<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______to ______
Commission file number: 0-20124
ADFORCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0694260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10590 North Tantau Avenue, Cupertino, California 95014
(Address of principal executive offices and zip code)
Registrant's telephone number: (408) 873-3680
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, was 19,987,656 at October 31, 1999.
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ADFORCE, INC.
INDEX
<TABLE>
<CAPTION>
DESCRIPTION PAGE NUMBER
- ------------------------------------------------------------------------ -----------
<S> <C>
Cover Page 1
Index 2
Part I: Financial Information
Item 1: Financial Statements
Condensed Balance Sheets as of September 30, 1999
and December 31, 1998 3
Condensed Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and 1998 4
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3: Quantitative and Qualitative Disclosures about Market Risk 25
Part II: Other Information
Item 1: Legal Proceedings 26
Item 2: Changes in Securities and Use of Proceeds 26
Item 3: Defaults upon Senior Securities 26
Item 4: Submission of Matters to a Vote of Security Holders 26
Item 5: Other Information 26
Item 6: Exhibits and Reports on Form 8-K 27
Signature 28
</TABLE>
2
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ADFORCE, INC.
Part 1: Financial Information
Item 1: Financial Statements
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,872 $ 10,045
Short-term investments 54,709 -
Accounts receivable, net 1,770 1,160
Prepaid expenses and other current assets 1,429 575
-------- --------
Total current assets 73,780 11,780
Property and equipment, net 8,843 4,208
Intangible assets, net 3,426 4,662
Other non-current assets 757 285
-------- --------
Total assets $ 86,806 $ 20,935
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,684 $ 1,078
Accrued compensation and related benefits 1,454 458
Deferred revenue 782 10
Other accrued liabilities 1,333 799
Current portion of capital lease obligations 2,800 1,460
-------- --------
Total current liabilities 9,053 3,805
Long-term portion of capital lease obligations 5,238 3,089
Stockholders' equity:
Common stock 20 5
Preferred stock - 5
Additional paid-in capital 120,576 41,609
Deferred stock compensation (6,520) (2,802)
Unrealized loss on available-for-sale securities (94) -
Accumulated deficit (41,467) (24,776)
-------- --------
Total stockholders' equity 72,515 14,041
-------- --------
Total liabilities and stockholders' equity $ 86,806 $ 20,935
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
3
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ADFORCE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenue $ 5,085 $ 1,064 $ 12,487 $ 2,262
Cost of revenue:
Data center operations 3,197 1,044 7,972 2,988
Amortization of intangible assets
and deferred stock compensation 434 301 1,103 787
-------- -------- -------- --------
Total cost of revenue 3,631 1,345 9,075 3,775
-------- -------- -------- --------
Gross profit (loss) 1,454 (281) 3,412 (1,513)
Operating expenses:
Research and development 2,405 1,241 6,888 3,031
Marketing and selling 3,231 1,389 6,977 3,223
General and administrative 1,311 509 2,604 1,352
Restructuring expense 263 - 263 -
Amortization of intangible assets
and deferred stock compensation 1,428 584 4,354 1,378
-------- -------- -------- --------
Total operating expenses 8,638 3,723 21,086 8,984
-------- -------- -------- --------
Loss from operations (7,184) (4,004) (17,674) (10,497)
Interest income (expense), net 724 37 983 (143)
-------- -------- -------- --------
Net loss $ (6,460) $ (3,967) $(16,691) $(10,640)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.34) $ (1.30) $ (1.38) $ (4.18)
======== ======== ======== ========
Weighted average shares of common
stock outstanding used in computing
basic and diluted net loss per share 19,238 3,046 12,080 2,544
======== ======== ======== ========
Pro forma basic and diluted net loss per share $ (0.34) $ (0.33) $ (1.01) $ (1.05)
======== ======== ======== ========
Weighted average shares used in computing pro
forma basic and diluted net loss per share 19,238 12,205 16,525 10,120
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
4
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ADFORCE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities $ (6,461) $ (7,111)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases (sales) of short-term investments, net (54,455) -
Proceeds from sale of assets - 105
Investment in note receivable (500) -
Purchase of property and equipment (2,031) (888)
-------- --------
Net cash used in investing activities (56,986) (783)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (1,648) (607)
Proceeds from issuance of common stock, net 70,922 87
Proceeds from issuance of preferred stock, net - 19,594
Proceeds from issuance of notes payable - 500
Repayment of notes payable - (113)
-------- --------
Net cash provided by financing activities 69,274 19,461
Net increase in cash and cash equivalents 5,827 11,567
Cash and cash equivalents at beginning of period 10,045 1,680
-------- --------
Cash and cash equivalents at end of period $ 15,872 $ 13,247
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING/FINANCING ACTIVITIES
Property and equipment acquired under capital leases $ 5,089 $ 2,511
======== ========
Conversion of notes payable and accrued interest into
Series D convertible preferred stock $ - $ 506
======== ========
Conversion of convertible preferred stock to common stock $ 31,486 $ -
======== ========
Increase in deferred stock compensation $ 7,833 $ 3,477
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
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ADFORCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited condensed financial information of AdForce, Inc. ("AdForce" or
the "Company") furnished herein reflects all adjustments, consisting only of
normal recurring adjustments, which in the opinion of management are
necessary to fairly state the Company's financial position, results of
operations and cash flows for the periods presented. This Quarterly Report on
Form 10-Q should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Registration Statement on Form
S-1, as amended, filed with the Securities and Exchange Commission on May 7,
1999. The results of operations for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results to be
expected for any subsequent quarter or for the entire year ending December
31, 1999. The condensed balance sheet at December 31, 1998 has been derived
from the Company's audited financial statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations.
NET LOSS, AND PRO FORMA NET LOSS, PER SHARE
Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standard No. 128, "EARNINGS PER SHARE"
("FAS 128"), for all periods presented. In accordance with FAS 128, basic and
diluted net loss per share have been computed using the weighted average
number of shares of common stock outstanding during the period, less shares
subject to repurchase. Options to purchase shares of common stock could
potentially dilute basic earnings per share in the future and have not been
included in the computation of diluted net loss per share because to do so
would have been antidilutive for the periods presented.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of convertible preferred stock, using the if-converted method,
that automatically converted upon completion of AdForce's initial public
offering.
HISTORICAL AND PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE ARE AS FOLLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Historical:
Net loss $ (6,460) $ (3,967) $ (16,691) $ (10,640)
Basic and diluted shares:
Weighted average shares of common stock outstanding 19,983 4,655 13,012 4,248
Less weighted average shares subject to repurchase 745 1,609 932 1,704
--------- -------- --------- ---------
Weighted average shares of common stock
outstanding used in computing basic and diluted
net loss per share 19,238 3,046 12,080 2,544
========= ======== ========= =========
Basic and diluted net loss per share $ (0.34) $ (1.30) $ (1.38) $ (4.18)
========= ======== ========= =========
</TABLE>
6
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ADFORCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
HISTORICAL AND PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE ARE AS FOLLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma:
Net loss $ (6,460) $ (3,967) $ (16,691) $ (10,640)
Weighted average shares of common stock
outstanding used in computing basic and diluted
net loss per share 19,238 3,046 12,080 2,544
Adjusted to reflect the assumed conversion of convertible
preferred stock from the date of issuance -- 9,159 4,445 7,576
--------- -------- --------- ---------
Weighted average shares used in computing pro forma
basic and diluted net loss per share 19,238 12,205 16,525 10,120
========= ======== ========= =========
Pro forma basic and diluted net loss per share $ (0.34) $ (0.33) $ (1.01) $ (1.05)
========= ======== ========= =========
</TABLE>
If AdForce had reported net income, diluted net income per share would have
included the shares used in the computation of pro forma net loss per share,
as well as approximately 4,728,772 and 3,323,955 common equivalent shares
related to outstanding options and warrants to purchase common stock not
included above for the three and nine months ended September 30, 1999 and
September 30, 1998 respectively. The common equivalent shares from options
and warrants would be determined on a weighted average basis using the
treasury stock method.
MARKETABLE SECURITIES
The Company accounts for investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("FAS 115"). AdForce
classifies its short-term investments as available-for-sale. Accordingly,
these investments, primarily commercial paper and corporate bonds, are
carried at fair value. Changes in market values are reflected as unrealized
gains or losses, calculated on the specific identification method, and
reported as a net amount in a separate component of stockholders' equity.
COMPREHENSIVE LOSS
AdForce adopted FAS 130 in the year ended December 31, 1998. There was no
impact on AdForce's financial statements as a result of the adoption of FAS
130 for 1998. During the three and nine months ended September 30, 1999,
unrealized loss on securities of $43,000 and $94,000, respectively increased
total comprehensive loss to $6.5 million and $16.8 million, respectively.
FINANCIAL INSTRUMENTS RISK
Financial instruments that potentially subject the Company to credit risk
consist of short-term investments and trade receivables. AdForce is subject
to concentrations of credit risk and interest rate risk related to its
short-term investments. AdForce's credit risk is managed by limiting the
amount of investments placed with any one portfolio manager, investing in
money market funds, short-term commercial paper, and A1 rated corporate bonds
with a weighted average months to maturity of approximately 6.5 months as of
September 30, 1999.
7
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ADFORCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
CONCENTRATION OF CREDIT RISK
AdForce sells and grants credit for its services to its customers without
requiring collateral or third-party guarantees. To date, we have derived a
substantial portion of our net revenue from a small number of Web sites and
ad rep firms. Many of our leading customers, including such major customers
as AdSmart Network and 24/7 Media, Inc. have limited operating histories and
have not achieved profitability. If one or more of our customers are unable
to pay for our services, our quarterly and annual results of operations could
be materially and adversely affected.
During the three months ended September 30, 1999, the Company's three major
customers, each representing more than 10% of net revenues, collectively
accounted for 67% of net revenue compared to four major customers accounting
for 70% for the comparable period in the previous year. For the nine months
ended September 30, 1999, the Company's four major customers accounted for
73% of net revenue compared to two major customers accounting for 62% of net
revenue for the comparable period in the previous year. Two of the major
customers collectively accounted for 69% of our net accounts receivable at
September 30, 1999. GeoCities, one of our top four customers for the nine
months ended September 30, 1999, was acquired by Yahoo!, Inc., effective May
28, 1999 and discontinued the use of AdForce's ad-serving services during
June 1999 for the majority of its ads. GeoCities, which had been a customer
since June 1998, accounted for 20%, 12%, and 3% of AdForce's net revenues
during the quarters ended March 31, 1999, June 30, 1999 and September
30,1999, respectively. Netscape was acquired by America Online during the
first quarter of 1999, and advised us in October 1999 of its intent to
transition Netscape's domestic and European Netcenter advertising serving
(which represent the substantial majority of our business with Netscape) from
AdForce to America Online's internal system following the expiration on
November 22, 1999 of our current contract with Netscape. Netscape accounted
for 12%, 10% and 20% of our net revenues during the quarters ended March 31,
1999, June 30, 1999, and September 30, 1999, respectively. In addition, 24/7
Media has stated that it is currently developing and implementing an internal
ad delivery technology that is intended to serve as its sole ad delivery
solution, and that they expect to deploy this system in the fourth quarter of
1999. It has also stated that, unless and until the development of and
transition to its own ad delivery technology is complete, it will be
primarily dependent on us to deliver ads to its networks and Web sites. 24/7
Media accounted for 23%, 29% and 24% of our net revenues during the quarters
ended March 31, 1999, June 30, 1999, and September 30, 1999, respectively.
OTHER NON-CURRENT ASSETS
During the third quarter, we provided financing of $500,000 in the form of an
unsecured convertible promissory note to Neta4, Ltd., a Delaware corporation
devoted to combining direct advertising with electronic mail technology. The
$500,000 unsecured convertible promissory note receivable is due on August
17, 2000, and bears interest at a rate of 8% per annum. The interest is
payable in monthly installments beginning November 17, 1999. Neta4 is a
development stage entity, with a history of operating losses. We wrote the
convertible promissory note down to its estimated net realizable value of
$320,000 at September 30, 1999.
DEFERRED STOCK COMPENSATION
In connection with the grant of certain options to employees during the nine
months ended September 30, 1999, AdForce recorded deferred compensation of
approximately $7.8 million for the aggregate difference between the exercise
prices of those options at their respective dates of grant and the deemed
fair values for accounting purposes of the shares of common stock subject to
such options. This amount is included as a reduction of stockholders' equity
and is being amortized on a graded vesting method to all operating expense
categories including data center operations. This expense has been
appropriately allocated between cost of revenues and operating expenses but
has not been separately allocated between operating expense categories.
STOCKHOLDERS' EQUITY
In May 1999, AdForce completed an initial public offering of 5,175,000 shares of
its common stock. Proceeds to AdForce from this initial public offering totaled
approximately $70.7 million, net of offering costs of $1.5 million and
underwriter
8
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ADFORCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
fees of $5.4 million. Upon the closing of the initial public offering,
AdForce's convertible preferred stock converted into 9,467,118 shares of
common stock.
AGREEMENT AND PLAN OF MERGER
On September 20, 1999, we entered into a definitive Agreement and Plan of
Merger with CMGI, Inc., which develops and operates Internet and direct
marketing companies, and a wholly-owned subsidiary of CMGI. Pursuant to the
Agreement and Plan of Merger and subject to the terms and conditions set
forth therein, the CMGI subsidiary will be merged with and into us, and we
will survive the merger and become a wholly-owned subsidiary of CMGI. At the
effective time of the merger, each outstanding share of our common stock will
be exchanged and converted into 0.262 share of CMGI's common stock, and
options and warrants to purchase shares of our common stock will be assumed
and become options and warrants, as applicable, to purchase shares of CMGI's
common stock. The exercise price and number of shares of our common stock
subject to each such assumed option and warrant will be appropriately
adjusted to reflect the exchange ratio. The merger is intended to qualify as
a tax-free reorganization and will be accounted for as a purchase.
In connection with the execution of the Agreement and Plan of Merger, we
entered into a Stock Option Agreement with CMGI, pursuant to which we granted
to CMGI an option to purchase up to 19.9% of the outstanding shares of our
common stock. The option is exercisable upon the occurrence of certain events
relating to the termination of the Agreement and Plan of Merger, all as
specified in the Stock Option Agreement. The merger is subject to various
conditions, including clearance under the Hart-Scott-Rodino Antitrust
Improvements Act and approval of our stockholders. Stockholders of AdForce
holding approximately 38% of our outstanding common stock have agreed to vote
in favor of the merger at our stockholder meeting called for such purpose.
The merger is expected to close in the first quarter of 2000.
We may be required to pay a substantial termination fee if the Agreement and
Plan of Merger is terminated for specified reasons. We have filed the
Agreement and Plan of Merger with the Securities and Exchange Commission on
October 4, 1999 under our Report on Form 8-K.
LEGAL MATTERS
In April 1999, Dirk Wray, a Company director, filed an action against Chad
Steelberg, a Company founder, in the Orange County, California Superior Court
alleging that Mr. Steelberg failed to perform certain obligations pursuant to
a 1996 agreement between Messrs. Wray and Steelberg.
In June 1999, Mr. Steelberg filed a cross-complaint (the "Cross-Complaint")
against Mr. Wray, certain investors in the Company, the Company, and the
Company's President, Chief Executive Officer and Chairman, Charles W. Berger,
claiming the Company is obligated to defend and indemnify Mr. Steelberg
against Mr. Wray's allegations, and seeking additional damages.
The Company believes the causes of action in the Cross-Complaint claimed
against the Company and Mr. Berger are without merit. On October 22, 1999 the
Company and Mr. Berger jointly filed a demurrer to the Cross-Complaint. A
hearing has been set for November 17, 1999. The Company intends to indemnify
Mr. Berger pursuant to the Company's certificate of incorporation, bylaws and
a written indemnification agreement, and to defend itself and Mr. Berger
vigorously.
Except as provided above, the Company is not subject to any material legal
proceedings. The Company may from time to time become a party to various
legal proceedings arising in the ordinary course of business.
9
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ADFORCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Quarterly Report on Form 10-Q are
forward-looking and include statements about our plans, objectives,
expectations and intentions that are not historical facts. When used in this
document, the words expects, anticipates, intends, plans, believes, seeks and
estimates and similar expressions are generally intended to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this document.
These forward-looking statements involve risks and uncertainties, and there
are important factors that could cause actual results to differ materially
from those expressed or implied by these forward-looking statements,
including the result of the proposed merger with CMGI and other factors
discussed under "Other Factors Affecting Operating Results, Liquidity and
Capital Resources" below.
THE FOLLOWING DISCUSSION SHOULD BE READ ONLY IN CONJUNCTION WITH OUR
UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED
IN PART I --ITEM 1 OF THIS QUARTERLY REPORT ON FORM 10-Q, OUR AUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN OUR FORM S-1 FILED, AS
AMENDED, WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1999, AND THE
RISK FACTORS DESCRIBED BELOW.
OVERVIEW
AdForce is a leading provider of centralized, outsourced ad management and
delivery services on the Internet. We began operations on January 16, 1996 as
Imgis, Inc. and spent the first 15 months of our operations developing
technology that could be used to manage and deliver Internet ads for
advertisers, ad agencies, Web sites and ad rep firms. Initially, we did not
have an internal sales force to sell our services. To generate business, we
relied primarily on the sales forces of ad rep firms that used our services
to manage and deliver ads to the Web site customers they represented. In
December 1997, we began building a direct sales force to allow us to
penetrate the market for our services more effectively.
We began delivering ads and recognizing revenue during the second quarter of
1997, and increased our revenue as the ad volumes delivered by our ad rep
firm customers grew. 24/7 Media and its predecessor firms were responsible
for 92% of our net revenue in 1997. In November 1997, we also contracted to
deliver ads for Netcom and FortuneCity, and began to demonstrate the
applicability of our services to Web sites. In 1998, we continued to add
customers with material amounts of ad volume. AdSmart and Netscape began
using our services in early 1998, and GeoCities began using our services in
June 1998. Though we continue to derive the majority of our net revenue from
a limited number of customers, we broadened our customer base in 1998 and
have continued to do this through September 30, 1999. For the first nine
months of 1998, 24/7 Media and its predecessor firms and Fortune City
accounted for 51% and 11% of our net revenue. For the first nine months of
1999, our top four customers, 24/7 Media, AdSmart, Netscape and GeoCities
accounted for 25%, 22%, 15% and 11% of our net revenue. AdSmart is a CMGI
company. AdSmart and its predecessor firms were responsible for 21%, 21% and
24% of our net revenues for the quarters ended March 31, 1999, June 30, 1999,
and September 30, 1999, respectively. GeoCities was acquired by Yahoo!, Inc.
during the second quarter of 1999 and discontinued in June 1999 the use of
AdForce's ad-serving services for the majority of its ads. GeoCities
accounted for 20%, 12% and 3% of our net revenues during the quarters ended
March 31, 1999, June 30, 1999, and September 30, 1999, respectively. Netscape
was acquired by America Online during the first quarter of 1999, and advised
us in October 1999 of its intent to transition Netscape's domestic and
European Netcenter advertising serving (which represent the substantial
majority of our business with Netscape) from AdForce to America Online's
internal system following the expiration on November 22, 1999 of our current
contract with Netscape. Netscape accounted for 12%, 10% and 20% of our net
revenues during the quarters ended March 31, 1999, June 30, 1999, and
September 30, 1999, respectively. In addition, 24/7 Media has stated that it
is currently developing and implementing an internal ad delivery technology
that is intended to serve as its sole ad delivery solution, and that they
expect to deploy this system in the fourth quarter of 1999. It has also
stated that, unless and until the development of and transition to its own ad
delivery technology is complete, it will be primarily dependent on us to
deliver ads to its networks and Web sites. 24/7
10
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT'D)
Media accounted for 23%, 29% and 24% of our net revenues during the quarters
ended March 31, 1999, June 30, 1999, and September 30, 1999, respectively.
In 1997, 1998 and for the first nine months of 1999, we earned the vast
majority of our revenue by managing and delivering ads for ad rep firms, Web
sites and ad agencies. We also charged customers for other services, such as
developing custom reports, although revenue to date from these services has
not been significant. We plan to continue to develop and offer new services,
such as advanced consumer tracking and targeting capabilities, and expect
that an increasing proportion of our revenue will be generated by these
services.
We charge our customers based on each 1,000 ads delivered, and generally
offer lower rates as customers' ad volumes increase. During 1998 and the nine
months ended September 30, 1999, our monthly volume of ads delivered
increased significantly as our existing customers' Internet traffic increased
and we added new customers. However, our average rate per 1,000 ads delivered
generally declined during these periods due principally to pricing
competition and lower rates charged to higher-volume customers. We expect
these factors to cause future declines in average rates charged.
We believe our centralized ad management system is substantially less
expensive than on-site ad delivery alternatives available to most individual
Web sites. Generally, we expect favorable economies of scale for centralized
ad management and delivery to lead to reductions in our average cost per
1,000 ads delivered as we increase the ad volumes moving through our systems.
In addition, a portion of our research and development efforts is devoted to
continuously improving the performance and efficiency of our systems. As a
result, from the first quarter of 1998 through the first quarter of 1999, our
average cost to deliver each ad declined. This decline was at a higher rate
than the decrease in the average rate charged, resulting in improving gross
margins during those periods. However, in the second quarter of 1999 we
opened a second data center and substantially increased available capacity.
Accordingly, our average cost per 1,000 ads delivered increased during the
second quarter of 1999, and our gross margin percentage declined from 29% in
the first quarter to 24% during the second quarter. During the third quarter
of 1999, our average cost per 1,000 ads delivered declined and our gross
margin percentage increased to 29%, reflecting favorable economies of scale
resulting from greater ad volumes. As we continue to aggregate Web sites and
their ad volumes on our system, and to add additional advertisers, ad
agencies and rep firms as customers, we believe these volume increases can
again lower our average cost to deliver ads.
In the operating areas of research and development, sales and marketing, and
general and administrative costs, the single most significant cost is
personnel, including the related payroll, facilities and other overhead costs.
We have recorded deferred stock compensation, primarily for stock options
granted to employees. As of September 30, 1999, we had recorded aggregate
deferred stock compensation of $11.7 million. This deferred stock
compensation is generally being amortized over the vesting periods of the
stock options. We recognized a total of $1.2 million and $4.1 million in
stock compensation expense during 1998 and the nine months ended September
30, 1999, respectively. Since a portion of this expense was related to
persons involved in running our data center operations, we allocated that
portion to cost of revenue and thus reduced our gross margin. In addition, we
recorded stock compensation expense of $1.4 million during 1998 related to
unvested founders' stock that was not repurchased. The total charges to be
recognized in future periods from amortization of deferred stock compensation
as of September 30, 1999 are anticipated to be approximately $1.3 million,
$3.1 million, $1.5 million, $530,000 and $60,000 for the remaining three
months of 1999 and for 2000, 2001, 2002 and 2003, respectively.
In February 1998, we acquired StarPoint Software, Inc., principally by
exchanging AdForce shares for StarPoint shares. We accounted for this
transaction as a purchase with a total purchase price of $4.1 million. The
purchase price was primarily allocated to intangible assets, including
purchased technology of $2.6 million, personnel-related assets of $740,000,
and goodwill of $609,000, which are being amortized over the respective lives
of those assets, and in-process technology of $100,000 that was expensed at
the time of the acquisition. Amortization charges related to this purchase of
$1,330,000 were recognized during 1998, $1,080,000 were recognized for the
nine months ended September 30, 1999 and further amortization charges of $0.4
million, $1.1 million, and $0.1 million are expected to be recognized in the
remainder of 1999, 2000 and 2001 respectively.
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
We incurred net losses of $3.5 million for the period from January 16, 1996
(inception) to December 31, 1996, $5.7 million for 1997, $15.6 million for
1998 and $16.7 million for the nine months ended September 30, 1999. As of
September 30, 1999, our accumulated deficit was $41.5 million. We expect to
continue to incur significant operating expenditures, and capital
expenditures of approximately $6 million for the remainder of 1999. As a
result, we will need to generate significantly greater revenue than we have
generated to date to achieve and maintain profitability. In addition, our
operating costs are relatively fixed, and cannot quickly be reduced even if
we fail to generate significant revenue. Although we have experienced
significant growth in revenue in recent periods, we expect the growth rate to
decline substantially. We expect to continue to incur net losses on a
quarterly and annual basis for at least the next two years.
On May 7, 1999, we completed our initial public offering, issuing 5,175,000
shares of our Common Stock at $15 per share. Proceeds to us from this initial
public offering totaled approximately $70.7 million, net of offering costs of
$1.5 million and underwriter fees of $5.4 million.
Our engineering personnel are currently located in two separate locations,
Costa Mesa, California and Cupertino, California. In August 1999, we
commenced efforts to consolidate many of our engineering personnel into our
Cupertino, California facility. We expect this consolidation to be
substantially complete by December 31, 1999. We have recorded restructuring
charges of $263,000 related to the consolidation of the personnel as the
related actions were taken during the third quarter of 1999. We expect to
continue to record charges related to the consolidation of the personnel as
the related actions are taken during the fourth quarter of 1999.
CMGI MERGER
On September 20, 1999, we entered into a definitive Agreement and Plan of
Merger with CMGI, Inc., which develops and operates Internet and direct
marketing companies, and a wholly-owned subsidiary of CMGI. Pursuant to the
Agreement and Plan of Merger and subject to the terms and conditions set
forth therein, the CMGI subsidiary will be merged with and into us, and we
will survive the merger and become a wholly-owned subsidiary of CMGI. At the
effective time of the merger, each outstanding share of our common stock will
be exchanged and converted into 0.262 share of CMGI's common stock, and
options and warrants to purchase shares of our common stock will be assumed
and become options and warrants, as applicable, to purchase shares of CMGI's
common stock. The exercise price and number of shares of our common stock
subject to each such assumed option and warrant will be appropriately
adjusted to reflect the exchange ratio. The merger is intended to qualify as
a tax-free reorganization and will be accounted for as a purchase.
In connection with the execution of the Agreement and Plan of Merger, we
entered into a Stock Option Agreement with CMGI, pursuant to which we granted
to CMGI an option to purchase up to 19.9% of the outstanding shares of our
common stock. The option is exercisable upon the occurrence of certain events
relating to the termination of the Agreement and Plan of Merger, all as
specified in the Stock Option Agreement. The merger is subject to various
conditions, including clearance under the Hart-Scott-Rodino Antitrust
Improvements Act and approval of our stockholders. Stockholders of AdForce
holding approximately 37.2% of our outstanding common stock have agreed to
vote in favor of the merger at our stockholder meeting called for such
purpose. The merger is expected to close in the first quarter of 2000.
We may be required to pay a substantial termination fee if the Agreement and
Plan of Merger is terminated for specified reasons. We have filed the
Agreement and Plan of Merger with the Securities and Exchange Commission on
October 4, 1999 under our Report on Form 8-K.
RESULTS OF OPERATIONS
NET REVENUE
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<PAGE>
ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
Our net revenue for the three and nine months ended September 30, 1999 was
$5.1 million and $12.5 million, compared to $1.1 million and $2.3 million for
the comparable periods in 1998, representing respective increases of 378% and
452%. Net revenue of $5.1 million for the third quarter of 1999 increased by
22% over net revenue of $4.2 million for the second quarter of 1999. These
increases in net revenue were due to increases in the volume of ads we
delivered on behalf of our customers in addition to increased installment
basis revenue. Our ad volumes were 22.2 billion and 53.8 billion for the
three and nine months ended September 30, 1999, compared to 3.2 billion and
5.8 billion ads for the same periods in 1998. The increases in net revenue
resulting from these volume increases were partially offset by declines in
the average rates charged for delivering those ads. Our volume increases
resulted primarily from growth in ad volumes experienced by many of our
existing customers, and to a significantly lesser extent from the addition of
new customers. In the first nine months of 1999, our volume increases were
partially offset by the fact that one of our major customers, GeoCities, was
acquired by Yahoo!, Inc., effective May 28, 1999, and discontinued in June
1999 the use of our ad-serving services for the majority of its ads.
GeoCities, a customer since June 1998, accounted for 20%, 12% and 3% of our
revenues for the first, second and third quarters of 1999. Netscape was
acquired by America Online during the first quarter of 1999, and advised us
in October 1999 of its intent to transition Netscape's domestic and European
Netcenter advertising serving (which represent the substantial majority of
our business with Netscape) from AdForce to America Online's internal system
following the expiration on November 22, 1999 of our current contract with
Netscape. Netscape accounted for 12%, 10% and 20% of our net revenues during
the quarters ended March 31, 1999, June 30, 1999, and September 30, 1999,
respectively. In addition, 24/7 Media has stated that it is currently
developing and implementing an internal ad delivery technology that is
intended to serve as its sole ad delivery solution, and that they expect to
deploy this system in the fourth quarter of 1999. It has also stated that,
unless and until the development of and transition to its own ad delivery
technology is complete, it will be primarily dependent on us to deliver ads
to its networks and Web sites. 24/7 Media accounted for 23%, 29% and 24% of
our net revenues during the quarters ended March 31, 1999, June 30, 1999, and
September 30, 1999, respectively. The declines in average rates charged in
the 1999 periods as compared to the 1998 periods were primarily the result of
competitive pricing pressure and lower rates charged to higher-volume
customers. We expect pricing pressures from competitors and discounts related
to large-contract pricing to continue for at least the next several quarters.
We expect that future revenue growth, if any, will not be as dramatic as in
recent periods.
GROSS PROFIT (LOSS)
Cost of revenues primarily consists of capital asset costs,
telecommunications costs, personnel-related costs and facilities costs
incurred to operate our data center operations. It also includes non-cash
charges for amortization of deferred stock compensation to data center
personnel, as well as charges for the amortization of intangible assets.
Gross margin improved to positive 29% and positive 27% from a negative 26%
and negative 67% for the three and nine months ended September 30, 1999 and
1998, respectively, primarily due to economies of higher ad delivery volumes
spread over relatively fixed costs. These increases were offset in part by
declines in the average rates charged to our customers. The gross margin of
29% for the third quarter of 1999 increased from a gross margin of 24% for
the second quarter of 1999. The increase was due to greater ad volumes during
the third quarter and favorable economies of scale resulting from the greater
ad volumes. The increase was partially offset by a decline in average rate
charged as a result of competitive pricing pressures and volume discounts.
RESEARCH AND DEVELOPMENT
Research and development expenses were $2.4 million and $6.9 million for the
three and nine months ended September 30, 1999, compared to $1.2 million and
$3.0 million for the comparable periods in 1998. The increase in absolute
dollars in the current periods was due primarily to increases in product
development personnel and consulting expenses. Product development expenses
incurred were primarily related to enhancements to the AdForce service
technology. Research and development expenses were 47% and 55% of net
revenues for the three and nine months ended September 30, 1999, compared to
117% and 134% of net revenues for the comparable periods in 1998. The decline
in research and development expenses as a percentage of net revenue in the
current periods was the result of higher revenues. We believe that continued
investment in product development is critical
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
to achieving our technical objectives of improved system reliability,
scalability, performance and cost; as well as developing new products and
services. As a result, we expect research and development expenses to
increase on an absolute dollar basis over the next several quarters.
MARKETING AND SELLING
Marketing and selling expenses were $3.2 million and $7.0 million for the
three and nine months ended September 30, 1999, compared to $1.4 million and
$3.2 million for the comparable periods in 1998. The increase in absolute
dollars in the current periods was primarily attributable to increase in
marketing and sales personnel and their related expenses, including
commissions associated with increased revenues, and costs related to the
continuing development and implementation of our marketing and branding
campaigns, including trade show participation activities. Marketing and
selling expenses were 64% and 56% of net revenues for the three and nine
months ended September 30, 1999, compared to 131% and 142% of net revenues
for the comparable periods in 1998. The decline in marketing and selling
expenses as a percentage of net revenue in the current periods was the result
of higher revenues. We expect marketing and selling expenses to increase on
an absolute dollar basis over the next several quarters as we continue our
marketing and branding campaigns, and continue to expand our sales efforts.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1.3 million and $2.6 million for
the three and nine months ended September 30, 1999, compared to $0.5 million
and $1.4 million for the comparable periods in 1998. The increase in absolute
dollars in the current periods was primarily attributable to increased
general and administrative personnel, and to a lesser extent the costs
associated with corporate development activities, including work leading to
the proposed acquisition by CMGI of AdForce. General and administrative
expenses were 26% and 21% of net revenues for the three and nine months ended
September 30, 1999, compared to 48% and 60% of net revenues for the
comparable periods in 1998. The decline in general and administrative
expenses as a percentage of net revenue in the current periods was primarily
due to higher revenues. We expect general and administrative expenses to
remain approximately level with that experienced in the third quarter of 1999
on an absolute dollar basis over the next quarter due in part to the expected
activities relating to the proposed acquisition by CMGI of AdForce.
AMORTIZATION OF INTANGIBLE ASSETS AND DEFERRED STOCK COMPENSATION
We recognize expense for the amortization of deferred stock compensation to
personnel who have been granted options with an exercise price deemed for
financial reporting purposes to be below the fair market value of the
underlying common stock on the date of grant. We also record stock
compensation expense for unvested shares issued under employee incentive
stock options and founders' shares that were not repurchased pursuant to our
contractual right to purchase the shares, and on the acceleration of vesting
of options and restricted stock as part of certain employment termination
agreements. In connection with our acquisition of StarPoint in February 1998,
we recorded intangible assets that are being amortized to operations over the
lives of those assets. In connection with our agreements with America Online,
we issued a warrant to purchase 1,019,662 shares of our common stock. The
warrant was valued at $2,019,000, and is being amortized over the remaining
life of the agreement. These non-cash charges are included on our Condensed
Statement of Operations as "Amortization of Intangible Assets and Deferred
Stock Compensation." We recognized a total of $1.9 million and $5.5 million
in amortization of intangible assets and deferred stock compensation expense
for the three and nine months ended September 30, 1999, compared to $0.9
million and $2.2 million for the comparable periods in 1998. Since a portion
of these expenses was related to data center operations, we allocated that
portion of these non-cash expenses to cost of revenue which reduced our gross
margin. In addition, we recorded stock compensation expense of $1.4 million
during 1998 related to unvested founders' stock that was not repurchased.
INTEREST INCOME (EXPENSE), NET
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
Net interest income was $724,000 and $983,000 for the three and nine months
ended September 30, 1999, compared to net interest income of $37,000 and net
interest expense of $143,000 for the comparable periods in 1998. The increase
in interest income for the nine months ended September 30, 1999 is
attributable to a higher cash, cash equivalents and short-term investments
balance from public offering proceeds received in May 1999. Interest income,
net of expense, in future periods is expected to decline as a result of
declining cash balances and increased interest on capital leases.
LIQUIDITY AND CAPITAL RESOURCES
Prior to May 1999, we financed our operations primarily from sales of
preferred stock and capital lease financing, and to a lesser extent, net
proceeds from the issuance of notes payable and proceeds from the sale of
common stock. In May 1999, the Company sold 5,175,000 shares of the Company's
Common Stock at a price of $15.00 per share in its initial public offering.
Net proceeds to the Company from this offering were approximately $70.7
million.
Net cash used in operating activities was $6.5 million and $7.1 million for
the nine months ended September 30, 1999 and 1998, respectively. Cash used in
operating activities for the nine months ended September 30, 1999 resulted
primarily from net operating losses and an increase in accounts receivable
and prepaid expenses, partially offset by increases in accounts payable,
accrued expenses and deferred revenues. The increase in deferred revenue was
due to cash prepayments by customers for ad management and delivery services
to be provided.
Net cash used in investing activities was $57.0 million and $0.8 million for
the nine months ended September 30, 1999 and 1998, respectively. Cash used in
investing activities for the nine months ended September 30, 1999 was
primarily for the purchase, net of maturities, of short-term investments,
and, to a lesser extent, for the purchase of property and equipment. Cash
used in investing activities for the nine months ended September 30, 1998 was
primarily for the purchase of property and equipment, partially offset by
proceeds from the sale of equipment.
Net cash provided by financing activities was $69.3 million and $19.5 million
for the nine months ended September 30, 1999 and 1998, respectively. Cash
provided by financing activities for the nine months ended September 30, 1999
consisted primarily of $70.7 million in net proceeds from our initial public
offering, partially offset by principal repayments on capital lease
obligations.
As of September 30, 1999, we had $70.6 million of cash, cash equivalents and
short-term investments. Our principal commitments consisted of obligations
under operating and capital leases. These leases were used primarily to equip
our data centers and to expand our existing facilities. Pursuant to an
agreement with America Online we may be obligated to pay them quarterly fees
totaling at least $10.0 million during the three years following their
delivery of certain specified demographic data to us. However, we are
uncertain as to when, if ever, the demographic data may be made available to
us.
