts............................................................17
5.12 Registration Rights..................................................17
5.13 Related-Party Transactions...........................................17
5.14 Voting Agreements....................................................18
ARTICLE VI. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................18
ARTICLE VII. COVENANTS OF MERGERCO AND SHAREHOLDERS..........................18
7.1 Access and Investigation.............................................18
7.2 Operation of Business................................................18
7.3 Final Tax Returns....................................................18
7.4 Taxes on PSC Share Dividends.........................................19
7.5 Federal Income Tax Reporting.........................................19
7.6 No Negotiation.......................................................19
ARTICLE VIII. COVENANTS OF XOOM..............................................19
8.1 Tax Free Reorganization..............................................19
ARTICLE IX. CLOSING CONDITIONS OF XOOM AND THE COMPANY.......................20
9.1 Accuracy of Representations and Warranties...........................20
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
9.2 Asset Purchase Agreement..................................... 20
9.3 Release Agreement............................................ 20
9.4 License Agreement............................................ 20
9.5 Software Agreement Amendment................................. 20
ARTICLE X. CLOSING CONDITIONS OF THE SHAREHOLDERS AND MERGERCO.... 20
10.1 Employment Agreement......................................... 20
10.2 Voting Agreement............................................. 21
10.3 Agreement regarding use of Webpage.com Domain Name........... 21
10.4 Representations and Warranties............................... 21
ARTICLE XI. FURTHER ASSURANCES....................................... 21
ARTICLE XII. INDEMNIFICATION......................................... 21
12.1 Indemnification by the Shareholders.......................... 21
12.2 Indemnification by the Company and XOOM...................... 22
12.3 Notification of Claims....................................... 22
12.4 Resolution of Claims......................................... 22
12.5 Arbitration.................................................. 23
12.6 Indemnification Threshold.................................... 23
12.7 Limitation of Liability; Exclusive Remedy.................... 23
ARTICLE XIII. RESTRICTIONS ON XOOM COMMON SHARES..................... 24
13.1 Right of First Refusal/Transfer Restrictions................. 24
13.2 Lock-Up Agreement............................................ 25
ARTICLE XIV. MISCELLANEOUS........................................... 26
14.1 Expenses..................................................... 26
14.2 Entire Agreement............................................. 26
14.3 Press Releases and Public Announcements...................... 26
14.4 Counterparts................................................. 26
14.5 Descriptive Headings......................................... 26
14.6 Notices...................................................... 26
14.7 Choice of Law................................................ 27
14.8 Binding Effect; Benefits..................................... 27
14.9 Assignability................................................ 27
14.10 Waiver and Amendment......................................... 27
14.11 Attorneys' Fees.............................................. 27
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of March 10,
1998 is entered into by and among XOOM Chat Inc., a California corporation (the
"Company"), XOOM, Inc., a Delaware corporation ("XOOM"), Paralogic Corporation,
a California corporation ("MergerCo"), and the shareholders of MergerCo whose
names are listed on Exhibit A hereto (each such person hereinafter referred to
---------
as a "Shareholder," and collectively, the "Shareholders").
RECITALS
A. The respective Boards of Directors of each of the Company, XOOM and
MergerCo believe it is in the best interests of their respective companies and
shareholders that the Company and MergerCo combine into a single company through
the statutory merger of MergerCo with and into the Company with the Company as
the surviving corporation (the "Merger") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
common stock of MergerCo shall be exchanged for the Merger Consideration
consisting of common shares of XOOM and the right to receive certain cash
distributions (as more fully defined below).
C. The parties to the Agreement intend that the Merger qualify as a
"reorganization," within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that MergerCo, the Company and XOOM
will each be a "party to a reorganization," within the meaning of Section 368(b)
of the Code, with respect to the Merger.
AGREEMENT
In consideration of the agreements, provisions and covenants set forth
below, MergerCo and the Shareholders, and the Company and XOOM hereby agree as
follows:
ARTICLE I.
THE MERGER
1.1 THE MERGER.
Subject to the terms and conditions of this Agreement, on the Effective
Date (as defined below), MergerCo shall be merged with and into the Company and
the Company shall be the surviving corporation (the "Surviving Corporation") in
such Merger and the separate existence of MergerCo shall thereupon cease. The
Merger shall have the effects set forth in the General Corporation Law of the
State of California. Without limiting the generality of the foregoing, on the
Effective Date, all of the property, rights, privileges, powers and franchises
of the Company and MergerCo shall vest in the Surviving Corporation.
1.2 THE EFFECTIVE DATE.
The Merger shall become effective when a properly executed Agreement of
Merger and such other documents as may be required are duly filed with the
Secretary of State of the State of California, which filings shall be as soon as
practicable after the Closing, or at such other time as the parties may agree
and may provide in the Agreement of Merger and such other documents (the
"Effective Date").
2
<PAGE>
1.3 THE SURVIVING CORPORATION.
The Articles of Incorporation and Bylaws of the Company shall be the
Articles of Incorporation and Bylaws of the Surviving Corporation, each until
duly amended. The directors and officers of the Company on the Effective Date
shall be the directors and officers of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation, or as otherwise provided by law.
1.4 CLOSING.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at 10:00 a.m. local time, at the offices of Morrison
& Foerster LLP, 425 Market Street, San Francisco, California 94105-2482 on March
13, 1998, or at such other time, date and place as the parties may mutually
agree (the "Closing Date").
ARTICLE II.
CONVERSION OF SHARES
2.1 EFFECT ON COMMON STOCK.
By virtue of the Merger and without any action on the part of MergerCo, the
Company or the Shareholders, on the Effective Date, each share of MergerCo's
common stock issued and outstanding immediately prior to the Effective Date will
be canceled and extinguished and be converted automatically into the right to
receive a portion of the Merger Consideration (as defined below).
2.2 TAX WITHHOLDING.
The right of any Shareholder to receive any cash payment as part of the
Merger Consideration, as provided herein, shall be subject to and reduced by the
amount of any required tax withholding obligation. To the extent that the
Company or XOOM withholds taxes from payments to Shareholders, it shall provide
each such Shareholder with documentary evidence of any amounts so withheld and
information as to the basis therefor.
2.3 CONVERSION OF SHARES.
On the Effective Date, by virtue of the Merger and without any action on
the part of the holders thereof, each common share of MergerCo that is issued
and outstanding immediately prior to the Effective Date shall be converted into
the right to receive such number of common shares of XOOM as set forth in
Schedule 2.3 to be provided at the Closing, such that the Shareholders shall
receive in the aggregate 9.85% of the sum of, as of the Closing, (i) all of the
issued and outstanding shares of capital stock of XOOM, and (ii) all of the
vested and unexercised options to purchase shares of XOOM common stock.
3
<PAGE>
2.4 THE MERGER CONSIDERATION.
The Shareholders shall be entitled to receive the following consideration
for their shares of MergerCo (in the aggregate, the "Merger Consideration"):
(a) On the Effective Date, provided the Shareholders have delivered to
XOOM all of the certificates evidencing their shares of MergerCo, together with
duly executed stock powers executed in blank, each Shareholder shall receive a
certificate evidencing the number of common shares, rounded down to the nearest
whole number, of XOOM to which each Shareholder is entitled pursuant to Section
2.3; and
(b) The Shareholders shall receive in the aggregate an amount, to be
distributed pro rata to the number of shares issued to such Shareholder in
the Merger, pursuant to Section 2.3, equal to:
(i) at the Closing, $30,000;
(ii) an amount payable monthly as set forth herein equal to 25% of
the sum of (A) XOOM's advertising (advertising sales less agency discounts and
third-party sales commissions) revenues generated from the Paralogic Parachat
Personal Network, and (B) the fair market value less applicable taxes of in-kind
compensation in connection with the sale or other provision of Paralogic
Parachat Personal Network advertisements other than such revenues from
----------
(1) house advertisements for XOOM products or services, (2) non-cash advertising
exchanges or (3) an aggregate dollar amount received by XOOM or the Company from
third party sellers of on-line advertisements in connection with advertising
exchanges, net any amounts paid by XOOM or the Company to such sellers for on-
line advertisements (collectively, "Net PPN Advertising Revenues") only to the
extent invoiced and actually collected (or with respect to in-kind services
other than described in (b)(ii)(1)(2) or (3), actually received) during the
eighteen consecutive full months after the Closing; provided, however, that the
--------
amount of the monthly payment pursuant to this Section 2.3(b)(ii) shall
not be less than $30,000 (including, for purposes of the first such payment, the
$30,000 payment pursuant to Section 2.4(b)(i)), regardless of XOOM's Net
Advertising Revenues in such months. Payments pursuant to this Section
2.4(b)(ii) shall commence on or before the fifteenth business day of the second
full month after the Closing Date and shall be made on or before the fifteenth
business day of each consecutive month thereafter, with a final payment on or
before the fifteenth day of the nineteenth full month after the Closing Date;
provided, however, that the aggregate of payments pursuant to Sections
- --------
2.4(b)(i) and (ii) shall not, in any event, exceed $1.4 million.
2.5 RECORDS REGARDING NET PPN ADVERTISING REVENUES.
XOOM shall maintain, until two (2) years after expiration of this
Agreement, all such books, records and accounts as necessary to permit
computation of and accounting for amounts payable under this Section 2.4 for the
then-current year and the preceding two (2) years. XOOM grants to Shareholders
the right to audit, have audited, examine, and have examined such books, records
and accounts during XOOM's normal business hours no more than once per year upon
no less than thirty (30) days written notice to verify the accuracy of the
reports and payments made to Shareholders hereunder. In the event it is
determined that XOOM underpaid amounts due under this Agreement by more than ten
percent (10%), XOOM shall reimburse Shareholders for all costs incurred in
connection with the audit.
4
<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF MERGERCO
Except as set forth in the Disclosure Schedule attached hereto provided by
MergerCo (the "MergerCo Disclosure Schedule"), the parts of which are numbered
to correspond to the section numbers of this Agreement, MergerCo hereby
represents and warrants to the Company and XOOM as of the Date hereof and as of
the Closing Date, as follows:
3.1 REQUISITE CONSENTS; NONVIOLATION.
The execution and delivery of this Agreement by MergerCo and the
Shareholders and the consummation of the transactions contemplated by this
Agreement will not (a) except as set forth in this Agreement, require the
consent, approval or authorization of any governmental person or entity (except
such approvals or filings as may be required to comply with applicable state
securities laws), (b) violate or conflict with the provisions of the Articles of
Incorporation or Bylaws of MergerCo, or (c) constitute a default under, violate
or conflict with any material contract, note, lease or mortgage to which
MergerCo or any Shareholder is a party or by which MergerCo or any Shareholder
is bound or to which MergerCo or any of its properties or any Shareholder or any
of his or her properties is subject.
3.2 DUE ORGANIZATION OF MERGERCO; AUTHORIZATIONS.
MergerCo (a) has been duly organized and is validly existing and in good
standing as a corporation under the laws of the State of California, (b) is duly
qualified to do business in and is in good standing under the laws of every
jurisdiction where it is required to be so qualified, except where the failure
to be so qualified will not materially adversely affect its business, financial
condition or results of operations, and (c) has all requisite corporate power
and authority to own or lease and to operate its properties and carry on its
business.
3.3 CAPITALIZATION.
The authorized capital stock of MergerCo consists of 1,000,000 shares of
common stock, of which 5,250 shares of common stock are issued and outstanding.
All of the issued and outstanding shares of common stock have been duly
authorized and validly issued and are fully paid and nonassessable. Other than
the common stock, MergerCo does not have outstanding any other voting or equity
securities or interests. Except as set forth in the MergerCo Disclosure
Schedule, MergerCo has no outstanding obligations, understandings or commitments
regarding the issuance of any additional shares of its stock, voting or equity
securities or interests or other securities, or any options, rights, warrants or
securities exercisable for or convertible into such shares, securities or
interests. There are no preemptive rights in respect of the common shares of
MergerCo.
3.4 AUTHORITY; BINDING NATURE OF AGREEMENTS.
MergerCo has the power and authority to enter into and to perform its
obligations under this Agreement, and the execution, delivery and performance by
MergerCo of this Agreement has been duly authorized by all necessary action on
the part of MergerCo and its shareholders, board of directors and officers.
This Agreement constitutes the legal, valid and binding obligation of MergerCo
enforceable against MergerCo in accordance with its terms.
5
<PAGE>
3.5 SUBSIDIARIES ETC.
MergerCo does not own or control any equity interest in any corporation,
partnership, joint venture or other legal entity.
3.6 FINANCIAL STATEMENTS.
(a) MergerCo has delivered to the Company the following financial
statements and notes (collectively, the "Financial Statements"), which are
attached to Part 3.6(a) of the MergerCo Disclosure Schedule:
(i) the unaudited balance sheets of MergerCo as of December 31, 1996
and December 31, 1997, and the related unaudited statements of operations,
changes in shareholder's equity and cash flows of MergerCo for the fiscal years
ended December 31, 1996 and December 31, 1997 together with the notes thereto;
and
(ii) the unaudited balance sheet of MergerCo as of January 31, 1998
(the "Unaudited Interim Balance Sheet"), and the related unaudited statements of
operations, changes in shareholder's equity and cash flows of MergerCo, together
with the notes thereto.
(b) All of the Financial Statements are accurate and complete in all
material respects, and the dollar amount of each line item included in the
Financial Statements is accurate in all material respects. The financial
statements and notes referred to in Section 3.6(a) are in accordance with the
books and records of MergerCo and present fairly the financial position of
MergerCo as of the respective dates thereof and the results of operations,
changes in shareholders' equity and cash flows of MergerCo for the periods
covered thereby.
(c) Except as set forth in the MergerCo Disclosure Schedule, MergerCo
has no liabilities except those reflected or reserved against in the Unaudited
Interim Balance Sheet and current liabilities incurred by MergerCo in the
ordinary course of business since the date of the Unaudited Interim Balance
Sheet
3.7 NO MATERIAL CHANGES.
Except as otherwise set forth in the MergerCo Disclosure Schedule, since
January 31, 1998 there has not been (a) any damage, destruction or loss (whether
or not covered by insurance) materially and adversely affecting the business,
financial condition or results of operations of MergerCo; (b) any labor dispute
materially and adversely affecting the business, financial condition or results
of operations of MergerCo; (c) any disposition of any capital asset of MergerCo
having a net book value in excess of $15,000; (d) any discharge or satisfaction
of any obligation or liability of MergerCo other than in the ordinary course of
business; or (e) any material adverse change in the business, financial
condition or results of operations of MergerCo.
3.8 UNDISCLOSED LIABILITIES.
MergerCo has no liabilities or obligations (whether absolute, contingent or
otherwise) which are material to MergerCo, except for (a) those reflected,
reserved against or otherwise disclosed in the Financial Statements or the notes
thereto and not heretofore paid or discharged, (b) those disclosed in the
Disclosure Schedule, or (c) those incurred in, or as a result of, the ordinary
course of business of MergerCo since the date of the Unaudited Interim Balance
Sheet.
6
<PAGE>
3.9 GOVERNMENTAL AUTHORIZATIONS; COMPLIANCE WITH LAWS.
MergerCo has all material governmental licenses, permits, approvals and
other governmental authorizations necessary to permit the operation of the
business of MergerCo, as presently conducted. MergerCo is in compliance with
all applicable laws, regulations, orders, judgments and decrees, except where
the failure to be in such compliance would not have a material adverse effect on
the business, financial condition or results of operations of MergerCo.
3.10 LITIGATION.
Except as set forth in the MergerCo Disclosure Schedule, there is no
pending or threatened action, suit, arbitration proceeding or investigation in
any court or before any governmental commission or agency against MergerCo which
would have a material adverse effect upon the business, financial condition or
results of operations of MergerCo. There is no order, judgment or decree of any
court or governmental authority or agency which specifically applies to MergerCo
which would have a material adverse effect on the business, financial condition
or results of operations of MergerCo.
3.11 EMPLOYEE BENEFIT PLANS.
As used herein, the term "Employee Benefit Plan" means an "employee pension
benefit plan" as defined in Section 3(2)(A) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and an "employee welfare benefit
plan" as defined in Section 3(l) of ERISA. The term "Qualified Plan" means a
pension, profit sharing or stock bonus plan described in Section 401 of the
Code. MergerCo, which, for purposes hereof shall include any of its
subsidiaries or any organization which, together with MergerCo and/or any such
subsidiary, would be treated as a "single employer" within the meaning of
Section 414(b) or (c) of the Code, maintains or contributes to (or has any
obligation to contribute to) no Employee Benefit Plan other than those listed in
the MergerCo Disclosure Schedule (the "Listed Plans").
(a) Each Listed Plan is, and at all times while maintained by MergerCo has
been, operated in compliance, in all material respects, with all applicable law,
including provisions of ERISA (including the regulations thereunder), which are
applicable to Listed Plan;
(b) Each Listed Plan which is a Qualified Plan complies in form and is,
and at all times while maintained by MergerCo has been, operated in compliance
in all material respects with the provisions of the Internal Revenue Code
(including the regulations thereunder) which are applicable to such Listed Plan;
(c) No Listed Plan which is subject to the minimum funding standards of
Section 412 of the Code or Section 302 of ERISA has an "accumulated funding
deficiency" as described in such sections, or has obtained a waiver of any
minimum funding standard or an extension of any amortization period under
Section 412 of the Code or Section 303 or 304 of ERISA;
(d) MergerCo has received no communication from the United States
Department of Labor stating that any Listed Plan is in violation of ERISA or the
regulations thereunder, and neither MergerCo nor any other "disqualified person"
or "party in interest" (as defined in Section 4975(e)(2) of the Code and Section
3(14) of ERISA, respectively) has engaged in any transactions in connection with
any Listed Plan that could reasonably be expected to result in the imposition of
a penalty pursuant to Section 502 of ERISA, damages pursuant to Section 409 of
ERISA or a tax pursuant to Section 4975 of the Code;
7
<PAGE>
(e) Each Listed Plan which is a Qualified Plan has received a favorable
determination letter from the Internal Revenue Service, and MergerCo has
received no communication from the Internal Revenue Service indicating that any
Listed Plan which is intended to be a Qualified Plan is no longer a Qualified
Plan;
(f) There is no litigation, claim or action pending or asserted by or
against any Listed Plan, or threatened with respect to any Listed Plan (other
than routine claims for benefits payable in the ordinary course, and appeals of
denied claims);
(g) No Listed Plan is covered by Title IV of ERISA; and
(h) No Listed Plan provides for post-employment or retiree welfare
benefits, except (i) benefit coverage mandated by applicable law, including
(without limitation) coverage provided pursuant to Section 4980B of the Code, or
(ii) benefits (including life insurance policies), the full cost of which are
borne by current or former employees of MergerCo (or the employees'
beneficiaries).
3.12 PATENT, TRADEMARK AND RELATED MATTERS.
All of the material patents, registered trademarks, service marks and trade
names owned by MergerCo and all material license agreements in which MergerCo is
the licensee, at the date of this Agreement are listed in the MergerCo
Disclosure Schedule. Except to the extent, if any, set forth in the MergerCo
Disclosure Schedule, such patents, trademarks, service marks, trade names and
licenses (collectively, the "Intellectual Property") are, to the Company's
Knowledge, valid and in full force and are adequate to permit MergerCo to
conduct its business as presently conducted, except to the extent that such
failure to be valid and in full force would not have a material adverse effect
on the business, financial condition or results of operations of MergerCo.
MergerCo has received no written notice of any event, inquiry or investigation
threatening the validity of the Intellectual Property.
3.13 REAL AND PERSONAL PROPERTY.
The MergerCo Disclosure Schedule contains a list of all real and personal
property owned or leased by MergerCo as of the date hereof having, in the case
of leased property, an annual lease obligation in excess of $10,000 or, in the
case of owned property, a book value in excess of $15,000. All such property is
owned in fee or held under valid leases. There is not under any of such leases
any existing material default on the part of MergerCo nor any facts that would,
with the passage of time, constitute such a material default.
3.14 INSURANCE.
The MergerCo Disclosure Schedule lists all material insurance policies in
force with respect to MergerCo, its employees and its directors.
3.15 TAXES.
(a) Definitions. For purposes of this Agreement, the following
-----------
definitions shall apply:
(i) "Tax" or "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state, local or
foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including, but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
8
<PAGE>
unemployment insurance, social security taxes, sales and use taxes, ad valorem
taxes, excise taxes, franchise taxes, gross receipts taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
MergerCo is required to pay, withhold or collect.
(ii) "Tax Returns" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or required to be
filed in connection with, any Taxes, including information returns or reports
with respect to backup withholding and other payments to third parties.
(b) Tax Returns Filed and Taxes Paid. All Tax Returns required to be filed
--------------------------------
by or on behalf of MergerCo have been duly filed on a timely basis and such Tax
Returns are true, complete and correct. MergerCo has set aside adequate reserves
for the payment of all Taxes due for fiscal 1997. All Taxes shown to be payable
on the Tax Returns or on subsequent assessments with respect thereto have been
paid in full on a timely basis, and no other Taxes are payable by MergerCo with
respect to items or periods covered by such Returns (whether or not shown on or
reportable on such Tax Returns). MergerCo has withheld and paid over all Taxes
required to have been withheld and paid over, and complied with all information
reporting and backup withholding requirements, including maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party. There are no
liens on any of the assets of MergerCo with respect to Taxes, other than liens
for Taxes not yet due and payable or for Taxes that MergerCo is contesting in
good faith through appropriate proceedings and for which appropriate reserves
have been established.
(c) Tax Returns Furnished. For all periods ending on and after December 31,
---------------------
beginning with the year in which MergerCo was formed, MergerCo has made
available to the Company true and complete copies of (i) relevant portions of
income tax audit reports, statements of deficiencies, closing or other
agreements received by MergerCo or on behalf of MergerCo relating to Taxes, and
(ii) all separate federal and state income or franchise tax returns for
MergerCo.
(d) Tax Reserves. The amount of MergerCo's liability for unpaid Taxes for
------------
all periods covered by the Financial Statements does not, in the aggregate,
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as such accruals are reflected in the Financial
Statements, and the amount of MergerCo's liability for unpaid Taxes for all
periods ending on or before the Closing Date shall not, in the aggregate, exceed
such accruals.
(e) Tax Deficiencies; Audits; Statutes of Limitations. Except as set forth
-------------------------------------------------
in the MergerCo Disclosure Schedule, no deficiencies have been asserted with
respect to Taxes of MergerCo. MergerCo is neither a party to any action or
proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened against MergerCo or any of its assets. No waiver or
extension of any statute of limitations is in effect with respect to Taxes or
Tax Returns of MergerCo. Except as set forth in the MergerCo Disclosure
Schedule, the Tax Returns of MergerCo have never been audited by a government or
taxing authority, nor is any such audit in process, pending or threatened.
MergerCo has disclosed on its federal income tax returns all positions taken
therein that could give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code.
(f) No Consolidated Group. Except as disclosed in the MergerCo Disclosure
---------------------
Schedule, MergerCo has not been included in any "consolidated," "unitary"
or "combined group Tax Return provided for under the
9
<PAGE>
law of the United States, any foreign jurisdiction or any state or locality with
respect to Taxes for any taxable period for which the statute of limitations has
not expired.
(g) No Tax Sharing. There are no tax sharing, allocation, indemnification
--------------
or similar agreements or arrangements in effect as between MergerCo or any
predecessor or affiliate thereof and any other party (including Shareholders and
any predecessor or affiliate thereof) under which the Company or MergerCo could
be liable for any Taxes of any party.
(h) Tax Elections and Special Tax Status. MergerCo is not nor has it been a
------------------------------------
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code and XOOM is not required to withhold tax on the
acquisition of MergerCo's common stock pursuant to Section 1445 of the Code.
MergerCo is not a "consenting corporation" under Section 341(f) of the Code.
MergerCo has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to the group pursuant to Section 280G of the Code or an excise tax to
the recipient of such payment pursuant to Section 4999 of the Code. MergerCo has
not participated in an international boycott as defined in Code Section 999.
MergerCo has not agreed, nor is it required to make, any adjustment under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise. MergerCo has no permanent establishment in any foreign country, as
defined in any applicable tax treaty or convention between the United States of
America and such foreign country, and MergerCo is not a party to any joint
venture, partnership, or other agreement, contract, or arrangement (either in
writing or verbally, formally or informally) which could be treated as a
partnership for federal income tax purposes. MergerCo is not an "S corporation,"
within the meaning of Section 1361(a) of the Code.
(i) Section 6038A Compliance. MergerCo has filed all reports and has created
------------------------
and/or retained all records required under Section 6038A of the Code with
respect to its ownership by and transactions with related parties. Each related
foreign person required to maintain records under Section 6038A with respect to
transactions between MergerCo and the related foreign person has maintained such
records. All documents that are required to be created and/or preserved by the
related foreign person with respect to transactions with MergerCo are either
maintained in the United States, or MergerCo is exempt from the record
maintenance requirements of Section 6038A with respect to such transactions
under Section 1.6038A-1 of the Treasury Regulations. MergerCo is not a party to
any record maintenance agreement with the Internal Revenue Service with respect
to Section 6038A of the Code. Each related foreign person that has engaged in
transactions with MergerCo has authorized MergerCo to act as its limited agent
solely for purposes of Sections 7602, 7603, and 7604 of the Code with respect to
any request by the Internal Revenue Service to examine records or produce
testimony related to any transaction with MergerCo, and each such authorization
remains in full force and effect.
3.16 ENVIRONMENTAL MATTERS.
(a) Definitions. For purposes of this Agreement, the following definitions
-----------
shall apply:
(i) "Hazardous Materials" shall mean any hazardous substance, pollutant,
-------------------
contaminant, flammable explosives, radioactive materials and hazardous, toxic or
dangerous wastes and any other chemicals, materials or substances which are
identified, defined or regulated pursuant to any Hazardous Materials Laws, or
the release, discharge or exposure to which is prohibited, limited to or
regulated by any federal, state or local government under Hazardous Materials
Laws and any petroleum, waste oil and petroleum by-products, asbestos
10
<PAGE>
in any form, urea formaldehyde, and transformers or other equipment that contain
levels of polychlorinated biphenyls.
(ii) "Hazardous Materials Laws" shall mean any federal, state or local
------------------------
statute, law, rule, regulation, ordinance, code, binding policy or rule of
common law in effect and in each case as amended as of the Closing Date, and any
judicial or administrative interpretation thereof as of the Closing Date,
including any judicial or administrative order, consent decree or judgment,
relating to the protection of the environment, health, safety from the release
or disposal of Hazardous Materials, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. (S) 9601 et seq.; the Resource Conservation and Recovery
-- ----
Act, as amended, 42 U.S.C. (S) 9601 et seq.; the Federal Water Pollution Control
-- ----
Act, as amended, 33 U.S.C. (S) 1251 et seq.; the Toxic Substances Control Act,
-- ----
15 U.S.C. (S) 2601 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et seq.; the
-- ---- -- ----
Safe Drinking Water Act, 42 U.S.C. (S) 300f et seq.; the Oil Pollution Act of
-- ----
1990, 33 U.S.C. (S) 2701 et seq.; and their state and local counterparts and
-- ----
equivalents.
(iii) "Environmental Claims" shall mean any and all administrative,
--------------------
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notice of noncompliance or violation, investigations or proceedings relating to
any Hazardous Materials Law or any permit issued under any such Law (hereafter
"Claims"), including without limitation (a) any and all Claims by governmental
or regulatory authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages pursuant to any applicable Hazardous Materials Law,
and (b) any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or other environment from release or disposal of Hazardous
Materials.
(b) MergerCo is in compliance in all material respects with all Hazardous
Material Laws and the requirements of all environmental permits required
for the handling, use, storage and disposition of Hazardous Materials under
Hazardous Materials Laws that are applicable to MergerCo's operations as
presently conducted.
(c) There are no pending, or to the Knowledge of MergerCo, threatened
Environmental Claims against MergerCo or any property of MergerCo.
(d) There are no facts, circumstances, conditions or occurrences regarding
MergerCo, its operations or any property of MergerCo that could reasonably
be anticipated to form the basis of an Environmental Claim against
MergerCo.
3.17 CONTRACTS.
The MergerCo Disclosure Schedule contains a complete list of every material
contract of MergerCo which (i) is made with any officer, director or stockholder
of MergerCo, or with any affiliate or relative of any such officer, director or
stockholder, (ii) is a contract of employment, (iii) is made with any labor
union, or other labor organization, (iv) is a bank loan or other credit
agreement, (v) other than outstanding purchase orders, requires, individually,
annual payments of more than $10,000 or aggregate payments over the life of the
contract of more than $50,000, (vi) is for a remaining term of more than one
year and is not cancelable as to all its provisions upon 60 days or less notice
without payment of any material penalty, or (vii) is entered into other than in
the ordinary course of business. MergerCo has made or will promptly make
available to the Company upon request true copies of each contract so listed.
MergerCo and each of the other parties to the contracts set forth in the
MergerCo Disclosure Schedule have in all material respects performed all
material obligations
11
<PAGE>
required to be performed by them under such contracts and no event has occurred
which would give any other party to any such contract the right to terminate or
otherwise fail to perform its obligations under the contracts.
3.18 ACCOUNTS RECEIVABLE.
Except to the extent set forth in the MergerCo Disclosure Schedule, the
accounts receivable of MergerCo reflected in the Unaudited Interim Balance Sheet
represent sales actually made in the ordinary course of business, and have been
properly reported, net of any reserves shown on the books of MergerCo, all in
accordance with the past practices of MergerCo, consistently applied.
3.19 CUSTOMERS AND SUPPLIERS.
(a) Part 3.19(a) of the MergerCo Disclosure Schedule lists the five
largest customers of MergerCo in the most recent full fiscal year. Except as
disclosed in the MergerCo Disclosure Schedule, since January 31, 1998, there has
been no material adverse change in the business relationship of MergerCo with
any such customer.
(b) Part 3.19(b) of the MergerCo Disclosure Schedule contains exemplars
of each of the forms of contracts executed by MergerCo's subscribers. Except as
set forth in the MergerCo Disclosure Schedule, all contracts with MergerCo's
subscribers have been made using such exemplars.
3.20 BANK ACCOUNTS.
The MergerCo Disclosure Schedule sets forth the names and locations of all
banks, trust companies, brokerage firms or other financial institutions at which
MergerCo maintains an account and the name of each person authorized to draw
thereon or make withdrawals therefrom.
3.21 TITLE TO PROPERTIES; ENCUMBRANCES.
Except as set forth in the MergerCo Disclosure Schedule, MergerCo has good
title to its material properties and assets (real and personal, tangible and
intangible) owned by it (and good leasehold title to the material properties and
assets leased by it), including, without limitation, the material properties and
assets reflected in the Financials, subject to no encumbrance, lien, charge or
other restriction of any kind or character ("Encumbrances"), except for (i)
Encumbrances reflected in the Unaudited Interim Balance Sheet, (ii) Encumbrances
for current taxes, assessments or governmental charges or levies on property not
yet due and delinquent, (iii) Encumbrances arising by operation of law, (iv)
easements, rights-of-way, restrictions and other similar Encumbrances previously
incurred in the ordinary course of business which, in respect of properties or
assets of MergerCo are not material and which, in the case of such Encumbrances
on the assets or properties of MergerCo, would not reasonably be expected to
materially detract from the value of any such properties or assets or materially
interfere with any present use of such properties or assets, and (v)
Encumbrances in existence on the Closing Date and described in the MergerCo
Disclosure Schedule.
3.22 COMPENSATION OF EMPLOYEES.
MergerCo has provided the Company with an accurate and complete list for
fiscal year 1997 showing (i) the names of all persons employed by MergerCo who
received more than $40,000 in 1997 cash compensation (including, without
limitation, salary, commission and bonus) and who are employed by MergerCo as of
the date hereof, and (ii) the present salary or hourly wage (including, without
limitation, salary,
12
<PAGE>
commission and bonus) and fringe benefits (excluding Listed Plans set forth in
the MergerCo Disclosure Schedule), of each such person.
3.23 TAX STATUS OF REORGANIZATION.
(a) The liabilities of MergerCo, if any, to be assumed by the Company in
the Merger and the liabilities to which the transferred assets of MergerCo are
subject, if any, were incurred by MergerCo in the ordinary course of business.
(b) MergerCo and each of the Shareholders will pay any of its own
expenses incurred in connection with the Merger.
(c) There is no intercorporate indebtedness existing between the Company
and MergerCo that was issued, was acquired, or will be settled at a discount.