We expect to substantially increase our capital expenditures and lease
commitments consistent with our anticipated growth in operations,
infrastructure and personnel. We currently anticipate that we will continue
to experience significant growth in our operating expenses for the
foreseeable future and that our operating expenses will be a material use of
our cash resources. We believe that our existing cash, cash equivalents and
short-term investments will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next twelve
months. Thereafter, cash generated from operations, if any, may not be
sufficient to satisfy our liquidity requirements. We may therefore need to
sell additional equity or raise funds by other means. Any additional
financing, if needed, might not be available on reasonable terms or at all.
Failure to raise capital when needed could seriously harm our business and
operating results. If we raise additional funds through the issuance of
equity securities, the percentage of ownership of our current stockholders
would be reduced. Furthermore, these equity securities might have rights,
preferences or privileges senior to our common stock.
POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS
15
<PAGE>
ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
Many computer systems and software products are coded to accept only two
digit entries in the date code field. These date code fields will need to
accept four-digit entries to distinguish between 21st century and 20th
century dates. As a result, many companies' software and computer systems may
need to be upgraded or replaced to comply with these Year 2000 requirements.
In the ordinary course of our business, we have evaluated the internally
developed software included in our ad management and delivery system, and
believe this software is generally Year 2000 compliant, meaning that the use
or occurrence of dates on or after January 1, 2000 will not materially affect
the performance of this software or the ability of this software to correctly
create, store, process and output data involving dates. In the third quarter
of 1999, we implemented internal Year 2000 testing procedures for our
software, and believe the software to be Year 2000 compliant. Although such
testing is substantially complete, our efforts will continue in order to
provide ourselves reasonable assurance that all existing and future software
is Year 2000 compliant. We expect the costs of continuing our testing efforts
will be immaterial for the remainder of the year. During the course of such
testing, we may learn that our software does not contain all of the necessary
software routines and codes necessary for the accurate calculation, display,
storage and manipulation of data involving dates. We have warranted to some
of our customers that Year 2000 compliance issues will not adversely affect
the performance of our ad management and ad delivery services. If our
customers experience Year 2000 problems with our services, they could assert
claims against us for damages. Our standard service agreements provide
performance warranties, and we may need to incur costs to address Year 2000
problems that our customers encounter through the use of our services. To
date we have not received any Year 2000 related claims regarding our services.
We are also working with our external suppliers and service providers with
respect to both third-party applications in our ad management and delivery
system and third-party applications in our information technology
infrastructure to ensure that these third-party systems and applications will
be able to interoperate with our hardware and software infrastructure where
necessary and support our needs into the year 2000. We typically use
industry-standard third-party hardware and software. Where possible, we are
seeking assurances from our suppliers that we believe are critical to our
business that their products are Year 2000 compliant. While we have received
assurances as to the Year 2000 compliance of some of these third-party
products, we generally do not have any contractual rights with these
providers if their software or hardware fails to function due to Year 2000
issues. If these failures do occur, we may incur unexpected expenses to
remedy any problems, including purchasing replacement hardware and software.
Though we will continue these efforts, we do not believe we have significant
Year 2000 issues within our systems or services. Because we believe we are
Year 2000 compliant, we have not engaged any third parties to independently
verify our Year 2000 readiness, nor have we assessed potential costs
associated with Year 2000 risks or made any contingency plans to address
these risks. Further, we have not deferred any of our ongoing development
efforts to address Year 2000 issues. However, unanticipated costs associated
with any Year 2000 compliance may exceed our present expectations, which
could materially and adversely affect our quarterly and annual results of
operations.
We depend on the uninterrupted availability of the Internet infrastructure to
conduct our business as a centralized ad delivery and management service. We
also rely on the continued operations of our customers, in particular Web
sites hosting advertisements, for our revenue. We are heavily dependent upon
the success of Year 2000 compliance efforts of the many service providers
that support the Internet, and the Year 2000 compliance efforts of our
customers. Interruptions in the Internet infrastructure affecting us or our
customers, or failure of the Year 2000 compliance efforts of one or more of
our customers, could materially and adversely affect our ability to generate
revenue. The purchasing patterns of advertisers and agencies could be
affected by Year 2000 issues as companies expend significant resources to
correct their current systems for the year 2000; these expenditures may
result in reduced funds available for Internet advertising, which could in
turn materially and adversely affect our ability to generate revenue.
OTHER FACTORS AFFECTING OPERATING RESULTS, LIQUIDITY AND CAPITAL RESOURCES.
16
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
FAILURE TO COMPLETE THE MERGER WITH CMGI COULD NEGATIVELY IMPACT THE MARKET
PRICE OF OUR COMMON STOCK AND OUR OPERATING RESULTS.
If the merger with CMGI is not completed for any reason, we may be subject to
a number of material risks, including:
- - we may be required to pay CMGI a termination fee of $15 million and/or
reimburse CMGI for expenses of up to $500,000;
- - AdForce stockholders may experience dilutive effects to their stock
ownership because an option to acquire up to 19.9% of the outstanding
shares of our common stock granted to CMGI may become exercisable;
- - the market price of our common stock may decline to the extent that the
current market price of our common stock reflects a market assumption that
the merger will be completed; and
- - costs related to the merger, such as legal and accounting fees, must be
paid even if the merger is not completed.
If the merger with CMGI is terminated and our board of directors seeks
another merger or business combination, you cannot be certain that we will be
able to find a partner willing to pay an equivalent or more attractive price
than the price to be paid by CMGI in the merger. In addition, CMGI's option
to acquire up to 19.9% of the outstanding shares of our common stock which
may become exercisable upon termination of the Agreement and Plan of Merger
may impede an alternative merger or business combination.
OUR CUSTOMERS MAY DELAY OR CANCEL ORDERS AS A RESULT OF CONCERNS OVER THE
MERGER WITH CMGI.
The announcement and closing of the merger with CMGI could cause our
customers and our potential customers to delay or cancel contracts for
services as a result of customer concerns and uncertainty over service
evolution, integration and support over CMGI's or our services. Such a delay
or cancellation of orders could have a material adverse effect on our
business, operating results and financial condition.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT FUTURE RESULTS OF
OPERATIONS AND TO ADDRESS RISKS AND UNCERTAINTIES
We incorporated in January 1996 and have a limited operating history. You
should consider the risks and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets, particularly those
companies whose businesses depend on the Internet. These risks and
difficulties include our inability to predict future results of operations
accurately due to our lack of operating history and the unavailability of
comparable business models. We cannot assure you that our business strategy
will be successful or that we will address these risks and difficulties
successfully.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, WHICH COULD AFFECT THE MARKET
PRICE OF YOUR SHARES
Our quarterly results of operations have varied in the past. You should not
rely on quarter-to-quarter comparisons of our results of operations as an
indication of our future performance. It is likely that in future periods our
results of operations will be below the expectations of securities analysts
and investors. If so, the market price of your shares would likely decline.
Our revenue and quarterly results of operations depend on a variety of
factors, many of which are beyond our control. These factors include:
- - the timing and costs of improvements in our ad management and delivery
infrastructure, including the addition of more capacity;
17
<PAGE>
ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
- - our ability to satisfy and retain our existing customers;
- - any loss of existing customers due to consolidation in the industry;
- - the ability of our existing customers to maintain or increase their
Internet traffic or market share;
- - our ability to expand our customer base and the timing of new customers
commencing service with us;
- - changes in our pricing policies or those of our competitors resulting from
competitive pressures;
- - our ability to provide reliable and scalable service, including our ability
to avoid potential system failure;
- - the announcement or introduction of new technology or services by us or our
competitors, including database marketing capabilities;
- - seasonal trends in our business; and
- - general economic and market conditions
We expect to continue to make significant capital expenditures as we increase
the capacity and reliability of our existing technology infrastructure and
data centers. We also intend to open additional ad management and delivery
centers. We intend to continue to allocate a large portion of our budget for
research and development. Due to our operating costs being relatively fixed,
we would likely be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall. If we have a shortfall in revenue relative to
our expenses, our quarterly and annual results of operations would be
materially and adversely affected, which in turn could affect the market
price of your shares.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES
We expect to continue to incur net losses on a quarterly and annual basis for
at least the next two years. If our revenue does not grow or grows more
slowly than we anticipate, or if our operating or capital expenditures exceed
our expectations and cannot be reduced, our quarterly and annual results of
operations will be materially and adversely affected. We incurred net losses
of $3.5 million for the period from January 16, 1996 (inception) to December
31, 1996, $5.7 million for 1997, $15.6 million for 1998, $5.0 million for the
three months ended March 31, 1999, $5.2 million for the three months ended
June 30, 1999 and $6.5 million for the three months ended September 30, 1999.
We expect to continue to incur significant operating expenditures, and
capital expenditures of at least $6.0 million, for the remainder of 1999. As
a result, we will need to generate significantly greater revenue than we have
generated to date to achieve and maintain profitability. We expect that
future revenue growth, if any, will not be as rapid as in recent periods. We
may never achieve profitability on a quarterly or an annual basis.
WE DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR OUR REVENUE, THE LOSS OF ANY OF
WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUE
We continue to derive a substantial portion of our net revenue from a small
number of Web sites and ad rep firms. Our quarterly and annual results of
operations would be materially and adversely affected by the loss of any of
these customers or any significant reduction in net revenue generated from
these customers. Our customer agreements can generally be terminated at any
time with little or no penalty.
Our three largest customers for each quarter of 1998 represented 94%, 81%,
60% and 63% of our net revenue. In the first, second and third quarter of
1999, four of our customers, 24/7 Media, AdSmart, GeoCities and Netscape,
accounted for approximately 77%, 72% and 74% of our net revenue. GeoCities
was acquired by Yahoo!, Inc.
18
<PAGE>
ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
during the second quarter of 1999 and discontinued in June 1999 the use of
AdForce's ad-serving services for the majority of its ads. GeoCities
accounted for 20%, 12% and 3% of our net revenues during the quarters ended
March 31, 1999, June 30, 1999, and September 30, 1999, respectively. Netscape
was acquired by America Online during the first quarter of 1999, and advised
us in October 1999 of its intent to transition Netscape's domestic and
European Netcenter advertising serving (which represent the substantial
majority of our business with Netscape) from AdForce to America Online's
internal system following the expiration on November 22, 1999 of our current
contract with Netscape. Netscape accounted for 12%, 10% and 20% of our net
revenues during the quarters ended March 31, 1999, June 30, 1999, and
September 30, 1999, respectively. In addition, 24/7 Media has stated that it
is currently developing and implementing an internal ad delivery technology
that is intended to serve as its sole ad delivery solution, and that they
expect to deploy this system in the fourth quarter of 1999. It has also
stated that, unless and until the development of and transition to its own ad
delivery technology is complete, it will be primarily dependent on us to
deliver ads to its networks and Web sites. 24/7 Media accounted for 23%, 29%
and 24% of our net revenues during the quarters ended March 31, 1999, June
30, 1999, and September 30, 1999, respectively.
CONSOLIDATION IN THE INTERNET INDUSTRY MAY ADVERSELY AFFECT OUR ABILITY TO
RETAIN OUR PRINCIPAL CUSTOMERS, THE LOSS OF ANY OF WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO GENERATE REVENUE
Many of our principal customers are now and may in the future be affected by
rapid consolidation in the Internet industry. Our quarterly and annual
results of operations would be materially and adversely affected if we lose
any of these customers as a result of consolidation or if our customers are
required to use the proprietary ad delivery technologies of the companies
that acquire them or other ad delivery technologies. For example, in May
1999, one of our major customers, GeoCities, was acquired by Yahoo! which
transitioned GeoCities' advertisement-serving requirements to its internal
system in June 1999. In addition, Netscape was acquired by America Online
during the first quarter of 1999, and advised us in October 1999 of its
intent to transition Netscape's domestic and European Netcenter advertising
serving (which represent the substantial majority of our business with
Netscape) from AdForce to America Online's internal system following the
expiration on November 22, 1999 of our current contract with Netscape.
WE MAY NOT BE ABLE TO SCALE OUR TECHNOLOGY INFRASTRUCTURE, WHICH WOULD
ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT
NEW CUSTOMERS
Our technology infrastructure may not be able to support higher volumes of
ads, additional customers or new types of advertising or direct marketing. If
we are not able to continue scaling our technology infrastructure, we may
have difficulty retaining existing customers and attracting new customers. If
our traffic increases because of heightened demand from existing or new
customers, we will need to accommodate large increases in the number of ads
that we manage and deliver and the amount of data that we store. We will also
need to support the introduction of new and evolving types of advertising and
direct marketing that require greater system resources than current methods
of Internet advertising. We may not be able to continue to scale our data
centers on time or within budget. The uninterrupted performance of our data
centers is critical to our success. We expect to add more data centers to
improve redundancy and to increase capacity. Adding capacity will be
expensive, and we may not be able to do so successfully. In addition, we
cannot assure you that we will be able to protect our new or existing data
centers from unexpected events as we scale our systems.
WE MAY NOT BE ABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT
NEW CUSTOMERS
We may not be able to improve our technology infrastructure to respond to
technological change, changes in customer requirements or preferences, or new
industry standards. We must be able to continue to steadily increase our
system capacity, improve our existing services, and introduce new service
offerings without interrupting or interfering with our operations, and we
must be able to do so in a timely and cost-effective manner. We must ensure
19
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
that our technology infrastructure is flexible enough to accommodate
technology advancements, including our ability to deliver ads to a customer
base that uses multiple browsers and multiple versions of those browsers. We
must also ensure that our technology infrastructure is flexible enough to
accommodate new customer requirements and preferences.
WE MAY NOT BE ABLE TO ATTRACT AD AGENCIES AND ADVERTISERS AS CUSTOMERS, WHICH
COULD CAUSE US TO MISS OUR FINANCIAL PROJECTIONS OR THOSE OF SECURITIES
ANALYSTS
If we fail to continue to attract advertisers and ad agencies as customers or
do so more slowly than we anticipate, we may not meet our financial
projections or those of securities analysts. Individual advertisers and ad
agencies accounted for less than 7% of our net revenue for the nine months
ended September 30, 1999. The service and support requirements of advertisers
and ad agencies are significantly different from those of Web sites and ad
rep firms, and advertisers and ad agencies may not accept third-party
Internet ad management and delivery services or may not choose our services
over those offered by others. Moreover, advertisers and ad agencies may find
Internet advertising services to be too complex, ineffective or otherwise
unsatisfactory for managing and delivering their ad campaigns.
WE MAY NOT COMPETE SUCCESSFULLY IN THE MARKET FOR INTERNET AD MANAGEMENT AND
DELIVERY SERVICES, WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR
EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
The market for Internet ad management and delivery services is extremely
competitive, and we expect this competition to increase. Our ability to
compete successfully in this market depends on many factors, including:
- - the performance, reliability, ease of use and price of services that we or
our competitors offer;
- - market acceptance of centralized, outsourced ad management and delivery
systems as compared to internally-developed or site-specific software and
hardware solutions;
- - our ability, relative to our competitors, to scale our technology
infrastructure as our customer needs grow;
- - timeliness and market acceptance of new services and enhancements to
existing services introduced by us or our competitors; and
- - customer service and support efforts by us or our competitors.
The market for Internet ad management and delivery services is subject to
intense competition as companies attempt to establish a market presence. We
expect that competition will increase as industry consolidation causes
certain early entrants in the marketplace to merge or be acquired. For
example, DoubleClick, Inc has acquired NetGravity, Inc. We have in the past
and may in the future be forced to reduce the prices for our services in
order to compete, which could materially and adversely affect our net revenue
and gross margins.
We currently compete with providers of outsourced ad services, including
DoubleClick, MatchLogic and Real Media, as well as providers of ad server
software and hardware solutions such as NetGravity. Many of our current
competitors have substantially greater resources and more developed sales and
marketing strategies than we do. We cannot assure you that we will be able to
compete effectively against such competitors now or in the future.
Another principal source of competition is Web sites that use
internally-developed Internet advertising and direct marketing services.
These Web sites include America Online, one of our principal stockholders,
and Yahoo!. As indicated above, Yahoo! has acquired GeoCities, and America
Online has acquired Netscape, another of our major customers. 24/7 Media,
another of our principal customers, acquired its own ad management and
delivery technology in 1998, and currently uses this technology to serve a
portion of its advertising needs. In addition, 24/7 Media has stated that it
is currently developing and implementing an internal ad delivery technology
that is intended to serve as its sole ad delivery solution, and that they
expect to deploy this system in the fourth quarter of 1999. It has also
stated that, unless and until the development of and transition to its own ad
delivery technology is complete, it will be primarily dependent on us to
deliver ads to its networks and Web sites. If 24/7 Media ceases doing
20
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
business with us or enters into competition with us, it would materially and
adversely affect our business, results of operations and financial condition.
Finally, a fourth major customer, 2CAN Media, was acquired by AdSmart, a
subsidiary of CMGI, earlier this year. CMGI also owns Engage Technologies,
which in turn owns Accipiter, a supplier of ad server software and equipment
services. If AdSmart transitions its business from us to Engage/Accipiter, it
would materially and adversely affect our business, results of operations and
financial condition.
We may also encounter a number of potential new competitors that have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we
do. These qualities may allow them to respond more quickly than we can to new
or emerging technologies and changes in customer requirements. It may also
allow them to devote greater resources than we can to the development,
promotion and sale of their products and services. These competitors might
also engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, strategic
partners, advertisers and Web sites. If such companies decided to enter the
market, we cannot assure you that we would be able to compete against them
effectively.
MANY OF OUR CUSTOMERS HAVE LIMITED OPERATING HISTORIES, ARE UNPROFITABLE AND
MAY NOT BE ABLE TO PAY FOR OUR SERVICES, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO RECOGNIZE REVENUE FROM THESE CUSTOMERS
Many of our leading customers, including 24/7 Media and AdSmart, have limited
operating histories and have not achieved profitability. If one or more of
our customers is unable to pay for our services, or pays more slowly than we
anticipate, our quarterly and annual results of operations could be
materially and adversely affected. You should evaluate the ability of our
customers to meet their payment obligations to us in light of the risks,
expenses and difficulties encountered by companies with limited operating
histories, particularly in the evolving Internet market. In the past, some of
our customers have failed to pay for our services on a timely basis.
WE MAY EXPERIENCE SYSTEM FAILURES OR DELAYS THAT WOULD ADVERSELY AFFECT OUR
OPERATIONS, WHICH COULD LEAD TO CUSTOMER DISSATISFACTION
Our operations depend on our ability to protect our computer systems against
damage from fire, water, power loss, telecommunications failures, computer
viruses, vandalism and other malicious acts, and similar unexpected adverse
events. In the past, interruptions or slowdowns in our services have resulted
from the failure of our telecommunications providers to supply the necessary
data communications capacity in the time frame we require, as well as from
deliberate acts. Unanticipated problems affecting our systems could in the
future cause interruptions or delays in our services. Slow response times or
system failures could also result from straining the capacity of our software
or hardware due to an increase in the volume of advertising delivered through
our servers. Our customers may become dissatisfied by any system failure or
delay that interrupts our ability to provide service to them or slows our
response time.
WE MAY NOT BE ABLE TO TARGET ADVERTISEMENTS, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
We may not be able to continue to meet the needs of our customers or the
marketplace for more sophisticated targeting solutions. As more advertisers
demand targeting solutions, we will need to develop increasingly effective
tools and larger databases that can provide greater demographic precision in
ad management and delivery. The development of these tools and databases is
technologically challenging and expensive. We cannot assure you that we can
develop any of these tools or databases in a cost-effective and timely
manner, if at all. Moreover, privacy concerns may cause a reduction or
limitation in the use of user information, which could limit the
effectiveness of our technology and adversely affect our ability to retain
our existing customers and to attract new customers.
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
THE INTERNET ADVERTISING MARKET MAY FAIL TO DEVELOP OR DEVELOP MORE SLOWLY
THAN EXPECTED, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR
EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
The Internet advertising market may fail to develop or develop more slowly
than expected. Our future growth largely depends on the continued growth in
Internet advertising generally, and on the willingness of our potential
customers to outsource their Internet advertising and direct marketing needs.
Companies doing business on the Internet must compete with traditional media,
including television, radio, cable and print, for a share of advertisers'
total advertising budgets. Advertisers may be reluctant to devote a
significant portion of their advertising budgets to Internet advertising if
they perceive the Internet to be a limited or ineffective advertising medium.
Substantially all of our revenue is derived from the delivery of
advertisements placed on Web sites. If advertisers determine that those ads
are ineffective or unattractive as an advertising medium, we may be unable to
make the transition to any other form of Internet advertising. Also, there
are filter software programs that limit or prevent advertising from being
delivered to a user's computer. The commercial viability of Internet
advertising would be materially and adversely affected by Internet users'
widespread adoption of these software programs.
THE INTERNET INFRASTRUCTURE MAY NOT BE ABLE TO ACCOMMODATE RAPID GROWTH,
WHICH COULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND
TO ATTRACT NEW CUSTOMERS
The Internet infrastructure may fail to support the growth of the Internet.
If the Internet continues to experience an increase in users, an increase in
frequency of use or an increase in the capacity requirements of users, we
cannot assure you that the Internet infrastructure will be able to support
the demands placed on it. Any actual or perceived failure of the Internet
could undermine the benefits of our services. In addition, the Internet could
lose its viability as a commercial medium due to delays in the development or
adoption of new technology required to accommodate increased levels of
Internet activity or due to increased government regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet could result in slower response times and could hamper use of the
Internet. Even if the Internet infrastructure is able to accommodate rapid
growth, we may be required to spend heavily to adapt to new technologies.
WE MAY NOT BE ABLE TO RETAIN KEY PERSONNEL, AND OUR MANAGEMENT TEAM MAY NOT
WORK TOGETHER SUCCESSFULLY
Our future success depends on the continued service of our key technical,
sales and senior management personnel and their ability to execute our growth
strategy. Competition is intense for qualified personnel, particularly
technical and engineering personnel, and at times we have experienced
difficulties in retaining current personnel and attracting new personnel.
Further, current and prospective AdForce employees may experience uncertainty
about their future roles with CMGI. This uncertainty may adversely affect our
ability to attract and retain key management, sales, marketing and technical
personnel.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE THE CONSOLIDATION OF OUR
ENGINEERING STAFF, WHICH COULD LEAD TO PRODUCT DEVELOPMENT DELAYS AND
DISRUPTIONS IN SERVICE
Our engineering personnel are currently located in two separate locations,
Costa Mesa, California and Cupertino, California. In August 1999, we
commenced efforts to consolidate many of our engineering personnel into our
Cupertino, California location. We expect this consolidation to be
substantially complete by December 31, 1999. This consolidation will divert
management time and resources. During the course of this consolidation
effort, we may be less efficient in our product development efforts, and
could therefore experience delays in releasing new products. Further, this
transition could increase the risk of service disruptions. These delays and
disruptions, if they occur, could adversely affect our ability to retain our
existing customers and to attract new customers. Additionally, engineering
personnel may choose not to remain in our employment as a result of this
consolidation.
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO MANAGE OUR BUSINESS
During the third quarter of 1999 we continued to expand our research and
development, data center operations, sales, marketing and customer service
organizations, and increased our total number of employees from 146 as of
June 30, 1999 to 162 as of September 30, 1999. We may not be able to continue
to manage our internal growth effectively to keep pace with the expansion of
the Internet advertising market or our competitors' growth. Our rapid growth
has placed, and the anticipated future growth in our operations will continue
to place, a significant strain on our management systems and resources. We
expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and will need to continue to
expand, train and manage our workforce.
WE MAY NOT BE ABLE TO PROTECT OUR TECHNOLOGY, WHICH COULD DIMINISH THE VALUE
OF OUR TECHNOLOGY AND OUR SERVICES
Our success and ability to compete are dependent on our internally developed
technologies and trademarks. If our proprietary rights are infringed by a
third party, the value of our services to our customers would be diminished
and additional competition might result from the third party's use of those
rights. We cannot assure you that our patent applications or trademark
registrations will be approved. Even if they are approved, our patents or
trademarks may be successfully challenged by others or invalidated. If our
trademark or copyright registrations are not approved because third parties
own those trademarks or copyrights, our use of these trademarks and/or
copyrighted materials would be restricted unless we entered into arrangements
with the third-party owners, which might not be possible on reasonable terms.
We cannot assure you that any of our proprietary rights will be viable or of
value since the validity, enforceability and scope of protection of
proprietary rights in Internet-related industries are uncertain and evolving.
We also cannot assure you that the steps we have taken will prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US OR OUR CUSTOMERS,
WHICH COULD RESULT IN LIABILITY FOR DAMAGES, THE INVALIDATION OF OUR RIGHTS
OR THE DIVERSION OF OUR TIME AND ATTENTION
Third parties may assert infringement claims against us or our customers
based on our technology or our collection of user data. Any claims or
litigation, if they occur, could subject us to significant liability for
damages or could result in invalidation of our rights. Even if we were to
prevail, litigation could be time-consuming and expensive to defend, and
could result in diversion of our time and attention. Any claims or litigation
from third parties might also limit our ability to use the proprietary rights
subject to these claims or litigations.
OUR CONTRACTUAL RELATIONSHIP WITH AMERICA ONLINE COULD LEAD TO A DIVERSION OF
OUR DEVELOPMENT RESOURCES AND THE OBLIGATION TO PAY AMERICA ONLINE A LARGE
SUM OF MONEY
We have granted to America Online and its affiliates a royalty-free,
perpetual license to our ad management and delivery technology, including
source and object code, and any improvements to it that we make generally
available to our customers. Under the terms of this license agreement,
America Online could also require us to customize a version of our technology
for the exclusive use of America Online and its affiliates. We are obliged
under the license agreement to provide these services for an indefinite
period of time with little potential for significant profit, which could
significantly strain our development resources. We have also entered into a
demographic data agreement with America Online. Under the terms of this
agreement, America Online may elect to make demographic information available
to us at any time within three years, triggering substantial payment
obligations from us even if we do not use this information and even if we
have contracted to obtain similar information from an alternative source. If
America Online makes the demographic data available to us and then later
limits or denies access to the demographic information or significantly
changes its advertising or privacy policies, our ability to
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
market our technology and services with enhanced targeting abilities and to
generate additional revenue could be severely limited.
GOVERNMENT REGULATION OF THE INTERNET MAY INHIBIT THE COMMERCIAL ACCEPTANCE
OF THE INTERNET
New legislation regulating the Internet could inhibit the growth of the
Internet and decrease the acceptance of the Internet as a communications and
commercial medium. The applicability to the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain. Governmental authorities may seek to further regulate the Internet
with respect to issues such as user privacy (including tracking, targeting
and profiling users), pornography, acceptable content, electronic commerce,
taxation, and the pricing, characteristics and quality of products and
services.
POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS
There is significant uncertainty in the software industry regarding the
potential effects associated with Year 2000 compliance issues. We depend
heavily on the uninterrupted availability of the Internet infrastructure to
conduct our business as a centralized management and delivery service. We
also rely heavily on the continued operations of our customers, in particular
Web sites hosting advertisements, for our revenue. We are thus dependent upon
the success of the Year 2000 compliance efforts of the many service providers
that support the Internet, and the Year 2000 compliance efforts of our
customers. Interruptions in the Internet infrastructure affecting us or our
customers, or the failure of the Year 2000 compliance efforts of one or more
of our customers, could have a material adverse effect on our quarterly and
annual results of operations.
We are currently evaluating our internally developed software included in our
ad management and delivery system, and believe that this software is
generally Year 2000 compliant, meaning that the use of dates on or after
January 1, 2000 will not materially affect the performance of this software
or the ability of this software to correctly create, store, process and
output data involving dates. We are currently working with our external
suppliers and service providers to ensure that third-party systems and
applications will be able to interoperate with our hardware and software
infrastructure where necessary and support our needs into the year 2000. We
are also seeking contractual assurances from our suppliers that their systems
and services are Year 2000 compliant. To date, we have not made any
contingency plans to address risks of non-compliance, and cannot assure you
that there will not be unanticipated costs associated with any Year 2000
compliance.
WE MAY NOT HAVE ENOUGH CAPITAL TO CONTINUE TO EXECUTE OUR BUSINESS
OBJECTIVES, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO MEET OUR FINANCIAL
PROJECTIONS OR THOSE OF SECURITIES ANALYSTS
We may need to raise additional funds, and we cannot be certain that we would
be able to obtain additional financing on favorable terms, if at all. We are
devoting at least an additional $5 million to our data center facilities in
Costa Mesa and Cupertino, California during the remainder of 1999, and will
need to continue to devote additional resources as we establish new ad
management and delivery centers. We also expect to make significant
investments in sales and marketing and the development of new services. The
failure to generate sufficient cash flows or to raise sufficient funds to
finance growth could require us to delay or abandon some or all of our plans
or forego new market opportunities, making it difficult for us to respond to
competitive pressures. If we issue equity securities to raise funds, our
stockholders will be diluted. The holders of the new equity securities may
also have rights, preferences or privileges senior to those of existing
holders of common stock.
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS, AND WE COULD BE SUBJECT TO SECURITIES LITIGATION
The market price of our common stock has been and is likely to continue to be
subject to wide fluctuations. If our revenue does not grow or grows more
slowly than we anticipate, or if operating or capital expenditures exceed our
24
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ADFORCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
expectations or cannot be adjusted accordingly, the market price of our
common stock could fall. In addition, if the market for Internet-related
stocks or the stock market in general experiences a loss in investor
confidence, the market price of our common stock could fall for reasons
unrelated to our business or results of operations. Investors may be unable
to resell their shares of our common stock at or above the offering price. In
the past, companies that have experienced volatility in the market price of
their stock have been the subject of securities class action litigation. If
we were the subject of litigation, it could result in substantial costs and a
diversion of management's attention and resources.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER ACQUISITION BIDS FOR ADFORCE,
WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF YOUR SHARES
We have adopted a classified board of directors. In addition, our
stockholders are unable to act by written consent or to fill any vacancy on
the board of directors. Our stockholders cannot call special meetings of
stockholders to remove any director or the entire board of directors without
cause. These provisions and other provisions of Delaware law could make it
more difficult for a third party to acquire us, even if doing so would
benefit our stockholders.
OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER ADFORCE, WHICH
COULD LIMIT YOUR ABILITY TO INFLUENCE ADFORCE AND WHICH COULD DELAY OR
PREVENT A CHANGE OF CONTROL OF ADFORCE
As of September 30, 1999, our executive officers, our directors and entities
affiliated with them and our 5% stockholders beneficially owned, in the
aggregate, approximately 62% of our outstanding common stock. These
stockholders may be able to exercise substantial influence over all matters
requiring approval by our stockholders, including the election of directors
and approval of significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in
control of AdForce.
FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE
MARKET PRICE OF YOUR SHARES
Sales of a substantial number of shares of our common stock in the public
market by our stockholders could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We provide our ad management and delivery services to companies in North
America, Europe and Asia. As a result, our financial results could be
affected by various factors, including changes in foreign currency exchange
rates or weak economic conditions in foreign markets. As all sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
services less competitive in foreign markets.
Our investment policy requires us to invest funds in excess of current
operating requirements in obligations of the U.S. government and its agencies
and investment grade obligations of state and local governments and U.S.
corporations. Our interest income is sensitive to changes in the general
level of U.S. interest rates, particularly since the majority of our
investments are in short-term instruments. Due to the nature of our
short-term investments, we have concluded that there is no material market
risk exposure.
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ADFORCE, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1999, Dirk Wray, a Company director, filed an action against Chad
Steelberg, a Company founder, in the Orange County, California Superior Court
alleging that Mr. Steelberg failed to perform certain obligations pursuant to
a 1996 agreement between Messrs. Wray and Steelberg.
In June 1999, Mr. Steelberg filed a cross-complaint (the "Cross-Complaint")
against Mr. Wray, certain investors in the Company, the Company and the
Company's President, Chief Executive Officer and Chairman, Charles W. Berger,
claiming the Company is obligated to defend and indemnify Mr. Steelberg
against Mr. Wray's allegations, and seeking additional damages.
The Company believes the causes of action in the Cross-Complaint claimed
against the Company and Mr. Berger are without merit. On October 22, 1999,
the Company and Mr. Berger jointly filed a demurrer to the Cross-Complaint. A
hearing has been set for November 17, 1999. The Company intends to indemnify
Mr. Berger pursuant to the Company's certificate of incorporation, bylaws and
a written indemnification agreement, and to defend itself and Mr. Berger
vigorously.
Except as provided above, the Company is not subject to any material legal
proceedings. The Company may from time to time become a party to various
legal proceedings arising in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) SALES OF REGISTERED SECURITIES AND USE OF PROCEEDS
On May 7, 1999, the Company sold 5,175,000 shares of Common Stock in its
initial public offering at a price of $15.00 per share pursuant to a Form S-1
Registration Statement, No. 333-73231, as amended, which became effective May
7, 1999. The principal underwriters for the offering were Hambrecht and
Quist, LLC, Lehman Brothers, Volpe Brown Whelan & Company and Charles Schwab
& Co., Inc. The Company received gross proceeds from the offering of $77.6
million, $5.4 million of which was deducted for underwriting discounts and
commissions, and the Company paid $1.5 million for other offering expenses,
none of which were paid directly or indirectly to any directors, officers,
persons owning ten percent or more of any class of equity securities of the
Company or any affiliates of the Company. From the effective date of the
Registration Statement through June 30, 1999, the Company invested all of the
proceeds in cash, cash equivalents, and short-term investments. During the
third quarter of 1999 the Company used the funds as follows: approximately
$1.8 million was used for purchases of property, equipment and improvements,
approximately $1.5 million for payments on capital lease obligations, and the
remainder for working capital requirements of the Company, including $3.8
million to fund operating losses.
(c) SALES OF UNREGISTERED SECURITIES
WARRANT EXERCISES
From July to September of 1999, the Company issued Common Stock pursuant to
warrant exercises as follows: 9,360 shares of Common Stock to Robert A.
Kingsbrook pursuant to the net exercise of his warrants (as a result of which
no cash was paid to the Company) to purchase 10,018 shares of the Company's
Common Stock.
The sale of stock pursuant to this warrant exercise was made in reliance on
section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
26
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ADFORCE, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit 2.1 Agreement & Plan of Merger by and between AdForce,
Inc., CMGI, Inc., and Artichoke Corporation dated
September 20, 1999 which is incorporated by reference
to the Company's report on form 8-k (file no. 0-20124)
filed with the Commission on October 4, 1999.
Exhibit 2.2 Stock Option Agreement between AdForce, Inc. and
CMGI, Inc. dated as of September 20, 1999 which is
incorporated by reference to the Company's report on
form 8-k (file no. 0-20124) filed with the Commission on
October 4, 1999.
Exhibit 4.1 Form of Stockholder Agreement and Irrevocable Proxy
which is incorporated by reference to the Company's
report on form 8-k (file no. 0-20124) filed with the
Commission on October 4, 1999.
Exhibit 10.01* Joint Venture Agreement by and between AdForce,
Inc., SINA.com, and Compuserve Consultants,
Ltd. dated August 31, 1999
Exhibit 27.1 Financial Data Schedule
Exhibit 99.1 Joint Press Release dated September 20, 1999 which is
incorporated by reference to the Company's report on
form 8-k (file no. 0-20124) filed with the Commission on
October 4, 1999.
(b) On October 4, 1999, the Company filed a Form 8-K under Item 5 announcing
that it had entered a definitive Agreement and Plan of Merger with
CMGI, Inc. and Artichoke Corporation.
*Confidential treatment has been requested.
27
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ADFORCE, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AdForce, Inc.
(Registrant)
Date: November 12, 1999
By: /s/ John A. Tanner
---------------------------
John A. Tanner
Executive Vice President, Chief
Financial Officer (Duly Authorized
and Principal Financial and Accounting
Officer)
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EXHIBIT 10.01
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
ADFORCE ASIA (H.K.), LTD.
JOINT VENTURE AGREEMENT
This Joint Venture Agreement (the "Agreement") is entered into effective as
of August 31, 1999 (the "Effective Date") by and between AdForce, Inc.
("AdForce"), a Delaware corporation with offices at 10590 North Tantau
Avenue, Cupertino, CA 95014, SINA.com ("SINA"), a Cayman Islands corporation
with its U.S. offices at 1313 Geneva Drive, Sunnyvale, CA 94089, and
Compuserve Consultants, Ltd., a Hong Kong corporation with principal offices
at Unit 405, 4/F, Westlands Centre, 20 Westlands Road, Quarry Bay, Hong Kong
("Compuserve"). Prior to the formation of AdForce Asia (H.K.), Ltd., AdForce
will form a wholly owned subsidiary in the Cayman Islands and this subsidiary
will replace AdForce as a party to this Agreement. References to AdForce
will thereafter refer to the Cayman Islands subsidiary. References to the
"Parent," however, will refer to AdForce, Inc., a Delaware corporation.
RECITALS
A. Parent provides outsourced, centralized ad management and delivery
services for the Internet throughout the world through its data centers,
proprietary software, personnel and distribution relationships.
B. SINA owns and operates the largest and fastest growing Internet portal
serving greater China and the Chinese-speaking community worldwide.
C. Compuserve provides a variety of services, including software consulting
services whereby software products can be "localized" for use in greater
China.
D. AdForce, SINA and Compuserve (individually a "Party" or "Shareholder,"
and collectively the "Parties" or "Shareholders") desire to form a
corporation to be known as AdForce Asia (H.K.), Ltd. (the "JV") for the
purposes described below.
E. The Parties desire to set forth the rights, duties and obligations of the
Parties in connection with the formation and operation of the JV and to
enter into the relationship thereafter.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Parties hereto, intending to be legally bound, agree as
follows:
Section 1. PURPOSE.
1.1 The goals of the Parties in entering into this joint venture relationship
are:
(a) to have the JV become a leading provider of outsourced,
centralized ad management and delivery services on the Internet for
customers primarily utilizing the Chinese language and whose primary
operations are located in specific countries, namely Peoples' Republic
of China, Hong Kong S.A.R., Macau S.A.R., Taiwan and Singapore (the
"Territory"); and
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(b) to position the JV for long-term success and conduct an initial
public offering of JV Shares (as defined below) within a period of four
(4) years from the Effective Date.
1.2 To advance these goals:
(a) AdForce will license to the JV certain desktop and front end
technology proprietary to AdForce, subject to third party rights and
pursuant to a license agreement substantially similar to the License
Agreement attached as Annex C;
(b) SINA will agree to procure ad serving services exclusively from
Parent, and subsequently from the JV, pursuant to the agreement attached
hereto as Annex E, and will agree to market and promote the JV pursuant
to a Marketing Agreement to be mutually agreed by the Parties and
attached as Annex F;
(c) Compuserve will agree to localize certain desktop technology
proprietary to AdForce for use by the JV pursuant to an agreement
substantially similar to the Consulting Agreement attached as Annex G,
and will assign all Intellectual Property Rights to such work and product
to the JV; Compuserve will also become a reseller of JV services pursuant
to an agreement substantially similar to the Reseller Agreement attached
as Annex H; and
(d) Parent and the JV will agree to subcontract certain ad serving
functions to each other in the Territory and the rest of the world
pursuant to the Reciprocal Services Agreement attached as Annex D.
Section 2. DEFINITIONS.
For purposes of this Agreement, the following words, terms and phrases shall
have the meanings assigned to them in this Section 2 unless otherwise stated
specifically:
2.1 "Affiliate" shall mean a 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 or entity specified. For
purposes of this Section 2.1, "control" shall be defined as (a) fifty percent
(50%) or more common equity ownership, or (b) the ability to direct the
management or policies of a person or entity, whether by contract or
otherwise.
2.2 "Board of Directors" or "Board" shall mean the board of directors of
the JV.
2.3 "Confidential Information" means all proprietary information and
materials of a party or the JV (or a third person to whom a nondisclosure or
nonuse duty is owed), patentable or otherwise, including, without limitation,
computer programs, code, technical and marketing information, data, reports,
know-how, patent positioning, financial information and business plans,
including any negative developments, whether disclosed on, before or after
the date of this Agreement. Confidential Information does not include
information which the receiving party can demonstrate by written
documentation or other tangible (including electronic) proof: (i) is already
known when disclosed by the disclosing party; (ii) has or becomes generally
known or available through no fault of the receiving party; (iii) has been
rightfully received from a third party that has the right to disclose it; or
(iv) has been independently developed by the receiving party without use of
the Confidential Information.
2.4 "Director" shall mean a member of the Board of Directors of the JV.
2.5 "Effective Date" shall have the meaning specified in the preamble to
this Agreement.
2.6 "AdForce Copyrights" shall mean all AdForce rights relating to the
Licensed Technology (as defined in the License Agreement) under the United
States Copyright laws, and under any like, similar or
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relevant laws in countries other than the United States, wherein such AdForce
rights are acquired at any time prior to the expiration or termination of the
Term of this Agreement.
2.7 "AdForce Patents" shall mean all patents, utility models and design
patents of all countries of the world owned by AdForce relating to the
Licensed Technology, including applications for patents, utility models and
design patents, as well as any amendments, renewals or extensions of any of
the foregoing.
2.8 "Intellectual Property Rights" shall mean all of the following
worldwide legal rights: (i) patents, patent applications, and patent rights;
(ii) rights associated with works of authorship (including audio/visual
works), including copyrights, copyright applications, and copyright
registrations; (iii) rights relating to the protection of trade secrets and
confidential information; (iv) trademarks, trademark registrations, service
marks, and applications therefor, trade names, rights in trade dress and
packaging; (v) Moral Rights; (vi) design rights; (vii) any rights, whether
local, state, federal or foreign, analogous to those set forth in the
preceding clauses and any other proprietary rights relating to intangible
property; and (viii) divisions, continuations, renewals, reissues, and
extensions of the foregoing (as applicable) now existing or hereafter filed,
issued, or acquired.
2.9 "Supplemental Agreements" shall mean the agreements described in
Annexes C- H.
2.10 "Local Laws" shall mean the laws, regulations, ordinances, decrees and
rules of Hong Kong.
2.11 "Moral Rights" shall mean any right of paternity or integrity, any
right to claim authorship, to object to or prevent any distortion, mutilation
or modification of, or other derogatory action in relation to the subject
work whether or not such would be prejudicial to the author's honor or
reputation, to withdraw from circulation or control the publication or
distribution of the subject work, and any similar right, existing under
judicial or statutory law of any country in the world, or under any treaty,
regardless of whether or not such right is denominated or generally referred
to as a "moral" right.
2.12 "Premises" shall mean the JV's principal office and place of business,
at a location from time to time specified by the Board.
2.13 "Pool" shall mean those JV Shares reserved or issued to the employees
or Directors or the persons assuming the executive capacities or director
positions.
2.14 "Parent" shall mean AdForce, Inc., a Delaware corporation.
2.15 "Term" shall mean the period during which this Agreement is in effect,
as set forth in Section 13.
2.16 "Territory" shall have the meaning set forth in Section 1.1(a).
2.17 [*]
Other capitalized terms shall have the meanings specified herein.
Section 3. FORMATION OF THE JV.
3.1 The Parties agree that the JV shall, in accordance with Sections 4, 5,
and 6 and upon satisfaction of the conditions identified in Section 23.1, be
formed as a company limited by shares in Hong Kong under the Local Laws. The
Shareholders shall arrange for the JV to commence business operations as soon
as practicable after incorporation.
3.2 The name of the JV shall be AdForce Asia (H.K.), Ltd..
3.3 The JV shall be registered in accordance with the Local Laws.
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3.4 Pursuant to the terms of this Agreement, the Parties agree to sign all
documents and to take such actions as may be necessary to incorporate and
register the JV under the Local Laws.
3.5 If it becomes necessary for AdForce to advance costs or expenses on
behalf of the JV before incorporation of the JV or otherwise, such amount(s)
shall be reimbursed by the JV to AdForce as promptly as possible after
incorporation of the JV.
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Section 4. MEMORANDUM AND ARTICLES OF ASSOCIATION.
The Memorandum and Articles of Association of the JV shall be in accordance
with Local Laws and in a form substantially similar to the form attached as
Annex A, reflecting such changes as mutually agreed upon by the Parties;
provided, however, that the Parties agree, and the Memorandum and Articles of
Association shall reflect, that minority shareholders shall have only (i)
such voting rights as required by Hong Kong law and (ii) (when representing
over 25% of the voting power of the JV) the protective right to veto block
only the following actions if contemplated by the Board:
4.1 amendments to the JV's Memorandum and Articles of Association;
4.2 establishing pricing or other material terms on transactions between
AdForce and the JV, and related self-dealing transactions;
4.3 liquidation of the JV, or a decision to cause the JV to enter bankruptcy
or other receivership;
4.4 the acquisition and disposition of assets greater than 20% of the fair
value of the JV's total assets; and
4.5 the issuance or repurchase of JV equity interests by the JV.
The Parties further agree that in no event will the minority shareholders
have any right to vote on any proposal where such vote would jeopardize the
Parent's ability within the meaning of E.I.T.F. 96-16 to fully consolidate
the JV's financial results into its own financial statements
Section 5. SUBSCRIPTION FOR STOCK.
5.1 The Parties shall subscribe to purchase and purchase the securities of
the JV in accordance with the ratios and denominations set forth on Schedule
1.
5.2 The aggregate purchase price of the shares of JV Common Stock and JV
Preferred Stock ("JV Shares") purchased by each Party under Section 5.1 shall
be at the price set forth on Schedule 1 ("Purchase Price"). Upon the full
payment of the Purchase Price by each Party, the JV Shares issued to such
Party shall be deemed fully paid and non-assessable. The Purchase Price may
be in cash, technology or other in-kind contributions, or any combination
thereof to the extent allowed by law and as approved by the Board. The
purchase price for additional JV shares issued and the method and timing of
payments therefor shall be as specified by the Board in accordance with the
Memorandum and Articles of Association and Local Laws. In any event, any
additional JV Shares shall first be offered to the Parties in proportion to
existing holdings, prior to offering additional JV Shares to third parties,
unless AdForce and SINA waive such requirement.
5.3 All JV Shares shall have a par value specified in the Memorandum and
Articles of Association in accordance with Local Laws.
5.4 Capitalization of the JV, set forth on Schedule 1, includes a
contribution by AdForce of technical rights valued at [*] million in exchange
for issuance by the JV of shares of Series A1 Preferred Stock pursuant to
Schedule 1. Series A and Series A1 Preferred Stock shall be treated as a
single class of stock in all respects, provided that the liquidation
preference of Series A shall be superior to that of Series A1 in that holders
of Series A Preferred Stock shall receive an amount up to the purchase price
of such shares prior to the holders of Series A1 Preferred Stock receiving
any distribution.
5.5 AdForce and SINA shall use their best efforts to raise additional equity
from third parties or from other comparable, mutually agreed strategic investors
at a mutually agreeable time.
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5.6 Each Party agrees that the share certificates of the JV first
subscribed or thereafter acquired by it shall be endorsed with the following
legend in addition to such other restrictive legends as may be required under
the Local Laws:
'THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT AMONG
ADFORCE, INC., SINA.COM AND COMPUSERVE, A COPY OF WHICH IS ON FILE AT THE
HOME OFFICE OF ADFORCE ASIA AND ANY SUBSEQUENT HOLDER ACQUIRING THESE SHARES
IN ANY MANNER WHATSOEVER TAKES THE SAME UNDER AND SUBJECT TO THE TERMS OF
SAID AGREEMENT."
5.7 The Board will initially consist of three directors. Nothing in this
Agreement shall prohibit an increase in the size of the Board, except that
such an increase must require an amendment to the Articles of Association.
At each annual meeting of the Shareholders of the JV or other meeting where
the members of the Board are to be elected or whenever members of the Board
are elected by written consent, the Shareholders agree to cast their votes so
as to elect to the Board of Directors the managing director/president of the
JV, selected by AdForce at its sole discretion following consultation with
Sina and reasonable consideration thereof, and one designee from each of
AdForce and SINA. Each Director shall agree in writing to be bound by the
terms and conditions of a Director Agreement to be mutually agreed by the
Parties and attached hereto as Annex K.
Section 6. TRANSFERS; RIGHT OF FIRST OFFER
The Parties agree that they will not sell, give, encumber, pledge or
otherwise transfer, assign or dispose of, either voluntarily or by operation
of law (a "Transfer"), all or any part of the JV Shares which any of them now
owns or may hereafter acquire in the JV without the consent of both AdForce
and SINA, unless the Transfer results from the merger of a Shareholder into a
surviving third person or from a sale of substantially all of the assets of a
Shareholder to a third person, if such third person assumes the obligations
of the transferring Shareholder by written assumption agreement in a form
reasonably acceptable to AdForce and SINA (such Transfers being referred to
as the "Exceptions"). Moreover, prior to any sale of Shares other than the
Exceptions, a Shareholder must first offer such JV Shares to the JV (to the
extent permitted by the Local Laws at the time the offer is made) and the
other Shareholders as provided herein. Any Party desiring to sell its JV
Shares (hereinafter in this Section 6 said Party will be referred to as the
"Seller") shall first obtain a bona fide written offer (which offer must be
accompanied by a good faith deposit in the form of a certified check equal to
at least ten percent (10%) of the purchase price) for such interest from the
party desiring to purchase such interest, which offer shall set forth the
name and address of the prospective purchaser, the number of shares to be
purchased, the prospective purchase price, and the other terms and conditions
of such offer, and the Seller may thereupon sell such shares only upon the
following terms and conditions:
(a) Upon receipt of such written offer which Seller desires to accept,
Seller shall send to the JV and to the other Shareholders a photocopy of
such offer (the "Offer"), together with a photocopy of the accompanying
certified check, whereupon the JV (to the extent permitted by the Local
Laws at the time the Offer is made) and the other Shareholders shall have
the option to purchase (which option shall be exercised by written notice
given to the Seller, the JV and any other Shareholders of the JV within
20 days, or such time period as may be required by Local Laws, after such
notification), all (but not less than all) of the JV Shares offered to be
sold by the Seller for the same aggregate price and on the same terms and
conditions (except that the closing shall be held at a mutually agreeable
place and time within 30 days after the expiration of the option period
as defined above) as contained in the Offer.
(b) To the extent permitted by the Local Laws at the time the Offer is
made, the JV shall have the prior right to purchase all of the JV Shares
being offered for sale. If the JV elects to purchase only a portion of
the JV Shares being offered for sale, then the entire balance (but not
less than the
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entire balance) may be purchased by the Parties (other than the Seller)
in the proportion that the respective holdings of JV Shares of those
desiring to purchase bears to each other, or as otherwise agreed by them
among themselves, at the same purchase price per JV Share as set
forth in the Offer, and the JV shall so notify such Parties. The JV and
the purchasing Party or Parties shall be entitled to receive from the
Seller, at any closing pursuant to this Section, all documents reasonably
requested by them to evidence the transfer to them of the Seller's
shares.
(c) If, at the end of such time periods as specified herein, the
rights under this Section 6 to purchase all of the Seller's JV Shares
subject to the Offer have not been exercised, then the Seller shall be
permitted to accept the Offer for such JV shares within 60 days
thereafter for the price and according to the terms and conditions set
forth in the Offer; provided, however, that the party to whom such JV
Shares are to be sold shall first agree to be bound by the provisions of
this Section 6 and shall enter into a deed of adherence to this
Agreement.
(d) The determination by the JV whether to exercise its rights under
this Section 6 shall be based upon the vote of the Board or Shareholders
representing seventy-five percent (75%) of the outstanding JV Shares
eligible to vote.
(e) The provisions of this Section shall lapse on the fourth
anniversary of the Effective Date. .
Section 7. COOPERATION OBLIGATION.
If Shareholders representing at least seventy-five percent (75%) of the
outstanding shares eligible to vote authorize the sale of their JV Shares to a
third party or the sale of substantially all of the assets of the JV to a third
party, then the other Shareholders agree to make their JV Shares eligible for
purchase to such third party on the same terms and conditions or to agree to
sale of substantially of the JV's assets, as applicable.
Section 8. JV OPERATIONS.
8.1 Commencement of Operations
(a) Within a reasonable time after the execution of this Agreement,
the Parties agree to use their best efforts to apply to the relevant
government authority(ies) for the necessary approvals for the JV to
commence operations, with the mutual understanding that time is of the
essence.
(b) As soon as practical after the issuance of the JV Shares, the
Parties shall cause the initial meeting of the Board designees (referred
to in Section 5.8) to be convened. At the initial meeting, the promoters
shall elect the Directors of the Board in accordance with the Memorandum
and Articles of Association and Section 5.8.
(c) As soon as practical after such initial meeting, the Directors
shall hold the initial meeting of the Board of Directors and shall elect
a Chairman; the Chairman shall be AdForce's designee. Furthermore, at
the first meeting of the Board of Directors, the Directors shall appoint
any officers and managers of the JV and shall establish any resolutions
necessary for the initial operations of the JV and otherwise to deal with
all matters arising out of the implementation of this Agreement
including, without limitation, the following:
(1) opening such bank accounts as shall be necessary;
(2) establishing the financial and accounting system of the JV
in accordance with the Local Laws and generally accepted
accounting standards and, to the extent lawful, in accordance with
AdForce's and U.S. accounting standards.
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(3) approving a schedule for startup of operations of the JV
which shall utilize and be accomplished within the scope of the
agreed principles for operation of the JV as set forth in this
Agreement;
(4) ratifying such agreement(s) between the JV and any of the
Parties as may be necessary to implement and carry out the
requirements of this Agreement; and
(5) performing all other tasks which are both proper and
necessary to establish and operate the activities of the JV
pursuant to Local Laws and this Agreement.
(d) SINA agrees to provide the following assistance in cooperation
with AdForce in connection with the commencement of JV operations:
(1) assist the JV in applying and obtaining all approvals,
consents or licenses (if any) from the relevant authorities
necessary for the JV to carry out its operations, including
applying to the relevant provincial, county, city and other
governmental agencies and departments in charge for approval,
registration and obtaining of a business license, in order to
establish the JV and conduct its operations;
(2) to handle any relevant procedures for applying to the
appropriate government agencies/departments to obtain the right to
use the Premises;
(3) to assist the JV in handling procedures for the declaration
to customs of imports of any tangible items, including initial
equipment;
(4) to assist the JV in purchasing or leasing land, facilities,
equipment, materials, office equipment, means of transportation,
communications facilities, etc;
(5) to assist the JV in recruiting management personnel,
technical personnel, workers and other needed personnel; and
(6) to provide such additional reasonable assistance as the JV
shall require in the Territory to establish and maintain
operations.
(e) The parties shall cause the JV to commence and regularly and
diligently proceed with and carry out its purposes in accordance with
this Agreement.
(f) Each Party agrees to:
(1) use its reasonable efforts to provide the JV with
management, training, marketing and sales expertise, marketing
support and consulting expertise on such terms and conditions as
shall be agreed between the Parties; and
(2) assist the JV in marketing and promoting the JV's services
in the Territory.
(g) The Parties shall, and the Parties shall cause the JV to enter
into the applicable Supplemental Agreements.
(h) Each Party shall be free to engage in competitive business and
shall not be required to present any opportunity to the JV or its Board,
except as expressly provided in the Supplemental Agreements.
(j) The JV shall be at liberty to contract with Compuserve, SINA
and/or AdForce as the situation shall demand for the sale or purchase of
services and/or products, and the relevant party
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shall be entitled to seek payment from the other for such services or
products provided on arm's length terms, except as expressly provided
in the Supplemental Agreements.
The Parties shall cause the JV to conduct its operations in accordance
with a business plan to be mutually agreed by the Parties.(l) Except as
otherwise provided in this Agreement or in the Supplemental Agreements,
the Parties shall cause the JV to reimburse the Parties for their
reasonable out-of-pocket expenses associated with the foregoing efforts
on behalf of the JV.
8.2 Start up Operations
Parent (directly or through subcontract) shall be initially responsible
for providing the necessary guidance to ensure effective operation of the
centralized ad management and delivery services for the Internet,
including operations, technical and customer support, training, marketing
and sales. None of these functions may be outsourced to Parent (except
as set forth in the Supplemental Agreements) without Sina's prior
approval, which shall not be unreasonably withheld. If any of such
functions is outsourced to Parent, Parent shall be entitled to reasonable
fees for such support. Parent shall not be required to lend its own
staff to the JV for such purposes, but can elect to do so, subject to the
payment of reasonable fees.
8.3 Personnel and Facilities
(a) The Managing Director/President of the JV shall be appointed by
AdForce in its sole discretion following consultation with Sina and
reasonable consideration thereof, provided that neither such Managing
Director/President nor any other personnel of the JV may receive any
grants of equity in the Parent. The Managing Director/President of the
JV, in accordance with the limit of his authority as defined in this
Agreement, the Memorandum and Articles of Association or as directed in a
resolution of the Board of Directors, will arrange for the funds,
personnel, equipment, technology and facilities necessary for the JV to
accomplish its purposes. AdForce and SINA shall, however, reasonably
assist the JV in ensuring that an adequate number of and suitably
qualified personnel are employed to manage its affairs.
(b) The initial organization and personnel of the JV shall be
determined by the Board. Except as otherwise provided in this Agreement,
the Board may change the organization and personnel to facilitate
improved operations of the JV.
(c) The management, control and general operations of the JV shall be
centralized at the Premises.
8.4 Insurance.
The JV shall obtain from a reputable, first-class international insurance
carrier insurance in amounts and with coverages reasonable and customary
in the trade, including but not limited to insurance covering all staff
and employees, and the Managing Director/President will obtain the
required insurance in accordance with the guidelines established by the
Board.
8.5 Finances.
(a) The future working capital requirements of the JV will be met, as
the Board may resolve from time to time, by means of advances and credit
from financial institutions (at best available rates) or, if the Board so
decides, by issuing additional shares in the JV. Based on the current
business plan for the JV, the Parties anticipate that the JV will require
additional funding within the next 18 to 24 months, and desire that the
JV obtain such funding through the issuance of Series B preferred shares
(or its equivalent) at a price and to strategic investors approved by the
Board. If the JV is not able to raise the necessary funds through such
outside investment, AdForce and SINA
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may make equity investments in the JV as necessary to support the
operations of the JV. These investments will be voluntary; however,
if AdForce or SINA do not participate on a pro rata basis, then their
respective holdings may be subject to accelerated dilution upon approval
by the Board, that is a reduction in voting and/or economic interest on
a disproportionate basis. (For example, if $1 originally purchased one
share; subsequent contributions of $1 may purchase two shares, as
determined by the Board.).
(b) As soon as reasonably practicable, the Parties will assist the JV
in procuring mutually acceptable banking facilities.
(c) The Parties agree that all checks or payments made by the JV in
excess of US$ 25,000 or its equivalent in other currencies, must be
approved by at least one Director designated by AdForce, and, if the
check or payment is issued or made in connection with any of the
transactions described in Section 4 herein, it must also be approved by
at least one Director designated by Sina.
(d) Finances for the business of the JV shall be provided initially by
the cash subscriptions for the JV Shares referred to in Section 5.1.
(e) No Party shall be required to bind itself a surety or as guarantor
for or co-principal debtor with the JV in respect of its liabilities, but
if a Party (having so bound itself with the prior written consent of the
Board) is called upon to pay a proportion of the JV's indebtedness to a
creditor which exceeds the proportion which that Party's holding of JV
Shares bears to the total of the issued JV Shares, such Party will be
entitled to recover the excess from the other Parties.
8.6 Dividends.
(a) As soon as practical after the end of each of the JV's fiscal
years, the profits of the JV available for distribution, if any, shall be
reinvested in the JV unless otherwise determined by the Board.
(b) To the extent permitted by law, the distribution of profits to
AdForce shall be made in United States Dollars.
(c) If it becomes necessary for the JV to pay an expense which is the
sole responsibility of one of the Parties, such amount shall be
reimbursed to the JV by that Party, or failing reimbursement shall be
deducted from that Party's dividend entitlement. The same principle
shall apply if it becomes necessary for one Party to pay expenses
rightfully belonging to another in connection with this Agreement or said
Party's obligations or duties to the JV.
(d) All Parties agree they are individually responsible for paying
taxes, if any, which may be levied by any cognizant tax authority on
their share of dividends received from the JV and they waive any right to
claim reimbursement of any nature whatsoever from the JV or from the
other Parties hereto for any such taxes.
8.7 Pricing.
(a) The JV shall establish its pricing policies for customers located
or served in the Territory and [*]. The Parties agree that the customers
and prospective customers of Parent located outside of the Territory
should be treated as direct accounts of Parent and the JV shall refrain
from soliciting or providing services to such customers and prospects,
except as expressly provided in the Supplemental Agreements or in Section
8.8 below.
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(b) Any accounts developed by the JV in the Territory and [*] (subject
to Section 8.8) shall be treated as customers of the JV. The Parties
will exercise best efforts in any customer contracts required to
implement this provision.
8.8 Market Boundary.
The JV is authorized to market to customers whose primary business operations
are located in [*], subject to the following:
(a) Parent and its Affiliates are not precluded from simultaneously
marketing in [*];
(b) the JV's marketing efforts in any or all of [*] shall cease
within six (6) months after notice from Parent (the expiration of such
six-month period being referred to as the "Cut-off Date") to the JV of
Parent's intent to form a joint venture or to enter into any other
arrangement requiring exclusivity in all or any portion of [*], provided
such joint venture or other arrangement is formed within ninety (90)
days after such notice; and
(c) all contracts or agreements of the JV in effect in any such
portion of [*] as of the Cut-off Date shall continue in accordance with
their terms.
To ensure commercial viability for the JV and to minimize market conflicts with
Parent customers located outside of (i) the Territory and (ii) [*], the Parties
agree that the activities of the JV shall be coordinated with those of Parent
and SINA and their respective Affiliates on a cooperative basis in accordance
with the terms of this Agreement and the purpose of the JV set forth in Section
1.1. In the event of any disagreement over the JV's rights to serve and market
to customers whose primary operations are in the Territory and who also have
operations outside of the Territory that serve Chinese speaking communities, the
reasonable determination by Parent and SINA of where primary operations are
located and other relevant considerations shall be binding upon the Parties.
The Parties will cooperate in the delivery of ads outside of the Territory (on
behalf of the JV) or into the Territory (on behalf of Parent), as set forth in
the Reciprocal Services Agreement attached hereto as Annex D.
8.9 Employee Stock Options.
(a) To the extent permitted under Local Laws, the following provisions
shall apply:
(1) AdForce and Sina shall establish the number of JV shares to be
reserved for the Pool.
(2) Any JV employee's right to exercise options granted pursuant to
Section 8.9(a)(1) above shall vest as follows:
(a) twenty-five percent (25%) upon the one (1) year
anniversary of the date such options were granted by the
JV; and
(b) the remaining seventy-five percent (75%) in equal
monthly installments over the three (3) years following the
one (1) year anniversary of the date such options were
granted by the JV.
(3) The JV shall have the right to repurchase any JV Shares
granted pursuant to Section 8.9(a)(1) at any time pursuant to the
form of stock option plan and grant approved by the Board.
Section 9. PRINCIPLES FOR OPERATION OF THE JV.
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9.1 The Parties agree that they shall cause the Board of Directors of the JV
to establish and operate the JV in accordance with the following principles and
obligations:
(a) The Parties shall fully cooperate to meet the schedules approved
by the Board of Directors and shall perform their agreed responsibilities
and provide the items shown as their respective responsibilities in
Section 11 at the time necessary to meet the Board schedules.
(b) The Parties agree that any financial model(s) prepared in
connection with this Project will serve only as a general framework for
the financial and business operations of the JV. Neither SINA nor
AdForce has in the past or now makes any representations or guarantees
with respect to said financial model(s) or the assumptions and
information contained therein.
Section 10. OFFICERS AND SUPERVISORS OF THE JV
10.1 The officers of the JV shall be a Managing Director/President, one or
more operational managers, a financial controller, a secretary and such
assistants and other managers as the Board of Directors shall, from time to time
determine are necessary for the conduct of business.
10.2 All officers, with the exception of the Managing Director/President,
shall be appointed by the Board per the Memorandum and Articles of Association.
Officers shall hold office at the pleasure of the Board of Directors, which
shall fix the tenure, terms and compensation of all such officers.
10.3 Appointment of all the JV officers shall be made as quickly as possible,
but subject to Board approval.
10.4 The officers of the JV shall have the powers and duties as may be
established by the Board of Directors from time to time.
10.5 Managing Director/President.
The Managing Director/President shall have such powers as are provided in the
Memorandum and Articles of Association.
Section 11. OBLIGATIONS OF THE PARTIES; DISCLAIMER OF CORPORATE OPPORTUNITY
OBLIGATIONS.
In addition to such other obligations as may be set forth in this Agreement, the
Parties agree:
11.1 Although the JV will be an independent operating company, each of the
Parties will support it pursuant to the provisions of this Agreement and the
applicable Supplementary Agreements.
11.2 The personnel to be recommended to the JV by the Parties as
administrative and technical staff will be properly skilled, experienced, and
familiar with, as well as capable of, performing their respective assignments.
11.3 Nothing in this Agreement shall be deemed to limit or restrict in any way
the freedom of Compuserve, SINA or AdForce or any person, firm or corporation
affiliated with either SINA or AdForce, to conduct or engage in any business
activity whatsoever for its own account, and without regard to the business of
the JV or from pursuing any corporate opportunity itself rather than offering
same to the JV (which no Party shall be obligated to do), all except as
otherwise expressly provided in the Supplemental Agreements.
11.4 Neither Compuserve, SINA, AdForce, nor any Affiliates, shall have any
obligation or liability to account for or share with the JV any of the profits
or revenues derived by either SINA or AdForce from any business activities other
than those of the JV covered by the terms of this Agreement.
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12. INITIAL PUBLIC OFFERING. The Parties agree to vote with and reasonably
cooperate with the JV at any time that SINA, in its sole judgment, elects
to cause an initial public offering (IPO) of the JV (or any successor
entity) provided that Sina or its permissible successor continues to hold
at least [*] of the total JV shares outstanding. [*] Any transferee of
Sina under this Section 12 shall not be entitled to any other rights of
SINA under this Agreement other than the right to cause an IPO as
described above in this Section 12.
Section 13. TERM; RENEWAL
Unless earlier terminated by agreement of a majority in JV Shares interest of
the Parties, the Term of this Agreement shall be the earlier of (i) ten years
from the Effective Date; (ii) upon an initial public offering of JV Shares (the
"Initial Term"); or (iii) at AdForce's election, following Sina's election to
sell or transfer pursuant to Section 12. The Term shall automatically be
extended for successive periods of five years each unless either AdForce or SINA
gives the other written notice six months before the end of the Initial Term or
any subsequent extension thereof.
Section 14. ACCOUNTING AND AUDIT RIGHTS.
14.1 The Parties agree that they will cause the JV to establish and maintain
such books of account in addition to those required by the Local Laws, or as may
be reasonably specified and requested at any time and from time to time by
AdForce (in order for AdForce to comply, to the extent necessary, with U.S. laws
or generally accepted accounting practices).
14.2 The JV shall submit periodic accounting reports to AdForce and SINA on
such accounting and reporting forms as may be reasonably requested by AdForce
and as provided by AdForce from time to time.
14.3 The JV shall appoint Ernst & Young LLP as the auditors of the JV, which
auditors shall examine and audit the financial accounts of the JV and report the
results to the Board. The annual audit shall be at the expense of the JV and in
accordance with the Local Laws.
14.4 AdForce and SINA shall have the right, at any time, to have special
audits made of the books of accounts, records and affairs of the JV, but any
special audit shall be at the expense of the Party requesting the audit, unless
material discrepancies in any of the JV's accounts, records or affairs are
discovered as a result of such audit, in which event the entire costs of the
audit shall be paid for by the JV.
Section 15. {omitted}
Section 16. APPLICABLE LAWS
16.1 Except as provided in Section 19.3, this Agreement shall be governed by,
construed and enforced in accordance with the laws of California, U.S.A., as
applied to contracts made and fully performed in California, and the Parties
hereby submit to the exclusive jurisdiction of the federal courts serving
Northern California, U.S.A.
16.2 For the purpose of any proceeding before the California courts the
parties hereby appoint the respective persons set out below as their agents for
service of process in California:
SINA: Jim Sha, Chief Executive Officer, SINA.com, 1313 Geneva Drive,
Sunnyvale, CA 94089.
AdForce: Vice President and General Counsel, AdForce, Inc., 10590 North
Tantau Avenue, Cupertino, CA 95014.
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Compuserve: {to be provided}
16.3 The JV shall comply with the Local Laws and all other applicable laws;
provided, however, neither the JV nor any Party shall cause any of the Parties
to be in violation of their respective home country laws. The JV, its officers,
employees or agents will not participate in or provide any information in
furtherance of any boycott in violation of U.S. law or offer to pay or receive
any bribe to/from any individual or corporation. When other individuals or
organizations are required to participate in programs of the JV, they shall be
compensated fairly based on the task performed. In no circumstances are public
servants or other holders of public offices to be offered or paid any bribe or
other benefits, directly or indirectly. No contribution in any way related to
the JV will be made to candidates for public offices or to political parties or
other political organizations, regardless of whether such contributions are
permitted by local laws.
16.4 Export Assurances.
The Parties hereby acknowledge and agree that all documentation and other
technical information delivered hereunder ("TECHNICAL DATA") are subject to
export controls imposed by the United States Export Administration Act of 1979,
as amended (the "ACT") (or any future U.S. export control legislation) and the
regulations promulgated thereunder. Each agrees not to export or re export,
directly or indirectly, any Technical Data without complying with the Act.
Furthermore, each shall certify that neither the Technical Data nor its direct
product: (a) are intended to be used for any purpose prohibited by the Act or
regulations including, without limitation, nuclear related activities or
chemical/biological weapons or missiles; and (b) are intended to be released,
shipped or reexported, either directly or indirectly, in violation of the Act to
a national of a country in Country Groups D:1 (Albania, Armenia, Azerbaijan,
Belarus, Bulgaria, Cambodia, China (PRC), Estonia, Georgia, Kazakhstan,
Kyrgyzstan, Laos, Latvia, Lithuania, Moldova, Mongolia, Romania, Russia,
Tajikstan, Turkmenistan, Ukraine, Uzbekistan and Vietnam) or E:2 (Cuba, North
Korea, Libya) or Angola, Iraq, Iran, Sudan or Syria, or to any other destination
to which the United States has prohibited shipment. This Section shall survive
any termination or expiration of this Agreement. The Parties hereby acknowledge
and agree that this Section is required by the Act and is not intended to, nor
does it, modify more restrictive provisions in this Agreement regarding use by
the JV of Technical Data.
16.5 SINA further agrees to obtain any necessary export license or other
documentation prior to exportation of any product or technical data, including
software, acquired from AdForce, the JV or Compuserve or any product of such
technical data. Accordingly, SINA and its Affiliates shall not sell, export,
re-export, transfer, divert or otherwise dispose of any such product or
technical data directly or indirectly to any person, firm or entity, or country
or countries prohibited by United States or non-U.S. laws or regulations.
Further, SINA and its Affiliates shall give notice of the need to comply with
such laws and regulations to any person, firm or entity which it has reason to
believe is obtaining such technical data or product from SINA with the intention
of exportation. Each Party shall secure, at its sole expense, such licenses and
export and import documents as are necessary for each respective Party to
fulfill its obligations under this Agreement.
The terms of this Section 16 shall survive the termination or expiration of this
Agreement.
17. PROHIBITION OF CERTAIN CONTRACTS BY THE PARTIES
17.1 Subject to the provisions of this Agreement, no Party shall:
(a) bind the JV as a surety for any person whatsoever without the
consent of the Board;
(b) lend, give or dispose of any of the JV's property or assets
without the consent of the Board;
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(c) do or willingly allow to be done any act, matter or thing
whatsoever whereby the property of the JV may be taken into execution or
in any way charged or encumbered in respect of personal debts or
liabilities;
(d) use any money of the JV or in any way engage its credit except on
account of or for the benefit of the JV; or
(e) pledge, mortgage, charge or dispose of its shares in the JV or
cede its claim against the JV to any person for any reason whatsoever
without the consent of the other Parties.
18. EXCLUSIVITY.
During the Term of this Agreement, AdForce, SINA and Compuserve each hereby
covenants to and with the others that they and their respective Affiliates shall
not, without the prior written consent of the other Parties, enter into any
agreements or binding arrangements of whatsoever nature with any third party to
either directly or indirectly carry on or be engaged or interested in any same
business arrangements that would directly compete with the business and business
purpose of the JV (as described in Section 1.1), except as permitted by this
Agreement and the Supplemental Agreements or as required by existing agreement.
The Parties acknowledge that Parent currently provides, as of the Effective Date
of this Agreement, outsourced, centralized ad management and delivery services
for certain customers operating throughout the world and in some instances is
obligated to provide such services to such customers whose primary operations
are not located in the Territory. Such customers are AOL/Netscape, 24/7 and
Adsmart whose services may be subcontracted to the JV pursuant to the agreement
set forth in Annex D. The parties also acknowledge that AdForce and its Parent
currently intend (but are not obligated) to establish similar corporate joint
ventures to better serve local markets in local languages other than the
Territory, e.g., in Japan, subject to Section 8.8.