(d) The fair market value of the assets of MergerCo to be transferred to
the Company in the Merger will equal or exceed the sum of MergerCo's liabilities
assumed by the Company plus the amount of MergerCo's liabilities, if any, to
which the transferred assets are subject.
(e) MergerCo is not under the jurisdiction of a court in a "title 11 or
similar case," within the meaning of Section 368(a)(3)(A) of the Code.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Except as set forth in the MergerCo Disclosure Schedule, the Shareholders
hereby represent and warrant to the Company and XOOM as of the date hereof and
as of the Closing Date as follows:
4.1 TITLE TO COMMON SHARES.
Each Shareholder individually represents and warrants to the Company and
XOOM that he or she is the record and beneficial owner of the common stock being
conveyed by such Shareholder to the Company listed opposite the Shareholder's
name in the capitalization schedule attached hereto as Exhibit A, and
---------
Shareholder holds title to the common stock free and clear of all liens,
charges, encumbrances, security interests, restrictive agreements or
assessments.
4.2 CAPACITY.
Each Shareholder has the legal capacity to enter into and to perform his or
her obligations under this Agreement, and this Agreement constitutes the legal,
valid and binding obligation of each Shareholder, enforceable against each
Shareholder in accordance with its terms.
4.3 CONFIRMATION OF MERGERCO'S REPRESENTATIONS AND WARRANTIES.
The Shareholders represent and warrant, severally, but not jointly, that to
their Knowledge, except as set forth in the MergerCo Disclosure Schedule, the
representations and warranties of MergerCo in Article III are true and correct
as of the date hereof and as of the Closing Date. For purposes of this Article
IV, a Shareholder shall be deemed to have "Knowledge" of a particular fact or
other matter if (i) the Shareholder is actually aware
13
<PAGE>
of such fact or other matter or (ii) had reason to know of such fact or matter.
MergerCo or Shareholder Vijay Vaidyanathan shall be deemed to have Knowledge of
a particular fact or matter if any Shareholder has Knowledge of such fact or
matter.
4.4 PURCHASE ENTIRELY FOR OWN ACCOUNT.
This Agreement is made with each Shareholder in reliance upon each
Shareholder's representation, which by each Shareholder's execution of this
Agreement Shareholder hereby confirms, that the XOOM Stock to be received by
Shareholder will be acquired for investment for Shareholder's own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Shareholder has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, Shareholder further represents that he or she does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the XOOM Stock.
4.5 DISCLOSURE OF INFORMATION.
Each Shareholder believes he has received all the information he or she
considers necessary or appropriate for deciding whether to acquire the XOOM
Stock. Shareholder further represents that he or she has had an opportunity to
ask questions and receive answers from XOOM regarding the terms and conditions
of the offering of the XOOM Stock and the business, properties, prospects and
financial conditions of XOOM. Shareholder has arrived at an independent view
concerning the value of XOOM, recognizes that the purchase and sale of the XOOM
Stock is occurring in an arms' length transaction and is not relying upon any
statements by XOOM or the Company as to the value of XOOM.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND XOOM
The Company and XOOM hereby represent and warrant to MergerCo and the
Shareholders that to their Knowledge as of the date hereof and as of the
Closing, except as disclosed in the Disclosure Schedule provided by XOOM and
attached hereto, (the "XOOM Disclosure Schedule) (For the purposes of this
Article V, the Company and XOOM shall be deemed to have Knowledge of a
particular fact or matter if Russell Hyzen, Chris Kitze or Laurent Massa are
actually aware of such fact or matter or had reason to know of such fact or
matter):
5.1 DUE INCORPORATION; REQUISITE POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in good
standing as a corporation under the laws of California, and XOOM is a
corporation duly organized, validly existing and in good standing as a
corporation under the laws of the State of Delaware. The Company and XOOM have
all requisite power and authority to execute and deliver this Agreement and to
perform all transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and XOOM and the consummation of the
transactions contemplated by this Agreement have been duly authorized and
approved by all necessary corporate and shareholder action, and this Agreement
constitutes the valid and binding obligation of the Company and XOOM enforceable
in accordance with its terms.
14
<PAGE>
5.2 DUE ORGANIZATION OF XOOM AND THE COMPANY.
XOOM and the Company (a) have been duly organized and are validly existing
and in good standing in their respective states of incorporation, (b) are duly
qualified to do business in and are in good standing under the laws of every
jurisdiction where they are required to be so qualified, except where the
failure to be so qualified will not materially adversely affect their business,
financial condition or results of operations, and (c) have all requisite
corporate power and authority to own or lease and to operate their properties
and carry on their business.
5.3 REQUISITE CONSENTS; NONVIOLATION.
The execution and delivery of this Agreement by the Company and XOOM do
not, and the performance of this Agreement by the Company and XOOM will not, (a)
violate or conflict with (i) the provisions of the Articles of Incorporation
(and with respect to XOOM, its Certificate of Incorporation) or Bylaws of the
Company and XOOM, (ii) any applicable law, rule or regulation or (iii) any
order, writ, injunction or decree by which the Company or XOOM is bound; (b)
except as set forth in this Agreement, require the consent, license, permit,
approval, authorization or other action by or with respect to, any governmental
person or entity (except such approvals, permits or filings as may be required
to comply with applicable state securities laws); or (c) constitute a default
under, violate or conflict with any material contract, note, lease or mortgage
to which XOOM or the Company is a party.
5.4 XOOM STOCK.
The XOOM Stock to be issued to the holders of MergerCo's common stock
pursuant to the Merger, when issued in connection with this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable. Based on the
truth and accuracy of the Shareholders' representations set forth in Article IV
of this Agreement, such XOOM Stock will be exempt from the registration
requirements of the Securities Act of 1933 and will have been registered or
qualified (or are exempt) under all applicable state securities laws.
5.5 CAPITALIZATION.
(a) Prior to the two-for-one reverse common stock split planned by XOOM
before the Closing, the authorized capital stock of XOOM consists of twenty
million (20,000,000) shares of common stock, $.0001 par value per share, of
which, as of March 10, 1998, seventeen million, eight hundred thirty-four
thousand, eighty-three (17,834,083) shares have been issued and are outstanding,
and 1,000,000 shares of preferred stock, none of which has been issued or is
outstanding. Other than the common stock, XOOM does not have outstanding any
other voting or equity securities or interests. Except as set forth in the XOOM
Disclosure Schedule, XOOM has no outstanding obligations, understandings or
commitments regarding the issuance of any additional shares of its stock, voting
or equity securities or interests or other securities, or any options, rights,
warrants or securities exercisable for or convertible into such shares,
securities or interests. There are no preemptive rights in respect of the common
shares of XOOM. All issued and outstanding shares of XOOM's capital stock have
been duly authorized and validly issued, are fully paid and nonassessable .
(b) The authorized capital stock of the Company consists of ten thousand
(10,000) shares of common stock, no par value. All issued and outstanding shares
of the Company's capital stock have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned by XOOM.
15
<PAGE>
5.6 FINANCIAL STATEMENTS.
(a) Attached hereto as Part 5.6(a) of the XOOM Disclosure Schedule are the
following financial statements and notes (collectively, the "Financial
Statements") pertaining to XOOM:
(i) the unaudited balance sheets of XOOM as of December 31, 1996 and
December 31, 1997, and the related unaudited statements of operations, changes
in shareholder's equity and cash flows of XOOM for the fiscal years ended
December 31, 1996 and December 31, 1997 together with the notes thereto; and
(ii) the unaudited balance sheet of XOOM as of December 31, 1997 (the
"12/31/97 Balance Sheet"), and the related unaudited statements of operations,
changes in shareholder's equity and cash flows of XOOM, together with the notes
thereto.
(b) All of the Financial Statements are accurate and complete in all
material respects, and the dollar amount of each line item included in the
Financial Statements is accurate in all material respects. The financial
statements and notes referred to in Section 5.6(a) are in accordance with the
books and records of XOOM and present fairly the financial position of XOOM as
of the respective dates thereof and the results of operations, changes in
shareholders' equity and cash flows of XOOM for the periods covered thereby.
(c) Except as set forth in the XOOM Disclosure Schedule, XOOM has no
liabilities except those reflected or reserved against in the 12/31/97 Balance
Sheet and current liabilities incurred by XOOM in the ordinary course of
business since the date of the 12/31/97 Balance Sheet
5.7 NO MATERIAL CHANGES.
Except as otherwise set forth in the XOOM Disclosure Schedule, since
January 31, 1998 there has not been (a) any damage, destruction or loss (whether
or not covered by insurance) materially and adversely affecting the business,
financial condition or results of operations of XOOM; (b) any labor dispute
materially and adversely affecting the business, financial condition or results
of operations of XOOM; (c) any disposition of any capital asset of XOOM having a
net book value in excess of $15,000; (d) any discharge or satisfaction of any
obligation or liability of XOOM other than in the ordinary course of business;
or (e) any material adverse change in the business, financial condition or
results of operations of XOOM.
5.8 UNDISCLOSED LIABILITIES.
XOOM has no liabilities or obligations (whether absolute, contingent or
otherwise) which are material to XOOM, except for (a) those reflected, reserved
against or otherwise disclosed in the Financial Statements or the notes thereto
and not heretofore paid or discharged, (b) those disclosed in the XOOM
Disclosure Schedule, or (c) those incurred in, or as a result of, the ordinary
course of business of XOOM since the date of the 12/31/97 Balance Sheet.
5.9 LITIGATION.
Except as set forth in the XOOM Disclosure Schedule, there is no pending or
threatened action, suit, arbitration proceeding or investigation in any court or
before any governmental commission or agency against XOOM, which would have a
material adverse effect upon the business, financial condition or results of
operations of XOOM. There is no order, judgment or decree of any court or
governmental authority or agency
16
<PAGE>
which specifically applies to XOOM which would have a material adverse effect on
the business, financial condition or results of operations of XOOM.
5.10 PATENT, TRADEMARK AND RELATED MATTERS.
All of the material patents, registered trademarks, service marks and trade
names owned by XOOM and all material license agreements in which XOOM is the
licensee, at the date of this Agreement are listed in the XOOM Disclosure
Schedule. Except to the extent, if any, set forth in the XOOM Disclosure
Schedule, such patents, trademarks, service marks, trade names and licenses
(collectively, the "Intellectual Property") are, to XOOM's Knowledge, valid and
in full force and are adequate to permit XOOM to conduct its business as
presently conducted, except to the extent that such failure to be valid and in
full force would not have a material adverse effect on the business, financial
condition or results of operations of XOOM, and XOOM has received no written
notice of any event, inquiry or investigation threatening the validity of the
Intellectual Property.
5.11 CONTRACTS.
The XOOM Disclosure Schedule contains a complete list of every material
contract of XOOM which (i) is made with any officer, director or stockholder of
XOOM, or with any affiliate or relative of any such officer, director or
stockholder, (ii) is a contract of employment, (iii) is made with any labor
union, or other labor organization, (iv) is a bank loan or other credit
agreement, (v) other than outstanding purchase orders, requires, individually,
annual payments of more than $10,000 or aggregate payments over the life of the
contract of more than $50,000, (vi) is for a remaining term of more than one
year and is not cancelable as to all its provisions upon 60 days or less notice
without payment of any material penalty, or (vii) is entered into other than in
the ordinary course of business. XOOM Disclosure Schedule has made or will
promptly make available to the Company upon request true copies of each contract
so listed. XOOM and each of the other parties to the contracts set forth in the
XOOM Disclosure Schedule have in all material respects performed all material
obligations required to be performed by them under such contracts and no event
has occurred which would give any other party to any such contract the right to
terminate or otherwise fail to perform its obligations under the contracts.
5.12 REGISTRATION RIGHTS.
XOOM is not under any contractual obligation to Register any of its
securities. The term "Register" refers to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act of
1933, and the declaration or ordering of the effectiveness of such registration
statement.
5.13 RELATED-PARTY TRANSACTIONS.
No employee, officer, or director of XOOM or member of his or her immediate
family is indebted to XOOM, nor is XOOM indebted (or committed to make loans or
extend or guarantee credit) to any of them. To the best of XOOM's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which XOOM is affiliated or with which XOOM has a business
relationship, or any firm or corporation that competes with XOOM, except that
employees, officers, or directors of XOOM and members of their immediate
families may own stock in publicly traded companies that may compete with XOOM.
No member of the immediate family of any officer or director of XOOM is directly
or indirectly interested in any material contract with XOOM.
17
<PAGE>
5.14 VOTING AGREEMENTS.
Except for the Voting Agreement set forth in Section 10.2, in which XOOM's
shareholders will agree to vote their shares in favor of the election of Vijay
Vaidyanathan and Robert Ellis, among other things, none of the shareholders of
XOOM are parties to any voting agreement or any other agreement which would
require them to vote their shares in accordance with such agreement.
ARTICLE VI.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations, warranties and indemnities included or provided for in
this Agreement or in any schedule or certificate or other document delivered
pursuant to this Agreement will survive the Closing Date for a period of
eighteen months. No claim may be made by any party hereto under this article
unless written notice of the claim is given within that eighteen month period;
provided, however, that the foregoing limitation period will not apply to any
- --------
fraudulent breach, representation or warranty actually known to any party before
the Closing Date.
ARTICLE VII.
COVENANTS OF MERGERCO AND SHAREHOLDERS
7.1 ACCESS AND INVESTIGATION.
MergerCo shall ensure that, at all times after the date hereof and prior to
the Closing (the "Pre-Closing Period") MergerCo shall provide XOOM and its
representatives with free and complete access to MergerCo's representatives,
personnel, premises and assets and to all existing books, records, Tax Returns,
work papers and other documents and information relating to MergerCo.
7.2 OPERATION OF BUSINESS.
MergerCo shall ensure that, during the Preclosing Period (a) MergerCo
conducts its operations exclusively in the ordinary course of business and in
the same manner as such operations have been conducted prior to the date of this
Agreement; (b) MergerCo preserves intact its current business organization,
keeps available the services of its current officers and employees and maintains
its relations and goodwill with all suppliers, customers, landlords, creditors,
licensors, licensees, employees and other persons having business relationships
with MergerCo.
7.3 FINAL TAX RETURNS.
The Shareholders shall cause MergerCo's accountants to prepare and MergerCo
to timely file and pay amounts owed with respect to all Income Tax Returns not
already filed for MergerCo for all tax periods ended or ending on or before the
Closing Date and shall cause their accountants to prepare on a pro forma basis
all tax returns for MergerCo for the interim period from December 31, 1997 until
the Closing ("Final Returns"). The Shareholders shall send a copy of all Final
Returns as to which they are responsible to the Company for its review and
comment and, if required, appropriate execution, at least three (3) days prior
to the filing thereof. Unless it determines in good faith that it is required
to do so by applicable tax laws, the Company shall not (without the prior
written consent of MergerCo, which consent shall not be unreasonably withheld),
cause the Company to amend any of the Final Returns or other Tax Returns for
which the Shareholders are responsible.
18
<PAGE>
7.4 TAXES ON PSC Share Dividends.
The Stockholders shall pay and be fully liable for any taxes incurred by
MergerCo due to the dividend of Paralogic Software Corporation, a California
corporation ("PSC"), stock to the Shareholders prior to the Merger.
7.5 FEDERAL INCOME TAX REPORTING.
MergerCo and the Shareholders agree to report the Merger as a
"reorganization," within the meaning of Section 368(a) of the Code, but the
Shareholders shall not be liable for any adverse consequences suffered by XOOM
or the Company if the Merger fails to qualify as a reorganization.
7.6 NO NEGOTIATION.
MergerCo shall ensure that, during the Pre-Closing Period, neither MergerCo
nor any of its representatives directly or indirectly (i) solicits or encourages
the initiation of any inquiry, proposal or offer from any person relating to any
to acquisition of MergerCo or any of its assets or (ii) conducts any
negotiations relating to such acquisition.
ARTICLE VIII.
COVENANTS OF XOOM
8.1 TAX FREE REORGANIZATION.
(a) XOOM agrees to report the Merger as a reorganization within the meaning
of Section 368(a) of the Code.
(b) Prior to the Merger, XOOM will be in "control" of the Company within the
meaning of Section 368(c) of the Code.
(c) XOOM has no plan or intention to cause MergerCo to issue additional
shares of stock after the Merger, or take any other action, that would result in
XOOM losing Control of MergerCo.
(d) XOOM has no plan or intention to liquidate MergerCo; to merge MergerCo
with or into another corporation including XOOM affiliates; to sell, distribute
or otherwise dispose of the capital stock of MergerCo; or to cause MergerCo to
sell or otherwise dispose of any of its assets or of any of the assets acquired
from the Company except for dispositions made in the ordinary course of business
or payment of expenses incurred by MergerCo pursuant to the Merger.
(e) Following the Merger, the historic business of MergerCo will be continued
or a significant portion of MergerCo's historic business assets will be used in
a business.
(f) Following the Merger, XOOM and MergerCo will comply with the record-
keeping and information filing requirements of Section 1.368-3 of the Treasury
Regulations.
19
<PAGE>
ARTICLE IX.
CLOSING CONDITIONS OF XOOM AND THE COMPANY
XOOM and the Company's obligations to effect the Closing and consummate the
Merger are subject to the satisfaction of each of the following conditions:
9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Shareholders and MergerCo in this
Agreement shall have been true and correct as of the date of this Agreement and
shall be true and correct on and as of the Closing and each of the Shareholders
and MergerCo shall have performed all obligations in this Agreement required to
be performed or observed by them on or prior to the Closing.
9.2 ASSET PURCHASE AGREEMENT.
MergerCo shall have entered into an Asset Purchase Agreement with PSC in
substantially the form of Exhibit B hereto and the closing of the transactions
---------
described therein shall have occurred.
9.3 RELEASE AGREEMENT.
XOOM shall have received an executed Release Agreement from Dipendra Nigam
in substantially the form of Exhibit C hereto, effective as of the Closing,
---------
releasing MergerCo, PSC, the Company and XOOM from any liability or claims
described therein.
9.4 LICENSE AGREEMENT.
XOOM shall have received an executed License Agreement from PSC in
substantially the form of Exhibit D hereto pursuant to which XOOM obtains
---------
certain nonexclusive rights to use of the name "Paralogic" and related service
and trademarks.
9.5 SOFTWARE AGREEMENT AMENDMENT.
XOOM share have received an executed Amendment to the Software License
Agreement between MergerCo and XOOM in the form of Exhibit E to this Agreement.
---------
ARTICLE X.
CLOSING CONDITIONS OF THE SHAREHOLDERS AND MERGERCO
The Shareholders' and MergerCo's obligations to effect the Closing and
consummate the Merger are subject to the satisfaction of each of the following
conditions:
10.1 EMPLOYMENT AGREEMENT.
The Company shall have entered into an employment agreement, effective as
of the Closing, with Vijay Vaidyanathan on substantially the terms set forth in
Exhibit F hereto.
- ---------
20
<PAGE>
10.2 VOTING AGREEMENT.
The shareholders of XOOM shall have entered into a Voting Agreement
substantially in the form of Exhibit G hereto requiring among other things, that
---------
XOOM's shareholders vote their common shares in such manner as to elect to
XOOM's Board of Directors one director designated by Vijay Vaidyanathan until
XOOM has completed either (i) a sale of all or substantially all of the assets
of XOOM, (ii) a merger of XOOM with or into another entity at the close of which
the shareholders of XOOM immediately prior to such merger own less than 50% of
the voting securities of the surviving entity, or (iii) an initial public
offering.
10.3 AGREEMENT REGARDING USE OF WEBPAGE.COM DOMAIN NAME.
The Company shall have entered into an agreement in the form of Exhibit H
---------
hereto giving PSC the nonexclusive right to use the domain name Webpage.com for
a period of 18 months following the Closing.
10.4 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and XOOM in this
Agreement shall have been true and correct as of the Closing and each of the
Company and XOOM shall have performed all obligations in this Agreement required
to be performed or observed by them on or prior to the Closing.
ARTICLE XI.
FURTHER ASSURANCES
Each of the parties hereto agrees that it will, from time to time after the
date of the Agreement, execute and deliver such other certificates, documents
and instruments and take such other action as may be reasonably requested by the
other party to carry out the actions and transactions contemplated by this
Agreement, including the closing conditions described in Articles IX and X.
ARTICLE XII.
INDEMNIFICATION
12.1 INDEMNIFICATION BY THE SHAREHOLDERS
In the event any of the Shareholders (i) breaches or is deemed to have
breached any of their representations and warranties contained in Article IV
herein or (ii) fails to perform or comply with any of the covenants and
agreements set forth in this Agreement, provided that the Company or XOOM makes
a written claim for indemnification against any of the Shareholders pursuant to
Section 12.4 below, then such Shareholder agrees to indemnify the Company and
XOOM, and each of their directors, officers, shareholders, attorneys,
representatives and agents (except for such persons who are also Shareholders),
from and against any Losses incurred or paid by the Company or XOOM to the
extent such Losses arise or result from a breach by such Shareholder of any
representation and warranty contained in Article IV or a violation of any
covenant in this Agreement. "Losses" shall mean all damages, awards, judgments,
payments, diminutions in value, all interest thereon, costs and expenses of
investigating claims, lawsuits or arbitration and any appeal from any of the
foregoing and reasonable attorneys fees incurred in connection therewith.
21
<PAGE>
12.2 INDEMNIFICATION BY THE COMPANY AND XOOM
In the event the Company or XOOM (i) breaches or is deemed to have breached
any of its representations and warranties contained in Article V herein or (ii)
fails to perform or comply with any of the covenants and agreements set forth in
this Agreement, provided that any of the Shareholders makes a written claim for
indemnification against the Company or XOOM pursuant to Section 12.4 below, then
the Company and XOOM agree to indemnify the Shareholders from and against any
Losses incurred or paid by the Shareholders to the extent such Losses arise or
result from a breach by the Company or XOOM of any representation and warranty
contained in Article V or a violation of any covenant in this Agreement.
"Losses" shall mean all damages, awards, judgments, payments, diminutions in
value, all interest thereon, costs and expenses of investigating claims,
lawsuits or arbitration and any appeal from any of the foregoing and reasonable
attorneys fees incurred in connection therewith.
12.3 NOTIFICATION OF CLAIMS
If any party or parties (the "Indemnified Party") reasonably believes that
it is entitled to indemnification hereunder, or otherwise receives notice of the
assertion or commencement of any third-party claim, action, or proceeding (a
"Third-Party Claim"), with respect to which such other party or parties (the
"Indemnifying Party") is obligated to provide indemnification pursuant to
Section 12.1 or 12.2 above, the Indemnified Party shall promptly give the
Indemnifying Party written notice of such claim for Indemnification (an
"Indemnity Claim"). Any claim for indemnification under this Section 12 must be
brought prior to the expiration of the survival period for the representation
and warranty as set forth in Article VI. The delivery of such notice of
Indemnity Claim ("Claim Notice") shall be a condition precedent to any liability
of the Indemnifying Party for indemnification hereunder. The Indemnifying Party
shall have twenty (20) days from the receipt of a Claim Notice (the "Notice
Period") to notify the Indemnified Party of whether or not the Indemnifying
Party disputes its liability to the Indemnified Party with respect to such
Indemnity Claim.
12.4 RESOLUTION OF CLAIMS
(a) With respect to any Indemnity Claim involving a Third-Party Claim,
following prompt notification of the Indemnifying Party, the Indemnified Party
shall proceed with the defense of such Third-Party Claim. During such defense
proceedings, the Indemnified Party shall keep the Indemnifying Party informed of
all material developments and events relating to the proceedings. The
Indemnifying Party shall have a right to be present at the negotiation, defense
and settlement of such Third-Party Claim. The Indemnified Party shall not agree
to any settlement of the Third-Party Claim without the consent of the
Indemnifying Party, which shall not be unreasonably withheld. Following entry of
judgment or settlement with respect to the Third-Party Claim, the liability of
the Indemnifying Party with respect to the Indemnity Claim shall be resolved as
provided in Section 12.5.
(b) with respect to any Indemnity Claim not involving a Third-Party
Claim, if the Indemnifying Party disputes its liability within the Notice
Period, the liability of the Indemnifying Party shall be resolved in accordance
with Section 12.5.
(c) In the event that an Indemnified Party makes an Indemnity Claim in
accordance with Section 12.3 and the Indemnifying Party does not dispute its
liability within the Notice Period, the amount of such Indemnity Claim shall be
conclusively deemed a liability of the Indemnifying Party.
22
<PAGE>
12.5 ARBITRATION.
All disputes under this Section 12 shall be settled by arbitration in San
Francisco, California before a single arbitrator pursuant to the rules of the
American Arbitration Association. Arbitration may be commenced at any time by
any party hereto giving written notice to each other party to a dispute that
such dispute has been referred to arbitration under this Section 12.5. The
arbitrator shall be selected by the joint agreement of the Indemnifying Party
and Indemnified Party, but if they do not so agree within 20 days after the date
of the notice referred to above, the selection shall be made pursuant to the
rules from the panels of arbitrators maintained by such Association. Any award
rendered by the arbitrator shall be conclusive and binding upon the parties
hereto; provided, however, that any such award shall be accompanied by a written
-------- -------
opinion of the arbitrator giving the reasons for the award. This provision for
arbitration shall be specifically enforceable by the parties and the decision of
the arbitrator in accordance herewith shall be final and binding and there shall
be no right to appeal therefrom. Each party shall pay its own expenses of
arbitration and the expenses of the arbitrator shall be equally shared;
provided, however, that if in the opinion of the arbitrator any claim for
- -------- -------
indemnification or any defense or objection thereto was unreasonable, the
arbitrator may assess, as part of his award, all or any part of the arbitration
expenses of the other party (including reasonable attorneys' fees) and of the
arbitrator against the party raising such unreasonable claim, defense or
objection. To the extent that arbitration may not be legally permitted
hereunder and the parties to any dispute hereunder may not at the time of such
dispute mutually agree to submit such dispute to arbitration, any party may
commence a civil action in a court of appropriate jurisdiction to solve disputes
hereunder. Nothing contained in this Section 12.5 shall prevent the parties
from settling any dispute by mutual agreement at any time.
12.6 INDEMNIFICATION THRESHOLD
Notwithstanding anything to the contrary herein, in no event shall any
Shareholder, the Company or XOOM be liable to the other party under any
warranty, representation, indemnity or covenant made by such party in this
Agreement until the aggregate amount of liability of all claims thereunder
against such party exceeds fifty thousand ($50,000) (the "Threshold"), at which
point such party shall be liable for the full amount of liability for such
claims.
12.7 LIMITATION OF LIABILITY; EXCLUSIVE REMEDY
(a) Notwithstanding anything to the contrary herein, in no event shall
any Shareholder's obligation to indemnify the Company and/or XOOM exceed the
lesser of (A) the amount equal to such Shareholder's pro rata allocation of
$1,977,500, or (B) the sum of the fair market value of the XOOM common shares
received by such Shareholder together with such Shareholder's pro rata share of
any unpaid cash consideration set forth in Section 2.4. Any disputes regarding
the fair market value of the XOOM common shares shall be resolved in accordance
with Section 12.5.
(b) Notwithstanding anything to the contrary herein, in no event shall
the obligation of XOOM or the Company to indemnify the Shareholders exceed
$1.977,500 together with such Shareholder's pro rata share of any unpaid cash
consideration set forth in Section 2.4.
(c) The parties hereto acknowledge and agree that the foregoing
indemnification provisions in this Section 12 shall be the exclusive remedy of
the Company, XOOM, MergerCo and the Shareholders with respect to MergerCo, its
subsidiaries, and the transactions contemplated by this Agreement.
23
<PAGE>
ARTICLE XIII.
RESTRICTIONS ON XOOM COMMON SHARES
13.1 RIGHT OF FIRST REFUSAL/TRANSFER RESTRICTIONS.
(a) Restrictions on Transfer. A Shareholder may not sell or engage in any
------------------------
transaction which will result in a change in the beneficial or record ownership
of any XOOM common shares ("Shares") issued to or held by Shareholder, including
without limitation a voluntary or involuntary sale, assignment, transfer,
pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy (a
"Transfer"), except as provided in this Agreement, and any such Transfer of XOOM
common shares or attempted Transfer of XOOM common shares in contravention of
this Agreement shall be void and ineffective for any purpose and shall not
confer on any transferee or purported transferee any rights whatsoever.
(b) Right of First Refusal.
----------------------
(i) If, prior to an initial public offering of XOOM's securities or a
merger or sale of XOOM, a Shareholder proposes to Transfer (or is required by
operation of law or other involuntary transfer) any or all of the XOOM common
shares standing in Shareholder's name or owned by him, Shareholder shall first
offer such Shares to XOOM in accordance with the following provisions:
(A) Shareholder shall deliver a written notice (a "Notice") to XOOM
stating (A) Shareholder's bona fide intention to Transfer such Shares, (B) the
name and address of the proposed transferee, (C) the number of Shares to be
transferred, and (D) the purchase price per Share and terms of payment for which
Shareholder proposes to Transfer such Shares.
(B) Within 60 days after receipt of the Notice, XOOM or its designee
shall have the first right to purchase or obtain such Shares, upon the price and
terms of payment designated in the Notice. If the Notice provides for the
payment of non-cash consideration, XOOM at its option may pay the consideration
in cash equal to XOOM's good faith estimate of the present fair market value of
the non-cash consideration offered.
(C) If XOOM or its designee elects not to purchase or obtain all of the
Shares designated in the selling Shareholder's Notice, then the Shareholder may
Transfer the Shares referred to in the Notice to the proposed transferee,
providing such Transfer (i) is completed within 30 days after the expiration of
XOOM's right to purchase or obtain such Shares, (ii) is made at the price and
terms designated in the Notice, and (iii) the proposed transferee agrees to be
bound by the terms and provisions of this Article XIII and to become a party to
an agreement containing such provisions immediately upon receipt of such Shares.
If such Shares are not so transferred, the selling Shareholder must give notice
in accordance with this paragraph prior to any other or subsequent Transfer of
such Shares.
(ii) Notwithstanding Section 13.1(a), Shareholder may Transfer Shares: (A) to
the Shareholder's spouse, child, grandchild, parent, brother, or sister
("Immediate Family"), or to a trust established for the benefit of a member or
members of the Shareholder's Immediate Family, (B) to an Affiliate (as
hereinafter defined) or equity holder of the Shareholder, (C) to a person who is
a constituent partner of the Shareholder on the date hereof, or (D) to the
estate of any of the foregoing by gift, will or intestate succession; provided
that the Shareholder or his representative notifies XOOM of such Transfer not
less than 10 nor more than 90 days prior to the Transfer and that the proposed
transferee agrees to be bound by the terms and provisions of this Agreement and
to become a party to this Agreement immediately upon the receipt of such
24
<PAGE>
Shares. "Affiliate" means, with respect to any person or entity, any person or
entity which controls, is controlled by, or is under common control with, such
person or entity, or any stockholder or other equity owner in a control
relationship with any of the foregoing. For this purpose the term "control"
shall mean the direct or indirect beneficial ownership of at least fifty percent
(50%) of the voting stock or interest in the income of such person or entity, or
such other relationship as, in fact, constitutes actual control.
(c) No Transfer to Competitors. Shareholder may not Transfer any Shares
--------------------------
to a competitor of XOOM, or to any stockholder, partner or other beneficial
holder of an equity ownership interest in a competitor, other than pursuant to a
merger, combination, or other transaction approved by the Board of Directors of
XOOM.
(d) Legend on Stock Certificates. Each certificate representing shares
----------------------------
owned of record or beneficially by a party to this Agreement shall be endorsed
with the following legends:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT
BETWEEN XOOM, INC. (THE "COMPANY") AND THE HOLDER, PROVIDING FOR, AMONG
OTHER MATTERS, THE COMPANY'S RIGHT OF FIRST REFUSAL TO PURCHASE THE
SECURITIES REPRESENTED BY THIS CERTIFICATE. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE PRINCIPAL BUSINESS OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE ACT, OR
THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
EXEMPTIONS FROM SUCH REGISTRATION AND FROM THE PROVISIONS OF ANY APPLICABLE
STATE "BLUE SKY" LAWS ARE AVAILABLE.
Under no circumstances shall any Transfer of any Shares subject hereto be
valid until the proposed transferee thereof shall have executed and become a
party to the agreement described in Section 13.1(b)(i)(C) and thereby shall have
become subject to all of the provisions of this Article XIII; and
notwithstanding any other provisions of this Agreement, no such Transfer of any
kind shall in any event result in the non-applicability of the provisions hereof
at any time to any of the Shares subject hereto. The Shareholder understands
and acknowledges that the Company need not register a transfer of Shares, and
may instruct its transfer agent not to register a transfer of Shares, unless the
conditions specified in the foregoing last legend are satisfied.