19. TERMINATION.
19.1 Each of the following shall be deemed a "Termination Event":
(a) a Party commits any act of insolvency as defined in the insolvency
or bankruptcy legislation of its home jurisdiction; or
(b) a Party is wound up whether provisionally or finally and whether
compulsory or voluntarily or is placed under judicial management; or
(c) a Party enters into any arrangement or compromise with any of its
creditors; or
(d) a Party is the subject of any resolution passed for its winding up
or dissolution; or
(e) a Party has a judgment entered against it in any court of law
which, if appealable is not appealed within the period allowed for
lodging of such an appeal or if not subject to an appeal, remains
unsatisfied for a period of 30 days; or
(f) a Party Materially Breaches any of the terms and conditions of
this Agreement or the Supplemental Agreements and fails to remedy such
Material Breach within a period of 60 business days after receipt of
written notice by the aggrieved Party requesting it to do so (the Party
in each case of these Sections 19.1(a) through 19.1(f) inclusive shall be
known as the "Defaulting Party"); or
(g) after the formation of the JV, and subject in all cases to the
last paragraph of Section 4 above, any Party is effectively precluded by
another Party from exercising its rights to participate
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in the management of the JV pursuant to this Agreement after reasonable
notice and an opportunity to cure;
(h) all or vital portions of the assets or properties of the JV or
those assets of one of the Parties which are under the control of the JV
including but not limited to Intellectual Property Rights of AdForce are
expropriated, requisitioned for use, or made inoperative or unavailable
for normal use by government action; or
(i) the governments of the United States of America or any other
governmental entity shall directly prohibit or indirectly effectively
prevent the JV from conducting operations essentially as contemplated
herein.
19.2 Upon the occurrence of a Termination Event, the following provisions
shall apply:
(a) The other Party in the case of Sections 19.1(a) through 19.1(f)
inclusive, the excluded Party in the case of Sections 19.1(g), and any
Party in the case of Section 19.1(i) shall have the right by 30 days'
prior notice in writing to terminate this Agreement and require the JV to
be wound up forthwith. Thereafter, the Parties shall cause the JV to
take immediate steps to reduce expenditures to a minimum and to bring its
operations to a close as quickly and efficiently as possible so that the
JV may as soon as practicable thereafter be wound up in accordance with
Section 19.4.
(b) In the case of Sections 19.1(a) through 19.1(f) inclusive, the
other Party may, instead of terminating this Agreement pursuant to
Section 19.2(a) above, elect to purchase the entire amount of JV Shares
held by the Defaulting Party at a price calculated on the basis of net
tangible assets and confirmed by way of an audit conducted by an
internationally recognized firm of auditors.
(c) In no case shall the resort to the provisions of this Section be
deemed an election of remedy by any Party.
19.3 This Agreement may be terminated upon its expiration pursuant to Section
13 or by mutual agreement of the Parties, in which event the future relationship
of the Parties as well as the JV's existence shall be determined by such other
terms and conditions to which the Parties shall mutually agree, provided,
however, in the event the Parties cannot agree, the JV shall be wound up as soon
as practicable thereafter in accordance with Section 19.4 below.
19.4 If the JV is liquidated by mutual consent, upon the frustration of
purpose or upon expiration of this Agreement, and in the absence of agreement by
the Parties to the contrary, the liquidator shall observe the following
principles:
(a) The business and affairs of the JV shall terminate and be wound up
as promptly as orderly business practices permit.
(b) A full inventory and account of the assets, liabilities and
transactions of the JV shall promptly be taken and the balance sheet
prepared.
(c) Subject to the rights of secured parties, if any, and except as
set forth in Sections 19.4(b) and (f), the assets of the JV shall be
liquidated and disassembled as promptly as is consistent with obtaining
fair market value of such assets, provided, however, that subject to
legal restrictions, a Party may purchase any assets upon agreement with
the other Parties.
(d) Proceeds of such liquidation shall be applied in the following
order:
(1) First, to the payment of debts and liabilities of the JV to
third parties, and then to the payment and debts and liabilities
of the JV to the Parties, if any, then
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(2) The surplus, if any, to be paid to each Party pro rata
based upon shares of stock of the JV then held by it entitled to
such distribution, subject to the liquidation preference of the
Series A Preferred Stock.
(e) Except as provided elsewhere in this Agreement and subject to
legal restrictions, Intellectual Property Rights of AdForce products held
by the JV, if any, shall be distributed solely to AdForce with AdForce
receiving full right, title and interest, to perform, practice, sell, and
license such rights in any manner for any purpose. In the event that
such distribution cannot be made to AdForce because of governmental or
legal restrictions, then such rights shall terminate and AdForce shall be
appropriately compensated.
19.5 Expiration or termination of this Agreement for any reason shall not
affect: (1) the obligations or liabilities of the Parties which have accrued as
of the date of termination, (2) those obligations set forth in Sections 12.4,
12.5, 19.3, 19.4, 20.5 through 20.9, inclusive, 21, 25, 27.4 and 27.7 hereof and
any nondisclosure agreements, (3) a Party's rights to own shares that it has
purchased in the JV, and (4) the Parties rights conferred under Local Laws as a
JV shareholder, all of which obligations and rights shall survive the
termination of this Agreement.
20. CONFIDENTIALITY.
20.1 The JV shall require its employees to sign written undertakings or
agreements not to disclose any confidential information of the JV or AdForce,
which agreement shall be substantially in the form of Annex J.
20.2 Except as required by law, for governmental approval or as may be
reasonably required for the operation of the JV, no Party shall, without the
prior written consent of the other Parties, disclose to any third party either
the terms or contents of this Agreement, or any Confidential Information which
it obtains or which becomes available to it as the result of this Agreement or
of the operations of the JV. Furthermore, the Parties shall execute an
agreement substantially similar to the Nondisclosure Agreement in the form set
forth in ANNEX L, which is attached hereto and incorporated herein by this
reference.
21. {omitted}
22. DISPUTE RESOLUTION; ESCALATION PROCEDURES; ARBITRATION
22.1 In the event of a dispute between the parties arising out of or relating
to this Agreement (including those arising out of or relating to any of the
documents or agreements attached as Annexes hereto), or any Party's performance
or breach of any of the foregoing, then a Party may, upon notice given to the
other Party or Parties, provide that such dispute be resolved in the following
manner.
(a) A designated representative of each involved Party shall in good
faith attempt to resolve such dispute within fifteen (15) days after the
giving of notice.
(b) If the initially designated representatives under clause (a) are
unable to resolve such dispute within such 15-day period, then two
additional representatives of each of the parties shall in good faith
attempt to resolve such dispute within fifteen (15) days after the
initial 15-day period has expired. The initial additional representative
of AdForce for this purpose will be Charles W. Berger, and the additional
representative of SINA for this purpose will be Jim Sha.
(c) If, after the expiration of the 15-day period set forth in the
preceding paragraph, such dispute remains unresolved, and if after an
additional nonbinding mediation procedure, if procedures can be agreed to
(with agreement not unreasonably to be withheld), is utilized and fails
to produce resolution of the dispute, then any party may, at its option,
commence a binding arbitration proceeding under the Commercial
Arbitration Rules of the American Arbitration
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Association. If a Party commences such a proceeding, it shall be held
in San Jose, California. The proceedings shall be conducted in English.
The authority of the arbitrators to award damages in any event is and
shall be limited by the provisions regarding limitations on liability in
this Agreement. The arbitrators will have discretion to award to the
prevailing party its reasonable attorney's fees and court costs incurred
in connection with the proceeding.
22.2 The representatives of each of the Parties set forth above in this
section may be replaced by another representative of such Party with
substantially the same position, responsibility and authority as that of the
replaced representative, upon notice to the other Party. Such replacement is
subject to the consent of the other Party, which consent shall not be
unreasonably withheld.
22.3 During their discussions, each Party will honor the other's reasonable
requests for information relating to the dispute or claim.
22.4 Neither party nor the arbitrators may disclose the existence or results
of any arbitration hereunder.
22.5 Notwithstanding the foregoing, nothing in this provision shall be deemed
to prevent or delay any Party's attempt to seek injunctive relief, or to
exercise any of its express remedies provided for under this Agreement or the
Annexes hereto.
23. CONDITIONS PRECEDENT AND SUBSEQUENT.
23.1 The Parties' obligations under this Agreement and Annexes hereto shall be
contingent upon the prior occurrence of all the following conditions:
(a) the execution of this Agreement and the applicable Supplemental
Agreements by a duly authorized representative of each Party;
(b) the mutual agreement of the Parties to the terms and conditions of
all the Annexes hereto;
(c) Approval of all relevant governmental authorities which may be
necessary for the Parties to enter into and implement this Agreement;
(d) The incorporation of the JV;
(e) the approval by the respective Boards of Directors of Compuserve,
SINA and AdForce of the purchase of JV Shares.
Despite the foregoing, Compuserve's failure to enter into this Agreement shall
not be deemed a condition to the obligations of AdForce and Sina under this
Agreement. In such event, AdForce and Sina agree to use reasonable efforts to
locate another consulting firm to perform the localization of the technology to
be licensed to the JV and to locate another reseller of the JV's services.
The completion of and entry into the Annexes which have not been completed upon
the execution of this Agreement by AdForce and Sina ARE conditions to the
Parties' obligations under this Agreement. The Parties agree to use reasonable,
good faith efforts to conclude such Annexes within a reasonable time. Moreover,
with respect Annex F (the Marketing Agreement), AdForce and Sina both agree that
Sina's primary obligations thereunder will be:
- - to provide the JV with [*] banner impressions per year with the
banners supplied by AdForce
- - to identify the JV as a key or strategic partner and as the provider of
the ad management and delivery system in all appropriate Sina print
advertisements
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- - to include a description of the JV's system in its media kit
- - to include a "powered by JV" or JV logo in the advertising section of
Sina's web sites as well as a link to the JV's web site
- - to host press events and introduce the JV to markets within the Territory
and Sina advertisers
- - and such other functions as the Parties mutually agree upon.
The above banner impressions will be free of charge. Other marketing
services may be subject to mutually agreed fees and/or reimbursement of
reasonable costs.
23.2 The Parties' continuing obligations under this Agreement shall be
contingent upon the grant of such license(s) and other approvals, including
export licenses, as required by United States law and other applicable law to
take the actions contemplated by this Agreement and the Annexes thereto. If
any of such license or the other approvals are not granted, with the result
that the purposes of this Agreement are substantially frustrated, the Parties
shall enter into good faith negotiations with the objective of restructuring
the relationship between them such that the effects of such nonoccurrence
shall be minimized. If the Parties cannot agree on a mutually agreeable
restructuring or modification of this Agreement within six (6) months of any
Party's request for such negotiations, any Party shall have the right to
terminate this Agreement forthwith in its entirety (except as provided in
Section 19.5) by giving written notice to that effect to the other Parties.
24. RELATED DOCUMENTS.
24.1 The following Annexes attached hereto are an integral part of this
Agreement and are incorporated herein by reference:
(a) Annex A: Memorandum and Articles of Association and Bylaws
(b) Annex B: (deliberately omitted)
(c) Annex C: License Agreement between AdForce and the JV
(d) Annex D: Reciprocal Services Agreement between Parent, SINA
and the JV
(e) Annex E: Ad Serving Agreement between SINA and the JV
(f) Annex F: Marketing Agreement between SINA and the JV (to be
attached later)
(g) Annex G: Consulting Agreement between Compuserve and the JV
(to be attached later)
(h) Annex H: Reseller Agreement between Compuserve and the JV
(i) Annex I (deliberately omitted)
(j) Annex J: Confidentiality Agreement for Employees (to be
attached later)
(k) Annex K Directors Agreement (to be attached later)
(l) Annex L NDA for Shareholders {to be attached later}
(m) Schedule 1 Capitalization Table
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24.2 In the event of any conflict between this Agreement and any of the
Annexes attached hereto, the terms and conditions of the supplemental
agreement shall prevail. The parties shall take such steps as may be
necessary to amend any inconsistent Annex to conform with the terms and
conditions of this Agreement.
Section 25. REPRESENTATIONS, WARRANTIES AND LIABILITIES.
25.1 AdForce represents and warrants to SINA and Compuserve that AdForce is
a corporation duly incorporated, validly existing, and in good standing under
the laws of Delaware, having all requisite corporate power and authority to
execute this Agreement and to perform all obligations hereunder.
25.2 SINA represents and warrants to AdForce and Compuserve that SINA is a
corporation duly incorporated, validly existing and in good standing under
the laws of the Cayman Islands, having all requisite corporate power and
authority to execute this Agreement and to perform all obligations hereunder.
25.3 Compuserve represents and warrants to AdForce and SINA that Compuserve
is a corporation duly incorporated, validly existing and in good standing
under the laws of place of incorporation, having all requisite corporate
power and authority to execute this Agreement and to perform all obligations
hereunder.
25.4 Compuserve, SINA and AdForce each warrant and represent that their
respective entry into this Agreement and the Annexes thereto will not violate
any agreements or contracts to which it is a party or its articles of
incorporation.
25.5 Compuserve, AdForce and SINA shall be responsible for and hold each
other harmless against claim arising out of injury to or death of their
respective personnel temporarily assigned to work for the JV, notwithstanding
that they are in the other's care, custody and control, except that each
shall indemnify the other in the event and to the extent that such claim
shall be attributable to its negligence or willful misconduct.
25.6 The JV will hold Compuserve, AdForce and SINA harmless from and
indemnify them against all claims made by third parties arising out of all
acts or omissions by the JV's personnel (whether or not such personnel are
direct employees of the JV or have been obtained from one of the Parties on a
seconding or contractual basis).
25.7 Each Party agrees that it, and its Affiliates will not, during the
Term, solicit for employment as an employee, officer, agent, consultant,
advisor, or in any other capacity whatsoever, any individual employed by a
Party or the JV, who is at the time of such solicitation, or within six (6)
months of such time was, involved directly or indirectly in positions
associated with the subject matter of this Agreement, except in connection
with the liquidation of the JV. As used herein, "solicit" means contact or
communicate in any manner whatsoever, including, but not limited to, contacts
or communications by or through intermediaries, agents, contractors,
representatives, or other parties, provided, however, that nothing herein
shall be construed to prohibit the Parties from (a) placing advertisements
for employment which are aimed at the public at large in any newspaper, trade
magazine, or other periodical in general circulation, or (b) responding to
any unsolicited inquiry by an employee concerning employment.
26. GENERAL
26.1 Complete Agreement. This Agreement, with all Annexes referred to
herein, sets forth the entire understanding and agreement between the Parties
as to the subject matter of this Agreement and merges and supersedes all
previous communications, negotiations, representations and agreements, either
oral or
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written, with respect to the subject matter hereof. No agreements, guarantees
or representations, whether verbal or in writing, have been concluded, issued
or made, upon which either party is relying in concluding this Agreement,
save to the extent set out herein.
26.2 Force Majeure . Should any Party be prevented from performing its
contractual obligations under this Agreement due to the cause or causes of
force majeure such as acts of war declared or undeclared, fire, storm,
floods, typhoon or other severe weather conditions, serious earthquake, legal
restraints, government or like interference, accidental damage to equipment,
as well as any other cause outside the control of the Parties, no Party shall
be liable to the other for any delay or failure of performance caused by any
of the above events. The affected Party shall notify the other Parties of the
occurrence of any of the above events in writing by facsimile or e-mail
within the shortest possible time. Should the delay caused by any of the
above events continue for more than ninety (90) days, the Parties shall
settle the problem of further performance of this Agreement through good
faith negotiations as soon as possible. In the event that the Parties cannot
meet to negotiate or cannot reach agreement, this Agreement may be terminated
by prior written notice of one Party to the other Parties and the other
provisions herein regarding dissolution of the JV shall apply.
26.3 Disclaimer of Warranty. Except as may be provided in the Supplemental
Agreements , it is understood and agreed that nothing contained in this
Agreement shall be construed as: (a) a warranty, either express, implied or
statutory (INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT) as to AdForce Intellectual Property
Rights, AdForce Confidential Information or SINA Confidential Information; or
(b) an Agreement by AdForce to protect, defend, indemnify or hold the JV,
SINA or any third party harmless from any liability (including patent
infringement) resulting from the use of said AdForce Intellectual Property
Rights or from JV services using said AdForce Intellectual Property Rights.
26.4 LIMITATION OF LIABILITY. NO PARTY SHALL BE LIABLE TO THE OTHER FOR:
(I) ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES (EVEN IF
NOTIFIED IN ADVANCE OF THE POSSIBILITY OF SUCH); OR (II) LOSS OF USE,
OPPORTUNITY, MARKET POTENTIAL, AND/OR PROFIT, ON ANY THEORY (WHETHER
CONTRACT, TORT, FROM THIRD PARTY CLAIMS OR OTHERWISE).
26.5 Modification. No addition to, or modification of, this Agreement
shall be binding on either Party hereto unless reduced to writing and duly
executed by the authorized representatives of each of Compuserve, SINA and
AdForce in which case said additional modification shall thereafter form an
integral part of this Agreement.
26.5 Assignment
(a) Neither Compuserve, AdForce or SINA shall be entitled to cede,
assign or transfer any of its rights, or delegate any of its obligations
hereunder, without the prior written consent (not to be unreasonably
withheld) of AdForce and SINA; provided, however, AdForce may assign this
Agreement or any obligation hereunder to any Affiliate of AdForce upon
written notice to SINA and the JV and SINA may assign this Agreement or
any obligation herunder to any Affiliate of SINA upon written notice to
Adforce and the JV. In such event, the assigning party shall be the
controlling party of such assignee and will guarantee the obligations of
such assignee for this Agreement. Any attempted succession, assignment
or transfer in violation of this Section 26.5(a) shall be null and void.
(b) This Agreement shall be binding upon and inure to the benefit of
any successors-in-title or assignees of the Parties.
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<PAGE>
(c) Except as specifically set forth or referred to herein, nothing
express or implied in this Agreement or the Annexes hereto is intended to
or shall be construed to confer upon or to give any person other than the
Parties hereto and their successors or assigns, any rights or remedies
under or by reason of this Agreement.
26.6 Severability. In the event that any of the provisions or portions of
this Agreement, or any provisions or portions of any Annexes hereto or documents
referenced herein are held to be unenforceable or invalid by any court of
competent jurisdiction, the validity and enforceability of the remaining
provisions, or portions thereof, shall not be affected thereby. If the purposes
of this Agreement are substantially frustrated by any events contemplated by
this Section 26.6, any Party may terminate this Agreement in the manner as if
the conditions of Section 19.2 hereof for termination of the Agreement existed.
26.7 Notice. All notices and other communications must be in English and
either delivered in person (including delivery by courier, facsimile, e-mail, or
similar means) or sent by mail, postage prepaid, registered, return receipt
requested and addressed to the entity listed below. Notice will be effective on
the date that it is received. The addresses specified below may be changed by
written notice by a Party of a change in address.
(a) If sent to AdForce, notices will be sent to: Vice President
and General Counsel, 10590 North Tantau Avenue, Cupertino, CA
95014.
(b) If sent to SINA, notices will be sent to: 1313 Geneva Drive,
Sunnyvale, CA 94089.
(c) If sent to Compuserve, notices will be sent to: Unit 405, 4/F,
Westlands Centre,20 Westlands Road, Quarry Bay, Hong Kong.
26.8 Headings. The headings of the Sections of this Agreement are for
reference purposes only and shall not be deemed to affect in any way the
meaning or interpretation of the Sections to which they refer.
26.9 Binding Effect on the JV. Upon the incorporation of the JV, the
Parties shall cause the JV to ratify, join in and become bound by all of the
terms and conditions of this Agreement.
26.10 Absence of Waiver. The failure on the part of any Party to exercise
or enforce any rights conferred upon it hereunder shall not be deemed to
constitute a waiver of any rights nor operate to bar the exercise or
enforcement of any such right at any time or times thereafter.
26.11 English Language. This Agreement is written and executed in English.
No translation of the Agreement into any other language shall have any force
or effect in the interpretation of the construction of this Agreement or in
determination of the intent of the Parties hereto.
26.12 Further Assurances. The Parties hereto agree to execute and deliver
to each other all such additional instruments, to provide all such
information, and to do or refrain from doing all such further acts and things
as may be necessary or as may be reasonably requested by any Party hereto,
more fully to vest in, and to assure each party of, all rights, powers,
privileges, and remedies, herein intended to be granted to or conferred upon
such Party.
26.13 Counterparts. This Agreement may be executed in two or more
counterparts in the English language, and each counterpart will be deemed an
original, but all counterparts together will constitute a single instrument.
26.14 Agency. Nothing in this Agreement or the Annexes hereto shall be
deemed to create a partnership or agency relationship between the Parties or
between a Party and the JV. The Parties and the JV are each independent
companies and independent contractors who shall operate with each other in
arm's length
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<PAGE>
transactions. Neither the Party nor the JV shall be entitled to act on the
behalf of and/or bind any one or more of the other Parties without prior
written consent.
26.15 Costs. The Parties shall be responsible for and bear all of their own
respective expenses, including without limitation, expenses of legal counsel,
accountants, and other advisors, incurred at any time in connection with the
pursuit or consummation of the rights and obligations contemplated in this
Agreement.
26.16 Construction. This Agreement and the Annexes hereto has been
negotiated by the Parties and their respective counsel and will be
interpreted fairly in accordance with its terms and without any strict
construction for or against any of the Parties.
[INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Parties hereto
have duly executed this Joint Venture Agreement as of the date first written
above.
"AdForce" (Delaware) "SINA"
By: /s/ By: /s/
------------------------------ ------------------------------
Name: Rex S. Jackson Name: Daniel Mao
---------------------------- ----------------------------
Title: V.P., G.C. & Secretary Title: Director
--------------------------- ---------------------------
Date: August 31, 1999 Date: August 31, 1999
---------------------------- ---------------------------
"Compuserve"
By: /s/
------------------------------
Name: Terrence Fok
----------------------------
Title: Executive Director
---------------------------
Date: August 31, 1999
---------------------------
[SIGNATURE PAGE]
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<PAGE>
ANNEX A
THE COMPANIES ORDINANCE (CHAPTER 32)
COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
ADFORCE ASIA LIMITED
THE NAME OF THE COMPANY IS "ADFORCE ASIA LIMITED."
THE REGISTERED OFFICE OF THE COMPANY IS SITUATED IN HONG KONG.
THE LIABILITY OF THE MEMBERS IS LIMITED.
THE SHARE CAPITAL OF THE COMPANY IS HK $25,525,000.00 DIVIDED INTO 10,000,000
ORDINARY SHARES OF HK $1.00 EACH, 12,775,000 SERIES A PREFERRED SHARES OF HK
$1.00 EACH AND 2,750,000 SERIES A1 PREFERRED SHARES OF HK $1.00 EACH, AND THE
COMPANY SHALL HAVE THE POWER TO DIVIDE THE ORIGINAL OR ANY INCREASED CAPITAL
INTO SEVERAL OTHER CLASSES, AND TO ATTACH THEREIN ANY PREFERENTIAL, DEFERRED,
QUALIFIED OR OTHER SPECIAL RIGHTS, PRIVILEGES, RESTRICTIONS OR CONDITIONS.
WE, the several persons, whose names, addresses and descriptions are hereto
subscribed are desirous of being formed into a Company in pursuance of this
Memorandum of Association, and we respectively agree to take the number of
shares in the capital of the Company set opposite to our respective names:
<TABLE>
<CAPTION>
NUMBER OF SHARES TAKEN BY
NAMES, ADDRESSES AND DESCRIPTION OF SUBSCRIBERS EACH SUBSCRIBER
- ----------------------------------------------- --------------------------
<S> <C>
- -----------------------------------------------
Rex S. Jackson
Vice President, General Counsel & Secretary 3,051,242 shares of Ordinary
For and on behalf of 1,500,000 shares of Series A Preferred
ADFORCE, INC., a Delaware corporation 2,750,000 shares of Series A1 Preferred
10590 North Tantau Ave.
Cupertino, CA 95014
U.S.A.
WITNESS to the above signature:
Name: R. Elizabeth Toepfer
Occupation: Attorney
Address: 10590 N. Tantau Ave.,
Cupertino, CA 95014
- -----------------------------------------------
Daniel Mao
Chief Operating Officer 2,934,783 shares of Ordinary
For and on behalf of : 1,275,000 shares of Series A Preferred
SINA.COM, a Cayman Islands corporation
1313 Geneva Drive
Sunnyvale, CA 94089
WITNESS to the above signature:
Name:
Occupation:
Address:
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<PAGE>
- -----------------------------------------------
Name:
Title: 388,199 shares of Ordinary
For and on behalf of
COMPUSERVE CONSULTANTS, LTD., a Hong Kong
corporation
Unit 405, 4/F, Westlands Centre
20 Westlands Road
Quarry Bay, Hong Kong
WITNESS to the above signature:
WITNESS to the above signature:
Name:
Occupation:
Address:
TOTAL NUMBER OF SHARES TAKEN ............... 6,374,224 SHARES OF ORDINARY
2,775,000 SHARES OF SERIES A PREFERRED
2,750,000 SHARES OF SERIES A1 PREFERRED
</TABLE>
Dated the day of 1999
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<PAGE>
THE COMPANIES ORDINANCE (CHAPTER 32)
COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
OF
ADFORCE ASIA LIMITED
The regulations contained in Table A in the First Schedule to the
Companies Ordinance (Chapter 32 of the Laws of Hong Kong) shall not apply
to the Company.
In these articles:-
"Ordinance" means the Companies Ordinance, Chapter 32 of the Laws of Hong
Kong.
"Seal" means the common seal of the Company.
"secretary" means any person appointed for the time being to perform the
duties of the secretary of the Company.
Words importing the singular number only shall include the plural number
and vice versa.
Words importing the masculine gender only shall include the feminine and
the neuter genders.
Expressions referring to writing shall, unless the contrary intention
appears, be construed as including references to printing, lithography,
photography, and other modes of representing or reproducing words in a
visible form.
Unless the context otherwise requires, words or expressions contained in
these articles shall bear the same meanings as in the Ordinance or any
statutory modification thereof in force at the date at which these
articles become binding on the Company.
PRIVATE COMPANY
The Company is a private company and accordingly:-
the right to transfer shares is restricted in the manner hereinafter
prescribed;
the number of members of the Company (exclusive of persons who are in the
employment of the Company and of persons who having been formerly in the
employment of the Company were while in such employment and have
continued after the determination of such employment to be members of the
Company) is limited to 50, provided that where 2 or more persons hold one
or more shares in the Company jointly they shall for the purposes of
these articles be treated as a single member;
any invitation to the public to subscribe for any shares in or debentures
of the Company is prohibited; and
the Company shall not have power to issue share warrants to bearer.
SHARE CAPITAL
Without prejudice to any special rights or restrictions previously
conferred on the holders of any existing shares or class of shares, any
share in the Company may be issued with such preferred, deferred,
qualified or other special rights or restrictions, whether in regard to
dividend, voting, return of capital or otherwise as the Company may,
subject to the Ordinance, from time to time by ordinary resolution
determine.
Subject to sections 49 to 49S of the Ordinance, the Company may issue
shares on the terms that they are, or, at the option of the Company or
the holder of the shares, are liable, to be redeemed on such terms and in
such manner as may be provided by these articles and the Ordinance.
6. (a) Subject to sections 49 to 49S of the Ordinance, the Company
may purchase its own shares (including any redeemable
shares).
(b) Subject to sections 49I to 49O of the Ordinance, the
Company may make a payment in respect of the redemption or
purchase of its own shares otherwise than out of the
distributable profits of the Company or the proceeds of a
fresh issue of shares.
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<PAGE>
1. Notwithstanding section 49B(1) and (2) but subject to
sections 49, 49A, 49B(6), 49F, 49G, 49H, 49I(4) and (5),
49P, 49Q, 49R and 49S of the Ordinance (except that such
purchases may be made either out of or otherwise than out
of the distributable profits of the Company or the proceeds
of a fresh issue of shares), the Company may purchase its
own shares (including any redeemable shares) in order to-
settle or compromise a debt or claim;
eliminate a fractional share or fractional entitlement or an odd lot of
shares (as defined in section 49B(5) of the Ordinance);
fulfil an agreement in which the Company has an option or is obliged to
purchase shares under an employee share scheme which had previously been
approved by the board of directors and by the Company in general meeting;
or
comply with an order of the court under- section 8(4); section 47G(5),
where such order provides for the matters referred to in section 47G(6);
or section 168A(2), of the Ordinance.
The Company may exercise the powers of paying commissions conferred by
section 46 of the Ordinance, provided that the rate per cent or the
amount of the commission paid or agreed to be paid shall be disclosed in
the manner required by the said section and the rate of the commission
shall not exceed the rate of 10 per cent of the price at which the shares
in respect whereof the same is paid are issued or an amount equal to 10
per cent of such price (whichever is the less). Such commission may be
satisfied by the payment of cash or the allotment of fully or partly paid
shares or partly in one way and partly in the other. The Company may
also on any issue of shares pay such brokerage as may be lawful.
Except as required by law, no person shall be recognized by the Company
as holding any share upon any trust and, except only as otherwise
provided by these articles or as required by law or a court order, the
Company shall not be bound by or be compelled in any way to recognize
(even when having notice thereof) any equitable, contingent, future or
partial interest in any share or any interest in any fractional part of a
share or any other rights in respect of any share except an absolute
right to the entirety thereof in the registered holder.
9A. The shares in the Company shall be divided into three classes as follows:
(a) ordinary shares;
(b) Series A preferred shares; and
(c) Series A1 preferred shares.
Each of such shares shall carry equal rights, including, without
limitation, voting rights and rights to dividends, provided that, in the
event of a liquidation or winding up (whether voluntary or otherwise) of
the Company, if the assets available for distribution among the members
as such are insufficient to repay the whole of the paid-up capital of the
Company, such assets shall be applied in the following manner:
(i) holders of Series A preferred shares shall first receive
payment up to the paid-up capital of such Series A
preferred shares (or the appropriate proportion thereof
bearing to their then respective holdings of such shares if
the assets available are insufficient to pay the full
amount of such paid-up capital);
(ii) if the holders of Series A preferred shares have received
full payment under (i) above, the holders of Series A1
preferred shares shall receive payment up to the paid-up
capital of such Series A1 preferred shares (or the
appropriate proportion thereof bearing to their then
respective holdings of such shares if the remaining assets
are insufficient to pay the full amount of such paid-up
capital); and
(iii) if the holders of Series A1 preferred shares have received
full payment under (ii) above, holders of ordinary shares
shall receive payment up to the paid-up capital of such
ordinary shares (or the appropriate proportion thereof
bearing to their then respective holdings of such shares if
the remaining assets are insufficient to pay the full
amount of such paid-up capital).
VARIATION OF RIGHTS
Subject to article 11, all or any of the rights, privileges or conditions
for the time being attached to any shares in the capital of the Company
may be affected, altered, modified, commuted, abrogated or dealt with,
with the
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<PAGE>
consent in writing of the holders of three-fourths of the then
issued shares of the Company, or with the sanction of a special
resolution passed at a general meeting of the Company.
If at any time the share capital is divided into different classes of
shares, the rights attached to any class may be varied with the
consent in writing of the holders of three-fourths in nominal
value of the then issued shares of that class, or with the
sanction of a special resolution passed at a separate general
meeting of the holders of the shares of the class. For the
purposes of these articles, all the provisions herein relating to
general meetings shall mutatis mutandis apply to every such
meeting under this article, but the quorum therefor shall be not
less than two persons holding or representing one-third in nominal
value of the then issued shares of the class, and any holder of
shares of the class present in person or by proxy may demand a
poll.
The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed to
be varied by the creation or issue of further shares ranking pari passu
therewith.
CERTIFICATES
Every person whose name is entered as a member in the register of members
shall be entitled without payment to receive within 2 months after
allotment or lodgement of transfer duly stamped (or within such other
period as the conditions of issue shall provide) one certificate for all
his shares or several certificates each for one or more of his shares
upon payment of HK$5 for every certificate after the first or such less
sum as the directors shall from time to time determine. Every
certificate shall be under the Seal, or under the official seal kept by
the Company under section 73A of the Ordinance, and shall specify the
number and class of the shares to which it relates and the amount paid up
thereon, provided that in respect of a share or shares held jointly by
several persons the Company shall not be bound to issue more than one
certificate, and delivery of a certificate for a share to one of several
joint holders shall be sufficient delivery to all such holders. Share
certificates shall be endorsed with such legends as may be determined by
the directors from time to time. If at any time the share capital of the
Company is divided into different classes of shares, every share
certificate issued at that time shall comply with section 57A of the
Ordinance, and no certificate shall be issued in respect of more than one
class of shares.
Subject to section 71A, if a share certificate be defaced, lost or
destroyed, it may be renewed on payment of a fee of HK$5 or such less sum
and on such terms (if any) as to evidence and indemnity and the payment
of out-of-pocket expenses of the Company of investigating evidence and of
such indemnity as the directors require.
LIEN
The Company shall have a first and paramount lien on every share (not
being a fully paid share) for all moneys (whether presently payable or
not) called or payable at a fixed time in respect of that share, and the
Company shall also have a first and paramount lien on all shares (other
than fully paid shares) standing registered in the name of a member
(whether singly or jointly with any other person or persons) for all
moneys payable (whether presently or otherwise and whether jointly or
severally) by him or his estate to the Company; but the directors may at
any time declare any share to be wholly or in part exempt from the
provisions of this article. The Company's lien, if any, on a share shall
extend to all dividends payable thereon and (if any) any other
distributions or benefits accruing in respect thereof.
The Company may sell, in such manner as the directors think fit, any
shares on which the Company has a lien, but no sale shall be made unless
a sum in respect of which the lien exists is presently payable, nor until
the expiration of 14 days after a notice in writing, stating and
demanding payment of such part of the amount in respect of which the lien
exists as is presently payable, has been given to the registered holder
for the time being of the share, or the person entitled thereto by reason
of his death or bankruptcy or winding up (as the case may be) or
otherwise by operation of law or court order.
To give effect to any such sale the directors may authorize some person
to transfer the shares sold to the purchaser thereof. The purchaser
shall be registered as the holder of the shares comprized in any such
transfer, and he shall not be bound to see to the application of the
purchase money, nor shall his title to the shares be affected by any
irregularity or invalidity in the proceedings in reference to the sale.
The net proceeds of the sale (after payment of the costs and expenses of
such sale) shall be received by the Company and applied in payment of
such part of the amount in respect of which the lien exists as is
presently payable, and the residue, if any, shall (subject to a like lien
for sums not presently payable as existed upon the shares before the
sale) be paid to the person entitled to the shares at the date of the
sale.
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<PAGE>
CALL ON SHARES
The directors may from time to time make calls upon the members in
respect of any moneys unpaid on their shares (whether on account of the
nominal value of the shares or by way of premium) and not by the
conditions of allotment thereof made payable at fixed times, provided
that no call shall exceed one-fourth of the nominal value of the share or
be payable at less than 1 month from the date fixed for the payment of
the last preceding call, and each member shall (subject to receiving at
least 14 days' notice specifying the time or times and place of payment)
pay to the Company at the time or times and place so specified the amount
called on his shares. A call may be revoked, varied or postponed as the
directors may determine.
A call shall be deemed to have been made at the time when the resolution
of the directors authorizing the call was passed and may be required to
be paid by instalments.
The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
If a sum called in respect of a share is not paid before or on the day
appointed for payment thereof, the person from whom the sum is due shall
pay interest on the sum from the day appointed for payment thereof to the
time of actual payment in full at such rate not exceeding 10 per cent per
annum as the directors may determine, but the directors shall be at
liberty to waive payment of such interest wholly or in part.
Any sum which by the terms of issue of a share becomes payable on
allotment or at any fixed date, whether on account of the nominal value
of the share or by way of premium, shall for the purposes of these
articles be deemed to be a call duly made and payable on the date on
which by the terms of issue the same becomes payable, and in case of
non-payment all the relevant provisions of these articles as to payment
of interest and expense, forfeiture or otherwise shall apply as if such
sum had become payable by virtue of a call duly made and notified.
The directors may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment.
The directors may, if they think fit, receive from any member willing to
advance the same, all or any part of the moneys uncalled and unpaid upon
any shares held by him, and upon all or any of the moneys so advanced may
(until the same would, but for such advance, become payable) pay interest
at such rate not exceeding (unless the Company in general meeting shall
otherwise direct) 8 per cent per annum, as may be agreed upon between the
directors and the member paying such sum in advance. The directors may
at any time repay the amount so advanced upon giving one month's written
notice to such member.
TRANSFER OF SHARES
The instrument of transfer of any share shall be executed by or on behalf
of the transferor and transferee, and the transferor shall be deemed to
remain a holder of the share until the name of the transferee is entered
in the register of members in respect thereof.
Subject to such of the restrictions of these articles as may be
applicable, any member may transfer all or any of his shares by
instrument in writing in any usual or common form or any other form which
the directors may approve.
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<PAGE>
28. (a) Except as hereinafter provided the rights of pre-emption
hereinafter conferred shall have been exhausted.
(b) Every member who desires to transfer any share or
shares (hereinafter called the vendor) must first
obtain the consent of members holding seventy-five
percent (75%) or more of the voting rights in the
Company. Having obtained such consent, the vendor
must first obtain a bona fide written offer (which
offer must be accompanied by a good faith deposit in
the form of a certified cheque equal to at least ten
percent (10%) of the purchase price) for such
interest from the party desiring to purchase such
interest, which offer must set out the name and
address of the prospective purchaser, the number of
shares to be purchased, the prospective purchase
price, and the other terms and conditions of such
offer.
(c) The vendor must send to the Company and to the other
members a photocopy of such offer, together with a
photocopy of the accompanying certified cheque
(hereinafter called transfer notice), whereupon the
Company (to the extent permitted by law) and the
other members will have the option to purchase
(which option shall be exercised by written notice
given to the vendor, the Company and any other
members of the Company within 20 days, or such time
period as may be required by law, after such
notification), all (but not less than all) of the
vendor's shares offered to be sold for the same
aggregate price and on the same terms and conditions
(except that the closing shall be held at a mutually
agreeable place and time within thirty (30) days
after the expiration of the option period as defined
above) as contained in the offer provided to the
vendor.
(d) To the extent permitted by law, the Company shall
have the prior right to purchase all of the shares
on offer. If the Company elects to purchase none or
only a portion of the shares on offer, then the
entire balance (but not less than the entire
balance) may be purchased by the members (other than
the vendor) in the proportion that the respective
holdings of shares of those members desiring to
purchase bears to each other, or as otherwise agreed
by them among themselves, at the same purchase price
per share as set out in the offer provided to the
vendor, and the Company shall so notify such
members. The Company and the purchasing members
will be entitled to receive from the vendor at
closing, all documents reasonably requested by them
to evidence the transfer to them of the vendor's
shares.
(e) If the Company and/or any members elect to purchase
the vendor's shares on offer pursuant to this
article 28, the vendor shall be bound to transfer
the shares to the relevant purchasers in accordance
with this article 28; and if he shall fail to do so,
the chairman of the Company's board of directors or
some other person appointed by the directors shall
be deemed to have been appointed attorney of the
vendor with full power to execute, complete and
deliver, in the name and on behalf of the vendor,
transfers of the shares to the purchasers thereof
against payment of the offer.
(f) If, at the end of such time periods as specified
herein, the rights under this article 28 to purchase
all of the vendor's shares on offer have not been
exercised, then the vendor shall be permitted to
accept the third party offer for such shares within
sixty (60) days thereafter for the price and
according to the terms and conditions set out in the
original offer.
(g) The decision by the Company whether to exercise its
rights to purchase shares under this article 28
shall be determined by a special resolution of the
members or by a seventy-five percent (75%) majority
vote of the board of directors.
(h) The restrictions on transfer contained in this
article shall not apply to:
(i) any transferor approved in writing by all the
members;
Page 31
<PAGE>
(ii) any request by a person becoming entitled to
a share in consequence of the death or
bankruptcy or winding-up (as the case may be)
of a member to be registered as the holder of
such share;
(iii) any transfer by personal representatives to
any person or persons absolutely entitled to
the shares transferred under the will of a
deceased member or under the Intestates'
Estates Ordinance;
(iv) any transfer by a trustee to the beneficiary
and vice versa;
(v) any transfer from old trustee to new trustee;
and
(vi) any transfer which results from the merger of
a member into a surviving third person or
from a sale of substantially all of the
assets of a member to a third person, which
transfer shall be subject to such other
conditions as may be imposed from time to
time by members holding seventy five percent
(75%) or more of the voting rights in the
Company;
Provided that it be proved to the satisfaction of the directors
that the transfer bona fide falls within one of these exceptions.
29. The directors may, subject to section 69 and other applicable
provisions of the Ordinance, in their absolute discretion and
without assigning any reason thereof decline to register any
transfer of any share, whether or not it is a fully paid share,
and they may also decline to register the transfer of a share on
which the Company has a lien.
The directors may also decline to recognize any instrument of transfer
unless:
the instrument of transfer is lodged at the Company's registered office
for the time being for registration and is accompanied by the certificate
of the shares to which it relates and such other evidence as the
directors may reasonably require to show the right of the transferor to
make the transfer:
the instrument of transfer is in respect of only one class of share;
the shares concerned are free of any lien in favour of the Company; and
such other conditions as the directors may from time to time impose for
the purpose of guarding against losses arising from forgery are
satisfied.
If the directors refuse to register a transfer they shall within 2 months
after the date on which the transfer was lodged with the Company send to
the transferor and transferee notice of the refusal.
The registration of transfers may be suspended at such times and for such
periods as the directors may, in compliance with section 99 and other
applicable provisions of the Ordinance, from time to time determine,
provided always that such registration shall not be suspended in any year
for more than 30 days or, where the period for closing the register of
members is extended in respect of that year under section 99(2)(a) of the
Ordinance, for more than that extended period.
In relation to the registration of any share transfer, the Company shall
be entitled to charge a fee not exceeding HK$5 (to be reviewed
from time to time by the directors in their absolute discretion)
on the registration of every probate, letter of administration,
certificate of death or marriage, power of attorney, or other
instrument in respect of or affecting the title to the relevant
shares.
TRANSMISSION OF SHARES
In case of the death of a member the survivor or survivors where the
deceased was a joint holder, and the legal personal representatives of
the deceased where he was a sole or only surviving holder, shall be the
only persons recognized by the Company as having any title to his
interest in the shares; but nothing herein contained shall release the
estate of a deceased holder (whether sole or joint) from any liability in
respect of any share which had been solely held by him or jointly held by
him with other persons.
Any person becoming entitled to a share in consequence of the death or
bankruptcy (or winding up as the case may be) of a member or otherwise by
operation of law or court order may, upon such evidence being produced as
may from time to time properly be required by the directors and subject
as hereinafter provided, elect either to be registered himself as holder
of the share or to have some person nominated by him registered as the
transferee thereof, but the directors shall, in either case, have the
same right to decline or suspend registration and other rights under
these articles and the Ordinance as they would have had in the case of a
transfer of the share or a
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<PAGE>
registration of any share transfer by that member before his death or
bankruptcy or winding up, as the case may be.
If the person so becoming entitled shall elect to be registered himself,
he shall deliver or send to the Company a notice in writing signed by
him stating that he so elects. If he shall elect to have another person
registered he shall testify his election by executing to that person a
transfer of the share. All the limitations, restrictions and provisions
of these articles and the Ordinance relating to the right to transfer and
the registration of transfers of shares shall be applicable to any such
notice or transfer as aforesaid as if the death or bankruptcy or winding
up (as the case may be) of the member had not occurred and the notice or
transfer were a transfer signed by that member.
A person becoming entitled to a share by reason of the death or
bankruptcy or winding up (as the case may be) of the holder or otherwise
by operation of law or court order shall be entitled to the same
dividends and other advantages to which he would be entitled if he were
the registered holder of the share, except that he shall not before being
registered as a member in respect of the share, be entitled in respect of
it to exercise any right conferred by membership in relation to meetings
of the Company, provided always that the directors may at any time give
notice requiring any such person to elect either to be registered himself
or to transfer the share, and if the notice is not complied with within
90 days the directors may thereafter withhold payment of all dividends
bonuses or other moneys payable in respect of the share until the
requirements of the notice have been complied with.
Any person to whom the right to any shares in the Company has been
transmitted by operation of law or court order shall, if the directors
refuse to register the transfer, be entitled to call on the directors to
furnish within 28 days a statement of the reasons for the refusal.
FORFEITURE OF SHARES
If a member fails to pay any call or instalment of a call on the day
appointed for payment thereof the directors may, at any time thereafter
during such time as any part of the call or instalment remains unpaid,
serve a notice on him requiring payment of so much of the call or
instalment as is unpaid, together with any interest which may have
accrued. The notice shall name a further day (not earlier than the
expiration of 14 days from the date of service of the notice) on or
before which the payment required by the notice is to be made, and shall
state that in the event of non-payment at or before the time appointed
the shares in respect of which the call was made will be liable to be
forfeited.
If the requirements of any such notice as aforesaid are not complied
with, any share in respect of which the notice has been given may at any
time thereafter, before the payment required by the notice has been made
in full, be forfeited by a resolution of the directors to that effect.
Any such forfeiture shall extend to dividends declared and other
distributions and benefits accruing in respect of shares so forfeited.
A forfeited share may be sold or otherwise disposed of on such terms and
in such manner as the directors think fit, and at any time before a sale
or disposition the forfeiture may be cancelled on such terms as the
directors think fit. If the forfeited share is so sold or disposed of,
the directors shall account to the person whose shares have been
forfeited with the balance (if any) of moneys received by the Company in
respect of such share, after deduction of expenses of forfeiture, sale or
disposal of the shares and any amounts due to the Company in respect of
such share.
A person whose shares have been forfeited shall cease to be a member in
respect of the forfeited shares, but shall, notwithstanding, remain
liable to pay to the Company all moneys which, at the date of forfeiture,
were payable by him to the Company in respect of the shares, but his
liability shall cease if and when the Company shall have received payment
in full of all such moneys in respect of the shares.
A statutory declaration in writing that the declarant is a director or
the secretary of the Company, and that a share in the Company has been
duly forfeited on a date stated in the declaration, shall be conclusive
evidence of the facts therein stated as against all persons claiming to
be entitled to the share. The Company may receive the consideration, if
any, given for the share on any sale or disposition thereof and may
execute a transfer of the share in favour of the person to whom the share
is sold or disposed of and he shall thereupon be registered as the holder
of the share, and shall not be bound to see to the application of the
purchase money, if any, nor shall his title to the
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share be affected by any irregularity or invalidity in the proceedings
in reference to the forfeiture, sale or disposal of the share.
The provisions of these articles as to forfeiture shall apply in the case
of non-payment of any sum which, by the terms of issue of a share,
becomes payable at a fixed time, whether on account of the nominal value
of the share or by way of premium, as if the same had been payable by
virtue of a call duly made and notified.
CONVERSION OF SHARES INTO STOCK
The Company may by ordinary resolution convert any fully paid-up shares
into stock and reconvert any stock into fully paid-up shares of any
denomination.
The holders of stock may transfer the same, or any part thereof, in the
same manner, and subject to the same regulations, as and subject to which
the shares from which the stock arose might prior to conversion have been
transferred, or as near thereto as circumstances admit; and the directors
may from time to time fix the minimum amount of stock transferable but so
that such minimum shall not, without the sanction of an ordinary
resolution of the Company, exceed the nominal amount of the shares from
which the stock arose.
The holders of stock shall, according to the amount of stock held by
them, have the same rights, privileges and advantages as regards
dividends, voting at meetings of the Company and other matters as if they
held the shares from which the stock arose, but no such right, privilege
or advantage (except participation in the dividends and profits of the
Company and in the assets on a reduction of the Company's capital or
winding up) shall be conferred by an amount of stock which would not, if
existing in shares, have conferred that right, privilege or advantage.
Such of the articles of the Company as are applicable to fully paid-up
shares shall apply mutatis mutandis to stock, and the words "share" and
"shareholder" therein shall include "stock" and "stockholder".
ALTERATION OF CAPITAL
The Company may from time to time by ordinary resolution increase
the share capital by such sum, to be divided into shares of such
classes and of such amount as the resolution shall prescribe.
50A. Unless members representing seventy five percent (75%) or more of the
voting rights in the Company otherwise agree in writing, any unissued
shares which the directors resolve to offer for subscription shall be
offered in the first instance to the members in proportion to their
respective shareholdings at the date of such offer, prior to being
offered to third parties.
The Company may by ordinary resolution:
consolidate and divide all or any of its share capital into shares of
larger amount than its existing shares;
sub-divide its existing shares, or any of them, into shares of smaller
amount than is fixed by the memorandum of association subject,
nevertheless, to the provisions of section 53(1)(d) of the Ordinance;
cancel any shares which, at the date of the passing of the resolution,
have not been taken or agreed to be taken by any person and diminish the
amount of its authorised capital by the amount of the shares so
cancelled.
The Company may by special resolution reduce its share capital, any
capital redemption reserve fund or any share premium account in any
manner and with, and subject to, any incident authorized, and consent
required, by law.
ALLOTMENT OF SHARES
The directors shall not exercise any power conferred on them to allot
shares in the Company without the prior approval of the Company in
general meeting where such approval is required by section 57B of the
Ordinance, and shall exercise such power in compliance with article 50A.
GENERAL MEETINGS
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The Company shall in each year hold a general meeting as its annual
general meeting in addition to any other meetings in that year, and shall
specify the meeting as such in the notices calling it, and not more than
15 months shall elapse between the date of one annual general meeting of
the Company and that of the next, provided that so long as the Company
holds its first annual general meeting within 18 months of its
incorporation, it need not hold it in the year of its incorporation or in
the following year. The annual general meeting shall be held at such time
and place as the directors shall appoint.
All general meetings other than annual general meetings shall be called
extraordinary general meetings.
The directors may, whenever they think fit, convene an extraordinary
general meeting, and extraordinary general meetings shall also be
convened on such requisition, or in default, may be convened by such
requisitionists, as provided by section 113 of the Ordinance. If at any
time there are not within Hong Kong sufficient directors capable of
acting to form a quorum, any director or any 2 members of the Company may
convene an extraordinary general meeting in the same manner as nearly as
possible as that in which meetings may be convened by the directors.
NOTICE OF GENERAL MEETINGS
Subject to section 116C of the Ordinance, an annual general meeting and a
meeting called for the passing of a special resolution shall be called by
21 days' notice in writing at the least, and a meeting of the Company
other than an annual general meeting or a meeting for the passing of a
special resolution shall be called by 14 days' notice in writing at the
least. The notice shall be exclusive of the day on which it is served or
deemed to be served and of the day for which it is given, and shall
specify the place, the day and the hour of meeting and, in case of
special business, the general nature of that business, and shall be
given, in manner hereinafter mentioned or in such other manner, if any,
as may be prescribed by the Company in general meeting, to such persons
as are, under these articles and the Ordinance, entitled to receive such
notices from the Company, provided that a meeting of the Company shall,
notwithstanding that it is called by shorter notice than that specified
in these articles or required by the Ordinance, be deemed to have been
duly called if it is so agreed-
in the case of a meeting called as the annual general meeting, by all the
members entitled to attend and vote thereat; and
in the case of any other meeting, by a majority in number of the members
having a right to attend and vote at the meeting, being a majority
together holding not less than 95 per cent in nominal value of the shares
giving that right.
The accidental omission to give notice of a meeting to, or the
non-receipt of notice of a meeting by, any person entitled to receive
notice shall not invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
All business shall be deemed special that is transacted at an
extraordinary general meeting, and also all that is transacted at an
annual general meeting, with the exception of declaring a dividend, the
consideration of the accounts, balance sheets and the reports of the
directors and auditors and ancillary documents, the election of directors
in the place of those retiring and the appointment of, and the fixing of
the remuneration of, the auditors and/or directors.
No business (except for the election of a chairman of the meeting) shall
be transacted at any general meeting unless a quorum of members is
present at the time when the meeting proceeds to business and continues
to be present until the conclusion of the meeting and 2 members present
in person or by proxy shall be a quorum for all purposes.
If within half an hour from the time appointed for the meeting a quorum
is not present, the meeting shall stand adjourned to the same day in the
next week, at the same time and place or to such other day and at such
other time and place as the chairman may determine, and if at the
adjourned meeting a quorum is not present within half an hour from the
time appointed for the meeting, the members present in person or by proxy
shall be a quorum.
The chairman, if any, of the board of directors shall preside as chairman
at every general meeting of the Company, or if there is no such chairman,
or if he shall not be present within 15 minutes after the time appointed
for the holding of the meeting or is unwilling to act or is absent from
Hong Kong or has given notice to the
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Company of his intention not to attend the meeting, the directors
present shall elect one of their number to be chairman of the meeting.
If at any meeting no director is willing to act as chairman or if no
director is present within 15 minutes after the time appointed for
holding the meeting, the members present in person or by proxy shall
choose one of their number to be chairman of the meeting.
The chairman may, with the consent of any meeting at which a quorum is
present (and shall if so directed by the meeting), adjourn the meeting
from time to time and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place. When a
meeting is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting. Save as aforesaid
it shall not be necessary to give any notice of an adjournment or of the
business to be transacted at an adjourned meeting.
At any general meeting a resolution put to the vote of the meeting shall
be decided on a show of hands unless a poll is (before or on the
declaration of the result of the show of hands or before or on the
withdrawal of any other demand for a poll) demanded-
by the chairman; or
by at least 2 members present in person or by proxy; or
by any member or members present in person or by proxy and representing
not less than one-tenth of the total voting rights of all the members
having the right to vote at the meeting; or
by any member or members holding shares in the Company conferring a right
to vote at the meeting being shares on which an aggregate sum has been
paid up equal to not less than one-tenth of the total sum paid up on all
the shares conferring that right.
Unless a poll be so demanded and the demand is not withdrawn, a
declaration by the chairman that a resolution has on a show of hands
been carried or carried unanimously, or by a particular majority, or
lost and an entry to that effect in the book containing the minutes
of the proceedings of the Company shall be conclusive evidence of
the fact without proof of the number or proportion of the votes
recorded in favour of or against such resolution.
The demand for a poll may be withdrawn only with the approval of
the chairman of the meeting.
Except as provided in article 68, if a poll is duly demanded it shall be
taken at such time and in such manner as the chairman directs, and the
result of the poll shall be deemed for all purposes to be the resolution
of the meeting at which the poll was demanded.
In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman of the meeting at which the show of hands takes place
or at which the poll is demanded shall be entitled to a second or casting
vote.
A poll demanded on the election of a chairman or on a question of
adjournment shall be taken forthwith. A poll demanded on any other
question shall be taken at such time as the chairman of the meeting
directs, and any business other than that upon which a poll has been
demanded may be proceeded with pending the taking of the poll.
Subject to the provisions of the Ordinance, a resolution in writing
signed by all the members for the time being entitled to receive notice
of and to attend and vote at the Company's general meetings and annexed
or attached to the general meetings' minute book shall be as valid and
effective as a resolution duly passed at a general meeting of the Company
duly convened and held and, where relevant, as a special resolution so
passed. The signature of any members may be given by his attorney or
proxy. Any such resolution may be contained in one document or separate
copies prepared and/or circulated for the purpose and signed by one or
more of the members. A cable or telex message sent by a member or his
attorney or proxy shall be deemed to be a document signed by him for the
purposes of this article.
VOTES OF MEMBERS
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Subject to any rights or restrictions for the time being attached to any
class or classes of shares, on a show of hands every member present in
person or by proxy shall have one vote and on a poll every member shall
have one vote for each fully paid-up share of which he is the registered
holder.
In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders, and for this purpose seniority shall be
determined by the order in which the names stand in the register of
members.
A member of unsound mind, or in respect of whom an order has been made by
any court having jurisdiction in lunacy, may vote, whether on a
show of hands or on a poll, by his committee, receiver, curator
bonis, or other person in the nature of a committee, receiver or
curator bonis appointed by that court, and any such committee,
receiver, curator bonis or other person may, on a poll, vote by
proxy.
No member shall be entitled to vote at any general meeting unless all
calls or other sums presently payable by him in respect of shares in the
Company have been fully paid.
No objection shall be raised to the qualification of any voter except at
the meeting or adjourned meeting at which the vote objected to is given
or tendered and every vote not disallowed at such meeting shall be valid
for all purposes. Any such objection made in due time shall be referred
to the chairman of the meeting, whose decision shall be final and
conclusive.
On a poll votes may be given either personally or by proxy.
A person entitled to cast more than one vote need not use all his votes
or cast all the votes he uses in the same way.
76A. Notwithstanding anything to the contrary in these articles, in addition
and without prejudice to such voting rights afforded at law and under
these articles, a member or members representing more than twenty five
percent (25%) of the votes at any general meeting of the Company shall
have the protective right to veto block only in respect of the following
actions:
amendments to the memorandum and articles of association of the Company;
establishing pricing or other material terms on transactions between a
majority shareholder of the Company and the Company, and related
self-dealing transactions;
liquidation of the Company, or a decision to cause the Company to enter
bankruptcy or other receivership;
the acquisition or disposition of assets greater than 20% of the fair
value of the Company's total assets (as determined by the Company's
auditors as experts and not as arbitrators (whose decision shall be final
and binding)); and
the issuance or repurchase of securities in the Company by the Company.
Subject to Hong Kong law, no member shall be entitled to vote on any
proposal where such a vote would jeopardise the ability of the majority
shareholder to fully consolidate the Company's financial results into its
own financial statements in accordance with applicable US regulations.
The instrument appointing a proxy shall be in writing under the hand of
the appointor or of his attorney duly authorized in writing, or, if the
appointor is a corporation, either under seal, or under the hand of an
officer or attorney duly authorized. A proxy need not be a member of the
Company.
The instrument appointing a proxy and the power of attorney or other
authority, if any, under which it is signed, or a notarially certified
copy of that power or authority shall be deposited at the registered
office of the Company or at such other place within Hong Kong as is
specified for that purpose in the notice convening the meeting, not less
than 48 hours before the time for holding the meeting or adjourned
meeting at which the person named in the instrument proposes to vote, or,
in the case of a poll, not less than 24 hours before the time appointed
for the taking of the poll, and in default the instrument of proxy shall
not be treated as valid for the purposes of these articles (except with
the approval of the chairman of the meeting).
An instrument appointing a proxy shall be in the following form or a form
as near thereto as circumstances admit-
I/we, of being a member/members of the above-named company,
hereby appoint of or failing him, of as my/our proxy to vote for
me/us on my/our behalf at the [annual or extraordinary, as the
case may be] general meeting of the company to be held on the
day of and at any adjournment thereof
Signed this day of
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Where it is desired to afford members an opportunity of voting for or
against a resolution the instrument appointing a proxy shall be in the
following form or a form as near thereto as circumstances admit-
I/we, of being a member/members of the above-named company, hereby
appoint of or failing him, of as my/our proxy to vote for me/us on
my/our behalf at the [annual or extraordinary, as the case may be]
general meeting of the company to be held on the day of and at any
adjournment thereof.
Signed this day of
This form is to be used *in favour of/against the
resolution.
Unless otherwise instructed, the proxy will vote as
he thinks fit.
*Strike out whichever is not desired".
The instrument appointing a proxy shall be deemed to confer authority to
demand or join in demanding a poll.
A vote given in accordance with the terms of an instrument of proxy shall
be valid notwithstanding the previous death or insanity of the principal
or revocation of the proxy or of the authority under which the proxy was
executed, or the transfer of the share in respect of which the vote is
given, provided that no intimation in writing of such death, insanity,
revocation or transfer as aforesaid shall have been received by the
Company at the office before the commencement of the meeting or adjourned
meeting or poll-taking at which the proxy is used.
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS
Any corporation which is a member of the Company may by resolution of its
directors or other governing body authorize such person as it thinks fit
to act as its representative at any meeting of the Company or of any
class of members of the Company, and the person so authorized shall be
entitled to exercise the same powers on behalf of the corporation which
he represents as that corporation could exercise if it were an individual
member of the Company.
DIRECTORS
The Company shall have three directors. Until the appointment of the
first directors the subscribers of the Company's memorandum of
association may exercise all the powers of the directors.
(a) The first directors of the Company shall be nominated in writing
by the subscribers to the memorandum of association.
(b) A corporation may be a director of the Company and exercise
its functions as such director by and through a
representative duly appointed by it.
The shareholding qualification for directors may be fixed by the Company
in general meeting, and unless and until so fixed no qualification shall
be required. A director who is not a member of the Company shall
nevertheless be entitled to attend and speak at general meetings or
meetings of the holders of any class of shares.
A director may resign from his office at any time by giving written
notice to the Company in compliance with applicable law and (if any) his
agreement with the Company. Such resignation shall, subject to such law
and (if any) such agreement, take effect whenever it is expressed to do
so or upon its earlier acceptance.
Any casual vacancy occurring in the board of directors may be filled up
by the directors and the directors shall further have power at any time
and from time to time to appoint any person as an additional director but
so that the total number of directors shall not at any time exceed the
number fixed in accordance with article 84.
A director of the Company may be or become a director or other officer
of, or otherwise interested in, any company promoted by the Company or in
which the Company may be interested as shareholder or otherwise, and,
subject to the Ordinance and other applicable law. no such director shall
be accountable to the Company for any remuneration or other benefits
received by him as a director or officer of, or from his interest in,
such other company unless the Company otherwise directs.
(a) The directors shall be paid out of the funds of the Company
remuneration for their services at such rate as shall from
time to time be decided by an ordinary resolution of the
Company in general meeting.
(b) The directors shall also be entitled to be paid all their
reasonable travelling and hotel and other expenses properly
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incurred in or with a view to a performance of their duties or in
attending and returning from meetings of the directors or any committee
of the directors or general meetings of the Company or in connection with
the business of the Company.
(c) If any director, being willing and having been called upon
to do so, shall render or perform extra or special services
of any kind (which are outside the normal scope of his
duties as a director) including services on any committee
of the directors, or shall travel or reside abroad for any
business or purposes of the Company, he shall be entitled
to receive such sum as the directors may think fit for
expenses, and also such remuneration as the directors may
think fit, either as a fixed sum or as a percentage of
profits or otherwise, and such remuneration may, as the
directors determine, be either in addition to or in
substitution for any other remuneration he may be entitled
to receive, and the same shall be charged as part of the
ordinary working expenses of the Company.
BORROWING POWERS
The directors may exercise all the powers of the Company to borrow money
for the purposes of the Company, without limit and upon such terms as
they may think fit and to mortgage or charge its undertaking, property
(both present and future) and uncalled capital, or any part thereof, and
to issue bonds, debentures, debenture stock and, subject to section 57B
of the Ordinance, convertible debentures and convertible debenture stock
and other securities whether outright or as security for any debt
liability or obligation of the Company or of any third party.
POWERS AND DUTIES OF DIRECTORS
The business of the Company shall be managed by the directors, who may
pay all expenses incurred in promoting, establishing and registering the
Company, and may exercise all such powers of the Company as are not by
the Ordinance or by these articles, required to be exercised by the
Company in general meeting, subject, nevertheless, to any of these
articles, to the provisions of the Ordinance and to such regulations,
being not inconsistent with the aforesaid articles or provisions, as may
be prescribed by the Company in general meeting; but no regulation made
by the Company in general meeting shall invalidate any prior act of the
directors which would have been valid if that regulation had not been
made.
The directors may establish any committee, local board, or agency for
managing any of the affairs of the Company, either in Hong Kong or
elsewhere, and may lay down, vary or annul such rules and regulations as
they may think fit for the conduct of the business thereof, and may
appoint any person to be a member of any such committee or local board or
any manager or agent and may fix their remuneration, and may delegate to
any such committee, local board, manager or agent any of the powers,
authorities and discretions vested in the directors, with power to
sub-delegate and may authorize the members of any such committee or local
board, or any of them, to fill any vacancies therein and to act
notwithstanding vacancies, and any such appointment or delegation may be
made upon such terms and subject to such conditions as the directors may
think fit, and the directors may remove any person so appointed and may
annul or vary any such delegation, but no person dealing in good faith
and without notice of any such annulment or variation shall be affected
thereby.
The directors may from time to time and at any time by power of attorney
appoint any company, firm or person or body of persons, whether nominated
directly or indirectly by the directors, to be the attorney or attorneys
of the Company for such purposes and with such powers authorities and
discretions (not exceeding those vested in or exercisable by the
directors under these articles and the Ordinance) and for such period and
subject to such conditions as they may think fit, and any such powers of
attorney may contain such provisions for the protection and convenience
of persons dealing with any such attorney as the directors may think fit
and may also authorize any such attorney to sub-delegate all or any of
the powers, authorities and discretions vested in him.
The Company may exercise the powers conferred by section 35 of the
Ordinance with regard to having an official seal for use abroad, and such
powers shall be vested in the directors.
The Company may exercise the powers conferred upon the company by
sections 103, 104 and 106 of the Ordinance with regard to the keeping of
a branch register, and the directors may (subject to the provisions of
those sections) make and vary such regulations as they may think fit in
respect of the keeping of any such register.
(a) No director or intended director shall be disqualified by his
office from contracting with the Company either as vendor,
purchaser or otherwise, nor shall any such contract or any
contract or arrangement entered into by or on behalf of the
Company with any company or partnership of or in which any
director shall be a member or otherwise interested be capable on
that account of being avoided; nor shall any director so
contracting or being such member or so interested be
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liable to account to the Company for any profit realised by any
such contract or arrangement by reason only of such director
holding that office or of the fiduciary relationship thereby
established, provided always that each director shall forthwith
disclose the nature of his interest in any contract or arrangement
in which he is interested as required by and subject to the
provisions of the Ordinance.
(b) Provided such disclosure is made as aforesaid, a director shall be
entitled to vote in respect of any contract or arrangement in
which he is interested and to be counted in the quorum present at
the meeting at which such contract or arrangement is considered.
(c) Any director may continue to be or become a director, managing
director, manager or other officer or member of any other company
in which the Company may be interested and (unless otherwise
agreed) no such director shall be accountable for any remuneration
or other benefits received by him as a director, managing
director, manager or other officer or member of any such other
company. The directors may exercise the voting powers conferred by
the shares in any other company held or owned by the Company, or
exercisable by them as directors of such other company in such
manner in all respects as they think fit (including the exercise
thereof in favour of any resolution appointing themselves or any
of them as directors, managing directors, managers or other
officers of such company) and any director of the Company may vote
in favour of the exercise of such voting rights in manner
aforesaid notwithstanding that he may be, or about to be,
appointed a director, managing director, manager or other officer
of such company, and as such that he is or may become interested
in the exercise of such voting rights in manner aforesaid.
All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments, and all receipts for moneys paid to the Company,
shall be signed, drawn, accepted, endorsed, or otherwise executed, as the
case may be, in such manner as the directors shall from time to time by
resolution determine.
The directors shall cause minutes to be made in books provided for the
purpose:-
of all appointments of officers made by the directors;
of the names of the directors present at each meeting of the directors
and of any committee of the directors;
of all resolutions and proceedings at all meetings of the Company, and of
the directors, and of committees of directors.
The directors on behalf of the Company may pay a gratuity or pension or
allowance on retirement to any director who has held any other salaried
office or place of profit with the Company or to his widow or dependants
and may make contributions to any fund and pay premium for the purchase
or provision of any such gratuity, pension or allowance.
Without prejudice to the general powers conferred by these presents, it
is hereby expressly declared that the directors shall have the following
powers, that is to say, power-
to pay the costs, charges and expenses preliminary and incidental to the
promotion, formation, establishment and registration of the Company;
to purchase or otherwise acquire for the Company any property right or
privilege at such price and generally on such terms and conditions as
they think fit and to pay for the same either in cash or in shares,
bonds, debentures, or other securities of the Company;
to appoint and at their discretion remove or suspend managers, agents,
secretaries, clerks, shroffs, servants and workmen for carrying on the
business of the Company, and to determine the powers and duties of such
persons, and fix their salaries or emoluments and to sanction the payment
of the same out of the funds of the Company;
to enter into all such negotiations and contracts and rescind and vary
all such acts, deeds and things for the Company as may be expedient;
to refer any claim or demand by or against the Company to arbitration and
observe and perform the awards.,
to declare and pay dividends to the members;
to provide from time to time for the management of the affairs of the
Company in any part of the world in such manner as
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they shall think fit;
to make, vary and repeal from time to time by-laws for the regulation
of the business of the Company, its officers and servants.
DISQUALIFICATION OF DIRECTORS
The office of director shall be vacated if the director:
ceases to be a director by virtue of section 155 of the Ordinance; or
becomes bankrupt or makes any arrangement or composition with his
creditors generally; or
becomes prohibited by law or court order from being a director, or
becomes of unsound mind; or
resigns his office by notice in writing to the Company given in
accordance with section 157D (3)(a) of the Ordinance; or
is removed by a special resolution of the Company.
ROTATION OF DIRECTORS
At each of the annual general meeting of the Company all the directors
shall retire from office.
Retiring directors shall be eligible for re-election.
The Company may by special resolution remove any director before the
expiration of his period of office notwithstanding anything in these
articles or in any agreement between the Company and such director. Such
removal shall be without prejudice to any claim such director may have
for damages for breach of any contract of service between him and the
Company.
The Company may by special resolution appoint another person in place of
a director removed from office under the immediately preceding article,
and the Company in general meeting may by special resolution appoint any
person to be a director either to fill a casual vacancy or as an
additional director PROVIDED that the total number of directors shall not
at any time exceed the number fixed in accordance with article 84.
PROCEEDINGS OF DIRECTORS
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The directors may meet together for the despatch of business, adjourn and
otherwise regulate their meetings, as they think fit. Meetings of the
directors may be held in Hong Kong or in any part of the world as may be
convenient for the majority. Questions arising at any meeting shall be
decided by a majority of votes and in case of an equality of votes the
chairman shall have a second or casting vote. A director may (and the
secretary on the requisition of a director shall) at any time summon a
meeting of the directors. Notice thereof shall be given in any manner,
including in writing or by cable or telex or facsimile transmission or by
telephone or otherwise orally.
The quorum necessary for the transaction of the business of the directors
may be fixed by the directors from time to time and unless so fixed shall
be two (2).
The continuing directors may act notwithstanding any vacancy in their
body, but if and so long as their number is reduced below the number
fixed by or pursuant to these articles as the necessary quorum of
directors, the continuing directors or director may act for the purpose
of increasing the number of directors to that number, or of summoning a
general meeting of the Company, but for no other purpose.
The directors may elect a chairman of their meetings and determine the
period for which he is to hold office but if no such chairman is elected,
or if at any meeting the chairman is not present within 5 minutes after
the time appointed for holding the same, the directors present may choose
one of their number to be chairman of the meeting.
The directors may delegate any of their powers to committees consisting
of such member or members of their body as they think fit; any committee
so formed shall in the exercise of the powers so delegated conform to any
regulation that may be imposed on it by the directors; and the directors
may revoke any such delegation and discharge any such committee.
A committee may elect a chairman of its meetings; if no such chairman is
elected, or if at any meeting the chairman is not present within 5
minutes after the time appointed for holding the same, the members
present may choose one of their number to be chairman of the meeting.
A committee may meet and adjourn as it thinks proper. Questions arising
at any meeting shall be determined by a majority of votes of the members
present, and in the case of an equality of votes the chairman shall have
a second or casting vote.
All acts done by any meeting of the directors or of a committee of
directors or by any person acting as a director shall, notwithstanding
that it be afterwards discovered that there was some defect in the
appointment of any such director or person acting as aforesaid, or that
they or any of them were disqualified or had vacated office, be as valid
as if every such person had been duly appointed and was qualified to be a
director.
A resolution in writing signed by all the directors and annexed or
attached to the directors' minute book shall be as valid and effective as
a resolution passed at a meeting duly convened. The signature of any
director may be given by his alternate. Any such resolution may be
contained in one document or separate copies prepared and/or circulated
for the purpose and signed by one or more of the directors. A message
sent by a director or his alternate by cable, telex or other remote
electronic information delivery system shall be deemed to be a document
signed by him for the purposes of this article.
Any director or member of a committee of directors may participate in a
meeting of the directors or such committee by means of conference
telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other and participation in a
meeting in this manner shall be deemed to constitute presence in person
at such meeting. Such meeting shall be deemed to have occurred at the
place where the majority of the directors are present or, if none, where
the chairman of the board of directors is present.
116A. The directors may appoint such other officers of the Company, for such
term, at such remuneration and upon such conditions as it may think fit,
and any officer so appointed may be removed by the directors.
MANAGING DIRECTOR
The directors may from time to time appoint one or more of their body to
the office of managing director for such period and on such terms as they
think fit, and, subject to the terms of any agreement entered into
between the Company and such managing director in any particular case,
may revoke such appointment.
A director so appointed shall not, whilst holding that office, be
subject to retirement, but his appointment shall automatically be
terminated if he ceases for any cause to be a director.
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A managing director shall receive such remuneration (whether by way of
salary, commission or participation in profits, or partly in one way and
partly in another) as the directors may determine.
The directors may entrust to and confer upon a managing director any of
the powers exercisable by them under these articles and the Ordinance
upon such terms and conditions and with such restrictions as they may
think fit, and either collaterally with or to the exclusion of their own
powers and may from time to time revoke, withdraw, alter or vary all or
any of such powers.
ALTERNATE DIRECTORS
(a) A director may at any time and from time to time appoint
any other person approved by the majority of the directors
to act as alternate director at any meeting of the board of
directors at which the director is not present, and may at
any time revoke any such appointment.
(b) An alternate director so appointed shall not be entitled as
such to receive any remuneration from the Company, nor
shall it be necessary for him to acquire or hold any share
qualification but he shall otherwise be subject to the
provisions hereof with regard to directors.
An alternate director shall be entitled to receive notices of all
meetings of the board of directors and to attend and vote as a director
at any such meeting at which the director appointing him is not
personally present, and generally to perform or exercise all the
functions, rights, powers and duties (other than the right and power to
appoint an alternate) of the director by whom he was appointed in his
capacity as a director but not in his capacity as a manager or working
director.