(e) Acknowledgments. Shareholder acknowledges that other stockholders of
---------------
the Company may have restrictions on their stockholdings different than the
terms contained herein.
13.2 LOCK-UP AGREEMENT.
Shareholder, if requested by an underwriter of XOOM common shares or other
securities of XOOM, shall not sell or otherwise transfer or dispose of any XOOM
common shares held by the Shareholder during the 180-day period following the
effective date of a registration statement of XOOM filed under the Act or such
shorter period of time as the underwriter shall require, provided that all
officers and directors of XOOM who hold common stock (or other securities) of
XOOM enter into similar agreements. If requested by the underwriter,
Shareholder will reaffirm the agreement set forth in this Section 13.2 in a
separate writing in a form satisfactory to such underwriter. XOOM may impose
stop-transfer instructions with respect to such XOOM common shares subject to
the foregoing restriction until the end of said period.
25
<PAGE>
ARTICLE XIV.
MISCELLANEOUS
14.1 EXPENSES.
The Company, MergerCo, and each Shareholder shall bear his, her or its own
expenses incurred in connection with the negotiation and consummation of the
transactions contemplated by this Agreement.
14.2 ENTIRE AGREEMENT.
This Agreement and the agreements referred to in Articles IX and X contain
the entire agreement of the parties hereto, and supersede any prior written or
oral agreements between them concerning the subject matter contained herein, or
therein. There are no representations, agreements, arrangements or
understandings, oral or written, between the parties to this Agreement, relating
to the subject matter contained in this Agreement and the agreements referred to
in Articles IX and X, which are not fully expressed herein or therein. The
schedules and each exhibit attached to this Agreement or delivered pursuant to
this Agreement are incorporated herein by this reference and constitute a part
of this Agreement.
14.3 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.
Prior to the Closing Date, none of the Company, Shareholders nor MergerCo
shall issue any press release or make any public announcement concerning the
matters set forth in this Agreement (other than as required by applicable
disclosure rules or regulations) without the consent of the other party. The
Company, Shareholders and MergerCo will cooperate to jointly prepare and issue
any press release which may be issued to announce the closing of the transaction
contemplated by this Agreement.
14.4 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
instrument.
14.5 DESCRIPTIVE HEADINGS.
The Article and Section headings in this Agreement are for convenience only
and shall not affect the meanings or construction of any provision of this
Agreement.
14.6 NOTICES.
Any notices required or permitted to be given under this Agreement shall be
in writing and shall be deemed sufficiently given on the date delivered
personally, or five (5) days after posting by registered or certified mail,
postage prepaid, addressed as follows:
If to the Company or XOOM: XOOM, Inc.
433 California Street, Suite 910
San Francisco, CA 94104
Attention: Laurent Massa
26
<PAGE>
With a copy to: Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Attention: Bruce Mann, Esq.
And if to Shareholders, to the address of each Shareholder set forth on the
signature page of this Agreement:
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Raj Aji, Esq.
or to such other address or addresses as a party shall have previously
designated by notice to the sender given in accordance with this section.
14.7 CHOICE OF LAW
This Agreement shall be construed in accordance with and governed by the
laws of the State of California.
14.8 BINDING EFFECT; BENEFITS
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer on any person other than
the parties or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
14.9 ASSIGNABILITY
Neither this Agreement nor any of the parties' rights hereunder shall be
assignable by either party without the prior written consent of the other party
and any attempted assignment without such consent shall be void.
14.10 WAIVER AND AMENDMENT
Any term or provision of this Agreement may be waived at any time by the
party which is entitled to the benefits thereof. The waiver by any party of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach. The parties may, by mutual agreement in
writing, amend this Agreement in any respect.
14.11 ATTORNEYS' FEES.
In the event of any action or proceeding to enforce the terms and
conditions of this Agreement, the prevailing party shall be entitled to an award
of reasonable attorneys' and experts' fees and costs, in addition to such other
relief as may be granted.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
27
<PAGE>
THE COMPANY:
XOOM Chat, Inc.
By: /s/ CHRIS KITZE
---------------
Name: Chris Kitze
Title: President
XOOM:
XOOM, Inc.
By: /s/ CHRIS KITZE
---------------
Name: Chris Kitze
Title: Chairman of the Board
MERGERCO:
Paralogic Corporation
By: /s/ VIJAY VAIDYANATHAN
----------------------
Vijay Vaidyanathan
President
THE SHAREHOLDERS:
/s/ VIJAY VAIDYANATHAN
----------------------
Vijay Vaidyanathan
Address: 4242 Nerissa Circle
Fremont, CA 94555
/s/ Helmut Hissen
-----------------
Helmut Hissen
Address: 848 La Para
Palo Alto, CA 94306
28
<PAGE>
Exhibit A
PARALOGIC CAPITALIZATION SCHEDULE
1. Vijay Vaidyanathan: 5,000 common shares
2. Helmut Hissen: 250 common shares
29
<PAGE>
EXHIBIT B
ASSET PURCHASE AGREEMENT
30
<PAGE>
PARALOGIC SOFTWARE CORPORATION
PARALOGIC CORPORATION
COMMON STOCK PURCHASE AGREEMENT
Dated as of February 23, 1998
<PAGE>
Paralogic Software Corporation
Paralogic Corporation
Common Stock Purchase Agreement
This Common Stock Purchase Agreement (the "Agreement") is made as of this
23rd day of February, 1998 (the "Effective Date") by and between Paralogic
Software Corporation, a California corporation, with offices at 2140 Peralta
Blvd., Suite 109, Fremont, CA 94536 ("Company") and Paralogic Corporation, a
California corporation, with offices at 2140 Peralta. Blvd., Suite 109, Fremont,
CA 94536 ("Paralogic").
BACKGROUND
In connection with the spin-off of Company from Paralogic, Paralogic
desires to transfer certain computer software and other assets to Company in
exchange for stock pursuant to the terms and conditions of this Agreement. It is
the understanding and intent of the parties for this transfer and exchange to
qualify as a transfer under Section 351 of the Internal Revenue Code.
AGREEMENT
1. Sale of Common Stock
1.1 Sale of Common Stock. Company hereby issues and sells to Paralogic an
--------------------
aggregate of twenty million (20,000,000) shares of the Company's Common Stock.
Company shall deliver to Paralogic a certificate registered in Paralogic's name
representing such number of shares within five (5) days of the Effective Date.
1.2 Restrictions on Transfer. In addition to any other limitation on
------------------------
transfer created by applicable securities laws, Paralogic shall not sell,
transfer, pledge, hypothecate, assign, encumber or dispose of any interest in
the Shares except in compliance with the provisions of this Section 1.2. Company
need not register a transfer of any Shares and may also instruct its transfer
agent to not register the transfer of Shares if the requirements specified in
this Section 1.2 are not satisfied.
(a) Standoff Agreement. Paralogic agrees, and shall require any and
------------------
all transferees of any or all of its Shares to also agree, in connection with
the Company's initial public offering of its equity securities, to not sell,
make any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any Shares (other than those included in the registration, if any)
without the prior written consent of the Company or its underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as may be requested by the
Company or such underwriters.
(b) Investment Representations. Paralogic shall require any and all
--------------------------
transferees of any or all of its Shares to deliver to Company the completed
Investment Representation Statement attached hereto as Exhibit E.
----------
1.3 Stock Certificate Legends. All certificates representing any of the
-------------------------
Shares subject to the provisions of this Agreement may have endorsed thereon the
following legends:
1
<PAGE>
(a) "The shares represented by this certificate are subject to certain
restrictions upon transfer as set forth in an agreement between the corporation
and the registered holder, a copy of which is on file at the principal office of
the corporation."
(b) "These securities have not been registered under the Securities
Act of 1933, as amended. they may not be sold, offered for sale, pledged or
hypothecated in the absence of any effective registration statement as to the
securities under said act or an opinion of counsel satisfactory to the
corporation that such registration is not required."
(c) Any legend deemed advisable in light of any applicable state
securities laws.
2. Sale of Assets
2.1 Transfer. In consideration of the sale of stock above, Paralogic
--------
hereby irrevocably sells, conveys, transfers, assigns, sets over and delivers to
Company all of Paralogic's right, title and interest in and to the assets and
properties of Paralogic set forth below (collectively the "Assets'), free and
clear of all liens, pledges, charges, claims, security interests or other
encumbrances of any sort:
(a) the computer software set forth in Exhibit A attached hereto
----------
("Software") and all technical, design, development, installation, operation and
maintenance information concerning the Software, including without limitation
source code, source documentation, source listings and annotations, engineering
notebooks, test data and test results ("Documentation'); and
(b) all trade secrets, information, technology and know-how in the
possession of or known by Paralogic relating to the design, programming, and
maintenance of Internet "chat" products ("Know-How"); and
(c) all current and future worldwide patents and other patent rights,
copyrights, trade secrets, and other intellectual property rights, whether
registered or unregistered, including without limitation all applications,
substitutions, divisions, continuations, continuation-in-parts, renewals,
extensions and registrations with respect thereto ("Intellectual Property
Rights") in and to the Software, Documentation and Know-How; and
(d) all causes of action against any parties relating to any right,
including any Intellectual Property Right, with respect to or relating to the
Software, Documentation or Know-How, whether arising before or after the
Effective Date, including the right to bring suit for past infringement or
misappropriation of any Intellectual Property Right;
(e) the tradenames trade marks and service marks set forth in Exhibit
-------
B attached hereto, including all goodwill associated therewith, and all
- --
intellectual property rights therein or related thereto, whether registered or
unregistered, including all trade mark rights and common law rights; and
-------
(f) certain accounts receivable as set forth in Exhibit F attached
----------
hereto.
2.2 Delivery of Assets; Bill of Sale. On the Effective Date, or such
--------------------------------
other date as Paralogic and Company may agree, Paralogic shall deliver to
Company (i) all of the Assets which are in tangible form, including without
limitation Source Code copies of all Software, (ii) a duly executed bill of sale
for the Assets, in the form attached hereto as Exhibit C, and (iii) a duly
---------
executed assignment of accounts receivables, in the form attached hereto as
Exhibit F, all at the address for Company set forth above. As
- ---------
2
<PAGE>
used herein, "Source Code" shall mean software in human-readable form, including
programmers' comments, data files and structures, header and include files,
macros, object libraries, programming tools not commercially available,
technical specifications, flowcharts and logic diagrams, schematics, annotations
and documentation reasonably required or necessary to enable an independent
third party programmer with reasonable programming skills to create, operate,
maintain, modify and improve the software without the help of any other person.
Data files containing Source Code must be in standard ASCII format and be
readable by a text editor.
2.3 No Assumption of Liabilities. Except as otherwise expressly set forth
----------------------------
herein, this Agreement does not transfer and Company does not assume and
expressly disclaims any and all costs, debts, claims, liabilities and
obligations of or relating to the ownership of the Assets or the operations of
Paralogic, whether prior to or after the Effective Date, and whether accrued,
absolute, contingent, matured, unmatured or otherwise. Without limiting the
foregoing, it is expressly agreed that Company shall not assume any liabilities
for employment, income, sales, property or other taxes incurred or accrued by
Paralogic, and it is further expressly agreed that Company shall not assume any
liabilities for third party claims of infringement of Intellectual Property
Rights with respect to any use or other exploitation of the Assets by Paralogic
or Paralogic's customers. Paralogic shall indemnify, defend and hold the Company
harmless from and against the entirety of any and all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, reasonable amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses incurred or suffered by Company or any of its
affiliates related to or arising out of any liabilities or obligations of
Paralogic.
2.4 Further Assurances. Paralogic hereby agrees that it will, at any time
------------------
and from time to time after the date hereof, upon the request of Company, its
successors or assigns, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, all such further acts, assignments,
conveyances and other assurances, documents and instruments of transfer as
Company or its successors or assigns may request for the assignment,
transferring, granting, conveying and confirming to Company or its successors or
assigns of the Assets, or for reducing to the possession of Company or its
successors or assigns all right, title and interest of Paralogic in or to any
and all of the Assets, including without limitation providing to Company such
support and cooperation as may be necessary to complete the transfer of the
Assets.
3. Assignment of Licenses
In consideration of the sale of stock above, Paralogic hereby assigns and
delegates to Company all of Paralogic's rights and obligations in and to all
agreements relating to the Software, Documentation or Know-How attached hereto
as Exhibit D to the extent permitted in such agreements, and Company thereby
----------
assumes and agrees to perform all obligations of Paralogic under such
agreements.
4. Confidentiality
Each of the parties hereto and their respective representatives will hold
in confidence any data and information obtained with respect to any other party,
or the business of any other party, from any representative, officer, director
or employee of such party, or from any books or records of such party in
connection with this Agreement or the transactions contemplated by this
Agreement, and shall not use such data and information or disclose the same to
others, except if such data or information is published
3
<PAGE>
or is a matter of public knowledge or is required by any applicable law or
regulation to be disclosed. Following the Effective Date, to the maximum extent
permitted by applicable law, the confidential information relating to the Assets
shall at all times be and remain the sole and exclusive property of Company, and
Paralogic agrees to observe confidentiality with regard to same and to insure
that its employees and shareholders do the same. It is understood and agreed
that any party's remedies at law for a breach by another party of its
obligations under this Article 8 will be inadequate and that the non-breaching
party shall, in the event of any such breach, be entitled to equitable relief
(including without limitation, injunctive relief and specific performance) in
addition to all other remedies provided under this Agreement or available to the
non-breaching party at law. The obligations and rights of the parties under this
Section shall survive any expiration or termination of this Agreement for any
reason whatsoever. If this Agreement is terminated for any reason, all written
data and information obtained by any of the parties hereto from any other party
in this matter shall be returned to the relevant party and each party agrees to
use all reasonable efforts to keep confidential any information obtained by it
in this matter unless and until such information is ascertainable from public or
published information or trade sources or is otherwise a matter of public
knowledge.
5. Miscellaneous
5.1 Governing Law; Venue. This Agreement shall be governed by and
--------------------
construed in accordance with the substantive laws of the State of California
applicable to contracts between California residents entered into and to be
performed entirely within the State of California. Any action or proceeding
brought by either party against the other arising out of or related to this
Agreement shall be brought only in a state or federal court of competent
jurisdiction located in Los Angeles, California, and the parties hereby consent
to the in personam jurisdiction of said courts.
5.2 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party upon any breach or default of any other
party under this Agreement shall impair any such right, power or remedy of that
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereunder
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of a
party of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise,
afforded to the parties hereunder shall be cumulative and not alternative.
5.3 Notices, Etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be effective upon hand
delivery by messenger or upon receipt by facsimile with a confirming copy sent
by first-class mail, postage prepaid, or five (5) days after deposit in the U.S.
postal system by certified or registered mail, return receipt requested, postage
prepaid:
If to Company:
Sheena Vaidyanathan
2140 Peralta Blvd., Suite 109
Fremont, CA 94536
With a copy to:
4
<PAGE>
Raj Aji
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
If to Paralogic:
Vijay Vaidyanathan
2140 Peralta Blvd., Suite 109
Fremont, CA 94536
or at such other address as the relevant party shall furnish to the other
parties in writing.
5.4 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
5.5 Assignment. Paralogic shall not assign this Agreement without the
----------
prior written consent of Company. Such consent may be withheld in Company's sole
discretion.
5.6 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
affiliates, subsidiaries, successors and assigns of the parties hereto.
5.7 Term of Agreement. This Agreement shall be perpetual and of unlimited
-----------------
term.
5.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable and all of which together shall
constitute one instrument.
5.9 Entire Agreement Amendment. This Agreement, along with all Exhibits,
--------------------------
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof and supersedes and revokes all other previous discussions,
understandings and agreements, whether oral or written, between the parties with
regard to the subject matter hereto. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of Paralogic and Company.
In Witness Whereof, the parties below have executed this Agreement as of
the date first above written
Paralogic Software Corporation
By: /s/ VIJAY VAIDYANATHAN
------------------
Name: Vijay Vaidyanathan
Title:
Paralogic Corporation
5
<PAGE>
By: /s/ VIJAY VAIDYANATHAN
----------------------
Name: Vijay Vaidyanathan
Title: President
[Signature Page to Common Stock Purchase Agreement]
6
<PAGE>
Exhibit A
Software ASSETS
Parachat
- --------
Web-based 100% Java chat server and client software including incomplete
features such as Message Boards and ParAde (advertisement delivery system for
ParaChat).
MuxSock
- -------
Optimization module for ParaChat utilizing socket multiplexing to improve
scalability and performance.
<PAGE>
EXHIBIT C
RELEASE AGREEMENT
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
<PAGE>
EXHIBIT D
LICENSE AGREEMENT
("PARALOGIC")
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
<PAGE>
EXHIBIT E
AMENDMENT OF SOFTWARE LICENSE AGREEMENT
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
<PAGE>
EXHIBIT F
EMPLOYMENT AGREEMENT
(SEE EXHIBIT 10.7 TO REGISTRANT'S S-1)
<PAGE>
EXHIBIT G
VOTING AGREEMENT
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
<PAGE>
EXHIBIT H
DOMAIN NAME LICENSE AGREEMENT
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
<PAGE>
MERGERCO DISCLOSURE SCHEDULE
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
<PAGE>
XOOM DISCLOSURE SCHEDULE
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
<PAGE>
EXHIBIT 10.11
AGREEMENT
AND
PLAN OF MERGER
AMONG
XOOM, INC.,
XOOM GBT MERGER CORP.,
GLOBAL BRIDGES TECHNOLOGIES, INC.
AND
THE SHAREHOLDER OF
GLOBAL BRIDGES TECHNOLOGIES, INC.
June 11, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE I. THE MERGER........................................... 1
1.1 The Merger............................................. 1
1.2 The Effective Date..................................... 2
1.3 The Surviving Corporation.............................. 2
1.4 Closing................................................ 2
ARTICLE II. CONVERSION OF SHARES................................ 2
2.1 Conversion of Shares................................... 2
2.2 Tax Withholding........................................ 2
2.3 The Merger Consideration............................... 3
2.4 Price Protection....................................... 3
2.5 Records Regarding Sitemail Revenues.................... 4
2.6 Repayment of Certain Debt Obligations.................. 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF GBT.............. 4
3.1 Requisite Consents; Nonviolation....................... 4
3.2 Due Organization of GBT; Authorizations................ 4
3.3 Capitalization......................................... 5
3.4 Authority; Binding Nature of Agreements................ 5
3.5 Subsidiaries etc....................................... 5
3.6 Financial Statements................................... 5
3.7 No Material Changes.................................... 6
3.8 Undisclosed Liabilities................................ 6
3.9 Governmental Authorizations; Compliance with Laws...... 6
3.10 Litigation............................................. 7
3.11 Employee Benefit Plans................................. 7
3.12 Patent, Trademark and Related Matters.................. 7
3.13 Real and Personal Property............................. 7
3.14 Insurance.............................................. 7
3.15 Taxes.................................................. 8
3.16 Environmental Matters.................................. 10
3.17 Contracts.............................................. 11
3.18 Accounts Receivable.................................... 11
3.19 Customers and Suppliers................................ 11
3.20 Bank Accounts.......................................... 11
3.21 Title to Properties; Encumbrances...................... 12
3.22 Compensation of Employees.............................. 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
3.23 Tax Status of Reorganization........................... 12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER... 13
4.1 Title to Common Shares................................. 13
4.2 Capacity............................................... 13
4.3 Confirmation of GBT's Representations and Warranties... 13
4.4 Purchase Entirely for Own Account...................... 14
4.5 Disclosure of Information.............................. 14
4.6 Release By Shareholder................................. 14
4.7 Release By Shareholder................................. 14
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND XOOM.......................................... 15
5.1 Due Incorporation; Requisite Power and Authority....... 15
5.2 Due Organization of XOOM and the Company............... 15
5.3 Requisite Consents; Nonviolation....................... 15
5.4 XOOM Stock............................................. 15
5.5 Capitalization......................................... 16
5.6 Financial Statements................................... 16
5.7 Litigation............................................. 17
5.8 Governmental Authorizations; Compliance with Laws...... 17
5.9 Contracts.............................................. 17
ARTICLE VI. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......... 17
ARTICLE VII. COVENANTS OF GBT AND SHAREHOLDER................... 18
7.1 Access and Investigation............................... 18
7.2 Operation of Business.................................. 18
7.3 Final Tax Returns...................................... 18
7.4 Federal Income Tax Reporting........................... 18
7.5 No Negotiation......................................... 18
ARTICLE VIII. COVENANTS OF XOOM................................. 19
8.1 Tax Free Reorganization................................ 19
ARTICLE IX. CLOSING CONDITIONS OF XOOM AND THE COMPANY.......... 19
9.1 Accuracy of Representations and Warranties............. 19
9.2 Consulting Agreement................................... 20
9.3 Technical Inspection................................... 20
9.4 Agreement with RSI..................................... 20
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
9.5 Assignment of Trademark Rights......................... 20
ARTICLE X. CLOSING CONDITIONS OF THE SHAREHOLDERS AND GBT....... 20
ARTICLE XI. FURTHER ASSURANCES.................................. 20
ARTICLE XII. INDEMNIFICATION.................................... 21
12.1 Indemnification by the Shareholder..................... 21
12.2 Indemnification by the Company and XOOM................ 21
12.3 Notification of Claims................................. 21
12.4 Resolution of Claims................................... 22
12.5 Arbitration............................................ 22
12.6 Indemnification Threshold.............................. 23
ARTICLE XIII. RESTRICTIONS ON XOOM COMMON SHARES................ 23
13.1 Right of First Refusal/Transfer Restrictions........... 23
13.2 Lock-Up Agreement...................................... 25
ARTICLE XIV. MISCELLANEOUS...................................... 26
14.1 Expenses............................................... 26
14.2 Setoff................................................. 26
14.3 Entire Agreement....................................... 26
14.4 Press Releases and Public Announcements................ 26
14.5 Counterparts........................................... 26
14.6 Descriptive Headings................................... 27
14.7 Notices................................................ 27
14.8 Choice of Law.......................................... 27
14.9 Binding Effect; Benefits............................... 27
14.10 Assignability.......................................... 27
14.11 Waiver and Amendment................................... 28
14.12 Attorneys' Fees........................................ 28
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of June 11,
1998 is entered into by and among XOOM, Inc., a Delaware corporation ("XOOM"),
XOOM GBT Merger Corp., a California corporation (the "Company"), Global Bridges
Technologies, Inc., a California corporation ("GBT"), and Robert Kohler, the
sole shareholder of GBT (the "Shareholder).
RECITALS
A. The respective Boards of Directors of each of the Company, XOOM and
GBT believe it is in the best interests of their respective companies and
shareholders that the Company and GBT combine into a single company through the
statutory merger of GBT with and into the Company, with the Company as the
surviving corporation (the "Merger"), and, in furtherance thereof, have approved
the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
common stock of GBT shall be exchanged for the Merger Consideration (as defined
in Section 2.3).
C. The parties to the Agreement intend that the Merger qualify as a
"reorganization," within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that GBT, the Company and XOOM will
each be a "party to a reorganization," within the meaning of Section 368(b) of
the Code, with respect to the Merger.
AGREEMENT
In consideration of the agreements, provisions and covenants set forth
below, GBT and the Shareholder, and the Company and XOOM hereby agree as
follows:
ARTICLE I.
THE MERGER
1.1 THE MERGER.
Subject to the terms and conditions of this Agreement, on the Effective
Date (as defined below), GBT shall be merged with and into the Company, and the
Company shall be the surviving corporation (the "Surviving Corporation") in such
merger, and the separate existence of GBT shall thereupon cease. The Merger
shall have the effects set forth in the General Corporation Law of the State of
California. Without limiting the generality of the foregoing, on the Effective
Date, all of the property, rights, privileges, powers and franchises of the
Company and GBT, including, but not limited to, GBT's exclusive license to the
web-based e-mail software system known as Sitemail ("Sitemail") and any license
agreements relating to Sitemail, shall vest in the Surviving Corporation.
<PAGE>
1.2 THE EFFECTIVE DATE.
The Merger shall become effective when a properly executed Agreement of
Merger and such other documents as may be required are duly filed with the
Secretary of State of the State of California, which filings shall be made as
soon as practicable after the Closing, or at such other time as the parties may
agree and may provide in the Agreement of Merger and such other documents (the
"Effective Date").
1.3 THE SURVIVING CORPORATION.
The Articles of Incorporation and Bylaws of the Company shall be the
Articles of Incorporation and Bylaws of the Surviving Corporation, each until
duly amended. The directors and officers of the Company on the Effective Date
shall be the directors and officers of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation, or as otherwise provided by law.
1.4 CLOSING.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at 1:00 p.m. local time, at the offices of Morrison
& Foerster llp, 425 Market Street, San Francisco, California 94105-2482, on June
11, 1998, or at such other time, date and place as the parties may mutually
agree (the "Closing Date"), provided that all of the conditions precedent to
closing set forth herein have been met..
ARTICLE II.
CONVERSION OF SHARES
2.1 CONVERSION OF SHARES.
By virtue of the Merger and without any action on the part of GBT, the
Company or the Shareholders, on the Effective Date, each common share of GBT
that is issued and outstanding immediately prior to the Effective Date shall be
converted into the right to receive 0.27514 common shares of XOOM and the
additional Merger Consideration described in Section 2.3.
2.2 TAX WITHHOLDING.
The right of the Shareholder to receive any cash payment as part of the
Merger Consideration, as provided herein, shall be subject to and reduced by the
amount of any required tax withholding obligation. To the extent that the
Company or XOOM withholds taxes from payments to the Shareholder, it shall
provide the Shareholder with documentary evidence of any amounts so withheld and
information as to the basis therefor.
2
<PAGE>
2.3 THE MERGER CONSIDERATION.
The Shareholder shall be entitled to receive the following consideration
for his shares of GBT (in the aggregate, the "Merger Consideration"):
(a) Shares. On the Effective Date, provided the Shareholder has delivered
------
to XOOM all of the certificates evidencing his shares of GBT, together with a
stock power executed in blank, the Shareholder shall receive a certificate
evidencing the aggregate number of common shares of XOOM ("XOOM Stock") rounded
to the nearest whole number, to which the Shareholder is entitled pursuant to
Section 2.1.
(b) Cash Payment. The Shareholder shall receive a promissory note in
------------
substantially the form of Exhibit A hereto in the original principal amount of
---------
$62,500, payable in twenty-five (25) equal and consecutive monthly payments of
$2,500 each, with simple interest payable at the per annum rate of five percent
(5%).
(c) Earnout. During the twenty-four months beginning with the first full
-------
month after the Closing, an amount equal to five percent (5%) of the gross
revenues (less sales commissions, cost of goods, royalties paid to third
parties, credits, returns and applicable taxes) (not including taxes based on
XOOM's income)) from electronic commerce, banner advertising and bounty
generated and actually received from web-based e-mail subscribers ordering
services or merchandise through Best/Hway Earthlink and/or Netcom (the "GBT
---
Sitemail Revenues").
- -----------------
2.4 PRICE PROTECTION.
If, from the date of the Closing until the date on which Xoom has (i)
completed an initial public offering ("IPO") of its securities (ii) XOOM obtains
---
additional equity financing (iii) XOOM enters into an agreement for the sale,
lease or other disposition of all or substantially all of the assets of XOOM,
(iv) there is a sale by shareholders of XOOM, in a single transaction or a
series of related transactions, of more than fifty percent (50%) of the
outstanding voting stock of XOOM ("XOOM Stock"), or (v) XOOM effects a merger
-----------
with or into another entity where it is not the survivor (other than a merger
solely for the purpose of changing the state of incorporation or effecting a
recapitalization of XOOM), or a consolidation or other reorganization, and
shareholders of XOOM prior to such event own less than 50% of the outstanding
voting securities of the survivor, (any of subsections (i), (ii) (iii), (iv) or
(v), a "Transaction"), and the valuation of XOOM for purposes of any such
-----------
Transaction is less than $25 million, the Shareholder shall be entitled to
receive an additional number of shares of XOOM Stock calculated as (A) (i)
$610,804 divided by (ii) the per share valuation of XOOM's common shares in the
Transaction or IPO, minus (B) the aggregate number of shares of XOOM Stock
-----
issued to the Shareholder under this Agreement other than pursuant to this
Section 2.3(d), together with cash for any fractional shares; provided, however,
-------- -------
that Shareholder may elect to receive, instead of additional Xoom Stock, an
identical number of options to purchase such additional XOOM Stock with an
exercise price equal to fair market value as of day of the closing of a
Transaction. For any Transaction, such additional Xoom Stock (or options) shall
be deemed issued to the Shareholder immediately prior to the closing thereof.
XOOM's obligations under
3
<PAGE>
this Section 2.3 shall terminate upon the completion of an IPO or a Transaction,
other than a Transaction pursuant to subsection (ii).
2.5 RECORDS REGARDING SITEMAIL REVENUES.
XOOM shall maintain, until three (3) years after the Effective Date, all
such books, records and accounts as necessary to permit computation of and
accounting for amounts payable under Section 2.3 for the twenty-four month
period in which Shareholder is entitled to a percentage of GBT Sitemail
Revenues. Shareholder, or its agent, shall have the right, during such three
year period, to audit and examine such books, records and accounts during
XOOM's normal business hours no more than once per year upon no less than thirty
(30) days' written notice to verify the accuracy of the reports and payments
made to Shareholder hereunder. If a discrepancy is found in favor of XOOM which
exceeds five percent (5%) of the payment actually due to Shareholder under
Section 2.3(c), Shareholder shall be reimbursed for its reasonable expenses
associated with the audit.
2.6 REPAYMENT OF CERTAIN DEBT OBLIGATIONS.
At the Closing, Shareholder shall receive a check in the amount of $12,500
in repayment of debt obligations of GBT owed to Shareholder.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF GBT
Except as set forth in the Disclosure Schedule attached hereto provided by
GBT (the "GBT Disclosure Schedule"), the parts of which are numbered to
correspond to the section numbers of this Agreement, GBT hereby represents and
warrants to the Company and XOOM as of the date hereof and as of the Closing
Date, as follows:
3.1 REQUISITE CONSENTS; NONVIOLATION.
The execution and delivery of this Agreement by GBT and the Shareholder and
the consummation of the transactions contemplated by this Agreement will not (a)
to GBT's knowledge, and except as set forth in this Agreement, require the
consent, approval or authorization of any governmental person or entity (except
such approvals or filings as may be required to comply with applicable state
securities laws), (b) violate or conflict with the provisions of the Articles of
Incorporation or Bylaws of GBT, or (c) constitute a default under, violate or
conflict with any material contract, note, lease or mortgage to which GBT or the
Shareholder is a party or by which GBT or the Shareholder is bound or to which
GBT or any of its properties or the Shareholder or any of his properties is
subject.
3.2 DUE ORGANIZATION OF GBT; AUTHORIZATIONS.
GBT (a) has been duly organized and is validly existing and in good
standing as a corporation under the laws of the State of California, (b) is duly
qualified to do business in and is
4
<PAGE>
in good standing under the laws of every jurisdiction where it is required to be
so qualified, except where the failure to be so qualified will not adversely
affect its business, financial condition or results of operations and (c) has
all requisite corporate power and authority to own or lease and to operate its
properties and carry on its business.
3.3 CAPITALIZATION.
The authorized capital stock of GBT consists of 20,000,000 shares of stock,
of which 10,000,000 are designated as common stock and 10,000,000 are designated
as preferred stock. 1,000,000 shares of common stock are issued and outstanding.
All of the issued and outstanding shares of common stock have been duly
authorized and validly issued and are fully paid and nonassessable. Other than
the common stock, GBT does not have outstanding any other voting or equity
securities or interests. Except as set forth in the GBT Disclosure Schedule,
GBT has no outstanding obligations, understandings or commitments regarding the
issuance of any additional shares of its stock, voting or equity securities or
interests or other securities, or any options, rights, warrants or securities
exercisable for or convertible into such shares, securities or interests. There
are no preemptive rights or rights of first refusal in respect of the common
shares of GBT.
3.4 AUTHORITY; BINDING NATURE OF AGREEMENTS.
GBT has the power and authority to enter into and to perform its
obligations under this Agreement, and the execution, delivery and performance by
GBT of this Agreement have been duly authorized by all necessary action on the
part of GBT and its shareholder, Board of Directors and officers. This
Agreement constitutes the legal, valid and binding obligation of GBT enforceable
against GBT in accordance with its terms, except as rights to indemnity may be
limited by applicable laws and except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditor's rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
3.5 SUBSIDIARIES ETC.
GBT does not own or control any equity interest in any corporation,
partnership, joint venture or other legal entity.