An alternate director shall ipso facto cease to be an alternate director
if his appointor ceases for any reason to be a director.
Where a director who has been appointed to be an alternate director is
present at a meeting of the board of directors in the absence of his
appointor such alternate director shall have one vote in addition to his
vote as director.
Every appointment and revocation of appointment of an alternate director
shall be made by instrument in writing under the hand of the director
making or revoking such appointment and such instrument shall only take
effect on the service thereof at the registered office of the Company or
upon the secretary.
SECRETARY
The secretary shall be appointed by the directors for such term, at such
remuneration and upon such conditions as they may think fit; and any
secretary so appointed may be removed by them.
A provision of the Ordinance or these articles requiring or authorizing a
thing to be done by or to a director and the secretary shall not be
satisfied by its being done by or to the same person acting both as
director and as, or in place of, the secretary.
THE SEAL
The seal of the Company shall not be affixed to any deed or instrument
except by the authority of a resolution of the board of directors, and
one director or such other person as the directors may appoint for the
purpose shall sign every deed or instrument to which the seal of the
Company is so affixed.
The Company shall be entitled to exercise the powers conferred by the
Ordinance or any amendment or re-enactment thereof to use an official
seal in any country or place where it carries on business, and such
powers shall be vested in the directors.
DIVIDENDS AND RESERVES
The Company in general meeting may declare dividends by ordinary
resolution, but no dividend shall exceed the amount recommended by the
directors.
The directors may from time to time pay to the members such interim
dividends as appear to the directors to be justified by the profits of
the Company.
No dividend shall be paid otherwise than out of profits in accordance
with the provisions of Part IIA of the Ordinance.
The directors may, before recommending any dividend, set aside out of the
net profits of the Company such sums as they think proper as reserve or
reserves which shall, at the discretion of the directors, be applicable
for any purpose to which the net profits of the Company may be properly
applied, and pending such application may, at the like discretion, either
be employed in the business of the Company or be invested in such
investments as the directors may from time to time think fit. The
directors may also retransfer such reserve or any part thereof to the
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credit of profit and loss account, or may without placing such sums to
reserve carry forward any profit which they may think prudent not to
divide.
Subject to the rights of persons, if any, entitled to shares with special
rights as to dividend, all dividends shall be declared and paid according
to the amounts paid or credited as paid on the shares in respect whereof
the dividend is paid, but no amount paid or credited as paid on a share
in advance of calls shall be treated for the purposes of this article as
paid on the share. All dividends shall be apportioned and paid
proportionately to the amounts paid or credited as paid on the shares
during any portion or portions of the period in respect of which the
dividend is paid; but if any share is issued on terms providing that it
shall rank for dividend as from a particular date such share shall rank
for dividend accordingly.
The directors may deduct from any dividend payable to any member all sums
of money (if any) presently payable by him to the Company on account of
calls or otherwise in relation to the shares of the Company.
Any general meeting declaring a dividend or bonus may direct payment of
such dividend or bonus wholly or partly by the distribution of specific
assets and in particular of paid up shares, debentures or debenture stock
of any other company or in any one or more of such ways, and the director
shall give effect to such resolution, and where any difficulty arises in
regard to such distribution, the directors may settle the same as they
think expedient, and in particular may issue fractional certificates and
fix the value for distribution of such specific assets or any part
thereof and may determine that cash payments shall be made to any member
upon the footing of the value so fixed in order to adjust the rights of
all parties, and may vest any such specific assets in trustees as may
seem expedient to the directors.
Any dividend bonus interest or other money payable in cash in respect of
shares may be paid in such currency or currencies as determined by the
directors, by cheque or warrant sent through the post directed to the
registered address of the holder or, in the case of joint holders, to the
registered address of that one of the joint holders who is first named on
the register of members or to such person and to such address as the
holder or joint holders may in writing direct. Every such cheque or
warrant shall be made payable to the order of the person to whom it is
sent. Any one of 2 or more joint holders may give effectual receipts for
any dividend, bonus, interest or other money payable in respect of the
shares held by them as joint holders.
No dividend shall bear interest against the Company.
ACCOUNTS
The directors shall cause proper books of account to be kept with respect
to-
all sums of money received and expended by the Company and the matters in
respect of which the receipt and expenditure takes place;
all sales and purchases of goods by the Company; and
the assets and liabilities of the Company.
Proper books shall not be deemed to be kept if there are not kept such
books of account as are necessary to give a true and fair view of the
state of the Company's affairs and to explain its transactions.
The books of account shall be kept at the registered office of the
Company, or, subject to section 121(3) of the Ordinance, at such other
place or places as the directors think fit, and shall always be open to
the inspection of the directors.
The directors shall from time to time determine whether and to what
extent and at what times and places and under what conditions or
regulations the accounts and books of the Company or any of them shall be
open to the inspection of members not being directors, and no member (not
being a director) shall have any right of inspecting any account or book
or document of the Company except as conferred by law or authorized by
the directors or by the Company in general meeting.
The directors shall from time to time, in accordance with sections 122,
124 and 129D of the Ordinance, cause to be prepared and to be laid before
the Company in general meeting such profit and loss accounts, balance
sheets, group accounts (if any) and reports as are referred to in those
sections.
A copy of every balance sheet (including every document required by law
to be annexed thereto) which is to be laid before the Company in general
meeting, together with a copy of the directors' report and a copy of the
auditors' report, shall not less than 21 days before the date of the
meeting be sent to every member of, and every
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holder of debentures of, the Company and to all persons other than
members or holders of debentures of the Company, being persons
entitled to receive notices of general meetings of the Company,
provided that this article shall not require a copy of those documents
to be sent to any person of whose address the Company is not aware or
to more than one of the joint holders of any shares or debentures.
CAPITALIZATION OF PROFITS
The Company in general meeting may upon the recommendation of the
directors resolve that it is desirable to capitalize any part of the
amount for the time being standing to the credit of any of the Company's
reserve accounts or to the credit of the profit and loss account or
otherwise available for distribution to members, and accordingly that
such sum be set free for distribution amongst the members who would have
been entitled thereto if distributed by way of dividend and in the same
proportions on condition that the same be not paid in cash but be applied
either in or towards paying up any amounts for the time being unpaid on
any shares held by such members respectively or paying up in full
unissued shares or debentures of the Company to be allotted and
distributed credited as fully paid up to and amongst such members in the
proportion aforesaid, or partly in the one way and partly in the other,
and the directors shall give effect to such resolution, provided that a
share premium account and a capital redemption reserve fund may, for the
purposes of this article, only be applied in the paying up of unissued
shares to be allotted to members of the Company as fully paid bonus
shares.
Whenever such a resolution as aforesaid shall have been passed the
directors shall make all appropriations and applications of the undivided
profits resolved to be capitalized thereby, and all allotments and issues
of fully-paid shares or debentures, if any, and generally shall do all
acts and things required to give effect thereto, with full power to the
directors to make such provision by the issue of fractional certificates
or by payment in cash or otherwise as they think fit for the case of
shares or debentures becoming distributable in fractions, and also to
authorize any person to enter on behalf of all the members entitled
thereto into an agreement with the Company providing for the allotment to
them respectively, credited as fully paid up, of any further shares or
debentures to which they may be entitled upon such capitalization, or (as
the case may require) for the payment up by the Company on their behalf,
by the application thereto of their respective proportions of the profits
resolved to be capitalized, of the amounts or any part of the amounts
remaining unpaid on their existing shares, and any agreement made under
such authority shall be effective and binding on all such members.
AUDIT
Auditors shall be appointed and their duties shall be regulated in
accordance with sections 131, 132, 133, 140, 140A, 140B and 141 of the
Ordinance.
NOTICES
Any notice from the Company to a member shall be given in writing or by
cable, telex or facsimile transmission and any such notice and (where
appropriate) any other document may be served or delivered by the Company
on or to any member either personally or by sending it through the post
in a prepaid envelope addressed to such member at his registered address
as appearing in the register of members or at any other address supplied
by him to the Company for the giving of notice to him or, as the case may
be, by transmitting it to any such address or transmitting it to any
telex or facsimile transmission number supplied by him to the Company for
the giving of notice to him or which the person transmitting the notice
reasonably and bona fide believes at the relevant time will result in the
notice being duly received by the member.
All notices required to be given to members shall, with respect to any
share to which persons are jointly entitled, be given to whichever of
such persons is named first in the register of members in respect of the
joint holding and notice so given shall be sufficient notice to all the
joint holders.
Any notice or other document-
if served or delivered by post shall be sent by airmail where appropriate
and shall be deemed to have been served or delivered at the time when the
envelope containing the same is put into the post; in proving such
service or delivery it shall be sufficient to prove that the letter
containing the notice or document was properly addressed and put into the
post and a certificate in writing signed by the secretary or other
officer of the Company that the envelope containing the notice or other
document was so addressed and put into the post shall be conclusive
evidence thereof; and
if served or delivered in any other manner contemplated by these
articles, shall be deemed to have been served or delivered at
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the time of personal service or delivery or, as the case may be, at
the time of the relevant despatch or transmission; and in proving such
service or delivery a certificate in writing signed by the secretary or
other officer of the Company as to the fact and time of such service,
delivery, despatch or transmission shall be conclusive evidence thereof.
A notice may be given by the Company to the persons entitled to a share
in consequence of the death or bankruptcy or winding up (as the case may
be) of a member by sending it through the post in a prepaid letter
addressed to them by name, or by the title of representatives of the
deceased, or trustee of the bankrupt, or the liquidator, or by any like
description at the address, if any, supplied for the purpose by the
persons claiming to be so entitled, or (until such an address has been so
supplied) by giving the notice in any manner in which the same might have
been given if the death or bankruptcy or winding up (as the case may be)
had not occurred.
Every person who, by operation of law, transfer, transmission, or other
means whatsoever, shall become entitled to any share, shall be bound by
every notice in respect of such share, which prior to his name and
address being entered in the register of members as the registered holder
of such share, shall have been duly given to the person from whom he
derives the title to such share.
WINDING UP
If the Company shall be wound up and the assets available for
distribution among the members as such shall be insufficient to repay the
whole of the paid-up capital, subject to Article 9A and the rights
attaching to the different classes of shares in the Company, the assets
available for distribution among the members shall be distributed so that
as near as may be the losses shall be borne by the members in proportion
to the capital paid up or which ought to have been paid up at the
commencement of the winding up on the shares held by them respectively.
If in a winding up the assets available for distribution among the
members shall be more that sufficient to repay the whole of the capital
paid up at the commencement of the winding up the excess shall be
distributed among the members in proportion to the capital at the
commencement of the winding up paid up or which ought to have been paid
up on the shares held by them respectively. The liquidator may, for the
above purpose, set such value as he deems fair upon any property to be
divided as aforesaid. But this article is to be without prejudice to the
rights of the holders of any share issued upon special terms and
conditions.
(a) If the Company shall be wound up whether voluntarily or otherwise
the liquidator may with the sanction of a special resolution of
the Company in general meeting divide among the contributories in
specie or kind any part of the assets of the Company and may with
the like sanction vest any part of the assets of the Company in
trustees upon such trusts for the benefit of the contributories or
any of them as the liquidator with the like sanction thinks fit.
(b) If thought expedient any such division may be otherwise than in
accordance with the legal rights of the contributories (except
where unalterably fixed by the memorandum of association) and in
particular any class may be given preferential or special rights
or may be excluded altogether or in part; but in case any division
otherwise than in accordance with the legal rights of the
contributories shall be determined on any contributory who would
be prejudiced thereby shall have a right to dissent.
In case any of the shares to be divided as aforesaid consist of shares
which involve a liability to calls or otherwise, any person entitled
under such division to any of the said shares may, within 10 days after
the passing of the special resolution by notice in writing, direct the
liquidator to sell his proportion and pay him the net proceeds, and the
liquidator shall, if practicable, act accordingly.
INDEMNITY
Subject to the provisions of the Ordinance, every director, managing
director, agent, auditor, secretary and other officer for the time being
of the Company shall be indemnified out of the assets of the Company
against any liability incurred by him in relation to the Company in
defending any proceedings, whether civil or criminal, in which judgement
is given in his favour or in which he is acquitted or in connection with
any application under section 358 of the Ordinance in which relief is
granted to him by the court.
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[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
ANNEX C
INTERNATIONAL TECHNOLOGY LICENSE AGREEMENT
This Agreement, effective as of _______________________, 1999 (the "Effective
Date"), is between AdForce Inc., a Delaware USA corporation
[or its to-be-formed wholly-owned Cayman Islands subsidiary] ("LICENSOR"),
and AdForce Asia (H.K.), Ltd. ("CUSTOMER"), a Hong Kong corporation.
Licensor and Customer agree as follows:
1. DEFINITIONS. Capitalized terms have the meanings specified in
this Agreement and EXHIBIT A.
2. LICENSE GRANT. Subject to the terms of this Agreement,
Licensor grants Customer a non-exclusive, non-transferable license to use the
Technology during the term of this Agreement at the Location solely for its
Business Purposes.
3. SPECIFIC LICENSE RESTRICTIONS.
(a) Customer will not disassemble, decompile, or reverse
engineer the software elements of the Technology.
(b) Customer will not modify the Technology without
Licensor's prior written approval or pursuant to the Consulting Agreement.
(c) Customer will not copy the Technology or related
documentation, in whole or in part, except create two back-up copies of the
executable versions of the software included in the Technology.
(d) Customer will not use or allow others to use the
Technology in any manner other than the Business Purposes pursuant to the
Joint Venture Agreement.
(e) Nothing herein shall preclude Customer from licensing
technology from a third party which is not competitive to Technology or any
add-ons or enhancements to the Technology which Licensor does not have.
4. PROPRIETARY RIGHTS.
(a) The Technology is and will remain both in whole and in
part the sole and exclusive property of Licensor. Customer agrees never to
challenge the validity of such proprietary rights pursuant to this Agreement.
(b) Customer will not delete or in any manner alter the
copyright, trademark, and other proprietary rights notices of Licensor and
its licensors, if any, appearing on the Technology as delivered to Customer.
Customer will reproduce such notices on all copies it makes of the
Technology.
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5. DELIVERY. Licensor will deliver one copy of the software
elements of the Technology and related documentation to Customer in
electronic form within five business days of execution of this Agreement by
both parties or at such later date that Customer has established its computer
system.
6. FEES AND TAXES.
(a) The License Fee will be due and payable by Customer to
Licensor upon delivery of the Technology pursuant to Section 5; provided,
however, that the License Fee shall be waived upon Licensor's receipt of
Customer stock pursuant to the Joint Venture Agreement. If at any time a
government authority, including without limitation the IRS, subsequently
imputes a royalty rate to this License, Customer agrees to pay such imputed
amount to Licensor.
(b) Customer will be responsible for, and will promptly pay,
all taxes of whatever nature (including but not limited to sales and use
taxes) associated with this Agreement or Customer's receipt or use of the
Technology, except taxes based on Licensor's net income.
7. WARRANTIES.
(a) Licensor warrants that during the ninety (90) days
following delivery to the Customer:
(i) the Technology will perform in accordance with
Licensor's documentation in all material respects; and
(ii) any storage media containing the Technology will
be free from defects in materials and workmanship.
(b) In the event the Technology or storage media fails to
conform to such warranty, as Customer's sole and exclusive remedy for such
failure Licensor will, at its option and without charge to Customer, repair
or replace the Technology or storage media or refund to Customer the License
Fee paid, provided the nonconforming item is returned to Licensor within the
ninety day warranty period.
(c) THE WARRANTIES IN THIS SECTION ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT.
8. INDEMNITY.
(a) DUTY TO INDEMNIFY AND DEFEND.
(i) At Licensor's expense, Licensor will defend
Customer against any action or other proceeding brought against Customer to
the extent it is based on a claim that the use of the Technology as licensed
in this Agreement infringes any intellectual property right of a third party
or that the Technology incorporates any misappropriated trade secrets.
(ii) Licensor and Customer will each bear their
respective costs, damages, and expenses (excluding, in Customer's case, the
costs of defense, which shall be borne by Licensor) incurred in any such
action or proceeding attributable to any such claim in accordance with their
respective uses of the Technology.
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(iii) Licensor will have no obligation under this
Section as to any action, proceeding, or claim unless: (A) Licensor is
notified of it promptly; (B) Licensor has sole control of its defense and
settlement; and (C) Customer provides Licensor with reasonable assistance in
its defense and settlement.
(b) INJUNCTIONS. If Customer's use of any Technology under
the terms of this Agreement is, or in Licensor's opinion is likely to be,
enjoined due to any claim of infringement or misappropriation, then Licensor
may, at its sole option and expense, either:
(A) procure for Customer the right to continue
using such Technology under the terms of this
Agreement;
(B) replace or modify such Technology so that it is
noninfringing and substantially equivalent in
function to the enjoined Technology; or
(C) if options (A) and (B) above cannot be
accomplished despite the reasonable efforts of
Licensor, then Licensor may both:
(1) terminate Customer's rights and
Licensor's obligations under this Agreement
with respect to such Technology; and
(2) refund to Customer the unamortized
portion of the License Fee paid based upon a
5 year straight-line depreciation, such
depreciation to be deemed to have commenced
on the effective date of this Agreement.
(c) THE FOREGOING ARE LICENSOR'S SOLE AND EXCLUSIVE
OBLIGATIONS, AND CUSTOMER'S SOLE AND EXCLUSIVE REMEDIES, WITH RESPECT TO
INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS.
(d) Licensor will have no obligations under this Section 8 with
respect to infringement or misappropriation arising from: (i) modifications to
the Technology that were not authorized by Licensor; (ii) Technology
specifications requested by Customer; (iii) the integration of Technology with
products not provided by Licensor; or (iv) the failure of Customer to use the
most recent non infringing version of the Technology made available by Licensor.
9. CONFIDENTIAL INFORMATION.
(a) Customer agrees:
(i) that it will not disclose or, except as
expressly permitted in this Agreement, use any of the Technology or other
technical information disclosed to it by Licensor ("CONFIDENTIAL
INFORMATION"); and
(ii) that it will take all reasonable measures to
maintain the confidentiality of all Confidential Information in its
possession or control, which will in no event be less than the measures it
uses to maintain the confidentiality of its own information of equal
importance.
(b) Confidential Information will not include information that:
(i) is in or enters the public domain without breach of
this Agreement or the Supplemental Agreements;
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(ii) Customer receives from a third party without
restriction on disclosure and without breach of a nondisclosure obligation; or
(iii) Customer develops independently, which it can
demonstrate with evidence.
(c) Customer acknowledges that the Technology is a trade
secret of Licensor, the disclosure of which would cause substantial harm to
Licensor that could not be remedied by the payment of damages alone.
Accordingly, Licensor will be entitled to preliminary and permanent
injunctive relief and other equitable relief for any breach of this Section 9.
10. MAINTENANCE AND SUPPORT.
(a) Any corrections, additions or improvements or other
forms of updates to the Technology provided by Licensor to Customer will be
deemed Technology for all purposes of this Agreement. Customer shall pay to
Licensor an ongoing maintenance fee equal to [*] per thousand ad impressions
delivered by Customer, payable within 30 days from the date of invoice.
(b) Licensor will provide Customer with updates for the
Technology without charge to the extent that it generally provides such
updates to its customers without charge.
(c) Except as specified in subsection (b) above, any
maintenance, support, updates, training, or consulting services will be
provided by Licensor only under the terms of a separate agreement, such as
the Supplemental Agreements, between the parties.
11. LIMITATIONS OF LIABILITY.
(a) LICENSOR'S TOTAL LIABILITY UNDER THIS AGREEMENT WILL BE
LIMITED TO THE LICENSE FEE.
(b) IN NO EVENT WILL LICENSOR BE LIABLE TO CUSTOMER UNDER
THIS AGREEMENT FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER
BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY,
OR OTHERWISE, AND WHETHER OR NOT LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGE.
(c) The parties have agreed that the limitations specified
in this Section 11 will survive and apply even if any limited remedy
specified in this Agreement is found to have failed of its essential purpose.
12. TERM AND TERMINATION. This Agreement will continue in full
force and effect perpetually, except as follows:
(a) Licensor will have the right to terminate this Agreement
if:
(i) Customer breaches any material term or condition
of this Agreement and fails to cure such breach within thirty (30) days of
written notice from Licensor or there has been a material uncured default
under the Supplemental Agreements which would permit Licensor to terminate
the Joint Venture Agreement;
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(ii) Customer becomes the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors;
(iii) Customer becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if
such petition or proceeding is not dismissed within sixty (60) days of
filing; or
(iv) Upon the termination or expiration of the Joint
Venture Agreement except in connection with the initial public offering of
Customer.
(b) If this Agreement is terminated, Customer will
immediately return to Licensor or (at Licensor's request) destroy all copies
of the Technology in its possession or control, and an officer of Customer
will certify to Licensor in writing that it has done so.
(c) The provisions of Sections 4, 7, 8, 9 and 11- 14 will
survive termination of this Agreement for any reason.
(d) The exercise by Licensor of any remedies under this
Agreement will be without prejudice to its other remedies.
13. DISCLAIMER. The parties recognize that Licensor is not in the
business of licensing the Technology (rather it utilizes the Technology to
provide services to its customers) and that Customer's ability to effectively
utilize the Technology is contingent upon a high level of sophistication and
training of Customer personnel. Moreover, the Related Technology is
expressly NOT included in this License.. Finally, Customer's ability to
effectively utilize the Technology is dependent upon the successful use of
elements of the Technology for localization purposes pursuant to the
Consulting Agreement. Licensor is not responsible for such consultant's
performance.
14. GENERAL. The provisions of the attached General Terms and
Conditions are incorporated by reference into this Agreement.
Customer: Licensor:
- ---------------------------------- ---------------------------------
By: By:
------------------------------- ------------------------------
Name: Name:
----------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- ---------------------------
Address: Address:
--------------------------- -------------------------
- ---------------------------------- ---------------------------------
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EXHIBIT A
TECHNOLOGY (INCLUDING NAME, RELEASE DATES AND VERSION NUMBERS OF VARIOUS
SOFTWARE):
Licensor offers Internet advertising management and delivery services through
its system comprised of its AdForce 2.6 version of five (5) basic modules:
(i) ad delivery, (ii) reporting, (iii) data analysis, (iv) campaign push and
(v) ad management. A simplified architectural diagram of these modules is
attached hereto. In addition, Licensor provides its customers "AdForce
Desktop/Report Manager 3.0" applications for use on the customer's site
(collectively, "AdForce Desktop"). The ad delivery module consists of image
serving and ad selection submodules, and is referred to in the Joint Venture
Agreement to which this License Agreement is attached and other Supplemental
Agreements to such Joint Venture Agreement as "Front End Service." The
various services performed by the reporting, data analysis, campaign push and
ad management modules are referred to in such agreements collectively as
"Back End Service."
The Licensed Technology consists of AdForce Desktop 3.0, and all Licensor
technology included within the ad delivery module, together with any
upgrades, modifications or enhancements thereto which Licensor hereafter
includes within its own services for its customers without additional
charges, but excluding third party technology rights which Licensor may not
sublicense or which may be sublicensed but only upon payment of additional
fees; in the latter event, Licensor will use its best efforts to sublicense
such third party technology to Customer subject to Customer's payment of such
additional fees. Features and functionality in the ad delivery module which
Licensor develops after the date hereof and makes available to its own
customers for additional charges will be made available to Customer, subject
to comparable charges.
DOCUMENTATION: To be determined.
LOCATION: Customer's principal place of business and such other locations as
Licensor may reasonably approve within the Territory from time to time.
LICENSE FEE: waived upon Licensor's receipt of Customer stock pursuant to
the Joint Venture Agreement; provided, however, if at any time during the
Term a government authority, including without limitation the IRS,
subsequently imputes a royalty rate to this License, Customer agrees to pay
such imputed amount to Licensor.
BUSINESS PURPOSES: shall have the meaning set forth in Section 1.1 of the
Joint Venture Agreement. Any disagreement over where a particular customer's
primary business operations are located shall be determined as set forth in
8.8(c) of the Joint Venture Agreement.
SUPPLEMENTAL AGREEMENTS: shall have the meaning set forth in the Joint
Venture Agreement.
JOINT VENTURE AGREEMENT: the Joint Venture Agreement dated as of the
Effective Date among Licensor, Sina.com and Compuserve.
TERRITORY: shall have the meaning set forth in the Joint Venture Agreement.
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GENERAL TERMS AND CONDITIONS
AGENCY. Nothing in this Agreement will be construed to create a
partnership or agency relationship between the parties.
ASSIGNMENT. This Agreement will bind and inure to the benefit of each
party's successors and assigns. A change in control will be deemed to be an
assignment unless the party is a publicly traded entity. Neither party can
assign its rights or obligations under this Agreement, provided that AdForce,
Inc. can elect to assign this Agreement to its wholly owned subsidiary or in
connection with a merger or sale of substantially all of its or the
subsidiary's assets and Sina can elect to assign this Agreement to any wholly
owned subsidiary.
BENEFICIARIES. There are no intended third party beneficiaries of
this Agreement.
CONTROLLING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of California applicable to agreements
entered into, and to be performed entirely, within California between
California residents. The United Nations Convention on the Sale of Goods
will not apply.
ENTIRE AGREEMENT. This Agreement is the complete and exclusive
agreement between the parties with respect to its subject matter, superseding
and replacing any and all prior agreements, communications, and
understandings (both written and oral) regarding such subject matter. This
Agreement may only be modified, or any rights under it waived, by a written
document executed by both parties. Purchase orders or similar documents
issued by the parties will have no effect on the terms of this Agreement
unless signed by an authorized signatory of the other party. This Agreement
may be executed by facsimile or original signature in multiple counterparts
which taken together will constitute on agreement. Any ambiguity in the
provisions of this Agreement will not be construed against any party, as all
parties have been represented by counsel.
LANGUAGE. This Agreement is written and executed and will be
construed in standard American English. No translation will bear on the
interpretation or construction of the provisions of this Agreement nor the
intent of the parties to it.
NOTICES. All notices under this Agreement will be deemed given when
delivered personally or sent by reputable international courier to the
address specified in this Agreement or as may otherwise be specified by
either party to the other by notice in accordance with this Section.
SEVERABILITY. If any provision of this Agreement is found illegal or
unenforceable, it will be enforced to the maximum extent permissible, and the
legality and enforceability of the other provisions of this Agreement will
not be affected.
WAIVER. No failure of either party to exercise or enforce any of its
rights under this Agreement will act as a waiver of such rights.
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<PAGE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
ANNEX D
RECIPROCAL SERVICES AGREEMENT
This Reciprocal Services Agreement ("Agreement") is entered into
between AdForce Asia (HK), Ltd., a Hong Kong corporation with offices at
_______________________________ ("AAHK"), and AdForce, Inc., a Delaware
corporation with offices at 10590 North Tantau Avenue, Cupertino, CA 95014
("AFI").
AFI offers Internet advertising management and delivery services
through its systems comprised of five (5) basic modules: (i) ad delivery,
(ii) reporting, (iii) data analysis, (iv) campaign push and (v) ad
management. A simplified architectural diagram of these modules is attached
hereto as EXHIBIT A. Ad delivery, which consists of image serving and ad
selection submodules, is referred to herein as "Front End Service"; the
various services performed by the reporting, data analysis, campaign push and
ad management modules are referred to collectively as "Back End Service."
Under the Joint Venture Agreement between AFI, Sina.com and Compuserve
Consultants, Ltd. (the "Joint Venture Agreement") to which this Agreement is
attached as ANNEX D, AFI has licensed certain Front End Service technology to
AAHK which, together with AFI's provision hereunder of Back End Services,
will enable AAHK to provide outsourced, centralized ad management and
delivery services on the Internet. The parties intend that AAHK will provide
ad management and delivery services for customers in the Territory (as
defined in the Joint Venture Agreement), and that AFI will provide ad
management and delivery services for customers outside the Territory. The
Joint Venture Agreement also authorizes AAHK to market its services on a
non-exclusive basis to customers in [*] (as defined in the Joint Venture
Agreement). The parties also anticipate, however, that certain customers of
AFI may have affiliated websites hosted in the Territory, and that certain
AAHK customers may have affiliated websites hosted outside the Territory.
Though AFI will in all cases provide Back End Services for all customers,
wherever located, each party must be prepared to provided Front End Services
to the other where "local image delivery and ad selection" is technically
superior and/or where dictated by the wishes of their respective customers.
Accordingly, pursuant to the terms of this Agreement, the parties have agreed
that (i) AFI will subcontract image serving or Front End Services to AAHK for
certain AFI customers who wish to serve ads in the Territory, (ii) AAHK will
subcontract Front End Services to AFI for certain AAHK customers who wish to
serve ads outside the Territory, (iii) AFI and AAHK will each subcontract to
the other image serving or Front End Services as mutually agreed to serve
their respective customers in [*], and (iv) AAHK will subcontract Back End
Services to AFI for all ads delivered on behalf of AAHK's customers,
regardless of location.
The parties hereby agree as follows:
1. AAHK SERVICES TO AFI. During the term of this Agreement, AAHK agrees to
make image delivery services available to AFI, as requested by AFI from
time to time, for serving images in the Territory and [*] for AFI
customers at the cost-per-thousand ("CPM") rate set forth on EXHIBIT B
hereto. After AAHK installs ad selection capability, AAHK will also make
full Front End Service available to AFI, as requested by AFI from time to
time, for ad selection and serving images for AFI customers at the CPM
rate set forth on EXHIBIT B.
2. AFI SERVICES TO AAHK. During the term of this Agreement, AAHK agrees to
make Front End Services available to AAHK, as requested by AAHK from time
to time, for serving images outside the Territory for AAHK customers at
the CPM rate set forth on EXHIBIT B hereto. AFI also agrees to provide
Back End Services to AAHK for all ads delivered on behalf of AAHK's
customers at the CPM rate set forth on EXHIBIT B hereto. Such Bank End
Services shall include, without limitation, the following: (a) a monthly
report of the number of "Impressions" (defined as the response to a
request for an advertisement made via an AFI tag placed by AAHK)
delivered hereunder by AFI or AAHK, including verification of each report
by a third-party auditor (the Audit Bureau of Verification Services, Inc.
or another third party chosen by AFI); (b) the targeting features further
described in EXHIBIT C; and (c) a suite of standard reports also listed
in EXHIBIT C. At AFI's sole discretion, features may be added to the
Back End Service. Features which AFI includes in its own services to its
own customers typically without additional charge
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will be included in AFI's services hereunder for no additional fees.
Features which AFI includes in its own services to its own customers
typically for additional charges will be made available to AAHK at
comparable fees.
3. ADDITIONAL OBLIGATIONS. Each party agrees to use all commercially
reasonable efforts to provide and maintain equipment sufficient to meet
the requirements of the other party for Front End Services or Back End
Services, as applicable. Each party agrees to provide the other 90-day
rolling, non-binding forecasts of its requirements.
4. CONFIDENTIALITY. The Confidentiality Addendum attached hereto as EXHIBIT
D is incorporated herein by reference. Any passwords of AAHK and its
customers to the AFI Back End Service are confidential to AAHK and such
customers, respectively. Any account information input into the AFI Back
End Service by AAHK or its customers is confidential to such AAHK
customers. All AFI user guides, the AFI Desktop application and AFI
"help" documentation, whether on-line or in printed form, are
confidential to AFI.
5. WARRANTY. Each party represents and warrants to the other that it is
free to enter into this Agreement and that this Agreement constitutes the
valid and binding obligation of such party, enforceable in accordance
with its terms. AFI warrants that, except for events beyond AFI's
reasonable control, including but not limited to Internet access outages,
Internet packet losses, Internet latency issues and other events of force
majeure, (a) the AFI Back End Service will materially conform to the
functionality for such service described in the AFI User Guide; (b) AFI
either owns or has the right to use all hardware and software components
of the AFI Service and the provision of the AFI Service will not infringe
on any intellectual property right of any third party. Further, each
party represents to the other that, except for events beyond such party's
reasonable control, including but not limited to Internet access outages,
Internet packet losses, Internet latency issues and other events of force
majeure, (a) the Front End Service provided by such party to the other
under Section 1 or 2, as applicable, will materially conform to the
functionality for such service described in the AFI User Guide. EXCEPT
AS SPECIFIED IN THIS SECTION, AFI HEREBY DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND ALL WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, IN CONNECTION WITH THIS AGREEMENT.
6. AAHK INDEMNIFICATION OF AFI. AAHK shall defend, indemnify and hold
harmless AFI from any claims, liability, damages and costs (including
reasonable costs and attorneys' fees, "Claims") arising out of or
relating to advertising placed by AAHK or its customers using AFI Front
End Services and/or Back End Services, including, without limitation,
claims based on the failure of such services or allegations of libel,
allegations of false or misleading advertising, invasion of privacy or
rights of publicity; provided that: (i) AFI promptly notifies AAHK of
such claims; (ii) AAHK has sole control of the defense and settlement of
such claims and is not responsible for any settlement that it does not
approve in writing; and (iii) AFI renders all assistance required, at
AAHK's expense.
7. AFI INDEMNIFICATION OF AAHK. AFI shall defend, indemnify and hold
harmless AAHK from any claims, liability, damages and costs (including
reasonable costs and attorneys' fees, "Claims") arising out of or
relating to advertising placed by AFI or its customers using AAHK Front
End Services, including, without limitation, claims based on the failure
of such services or allegations of libel, allegations of false or
misleading advertising, invasion of privacy or rights of publicity;
provided that: (i) AAHK promptly notifies AFI of such claims; (ii) AFI
has sole control of the defense and settlement of such claims and is not
responsible for any settlement that it does not approve in writing; and
(iii) AAHK renders all assistance required, at AFI's expense. AFI shall
further defend, indemnify and hold harmless AAHK from any Claims for
infringement arising out of or relating to AAHK's use of AFI's Back End
Service pursuant to this Agreement; provided that: (i) AAHK promptly
notifies AFI of such claims; (ii) AFI has sole control of the defense and
settlement of such claims and is not responsible for any settlement that
it does not approve in writing; and (iii) AAHK renders all assistance
required, at AFI's expense. If AFI believes that an injunction may be
entered against AAHK's use of AFI's Back End Services, AFI may, at its
option, (A) obtain a license permitting such use, (B) modify such
services to avoid the infringement, or (C) if it cannot reasonably do
either of the foregoing, terminate this Agreement. NOTWITHSTANDING ANY
PROVISION OF THIS AGREEMENT TO THE CONTRARY, AFI'S INDEMNIFICATION
OBLIGATIONS UNDER THIS SECTION CONSTITUTE AAHK'S SOLE AND EXCLUSIVE
REMEDY WITH RESPECT TO INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF
ANY KIND.
8. LIABILITY. NEITHER PARTY WILL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR EXEMPLARY DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT,
PRODUCT
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LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN WARNED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. TERMINATION. Either party may terminate the Agreement if the other party
fails to perform any of its obligations in any material respect, and such
failure continues for a period of sixty (60) days after receipt by the
breaching party of written notice from the non-breaching party specifying
such default. Either party may terminate this Agreement in the event
that the other party ceases to do business, undergoes a bankruptcy or
insolvency proceeding, or an assignment for the benefit of creditors.
Upon the expiration or termination of the Agreement for any reason, the
parties will return all Confidential Information of the other party in
their possession. All accrued payment obligations of a the parties shall
survive expiration or termination of the Agreement, as shall the parties'
rights and obligations under Sections 4, 5, 6 through 8, Sections 10
through 13, and EXHIBIT D.
10. ASSIGNMENT. This Agreement is not assignable or transferable by either
party without the prior written consent of the other party, except that a
party may assign the Agreement (a) by operation of law or (b) to any
entity acquiring substantially all of assignor's assets.
11. PAYMENT TERMS. AAHK shall pay to AFI and AFI shall pay to AAHK the
dollar amounts determined from the pricing schedule set forth in EXHIBIT
B, in each case within thirty (30) days from receipt of invoice. All
payments shall be remitted in U. S. Dollars.
12. TERM. The term shall commence on the Effective Date of the Joint Venture
Agreement and shall continue for so long as the Joint Venture Agreement
is in effect.
13. GENERAL. This Agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communications relating to the
subject matter of this Agreement. No failure or delay in exercising any
right hereunder will operate as a waiver thereof, nor will any partial
exercise of any right or power hereunder preclude further exercise. Any
waivers or amendments shall be effective only if made in writing. If any
provision of this Agreement shall be adjudged by any court of competent
jurisdiction to be unenforceable or invalid, that provision shall be
limited or eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be governed by the law of the State of
California without regard to or application of choice of law rules or
principles. The prevailing party in any action to enforce this Agreement
will be entitled to recover its attorneys' fees and costs in connection
with such action. Each party agrees to comply with all applicable laws,
rules and regulations in connection with its activities under this
Agreement. Nothing contained herein shall be construed as establishing a
partnership, joint venture, employment or other business relationship
between the parties hereto other than that of independent contractors.
This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of August 31,
1999 (the "Effective Date").
AdForce, Inc. AdForce Asia (H.K.), Ltd.
By: ___________________________ By: ___________________________
Its: __________________________ Its: __________________________
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[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
EXHIBIT B
AFI Back End Service
<TABLE>
<CAPTION>
----------------------------------------------------
AFI BACK END SERVICE
----------------------------------------------------
<S> <C>
Campaign Management Scheduling
features Inventory Forecast
Reporting
Targeting
Auditing [*] per campaign audit
AAHK Support 24 hour support by phone
or pager
----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATES PER THOUSAND IMPRESSIONS
- ---------------------------------------------------------------------------------
IMPRESSIONS/MONTH IMAGE SERVING AD SELECTION BACK END SERVICES
PROVIDED BY AFI PROVIDED BY AFI PROVIDED BY AFI
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
All Volumes Per AFI quote, [*] [*]
subject to AAHK's
approval and
acceptance
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATES PER THOUSAND IMPRESSIONS
- ---------------------------------------------------------------
AFI CUSTOMER IMAGE SERVING AD SELECTION
PROVIDED BY AAHK PROVIDED BY AAHK
- ---------------------------------------------------------------
<S> <C> <C>
Up to and including the [*] [*]
first anniversary of
the Effective Date, for
support of AFI's
existing customers in
the Territory (24/7
Media, AOL/Netscape and
Adsmart)
- ---------------------------------------------------------------
After the first Per AAHK quote, Per AAHK quote,
anniversary of the subject to AFI's subject to AFI's
Effective Date, for approval and approval and
support of AFI's acceptance acceptance
existing customers in
the Territory (24/7
Media, AOL/Netscape and
Adsmart)
- ---------------------------------------------------------------
All other AFI customers Per AAHK quote, Per AAHK quote,
subject to AFI's subject to AFI's
approval and approval and
acceptance acceptance
- ---------------------------------------------------------------
</TABLE>
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EXHIBIT C
AFI TARGETING
The AFI Service includes targeting on the following parameters, when AFI
databases allow the parameter to be resolved:
- - Browser Type - Different campaigns can be delivered to visitors with
different browsers.
- - Operating System - Different campaigns can be delivered to visitors with
different operating systems
- - Domain Type - Different campaigns can be delivered to visitors from
different domains (i.e. .com or .edu)
- - Service Provider - Different campaigns can be delivered to visitors with
different Internet service providers.
- - Telephone Area Code (U.S. domestic only) -- Different campaigns can be
delivered to visitors in different area codes.
- - Country - Different campaigns can be delivered to visitors from different
countries.
- - Frequency - An advertisement can be shown no more than a specified number of
times to each visitor.
- - Sequence - A series of advertisements can be shown in sequence to a visitor.
- - Keywords - Advertisements can be targeted on the basis of a word or phrase
typed by a visitor.
- - Site Data - Ads can be targeted on the basis of data in a site's database
(i.e. with registered users)
- - Day / Date / Time of Day - Ads can be scheduled to run during specific times
and on specific days.
- - Content Area - Ads can be targeted to a specific area of a site.
There may be additional charges for additional targeting parameters added in the
future such as demographic or behavior targeting, as well as for customization
of the targeting algorithms for keywords and site data.
AFI REPORTING
The following reports are currently available in the AFI Back End Service (where
applicable):
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Summary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Monthly Billing Report
Summary by Website
Website Revenue
</TABLE>
There will be additional charges for reports customized or designed to customer
specifications. There may also be additional charges for reports added in the
future.
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EXHIBIT D
CONFIDENTIALITY ADDENDUM
This Confidentiality Addendum ("Addendum") is attached to that certain
Reciprocal Services Agreement between AAHK and AFI (the "Services Agreement")
1. CONFIDENTIAL INFORMATION. For purposes herein, the party
disclosing Confidential Information (as defined below) in any given instance is
referred to as the "Disclosing Party," and the party receiving the information
in such instance is referred to as the "Recipient." "Confidential Information"
includes all information, data and know-how disclosed by Disclosing Party to
Recipient hereunder, whether in written form or embodied in tangible materials
(including, without limitation, software, hardware, drafts, drawings, graphs,
charts, spreadsheets, disks, tapes, prototypes, samples, letters, notes,
memoranda or presentations), which is clearly marked or labeled "CONFIDENTIAL"
or with a similar legend, or which if disclosed orally or not so marked, is of
such a type or nature that a reasonable person would conclude that such
information is confidential.
2. CONFIDENTIALITY OBLIGATIONS. Recipient agrees that it will
preserve in strict confidence and secure against accidental loss any
Confidential Information disclosed by Disclosing Party to Recipient, and will
otherwise comply with the terms of this Addendum, for a period of three (3)
years from disclosure of such Confidential Information by Disclosing Party. In
preserving Disclosing Party Confidential Information, Recipient will use the
same standard of care it would use to secure and safeguard its own confidential
information of similar importance, but in no event less than reasonable care.
Any permitted reproduction of Disclosing Party's Confidential Information shall
contain all confidential or proprietary legends that appear on the original.
Recipient shall immediately notify Disclosing Party in the event of any loss or
unauthorized disclosure of Confidential Information.
3. PERMITTED DISCLOSURES. Recipient shall permit access to
Disclosing Party Confidential Information solely to its employees who (i) have a
need to know such information and (ii) have signed confidentiality agreements
containing terms at least as restrictive as those contained herein. Recipient
shall not disclose Confidential Information to any affiliate, parent or
subsidiary of Recipient, or disclose or transfer any Confidential Information to
third parties, without the specific prior written approval of Disclosing Party.
Recipient shall use Disclosing Party Confidential Information disclosed
hereunder solely for the purposes set forth in the Services Agreement and for
such other purposes as Disclosing Party shall specifically approve in writing.
4. OBLIGATION TO RETURN CONFIDENTIAL INFORMATION. Recipient
acknowledges that Disclosing Party retains ownership of all Confidential
Information disclosed or made available to Recipient. Accordingly, upon any
termination, cancellation or expiration of the Services Agreement, or upon
Disclosing Party's request for any reason, Recipient shall return promptly to
Disclosing Party the originals and all copies (without retention of any copy) of
any written documents, tools, materials or other tangible items containing or
embodying Confidential Information.
5. NO REPRESENTATIONS OR WARRANTIES. Disclosing Party makes no
warranties, whether express, statutory or implied, relating to the sufficiency
or accuracy of the Confidential Information disclosed for any purpose, nor
regarding infringement of others' intellectual property rights which may arise
from the use of such Confidential Information.
6. EXCLUSIONS. This Addendum shall not apply to information with
respect to which Recipient can affirmatively establish that (a) Recipient
rightfully possessed such information prior to its first receipt thereof from
Disclosing Party, as shown by files of Recipient in existence at the time of the
disclosure; (b) such information is publicly known or, through no wrongful act
or failure to act by Recipient, becomes publicly known; (c) the information is
hereafter furnished to Recipient by a third party who is not in breach of an
obligation of confidentiality; (d) employees or other agents of Recipient who
have not been exposed to the Confidential Information independently developed
such information without reference to or reliance upon Disclosing Party's
confidential information; or (e) Recipient is required by governmental or court
order to disclose such information, provided that Recipient shall provide
Disclosing Party advance notice thereof to enable Disclosing Party the
opportunity to prevent or control such disclosure.
7. NO GRANT OF PROPERTY RIGHTS. Recipient recognizes and agrees
that nothing contained in this Addendum shall be construed as granting any
property rights, by license or otherwise, to any Disclosing Party Confidential
Information disclosed pursuant to the Services Agreement or this Addendum, or to
any invention or any patent right that has issued or that may issue based on
such Confidential Information.
8. REMEDIES; SURVIVAL. Recipient acknowledges that improper
disclosure, or threatened disclosure, of Disclosing Party Confidential
Information will cause irreparable harm to Disclosing Party, and thus that
Disclosing Party shall be entitled to, among other forms of relief, injunctive
relief to prevent any such unauthorized disclosure. Recipient's obligations
under this Agreement shall survive termination of its association with
Disclosing Party regardless of the manner of such termination and shall be
binding upon Recipient's heirs, successors and assigns.
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[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
ANNEX E
ADFORCE ASIA SERVICES AGREEMENT
This AdForce Services Agreement ("Agreement") is entered into between
AdForce, Inc., a Delaware corporation with offices at 10590 N. Tantau Ave.,
Cupertino, CA 95035 ("AdForce") and Sina.com, a Cayman Islands corporation with
offices at 1313 Geneva Drive, Sunnyvale, CA 94089 ("Sina"), as part of a Joint
Venture Agreement between AdForce, Sina and Compuserve Consultants, Ltd. (the
"Joint Venture Agreement") to which this Agreement is attached as ANNEX E. Upon
formation of AdForce Asia (H.K.), Ltd. ("AdForce Asia") pursuant to the Joint
Venture Agreement, AdForce Asia will replace AdForce as a party to this
Agreement. References to AdForce herein will thereafter mean AdForce Asia, a
Hong Kong corporation. References to the "Parent," however, will mean AdForce,
Inc., a Delaware corporation.
AdForce offers an Internet advertising management and delivery service
known as "AdForce for Publishers" (the "AdForce Service"), which enables each
user of the AdForce Service to manage its advertising on its Web site, a network
of Web sites or similar on-line environments. AdForce provides each user of the
AdForce Service a "customer-side" software application ("AdForce Desktop") to
enable the user to place ad tags, schedule advertising and generate reports
concerning such advertising. AdForce maintains server complexes from which
AdForce electronically delivers advertising scheduled by Sina to the online
environments containing AdForce ad tags.
AdForce has agreed to provide the AdForce Service to Sina pursuant to the
terms and conditions of this Agreement. The parties hereby agree as follows:
1. ADFORCE SERVICE; TERM. Sina agrees that AdForce will be Sina's exclusive
provider of ad management and delivery service for Sina's Beijing based web site
for the term of this Agreement, and will be Sina's exclusive provider of all ad
management and delivery service requirements of Sina and its affiliates from the
date Parent delivers the "double-byte support," described in Exhibit D, through
the remaining term of this Agreement and for the rates and pricing terms as set
forth in the attached EXHIBIT A. If the Parent is unable to deliver the
"double-byte support" by September 30, 1999, the rates set forth in Exhibit A
shall be reduced by 20% from October 1, 1999 until such time as the Parent
delivers such "double-byte support." In exchange for the fees set forth in
EXHIBIT A, AdForce agrees to provide AdForce Gold Service to Sina for an initial
term of four (4) years or six (6) months from the date SINA provides notice to
AdForce of its intention to exercise its liquidation rights pursuant to Section
12 of the Joint Venture Agreement, whichever is later. The term shall
automatically renew for sequential one (1) year periods so long as the Joint
Venture Agreement is in effect. The AdForce Service provides the following:
(a) a monthly report of the number of "Impressions" (defined as the response to
a request for an advertisement made via an AdForce ad tag placed by Sina)
delivered by AdForce, including verification of each report by a third-party
auditor (the Audit Bureau of Verification Services, Inc. or another third party
chosen by AdForce); (b) the targeting features further described in EXHIBIT B;
and (c) a suite of standard reports also listed in EXHIBIT B. At AdForce's sole
discretion, features may be added to the AdForce Service and may be subject to
additional fees.
2. CUSTOMER SUPPORT. The AdForce Service includes the customer support
described in EXHIBIT A.
3. CUSTOMER OBLIGATIONS. Sina agrees to implement the ad tags as described
in the AdForce User Guide and help documentation made available to Sina
by AdForce. Sina also agrees to schedule all advertising for Sina's Web
sites or other on-line properties using AdForce Desktop. Should the
average file size of Sina's advertisements exceed 15 kilobytes, as
determined by AdForce on a monthly basis, Sina agrees to pay the
incremental fee listed in EXHIBIT A to compensate for higher bandwidth
costs. Sina agrees to provide AdForce rolling 90-day volume forecasts of
Impressions to be delivered using the AdForce Service, updated at the
beginning of each calendar month.
4. LICENSE/LIMITATIONS ON USE. Subject to the terms and conditions of this
Agreement, AdForce hereby grants to Sina, contingent on timely payment of
monies due to AdForce, a non-exclusive, non-transferable license for the
term of this Agreement to use AdForce Desktop internally and solely in
connection with the AdForce Service. AdForce shall have the sole and
exclusive ownership of all right, title and interest in and to AdForce
Desktop, any enhancements thereto and in any materials and data provided
to Sina by AdForce. Sina shall not copy, modify, alter, sell, distribute
or sublicense AdForce Desktop or reverse assemble, reverse compile or
otherwise attempt by any other method to create or derive the source
programs of AdForce Desktop, nor authorize or contract with third parties
to do the same. Sina shall not use AdForce Desktop or the AdForce
Service for any purpose other than managing Sina's advertising on its own
Web sites,
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including without limitation, providing outsourcing services,
timesharing or the operation of a service bureau for the benefit of third
parties. During the course of delivering advertising to visitors to
Sina's site, AdForce will collect and maintain information necessary to
target advertising, including but not limited to the user's IP address,
cookie, browser type and operating system, as well as the time, date and
ad tag of the request. Although AdForce owns the right to use or grant
use of this information, it will provide Sina, to the extent allowed by
law, with the ability to run the reports described in EXHIBIT A.
5. CONFIDENTIALITY. The Confidentiality Addendum attached hereto as EXHIBIT
C is incorporated herein by reference. Any Sina passwords to the AdForce
Service, including the AdForce user guides, AdForce Desktop, and AdForce
"help" documentation, whether on-line or in printed form, are
confidential to AdForce. Any account information input into the AdForce
Service by Sina is confidential to Sina.
6. WARRANTY. Sina warrants that Sina is free to enter into this Agreement
and that this Agreement constitutes the valid and binding obligation of
Sina, enforceable in accordance with its terms. AdForce warrants that
AdForce is free to enter into and perform this Agreement and, except for
events beyond AdForce's control, including but not limited to Internet
access outages, and other events of force majeure, (a) the AdForce
Service will materially conform to the functionality described in the
AdForce User Guide; (b) AdForce either owns or has the right to use all
hardware and software components of the AdForce Service and the provision
of the AdForce Service will not infringe on any intellectual property
right of any third party. EXCEPT AS SPECIFIED IN THIS SECTION, ADFORCE
HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT, IN CONNECTION WITH THIS
AGREEMENT.
7. INDEMNIFICATION. (a) Subject to subsection (b), Sina shall defend,
indemnify and hold harmless AdForce from any claims, liability, damages
and costs (including reasonable costs and attorneys' fees, "Claims")
arising out of or relating to advertising placed by Sina using the
AdForce Service, including, without limitation, claims based on the
failure of the AdForce Service or AdForce Desktop or allegations of
libel, allegations of false or misleading advertising, invasion of
privacy or rights of publicity; provided that: (i) AdForce promptly
notifies Sina of such claims; (ii) Sina has sole control of the defense
and settlement of such claims and is not responsible for any settlement
that it does not approve in writing; and (iii) AdForce renders all
assistance required, at Sina's expense. (b) AdForce shall defend,
indemnify and hold harmless Sina from any Claims for infringement arising
out of or relating to Sina's use of AdForce Desktop pursuant to this
Agreement; provided that: (i) Sina promptly notifies AdForce of such
claims; (ii) AdForce has sole control of the defense and settlement of
such claims and is not responsible for any settlement that it does not
approve in writing; and (iii) Sina renders all assistance required, at
AdForce's expense. If AdForce believes that an injunction may be entered
against Sina's use of AdForce Desktop, AdForce in consultation with Sina
may, at its option, (A) obtain a license permitting such use, (B) modify
AdForce Desktop to avoid the infringement, or (C) if it cannot reasonably
do either of the foregoing, terminate Sina's license to AdForce Desktop
and this Agreement. NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO
THE CONTRARY, ADFORCE'S INDEMNIFICATION OBLIGATIONS UNDER THIS SECTION
CONSTITUTE SINA'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO INFRINGEMENT
OF INTELLECTUAL PROPERTY RIGHTS OF ANY KIND.
8. LIABILITY. NEITHER PARTY WILL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR EXEMPLARY DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT,
PRODUCT LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN WARNED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. TERMINATION. Either party may terminate the Agreement if the other party
fails to perform any of its obligations in any material respect, and such
failure continues for a period of thirty (30) days after receipt by the
breaching party of written notice from the non-breaching party specifying
such default. Either party may terminate this Agreement in the event
that the other party ceases to do business, undergoes a bankruptcy or
insolvency proceeding, or an assignment for the benefit of creditors.
Upon the expiration or termination of the Agreement for any reason, the
parties will return all confidential information of the other party in
their possession. All accrued payment obligations of Sina shall survive
expiration or termination of the Agreement, as shall the parties' rights
and obligations under Sections 4 through 9, Sections 11 through 13, and
EXHIBIT C.
10. ASSIGNMENT. This Agreement is not assignable or transferable by either
party without the prior written consent of the other party, except that a
party may assign the Agreement (a) by operation of law, (b) to any entity
acquiring substantially all of assignor's assets or (c) to any wholly
owned subsidiary.
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11. PAYMENT TERMS. Sina shall pay to AdForce the dollar amounts determined
from the pricing schedule set forth in EXHIBIT A, within 30 days from
date of invoice. All payments to AdForce shall be remitted in U. S.
Dollars, shall not be subject to offset or deduction and shall not be
contingent on Sina customers' payments. Fees for the AdForce Service are
subject to change upon any renewal of this Agreement as set forth above.
12. TERM AND LEVEL OF SERVICE. The term shall commence on the Effective Date
indicated below and shall continue for the period indicated in Section 1
13. GENERAL. This Agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communications relating to the
subject matter of this Agreement. No failure or delay in exercising any
right hereunder will operate as a waiver thereof, nor will any partial
exercise of any right or power hereunder preclude further exercise. Any
waivers or amendments shall be effective only if made in writing. If any
provision of this Agreement shall be adjudged by any court of competent
jurisdiction to be unenforceable or invalid, that provision shall be
limited or eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be governed by the law of the State of
California without regard to or application of choice of law rules or
principles. The prevailing party in any action to enforce this Agreement
will be entitled to recover its attorneys' fees and costs in connection
with such action. Each party agrees to comply with all applicable laws,
rules and regulations in connection with its activities under this
Agreement. Nothing contained herein shall be construed as establishing a
partnership, joint venture, employment or other business relationship
between the parties hereto other than that of independent contractors.
This Agreement may be executed in counterparts.
14. ANNOUNCEMENTS. Sina agrees that AdForce may list Sina as a customer of
the AdForce Service in press materials, and may also display Sina's
corporate logo on the AdForce internet website, www.adforce.com, as well
as a brief description of Sina's business subject to approval by Sina.
Notwithstanding the foregoing, however, Sina must preapprove any quotes
or statements attributed to Sina prior to publication.
IN WITNESS WHEREOF, the parties have executed this Agreement as of August 31,
1999 ("Effective Date").
Sina.com AdForce,Inc..
By: /s/ By: /s/
------------------------ -------------------------
Print Name: Daniel Mao Print Name: Rex S. Jackson
------------------------ -------------------------
Title: Director Title: V.P., G.C. & Secretary
------------------------ -------------------------
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EXHIBIT A--ADFORCE SERVICE
(Note: several features will not be available until the localization work of
Compuserve is complete.)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
AFI BACK END SERVICE
<S> <C>
Campaign Management Scheduling
features Inventory Forecast
Reporting
Targeting
Auditing [*] per campaign audit
AAHK Support 24 hour support by phone
or pager
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATES PER THOUSAND IMPRESSIONS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Impressions/month Image Serving Ad Selection Back End Services
Provided by AFI Provided by AFI Provided by AFI
All Volumes Per AFI quote, [*] [*]
subject to AAHK's
approval and
acceptance
</TABLE>
<TABLE>
<CAPTION>
RATES PER THOUSAND IMPRESSIONS
- -----------------------------------------------------------------------
AFI CUSTOMER IMAGE SERVING AD SELECTION
PROVIDED BY AAHK PROVIDED BY AAHK
- -----------------------------------------------------------------------
<S> <C> <C>
Up to and including the [*] [*]
first anniversary of
the Effective Date, for
support of AFI's
existing customers in
the Territory (24/7
Media, AOL/Netscape and
Adsmart)
- -----------------------------------------------------------------------
After the first Per AAHK quote, Per AAHK quote,
anniversary of the subject to AFI's subject to AFI's
Effective Date, for approval and approval and
support of AFI's acceptance acceptance
existing customers in
the Territory (24/7
Media, AOL/Netscape and
Adsmart)
- -----------------------------------------------------------------------
All other AFI customers Per AAHK quote, Per AAHK quote,
subject to AFI's subject to AFI's
approval and approval and
acceptance acceptance
- -----------------------------------------------------------------------
</TABLE>
*[*].
- - The above rates are conditioned upon services being provided on an exclusive
basis.
- - Custom reports can be designed for an extra charge.
- - On-site training is available on request for [*] per day, per trainer, plus
reasonable travel expenses.
- - A surcharge of [*] per thousand Impressions will be applied for each 10
kilobytes, or fraction thereof, that the average size of advertisements over
a 30-day period exceeds 15 kilobytes.
- - Rich media will be subject to additional charges.
- - [*]
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EXHIBIT B
ADFORCE TARGETING
The AdForce Service includes targeting on the following parameters, when AdForce
databases allow the parameter to be resolved:
- - Browser Type - Different campaigns can be delivered to visitors with
different browsers.
- - Operating System - Different campaigns can be delivered to visitors with
different operating systems
- - Domain Type - Different campaigns can be delivered to visitors from different
domains (i.e. .com or .edu)
- - Service Provider - Different campaigns can be delivered to visitors with
different Internet service providers.
- - Telephone Area Code - Different campaigns can be delivered to visitors in
different area codes.
- - SIC Code - Different campaigns can be delivered to visitors working for
companies with different SIC codes.
- - Country - Different campaigns can be delivered to visitors from different
countries.
- - Frequency - An advertisement can be shown no more than a specified number of
times to each visitor.
- - Sequence - A series of advertisements can be shown in sequence to a visitor.
- - Keywords - Advertisements can be targeted on the basis of a word or phrase
typed by a visitor.
- - Site Data - Ads can be targeted on the basis of data in a site's database
(i.e. with registered users)
- - Day / Date / Time of Day - Ads can be scheduled to run during specific times
and on specific days.
- - Content Area - Ads can be targeted to a specific area of a site.
There may be additional charges for additional targeting parameters added in the
future such as demographic or behavior targeting, as well as for customization
of the targeting algorithms for keywords and site data.
ADFORCE REPORTING
The following reports are currently available in the AdForce Service (where
applicable):
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Summary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Monthly Billing Report
Summary by Website
Website Revenue
</TABLE>
There will be additional charges for reports customized or designed to Sina's
specifications. There may also be additional charges for reports added in the
future.
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EXHIBIT C
CONFIDENTIALITY ADDENDUM
This Confidentiality Addendum ("Addendum") is attached to that certain
Services Agreement between Sina.com and AdForce, Inc. (the "Services Agreement")
1. CONFIDENTIAL INFORMATION. For purposes herein, the party
disclosing Confidential Information (as defined below) in any given instance is
referred to as the "Disclosing Party," and the party receiving the information
in such instance is referred to as the "Recipient." "Confidential Information"
includes all information, data and know-how disclosed by Disclosing Party to
Recipient hereunder, whether in written form or embodied in tangible materials
(including, without limitation, software, hardware, drafts, drawings, graphs,
charts, spreadsheets, disks, tapes, prototypes, samples, letters, notes,
memoranda or presentations), which is clearly marked or labeled "CONFIDENTIAL"
or with a similar legend, or which if disclosed orally or not so marked, is of
such a type or nature that a reasonable person would conclude that such
information is confidential.
2. CONFIDENTIALITY OBLIGATIONS. Recipient agrees that it will
preserve in strict confidence and secure against accidental loss any
Confidential Information disclosed by Disclosing Party to Recipient, and will
otherwise comply with the terms of this Addendum, for a period of three (3)
years from disclosure of such Confidential Information by Disclosing Party. In
preserving Disclosing Party Confidential Information, Recipient will use the
same standard of care it would use to secure and safeguard its own confidential
information of similar importance, but in no event less than reasonable care.
Any permitted reproduction of Disclosing Party's Confidential Information shall
contain all confidential or proprietary legends that appear on the original.
Recipient shall immediately notify Disclosing Party in the event of any loss or
unauthorized disclosure of Confidential Information.
3. PERMITTED DISCLOSURES. Recipient shall permit access to
Disclosing Party Confidential Information solely to its employees who (i) have a
need to know such information and (ii) have signed confidentiality agreements
containing terms at least as restrictive as those contained herein. Recipient
shall not disclose or transfer any Confidential Information to third parties,
without the specific prior written approval of Disclosing Party. Recipient
shall use Disclosing Party Confidential Information disclosed hereunder solely
for the purposes set forth in the Services Agreement and for such other purposes
as Disclosing Party shall specifically approve in writing.
4. OBLIGATION TO RETURN CONFIDENTIAL INFORMATION. Recipient
acknowledges that Disclosing Party retains ownership of all Confidential
Information disclosed or made available to Recipient. Accordingly, upon any
termination, cancellation or expiration of the Services Agreement, or upon
Disclosing Party's request for any reason, Recipient shall return promptly to
Disclosing Party the originals and all copies (without retention of any copy) of
any written documents, tools, materials or other tangible items containing or
embodying Confidential Information.
5. NO REPRESENTATIONS OR WARRANTIES. Disclosing Party makes no
warranties, whether express, statutory or implied, relating to the sufficiency
or accuracy of the Confidential Information disclosed for any purpose, nor
regarding infringement of others' intellectual property rights which may arise
from the use of such Confidential Information.
6. EXCLUSIONS. This Addendum shall not apply to information with
respect to which Recipient can affirmatively establish that (a) Recipient
rightfully possessed such information prior to its first receipt thereof from
Disclosing Party, as shown by files of Recipient in existence at the time of the
disclosure; (b) such information is publicly known or, through no wrongful act
or failure to act by Recipient, becomes publicly known; (c) the information is
hereafter furnished to Recipient by a third party who is not in breach of an
obligation of confidentiality; (d) employees or other agents of Recipient who
have not been exposed to the Confidential Information independently developed
such information without reference to or reliance upon Disclosing Party's
confidential information; or (e) Recipient is required by governmental or court
order to disclose such information, provided that Recipient shall provide
Disclosing Party advance notice thereof to enable Disclosing Party the
opportunity to prevent or control such disclosure.
7. NO GRANT OF PROPERTY RIGHTS. Recipient recognizes and agrees
that nothing contained in this Addendum shall be construed as granting any
property rights, by license or otherwise, to any Disclosing Party Confidential
Information disclosed pursuant to the Services Agreement or this Addendum, or to
any invention or any patent right that has issued or that may issue based on
such Confidential Information.
8. REMEDIES; SURVIVAL. Recipient acknowledges that improper
disclosure, or threatened disclosure, of Disclosing Party Confidential
Information will cause irreparable harm to Disclosing Party, and thus that
Disclosing Party shall be entitled to, among other forms of relief, injunctive
relief to prevent any such unauthorized disclosure. Recipient's obligations
under this Agreement shall survive termination of its association with
Disclosing Party regardless of the manner of such termination and shall be
binding upon Recipient's heirs, successors and assigns.
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[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
ANNEX H
ADFORCE RESELLER AGREEMENT
This Reseller Agreement ("Agreement") is entered into as of August 31,
1999 (the "Effective Date") between AdForce, Inc., a Delaware corporation having
a business address at 10590 North Tantau Avenue, Cupertino, CA 95014
("AdForce"), and Compuserve Consultants Limited, Unit 803 AIA Tower, 183
Electric Road, Hong Kong ("Compuserve").
BACKGROUND
A. AdForce offers Internet advertising management and delivery services
known as "AdForce for Publishers" and "AdForce for Agencies/Advertisers"
(each, the "AdForce Service"), which enables a user of the AdForce
Service to manage advertising on its Web site, a network of Web sites or
similar on-line environments. AdForce provides each user of the AdForce
Service with AdForce's proprietary "AdForce Desktop" software application
("AdForce Desktop") to enable the user to place ad tags, schedule
advertising and generate reports concerning such advertising. AdForce
maintains server complexes from which AdForce electronically delivers
advertising scheduled through the AdForce Desktop application to the
online environments containing AdForce ad tags.
B. Subject to the terms and conditions of this Agreement, Compuserve wishes
to obtain the nonexclusive right to market the AdForce Service to end
users (each a "Compuserve Customer," and collectively "Compuserve
Customers") in certain countries for use on their respective Web sites or
network of Web sites.
AGREEMENT
1. ADFORCE SERVICE; MARKETING RIGHTS. Compuserve shall have the
nonexclusive right to resell the AdForce Service in the countries listed
on EXHIBIT E attached hereto. AdForce may at any time during the term
hereof add or delete eligible countries from such list upon 45 days prior
written notice to Compuserve; provided, however, that no such
notification shall affect any agreements then in place with respect to
Compuserve Customers.
The AdForce Service is described in EXHIBIT A. In exchange for the fees
set forth in EXHIBIT A, AdForce agrees to provide each Compuserve
Customer the AdForce Service pursuant to such Compuserve Customer's end
user agreement (in the form attached hereto as EXHIBIT D) for the term
indicated in such agreement.
The AdForce Service includes the following: (a) a monthly report of the
number of "Impressions" (defined as the response to a request for an
advertisement made via an AdForce ad tag placed by Compuserve or the
Compuserve Customer) delivered by AdForce, including verification of each
report by a third-party auditor (the Audit Bureau of Verification
Services, Inc. or another third party chosen by AdForce); (b) the
targeting features further described in EXHIBIT B; and (c) a suite of
standard reports also listed in EXHIBIT B. At AdForce's sole discretion,
features may be added to the AdForce Service and may be subject to
additional fees.
2. CUSTOMER SUPPORT. The AdForce Service levels include the customer
support described in EXHIBIT A. AdForce and Compuserve anticipate that
AdForce personnel will provide full customer support for Compuserve
Customers, including scheduling campaigns, until Compuserve has received
training from AdForce to enable Compuserve to begin filling such role,
and AdForce and Compuserve mutually agree that Compuserve is prepared to
take on such role. This training will be done at AdForce's standard rate
of [*] per day, per trainer, plus travel and other direct expenses.
After the parties agree that Compuserve personnel have been properly
trained, Compuserve will be responsible for all customer support services
for its customers, including scheduling campaigns; provided, however,
that AdForce shall make available its technical support staff to handle
technical issues that arise from time to time. During all times that
AdForce is supplying campaign scheduling services, Compuserve must
provide campaign information not less than 48 hours in advance of
campaign start time. Once Compuserve assumes responsibility for
scheduling campaigns, it will maintain this advance notice requirement.
3. OTHER COMPUSERVE OBLIGATIONS. Compuserve agrees to provide AdForce a
fully executed copy of any agreement for the AdForce Service entered into
between Compuserve and any Compuserve Customer; any changes to the form
attached hereto as EXHIBIT D must be preapproved by AdForce. Compuserve
agrees to implement, or to cause its customers to implement, AdForce ad
tags as described in the AdForce User Guide and help documentation made
available by AdForce. Compuserve agrees to provide AdForce rolling
90-day volume forecasts of Impressions to be delivered using the AdForce
Service for all Compuserve Customers, updated at the beginning of each
calendar month.
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4. LICENSE/LIMITATIONS ON USE. Subject to the terms and conditions of this
Agreement and to timely payment of monies due AdForce, AdForce hereby
grants to Compuserve a non-exclusive, non-transferable license for the
term of this Agreement to use AdForce Desktop solely in connection with
the AdForce Service. AdForce shall have the sole and exclusive ownership
of all right, title and interest in and to AdForce Desktop, any
enhancements thereto and in any materials and data provided to Compuserve
by AdForce. Compuserve shall not copy, modify, alter or sell, distribute
or sublicense (except pursuant to validly executed agreements in the form
attached hereto as EXHIBIT D) AdForce Desktop or reverse assemble,
reverse compile or otherwise attempt by any other method to create or
derive the source programs of AdForce Desktop, nor authorize or contract
with third parties to do the same. Compuserve shall not use AdForce
Desktop or the AdForce Service for any purpose other than managing online
advertising for Compuserve Customers who have signed agreements in the
form attached hereto as EXHIBIT D. During the course of delivering
advertising to visitors to Compuserve Customers' sites, AdForce will
collect and maintain information necessary to target advertising,
including but not limited to the user's IP address, cookie, browser type
and operating system, as well as the time, date and ad tag of the
request. Although AdForce owns the right to use or grant use of this
information, it will provide Compuserve and its Compuserve Customers, to
the extent allowed by law, the ability to run the reports described in
EXHIBIT A.
5. CONFIDENTIALITY. The Confidentiality Addendum attached hereto as EXHIBIT
C is incorporated herein by reference. Any Compuserve or Compuserve
Customer passwords to the AdForce Service, the AdForce user guides,
AdForce Desktop, and AdForce "help" documentation, whether on line or in
printed form, are confidential to AdForce. Any account information input
into the AdForce Service by Compuserve or any Compuserve Customer is
confidential to the respective customers.
6. WARRANTY. Compuserve warrants that it is free to enter into this
Agreement and that this Agreement constitutes the valid and binding
obligation of Compuserve, enforceable in accordance with its terms.
AdForce warrants that AdForce is free to enter into and perform this
Agreement and, except for events beyond AdForce's control, including but
not limited to Internet access outages and other events of force majeure,
(a) the AdForce Service will materially conform to the functionality
described in the AdForce User Guide; (b) AdForce either owns or has the
right to use all hardware and software components of the AdForce Service
and the provision of the AdForce Service will not infringe on any
intellectual property right of any third party. EXCEPT AS SPECIFIED IN
THIS SECTION, ADFORCE HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND ALL WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT,
IN CONNECTION WITH THIS AGREEMENT.
7. INDEMNIFICATION. (a) Subject to subsection (b), Compuserve shall defend,
indemnify and hold harmless AdForce from any claims, liability, damages
and costs (including reasonable costs and attorneys' fees, "Claims")
arising out of or relating to advertising placed by Compuserve or any
Compuserve Customer using the AdForce Service, including, without
limitation, claims based on the failure of the AdForce Service or the
AdForce Desktop or allegations of libel, allegations of false or
misleading advertising, invasion of privacy or rights of publicity;
provided that: (i) AdForce promptly notifies Compuserve of such claims;
(ii) Compuserve has sole control of the defense and settlement of such
claims and is not responsible for any settlement that it does not approve
in writing; and (iii) AdForce renders all assistance required, at
Compuserve's expense. (b) AdForce shall defend, indemnify and hold
harmless Compuserve from any Claims for infringement arising out of or
relating to Compuserve's use of the AdForce Desktop pursuant to this
Agreement; provided that: (i) Compuserve promptly notifies AdForce of
such claims; (ii) AdForce has sole control of the defense and settlement
of such claims and is not responsible for any settlement that it does not
approve in writing; and (iii) Compuserve renders all assistance required,
at AdForce's expense. If AdForce believes that an injunction may be
entered against Compuserve's use of the AdForce Desktop, AdForce may, at
its option, (A) obtain a license permitting such use, (B) modify the
AdForce Desktop to avoid the infringement, or (C) if it cannot reasonably
do either of the foregoing, terminate Compuserve's right to use AdForce
Desktop, this Agreement and any Compuserve Customer agreements.
NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY,
ADFORCE'S INDEMNIFICATION OBLIGATIONS UNDER THIS SECTION CONSTITUTE
COMPUSERVE'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO INFRINGEMENT OF
INTELLECTUAL PROPERTY RIGHTS OF ANY KIND.
8. LIABILITY. NEITHER PARTY WILL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR EXEMPLARY DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT,
PRODUCT LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN WARNED OF THE
POSSIBILITY OF SUCH DAMAGES.
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<PAGE>
9. TERMINATION; COMPUSERVE CUSTOMER AGREEMENTS. Either party may terminate
the Agreement if the other party fails to perform any of its obligations
in any material respect, and such failure continues for a period of 30
days after receipt by the breaching party of written notice from the
non-breaching party specifying such default. Either party may terminate
this Agreement in the event that the other party ceases to do business,
undergoes a bankruptcy or insolvency proceeding, or an assignment for the
benefit of creditors. Upon the expiration or termination of the
Agreement for any reason, the parties will return all confidential
information of the other party in their possession. All accrued payment
obligations of Compuserve shall survive expiration or termination of the
Agreement, as shall the parties' rights and obligations under Sections 4
through 9, Sections 11 through 13, and EXHIBIT C. If this Agreement is
terminated for any reason other than AdForce's default, at AdForce's
election any or all agreements with Compuserve Customers shall be
automatically assigned to AdForce, and AdForce shall thereafter be
entitled to work directly with such customers to provide the AdForce
Service. If such termination is not due to Compuserve's default, then
AdForce shall continue to pay to Compuserve the difference between the
rates charged each Compuserve Customer and the rates initially chargeable
to Compuserve as set forth on EXHIBIT A hereto; Compuserve will not,
however, receive the benefit of the additional deduction allowed for
providing customer support.