3.6 FINANCIAL STATEMENTS.
(a) GBT has delivered to the Company the following financial statements and
notes (collectively, the "Financial Statements"), which are attached to Part
3.6(a) of the GBT Disclosure Schedule:
(i) the unaudited balance sheets of GBT as of December 31, 1996 and
December 31, 1997, and the related unaudited statements of operations,
changes in shareholder's equity and cash flows of GBT for the fiscal years
ended December 31, 1996 and December 31, 1997, together with the notes
thereto; and
5
<PAGE>
(ii) the unaudited balance sheet of GBT as of April 30, 1998 (the
"Unaudited Interim Balance Sheet"), and the related unaudited statements of
operations, changes in shareholder's equity and cash flows of GBT, together
with the notes thereto.
(b) All of the Financial Statements are accurate and complete in all
material respects, and the dollar amount of each line item included in the
Financial Statements is accurate in all material respects. The Financial
Statements are in accordance with the books and records of GBT and present
fairly the financial position of GBT as of the respective dates thereof and the
results of operations, changes in shareholder's equity and cash flows of GBT for
the periods covered thereby.
(c) Except as set forth in the GBT Disclosure Schedule, GBT has no
liabilities except those reflected or reserved against in the Unaudited Interim
Balance Sheet and current liabilities incurred by GBT in the ordinary course of
business since the date of the Unaudited Interim Balance Sheet.
3.7 NO MATERIAL CHANGES.
Except as otherwise set forth in the GBT Disclosure Schedule, since April
30, 1998 there has not been (a) any damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting the business, financial
condition or results of operations of GBT; (b) any labor dispute materially and
adversely affecting the business, financial condition or results of operations
of GBT; (c) any disposition of any capital asset of GBT having a net book value
in excess of $5,000; (d) any discharge or satisfaction of any obligation or
liability of GBT other than in the ordinary course of business; or (e) any
material adverse change in the business, financial condition or results of
operations of GBT.
3.8 UNDISCLOSED LIABILITIES.
GBT has no liabilities or obligations (whether absolute, contingent or
otherwise) that are material to GBT, except for (a) those reflected, reserved
against or otherwise disclosed in the Financial Statements and not heretofore
paid or discharged, (b) those disclosed in the GBT Disclosure Schedule, or (c)
those incurred in, or as a result of, the ordinary course of business of GBT
since the date of the Unaudited Interim Balance Sheet.
3.9 GOVERNMENTAL AUTHORIZATIONS; COMPLIANCE WITH LAWS.
GBT has, to its knowledge, all material governmental licenses, permits,
approvals and other governmental authorizations necessary to permit the
operation of the business of GBT, as presently conducted. GBT is in compliance
with all applicable laws, regulations, orders, judgments and decrees, except
where the failure to be in such compliance would not have a material adverse
effect on the business, financial condition or results of operations of GBT.
6
<PAGE>
3.10 LITIGATION.
Except as set forth in the GBT Disclosure Schedule, there is no pending or,
to GBT's knowledge, threatened action, suit, arbitration proceeding or
investigation in any court or before any governmental commission or agency
against GBT which would have a material adverse effect upon the business,
financial condition or results of operations of GBT. There is no order,
judgment or decree of any court or governmental authority or agency which
specifically applies to GBT which would have a material adverse effect on the
business, financial condition or results of operations of GBT.
3.11 EMPLOYEE BENEFIT PLANS.
As used herein, the term "Employee Benefit Plan" means an "employee pension
benefit plan" as defined in Section 3(2)(A) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and an "employee welfare benefit
plan" as defined in Section 3(l) of ERISA. GBT, which for purposes hereof shall
include any of its subsidiaries or any organization which, together with GBT
and/or any such subsidiary, would be treated as a "single employer" within the
meaning of Section 414(b) or (c) of the Code, does not maintain or contribute to
(or have any obligation to contribute to) any Employee Benefit Plan.
3.12 PATENT, TRADEMARK AND RELATED MATTERS.
All of the material patents, registered trademarks, service marks and trade
names owned by GBT and all material license agreements in which GBT is the
licensee, at the date of this Agreement, are listed in the GBT Disclosure
Schedule. Except to the extent, if any, set forth in the GBT Disclosure
Schedule, such patents, trademarks, service marks, trade names and licenses
(collectively, the "Intellectual Property") are, to the Company's knowledge,
valid and in full force and are adequate to permit GBT to conduct its business
as presently conducted, except to the extent that such failure to be valid and
in full force would not have a material adverse effect on the business,
financial condition or results of operations of GBT. GBT has received no
written notice of any event, inquiry or investigation threatening the validity
of the Intellectual Property.
3.13 REAL AND PERSONAL PROPERTY.
The GBT Disclosure Schedule contains a list of all real and personal
property owned or leased by GBT as of the date hereof having, in the case of
leased property, an annual lease obligation in excess of $5,000 or, in the case
of owned property, a book value in excess of $5,000. All such property is owned
in fee or held under valid leases. There is not under any of such leases any
existing material default on the part of GBT nor any facts that would, with the
passage of time or giving of notice, constitute such a material default.
3.14 INSURANCE.
The GBT Disclosure Schedule lists all material insurance policies in force
with respect to GBT, its employees, officers and directors.
7
<PAGE>
3.15 TAXES.
(a) Definitions. For purposes of this Agreement, the following definitions
-----------
shall apply:
(i) "Tax" or "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes (including, but not limited
to, federal income taxes and state income taxes), payroll and employee
withholding taxes, unemployment insurance, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which GBT is required to pay, withhold or
collect.
(ii) "Tax Returns" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or required
to be filed in connection with, any Taxes, including information returns or
reports with respect to backup withholding and other payments to third
parties.
(b) Tax Returns Filed and Taxes Paid. All Tax Returns required to be filed
--------------------------------
by or on behalf of GBT have been duly filed on a timely basis and such Tax
Returns are true, complete and correct. All Taxes shown to be payable on the
Tax Returns or on subsequent assessments with respect thereto have been paid in
full on a timely basis, and no other Taxes are payable by GBT with respect to
items or periods covered by such Returns (whether or not shown on or reportable
on such Tax Returns). GBT has withheld and paid over all Taxes required to have
been withheld and paid over, and complied with all information reporting and
backup withholding requirements, including maintenance of required records with
respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. There are no liens on
any of the assets of GBT with respect to Taxes, other than liens for Taxes not
yet due and payable or for Taxes that GBT is contesting in good faith through
appropriate proceedings and for which appropriate reserves have been
established.
(c) Tax Returns Furnished. For all periods ending on and after December 31,
---------------------
beginning with the year in which GBT was formed, GBT has made available to the
Company true and complete copies of (i) relevant portions of income tax audit
reports, statements of deficiencies, and closing or other agreements received by
GBT or on behalf of GBT relating to Taxes, and (ii) all separate federal and
state income or franchise tax returns for GBT.
(d) Tax Reserves. The amount of GBT's liability for unpaid Taxes for all
------------
periods covered by the Financial Statements does not, in the aggregate, exceed
the amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals are reflected
8
<PAGE>
in the Financial Statements, and the amount of GBT's liability for unpaid Taxes
for all periods ending on or before the Closing Date shall not, in the
aggregate, exceed such accruals.
(e) Tax Deficiencies; Audits; Statutes of Limitations. To GBT's knowledge,
-------------------------------------------------
except as set forth in the GBT Disclosure Schedule, no deficiencies have been
asserted with respect to Taxes of GBT. GBT is not a party to any action or
proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened against GBT or any of its assets. No waiver or extension
of any statute of limitations is in effect with respect to Taxes or Tax Returns
of GBT. Except as set forth in the GBT Disclosure Schedule, the Tax Returns of
GBT have never been audited by a government or taxing authority, nor is any such
audit in process, pending or threatened. GBT has disclosed on its federal
income tax returns all positions taken therein that could give rise to a
substantial understatement penalty within the meaning of Section 6662 of the
Code.
(f) No Consolidated Group. GBT has not been included in any "consolidated,"
---------------------
"unitary" or "combined" group Tax Return provided for under the law of the
United States, any foreign jurisdiction or any state or locality with respect to
Taxes for any taxable period for which the statute of limitations has not
expired.
(g) No Tax Sharing. There are no tax sharing, allocation, indemnification
--------------
or similar agreements or arrangements in effect as between GBT or any
predecessor or affiliate thereof and any other party (including Shareholder and
any predecessor or affiliate thereof) under which the Company or GBT could be
liable for any Taxes of any party.
(h) Tax Elections and Special Tax Status. GBT is not nor has it been a
------------------------------------
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, and XOOM is not required to withhold tax on the
acquisition of GBT's common stock pursuant to Section 1445 of the Code. GBT is
not a "consenting corporation" under Section 341(f) of the Code. GBT has not
entered into any compensatory agreements with respect to the performance of
services under which payment would result in a nondeductible expense to the
group pursuant to Section 280G of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code. GBT has not participated in
an international boycott as defined in Code Section 999. GBT has not agreed to,
nor is it required to make, any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise. GBT has no permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States of America and such foreign country, and
GBT is not a party to any joint venture, partnership, or other agreement,
contract, or arrangement (either in writing or verbally, formally or informally)
which could be treated as a partnership for federal income tax purposes. GBT is
not an "S corporation," within the meaning of Section 1361(a) of the Code.
(i) Residency Matters. All of GBT's shareholders are, and at all times
-----------------
since GBT's formation have been, United States persons, within the meaning of
Section 7701(a)(30) of the Code ("U.S. Persons"), and GBT does not own nor has
it ever owned any interests in any entities that are not U.S. Persons.
9
<PAGE>
(j) Tax Basis and Tax Attributes. GBT has no net operating losses or other
----------------------------
tax attributes presently subject to limitation under Section 382, 383, or 384 of
the Code.
3.16 ENVIRONMENTAL MATTERS.
(a) Definitions. For purposes of this Agreement, the following definitions
--- -----------
shall apply:
(i) "Hazardous Materials" shall mean any hazardous substance, pollutant,
-------------------
contaminant, flammable explosives, radioactive materials and hazardous,
toxic or dangerous wastes and any other chemicals, materials or substances
which are identified, defined or regulated pursuant to any Hazardous
Materials Laws, or the release, discharge or exposure to which is
prohibited, limited or regulated by any federal, state or local government
under Hazardous Materials Laws and any petroleum, waste oil and petroleum
by-products, asbestos in any form, urea formaldehyde, and transformers or
other equipment that contain levels of polychlorinated biphenyls.
(ii) "Hazardous Materials Laws" shall mean any federal, state or local
------------------------
statute, law, rule, regulation, ordinance, code, binding policy or rule of
common law in effect and in each case as amended as of the Closing Date,
and any judicial or administrative interpretation thereof as of the Closing
Date, including any judicial or administrative order, consent decree or
judgment, relating to the protection of the environment, health or safety
from the release or disposal of Hazardous Materials, including without
limitation the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.; the Resource
-- ----
Conservation and Recovery Act, as amended, 42 U.S.C. (S) 9601 et seq.; the
-- ----
Federal Water Pollution Control Act, as amended, 33 U.S.C. (S) 1251 et
--
seq.; the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq.; the
---- -- ----
Clean Air Act, 42 U.S.C. (S) 7401 et seq.; the Safe Drinking Water Act, 42
-- ----
U.S.C. (S) 300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C. (S) 2701
-- ----
et seq.; and their state and local counterparts and equivalents.
-- ----
(iii) "Environmental Claims" shall mean any and all administrative,
--------------------
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notice of noncompliance or violation, investigations or proceedings
relating to any Hazardous Materials Law or any permit issued under any such
Law (hereafter "Claims"), including without limitation (a) any and all
Claims by governmental or regulatory authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Hazardous Materials Law, and (b) any and all Claims by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or
arising from alleged injury or threat of injury to health, safety or the
environment from release or disposal of Hazardous Materials.
(b) GBT is in compliance in all material respects with all Hazardous
Material Laws and all environmental permits required for the handling, use,
storage and disposition of
10
<PAGE>
Hazardous Materials under Hazardous Materials Laws that are applicable to GBT's
operations as presently conducted.
(c) There are no pending or, to the knowledge of GBT, threatened
Environmental Claims against GBT or any property of GBT.
(d) There are no facts, circumstances, conditions or occurrences regarding
GBT, its operations or any property of GBT that could reasonably be anticipated
to form the basis of an Environmental Claim against GBT.
3.17 CONTRACTS.
The GBT Disclosure Schedule contains a complete list of every material
contract of GBT which (i) is made with any officer, director or stockholder of
GBT, or with any affiliate or relative of any such officer, director or
stockholder, (ii) is a contract of employment, (iii) is made with any labor
union, or other labor organization, (iv) is a bank loan or other credit
agreement, (v) other than outstanding purchase orders, requires, individually,
annual payments of more than $10,000 or aggregate payments over the life of the
contract of more than $50,000, (vi) is for a remaining term of more than one
year and is not cancelable as to all its provisions upon 60 days' or less notice
without payment of any material penalty, or (vii) is entered into other than in
the ordinary course of business. GBT has made or will promptly make available
to the Company upon request true copies of each contract so listed. GBT and
each of the other parties to the contracts set forth in the GBT Disclosure
Schedule have in all material respects performed all material obligations
required to be performed by them under such contracts, and no event has occurred
which would give any other party to any such contract the right to terminate or
otherwise fail to perform its obligations under the contract.
3.18 ACCOUNTS RECEIVABLE.
Except to the extent set forth in the GBT Disclosure Schedule, the accounts
receivable of GBT reflected in the Unaudited Interim Balance Sheet represent
sales actually made in the ordinary course of business, and have been properly
reported, net of any reserves shown on the books of GBT, all in accordance with
the past practices of GBT, consistently applied.
3.19 CUSTOMERS AND SUPPLIERS.
Part 3.19(a) of the GBT Disclosure Schedule lists all customers of GBT in
the most recent full fiscal year. Except as disclosed in the GBT Disclosure
Schedule, since April 30, 1998, there has been no material adverse change in the
business relationship of GBT with any such customer.
3.20 BANK ACCOUNTS.
The GBT Disclosure Schedule sets forth the names and locations of all
banks, trust companies, brokerage firms or other financial institutions at which
GBT maintains an account and the name of each person authorized to draw thereon
or make withdrawals therefrom.
11
<PAGE>
3.21 TITLE TO PROPERTIES; ENCUMBRANCES.
Except as set forth in the GBT Disclosure Schedule, GBT has good title to
the material properties and assets (real and personal, tangible and intangible)
owned by it (and good leasehold title to the material properties and assets
leased by it), including, without limitation, the material properties and assets
reflected in the Financial Statements, subject to no encumbrance, lien, charge
or other restriction of any kind or character ("Encumbrances"), except for (i)
Encumbrances reflected in the Unaudited Interim Balance Sheet, (ii) Encumbrances
for current taxes, assessments or governmental charges or levies on property not
yet due and delinquent, (iii) Encumbrances arising by operation of law, (iv)
easements, rights-of-way, restrictions and other similar Encumbrances previously
incurred in the ordinary course of business which, in respect of properties or
assets of GBT, are not material and which, in the case of such Encumbrances on
the assets or properties of GBT, would not reasonably be expected to materially
detract from the value of any such properties or assets or materially interfere
with any present use of such properties or assets, and (v) Encumbrances in
existence on the Closing Date and described in the GBT Disclosure Schedule.
3.22 COMPENSATION OF EMPLOYEES.
As of the Closing Date, GBT shall have no employees. GBT has provided the
Company with an accurate and complete list for fiscal year 1997 and the period
thereafter prior to the Closing showing (i) the names of all persons employed by
GBT and the aggregate amount of cash compensation paid to them during such
periods (including, without limitation, salary, commission and bonus).
3.23 TAX STATUS OF REORGANIZATION.
(a) The liabilities of GBT, if any, to be assumed by the Company in the
Merger and the liabilities to which the transferred assets of GBT are subject,
if any, were or will be incurred by GBT in the ordinary course of business.
(b) GBT and the Shareholder will each pay their own expenses incurred in
connection with the Merger, provided, further, that all expenses of GBT with
respect to the Merger shall have been paid in full prior to the Closing, or to
the extent not paid, shall have been assumed personally by the Shareholder.
(c) There is no intercorporate indebtedness existing between the Company and
GBT that was issued, was acquired, or will be settled at a discount.
(d) The fair market value of the assets of GBT to be transferred to the
Company in the Merger will equal or exceed the sum of GBT's liabilities assumed
by the Company plus the amount of GBT's liabilities, if any, to which the
transferred assets are subject
(e) GBT is not under the jurisdiction of a court in a "title 11 or similar
case," within the meaning of Section 368(a)(3)(A) of the Code.
12
<PAGE>
(f) The Company will acquire at least 90% of the fair market value of the
net assets and at least 70% of the fair market value of the gross assets held by
GBT immediately prior to the Merger. For purposes of this representation,
amounts used by GBT to pay its expenses and any distributions and redemptions in
connection with the merger will be included in the assets of GBT held
immediately prior to the Merger.
(g) GBT is not an "investment company," within the meaning of Section
368(a)(2)(F)(iii) or 368(a)(2)(F)(iv) of the Code.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
Except as set forth in the GBT Disclosure Schedule, the Shareholder hereby
represents and warrants to the Company and XOOM as of the date hereof and as of
the Closing Date as follows:
4.1 TITLE TO COMMON SHARES.
The Shareholder represents and warrants to the Company and XOOM that he is
the record and beneficial owner of the common stock being conveyed to the
Company, and the Shareholder holds title to the common stock free and clear of
all liens, charges, encumbrances, security interests, restrictive agreements or
assessments.
4.2 CAPACITY.
Shareholder has the legal capacity to enter into and to perform his
obligations under this Agreement, and this Agreement constitutes the legal,
valid and binding obligation of Shareholder, enforceable against Shareholder in
accordance with its terms, except as rights to indemnity may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditor's rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
4.3 CONFIRMATION OF GBT'S REPRESENTATIONS AND WARRANTIES.
Shareholder represents and warrants that, except as set forth in the GBT
Disclosure Schedule, the representations and warranties of GBT in Article III
are true and correct as of the date hereof and as of the Closing Date. For
purposes of Articles III, IV, and V, a party shall be deemed to have knowledge
of a particular fact or other matter if (i) the party is actually aware of such
fact or other matter or (ii) a reasonably prudent individual could be expected
to discover or otherwise become aware of such fact or other matter in the course
of conducting a reasonable investigation concerning the truth or existence of
such fact or other matter.
13
<PAGE>
4.4 PURCHASE ENTIRELY FOR OWN ACCOUNT.
This Agreement is made with Shareholder in reliance upon Shareholder's
representation, which by Shareholder's execution of this Agreement Shareholder
hereby confirms, that the XOOM Stock to be received by Shareholder will be
acquired for investment for Shareholder's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Shareholder further represents that he does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
XOOM Stock.
4.5 DISCLOSURE OF INFORMATION.
Shareholder believes he has received all the information he considers
necessary or appropriate for deciding whether to exchange his shares of GBT for
XOOM Stock. Shareholder further represents that he has had an opportunity to
ask questions and receive answers from XOOM regarding the terms and conditions
of the offering of the XOOM Stock and the business, properties, prospects and
financial conditions of XOOM. Shareholder has arrived at an independent view
concerning the value of XOOM, recognizes that the issuance to him of the XOOM
Stock in the Merger is occurring in an arm's length transaction and is not
relying upon any statements by XOOM or the Company as to the value of XOOM other
than as expressly made by XOOM in the representations and warranties herein.
4.6 RELEASE BY SHAREHOLDER.
Shareholder hereby releases XOOM, the Company, and Revolutionary Software,
Inc. from any and all claims of any nature, including but not limited to, claims
for commissions and finder's or broker's fees with respect to Shareholder's and
GBT's activities in connection with Sitemail.
4.7 RELEASE BY SHAREHOLDER.
Shareholder has assumed all liabilities related to assets assigned by GBT
to Shareholder pursuant to that Assignment dated May 11, 1998 from GBT to
Shareholder.
14
<PAGE>
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND XOOM
The Company and XOOM hereby represent and warrant to GBT and the
Shareholder that as of the date hereof and as of the Closing, except as
disclosed in the Disclosure Schedule provided by XOOM and attached hereto, (the
"XOOM Disclosure Schedule):
5.1 DUE INCORPORATION; REQUISITE POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in good
standing as a corporation under the laws of California, and XOOM is a
corporation duly organized, validly existing and in good standing as a
corporation under the laws of the State of Delaware. The Company and XOOM have
all requisite power and authority to execute and deliver this Agreement and to
perform all transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and XOOM and the consummation of the
transactions contemplated by this Agreement have been duly authorized and
approved by all necessary corporate and shareholder action, and this Agreement
constitutes the valid and binding obligation of the Company and XOOM enforceable
in accordance with its terms.
5.2 DUE ORGANIZATION OF XOOM AND THE COMPANY.
XOOM and the Company (a) have been duly organized and are validly existing
and in good standing in their respective states of incorporation, (b) are duly
qualified to do business in and are in good standing under the laws of every
jurisdiction where they are required to be so qualified, except where the
failure to be so qualified will not materially adversely affect their business,
financial condition or results of operations, and (c) have all requisite
corporate power and authority to own or lease and to operate their properties
and carry on their business.
5.3 REQUISITE CONSENTS; NONVIOLATION.
The execution and delivery of this Agreement by the Company and XOOM do
not, and the performance of this Agreement by the Company and XOOM will not, (a)
violate or conflict with (i) the provisions of the Articles of Incorporation
(and with respect to XOOM, its Certificate of Incorporation) or Bylaws of the
Company and XOOM, (ii) any applicable law, rule or regulation or (iii) any
order, writ, injunction or decree by which the Company or XOOM is bound; (b)
except as set forth in this Agreement, require the consent, license, permit,
approval, authorization or other action by or with respect to any governmental
person or entity (except such approvals, permits or filings as may be required
to comply with applicable state securities laws), or (c) constitute a default
under, violate or conflict with any material contract, note, lease or mortgage
to which XOOM or the Company is a party.
5.4 XOOM STOCK.
The XOOM Stock to be issued to Shareholder pursuant to the Merger, when
issued in connection with this Agreement, will be duly authorized, validly
issued, fully paid and
15
<PAGE>
nonassessable. Based on the truth and accuracy of the Shareholder's
representations set forth in Article IV of this Agreement, such XOOM Stock will
be exempt from the registration requirements of the Securities Act of 1933 and
will have been registered or qualified (or is exempt) under all applicable state
securities laws.
5.5 CAPITALIZATION.
(a) The authorized capital stock of XOOM consists of twenty million
(20,000,000) shares of common stock, $.0001 par value per share, of which, as of
April 17, 1998, nine million, nine hundred fifty thousand, four hundred one
(9,950,401) shares have been issued and are outstanding, and one million
(1,000,000) shares of preferred stock, none of which has been issued or is
outstanding. Other than its common stock, XOOM does not have outstanding any
other voting or equity securities or interests. Except as set forth in the XOOM
Disclosure Schedule, as of April 17, 1998, XOOM has no outstanding obligations,
understandings or commitments regarding the issuance of any additional shares of
its stock, voting or equity securities or interests or other securities, or any
options, rights, warrants or securities exercisable for or convertible into such
shares, securities or interests. There are no preemptive rights in respect of
the common shares of XOOM. All issued and outstanding shares of XOOM's capital
stock have been duly authorized and validly issued and are fully paid and
nonassessable.
(b) The authorized capital stock of the Company consists of ten thousand
(10,000) shares of common stock, no par value. All issued and outstanding shares
of the Company's capital stock have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned by XOOM.
5.6 FINANCIAL STATEMENTS.
(a) Attached hereto as Part 5.6(a) of the XOOM Disclosure Schedule are the
following financial statements and notes (collectively, the "Financial
---------
Statements") pertaining to XOOM:
- ----------
(i) the unaudited balance sheets of XOOM as of December 31, 1996 and
December 31, 1997, and the related unaudited statements of operations,
changes in shareholder's equity and cash flows of XOOM for the fiscal years
ended December 31, 1996 and December 31, 1997, together with the notes
thereto; and
(ii) the unaudited balance sheet of XOOM as of April 30, 1998 (the
"April 30, Balance Sheet"), and the related unaudited statements of
------------------------
operations, changes in shareholder's equity and cash flows of XOOM,
together with the notes thereto.
(b) All of the Financial Statements are accurate and complete in all
material respects, and the dollar amount of each line item included in the
Financial Statements is accurate in all material respects. The financial
statements and notes referred to in Section 5.6(a) are in accordance with the
books and records of XOOM and present fairly the financial position of XOOM as
of the respective dates thereof and the results of operations, changes in
shareholders' equity and cash flows of XOOM for the periods covered thereby.
16
<PAGE>
(c) Except as set forth in the XOOM Disclosure Schedule, XOOM has no
liabilities except those reflected or reserved against in the April 30 Balance
Sheet and current liabilities incurred by XOOM in the ordinary course of
business since the date of the April 30 Balance Sheet.
5.7 LITIGATION.
Except as set forth in the XOOM Disclosure Schedule, there is no pending or
threatened action, suit, arbitration proceeding or investigation in any court or
before any governmental commission or agency against XOOM, which would have a
material adverse effect upon the business, financial condition or results of
operations of XOOM. There is no order, judgment or decree of any court or
governmental authority or agency which specifically applies to XOOM which would
have a material adverse effect on the business, financial condition or results
of operations of XOOM.
5.8 GOVERNMENTAL AUTHORIZATIONS; COMPLIANCE WITH LAWS.
XOOM has, to its knowledge, all material governmental licenses, permits,
approvals and other governmental authorizations necessary to permit the
operation of the business of XOOM, as presently conducted. XOOM is in
compliance with all applicable laws, regulations, orders, judgments and decrees,
except where the failure to be in such compliance would not have a material
adverse effect on the business, financial condition or results of operations of
XOOM.
5.9 CONTRACTS.
The XOOM Disclosure Schedule contains a complete list of every material
contract of XOOM made between XOOM and any officer, director or stockholder of
XOOM or with any affiliate or relative of any such officer, director or
stockholder, other than employment agreements between any of the aforesaid and
XOOM.
ARTICLE VI.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations, warranties and indemnities included or provided for in
this Agreement or in any schedule or certificate or other document delivered
pursuant to this Agreement will survive the Closing Date for a period of twenty-
four months. No claim may be made by any party hereto under this article unless
written notice of the claim is given within that twenty-four month period;
provided, however, that the foregoing limitation period will not apply to any
- --------
breach of any representation, warranty or covenant which, on or before the
Closing Date, is known to be false by the party against whom the breach is
alleged.
17
<PAGE>
ARTICLE VII.
COVENANTS OF GBT AND SHAREHOLDER
7.1 ACCESS AND INVESTIGATION.
GBT shall ensure that, at all times after the date hereof and prior to the
Closing (the "Pre-Closing Period"), GBT shall provide XOOM and its
representatives with free and complete access to GBT's representatives,
personnel, premises and assets and to all existing books, records, Tax Returns,
work papers and other documents and information relating to GBT.
7.2 OPERATION OF BUSINESS.
GBT shall ensure that, during the Preclosing Period, solely with respect to
Sitemail, (a) GBT conducts its operations exclusively in the ordinary course of
business and in the same manner as such operations have been conducted prior to
the date of this Agreement; (b) GBT preserves intact its current business
organization, keeps available the services of its current officers and employees
and maintains its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other persons having
business relationships with GBT.
7.3 FINAL TAX RETURNS.
The Shareholder shall cause GBT's accountants to prepare and GBT to timely
file and pay amounts owed with respect to all Tax Returns of GBT not already
filed for GBT for all tax periods ended or ending on or before the Closing Date
and shall cause its accountants to prepare on a pro forma basis all other Tax
Returns for GBT for the interim period from December 31, 1997 until the Closing
("Final Returns"). The Shareholder shall send a copy of all Final Returns as to
which he is responsible to the Company for its review and comment and, if
required, appropriate execution, at least three (3) days prior to the filing
thereof.
7.4 FEDERAL INCOME TAX REPORTING.
GBT and the Shareholder agree to report the Merger as a "reorganization,"
within the meaning of Section 368(a) of the Code.
7.5 NO NEGOTIATION.
GBT shall ensure that, during the Pre-Closing Period, neither GBT nor any
of its representatives directly or indirectly solicits or encourages the
initiation of any inquiry, proposal or offer from any person relating to any
acquisition of GBT or any of its assets or conducts any negotiations relating to
such acquisition.
18
<PAGE>
ARTICLE VIII.
COVENANTS OF XOOM
8.1 TAX FREE REORGANIZATION.
(a) XOOM agrees to report the Merger as a reorganization within the meaning
of Section 368(a) of the Code, unless, in the opinion of counsel selected by the
Shareholder and satisfactory to XOOM, the Merger may not be so reported.
Without limiting the foregoing, XOOM agrees to use its reasonable efforts to
qualify the Merger as a reorganization, within the meaning of Section 368(a) of
the Code.
(b) Prior to the Merger, XOOM will be in "control" of the Company within the
meaning of Section 368(c) of the Code.
(c) XOOM has no present plan or intention following the Merger to liquidate
the Company, merge the Company with and into another corporation, sell or
otherwise dispose of the capital stock of the Company or to cause the Company to
sell or otherwise dispose of any of GBT's assets acquired in the Merger, except
for transfers made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code.
(d) XOOM shall not cause the Company (or a transferee of the Company's stock
or business to which the stock or assets of the Company are transferred in a
transaction described in Section 368(a)(2)(C) of the Code or other transferee
described in Treasury Regulation Section 1.368-1(d)(4)) to either discontinue
GBT's business, as conducted by GBT as of the Closing Date, or fail to use a
significant portion of GBT's assets, as held by GBT as of the Closing Date, in a
business.
(e) Following the Merger, XOOM and GBT will comply with the record-keeping
and information filing requirements of Section 1.368-3 of the Treasury
Regulations.
ARTICLE IX.
CLOSING CONDITIONS OF XOOM AND THE COMPANY
XOOM and the Company's obligations to effect the Closing and consummate the
Merger are subject to the satisfaction of each of the following conditions:
9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Shareholder and GBT in this
Agreement shall have been materially true and correct as of the date of this
Agreement and shall be materially true and correct on and as of the Closing, and
the Shareholder and GBT shall have performed all obligations in this Agreement
required to be performed or observed by them on or prior to the Closing, except
to the extent such nonperformance would not have a material adverse effect on
GBT's assets or operations.
19
<PAGE>
9.2 CONSULTING AGREEMENT.
Shareholder shall have executed and delivered a Consulting Agreement in
substantially the form of Exhibit B hereto, pursuant to which Shareholder is to
---------
be hired by XOOM as a consultant under the terms set forth therein.
9.3 TECHNICAL INSPECTION.
XOOM's CTO shall have undertaken an on-site technical inspection and review
of GBT's operations and shall have delivered to GBT a notice in writing stating
that he is satisfied as to the viability of Sitemail.
9.4 AGREEMENT WITH RSI.
XOOM shall have entered into an Asset Purchase Agreement (the "Purchase
Agreement") with Revolutionary Software, Inc. ("RSI"), a California corporation,
providing for XOOM's acquisition of all right, title and interest in and to
Sitemail owned by RSI at a closing to occur concurrently with the Closing
hereunder, and no impediment to the closing of the Purchase Agreement shall
exist and no event shall have occurred that, with notice or passage of time,
would prevent or impede closing of the transactions described in the Purchase
Agreement.
9.5 ASSIGNMENT OF TRADEMARK RIGHTS.
Shareholder shall have assigned to GBT all of his rights in that trademark
application pending with the U.S. Patent and Trademark Office with respect to
the name and mark "Sitemail."
ARTICLE X.
CLOSING CONDITIONS OF THE SHAREHOLDERS AND GBT
The Shareholder's and GBT's obligations to effect the Closing and
consummate the Merger are subject to (i) the representations and warranties of
the Company and XOOM in this Agreement being true and correct as of the Closing,
(ii) each of the Company and XOOM having performed all obligations in this
Agreement required to be performed or observed by it on or prior to the Closing,
and (iii) a closing shall have occurred under the Purchase Agreement before or
concurrently with the Closing.
ARTICLE XI.
FURTHER ASSURANCES
Each of the parties hereto agrees that it will, from time to time after the
date of the Agreement, execute and deliver such other certificates, documents
and instruments and take such other action as may be reasonably requested by the
other party to carry out the actions and
20
<PAGE>
transactions contemplated by this Agreement, including the closing conditions
described in Articles IX and X.
ARTICLE XII.
INDEMNIFICATION
12.1 INDEMNIFICATION BY THE SHAREHOLDER
In the event Shareholder (i) breaches or is deemed to have breached any of
the representations and warranties contained in Article IV herein, including the
incorporation by reference pursuant to Section 4.3 of the representations and
warranties of GBT in Article III or (ii) fails to perform or comply with any of
the covenants and agreements set forth in this Agreement, Shareholder shall hold
harmless, indemnify and defend the Company and XOOM, and each of their
directors, officers, shareholders, attorneys, representatives and agents, from
and against any Losses incurred or paid by the Company or XOOM to the extent
such Losses arise or result from a breach by GBT or the Shareholder of any such
representations or warranties or a violation of any covenant in this Agreement.
"Losses" shall mean all damages, awards, judgments, payments, diminutions in
value, all interest thereon, costs and expenses of investigating claims,
lawsuits or arbitration and any appeal from the foregoing and reasonable
attorneys' fees incurred in connection therewith. Notwithstanding anything to
the contrary in this Agreement, in no event shall Shareholder's liability under
this Agreement for indemnification or any other cause of action exceed the fair
market value of the Merger Consideration as of the Closing Date, regardless of
the form of action, whether in contract or tort, including negligence, except to
the extent of Losses directly attributable to a breach of any representation or
warranty of which the Shareholder had actual knowledge prior to the Closing, and
XOOM's remedies against Shareholder under this Agreement shall be limited to a
claims for monetary damages arising from a breach of this Agreement, including
without limitation, Losses resulting from any breach by GBT or the Shareholder
of the representations, warranties and covenants in this Agreement.
12.2 INDEMNIFICATION BY THE COMPANY AND XOOM
In the event the Company or XOOM (i) breaches or is deemed to have breached
any of the representations and warranties contained in Article V herein or (ii)
fails to perform or comply with any of the covenants and agreements set forth in
this Agreement, then the Company and XOOM shall hold harmless, indemnify and
defend the Shareholder from and against any Losses incurred or paid by the
Shareholder to the extent such Losses arise or result from a breach by the
Company or XOOM of any such representations and warranties or a violation of any
covenant in this Agreement.
12.3 NOTIFICATION OF CLAIMS
If any party (the "Indemnified Party") reasonably believes that it is
entitled to indemnification hereunder, or otherwise receives notice of the
assertion or commencement of any third-party claim, action, or proceeding (a
"Third-Party Claim"), with respect to which such other
21
<PAGE>
party or parties (the "Indemnifying Party") is obligated to provide
indemnification pursuant to Section 12.1 or 12.2 above, the Indemnified Party
shall promptly give the Indemnifying Party written notice of such claim for
Indemnification (an "Indemnity Claim"). Any claim for indemnification under this
Article XII must be brought prior to the expiration of the survival period for
the representation and warranty as set forth in Article VI. The delivery of such
notice of Indemnity Claim ("Claim Notice") shall be a condition precedent to any
liability of the Indemnifying Party for indemnification hereunder. The
Indemnifying Party shall have twenty (20) days from the receipt of a Claim
Notice (the "Notice Period") to notify the Indemnified Party of whether or not
the Indemnifying Party disputes its liability to the Indemnified Party with
respect to such Indemnity Claim.
12.4 RESOLUTION OF CLAIMS
(a) With respect to any Indemnity Claim involving a Third-Party Claim,
following prompt notification of the Indemnifying Party, the Indemnifying Party
shall have the option of proceeding with the defense of the Third Party Claim
provided (i) the Indemnifying Party has either not disputed its liability for
the Indemnity Claim pursuant to Section 12.4(c) or the liability of the
Indemnifying Party for the Indemnity Claim has been determined pursuant to
Section 12.4(b), (ii) the Indemnifying Party has appointed counsel acceptable to
the Indemnified Party (whose approval shall not be unreasonably withheld) and
(iii) the Indemnifying Party shall have assumed and agreed to bear all
reasonable costs related to the Indemnity Claim and reimbursed the Indemnified
Party for reasonable costs incurred, if any, by the Indemnifying Party prior to
assuming the defense. During such defense proceedings, the Indemnifying Party
shall keep the Indemnified Party informed of all material developments and
events relating to the proceedings. The Indemnified Party shall have a right to
be present at the negotiation, defense and settlement of such Third-Party Claim.
The Indemnifying Party shall not agree to any settlement of the Third-Party
Claim without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld.
(b) With respect to any Indemnity Claim not involving a Third-Party Claim,
if the Indemnifying Party disputes its liability within the Notice Period, the
liability of the Indemnifying Party shall be resolved in accordance with Section
12.5.
(c) In the event that an Indemnified Party makes an Indemnity Claim in
accordance with Section 12.3 and the Indemnifying Party does not dispute its
liability within the Notice Period, the amount of such Indemnity Claim shall be
conclusively deemed a liability of the Indemnifying Party, and any dispute as to
the liability of the Indemnifying Party shall be determined pursuant to Section
12.5
12.5 ARBITRATION.
All disputes under this Article XII 12 shall be settled by arbitration in
San Francisco, California before a single arbitrator pursuant to the commercial
law rules of the American Arbitration Association. Arbitration may be commenced
at any time by any party hereto giving written notice to each other party to a
dispute that such dispute has been referred to arbitration under this Section
12.5. The arbitrator shall be selected by the joint agreement of the
22
<PAGE>
Indemnifying Party and Indemnified Party, but if they do not so agree within 20
days after the date of the notice referred to above, the selection shall be made
pursuant to the rules from the panels of arbitrators maintained by such
Association. Any award rendered by the arbitrator shall be conclusive and
binding upon the parties hereto; provided, however, that any such award shall be
-------- -------
accompanied by a written opinion of the arbitrator giving the reasons for the
award. This provision for arbitration shall be specifically enforceable by the
parties, and the decision of the arbitrator in accordance herewith shall be
final and binding without right of appeal. Each party shall pay its own
expenses of arbitration, and the expenses of the arbitrator shall be equally
shared; provided, however, that if in the opinion of the arbitrator any claim
-------- -------
for indemnification or any defense or objection thereto was unreasonable, the
arbitrator may assess, as part of his award, all or any part of the arbitration
expenses of the other party (including reasonable attorneys' fees) and of the
arbitrator against the party raising such unreasonable claim, defense or
objection. To the extent that arbitration may not be legally permitted
hereunder and the parties to any dispute hereunder may not at the time of such
dispute mutually agree to submit such dispute to arbitration, any party may
commence a civil action in a court of appropriate jurisdiction to solve disputes
hereunder. Nothing contained in this Section 12.5 shall prevent the parties
from settling any dispute by mutual agreement at any time.
12.6 INDEMNIFICATION THRESHOLD
Notwithstanding anything to the contrary herein, in no event shall any
Indemnifying Party be liable to any Indemnified Party under any warranty,
representation, indemnity or covenant made in this Agreement until the aggregate
amount of liability of all claims thereunder against the Indemnifying Party
exceeds ten thousand dollars ($10,000) (the "Threshold"), at which point such
party shall be liable for the full amount of liability for such claims below and
above the threshold.
ARTICLE XIII.
RESTRICTIONS ON XOOM COMMON SHARES
The XOOM Stock issued to Shareholder pursuant to the Merger shall be
subject to the following restrictions:
13.1 RIGHT OF FIRST REFUSAL/TRANSFER RESTRICTIONS.
(a) Restrictions on Transfer. Shareholder may not sell or engage in any
--- ------------------------
transaction that will result in a change in the beneficial or record ownership
of any XOOM Stock issued to or held by Shareholder, including without limitation
a voluntary or involuntary sale, assignment, transfer, pledge, hypothecation,
encumbrance, disposal, loan, gift, attachment or levy (a "Transfer"), except as
provided in this Article XIII, and any such Transfer of XOOM Stock or attempted
Transfer of XOOM Stock in contravention of this Agreement shall be void and
ineffective for any purpose and shall not confer on any transferee or purported
transferee any rights whatsoever.
(b) Right of First Refusal.
----------------------
23
<PAGE>
(i) If, prior to an initial public offering of XOOM's securities or a
merger or sale of XOOM, Shareholder proposes (or is required by operation
of law or other involuntary transfer) to Transfer any or all of the XOOM
Stock standing in Shareholder's name or owned by him, Shareholder shall
first offer such XOOM Stock to the Company in accordance with the following
provisions:
(A) Shareholder shall deliver a written notice (a "Notice") to
XOOM stating (1) Shareholder's bona fide intention to Transfer such
XOOM Stock, (2) the name and address of the proposed transferee, (3)
the number of shares of XOOM Stock to be transferred, and (4) the
purchase price per share and terms of payment for which Shareholder
proposes to Transfer such XOOM Stock.
(B) Within 60 days after receipt of the Notice, XOOM or its
designee shall have the first right to purchase or obtain such shares,
upon the price and terms of payment designated in the Notice. If the
Notice provides for the payment of non-cash consideration, XOOM at its
option may pay the consideration in cash equal to XOOM's good faith
estimate of the present fair market value of the non-cash
consideration offered.
(C) If XOOM or its designee elects not to purchase or obtain all
of the XOOM Stock designated in the Shareholder's Notice, then
Shareholder may Transfer the shares referred to in the Notice to the
proposed transferee, providing such Transfer (1) is completed within
30 days after the expiration of XOOM's right to purchase or obtain
such shares, (2) is made at the price and terms designated in the
Notice, and (3) the proposed transferee agrees to be bound by the
terms and provisions of this Article XIII and to become a party to an
agreement containing such provisions immediately upon receipt of such
shares. If such shares are not so transferred, the Shareholder must
give notice in accordance with this paragraph prior to any other or
subsequent Transfer of such shares.
(ii) Notwithstanding Section 13.1(a), Shareholder may Transfer Xoom
Stock: (A) to Shareholder's spouse, child, grandchild, parent, brother, or
sister ("Immediate Family"), or to a trust established for the benefit of a
member or members of Shareholder's Immediate Family, (B) to an Affiliate
(as hereinafter defined) or equity holder of the Shareholder, (C) to a
person who is a constituent partner of Shareholder on the date hereof, or
(D) to the estate of any of the foregoing by gift, will or intestate
succession; provided that Shareholder or his representative notifies XOOM
of such Transfer not less than 10 nor more than 90 days prior to the
Transfer and that the proposed transferee agrees to be bound by the terms
and provisions of this Agreement and to become a party to this Agreement
immediately upon the receipt of such shares. "Affiliate" means, with
respect to any person or entity, any person or entity which controls, is
controlled by, or is under common control with, such person or entity, or
any stockholder or other equity owner in a control relationship with any of
the foregoing. For this purpose the term "control" shall mean the direct
or indirect beneficial ownership of at
24
<PAGE>
least fifty percent (50%) of the voting stock or interest in the income of
such person or entity, or such other relationship as, in fact, constitutes
actual control.
(c) No Transfer to Competitors. Shareholder may not Transfer any XOOM Stock
--------------------------
to a competitor of the Company, or to any stockholder, partner or other
beneficial holder of an equity ownership interest in a competitor, other than
pursuant to a merger, combination, or other transaction approved by the Board of
Directors of the Company.
(d) Legends on Stock Certificates. Each certificate representing shares
-----------------------------
owned of record or beneficially by a party to this Agreement shall be endorsed
with the following legends:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT BETWEEN
XOOM, INC. (THE "COMPANY") AND THE HOLDER, PROVIDING FOR, AMONG OTHER
MATTERS, THE COMPANY'S RIGHT OF FIRST REFUSAL TO PURCHASE THE SECURITIES
REPRESENTED BY THIS CERTIFICATE. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL BUSINESS OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
EXEMPTIONS FROM SUCH REGISTRATION AND FROM THE PROVISIONS OF ANY APPLICABLE
STATE "BLUE SKY" LAWS ARE AVAILABLE.
Under no circumstances shall any Transfer of any XOOM Stock subject hereto
be valid until the proposed transferee thereof shall have executed and become a
party to the agreement described in Section 13.1(b)(i)(C) and thereby shall have
become subject to all of the provisions of this Article XIII; and
notwithstanding any other provisions of this Agreement, no such Transfer of any
kind shall in any event result in the non-applicability of the provisions hereof
at any time to any of the XOOM Stock subject hereto. Shareholder understands
and acknowledges that the Company need not register a transfer of XOOM Stock,
and may instruct its transfer agent not to register a transfer of XOOM Stock,
unless the conditions specified in the foregoing last legend are satisfied.
(e) Acknowledgments. Shareholder acknowledges that other stockholders of
---------------
the Company may have restrictions on their stockholdings different from the
terms contained herein.
13.2 LOCK-UP AGREEMENT.
Shareholder, if requested by an underwriter of XOOM Stock or other
securities of XOOM, shall not sell or otherwise transfer or dispose of any
Shares held by Shareholder during the 180-day period following the effective
date of a registration statement of XOOM filed under the Act or such shorter
period of time as the underwriter shall require, provided that all officers and
directors of XOOM who hold common stock (or other securities) of XOOM enter into
25
<PAGE>
similar agreements. If requested by the underwriter, Shareholder will reaffirm
the agreement set forth in this Section 13.2 in a separate writing in a form
satisfactory to such underwriter. XOOM may impose stop-transfer instructions
with respect to such XOOM Stock subject to the foregoing restriction until the
end of said period.
ARTICLE XIV.
MISCELLANEOUS
14.1 EXPENSES.
The Company, GBT and Shareholder shall each bear their own expenses
incurred in connection with the negotiation and consummation of the transactions
contemplated by this Agreement; provided, however, that all expenses of GBT
--------
relating to the Merger shall either have been paid prior to the Closing or shall
have been assumed by Shareholder.
14.2 SETOFF.
XOOM and the Company may set off any amount that may be owed to them by GBT
or Shareholder under this Agreement against any amount otherwise payable to
Shareholder by XOOM, but any such setoff shall in no manner limit Shareholder's
liability, if any, to XOOM or the Company.
14.3 ENTIRE AGREEMENT.
This Agreement contains the entire agreement of the parties hereto, and
supersedes any prior written or oral agreements between them concerning the
subject matter contained herein. There are no representations, agreements,
arrangements or understandings, oral or written, between the parties to this
Agreement, relating to the subject matter contained herein, which are not fully
expressed herein. The schedules and each exhibit attached to this Agreement or
delivered pursuant to this Agreement are incorporated herein by this reference
and constitute a part of this Agreement.
14.4 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.
Prior to the Closing Date, none of XOOM, the Company, Shareholder or GBT
shall issue any press release or make any public announcement concerning the
matters set forth in this Agreement (other than as required by applicable
disclosure rules or regulations) without the consent of the other parties.
XOOM, the Company and GBT will cooperate to jointly prepare and issue any press
release that may be issued to announce the closing of the transactions
contemplated by this Agreement.
14.5 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
instrument.
26
<PAGE>
14.6 DESCRIPTIVE HEADINGS.
The article and section headings in this Agreement are for convenience only
and shall not affect the meaning or construction of any provision of this
Agreement.
14.7 NOTICES.
Any notices required or permitted to be given under this Agreement shall be
in writing and shall be deemed sufficiently given on the date delivered
personally, on the following business day if transmitted via facsimile with
call-back confirmation or five (5) days after posting by registered or certified
mail, postage prepaid, addressed as follows:
If to the Company or XOOM: XOOM, Inc.
433 California Street, Suite 910
San Francisco, CA 94104
Attention: Laurent Massa, President
Fax: (415) 445-2526
With a copy to: Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Attention: Bruce Mann, Esq.
Fax: (415) 268-7522
And if to Shareholder, to the address of Shareholder set forth on the
signature page of this Agreement, or to such other address or addresses as a
party shall have previously designated by notice to the sender given in
accordance with this section.
14.8 CHOICE OF LAW
This Agreement shall be construed in accordance with and governed by the
laws of the State of California without regard to conflicts of law principles.
14.9 BINDING EFFECT; BENEFITS
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer on any person other than
the parties or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
14.10 ASSIGNABILITY
Neither this Agreement nor any of the parties' rights hereunder shall be
assignable by any party without the prior written consent of the other parties
and any attempted assignment without such consent shall be void.
27
<PAGE>
14.11 WAIVER AND AMENDMENT
Any term or provision of this Agreement may be waived at any time by the
party that is entitled to the benefits thereof. The waiver by any party of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach. The parties may, by mutual agreement in
writing, amend this Agreement in any respect.
14.12 ATTORNEYS' FEES.
In the event of any action or proceeding to enforce the terms and
conditions of this Agreement, the prevailing party shall be entitled to an award
of reasonable attorneys' and experts' fees and costs, in addition to such other
relief as may be granted.
28
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
THE COMPANY:
XOOM GBT Merger Corp.
By: /s/ LAURENT MASSA
-----------------
Name: Laurent Massa
Title: CEO
XOOM:
XOOM, Inc.
By: /s/ LAURENT MASSA
-----------------
Name: Laurent Massa
Title: CEO
GBT:
Global Bridges Technologies, Inc.
By: /s/ ROBERT KOHLER
------------------
Robert Kohler, President
THE SHAREHOLDER:
/s/ ROBERT KOHLER
-----------------
Address: 655 Redwood Highway
Suite 133
Mill Valley, CA 94941
29
<PAGE>
EXHIBIT A
PROMISSORY NOTE
---------------
$62,500 June 11, 1998
San Francisco, California
FOR VALUE RECEIVED, the undersigned XOOM, Inc. ("Debtor") promises to pay
to the order of Robert Kohler at 655 Redwood Highway, Suite 301, Mill Valley,
California or such other place as the holder hereof may designate in writing,
the principal sum of Sixty-two Thousand Five Hundred Dollars, ($62,500), in
twenty-five successive, monthly installments of Two Thousand Five Hundred
Dollars ($2,500) each, beginning on July 5, 1998 and continuing on the same day
of each succeeding calendar month through and including July` 5, 2000, at which
time all amounts hereunder shall be due and payable. Principal outstanding
hereunder shall bear simple interest, in arrears, at the annual rate of five
percent (5%).
This Note is being delivered pursuant to an Agreement and Plan of Merger
between Debtor, Robert Kohler, and others of even date herewith.
At the option of Debtor, all or any portion of any unpaid sum hereunder may
be prepaid without premium or penalty at any time or from time to time after the
date hereof.
Upon a default by Debtor in making any payment of an installment when due
hereunder, and the continuation thereof for (10) days after written notice by
the holder hereof, all of the unpaid indebtedness evidenced by this Note shall
become immediately due and payable at the option of the holder, and the holder
may proceed to exercise any rights or remedies that it may have hereunder or
under applicable law.
Debtor agrees that if any legal action is necessary to enforce or collect
this Note, the prevailing party shall be entitled to reasonable attorneys' fees
in addition to any other relief to which that party may be entitled.
Debtor hereby waives demand, notice, and protest hereunder.
This Note shall be interpreted and enforced in all respects in accordance
with the internal laws of the State of California.
30
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by
its officers duly authorized to do so.
XOOM, INC.
By:_______________________
Laurent Massa
31
<PAGE>
EXHIBIT B
CONSULTING AGREEMENT
32
<PAGE>
EXHIBIT B TO EXHIBIT 10.11
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into as of this 11th
day of June, 1998, by and between XOOM, Inc., a Delaware corporation (the
"Company"), and Robert Kohler ("Consultant").
RECITALS
--------
A. The Company desires to obtain the services of Consultant, on its own
behalf and on behalf of all existing and future Affiliated Companies (defined as
any corporation or other business entity or entities that directly or indirectly
controls, is controlled by, or is under common control with the Company), upon
the terms and conditions set forth below.
B. The Company has spent significant time, effort and money to develop or
otherwise acquire certain Proprietary Information (as defined below), which the
Company considers vital to its business and goodwill.
C. The Proprietary Information will necessarily be communicated to or
acquired by Consultant in the course of providing consulting services to the
Company, and the Company desires to obtain the services of Consultant, only if,
in doing so, it can protect its Proprietary Information and goodwill.
Accordingly, the parties agree as follows:
AGREEMENT
---------
1. Consulting Period.
-----------------
The Company hereby retains the Consultant and Consultant agrees to
render to the Company those services described in Section 2 of this Agreement
for the period (the "Consulting Period") commencing on the date of this
Agreement and ending upon the end of the twelfth full month after the date
hereof (the "Term Date").
2. Duties; Responsibilities; Authority.
-----------------------------------
(a) The Consultant hereby accepts engagement with the Company to assist
in the integration of the operations of the Company with Global Bridges
Technologies, Inc., as more fully described on Exhibit A attached hereto, or
such other services as shall be agreed in good faith between Consultant and the
President of the Company so as to utilize Consultant's capabilities.
(b) Consultant shall have no authority to enter into contracts which
bind the Company or create obligations on the part of the Company without the
express prior authorization of the Company. Consultant shall have no authority
to hire other persons, either as consultants, independent contractors or
employees, without the express prior written authorization of the Company's
President.
33
<PAGE>
3. Compensation; Benefits; Expenses.
--------------------------------
(a) Compensation. In consideration of the services to be rendered
------------
hereunder, including, without limitation, services to any Affiliated Company,
Consultant shall be entitled to the following compensation:
(i) A professional fee of $3,000 per month, payable no later than
the __ day of each month following the month in which Consultant provides such
services. There shall be no withholdings from this payment, and Consultant shall
be solely responsible for all social security, tax, disability and other state
and federal assessments.
(ii) 51,912 shares of the Company's common stock "Incentive
Shares" pursuant to a Restricted Stock Purchase Agreement to be executed by
Consultant and the Company providing for cliff vesting of all of Incentive
Shares if Consultant closes transactions that generate , in the aggregate, in
excess of one million (1,000,000) new Members for the Company, provided,
--------
however, that at least 500,000 new Members shall have subscribed to the
Company's services no later than December 31, 1998, and (ii) (A) the Company has
completed an initial public offering ("IPO") of its securities (B) the Company
---
has entered into and closed an agreement for the sale, lease or other
disposition of all or substantially all of the assets of the Company (C) there
is a sale by shareholders of the Company, in a single transaction or a series of
related transactions, of more than fifty percent (50%) of the outstanding voting
stock of the Company or (D) the Company effects a merger with or into another
entity where it is not the survivor (other than a merger solely for the purpose
of changing the state of incorporation or effecting a recapitalization of the
Company), or a consolidation or other reorganization, and shareholders of the
Company prior to such event own less than 50% of the outstanding voting
securities of the survivor. If Consultant closes transactions bringing in
500,000 new Members no later than December 31, 1998, Consultant shall be
entitled to Incentive Shares for every increment of 100,000 new Members from
transactions closed by Consultant up to and including 1,000,000.
(iii) For purposes of Section 3(a)(ii), a "Member" is a person who
has subscribed to the Company's website by selecting a subscriber name,
providing an active e-mail address and a zip code or country and given
permission for the Company to include such person in its e-mail distributions,
and Consultant shall be deemed to have "closed" a transaction bringing in new
Members if (A) the transaction identified by Consultant is closed and (B)
Consultant has made himself reasonably available to assist the Company, if so
requested, to close such transaction.
(iv) The number of shares issuable to Consultant pursuant to
Section 3(a)(ii) shall be subject to adjustment pursuant to the formula set
forth in Section 2.4 of that Agreement and Plan of Merger of even date herewith
between Consultant, the Company and others.
(b) Benefits. Other than the compensation specified in the above
--------
Section 3(a), Consultant shall not be entitled to any direct or indirect
compensation or fringe benefits for
34
<PAGE>
services performed hereunder, nor shall Consultant be eligible to participate in
any employee benefit plans provided by the Company or any Affiliated Company to
its employees.
(c) Expenses. The Company shall reimburse Consultant for reasonable
--------
travel and other business expenses (i) incurred by Consultant in the performance
of duties hereunder, and (ii) approved by the Company in writing in advance. The
Consultant shall bill the Company for expenses as incurred incident to services
performed, referencing all travel and expenses incurred with appropriate
purchase orders and receipts. Such reimbursement shall be within 30 days of
Consultant's submitting adequate documentation.
4. Termination of Consulting Relationship.
--------------------------------------
(a) By Death. The Consulting Period shall terminate automatically upon
--------
the death of Consultant, and the Company shall pay to Consultant's beneficiaries
or estate, as appropriate, the compensation to which Consultant is entitled
pursuant to Section 3(a). Thereafter, the Company's obligations hereunder shall
terminate.
(b) By Disability. If, in the reasonable opinion of the President of
-------------
the Company, Consultant shall be prevented from properly performing hereunder by
reason of any physical or mental incapacity for a period of more than thirty
(30) days in the aggregate or twenty (20) consecutive days in any three-month
period, then, to the extent permitted by law, the Consulting Period shall
terminate and the compensation to which Consultant is entitled pursuant to
Section 3(a) shall be paid up through the day on which the Consulting Period is
terminated, and thereafter the Company's obligations hereunder shall terminate.
(c) By Company For Cause. The Company may terminate, without liability,
--------------------
the Consulting Period for Cause (as defined below) at any time and without
notice and the Company shall have no further obligation to Consultant hereunder,
provided the Company pays Consultant the compensation described in Section 3(a)
for any periods prior to such termination. Compensation for any partial month in
which Consultant provides services prior to such termination shall be calculated
pro rata to the number of days in such month. Termination shall be for Cause if
due to: (1) any act of fraud, dishonesty, or gross negligence (including any
failure to act) made, engaged in, or conducted by Consultant in the course of
providing the services contemplated under this Agreement; (2) willful and wanton
misrepresentation to the Company which is materially injurious to the Company;
or (3) willful failure without reasonable justification to comply with a
material, reasonable and lawful instruction by the Company
(d) At Will. At any time, either the Company or Consultant may
-------
terminate, without liability, the Consulting Period for any reason, with or
without cause, by giving thirty (30) days' advance written notice to the other
party. If Consultant terminates his consulting relationship with the Company
pursuant to this Section 4(d), the Company shall have the option, in its
complete discretion, to terminate Consultant immediately without the running of
the notice period. Following a termination by Consultant, the Company shall pay
Consultant the compensation to which he is entitled pursuant to Section 3(a) for
services rendered through the date of termination, and thereafter all
obligations of the Company shall terminate. Consultant hereby agrees that the
Company may dismiss him or her under this Section 4(d) without regard (i) to any
general or specific policies (whether written or oral) of the Company relating
to
35
<PAGE>
the employment, retention or termination of its employees or consultants, or
(ii) to any oral statements made to Consultant pertaining to Consultant's
relationship with the Company; provided, however, that if the Company terminates
--------
Consultant without cause prior to the Term Date (except if Consultant has first
notified the Company of his intention to terminate), the Company shall continue
paying Consultant his monthly compensation through the Term Date and the
Incentive Shares shall vest and be issued to Consultant regardless of the number
of new Members.
(e) By Consultant upon Company's Default. Where Company breaches any
------------------------------------
payment obligation to Consultant under this Agreement and fails to cure the same
within fifteen (15) days after receiving written notice from Consultant,
Consultant may terminate this Agreement without liability or further obligation
to Company, and all compensation payable under Section 3(a) above shall
immediately become due and payable to Consultant.
5. Termination Obligations.
-----------------------
(a) Consultant hereby acknowledges and agrees that all personal
property, including, without limitation, all books, manuals, records, reports,
notes, contracts, lists, blueprints, and other documents, or materials, or
copies thereof, Proprietary Information (as defined below), and equipment
furnished to or prepared by Consultant in the course of or directly related to
rendering of services to the Company, including, without limitation, records and
any other materials pertaining to Invention Ideas (as defined below), belong to
the Company and shall be promptly returned to the Company upon termination of
the Consulting Period. Following termination, the Consultant will not retain any
written or other tangible material containing any Proprietary Information.
(b) The representations and warranties contained herein and Consultant's
obligations under Sections 5, 6, and 7 shall survive termination of the
Consulting Period and the expiration of this Agreement and continue thereafter
for a period of two (2) years, provided that the expiration of such period shall
in no way diminish the rights of the Company under the California Uniform Trade
Secrets Act.
6. Proprietary Information.
-----------------------
(a) Defined. "Proprietary Information" is all information and any idea
-------
in whatever form, tangible or intangible, pertaining in any manner to the
business of the Company or any Affiliated Company, or to its clients,
consultants, or business associates, unless: (i) the information is or becomes
publicly known through lawful means; (ii) the information was rightfully in
Consultant's possession or part of Consultant's general knowledge prior to the
Consulting Period; (iii) the information is disclosed to Consultant without
confidential or proprietary restrictions by a third party who rightfully
possesses the information (without confidential or proprietary restriction) and
did not learn of it, directly or indirectly, from the Company; or (iv) the
information is independently developed by Consultant without use of information
obtained by Consultant from the Company. Notwithstanding the foregoing, Company
recognizes that Consultant has a significant body of knowledge, contacts and
information which it has acquired prior to the Consulting Period, and that
Consultant will continue to acquire the same during and after the Consulting
Period. Such information shall not
36
<PAGE>
be deemed Proprietary Information except to the extent that it pertains directly
to the business of the Company or any Affiliated Company, or its clients,
consultants, or business associates.
(b) General Restrictions on Use. Consultant agrees to hold all
---------------------------
Proprietary Information in strict confidence and trust for the sole benefit of
the Company and not to, directly or indirectly, disclose, use, copy, publish,
summarize, or remove from the Company's premises any Proprietary Information (or
remove from the premises any other property of the Company), except (i) during
the Consulting Period to the extent necessary to carry out Consultant's
responsibilities under this Agreement, and (ii) after termination of the
Consulting Period as specifically authorized in writing by the Company's Board
of Directors.
(c) Interference with Business; Competitive Activities. Consultant
--------------------------
acknowledges that the pursuit of the activities forbidden by this Section 6(c)
would necessarily involve the use or disclosure of Proprietary Information in
breach of Section 6(b), but that proof of such breach would be extremely
difficult. To forestall such disclosure, use, and breach, and in consideration
of retaining Consultant under this Agreement, Consultant agrees that during the
Consulting Period and for a period of one (1) year after termination of the
Consulting Period, Consultant shall not, for himself or any third party,
directly or indirectly (i) divert or attempt to divert from the Company (or any
Affiliated Company) any business of any kind in which it is engaged, including,
without limitation, the solicitation of or interference with any of its
suppliers or customers; or (ii) employ, solicit for employment, or recommend for
employment any person employed by the Company, or by any Affiliated Company.
(d) Remedies. Nothing in this Section 6 is intended to limit any remedy
--------
of the Company under the California Uniform Trade Secrets Act (California Civil
Code Section 3426), or otherwise available under law.
7. Consultant's Inventions and Ideas.
---------------------------------
(a) Defined. The term "Invention Ideas" means any and all processes,
-------
trademarks, service marks, inventions, technology, computer programs, original
works of authorship, designs, formulas, discoveries, patents, copyrights, and
all improvements, rights, and claims related to the foregoing that are
developed, or reduced to practice by the Consultant alone or with others in the
course of directly providing consulting services to the Company.
(b) Disclosure. Consultant agrees to maintain adequate and current
----------
written records on the development of all Invention Ideas and to disclose
promptly to the Company all Invention Ideas and relevant records, which records
will remain the sole property of the Company.
(c) Assignment. Consultant agrees to assign to the Company, without
----------
further consideration, his entire right, title, and interest (throughout the
United States and in all foreign countries), free and clear of all liens and
encumbrances, in and to each Invention Idea, which shall be the sole property of
the Company, whether or not patentable. In the event any Invention Idea shall be
deemed by the Company to be patentable or otherwise registrable, Consultant
shall assist the Company (at the Company's expense) in obtaining letters patent
or other applicable registrations thereon and shall execute all documents and do
all other things (including testifying
37
<PAGE>
at the Company's expense) necessary or proper to obtain letters patent or other
applicable registrations thereon and to vest the Company, or any Affiliated
Company specified by the Company, with full title thereto. Should the Company be
unable to secure Consultant's signature on any document necessary to apply for,
prosecute, obtain, or enforce any patent, copyright, or other right or
protection relating to any Invention Idea, whether due to Consultant's mental or
physical incapacity or any other cause, Consultant hereby irrevocably designates
and appoints Company and each of its duly authorized officers and agents as
Consultant's agent and attorney in fact, to act for and in Consultant's behalf
and stead and to execute and file any such document, and to do all other
lawfully permitted acts to further the prosecution, issuance, and enforcement of
patents, copyrights, or other rights or protections with the same force and
effect as if executed and delivered by Consultant.
(d) Exclusions. Consultant acknowledges that there are no ideas,
----------
processes, trademarks, service marks, technology, computer programs, original
works of authorship, designs, formulas, inventions, discoveries, patents,
copyrights, or improvements to the foregoing that he desires to exclude from the
operation of this Agreement. To the best of Consultant's knowledge, there is no
existing contract in conflict with this Agreement or any other contract to
assign ideas, processes, trademarks, service marks, inventions, technology,
computer programs, original works of authorship, designs, formulas, discoveries,
patents, or copyrights that is now in existence between Consultant and any other
person or entity. Notwithstanding the foregoing, Company recognizes that
Consultant has a significant body of knowledge, contacts and information which
it has acquired prior to the Consulting Period, and that Consultant will
continue to acquire the same during and after the Consulting Period. Such
information shall not be deemed an Invention Idea.
(e) Post-Termination Period. Because of the difficulty of establishing
-----------------------
when any process, invention, etc., is first conceived or developed by
Consultant, or whether it results from access to Proprietary Information or the
Company's equipment, facilities, and data, Consultant agrees that any process,
trademark, service mark, technology, computer program, original work of
authorship, design, formula, invention, discovery, patent, copyright, or any
improvement, rights, or claims that are directly related to the Company's
operations and prospects, and to the extent such knowledge and information is
Proprietary Information, shall be presumed to be an Invention Idea if it is
conceived, developed, used, sold, exploited, or reduced to practice by
Consultant or with the aid of Consultant within six (6) months after termination
of the Consulting Period. Consultant can rebut the above presumption if he
proves that the invention, idea, process, etc., (i) was first conceived or
developed after termination of the Consulting Period, (ii) was conceived or
developed entirely on Consultant's own time without using the Company's
equipment, supplies, facilities, or Proprietary Information, and (iii) did not
result from any work performed by Consultant for the Company.
8. Independent Contractor Relationship.
-----------------------------------
(a) Nature of Relationship. In performing services to the Company
----------------------
pursuant to this Agreement, Consultant's relationship with the Company will be
that of an independent contractor and nothing in this Agreement should be
construed to create a partnership, joint venture, or employer-employee
relationship. Consultant acknowledges and agrees that neither Consultant nor any
person associated with Consultant shall be entitled to receive or otherwise
38
<PAGE>
participate in any employee benefits of any nature which the Company provides or
makes available to any of its employees.
(b) Taxes and Records. Consultant agrees that it will be solely
-----------------
responsible for, and will file and pay on a timely basis, all withholding
required by federal, state or local law with respect to Consultant's performance
of the services.
9. No Conflict of Interest.
-----------------------
Consultant agrees during the term of this Agreement not to accept work
or enter into a contract or accept an obligation, inconsistent or incompatible
with Consultant's obligations under this Agreement or the scope of services
rendered for Company. The Company expressly agrees that during the Consulting
Period Consultant may continue to maintain his law practice and participate in
other non-competing business ventures. Consultant warrants that to the best of
Consultant's knowledge, there is no other contract or duty now in existence
inconsistent with this Agreement. Consultant further agrees not to disclose to
the Company, or bring onto the Company's premises, or induce the Company to use
any confidential information that belongs to anyone other than the Company or
Consultant. Consultant agrees to indemnify the Company from any and all loss or
liability incurred by reason of a breach alleged by a third party of
Consultant's obligations under any confidentiality or services agreement with
such third party. Consultant's liability under this Section 9 shall not exceed
the total consideration payable to Consultant hereunder.
10. Assignment; Successors and Assigns.
----------------------------------
Consultant shall not assign, sell, transfer, delegate or otherwise
dispose of, whether voluntarily or involuntarily, or by operation of law, any
rights or obligations under this Agreement. Any purported assignment, transfer,
or delegation shall be null and void. Nothing in this Agreement shall prevent
the consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of its
properties or assets, or the assignment by the Company of this Agreement and the
performance of its obligations hereunder to any successor in interest or any
Affiliated Company. Subject to the foregoing, this Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective heirs,
legal representatives, successors, and permitted assigns, and shall not benefit
any person or entity other than those enumerated above.
11. Notices.
-------
All notices or other communications required or permitted hereunder
shall be made in writing and shall be deemed to have been duly given if
delivered by hand or mailed, postage prepaid, by certified or registered mail,
return receipt requested, and addressed to the Company at:
XOOM, INC.
433 California Street
San Francisco, CA 94104
Attention: Laurent Massa, President
Fax (415) 445-2526
39
<PAGE>
and to the Consultant at:
Robert Kohler
655 Redwood Highway
Suite 133
Mill Valley, CA 94941
Fax (415) 383-6700
Notice of change of address shall be effective only when done in accordance with
this section.
12. Entire Agreement.
----------------
The terms of this Agreement are intended by the parties to be the full
and final expression of their agreement with respect to the retention of
Consultant by the Company and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding involving this Agreement. This Agreement fully
supersedes any prior oral or written consulting or other agreements between the
Consultant and the Company.
13. Amendments.
----------
This Agreement may not be modified or amended, except by an instrument
in writing, signed by the Consultant and by a duly authorized representative of
the Company.
14. Severability; Enforcement.
-------------------------
If any provision of this Agreement shall be held to be invalid,
unenforceable, or void, the remainder of this Agreement shall remain in full
force and effect. It is the intention of the parties that the covenants
contained in Section 6 and 7 shall be enforced to the greatest extent (but to no
greater extent) in time, area, and degree of participation as is permitted by
the law of that jurisdiction whose law is found to be applicable to any acts
allegedly in breach of these covenants.
15. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without regard to conflicts of law
principles.
16. Consultant Acknowledgment.
-------------------------
Consultant acknowledges (i) that he has consulted with or has had the
opportunity to consult with independent counsel of his own choice concerning
this Agreement and has been advised to do so by the Company, and (ii) that he
has read and understands the Agreement, is fully aware of its legal effect, and
has entered into it freely based on his own judgment and not in
40
<PAGE>
reliance upon any representation or promises made by the Company other than
those contained in writing herein.
17. Remedies.
--------
(a) Injunctive Relief. The parties agree that in the event of any
-----------------
breach or threatened breach of any of the covenants in Sections 6 or 7, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief without bond against Consultant
in the event of any breach or threatened breach of any such provisions by
Consultant, in addition to any other relief (including damages) available to the
Company under this Agreement or under law.
(b) Enforcement. In the event of any legal action required to enforce
-----------
or defend this Agreement, the prevailing party shall be entitled to an award of
attorneys' fees and legal costs, in addition to other relief.
The parties have duly executed this Agreement as of the date first written
above.
XOOM, INC. CONSULTANT
By:/s/ LAURENT MASSA /s/ ROBERT KOHLER
----------------- -----------------
Laurent Massa, President Robert Kohler
41
<PAGE>
EXHIBIT A
---------
Detailed Description of Duties
------------------------------
Consultant shall:
1. devote efforts to identifying and closing transactions that will increase
the Company's subscriber base and seek to develop other aspects of the
business of the Company.
2. work a minimum of one (1) full business day a week from the Company's San
Francisco office except in instances where Consultant is performing duties
on behalf of the Company that require him to be offsite (the number of days
worked by Consultant at the Company's offices is subject to increase as may
be mutually agreed between Consultant and the Company.
3. be reasonably available for meetings and travel on behalf of the Company at
times that are reasonably convenient for Consultant and the Company.
4. continue to utilize Consultant's diverse network of contacts and personal
and business relationships to attract unique opportunities to the Company.
42
<PAGE>
EXHIBIT 10.12
ASSET PURCHASE AGREEMENT
DATED AS OF JUNE 11, 1998
BY AND BETWEEN
XOOM, INC.,
AND
REVOLUTIONARY SOFTWARE, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. Definitions 1
1.1 Defined Terms.................................. 1
ARTICLE II. Purchase and Sale of Software Assets............... 2
2.1 Transfer of Software Assets.................... 2
2.2 Purchase Price/ Payment Procedure.............. 3
2.3 Price Protection............................... 3
2.4 Termination of Payment Obligations............. 4
ARTICLE III. Closing........................................... 4
3.1 Closing........................................ 4
3.2 Deliveries..................................... 4
3.3 Conditions to Closing.......................... 5
ARTICLE IV. Representations and Warranties of Seller........... 5
4.1 Organization................................... 5
4.2 Authorization.................................. 5
4.3 Brokers........................................ 6
4.4 Litigation, Proceedings and Applicable Law..... 6
4.5 No Conflict or Violation....................... 6
4.6 Intellectual Property.......................... 6
4.7 Assets Generally............................... 8
4.8 Products....................................... 8
4.9 Receipt of Shares Entirely For Own Account..... 8
4.10 Disclosure of Information...................... 8
ARTICLE V. Representations and Warranties of Buyer............. 9
5.1 Organization of Buyer.......................... 9
5.2 Authorization.................................. 9
5.3 Brokers........................................ 9
5.4 Consents and Approvals......................... 9
ARTICLE VI. Certain Covenants.................................. 10
6.1 Covenants of Both Parties...................... 10
6.2 Seller's Covenants............................. 10
ARTICLE VII. INDEMNIFICATION................................... 10
7.1 Indemnification by the Seller.................. 10
7.2 Indemnification by Buyer....................... 11
7.3 Notification of Claims......................... 11
7.4 Resolution of Claims........................... 11
7.5 Arbitration.................................... 12
7.6 Indemnification Threshold...................... 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII. RESTRICTIONS ON XOOM COMMON SHARES............... 12
8.1 Right of First Refusal/Transfer Restrictions... 12
8.2 Lock-Up Agreement.............................. 14
ARTICLE IX. Miscellaneous...................................... 15
9.1 Survival of Representations and Warranties..... 15
9.2 Setoff......................................... 15
9.3 Noncompetition................................. 15
9.4 Press Releases and Public Announcements........ 15
9.5 Assignment..................................... 15
9.6 Notices........................................ 15
9.7 Choice of Law.................................. 16
9.8 Entire Agreement; Amendments and Waivers....... 16
9.9 Multiple Counterparts.......................... 16
9.10 Titles......................................... 16
</TABLE>
ii
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made and entered into
---------
as of June 11, 1998 by and between Revolutionary Software, Inc., a California
corporation ("Seller"), and XOOM, Inc., a Delaware corporation ("Buyer").
------ -----
RECITALS
--------
1. A division of Seller's business relates to the development and
licensing of a web-based e-mail software system known as "Sitemail" (together
--------
with related source code, documentation and related Intellectual Property (as
defined in Section 1.1) relating to Sitemail (collectively, the "Software
--------
Assets").
2. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, the Software Assets, pursuant to the terms and subject to the conditions
set forth herein.
AGREEMENT
---------
NOW THEREFORE, Seller and Buyer agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the terms below shall have the following
meanings:
"Action" shall mean any action, claim, suit, arbitration, inquiry,
------
subpoena, discovery request, proceeding or investigation, or threat thereof, by
or before any court or grand jury, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
"Affiliate" shall mean, with respect to any Person, any other Person
---------
directly or indirectly controlling, controlled by or under common control with
such Person and any member, general partner, director, officer or employee of
such Person. For purposes of this definition of Affiliate, "control" shall mean
-------
the power of one or more Persons to direct the affairs of the Person controlled
by reason of ownership of voting stock, contract or otherwise.
"Damages" shall mean any and all costs, losses, damages, liabilities,
-------
demands, claims, suits, actions, judgments, causes of action, assessments or
expenses, including interest, penalties, fines and attorneys' fees incident
thereto, incurred in connection with any claim for indemnification arising out
of this Agreement, and any and all amounts paid in settlement of any such claim.
"Intellectual Property" shall mean all copyrights, copyright
---------------------
registrations, proprietary processes, trade secrets, license rights,
specifications, technical manuals and data,
1
<PAGE>
drawings, inventions, designs, patents, patent applications, mask works,
tradenames, trademarks, service marks, product information and data, know-how
and development work-in-progress, customer lists, software, business
correspondence and marketing plans and other intellectual or intangible property
that comprise or are necessary to the use of the Software Assets, whether
pending, applied for or issued, whether filed in the United States or in other
countries, including, without limitation, all associated goodwill; all things
authored, discovered, developed, made, perfected, improved, designed,
engineered, acquired, produced, conceived or first reduced to practice by Seller
or any of its employees or agents that are embodied in, derived from or relate
to the Software Assets, in any stage of development, including, without
limitation, modifications, enhancements, designs, concepts, techniques, methods,
ideas, flow charts, coding sheets, notes and all other information relating to
the Software Assets.
"Knowledge" shall mean an individual shall be deemed to have
---------
"Knowledge" of a particular fact or other matter if such individual is actually
aware of such fact or other matter or if a prudent individual could be expected
to discover or otherwise become aware of such fact or other matter in the course
of conducting a diligent and comprehensive investigation concerning the truth
or existence of such fact or other matter. Seller shall be deemed to have
"Knowledge" of a particular fact or other matter if any officer or other
representative of Seller has Knowledge of such fact or other matter.
"Person" shall mean any person or entity, whether an individual,
------
trustee, corporation, general partnership, limited partnership, trust,
unincorporated organization, limited liability company, business association,
firm, joint venture, or governmental agency or authority.
"Software Assets" shall have the meaning stated in the Recitals to
---------------
this Agreement.
"Taxes" shall mean all taxes, however denominated, including any
-----
interest, penalties or other additions to tax that may become payable in respect
thereof, (i) imposed by any federal, territorial, state, local or foreign
government or any agency or political subdivision of any such government, for
which Buyer could become liable as successor to or transferee of the Software
Assets or which could become a charge against or lien on the Software Assets,
which taxes shall include, without limiting the generality of the foregoing, all
sales and use taxes, ad valorem taxes, excise taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes, environmental
taxes, real property gains taxes, transfer taxes, payroll and employee
withholding taxes, unemployment insurance contributions, social security taxes
and other governmental charges, and other obligations of the same or of a
similar nature to any of the foregoing, which are required to be paid, withheld
or collected, or (ii) any liability for amounts referred to in (i) as a result
of any obligations to indemnify another person.
ARTICLE II.
PURCHASE AND SALE OF SOFTWARE ASSETS
2.1 TRANSFER OF SOFTWARE ASSETS. Pursuant to the terms and subject to the
conditions of this Agreement, in exchange for the consideration set forth in
Section 2.2 below, at the
2
<PAGE>
Closing, Seller shall sell, assign and deliver to Buyer, and Buyer shall
purchase from Seller, the Software Assets.
2.2 PURCHASE PRICE/ PAYMENT PROCEDURE. As consideration for the Software
Assets, Buyer shall tender Seller the consideration set forth below:
(a) 192,077 shares of Buyer's common stock ("Shares"), evidenced by a
duly executed stock certificate to be delivered to Seller at the Closing.
(b) An amount equal to $275,000, payable as follows:
(i) $12,500 at the Closing; and
(ii) the outstanding balance of $262,500 in twenty-five equal and
consecutive monthly payments of $10,500 each, with simple interest at
the annual rate of 5%, payable pursuant to a promissory note (the
"Note") in substantially the form of Exhibit A hereto, and secured by
-----
a security interest in the Software Assets.
(c) During the twenty-four months beginning with the first full month
after the Closing, an amount equal to five percent (5%) of the gross revenues
(less sales commissions, cost of goods, royalties paid to third parties,
credits, returns and applicable taxes) (not including taxes based on XOOM's
income)) from electronic commerce, banner advertising and bounty generated and
actually received from web-based e-mail subscribers ordering services or
merchandise through Best/Hway Earthlink and/or Netcom (the "GBT Sitemail
------------
Revenues").
- --------
(d) Up to an additional 103,824 Shares ("Earnout Shares") in two
--------------
separate issuances of 51,912 Earnout Shares each, contingent upon Seller's
timely achieving either or both of the targets set forth on Exhibit B hereto
(the "Earnout Targets) in its capacity as a Consultant to Buyer, provided,
--------
however, that regardless of whether Seller has met such Earnout Targets, Seller
shall be entitled to issuance of all 103,824 Earnout Shares upon the closing of
any Transaction (as defined in Section 2.3) (except for 2.3(i)), unless Seller
and Buyer mutually agree that consummation of such Transaction will not cause it
to be materially more difficult or impossible to meet the Earnout Targets in
Exhibit B. Each 51,912 portion of the Earnout Shares may be independently earned
and shall be severable from the other portion.
2.3 PRICE PROTECTION.
If, from the date of the Closing until the date on which Xoom has completed
an initial public offering ("IPO") of its securities (i) XOOM obtains additional
---
equity financing (ii) XOOM enters into an agreement for the sale of all or
substantially all of the assets of XOOM, (iii) there is a sale by shareholders
of XOOM of more than fifty percent (50%) of the outstanding voting stock of XOOM
("XOOM Stock"), or (iv) XOOM effects a merger with or into another entity where
----------
it is not the survivor (other than a merger solely for the purpose of changing
the state of incorporation or effecting a recapitalization of XOOM) and
shareholders of XOOM prior to such merger own less than 50% of the outstanding
voting securities of the survivor, (any of subsections (i), (ii) (iii), (iv) or
(v), a "Transaction"), and the valuation of XOOM for purposes of any such
-----------
Transaction is less than $25 million, the Seller shall be entitled
3
<PAGE>
to receive, rounded down to the nearest whole number of shares, an additional
number of shares of XOOM Stock calculated as (A) (i) $426,411 divided by (ii)
the per share valuation of XOOM's common shares in the Transaction or IPO, minus
-----
(B) the aggregate number of shares of XOOM Stock issued or issuable to the
Seller under this Agreement other than pursuant to this Section 2.3. For any
Transaction, such additional Xoom Stock shall be deemed issued to the Seller
immediately prior to the closing thereof. XOOM's obligations under this Section
2.3 shall terminate upon the completion of an IPO or a Transaction, other than a
Transaction pursuant to subsection (i). The price protection formula in this
Section 2.3 shall also apply to the Earnout Shares issued pursuant to Section
2.2(d).
2.4 TERMINATION OF PAYMENT OBLIGATIONS. The obligations of Buyer pursuant
to Section 2.2(d) shall immediately terminate if the Consulting Agreement
between Buyer and Seller is terminated (i) by Seller, at Seller's request, or
(ii) by Buyer for "cause," prior to the Term Date (as such terms are defined
therein).
ARTICLE III.
CLOSING
3.1 CLOSING. The closing of the transactions contemplated herein (the
"Closing") shall be held at 1:00 p.m. California time at the offices of
-------
Morrison & Foerster LLP, 425 Market Street, San Francisco, CA, 94105, on June
__, 1998, or at such other time and place as the parties may agree (the "Closing
-------
Date") provided that all of the Closing conditions set forth in Section 3.3
- ----
hereof shall have occurred.
3.2 DELIVERIES. Together with an executed counterpart of this Agreement,
the following items shall be delivered by the parties at the Closing:
(a) BY BUYER. Buyer shall deliver:
--------
(iii) a check payable to Seller in the amount of $12,500;
(iv) a certificate evidencing the Shares;
(v) the duly executed Note described in Section 2.2(b)(ii);
(vi) an executed Security Agreement in substantially the form of
Exhibit C hereto; and
---------
(vii) the Consulting Agreement described in Section 6.1(a) executed by
Buyer.
(b) BY SELLER. Seller shall deliver to Buyer:
---------
(viii) one or more Bills of Sale, in form and substance satisfactory to
Buyer and sufficient to convey the Software Assets to Buyer;
4
<PAGE>
(ix) such electronic and paper copies and representations of the
Intellectual Property as may in Buyer's reasonable judgment be
necessary to convey the Intellectual Property to Buyer;
(x) the Consulting Agreement described in Section 6.1(a) executed by
Seller;
(xi) an Assignment of Seller's rights in the copyright registration
application pending before the Patent and Trademark Office; and
(xii) such other documents and instruments as are reasonably necessary to
consummate the transactions contemplated hereby.
3.3 CONDITIONS TO CLOSING. Buyer and Seller shall not be obligated to
consummate the Closing and the transactions contemplated hereby and may
terminate this Agreement without incurring any liability unless (i) Seller has
delivered the items specified in Section 3.2(b), and (ii) a closing under that
Agreement and Plan of Merger between Buyer, XOOM GBT Merger Corp. and Robert
Kohler has occurred or will occur concurrently with the Closing hereunder.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
4.1 ORGANIZATION. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has full
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. Seller is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for failures to be so qualified or licensed and in
good standing that would not, individually or in the aggregate, affect the
Software Assets in a materially adverse manner.
4.2 AUTHORIZATION. Seller has all necessary corporate power and authority
and has taken all corporate action necessary to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by Seller and is
a valid and binding obligation of Seller, enforceable against it in accordance
with its respective terms subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting the rights of creditors generally and limitations imposed by equitable
principles, whether considered in a proceeding at law or in equity, and the
discretion of the court before which any proceeding therefor may be brought.
4.3 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been conducted without the intervention of
any person or entity acting on behalf of Seller in such a manner as to give rise
to any valid claim against Buyer for any
5
<PAGE>
broker's or finder's commission, fee or similar compensation and Seller shall
indemnify Buyer and hold it harmless from any liability or expense arising from
any claim for brokerage commissions, finder's fees or other similar compensation
based on any agreement, arrangement or understanding made by or on behalf of
Seller.
4.4 LITIGATION, PROCEEDINGS AND APPLICABLE LAW. There are no Actions,
suits, investigations or proceedings, at law or in equity or before or by any
governmental authority or instrumentality or before any arbitrator of any kind,
pending or, to Seller's Knowledge, threatened (a) against Seller which, if
determined adversely against Seller, would have a material adverse effect on
Seller's or Buyer's ability to use the Intellectual Property in the manner in
which it is now being used by Seller or (b) seeking to delay or enjoin the
consummation of the transactions contemplated hereby. To the Knowledge of
Seller, there are no outstanding orders, decrees or stipulations issued by any
federal, state, local or foreign, judicial or administrative authority in any
proceeding to which Seller is or was a party relating to the Software Assets.
4.5 NO CONFLICT OR VIOLATION. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby or
thereby will result in (i) a violation of or a conflict with any provision of
the Articles of Incorporation or Bylaws of Seller, (ii) a material breach or
termination of, or a material default under, any term or provision of any
contract to which Seller is a party or an event which, with notice, lapse of
time, or both, would result in any such material breach, such termination or
such material default, or (iii) a material violation by Seller of any Legal
Requirement or an event which, with notice, lapse of time or both, would result
in such a material violation.
4.6 INTELLECTUAL PROPERTY. Seller owns all rights to the Software Assets
without any conflict or infringement of the intellectual property rights of
others. All source code included within the Intellectual Property constitutes a
trade secret of Seller and is not part of the public knowledge or literature,
and Seller has taken reasonable action to protect such source code as a trade
secret. In addition, Seller has taken reasonable steps (including, without
limitation, entering into Confidentiality Agreements with all officers and
employees of and consultants involved in Seller's business) to maintain the
secrecy and confidentiality of and its proprietary rights in, all Intellectual
Property.
(b) Schedule 4.6(b) lists (i) all patents and patent applications and
---------------
all registered copyrights, trade names, trademarks, service marks and other
company, product or service identifiers included in the Intellectual Property,
and specifies the jurisdictions in which each of the foregoing has been
registered, including the respective registration numbers, and/or any
application for any such registration has been filed; (ii) all licenses,
sublicenses and other agreements as to which Seller is a party and pursuant to
which Seller or any other Person is authorized to use any Intellectual Property;
and (iii) all licenses under which Seller is or may be obligated to make royalty
or other payments. Copies of all licenses, sublicenses and other agreements
identified pursuant to clauses (ii) and (iii) above have been delivered by
Seller to Buyer.
(c) Seller is not in violation in any material respect of any license,
sublicense or agreement described in Schedule 4.6(b). As a result of the
---------------
execution and delivery of this
6
<PAGE>
Agreement or the performance of Seller's obligations hereunder, neither Seller
nor Buyer shall be in violation in any material respect of any license,
sublicense or agreement described in such schedule.
(d) Seller is the sole owner of all necessary right, title and
interest in and to (free and clear of any liens, encumbrances or security
interests) all non-public domain Intellectual Property necessary to fully
exploit the Software Assets and has full rights to the use, sale, license or
disposal thereof. Except as expressly set forth in Schedule 4.6(b), no other
---------------
Person has any rights with respect to any of the Intellectual Property, nor is
any consent or approval of any third party needed to fully utilize and exploit
the Software Assets as presently configured.
(e) No claims with respect to the Intellectual Property have been
asserted to Seller, or, to Seller's Knowledge, are threatened by any person, and
Seller knows of no claims (i) to the effect that Seller infringes any copyright,
patent, trade secret, or other intellectual property right of any third party or
violates any license or agreement with any third party, (ii) contesting the
right of Seller to use, sell, license or dispose of any Intellectual Property,
or (iii) challenging the ownership, validity or effectiveness of any of the
Intellectual Property.
(f) To the Knowledge of Seller, all trademarks, service marks, and
other company, product or service identifiers held by Seller are valid and
subsisting worldwide.
(g) To the Knowledge of Seller, and except as expressly set forth in
Schedule 4.6(b), there has not been and there is not now any unauthorized use,
infringement or misappropriation of any of the Intellectual Property by any
third party. Seller has not been sued or, to Seller's Knowledge, charged as a
defendant in any claim, suit, action or proceeding that involves a claim of
infringement of any patents, trademarks, service marks, copyrights or other
intellectual property rights that comprise the Software Assets. Seller does not
have any infringement liability with respect to any patent, trademark, service
mark, copyright or other intellectual property right of any third party insofar
as the Software Assets are concerned.
(h) No Intellectual Property is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any material manner
the licensing thereof by Seller. Seller has not entered into any agreement to
indemnify any other person against any charge of infringement of any
Intellectual Property, except in the ordinary course of business. Seller has not
entered into any agreement granting any third party the right to bring
infringement actions with respect to, or otherwise to enforce rights with
respect to, any Intellectual Property. Seller has the exclusive right to file,
prosecute and maintain all applications and registrations with respect to the
Intellectual Property developed or owned by Seller.
(i) Except as set forth in Schedule 4.6(b), no person has a license to
---------------
use or the right to acquire a license to use any future version of any product
based on the Intellectual Property or any product based on the Intellectual
Property that is under development, and no agreement to which Seller is a party
will restrict Buyer from charging customers for any such new version or product.
7
<PAGE>
4.7 ASSETS GENERALLY. Seller holds good and marketable title, license to
or leasehold interest in all of the Software Assets and has the complete and
unrestricted power and the unqualified right to sell, assign and deliver the
Software Assets to Buyer. Upon consummation of the transactions contemplated by
this Agreement, Buyer will acquire good and marketable title, license or
leasehold interest to the Software Assets free and clear of any encumbrances and
there exists no restriction on the use or transfer of the Software Assets. No
Person other than Seller has any right or interest in the Software Assets,
including the right to grant interests in the Software Assets to third parties.
4.8 PRODUCTS. The Software Assets operate in compliance with Seller's
specifications for such products.
4.9 RECEIPT OF SHARES ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with Seller in reliance upon Seller's representation, which by Seller's
execution of this Agreement Seller hereby confirms, that the shares being issued
to Seller hereunder are being acquired for investment for Seller's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that Seller has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, Seller further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Shares.
4.10 DISCLOSURE OF INFORMATION. Seller believes that it has received all
the information necessary or appropriate for deciding whether to receive the
Shares as part of the consideration for the Software Assets. Seller further
represents that its officers and agents have had an opportunity to ask questions
and receive answers from Buyer regarding the terms and conditions pertaining to
the Shares and the business, properties, prospects and financial conditions of
Buyer. Seller has arrived at an independent view concerning the value of Buyer,
recognizes that the transactions in which Seller is acquiring the Shares is
occurring in an arms' length transaction and is not relying upon any statements
by Buyer as to the value of Buyer or the Shares.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
5.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has full corporate
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted.
5.2 AUTHORIZATION. Buyer has all necessary corporate power and authority
and has taken all corporate action necessary to enter into this Agreement to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder. This Agreement and
8
<PAGE>
has been duly executed and delivered by Buyer and is a valid and binding
obligation of Buyer, enforceable against it in accordance with its terms subject
to the effect of applicable bankruptcy, insolvency, reorganization, moratorium,
and other similar laws relating to or affecting the rights of creditors
generally and limitations imposed by equitable principles, whether considered in
a proceeding at law or in equity, and the discretion of the court before which
any proceeding therefor may be brought.
5.3 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been conducted without the intervention of
any person or entity acting on behalf of Buyer in such a manner as to give rise
to any valid claim against Seller for any broker's or finder's commission, fee
or similar compensation.
5.4 CONSENTS AND APPROVALS. No consent, waiver, approval or authorization
of or by, or declaration, filing or registration with, any governmental or
regulatory authority is required to be made or obtained by Buyer in connection
with the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
ARTICLE VI.
CERTAIN COVENANTS
6.1 COVENANTS OF BOTH PARTIES. Buyer, on the one hand, and Seller, on the
other hand, each covenant to the other that:
(a) CONSULTING AGREEMENT. Buyer and Seller shall enter into a
--------------------
Consulting Agreement substantially in the form of Exhibit D hereto for services
to be provided by Seller commencing immediately after the Closing.
(b) FURTHER ASSURANCES. Each party will cooperate in good faith with
------------------
the other and will take all appropriate action and execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder. From and
after the execution hereof, Seller will promptly refer all inquiries with
respect to the ownership of the Software Assets to Buyer and execute such
documents as Buyer may reasonably request from time to time to evidence transfer
of the Software Assets to Buyer.
6.2 SELLER'S COVENANTS. Seller covenants to Buyer that:
(a) COOPERATION AND TRANSITION ASSISTANCE. Seller shall use its best
-------------------------------------
efforts to facilitate the transition of customers, customer support services,
and development, marketing and sales functions related to the Software Assets to
Buyer, and shall direct any new inquiries regarding the Software Assets to Buyer
or its assignee.
(b) DOCUMENTATION. Seller shall provide Buyer with full and complete
-------------
documentation, both written and computer generated, relating to the business
that Seller has
9
<PAGE>
conducted using the Software Assets, including all correspondence and files
relating to their development.
ARTICLE VII.
INDEMNIFICATION
7.1 INDEMNIFICATION BY THE SELLER. In the event Seller (i) breaches or is
deemed to have breached any of the representations and warranties contained in
Article IV herein, or (ii) fails to perform or comply with any of the covenants
and agreements set forth in this Agreement, Seller shall hold harmless,
indemnify and defend Buyer, and each of its directors, officers, shareholders,
attorneys, representatives and agents, from and against any Damages incurred or
paid by Buyer to the extent such Damages arise or result from a breach by Seller
of any such representations or warranties or a violation of any covenant in this
Agreement.
7.2 INDEMNIFICATION BY BUYER. In the event Buyer (i) breaches or is deemed
to have breached any of the representations and warranties contained in Article
V herein or (ii) fails to perform or comply with any of the covenants and
agreements set forth in this Agreement, then Buyer shall hold harmless,
indemnify and defend Seller from and against any Damages incurred or paid by the
Seller to the extent such Damages arise or result from a breach by Buyer of any
such representations and warranties or a violation of any covenant in this
Agreement.
7.3 NOTIFICATION OF CLAIMS. If any party or parties (the "Indemnified
-----------
Party") reasonably believes that it is entitled to indemnification hereunder,
- ------
or otherwise receives notice of the assertion or commencement of any third-party
claim, action, or proceeding (a "Third-Party Claim"), with respect to which
-----------------
such other party or parties (the "Indemnifying Party") is obligated to provide
------------------
indemnification pursuant to Section 7.1 or 7.2 above, the Indemnified Party
shall promptly give the Indemnifying Party written notice of such claim for
Indemnification (an "Indemnity Claim"). Any claim for indemnification under this
----------------
Section 7 must be brought prior to the expiration of the survival period for the
representation and warranty as set forth in Section 9.1. The delivery of such
notice of Indemnity Claim ("Claim Notice") shall be a condition precedent to any
------------
liability of the Indemnifying Party for indemnification hereunder. The
Indemnifying Party shall have twenty (20) days from the receipt of a Claim
Notice (the "Notice Period") to notify the Indemnified Party of whether or not
------ ------
the Indemnifying Party disputes its liability to the Indemnified Party with
respect to such Indemnity Claim.
7.4 RESOLUTION OF CLAIMS. With respect to any Indemnity Claim involving a
Third-Party Claim, following prompt notification of the Indemnifying Party, the
Indemnified Party shall proceed with the defense of such Third-Party Claim.
During such defense proceedings, the Indemnified Party shall keep the
Indemnifying Party informed of all material developments and events relating to
the proceedings. The Indemnifying Party shall have a right to be present at the
negotiation, defense and settlement of such Third-Party Claim. The Indemnified
Party shall not agree to any settlement of the Third-Party Claim without the
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld. Following entry of judgment or settlement with respect to the Third-
Party Claim, any dispute as to the liability of the Indemnifying Party with
respect to the Indemnity Claim shall be resolved as provided in Section 7.5.
10
<PAGE>
(b) With respect to any Indemnity Claim not involving a Third-Party
Claim, if the Indemnifying Party disputes its liability within the Notice
Period, the liability of the Indemnifying Party shall be resolved in accordance
with Section 7.5.
(c) In the event that an Indemnified Party makes an Indemnity Claim in
accordance with Section 7.3 and the Indemnifying Party does not dispute its
liability within the Notice Period, the amount of such Indemnity Claim shall be
conclusively deemed a liability of the Indemnifying Party.
7.5 ARBITRATION. All disputes under this Agreement shall be settled by
arbitration in Santa Cruz, California before a single arbitrator pursuant to the
commercial law rules of the American Arbitration Association. Arbitration may be
commenced at any time by any party hereto giving written notice to each other
party to a dispute that such dispute has been referred to arbitration under this
Section 7.5. The arbitrator shall be selected by the joint agreement of the
Indemnifying Party and Indemnified Party, but if they do not so agree within 20
days after the date of the notice referred to above, the selection shall be made
pursuant to the rules from the panels of arbitrators maintained by such
Association. Any award rendered by the arbitrator shall be conclusive and
binding upon the parties hereto; provided, however, that any such award shall be
-------- -------
accompanied by a written opinion of the arbitrator giving the reasons for the
award. This provision for arbitration shall be specifically enforceable by the
parties and the decision of the arbitrator in accordance herewith shall be final
and binding without right of appeal. Each party shall pay its own expenses of
arbitration and the expenses of the arbitrator shall be equally shared;
provided, however, that if in the opinion of the arbitrator any claim for
- -------- -------
indemnification or any defense or objection thereto was unreasonable, the
arbitrator may assess, as part of his award, all or any part of the arbitration
expenses of the other party (including reasonable attorneys' fees) and of the
arbitrator against the party raising such unreasonable claim, defense or
objection. To the extent that arbitration may not be legally permitted hereunder
and the parties to any dispute hereunder may not at the time of such dispute
mutually agree to submit such dispute to arbitration, any party may commence a
civil action in a court of appropriate jurisdiction to solve disputes hereunder.
Nothing contained in this Section 7.5 shall prevent the parties from settling
any dispute by mutual agreement at any time.
7.6 INDEMNIFICATION THRESHOLD. Notwithstanding anything to the contrary
herein, in no event shall any party be liable to any other party under any
warranty, representation, indemnity or covenant made by such party in this
Agreement until the aggregate amount of Damages thereunder against such party
exceeds ten thousand dollars ($10,000) (the "Threshold"), at which point such
---------
party shall be liable for the full amount of liability for such claims below and
above the threshold.
ARTICLE VIII.
RESTRICTIONS ON XOOM COMMON SHARES
The Shares issued to Buyer pursuant to this Agreement shall be subject to
the following restrictions:
11
<PAGE>
8.1 RIGHT OF FIRST REFUSAL/TRANSFER RESTRICTIONS.
(a) Restrictions on Transfer. Seller may not sell or engage in any
------------------------
transaction which will result in a change in the beneficial or record ownership
of any Shares issued to or held by Seller, including without limitation a
voluntary or involuntary sale, assignment, transfer, pledge, hypothecation,
encumbrance, disposal, loan, gift, attachment or levy (a "Transfer"), except as
--------
provided in this Article VIII, and any such Transfer of Shares or attempted
Transfer of Shares in contravention of this Agreement shall be void and
ineffective for any purpose and shall not confer on any transferee or purported
transferee any rights whatsoever.
(b) Right of First Refusal.
----------------------
(i) If, prior to an initial public offering of Buyer's securities
or a merger or sale of Buyer, Seller proposes to Transfer (or is required by
operation of law or other involuntary transfer) any or all of the Shares
standing in Seller's, Seller shall first offer such Shares to the Company in
accordance with the following provisions:
(A) Seller shall deliver a written notice (a "Notice") to
------
Buyer stating (1) Seller's bona fide intention to Transfer such Shares, (2)
the name and address of the proposed transferee, (3) the number of Shares
to be transferred, and (4) the purchase price per Share and terms of
payment for which Seller proposes to Transfer such Shares.
(B) Within 60 days after receipt of the Notice, Buyer or its
designee shall have the first right to purchase or obtain such Shares, upon
the price and terms of payment designated in the Notice. If the Notice
provides for the payment of non-cash consideration, Buyer at its option may
pay the consideration in cash equal to Buyer's good faith estimate of the
present fair market value of the non-cash consideration offered.
(C) If Buyer or its designee elects not to purchase or obtain
all of the Shares designated in the Notice, then Seller may Transfer the
Shares referred to in the Notice to the proposed transferee, providing such
Transfer (1) is completed within 30 days after the expiration of Buyer's
right to purchase or obtain such Shares, (2) is made at the price and terms
designated in the Notice, and (3) the proposed transferee agrees to be
bound by the terms and provisions of this Article VIII and to become a
party to an agreement containing such provisions immediately upon receipt
of such Shares. If such Shares are not so transferred, Seller must give
notice in accordance with this paragraph prior to any other or subsequent
Transfer of such Shares.
(ii) Notwithstanding Section 8.1(a), Seller may Transfer Shares:
(A) to either or both of Seller's shareholders as of the date hereof (a
"Shareholder"), (B) to a Shareholder's spouse, child, grandchild,
- -----------
parent, brother, or sister ("Immediate Family"), or to a trust established for
------------------
the benefit of a member or members of a Shareholder's Immediate Family, (C) to
an Affiliate or (D) to the estate of any of the foregoing by gift, will or
intestate succession; provided that Seller notifies Buyer of such Transfer not
less than 10 nor more than 90 days prior to the Transfer and that the proposed
transferee agrees to be bound by the terms and provisions
12
<PAGE>
of this Agreement and to become a party to this Agreement immediately upon the
receipt of such Shares.
(c) No Transfer to Competitors. Seller may not Transfer any Shares
to a competitor of Buyer, or to any stockholder, partner or other beneficial
holder of an equity ownership interest in a competitor, other than pursuant to a
merger, combination, or other transaction approved by the Board of Directors of
Buyer.
(d) Legends on Stock Certificates. Each certificate representing
-----------------------------
shares issued pursuant to this Agreement shall be endorsed with the following
legends:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AN
AGREEMENT BETWEEN XOOM, INC. (THE "COMPANY"0 AND THE HOLDER, PROVIDING FOR,
AMONG OTHER MATTERS, THE COMPANY'S RIGHT OF FIRST REFUSAL TO PURCHASE THE
SECURITIES REPRESENTED BY THIS CERTIFICATE. A COPY OF USCH AGREEMENT IS ON
FILE AT THE PRINCIPAL BUSINESS OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES,
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR ITS SUCCESSOR RULE UNDER
THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT EXEMPTIONS FROM SUCH REGISTRATION AND FROM THE PROVISIONS OF
ANY APPLICABLE STATE "BLUE SKY" LAWS ARE AVAILABLE.
Under no circumstances shall any Transfer of any Shares subject hereto be
valid until the proposed transferee thereof shall have executed and become a
party to the agreement described in Section 8.1(b)(i)(C) and thereby shall have
become subject to all of the provisions of this Article VIII; and
notwithstanding any other provisions of this Agreement, no such Transfer of any
kind shall in any event result in the non-applicability of the provisions hereof
at any time to any of the Shares subject hereto. Seller understands and
acknowledges that Buyer need not register a transfer of Shares, and may instruct
its transfer agent not to register a transfer of Shares, unless the conditions
specified in the foregoing legend are satisfied.
(e) Acknowledgments. Seller acknowledges that other stockholders
---------------
of the Company may have restrictions on their stockholdings different than the
terms contained herein.
8.2 LOCK-UP AGREEMENT. Seller, if requested by an underwriter of Shares or
other securities of Buyer, shall not sell or otherwise transfer or dispose of
any Shares held by Seller during the 180-day period following the effective date
of a registration statement of Buyer filed under the Act or such shorter period
of time as the underwriter shall require, provided that all officers and
directors of Buyer who hold common stock (or other securities) of Buyer enter
into similar agreements. If requested by the underwriter, Seller will reaffirm
the agreement set forth in this Section 8.2 in a separate writing in a form
satisfactory to such underwriter. Buyer may impose stop-transfer instructions
with respect to such Shares subject to the foregoing restriction until the end
of said period.
13
<PAGE>
ARTICLE IX.
MISCELLANEOUS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties and indemnities included or provided for in this Agreement or in any
agreement, schedule or certificate or other document or instrument delivered
pursuant to this Agreement will survive the Closing Date for a period of twenty-
four months. No claim may be made by any party hereto unless written notice of
the claim is given within that twenty-four month period; provided, however, that
the foregoing limitation period will not apply to a breach of any
representation, warranty or covenant known to any party before the Closing Date.
9.2 SETOFF. Buyer may set off any amount that may be owed to it by Seller
under this Agreement against any amount otherwise payable to Seller by Buyer,
but any such setoff shall in no manner limit Seller's liability, if any, to
Buyer.
9.3 NONCOMPETITION. Seller shall not, at any time within the 3-year period
immediately following the Closing Date, directly or indirectly engage in any
activities involving the development, marketing or licensing of any web-based e-
mail system similar to Sitemail that are the same as, similar to or competitive
with the activities of Buyer. This provision shall be of no further effect in
the event of a breach by Buyer of its obligations under Sections 2.2.(b) (ii),
2.2(c) and 2.2(d).
9.4 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Prior to the Closing Date,
neither Buyer nor Seller (nor their respective shareholders, officers and
directors) shall issue any press release or make any public announcement
concerning the matters set forth in this Agreement (other than as required by
applicable disclosure rules or regulations) without the consent of the other
party. Buyer and Seller will cooperate to jointly prepare and issue any press
release which may be issued to announce the closing of the transactions
contemplated by this Agreement.
9.5 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. Buyer
may, without need for any consent or notice to Seller, assign all of its rights
and obligations under this Agreement to any Affiliate of Buyer, and such
assignment shall release Buyer of all of its liabilities and obligations to
Seller, provided such liabilities and obligations are fully assumed by Buyer's
assignee.
9.6 NOTICES. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by either party to the other
shall be in writing and delivered by telecopy or other facsimile (with receipt
acknowledged), delivered personally or mailed by certified mail, postage
prepaid, return receipt requested (such mailed notice to be effective on the
date such receipt is acknowledged or refused), to the addresses of the parties
appearing on the signature page of this agreement or to such other place and
with such other copies as either party may designate as to itself by written
notice to the other.
14
<PAGE>
9.7 CHOICE OF LAW. This Agreement shall be governed under and construed in
accordance with the laws of the State of California without regard to its choice
of law principles. For purposes of any dispute or controversy arising under this
Agreement or the transactions contemplated hereby, the parties mutually consent
to the exclusive jurisdiction of the courts of the State of California and the
federal district court, Northern District of California.
9.8 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all exhibits and schedules hereto, constitute the entire agreement among
the parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
9.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Facsimile signature pages
shall be considered originals.
9.10 TITLES. The titles, captions or headings of the Articles and Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers thereunto
duly authorized, in multiple originals, all as of the day and year first above
written.
<TABLE>
<CAPTION>
<S> <C>
Address for Notice REVOLUTIONARY SOFTWARE, INC.
------------------ a California corporation
Revolutionary Software, Inc.
131 Rathburn Way
Santa Cruz, CA 95061
ATTN: Evan Schaffer
Fax: 408 427 0942
By: /s/ EVAN SCHAFFER
--------------------------
Name: Evan Schaffer, President
Address for Notice XOOM, INC.
------------------ a Delaware corporation
433 California Street, Suite 910
San Francisco, CA 94104
Fax: (415) 445-2526
By: /s/ LAURENT MASSA
--------------------------
With a copy to: Laurent Massa, President
Morrison & Foerster
425 Market Street
San Francisco, CA 94105
ATTN: Bruce A. Mann, Esq.
</TABLE>
16
<PAGE>
SCHEDULE 4.6(B)
---------------
Intellectual Property
---------------------
Revolutionary Software, Inc. is the holder and exclusive owner of the
copyright for the Sitemail Web-based e-mail product currently running at
http://sitemail.com. Revolutionary Software, Inc. applied for a registered
copyright on May 13, 1998.
Besides Revolutionary Software, Inc., the Sitemail software is currently
being used by Global Bridges/Robert Kohler. Global Bridges/Robert Kohler is the
holder of a trademark for a Sitemail logo.
17
<PAGE>
EXHIBIT A
---------
SECURED PROMISSORY NOTE
$262,500
June 11, 1998
San Francisco, California
FOR VALUE RECEIVED, the undersigned XOOM, Inc. ("Debtor") promises to pay
to the order of Revolutionary Software, Inc. ("RSI"), at 131 Rathburn Way, Santa
Cruz, California ,or such other place as the holder hereof may designate in
writing, the principal sum of Two Hundred Sixty-two Thousand Five Hundred
Dollars, ($262,500), in twenty-five successive, monthly installments of Ten
Thousand Five Hundred Dollars ($10,500) each, beginning on July 5, 1998 and
continuing on the fifth day of each succeeding calendar month through and
including July 5, 2000, at which time all amounts hereunder shall be due and
payable.
Amounts outstanding under this Note shall bear simple interest at the
annual rate of five percent (5%). This Note is being delivered pursuant to an
Asset Purchase Agreement between RSI and Debtor of even date herewith (the
"Asset Purchase Agreement"), and is secured by certain Collateral pursuant to a
Security Agreement (the "Security Agreement") executed by Debtor in favor of RSI
of even date herewith (as defined in such Security Agreement).
At the option of Debtor, all or any portion of any unpaid sum hereunder may
be prepaid without premium or penalty at any time or from time to time after the
date hereof.
This Note is nonrecourse against Debtor, and the sole remedy of RSI holder
shall be against the Collateral. If RSI shall at any time take action to
enforce the collection of the indebtedness evidenced by this Note, RSI shall
proceed to foreclose under or otherwise enforce the Security Agreement (and no
deficiency judgment shall be sought in connection with any such foreclosure)
instead of instituting suit upon this Note or a provision thereof. If as a
result of such foreclosure and the sale of the Collateral under the Security
Agreement, a lesser sum is realized therefrom than the amount then due and owing
under this Note, Debtor shall have no liability therefor, and RSI shall never
institute any action, suit, claim or demand at law or in equity against Debtor
for or on account of such deficiency.
This Note is subject to a right of offset in accordance with Section 9.2 of
the Asset Purchase Agreement. Debtor shall have the right to offset against and
deduct from all amounts otherwise payable to RSI under the terms of the this
Note any sums owing by RSI to Debtor pursuant to the Asset Purchase Agreement.
A-1
<PAGE>
Upon a default by Debtor in making any payment of an installment when due
hereunder, and the continuation thereof for (10) days after written notice by
the holder hereof, all of the unpaid indebtedness evidenced by this Note shall
become immediately due and payable at the option of the holder, and the holder
may proceed to exercise any rights or remedies that it may have under the
Security Agreement.
Debtor agrees that if any legal action is necessary to enforce or collect
this Note, the prevailing party shall be entitled to reasonable attorneys' fees
in addition to any other relief to which that party may be entitled.
Debtor hereby waives demand, notice, and protest hereunder.
This Note shall be interpreted and enforced in all respects in accordance
with the internal laws of the State of California.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by
its officers duly authorized to do so.
DEBTOR:
XOOM, INC.
By:_______________________
Laurent Massa, President
A-2
<PAGE>
EXHIBIT B
Earnout Targets
---------------
1. Seller shall be entitled to 51,912 Shares if, at any time prior to May 31,
1999, Seller is able to scale Sitemail for use by five million (5,000,000) Xoom
Members, or Seller is able, by May 31, 1999, to scale Sitemail to effectively
handle the lesser of five million (5,000,000) Xoom Members or as many Xoom
Members as then desire to subscribe to Sitemail, with minimal down time.
2. Seller shall be entitled to 51,912 Shares if, at any time prior to May 31,
1999, Seller is able to integrate into Sitemail features such as a personal
organizer/calendar and other comparable features which enable Xoom to maintain
its position relative to its competitors, i.e. HotMail, WhoWhere and iName,
provided, however, that the additional features to be added will be acquired,
licensed or otherwise sourced from third parties, and Consultant's
responsibilities in this area shall be to integrate and cause such software
applications to reasonably communicate and interact with Sitemail, and
Consultant shall not be responsible for the development of such features and
applications (i.e, calendar functions, messaging, fax, paging, etc.).
B-1
<PAGE>
EXHIBIT C
Security Agreement
<PAGE>
EXHIBIT D TO EXHIBIT 10.12
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement") is made as of June 11, 1998, by XOOM,
Inc. ("Debtor") in favor of Revolutionary Software, Inc., a California
corporation ("Secured Party").
RECITALS:
--------
(1) Secured Party and Debtor have entered into that certain Asset Purchase
Agreement as of this date (the "Asset Purchase Agreement"), pursuant to which
Secured Party transferred to Debtor Sitemail Application Software and all
related intellectual property.
(2) Debtor has executed that certain promissory note as of this date
payable to Secured Party (the "Note"), which evidences Debtor's obligation to
pay Secured Party the balance of the purchase price of the Collateral (as
defined in Section 1) and interest thereon. To secure such payment, Secured
Party has required Debtor to grant a security interest in the Collateral
pursuant to the terms and conditions of this Security Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Definitions. As used in this Security Agreement:
-----------
1.1 "Agreements" means, collectively, this Agreement, the Note and
----------
the Asset Purchase Agreement.
1.2 "Commercial Code" means the Commercial Code of the State of
---------------
California as the same may be in effect from time to time.
1.3 "Collateral" means the web-based e-mail program known as
----------
"Sitemail" and all related intellectual property and licensee rights together
with any related enhancements, developments and work-in-progress owned by
Debtor.
1.4 "Event of Default" means any event described in Section 7.
----------------
1.5 "Lien" means any security interest, pledge, lien, claim, charge,
----
encumbrance, of or on any of the Collateral.
1.6 "Obligations" means all principal and interest due under the
-----------
Note and all attorneys' fees incurred by Secured Party in connection with the
collection or enforcement thereof, or this Agreement, and any payment
obligations of Debtor under that Consulting Agreement between Debtor and
Secured Party of even date herewith.
2. Grant. Debtor hereby grants to Secured Party a security interest in
-----
the Collateral to secure the timely payment and performance of the Obligations.
3. Representations and Warranties of Debtor. Debtor hereby represents and
----------------------------------------
warrants to Secured Party as follows:
1
<PAGE>
3.1 Debtor is the owner of the Collateral subject to no Liens except
for the Lien created by this Security Agreement, and, upon execution of this
Agreement evidencing the grant of the Collateral to Secured Party, Secured
Party shall have a first priority security interest in the Collateral subject
to no Liens other than the Lien created by this Agreement.
3.2 There exists no condition or restriction relating to or
affecting the transfer of the Collateral except as provided in the Asset
Purchase Agreement, or under applicable federal and state commercial codes.
4. Covenant of Debtor. Until termination of this Security Agreement,
------------------
Debtor further covenants that it will not create, incur or suffer to exist any
Lien other than the Lien created by this Agreement without the prior written
consent of Secured Party.
5. Reasonable Care. Debtor shall be deemed to have exercised reasonable
---------------
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which Debtor
accords its own intellectual property.
6. Further Assurances. Each of the parties hereto agrees to execute and
------------------
deliver all such further instruments and documents, and take all such further
action as may be necessary or desirable to carry out the intent of this
Agreement. Debtor further agrees that at any time and from time to time, at the
expense of Debtor, Debtor will promptly execute and deliver all such further
instruments and documents, and take all such further action, as may be necessary
or desirable, or that Secured Party may reasonably request, in order to perfect
and protect any security interest granted or purported to be granted hereby or
to enable Secured Party to exercise and enforce the rights and remedies
hereunder with respect to any Collateral.
7. Events of Default.
-----------------
7.1 The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Failure by Debtor to pay any amount owed under the Note
when due or in the payment or performance of any of the other Obligations, if
such failure continues for a period of ten (10) days after written notice of
such failure is given to Debtor.
(b) The insolvency of, the appointment of a receiver for or for
any of the property of, any assignment for the benefit of creditors by or
filing of a petition under bankruptcy, insolvency or debtor's relief law, or
for any readjustment of indebtedness, composition or extension by or against
Debtor.
7.2 Upon the occurrence of an Event of Default, all Obligations
shall, at the option of Secured Party, without demand or notice, become
immediately due and payable. Secured Party shall have all of the rights and
remedies available under contract or applicable law, which include those of a
secured party under the Commercial Code, at
2
<PAGE>
law, or in equity, and the right to take possession of the Collateral (if not
then in Secured Party's possession), and sell and dispose of the same, or any
part thereof, at a public or private sale.
7.3 It shall be deemed commercially reasonable to conduct a private
sale or other disposition of the Collateral even though a higher price might
have been obtained for the Collateral at a public sale under compliance with
any applicable laws or regulations.
7.4 The proceeds of any sale or disposition of the Collateral may be
applied by Secured Party first to the payment of expenses of collection,
including without limitation reasonable attorneys' fees, and then to the
payment of the outstanding principal and accrued interest due under the Note
in such order of application as provided by the Note, and any balance of such
proceeds shall be returned to Debtor. In the event that the proceeds of any
sale are insufficient to satisfy the Obligations, Debtor shall have no
individual or personal liability for any deficiency.
8. Notices. All notices required hereunder shall be in writing and
-------
shall be delivered pursuant to the notice provisions in the Asset Purchase
Agreement.
9. Amendment, Etc. No amendment or waiver of any provision of this
---------------
Agreement nor consent to any departure by Debtor herefrom shall in any event
be effective unless the same shall be in writing and signed by Secured Party
and Debtor, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
10. Continuing Security Interest, Assignment. This Agreement shall
----------------------------------------
create a continuing security interest in the Collateral and shall (a) remain
in full force and effect until indefeasible payment in full of the Obligations
and (b) be binding upon Secured Party and Debtor, and their successors and
permitted assigns. Secured Party may assign or otherwise transfer the Note to
any other person or entity, and such other person or entity shall thereupon
become vested with all the rights granted to Secured Party herein or
otherwise. Debtor may not assign or transfer Debtor's obligations under this
Agreement without Secured Party's prior consent.
11. Expenses and Attorneys' Fees. Debtor shall reimburse Secured Party
----------------------------
for any and all out-of-pocket expenses, including, without limitation,
reasonable attorneys' fees, paid or otherwise incurred by Secured Party in
connection with the collection and enforcement of this Security Agreement or
the Note.
12. Entire Agreement. This Agreement, the Note and the Asset Purchase
----------------
Agreement embody the entire agreement and understanding between Debtor and
Secured Party relating to the Collateral and supersede any prior agreements and
understandings between Debtor and Secured Party relating to the Collateral.
13. No Waiver. No waiver of any breach or default shall be deemed a
---------
waiver of any later breach or default of the same or any other provision of this
Agreement. No failure or delay on the part of Secured Party in exercising any
power, right or privilege
3
<PAGE>
under this Agreement shall operate as a waiver thereof, and no single or
partial exercise of any such power, right or privilege shall preclude any
further exercise thereof, or the exercise of any further power, right or
privilege.
14. Rights Cumulative. All rights and remedies existing under this
-----------------
Agreement are cumulative to, and not exclusive of, any other rights or
remedies available under contract or applicable law.
15. Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without such provision.
16. Waiver of Notice. To the fullest extent permitted by law, Debtor
----------------
hereby waives presentment, demand, protest, notice of dishonor and all other
notices and demands, as well as any applicable statute of limitations.
17. Termination. This Agreement shall continue in effect until no
-----------
Obligations shall be outstanding.
18. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of California.
IN WITNESS WHEREOF, the Debtor has executed and delivered this Security
Agreement as of the date written above.
DEBTOR:
XOOM, Inc.
By:________________________
Laurent Massa, President
4
<PAGE>
EXHIBIT D
---------
Consulting Agreement
--------------------
<PAGE>
EXHIBIT D TO EXHIBIT 10.12
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into as of this 11th
day of June, 1998, by and between XOOM, Inc., a Delaware corporation (the
"Company"), and Revolutionary Software, Inc. ("Consultant").
RECITALS
--------
A. The Company desires to obtain the services of Consultant, on its own
behalf and on behalf of all existing and future Affiliated Companies (defined as
any corporation or other business entity or entities that directly or indirectly
controls, is controlled by, or is under common control with the Company), upon
the terms and conditions set forth below.
B. The Company has spent significant time, effort and money to develop or
otherwise acquire certain Proprietary Information (as defined below), which the
Company considers vital to its business and goodwill.
C. The Proprietary Information will necessarily be communicated to or
acquired by Consultant in the course of providing consulting services to the
Company, and the Company desires to obtain the services of Consultant, only if,
in doing so, it can protect its Proprietary Information and goodwill.
Accordingly, the parties agree as follows:
AGREEMENT
---------
1. Consulting Period.
-----------------
The Company hereby retains the Consultant and Consultant agrees to render
to the Company those services described in Section 2 of this Agreement for the
period (the "Consulting Period") commencing on the date of this Agreement and
ending upon the end of the twelfth full month after the date hereof (the "Term
Date").
2. Duties; Responsibilities; Authority.
-----------------------------------
(a) The Consultant hereby accepts engagement with the Company to assist
in the integration of Sitemail, a web-based e-mail program, into the Company's
operations, as more fully described on Exhibit A attached hereto, or such other
services as shall be agreed in good faith between Consultant and the President
of the Company so as to utilize Consultant's capabilities.
(b) The Consultant shall have no authority to enter into contracts which
bind the Company or create obligations on the part of the Company without the
express prior authorization of the Company. The Consultant shall have no
authority to hire other persons, either as consultants, independent contractors
or employees, in such a manner as would in any
27
<PAGE>
way cause XOOM to incur any liability to such persons without the express prior
written authorization of the Company's President.
3. Compensation; Benefits; Expenses.
--------------------------------
(a) Compensation. In consideration of the services to be rendered
------------
hereunder, including, without limitation, services to any Affiliated Company,
Consultant shall be entitled to a professional fee of $10,000 per month, payable
on the __ day of each month, except as may be mutually agreed between Consultant
and the Company, during the term of this Agreement. There shall be no
withholdings from this payment, and Consultant shall be solely responsible for
all social security, tax, disability, and other state and federal assessments.
(b) Benefits. Other than the compensation specified in the above Section
--------
3(a), Consultant and its employees shall not be entitled to any direct or
indirect compensation or fringe benefits for services performed hereunder, nor
shall any employee of Consultant be eligible to participate in any employee
benefit plans provided by the Company or any Affiliated Company to its
employees.
(c) Expenses. The Company shall reimburse Consultant for reasonable
--------
travel and other business expenses (i) incurred by Consultant in the performance
of duties hereunder in accordance with the Company's general policies, as they
may be amended from time to time during the course of this Agreement, and (ii)
approved by the Company in writing in advance. The Consultant shall bill the
Company for expenses as incurred incident to services performed, referencing all
travel and expenses incurred with appropriate purchase orders and receipts.
4. Termination of Consulting Relationship.
--------------------------------------
(a) By Company For Cause. The Company may terminate, without liability,
--------------------
the Consulting Period for Cause (as defined below) at any time and without
notice and the Company shall have no further obligation to Consultant hereunder,
provided the Company pays Consultant the compensation described in Section 3(a)
for any periods prior to such termination. Compensation for any partial month in
which Consultant provides services prior to such termination shall be calculated
pro rata to the number of days in such month. Termination shall be for Cause if
due to: (1) any act of fraud, dishonesty, or gross negligence (including any
failure to act) made, engaged in, or conducted by Consultant in the course of
providing the services contemplated under this Agreement; (2) willful and wanton
misrepresentation to the Company which is materially injurious to the Company;
or (3) willful failure without reasonable justification to comply with a
material, reasonable and lawful instruction by the Company.
(b) At Will. At any time, either the Company or Consultant may terminate,
-------
without liability, the Consulting Period for any reason, with or without cause,
by giving thirty (30) days' advance written notice to the other party. If
Consultant terminates the consulting relationship with the Company pursuant to
this Section 4(b), the Company shall have the option, in its complete
discretion, to terminate Consultant immediately without the running of the
notice period, and such termination shall be deemed termination for cause. The
Company shall pay
28
<PAGE>
Consultant the compensation to which it is entitled pursuant to Section 3(a) for
services rendered through the date of termination, and thereafter all
obligations of the Company hereunder shall terminate. Consultant hereby agrees
that the Company may dismiss it under this Section 4(b) without regard (i) to
any general or specific policies (whether written or oral) of the Company
relating to the employment, retention or termination of its employees or
consultants, or (ii) to any statements made to Consultant, whether made orally
or contained in any document, pertaining to Consultant's relationship with the
Company; provided, however, that if the Company terminates Consultant without
cause prior to the end of the Consulting Period, the Company shall continue
paying Consultant its monthly compensation through the end of the Consulting
Period.
5. Termination Obligations.
-----------------------
(a) Consultant hereby acknowledges and agrees that all personal property,
including, without limitation, all books, manuals, records, reports, notes,
contracts, lists, blueprints, and other documents, or materials, or copies
thereof, Proprietary Information (as defined below), and equipment furnished to
or prepared by Consultant in the course of or incident to rendering of services
to the Company (but without affecting Consultant's rights as Secured Party under
that Security Agreement between Consultant and the Company of even date
herewith), including, without limitation, records and any other materials
pertaining to Invention Ideas (as defined below), belong to the Company and
shall be promptly returned to the Company upon termination of the Consulting
Period. Following termination, the Consultant will not retain any written or
other tangible material containing any Proprietary Information.
(b) The representations and warranties contained herein and Consultant's
obligations under Sections 4, 5, 6, and 7 shall survive termination of the
Consulting Period and the expiration of this Agreement.
(c) Consultant undertakes to ensure that its employees comply with all of
the requirements and obligations described in Sections 5 through 9 hereof,
inclusive, and shall be liable for any breach by any of its employees of such
sections.
6. Proprietary Information.
-----------------------
(a) Defined. "Proprietary Information" is all information and any idea in
-------
whatever form, tangible or intangible, pertaining in any manner to the business
of the Company or any Affiliated Company, or to its clients, consultants, or
business associates, unless: (i) the information is or becomes publicly known
through lawful means; (ii) the information was rightfully in Consultant's
possession or part of Consultant's general knowledge prior to the Consulting
Period; or (iii) the information is disclosed to Consultant without confidential
or proprietary restrictions by a third party who rightfully possesses the
information (without confidential or proprietary restriction) and did not learn
of it, directly or indirectly, from the Company.
(b) General Restrictions on Use. Consultant agrees to hold all
---------------------------
Proprietary Information in strict confidence and trust for the sole benefit of
the Company and not to, directly
29
<PAGE>
or indirectly, disclose, use, copy, publish, summarize, or remove from the
Company's premises any Proprietary Information (or remove from the premises any
other property of the Company), except (i) during the Consulting Period to the
extent necessary to carry out Consultant's responsibilities under this
Agreement, and (ii) after termination of the Consulting Period as specifically
authorized in writing by the Company's Board of Directors.
(c) Interference with Business; Competitive Activities. Consultant
--------------------------------------------------
acknowledges that the pursuit of the activities forbidden by this Section 6(c)
would necessarily involve the use or disclosure of Proprietary Information in
breach of Section 6(b), but that proof of such breach would be extremely
difficult. To forestall such disclosure, use, and breach, and in consideration
of retaining Consultant under this Agreement, Consultant agrees that during the
Consulting Period and for a period of one (1) year after termination of the
Consulting Period, Consultant shall not, for itself or any third party, directly
or indirectly (i) divert or attempt to divert from the Company (or any
Affiliated Company) any business of any kind in which it is engaged, including,
without limitation, the solicitation of or interference with any of its
suppliers or customers; or (ii) employ, solicit for employment, or recommend for
employment any person employed by the Company, or by any Affiliated Company.
(d) Remedies. Nothing in this Section 6 is intended to limit any remedy
--------
of the Company under the California Uniform Trade Secrets Act (California Civil
Code Section 3426), or otherwise available under law.
7. Consultant's Inventions and Ideas.
---------------------------------
(a) Defined. The term "Invention Ideas" means any and all ideas,
-------
processes, trademarks, service marks, inventions, technology, computer programs,
original works of authorship, designs, formulas, discoveries, patents,
copyrights, and all improvements, rights, and claims related to the foregoing
that are conceived, developed, or reduced to practice by the Consultant alone or
with others in the course of providing consulting services to the Company.
(b) Disclosure. Consultant agrees to maintain adequate and current
----------
written records on the development of all Invention Ideas and to disclose
promptly to the Company all Invention Ideas and relevant records, which records
will remain the sole property of the Company. Consultant further agrees that all
information and records pertaining to any idea, process, trademark, service
mark, invention, technology, computer program, original work of authorship,
design, formula, discovery, patent, or copyright that Consultant does not
believe to be an Invention Idea, but is conceived, developed, or reduced to
practice by Consultant (alone or with others) during his Consulting Period or
during the one year period following termination of the Consulting Period, shall
be promptly disclosed to the Company (such disclosure to be received in
confidence). The Company shall examine such information to determine if in fact
the idea, process, or invention, etc., is an Invention Idea subject to this
Agreement.
(c) Assignment. Consultant agrees to assign to the Company, without
----------
further consideration, his entire right, title, and interest (throughout the
United States and in all foreign countries), free and clear of all liens and
encumbrances, in and to each Invention Idea, which
30
<PAGE>
shall be the sole property of the Company, whether or not patentable. In the
event any Invention Idea shall be deemed by the Company to be patentable or
otherwise registrable, Consultant shall assist the Company (at Company's
expense) in obtaining letters patent or other applicable registrations thereon
and shall execute all documents and do all other things (including testifying at
the Company's expense) necessary or proper to obtain letters patent or other
applicable registrations thereon and to vest the Company, or any Affiliated
Company specified by the Company, with full title thereto. Should the Company be
unable to secure Consultant's signature on any document necessary to apply for,
prosecute, obtain, or enforce any patent, copyright, or other right or
protection relating to any Invention Idea, whether due to Consultant's mental or
physical incapacity or any other cause, Consultant hereby irrevocably designates
and appoints Company and each of its duly authorized officers and agents as
Consultant's agent and attorney in fact, to act for and in Consultant's behalf
and stead and to execute and file any such document, and to do all other
lawfully permitted acts to further the prosecution, issuance, and enforcement of
patents, copyrights, or other rights or protections with the same force and
effect as if executed and delivered by Consultant.
(d) Exclusions. Except for the relational database management system
----------
developed by Consultant known as rdb, Consultant acknowledges that there are no
ideas, processes, trademarks, service marks, technology, computer programs,
original works of authorship, designs, formulas, inventions, discoveries,
patents, copyrights, or improvements to the foregoing that it desires to exclude
from the operation of this Agreement. To the best of Consultant's knowledge,
there is no existing contract in conflict with this Agreement or any other
contract to assign ideas, processes, trademarks, service marks, inventions,
technology, computer programs, original works of authorship, designs, formulas,
discoveries, patents, or copyrights that is now in existence between Consultant
and any other person or entity.
(e) Post-Termination Period. Because of the difficulty of establishing
-----------------------
when any idea, process, invention, etc., is first conceived or developed by
Consultant, or whether it results from access to Proprietary Information or the
Company's equipment, facilities, and data, Consultant agrees that any idea,
process, trademark, service mark, technology, computer program, original work of
authorship, design, formula, invention, discovery, patent, copyright, or any
improvement, rights, or claims having a direct bearing or relevance to the
Company's assets or operations shall be presumed to be an Invention Idea if it
is conceived, developed, used, sold, exploited, or reduced to practice by
Consultant or with the aid of Consultant within six (6) months year after
termination of the Consulting Period. Consultant can rebut the above presumption
if it proves that the invention, idea, process, etc., (i) was first conceived or
developed after termination of the Consulting Period, (ii) was conceived or
developed entirely on Consultant's own time without using the Company's
equipment, supplies, facilities, or Proprietary Information, and (iii) did not
result from any work performed by Consultant for the Company.
8. Independent Contractor Relationship.
-----------------------------------
(a) Nature of Relationship. In performing services to the Company
----------------------
pursuant to this Agreement, Consultant's relationship with the Company will be
that of an independent
31
<PAGE>
contractor and nothing in this Agreement should be construed to create a
partnership, joint venture, or employer-employee relationship. Consultant
acknowledges and agrees that neither Consultant nor any person associated with
Consultant shall be entitled to receive or otherwise participate in any employee
benefits of any nature which the Company provides or makes available to any of
its employees.
(b) Taxes and Records. Consultant agrees that it will be solely
-----------------
responsible for, and will file and pay on a timely basis, all withholding
required by federal, state or local law with respect to Consultant's performance
of the services.
9. No Conflict of Interest.
-----------------------
Consultant agrees during the term of this Agreement not to accept work or
enter into a contract or accept an obligation, inconsistent or incompatible with
Consultant's obligations under this Agreement or the scope of services rendered
for Company. Consultant warrants that to the best of Consultant's knowledge,
there is no other contract or duty now in existence inconsistent with this
Agreement. Consultant further agrees not to disclose to the Company, or bring
onto the Company's premises, or induce the Company to use any confidential
information that belongs to anyone other than the Company or Consultant.
Consultant agrees to indemnify the Company from any and all loss or liability
incurred by reason of the alleged breach by Consultant of any confidentiality or
services agreement with anyone other than the Company.
10. Assignment; Successors and Assigns.
----------------------------------
Consultant shall not assign, sell, transfer, delegate or otherwise
dispose of, whether voluntarily or involuntarily, or by operation of law, any
rights or obligations under this Agreement, nor shall Consultant's rights be
subject to encumbrance or the claims of creditors. Any purported assignment,
transfer, or delegation shall be null and void. Nothing in this Agreement shall
prevent the consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of its
properties or assets, or the assignment by the Company of this Agreement and the
performance of its obligations hereunder to any successor in interest or any
Affiliated Company. Subject to the foregoing, this Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective heirs,
legal representatives, successors, and permitted assigns, and shall not benefit
any person or entity other than those enumerated above.
11. Notices.
-------
All notices or other communications required or permitted hereunder shall
be made in writing and shall be deemed to have been duly given if delivered by
hand or mailed, postage prepaid, by certified or registered mail, return receipt
requested, and addressed to the Company at:
XOOM, INC.
433 California Street
San Francisco, CA 94104
32
<PAGE>
Attention: Laurent Massa, President
Fax (415) 445-2526
and to the Consultant at:
Revolutionary Software, Inc.
131 Rathburn Way
Santa Cruz, CA 95062-1035
Attention: Evan Schaffer, President
Fax (408) 427 0342
Notice of change of address shall be effective only when done in accordance with
this section.
12. Entire Agreement.
----------------
The terms of this Agreement are intended by the parties to be the full
and final expression of their agreement with respect to the retention of
Consultant by the Company and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding involving this Agreement. This Agreement fully
supersedes any prior oral or written consulting or other agreements between the
Consultant and the Company.
13. Amendments.
----------
This Agreement may not be modified or amended, except by an instrument in
writing, signed by the Consultant and by a duly authorized representative of the
Company.
14. Severability; Enforcement.
-------------------------
If any provision of this Agreement shall be held to be invalid,
unenforceable, or void, the remainder of this Agreement shall remain in full
force and effect. It is the intention of the parties that the covenants
contained in Section 6 and 7 shall be enforced to the greatest extent (but to no
greater extent) in time, area, and degree of participation as is permitted by
the law of that jurisdiction whose law is found to be applicable to any acts
allegedly in breach of these covenants.
15. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without regard to conflicts of law principles.
33
<PAGE>
16. Consultant Acknowledgment.
-------------------------
Consultant acknowledges (i) that he has consulted with or has had the
opportunity to consult with independent counsel of his own choice concerning
this Agreement and has been advised to do so by the Company, and (ii) that it
has read and understands the Agreement, is fully aware of its legal effect, and
has entered into it freely based on his own judgment and not in reliance upon
any representation or promises made by the Company other than those contained in
writing herein.
17. Remedies.
--------
(a) Injunctive Relief. The parties agree that in the event of any breach
-----------------
or threatened breach of any of the covenants in Sections 6 or 7, the damage or
imminent damage to the value and the goodwill of the Company's business will be
irreparable and extremely difficult to estimate, making any remedy at law or in
damages inadequate. Accordingly, the parties agree that the Company shall be
entitled to injunctive relief without bond against Consultant in the event of
any breach or threatened breach of any such provisions by Consultant, in
addition to any other relief (including damages) available to the Company under
this Agreement or under law.
(b) Enforcement. In the event of any legal action required to enforce or
-----------
defend this Agreement, the prevailing party shall be entitled to an award of
attorneys' fees and legal costs, in addition to other relief.
The parties have duly executed this Agreement as of the date first
written above.
COMPANY CONSULTANT
XOOM, Inc. Revolutionary Software, Inc.
By:____________________________ By:___________________________
Laurent Massa, President Evan Schaffer, President
34
<PAGE>
EXHIBIT A
---------
Description of Duties
---------------------
Consultant shall assist the Company in the following areas:
1. Maintaining the service and transferring the maintenance knowledge relating
to Sitemail to XOOM's engineering staff.
2. Assisting in the move of Sitemail technology and service to XOOM including
DNS and other related technical transfers of the service.
3. Transition of Sitemail customer service and membership to XOOM.
4. Continued development to scale the Sitemail software to handle five million
XOOM members using XOOM's web-based e-mail program developed with Sitemail.
35
<PAGE>
EXHIBIT 10.13
PURCHASE AND LICENSE AGREEMENT
This Agreement is entered into this 18th day of June, 1998 (the "Execution
Date") between XOOM, Inc. (herein referred to as "XOOM"), a Delaware
Corporation, with its principal business offices at 433 California Street, Suite
910, San Francisco, CA 94104 and ArcaMax, Inc., a Virginia Corporation with its
principal business offices at 2524 George Washington Hwy., Yorktown, VA 23693
(herein referred to as "ArcaMax").
RECITALS
Whereas, ArcaMax has created a website, www.greetingsonline.com (the
-----------------------
"Website"), which is capable of allowing registered members to deliver via the
Internet Virtual Greeting Cards created by the ArcaMax Greeting Card Creator
("Virtual Greeting Cards") to other people with email addresses; Virtual
Greeting Cards are computer generated greeting cards that can be manipulated on
a computer screen so as to appear to open before the computer user in a fashion
similar to regular greeting cards;
Whereas ArcaMax has created a CD-ROM software product known as The Greeting
Card Creator ("The Greeting Card Creator CD") that can create, print, and email
greeting cards and has marketed this product for resale to distributors,
resellers, and end-users and ArcaMax has created an special in-house version of
The Greeting Card Creator CD ("The Greeting Card Creator VIH") which can be
utilized to create, manage, and publish a online database of Virtual Greeting
Cards;
Whereas, XOOM desires to purchase the domain name www.greetingsonline.com,
-----------------------
an exclusive license to the technology (including, without limitation, software,
scripts, data files and other electronic data and code) necessary to create,
maintain and operate (or actually used by ArcaMax to create, maintain and
operate) the Website (collectively, the "Website Technology"), as well as non-
exclusive license the Greeting Card Creator VIH to use in connection with the
Website Technology.
THEREFORE, the parties hereby mutually agree as follows:
AGREEMENT
1. GRANT OF RIGHTS
a. Website Delivery Technology. In accordance with the terms of this
----------------------------
Agreement ArcaMax hereby grants a worldwide, fully paid-up, perpetual, royalty-
free, exclusive license to XOOM to use, reproduce, and display and perform
(publicly or otherwise) the Website Technology. XOOM shall have the right to
sublicense the foregoing rights to third parties.
b. Website Content Preparation Tools. In accordance with the terms
----------------------------------
of this Agreement, ArcaMax hereby grants XOOM a worldwide, fully paid-up,
perpetual, royalty-free, non-exclusive license to (i) use The Greeting Card
Creator VIH to create and prepare Virtual Greeting Cards and to manage and
publish online databases of Virtual Greeting Cards, and (ii) modify The Greeting
Card Creator VIH and copy and distribute Greeting Card Creator VIH (and
modifications thereto) in object code form only to third parties to which XOOM
also licenses all or a substantial part of the Website Technology, and (iii)
modify the database consisting of all Virtual Greeting Cards created by ArcaMax
as of the date of this Agreement (the "Greeting Card Database") and use,
distribute, perform and display (publicly or otherwise), and deliver via the
Website Technology, all or part of the Greeting Card Database (and modifications
Page 1 of 7
<PAGE>
thereto). All modifications to The Greeting Card Creator VIH made by XOOM shall
be the sole and exclusive property of ArcaMax, with ArcaMax owning all rights,
title, and interest therein and thereto, subject to the licenses granted to XOOM
under this Agreement. All Virtual Greeting Cards created by XOOM and all
modifications made by XOOM to the Greeting Card Database shall be the sole and
exclusive property of XOOM, with XOOM owning all rights, title, and interest
therein and thereto.
c. GreetingsOnline Trademarks. ArcaMax hereby assigns and transfers
---------------------------
(and agrees to assign and transfer) to XOOM all right, title and interest
(including, without limitation, all trademark and other intellectual property
rights) to the "GreetingsOnline" and "greetingsonline.com" marks (the "Marks"),
together with (i) all national, foreign, state and common law registrations
thereof, (ii) all goodwill associated therewith, and (iii) all benefits,
privileges, causes of action, and remedies relating thereto, whether before or
hereafter accrued (including, without limitation, the right to sue for past
infringement).
d. Domain Name. ArcaMax hereby assigns and transfers (and agrees to
-----------
assign and transfer) to XOOM all right, title and interest to the
greetingsonline.com domain name (the "Domain Name"). ArcaMax will take all
actions reasonably requested by XOOM to transfer the Domain Name to XOOM,
including, without limitation, promptly preparing and submitting all necessary
forms and other documents, including, without limitations, all forms required to
be filed with Network Solutions, Inc. (InterNIC) and other appropriate offices,
e. Derivative Works. ArcaMax hereby grants XOOM a worldwide, fully
-----------------
paid-up, perpetual, royalty-free, exclusive license to create derivative works
based on the Website Technology which shall be the sole and exclusive property
of XOOM, with XOOM owning all rights, title, and interest therein and thereto.
2. RESTRICTIONS ON ARCAMAX
a. Covenant Not To Compete. Neither ArcaMax nor any of its
------------------------
shareholders will create, develop, design, operate, license, or maintain (or
encourage or assist any third party to create, develop, design, operate,
license, or maintain) any website that delivers Virtual Greeting Cards created
through the use of The Greeting Card Creator VIH or similar software programs
for a period of twelve (12) months commencing on the Execution Date (the
"Noncompete Period"). If XOOM successfully executes an Initial Public Offering
or completes a merger, reorganization, change in ownership or control or sale or
transfer of all or substantially all of its assets during the initial twelve
(12) month period, The Noncompete Period will be extended so that it will then
terminate Twenty-Four (24) months from Execution Date. The Noncompete Period
shall immediately terminate if:
(i) XOOM shall file a petition in bankruptcy or a petition to
take advantage of any insolvency law;
(ii) XOOM shall make an assignment for the benefit of creditors;
(iii) XOOM shall initiate a proceeding for the appointment of a
receiver, trustee, liquidator or conservator of it or any substantial
part of its property; or
(iv) XOOM shall file a petition seeking reorganization,
arrangement or similar relief under the United States Bankruptcy Code and
any applicable law or statute enacted by the United States or any state
relating to bankruptcy, insolvency, or relief for aid of debtors.
Page 2 of 7
<PAGE>
(v) any court or other tribunal of competent jurisdiction: (i)
shall adjudge XOOM bankrupt; (ii) shall enter an order, judgment or decree
appointing a receiver, trustee, liquidator or conservator for XOOM of the
whole or any substantial part of XOOM's property (and such appointment
remains undismissed for a period of 60 calendar days); or (iii) shall
assume custody or control of XOOM or the whole or substantial part of their
properties.
(vi) there is commenced against XOOM any petition in bankruptcy
and such petition remains undismissed for a period of 60 calendar days.
b. End-Users Licenses to The Greeting Card Creator CD. Nothing in
---------------------------------------------------
this agreement shall be interpreted or construed to (i) restrict ArcaMax's
ability to deliver valid end user licenses to purchasers of The Greeting Card
Creator CD or (ii) impose liability on ArcaMax if end users of The Greeting Card
Creator CD construct websites that allow ftp or some other form of end-user
created delivery of new Virtual Greeting Cards created by the end-user without
assistance from ArcaMax. ArcaMax will modify its existing End-User License
Agreement for The Greeting Card Creator CD such that it restricts an end-user
from making any portion of The Greeting Card Database available for download or
other kind of transfer or delivery from or off of any website.
c. Samples of Greeting Card Creator's Virtual Greeting Cards. In
----------------------------------------------------------
order to effect the promotion of The Greeting Card Creator CD, ArcaMax may make
at most 10 samples of the Greeting Card Creator's Virtual Greeting Cards
available for end-users to view and download from its www.arcamax.com website as
a means of demonstrating the operation of The Greeting Card Creator CD's Virtual
Greeting Card technology.
3. OBLIGATIONS OF ARCAMAX
a. Deliverables. Within five (5) days after Execution Date, ArcaMax
------------
will deliver to XOOM (i) the Website Technology (in source code format), (ii)
The Greeting Card Creator VIH (in both source and object code format) and (iii)
all the Greeting Card Database. (collectively, the "Deliverables"). The
Deliverables shall be subject to the inspection and approval of XOOM. XOOM
shall have five (5) days after receipt of the Deliverables to inspect and
approve the Deliverables (the "Rejection Period"). XOOM must notify ArcaMax in
writing of any rejection of the Deliverables, together with the reasons therefor
(the "Rejection Notice"). If ArcaMax does not receive a Rejection Notice during
the Rejection Period, then the Deliverables will be deemed to be accepted.
ArcaMax shall have, at its sole discretion, the right to correct the
deficiencies identified by XOOM and resubmit the Deliverables to XOOM within
fifteen (15) days after receiving a valid Rejection Notice. If ArcaMax refuses
to resubmit the Deliverables after receiving a Rejection Notice, then this
Agreement shall immediately terminate and be considered to be Null and Void, and
all of the parties' obligations hereunder (including, without limitation, all of
XOOM's payment obligations) shall terminate, excepting that any obligations
under any Confidentiality Agreement to which the parties are subject to shall
continue to survive any such termination.
b. Website Creation. Within fifteen (15) days after XOOM notifies
-----------------
ArcaMax, ArcaMax and XOOM will cooperate, and ArcaMax will provide XOOM with all
necessary and reasonable assistance, to install the Website Technology onto a
webserver owned by XOOM (the "Initial XOOM Greeting Card Site"). Upon XOOM's
request, ArcaMax will substitute any XOOM logos or graphics supplied by XOOM for
the existing Website graphics. ArcaMax will also make other reasonable minor
cosmetic changes as requested by XOOM, including, but not limited to, changes in
text.
Page 3 of 7
<PAGE>
c. XOOM's Membership Database. ArcaMax will use its best efforts to
---------------------------
connect the Initial XOOM Greeting Card Site to XOOM's Membership Database, and
will use commercially reasonable efforts to do so within fifteen (15) days after
XOOM notifies ArcaMax. If XOOM chooses not to immediately move the
www.greetingsonline.com domain to a webserver host at its location, ArcaMax will
- -----------------------
continue to host the www.greetingsonline.com domain and website at its current
-----------------------
location for XOOM for a period not to exceed thirty (30) days, unless the
parties mutually agree to extend this period.
4. CONTINUING OBLIGATIONS OF ARCAMAX
a. Maintenance and Enhancement of XOOM's Greeting Card Site. Upon
---------------------------------------------------------
XOOM's request, ArcaMax hereby agrees to negotiate in good faith to reach an
agreement to perform any programming maintenance and/or enhancements to the
Website, any XOOM websites that deliver Virtual Greeting Cards ("XOOM Greeting
Card Sites") or the Deliverables. ArcaMax agrees to charge not more than it
current discounted contract labor rate of $75 per hour, which is guaranteed not
to increase prior to December 31, 1998. All such enhancements shall be the
exclusive property of XOOM, and ArcaMax hereby assigns and transfers (and agrees
to assign and transfer) to XOOM all right, title and interest in and to such
enhancements.
b. Content Delivery. XOOM and ArcaMax agree to negotiate in good
-----------------
faith to reach an agreement whereby ArcaMax will manage and/or prepare Virtual
Greeting Cards and/or other content for XOOM Greeting Card Site(s) (the "Content
Maintenance Agreement"). ArcaMax will deliver to XOOM all Virtual Greeting Cards
it creates (whether or not created for XOOM) during the term of such Content
Maintenance Agreement, and the license granted to XOOM in Section 1(b)(iii)
shall apply to such Virtual Greeting Cards to the same extent as it applies to
the Greeting Card Database.
5. OBLIGATIONS OF XOOM
a. Cash. XOOM agrees to pay to ArcaMax a total of Two Hundred
----
Thousand Dollars US ($200,000 US), which will be paid as follows: Twenty
Thousand Dollars US ($20,000 US) will be due on XOOM's acceptance of the
Deliverables as set forth in Section 3(a) and twelve (12) subsequent payments of
Fifteen Thousand Dollars US ($15,000 US) will be due monthly thereafter starting
on the first calendar day of the next calendar month after the Execution Date.
If during the payoff period of this obligation, XOOM successfully executes an
Initial Public Offering or completes a merger, reorganization, change in
ownership or control or sale or transfer of all or substantially all of its
assets, then the entire unpaid balance at that time shall become immediately due
and payable with ten (10) business days.
b. Stock. XOOM will issue to ArcaMax 200,000 shares of XOOM Common
------ -------
Voting Stock pursuant to the Stock Purchase Agreement between the XOOM and
ArcaMax dated contemporaneously herewith and attached hereto as Exhibit A.
Without limiting the generality of the foregoing, ArcaMax and all of its
shareholders, hereby acknowledge that the XOOM shares represent shares in a
private company and that the transfer of those XOOM shares will be restricted
according to the restrictions in the Shareholders Agreement.
c. 1099s. To the extent that XOOM is not required by applicable law to
issue a form of 1099 to ArcaMax or any of its shareholders relating to XOOM's
payments to ArcaMax or any of its shareholders under this Agreement or any other
consulting agreements which the parties may enter into, XOOM will not issue a
1099 to ArcaMax or any of its shareholders.
6. CONTINUING OBLIGATIONS OF XOOM
Page 4 of 7
<PAGE>
a. Acknowledgements. XOOM will acknowledge that each XOOM Greeting Card
-----------------
Site is powered by The Greeting Card Creator from ArcaMax.
b. Resell The Greeting Card Creator. XOOM will use commercially
---------------------------------
reasonable efforts to offer to license copies of The Greeting Card Creator CD to
its members. ArcaMax will supply to XOOM as finished goods all copies of The
Greeting Card Creator CD ordered by XOOM on a Net 30 terms basis at $9.95 per
unit or its current best distribution pricing.
7. TERMINATION
Either party may terminate this Agreement if the other party fails to cure
a material breach within thirty (30) days of written notice of such breach. If
this Agreement is terminated by ArcaMax in accordance with this Section 7
because of an uncured breach by XOOM, ArcaMax's obligations under Section 2(a),
the Covenant Not To Compete, will immediately terminate.
8. INDEMNIFICATION
a. Copyright and Patent Infringement. ArcaMax hereby agrees to defend,
----------------------------------
indemnify and hold XOOM harmless against any and all liability, claims,
penalties, damages, costs, attorney's fees or other expenses of any nature
whatsoever paid or incurred in connection with claims by any person (including
claims of copyright or patent infringement, trade secret misappropriation, but
excluding claims covered under section 8(b)) arising from XOOM's exercise of the
rights granted in Section 1 of this Agreement or otherwise relating to Website,
the Deliverables or the Marks. If any demand, claim, or suit is asserted or
instituted with respect to which XOOM may be entitled to indemnification under
this section, then XOOM shall promptly notify ArcaMax of the full details to the
extent then known. XOOM shall be entitled, at its own expense, to employ
counsel to defend such demand, claim, or suit or to participate in the defense
of such asserted demand, claim, or suit. Any proposed settlement of any such
demand, claim, or suit must be approved by both XOOM and ArcaMax with such
approval not to be unreasonably withheld. The parties agree to cooperate in
good faith in the defense of settlement of any such demand, claim, or suit.
b. Patent #4,558,302. ArcaMax believes that no license is needed from
------------------
the Unisys Corporation, relating directly or indirectly to U.S. Patent
#4,448,302 (the "Unisys Patent"), for any of the rights being granted to or
exercised by XOOM in or as a result of this agreement. However, XOOM expressly
agrees that it is responsible after the Execution Date to make its own
independent judgement regarding this matter and expressly agrees that if XOOM
determines that a license is needed from Unisys relating to the Unisys Patent,
it is XOOM's sole responsibility to obtain one. XOOM also agrees that should
Unisys ever institute any action against any of XOOM's Greeting Card Sites
claiming infringement of the Unisys Patent, ArcaMax shall not be held liable in
any manner for any licenses, penalties, damages, costs, attorney's fees or other
expenses of any nature whatsoever paid or incurred in connection with such an
action.
9. WARRANTIES; LIMITATION OF LIABILITY
a. ArcaMax represents, warrants and covenants that (a) the Deliverables
are the original work of ArcaMax and were developed solely by ArcaMax, (b)
ArcaMax owns all right, title and interest in and to the Deliverables, (c)
ArcaMax has the sole and exclusive right to grant the rights and licenses
contemplated by this agreement, without the need for any consents, approvals or
immunities not yet obtained, (d) the Deliverables do not infringe any third
party rights, (e) the Deliverables are free of viruses and other harmful code,
and (f) the Deliverables are Year 2000 Compliant. "Year 2000 Compliant," with
respect to software, means that the occurrence in or use by the software of
dates on or after January 1, 2000 ("Millennial Dates")
Page 5 of 7
<PAGE>
will not adversely affect its performance at any level with respect to date-
dependent data, computations, output, or other functions. ArcaMax does not
represent or warrant that the Deliverables are free of bugs or errors and does
not make any of these warranties or representations with respect to U.S. Patent
#4,558,302.
b. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL,
PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, OR ANY LOSS OF PROFITS
OR BUSINESS, ARISING OUT OF THIS AGREEMENT. IN NO EVENT SHALL EITHER PARTY'S
LIABILITY EXCEED THE VALUE OF THE COMPENSATION PAID AND PAYABLE BY XOOM TO
ARCAMAX UNDER THIS AGREEMENT.
10. TRANSFERABILITY
Either party may assign this Agreement (together with all of its rights and
obligations hereunder) to (i) an affiliate or (ii) as part of a merger,
consolidation, reorganization, or sale of all or substantially all of its
assets.
11. MISCELLANEOUS
a. Force Majeure. Neither party shall be liable in damages or have the
--------------
right to terminate the Agreement for any delay or default in performing this
Agreement if such delay or default is caused by conditions beyond its control,
including, but not limited to, acts of God, government restrictions, wars,
insurrections, strikes, fire, floods or work stoppages; provided, however, that
if such delay or default shall exceed six months, then the party not delaying or
defaulting may, so long as the delay or default continues, suspend its
performance under this Agreement and the party affected by the conditions beyond
its control shall keep the other party fully informed on an on-going basis
concerning the matters causing the delay or default, and the prospects of their
ending.
b. Survival. Notwithstanding any termination of this Agreement, the
---------
terms of paragraphs 1, 2b, 4, 8, 9, 10 and 11 shall survive such termination and
remain in full force and effect.
c. Entire Agreement. This Agreement contains the entire agreement of the
-----------------
parties and shall not be varied, amended, or supplemented except in writing of
subsequent or even date executed by the parties.
d. Enforceability. If any part of this Agreement shall be held
---------------
unenforceable, the remainder of this Agreement will nevertheless remain in full
force and effect.
e. Counterparts. This Agreement may be executed in counterparts which
-------------
taken together shall constitute one agreement, and either party may execute this
Agreement by signing such counterpart.
f. No Agency. Nothing in this Agreement shall be construed to constitute
----------
or appoint either party as the agent or representative of the other party for
any purpose whatsoever, or to grant to either party any rights or authority to
assume or create any obligation or responsibility, express or implied, for or on
behalf of or in the name of the other, or to bind the other in any way or manner
whatsoever.
g. Notices. All notices required by this Agreement shall be in writing
--------
and sent to the ArcaMax and XOOM at the following addresses via registered mail
or overnight courier:
Page 6 of 7
<PAGE>
TO ARCAMAX:
ArcaMax, Inc.
2524 George Washington Hwy.
Yorktown, VA 23693
Attn: Roy Jay
TO XOOM:
XOOM, Inc.
433 California Street, Suite 910
San Francisco, CA 94104
Attn: Chris Kitze
Either party may from time to time change its address as set forth above by
notifying the other party of its new address in writing.
h. Governing Law. This agreement shall be governed by the laws of the
--------------
State of Delaware, and both parties consent to jurisdiction and venue in the
state and federal courts sitting in the State of Delaware. In any action or
suit to enforce any right or remedy under this Agreement or to interpret any
provision of this Agreement, the prevailing party shall be entitled to recover
its costs, including reasonable attorney's fees.
i. Facsimile. This contract can be executed and is binding upon the
----------
parties when executed by facsimile machine.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the date first written above.
FOR ARCAMAX FOR XOOM, INC.
By: /s/ ROY JAY By: /s/ LAURENT MASSA
----------- -----------------
Name: Roy Jay Name: Laurent Massa
Title: President Title: CEO
Date: 6/18/98 Date: 6/18/98
Page 7 of 7
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Name under which
Name Incorporation subsidiary does business
<S> <C> <C>
XOOM Chat, Inc. California XOOM Chat, Inc.
XOOM GBT Merger Corp. California XOOM GBT Merger Corp.
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports
pertaining to Xoom, Inc. dated July 24, 1998 (except for the last paragraph of
Note 8 as to which the date is July 28, 1998), pertaining to Paralogic
Corporation dated July 20, 1998, pertaining to Global Bridges Technologies,
Inc. dated July 10, 1998 and pertaining to Pagecount, Inc. dated July 7, 1998
(except for Note 6 as to which the date is July 24, 1998) included in the
Registration Statement (Form S-1) and related Prospectus of Xoom, Inc. for the
registration of its Common Stock.
/s/ Ernst & Young LLP
Palo Alto, California /s/ Ernst & Young LLP
August 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> OTHER YEAR 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1998
<PERIOD-START> APR-16-1996 JAN-01-1997 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 JUN-30-1997 JUN-30-1998
<CASH> 1,052 5,587 0 4,091,161
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 221,925 0 604,138
<ALLOWANCES> 0 (48,702) 0 (146,936)
<INVENTORY> 0 0 0 64,950
<CURRENT-ASSETS> 301,052 254,716 0 4,939,144
<PP&E> 64,153 456,999 0 957,598
<DEPRECIATION> (2,496) (43,314) 0 (202,497)
<TOTAL-ASSETS> 705,253 781,670 0 9,660,031
<CURRENT-LIABILITIES> 145,028 1,655,022 0 3,113,246
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 1,462,200 3,608,106 0 13,189,239
<OTHER-SE> (901,975) (4,481,458) 0 (7,761,454)
<TOTAL-LIABILITY-AND-EQUITY> 705,253 781,670 0 9,660,031
<SALES> 0 840,887 199,553 2,564,716
<TOTAL-REVENUES> 0 840,887 199,553 2,564,716
<CGS> 0 170,957 53,790 898,710
<TOTAL-COSTS> 0 148,375 105,022 27,292
<OTHER-EXPENSES> 439,975 3,653,432 1,402,172 5,359,567
<LOSS-PROVISION> 0 48,702 0 98,234
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> (439,975) (3,131,877) (1,361,431) (3,720,853)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (439,975) (3,131,877) (1,361,431) (3,720,853)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (439,975) (3,131,877) (1,361,431) (3,720,853)
<EPS-PRIMARY> (0.59) (0.43) (0.20) (0.39)
<EPS-DILUTED> (0.59) (0.43) (0.20) (0.39)
</TABLE>