10. ASSIGNMENT. This Agreement is not assignable or transferable by either
party without the prior written consent of the other party, except that a
party may assign the Agreement (a) by operation of law or (b) to any
entity acquiring substantially all of assignor's assets.
11. PAYMENT TERMS. Compuserve shall pay to AdForce the dollar amounts
determined from the pricing schedule set forth in EXHIBIT A, within 15
days from date of invoice. All payments to AdForce shall be remitted in
U. S. Dollars by wire transfer. Fees for the AdForce Service are subject
to change upon any renewal of this Agreement.
12. TERM AND LEVEL OF SERVICE. The term shall commence on the Effective Date
indicated below and shall continue for one calendar year from such date.
This Agreement may be renewed for additional periods by mutual agreement.
No termination of this Agreement other than under Section 7 shall
terminate AdForce's obligations under any Compuserve Customer agreements.
13. GENERAL. This Agreement and the attachments hereto is the complete and
exclusive statement of the mutual understanding of the parties and
supersedes and cancels all previous written and oral agreements and
communications relating to the subject matter of this Agreement. No
failure or delay in exercising any right hereunder will operate as a
waiver thereof, nor will any partial exercise of any right or power
hereunder preclude further exercise. Any waivers or amendments shall be
effective only if made in writing. If any provision of this Agreement
shall be adjudged by any court of competent jurisdiction to be
unenforceable or invalid, that provision shall be limited or eliminated
to the minimum extent necessary so that this Agreement shall otherwise
remain in full force and effect and enforceable. This Agreement shall be
governed by the law of the State of California without regard to or
application of choice of law rules or principles. The prevailing party
in any action to enforce this Agreement will be entitled to recover its
attorneys' fees and costs in connection with such action. Each party
agrees to comply with all applicable laws, rules and regulations in
connection with its activities under this Agreement. Nothing contained
herein shall be construed as establishing a partnership, joint venture,
employment or other business relationship between the parties hereto
other than that of independent contractors. This Agreement may be
executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of: AUGUST 31,
1999 ("Effective Date").
Compuserve Consultants Limited AdForce, Inc.
By: /s/ By: /s/
------------------------ -----------------------
Print Name: Terrence Fok Print Name: Rex S. Jackson
------------------------ -----------------------
Title: Executive Director Title: V.P., G.C. & Secretary
------------------------ -----------------------
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[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
EXHIBIT A--ADFORCE SERVICE DESCRIPTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------
ADFORCE PLATINUM
<S> <C>
Campaign Management Scheduling
features Delivery
Inventory Forecast
Reporting
Targeting
Auditing [*]
Customer Support 24 hour support by phone or pager
Same Day Change Orders [*]
Campaign Service Full Service per Section 2 of the
Agreement
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATES PER THOUSAND IMPRESSIONS
- ----------------------------------------------------------------------------------
GOLD PLATINUM PLATINUM
IMPRESSIONS/MONTH GOLD LIST RESELLER LIST PRICE RESELLER
PRICE PRICE PRICE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 5 million [*] [*] [*] [*]
- ----------------------------------------------------------------------------------
5 - 10 million [*] [*] [*] [*]
- ----------------------------------------------------------------------------------
Over 10 - 30 million [*] [*] [*] [*]
- ----------------------------------------------------------------------------------
Over 30 - 100 million [*] [*] [*] [*]
- ----------------------------------------------------------------------------------
Over 100 - 300 million [*] [*] [*] [*]
- ----------------------------------------------------------------------------------
Over 300 million [*] [*] [*] [*]
- ----------------------------------------------------------------------------------
</TABLE>
Once Compuserve assumes responsibility for campaign insertions for its
customers, the above Reseller Price rates will be reduced by a mutually agreed
amount to reflect Compuserve's assumption of the costs associated with these
activities.
- - Custom reports can be designed for an extra charge.
- - Training is available on request for [*] per day, per trainer, plus
reasonable travel expenses.
- - A surcharge of [*] per thousand Impressions will be applied for each 10
kilobytes, or fraction thereof, that the average size of advertisements over
a 30-day period exceeds 15 kilobytes.
- - Rich media will be subject to additional fees.
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EXHIBIT B
ADFORCE TARGETING
The AdForce Service include targeting on the following parameters, when AdForce
databases allow the parameter to be resolved:
- - BROWSER TYPE - Different campaigns can be delivered to visitors with
different browsers.
- - OPERATING SYSTEM - Different campaigns can be delivered to visitors with
different operating systems
- - DOMAIN TYPE - Different campaigns can be delivered to visitors from
different domains (i.e. .com or .edu)
- - SERVICE PROVIDER - Different campaigns can be delivered to visitors with
different Internet service providers.
- - TELEPHONE AREA CODE - Different campaigns can be delivered to visitors in
different area codes.
- - SIC CODE - Different campaigns can be delivered to visitors working for
companies with different SIC codes.
- - COUNTRY - Different campaigns can be delivered to visitors from different
countries.
- - FREQUENCY - An advertisement can be shown no more than a specified number of
times to each visitor.
- - SEQUENCE - A series of advertisements can be shown in sequence to a visitor.
- - KEYWORDS - Advertisements can be targeted on the basis of a word or phrase
typed by a visitor.
- - SITE DATA - Ads can be targeted on the basis of data in a site's database
(i.e. with registered users)
- - DAY / DATE / TIME OF DAY - Ads can be scheduled to run during specific times
and on specific days.
- - CONTENT AREA - Ads can be targeted to a specific area of a site.
There may be additional charges for additional targeting parameters added in the
future such as demographic or behavior targeting, as well as for customization
of the targeting algorithms for keywords and site data.
ADFORCE REPORTING
The following reports are currently available in the AdForce Service:
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ---------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Summary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating Summary by Operating
System System
Summary by Hour Activity by Pay Type Summary by Service
Provider
Summary by Operating Activity by Service Summary by SIC Code
System Provider
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Website Revenue Campaign Summary
Provider
Summary by SIC Code Monthly Billing Report
Summary by Website
Website Revenue
</TABLE>
There will be additional charges for custom reports. There may also be
additional charges for reports added in the future.
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EXHIBIT C
CONFIDENTIALITY ADDENDUM
This Confidentiality Addendum ("Addendum") is attached to that
certain Services Agreement between Compuserve and AdForce, Inc. (the "Services
Agreement")
1. CONFIDENTIAL INFORMATION. For purposes herein, the party
disclosing Confidential Information (as defined below) in any given instance is
referred to as the "Disclosing Party," and the party receiving the information
in such instance is referred to as the "Recipient." "Confidential Information"
includes all information, data and know-how disclosed by Disclosing Party to
Recipient hereunder, whether in written form or embodied in tangible materials
(including, without limitation, software, hardware, drafts, drawings, graphs,
charts, spreadsheets, disks, tapes, prototypes, samples, letters, notes,
memoranda or presentations), which is clearly marked or labeled "CONFIDENTIAL"
or with a similar legend, or which if disclosed orally or not so marked, is of
such a type or nature that a reasonable person would conclude that such
information is confidential.
2. CONFIDENTIALITY OBLIGATIONS. Recipient agrees that it
will preserve in strict confidence and secure against accidental loss any
Confidential Information disclosed by Disclosing Party to Recipient, and will
otherwise comply with the terms of this Addendum, for a period of three (3)
years from disclosure of such Confidential Information by Disclosing Party. In
preserving Disclosing Party Confidential Information, Recipient will use the
same standard of care it would use to secure and safeguard its own confidential
information of similar importance, but in no event less than reasonable care.
Any permitted reproduction of Disclosing Party's Confidential Information shall
contain all confidential or proprietary legends that appear on the original.
Recipient shall immediately notify Disclosing Party in the event of any loss or
unauthorized disclosure of Confidential Information.
3. PERMITTED DISCLOSURES. Recipient shall permit access to
Disclosing Party Confidential Information solely to its employees who (i) have a
need to know such information and (ii) have signed confidentiality agreements
containing terms at least as restrictive as those contained herein. Recipient
shall not disclose Confidential Information to any affiliate, parent or
subsidiary of Recipient, or disclose or transfer any Confidential Information to
third parties, without the specific prior written approval of Disclosing Party.
Recipient shall use Disclosing Party Confidential Information disclosed
hereunder solely for the purposes set forth in the Services Agreement and for
such other purposes as Disclosing Party shall specifically approve in writing.
4. OBLIGATION TO RETURN CONFIDENTIAL INFORMATION. Recipient
acknowledges that Disclosing Party retains ownership of all Confidential
Information disclosed or made available to Recipient. Accordingly, upon any
termination, cancellation or expiration of the Services Agreement, or upon
Disclosing Party's request for any reason, Recipient shall return promptly to
Disclosing Party the originals and all copies (without retention of any copy) of
any written documents, tools, materials or other tangible items containing or
embodying Confidential Information.
5. NO REPRESENTATIONS OR WARRANTIES. Disclosing Party makes
no warranties, whether express, statutory or implied, relating to the
sufficiency or accuracy of the Confidential Information disclosed for any
purpose, nor regarding infringement of others' intellectual property rights
which may arise from the use of such Confidential Information.
6. EXCLUSIONS. This Addendum shall not apply to information
with respect to which Recipient can affirmatively establish that (a) Recipient
rightfully possessed such information prior to its first receipt thereof from
Disclosing Party, as shown by files of Recipient in existence at the time of the
disclosure; (b) such information is publicly known or, through no wrongful act
or failure to act by Recipient, becomes publicly known; (c) the information is
hereafter furnished to Recipient by a third party who is not in breach of an
obligation of confidentiality; (d) employees or other agents of Recipient who
have not been exposed to the Confidential Information independently developed
such information without reference to or reliance upon Disclosing Party's
confidential information; or (e) Recipient is
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<PAGE>
required by governmental or court order to disclose such information,
provided that Recipient shall provide Disclosing Party advance notice thereof
to enable Disclosing Party the opportunity to prevent or control such
disclosure.
7. NO GRANT OF PROPERTY RIGHTS. Recipient recognizes and
agrees that nothing contained in this Addendum shall be construed as granting
any property rights, by license or otherwise, to any Disclosing Party
Confidential Information disclosed pursuant to the Services Agreement or this
Addendum, or to any invention or any patent right that has issued or that may
issue based on such Confidential Information.
8. REMEDIES; SURVIVAL. Recipient acknowledges that improper
disclosure, or threatened disclosure, of Disclosing Party Confidential
Information will cause irreparable harm to Disclosing Party, and thus that
Disclosing Party shall be entitled to, among other forms of relief, injunctive
relief to prevent any such unauthorized disclosure. Recipient's obligations
under this Agreement shall survive termination of its association with
Disclosing Party regardless of the manner of such termination AND SHALL BE
BINDING UPON RECIPIENT'S HEIRS, SUCCESSORS AND ASSIGNS.
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EXHIBIT D
PLATINUM SERVICES AGREEMENT
This Platinum Services Agreement ("Agreement") is entered into between
Compuserve Consultants Limited, Unit 803 AIA Tower, 183 Electric Road, Hong Kong
("Compuserve"), as reseller for AdForce, Inc., a Delaware corporation with
offices at 10590 North Tantau Avenue, Cupertino, CA 95014 ("AdForce"), and the
customer further described in the signature block below ("Customer").
Compuserve is a reseller of the "AdForce Service," an Internet
advertising management and delivery service provided by AdForce which enables
each user of the AdForce Service to manage advertising on its Web site, a
network of Web sites, or similar on-line environments. Each user of the AdForce
Service receives a "customer-side" software application ("AdForce Desktop") to
enable the user to place ad tags, schedule advertising and generate reports
concerning such advertising. AdForce maintains server complexes from which
AdForce electronically delivers advertising scheduled by Compuserve or Customer
to the online environments containing AdForce ad tags.
Compuserve and Customer hereby agree as follows:
1. ADFORCE SERVICE. The AdForce Service is further described in EXHIBIT A.
In exchange for the fees set forth in EXHIBIT A, Compuserve will provide
the AdForce Service through AdForce for the period indicated below:
<TABLE>
<CAPTION>
----------------------------------------------------------------
LEVEL OF SERVICE TERM
----------------------------------------------------------------
<S> <C>
______ / / ADFORCE PLATINUM ______ / / 180-day term
(Initial) (Initial)
----------------------------------------------------------------
______ / / 1-year term
(Initial)
----------------------------------------------------------------
</TABLE>
The AdForce Service provides the following: (a) a monthly report of the
number of "Impressions" (defined as the response to a request for an
advertisement made via an AdForce ad tag placed by Customer) delivered by
AdForce, including verification of each report by a third-party auditor
(the Audit Bureau of Verification Services, Inc. or another third party
chosen by AdForce); (b) the targeting features further described in
EXHIBIT B; and (c) a suite of standard reports also listed in EXHIBIT B.
At AdForce's sole discretion, features may be added to the AdForce
Service and may be subject to additional fees.
2. CUSTOMER SUPPORT. The AdForce Service includes the customer support
described in EXHIBIT A. This customer support will initially be provided
by AdForce, but will subsequently be assumed by Compuserve.
3. CUSTOMER OBLIGATIONS. Customer agrees to implement the ad tags as
described in the AdForce User Guide and help documentation made available
to Customer by Compuserve. Customer agrees to supply Compuserve, with
copy to AdForce, the information necessary to schedule Customer's ad
campaigns at least 48 hours in advance of campaign initiation. Should
the average file size of Customer's advertisements exceed 15 kilobytes,
as determined by Compuserve on a monthly basis, Customer agrees to pay
the incremental fee listed in EXHIBIT A to compensate for higher
bandwidth costs. Customer agrees to provide Compuserve rolling 90-day
volume forecasts of Impressions to be delivered using the AdForce
Service, updated at the beginning of each calendar month.
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4. LICENSE/LIMITATIONS ON USE. Subject to the terms and conditions of this
Agreement, Compuserve hereby grants to Customer, contingent on timely
payment of monies due to AdForce, a non-exclusive, non-transferable
sublicense for the term of this Agreement to use AdForce Desktop
internally and solely in connection with the AdForce Service. AdForce
shall have the sole and exclusive ownership of all right, title and
interest in and to AdForce Desktop, any enhancements thereto and in any
materials and data provided to Customer or Compuserve by AdForce.
Customer shall not copy, modify, alter, sell, distribute or sublicense
AdForce Desktop or reverse assemble, reverse compile or otherwise attempt
by any other method to create or derive the source programs of AdForce
Desktop, nor authorize or contract with third parties to do the same.
Customer shall not use AdForce Desktop or the AdForce Service for any
purpose other than managing Customer's advertising on its own Web sites,
including without limitation, providing outsourcing services, timesharing
or the operation of a service bureau for the benefit of third parties.
During the course of delivering advertising to visitors to Customer's
site, AdForce will collect and maintain information necessary to target
advertising, including but not limited to the user's IP address, cookie,
browser type and operating system, as well as the time, date and ad tag
of the request. Although AdForce owns the right to use or grant use of
this information, Customer will be able, to the extent allowed by law, to
run the reports described in EXHIBIT A.
5. CONFIDENTIALITY. The Confidentiality Addendum attached hereto as EXHIBIT
C is incorporated herein by reference. Any Customer passwords to the
AdForce Service, the AdForce user guides, AdForce Desktop and AdForce
"help" documentation, whether on-line or in printed form, are
confidential to AdForce. Any account information input into the AdForce
Service by Customer, or by Compuserve on behalf of Customer, is
confidential to Customer.
6. WARRANTY. Customer warrants that Customer is free to enter into this
Agreement and that this Agreement constitutes the valid and binding
obligation of Customer, enforceable in accordance with its terms.
Compuserve warrants that Compuserve is free to enter into and perform
this Agreement and, except for events beyond Compuserve's or AdForce's
control, including but not limited to Internet access outages and other
events of force majeure, (a) the AdForce Service will materially conform
to the functionality described in the AdForce User Guide; (b) AdForce
either owns or has the right to use all hardware and software components
of the AdForce Service and the provision of the AdForce Service will not
infringe on any intellectual property right of any third party. EXCEPT
AS SPECIFIED IN THIS SECTION, COMPUSERVE HEREBY DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND ALL WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, IN CONNECTION WITH THIS AGREEMENT.
7. INDEMNIFICATION. (a) Subject to subsection (b), Customer shall defend,
indemnify and hold harmless Compuserve and AdForce from any claims,
liability, damages and costs (including reasonable costs and attorneys'
fees, "Claims") arising out of or relating to advertising placed by
Customer using the AdForce Service, including, without limitation, claims
based on the failure of the AdForce Service or AdForce Desktop or
allegations of libel, allegations of false or misleading advertising,
invasion of privacy or rights of publicity; provided that: (i)
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Compuserve and/or AdForce, as applicable, promptly notifies Customer
of such claims; (ii) Customer has sole control of the defense and
settlement of such claims and is not responsible for any settlement
that it does not approve in writing; and (iii) Compuserve and/or
AdForce, as applicable, renders all assistance required, at Customer's
expense. (b) Compuserve shall defend, indemnify and hold harmless
Customer from any Claims for infringement arising out of or relating
to Customer's use of AdForce Desktop pursuant to this Agreement;
provided that: (i) Customer promptly notifies Compuserve of such
claims; (ii) Compuserve has sole control of the defense and settlement
of such claims and is not responsible for any settlement that it does
not approve in writing; and (iii) Customer renders all assistance
required, at Compuserve's expense. If Compuserve or AdForce believes
that an injunction may be entered against Customer's use of AdForce
Desktop, AdForce may, at its option, (A) obtain a license permitting
such use, (B) modify AdForce Desktop to avoid the infringement, or (C)
if it cannot reasonably do either of the foregoing, terminate
Customer's license to AdForce Desktop. NOTWITHSTANDING ANY PROVISION
OF THIS AGREEMENT TO THE CONTRARY, COMPUSERVE'S INDEMNIFICATION
OBLIGATIONS UNDER THIS SECTION CONSTITUTE CUSTOMER'S SOLE AND
EXCLUSIVE REMEDY WITH RESPECT TO INFRINGEMENT OF INTELLECTUAL PROPERTY
RIGHTS OF ANY KIND.
8. LIABILITY. UNDER NO CIRCUMSTANCES WILL CUSTOMER, COMPUSERVE OR ADFORCE
BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES,
WHETHER BASED ON BREACH OF CONTRACT, TORT, PRODUCT LIABILITY OR
OTHERWISE, EVEN IF SUCH PERSON HAS BEEN WARNED OF THE POSSIBILITY OF SUCH
DAMAGES. SPECIFICALLY, AND NOT IN LIMITATION OF THE FOREGOING, IN NO
EVENT SHALL COMPUSERVE OR ADFORCE BE LIABLE FOR ANY PORTION OF THE VALUE
OF LOST AD IMPRESSION INVENTORIES BEYOND THE AD-SERVING COST PER THOUSAND
SET FORTH ON EXHIBIT A.
9. TERMINATION. Either party may terminate the Agreement if the other party
fails to perform any of its obligations in any material respect, and such
failure continues for a period of 30 days after receipt by the breaching
party of written notice from the non-breaching party specifying such
default. Either party may terminate this Agreement in the event that the
other party ceases to do business, undergoes a bankruptcy or insolvency
proceeding, or an assignment for the benefit of creditors. Upon the
expiration or termination of the Agreement for any reason, the parties
will return all confidential information of the other party in their
possession. All accrued payment obligations of Customer shall survive
expiration or termination of the Agreement, as shall the parties' rights
and obligations under Sections 4 through 9, Sections 11 through 13, and
EXHIBIT C.
10. ASSIGNMENT. This Agreement is not assignable or transferable by either
party without the prior written consent of the other party, except that a
party may assign the Agreement (a) by operation of law or (b) to any
entity acquiring substantially all of assignor's assets. Notwithstanding
the foregoing, Customer acknowledges that this Agreement may be assigned
by Compuserve to AdForce.
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11. PAYMENT TERMS. Customer shall pay to Compuserve the amounts determined
from the pricing schedule set forth in EXHIBIT A, within 15 days from
date of invoice. Fees are subject to change upon any renewal of this
Agreement.
12. TERM AND LEVEL OF SERVICE. The term shall commence on the Effective Date
indicated below and shall continue for the period indicated in Section 1.
The term shall automatically renew for the same period of time as the
initial term unless, within 30 days of the end of any term, either party
notifies the other of its decision to terminate this Agreement.
13. GENERAL. This Agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communications relating to the
subject matter of this Agreement. No failure or delay in exercising any
right hereunder will operate as a waiver thereof, nor will any partial
exercise of any right or power hereunder preclude further exercise. Any
waivers or amendments shall be effective only if made in writing. If any
provision of this Agreement shall be adjudged by any court of competent
jurisdiction to be unenforceable or invalid, that provision shall be
limited or eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be governed by the law of the State of
California without regard to or application of choice of law rules or
principles. The prevailing party in any action to enforce this Agreement
will be entitled to recover its attorneys' fees and costs in connection
with such action. Each party agrees to comply with all applicable laws,
rules and regulations in connection with its activities under this
Agreement. Nothing contained herein shall be construed as establishing a
partnership, joint venture, employment or other business relationship
between the parties hereto other than that of independent contractors.
This Agreement may be executed in counterparts.
14. ADFORCE AS THIRD PARTY BENEFICIARY; ANNOUNCEMENTS. Customer and
Compuserve acknowledge that AdForce will be supplied a copy of this
Agreement when executed, and shall be a third party beneficiary of this
Agreement. Customer further agrees that AdForce may list Customer as a
customer of the AdForce Service in press materials, and may also display
Customer's corporate logo on the AdForce internet website,
www.adforce.com, as well as a brief description of Customer's business.
Notwithstanding the foregoing, however, Customer must preapprove any
quotes or statements attributed to Customer prior to publication.
IN WITNESS WHEREOF, the parties have executed this Agreement as of: ____________
("Effective Date").
Customer Compuserve Consultants Limited
Company Name: By:
-----------------------------
Address: Print Name:
--------------------- -----------------------------
--------------------- Title: -----------------------------
---------------------
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Telephone #:
----------------------
Facsimile #:
----------------------
By:
---------------------------
Print Name:
---------------------------
Title:
---------------------------
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<PAGE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
EXHIBIT A--ADFORCE SERVICE DESCRIPTION
<TABLE>
- -------------------------------------------------------------
<S> <C>
ADFORCE PLATINUM
Campaign Management Scheduling
features Delivery
Inventory Forecast
Reporting
Targeting
Auditing [*]per campaign audit
Customer Support 24 hour support by phone or pager
Same Day Change Orders [*]
Campaign Service Full Service - AdForce's (and later
Compuserve's) Customer Services
personnel schedules campaigns for
Customer. Customer must provide
campaign information 48 hours in
advance of campaign start time.
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATES PER THOUSAND IMPRESSIONS
- -------------------------------------------------------------
IMPRESSIONS/MONTH ADFORCE PLATINUM
- -------------------------------------------------------------
<S> <C>
Under 5 million [*]
- -------------------------------------------------------------
5 - 10 million [*]
- -------------------------------------------------------------
Over 10 - 30 million [*]
- -------------------------------------------------------------
Over 30 - 100 million [*]
- -------------------------------------------------------------
Over 100 - 300 million [*]
- -------------------------------------------------------------
Over 300 million [*]
- -------------------------------------------------------------
</TABLE>
- - Custom reports can be designed for an extra charge.
- - On-site training is available on request for [*] per day, per trainer, plus
reasonable travel expenses.
- - A surcharge of [*] per thousand Impressions will be applied for each 10
kilobytes, or fraction thereof, that the average size of advertisements over
a 30-day period exceeds 15 kilobytes.
- - Rich media will be subject to additional fees.
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EXHIBIT B
TARGETING
The AdForce Service includes targeting on the following parameters, when AdForce
databases allow the parameter to be resolved:
- - BROWSER TYPE - Different campaigns can be delivered to visitors with
different browsers.
- - OPERATING SYSTEM - Different campaigns can be delivered to visitors with
different operating systems
- - DOMAIN TYPE - Different campaigns can be delivered to visitors from
different domains (i.e. .com or .edu)
- - SERVICE PROVIDER - Different campaigns can be delivered to visitors with
different Internet service providers.
- - TELEPHONE AREA CODE - Different campaigns can be delivered to visitors in
different area codes.
- - SIC CODE - Different campaigns can be delivered to visitors working for
companies with different SIC codes.
- - COUNTRY - Different campaigns can be delivered to visitors from different
countries.
- - FREQUENCY - An advertisement can be shown no more than a specified number of
times to each visitor.
- - SEQUENCE - A series of advertisements can be shown in sequence to a visitor.
- - KEYWORDS - Advertisements can be targeted on the basis of a word or phrase
typed by a visitor.
- - SITE DATA - Ads can be targeted on the basis of data in a site's database
(i.e. with registered users)
- - DAY / DATE / TIME OF DAY - Ads can be scheduled to run during specific times
and on specific days.
- - CONTENT AREA - Ads can be targeted to a specific area of a site.
There may be additional charges for additional targeting parameters added in the
future such as demographic or behavior targeting, as well as for customization
of the targeting algorithms for keywords and site data.
REPORTING
The following reports are currently available in the AdForce Service:
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ---------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Summary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Monthly Billing Report
Summary by Website
Website Revenue
</TABLE>
There will be additional charges for reports customized or designed to
Customer's specifications. There may also be additional charges for reports
added in the future.
Page 79
<PAGE>
EXHIBIT C
CONFIDENTIALITY ADDENDUM
This Confidentiality Addendum ("Addendum") is attached to that
certain Platinum Services Agreement between Customer and Compuserve. (the
"Services Agreement")
1. CONFIDENTIAL INFORMATION. For purposes herein, the party
disclosing Confidential Information (as defined below) in any given instance is
referred to as the "Disclosing Party," and the party receiving the information
in such instance is referred to as the "Recipient." "Confidential Information"
includes all information, data and know-how disclosed by Disclosing Party to
Recipient hereunder, whether in written form or embodied in tangible materials
(including, without limitation, software, hardware, drafts, drawings, graphs,
charts, spreadsheets, disks, tapes, prototypes, samples, letters, notes,
memoranda or presentations), which is clearly marked or labeled "CONFIDENTIAL"
or with a similar legend, or which if disclosed orally or not so marked, is of
such a type or nature that a reasonable person would conclude that such
information is confidential.
2. CONFIDENTIALITY OBLIGATIONS. Recipient agrees that it
will preserve in strict confidence and secure against accidental loss any
Confidential Information disclosed by Disclosing Party to Recipient, and will
otherwise comply with the terms of this Addendum, for a period of three (3)
years from disclosure of such Confidential Information by Disclosing Party. In
preserving Disclosing Party Confidential Information, Recipient will use the
same standard of care it would use to secure and safeguard its own confidential
information of similar importance, but in no event less than reasonable care.
Any permitted reproduction of Disclosing Party's Confidential Information shall
contain all confidential or proprietary legends that appear on the original.
Recipient shall immediately notify Disclosing Party in the event of any loss or
unauthorized disclosure of Confidential Information.
3. PERMITTED DISCLOSURES. Recipient shall permit access to
Disclosing Party Confidential Information solely to its employees who (i) have a
need to know such information and (ii) have signed confidentiality agreements
containing terms at least as restrictive as those contained herein. Recipient
shall not disclose Confidential Information to any affiliate, parent or
subsidiary of Recipient, or disclose or transfer any Confidential Information to
third parties, without the specific prior written approval of Disclosing Party.
Recipient shall use Disclosing Party Confidential Information disclosed
hereunder solely for the purposes set forth in the Services Agreement and for
such other purposes as Disclosing Party shall specifically approve in writing.
4. OBLIGATION TO RETURN CONFIDENTIAL INFORMATION. Recipient
acknowledges that Disclosing Party retains ownership of all Confidential
Information disclosed or made available to Recipient. Accordingly, upon any
termination, cancellation or expiration of the Services Agreement, or upon
Disclosing Party's request for any reason, Recipient shall return promptly to
Disclosing Party the originals and all copies (without retention of any copy) of
any written documents, tools, materials or other tangible items containing or
embodying Confidential Information.
5. NO REPRESENTATIONS OR WARRANTIES. Disclosing Party makes
no warranties, whether express, statutory or implied, relating to the
sufficiency or accuracy of the Confidential Information disclosed for any
purpose, nor regarding infringement of others' intellectual property rights
which may arise from the use of such Confidential Information.
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<PAGE>
6. EXCLUSIONS. This Addendum shall not apply to information
with respect to which Recipient can affirmatively establish that (a) Recipient
rightfully possessed such information prior to its first receipt thereof from
Disclosing Party, as shown by files of Recipient in existence at the time of the
disclosure; (b) such information is publicly known or, through no wrongful act
or failure to act by Recipient, becomes publicly known; (c) the information is
hereafter furnished to Recipient by a third party who is not in breach of an
obligation of confidentiality; (d) employees or other agents of Recipient who
have not been exposed to the Confidential Information independently developed
such information without reference to or reliance upon Disclosing Party's
confidential information; or (e) Recipient is required by governmental or court
order to disclose such information, provided that Recipient shall provide
Disclosing Party advance notice thereof to enable Disclosing Party the
opportunity to prevent or control such disclosure.
7. NO GRANT OF PROPERTY RIGHTS. Recipient recognizes and
agrees that nothing contained in this Addendum shall be construed as granting
any property rights, by license or otherwise, to any Disclosing Party
Confidential Information disclosed pursuant to the Services Agreement or this
Addendum, or to any invention or any patent right that has issued or that may
issue based on such Confidential Information.
8. REMEDIES; SURVIVAL. Recipient acknowledges that improper
disclosure, or threatened disclosure, of Disclosing Party Confidential
Information will cause irreparable harm to Disclosing Party, and thus that
Disclosing Party shall be entitled to, among other forms of relief, injunctive
relief to prevent any such unauthorized disclosure. Recipient's obligations
under this Agreement shall survive termination of its association with
Disclosing Party regardless of the manner of such termination and shall be
binding upon Recipient's heirs, successors and assigns.
Page 81
<PAGE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
EXHIBIT E
LIST OF ELIGIBLE COUNTRIES
- - China
- - Taiwan
- - Macau
- - Hong Kong S.A.R.
- - Singapore
- - [*] (as defined in Section 2.17 of the Joint Venture Agreement)*
* COMPUSERVE'S RIGHT TO OPERATE IN [*] IS SUBJECT TO THE PROVISIONS OF SECTION
8.8(b) OF THE JOINT VENTURE AGREEMENT.
Page 82
<PAGE>
ANNEX L
NONDISCLOSURE AND CONFIDENTIALITY AGREEMENT
This Mutual Nondisclosure and Confidentiality Agreement ("Agreement") is
entered into as of August 31, 1999 by and among ADFORCE, INC. ("Parent"), a
Delaware corporation located at 10590 North Tantau Avenue, Cupertino, CA 95014,
ADFORCE ASIA LIMITED ("AdForce Asia"), a Hong Kong corporation with offices
located at 19/F One International Finance Centre, Suite 11, Harbour View Street,
Central Hong Kong ("AdForce Asia"), SINA.COM ("Sina"), a Cayman Islands
corporation with its U.S. offices at 1313 Geneva Drive, Sunnyvale, CA 94089, and
COMPUSERVE CONSULTANTS, LTD., a Hong Kong corporation with principal offices at
Unit 405, 4/F, Westlands Centre, 20 Westlands Road, Quarry Bay, Hong Kong
("Compuserve").
RECITALS
A. Parent, AdForce Asia, Sina and Compuserve (collectively, the
"Parties") propose to have business and/or technical discussions or negotiations
relating to the Joint Venture Agreement dated effective as of August 31, 1999
and to which this Agreement is attached as Annex L.
B. The Parties anticipate that such discussions and negotiations will
involve disclosures by and among them of confidential and proprietary
information as defined below ("Confidential Information"). For purposes herein,
the party disclosing Confidential Information in any given instance is referred
to as the "Disclosing Party," and the party receiving the information in such
instance is referred to as the "Recipient."
C. Recipient wishes to receive, and Disclosing Party has agreed to
disclose, such information to permit the Parties to perform their obligations
under the JV, and for other purposes which Disclosing Party may authorize in
writing.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. CONFIDENTIAL INFORMATION. Confidential Information includes all
information, data and know-how disclosed by Disclosing Party to Recipient
hereunder, whether in written form or embodied in tangible materials (including,
without limitation, software, hardware, drafts, drawings, graphs, charts,
spreadsheets, disks, tapes, prototypes, samples, letters, notes, memoranda or
presentations), which is clearly marked or labeled "CONFIDENTIAL" or with a
similar legend, or which if disclosed orally or not so marked, is of such a type
or nature that a reasonable person would conclude that such information is
confidential.
2. CONFIDENTIALITY OBLIGATIONS. Recipient agrees that it will
preserve in strict confidence and secure against accidental loss any
Confidential Information disclosed by Disclosing Party to Recipient, and will
otherwise comply with the terms of this Agreement, for a period of three (3)
years from disclosure of such Confidential Information by Disclosing Party. In
preserving Disclosing Party Confidential Information, Recipient will use the
same standard of care it would use to secure and safeguard its own confidential
information of similar importance, but in no event less than reasonable care.
Any permitted reproduction of Disclosing Party's Confidential Information shall
contain all confidential or proprietary legends that appear on the original.
Recipient shall immediately notify Disclosing Party in the event of any loss or
unauthorized disclosure of Confidential Information.
3. PERMITTED DISCLOSURES. Recipient shall permit access to
Disclosing Party Confidential Information solely to its employees who (i) have a
need to know such information and (ii) have signed confidentiality agreements
containing terms at least as restrictive as those contained herein. Recipient
Page 83
<PAGE>
shall not disclose Confidential Information to any affiliate, parent or
subsidiary of Recipient, or disclose or transfer any Confidential Information to
third parties, without the specific prior written approval of Disclosing Party.
Recipient shall use Disclosing Party Confidential Information disclosed
hereunder solely for the purpose of performing its obligations under the JV and
for such other purposes as Disclosing Party shall specifically approve in
writing.
4. OBLIGATION TO RETURN CONFIDENTIAL INFORMATION. Recipient
acknowledges that Disclosing Party retains ownership of all Confidential
Information disclosed or made available to Recipient. Accordingly, on
termination of discussions or upon any termination, cancellation or expiration
of this Agreement or the JV, or upon Disclosing Party's request for any reason,
Recipient shall return promptly to Disclosing Party the originals and all copies
(without retention of any copy) of any written documents, tools, materials or
other tangible items containing or embodying Confidential Information.
5. NO REPRESENTATIONS OR WARRANTIES. Disclosing Party makes no
warranties, whether express, statutory or implied, relating to the sufficiency
or accuracy of the Confidential Information disclosed for any purpose, nor
regarding infringement of others' intellectual property rights which may arise
from the use of such Confidential Information.
6. EXCLUSIONS. This Agreement shall not apply to information with
respect to which Recipient can affirmatively establish that (a) Recipient
rightfully possessed such information prior to its first receipt thereof from
Disclosing Party, as shown by files of Recipient in existence at the time of the
disclosure; (b) such information is publicly known or, through no wrongful act
or failure to act by Recipient, becomes publicly known; (c) the information is
hereafter furnished to Recipient by a third party who is not in breach of an
obligation of confidentiality; (d) employees or other agents of Recipient who
have not been exposed to the Confidential Information independently developed
such information without reference to or reliance upon Disclosing Party's
confidential information; or (e) Recipient is required by governmental or court
order to disclose such information, provided that Recipient shall provide
Disclosing Party advance notice thereof to enable Disclosing Party the
opportunity to prevent or control such disclosure.
7. NO GRANT OF PROPERTY RIGHTS. Recipient recognizes and agrees
that nothing contained in this Agreement shall be construed as granting any
property rights, by license or otherwise, to any Disclosing Party Confidential
Information disclosed pursuant to this Agreement, or to any invention or any
patent right that has issued or that may issue based on such Confidential
Information.
8. NO COMMITMENT TO DO BUSINESS. This Agreement does not bind, nor
shall it be construed as binding, Disclosing Party to conduct any specific
business with Recipient. Any agreement by Disclosing Party to buy, sell,
develop, produce, manufacture, test or otherwise deal in products or services of
Recipient shall be by separate written agreement. However, to the extent that
the parties proceed to do business together without executing a new
confidentiality agreement for that purpose, Recipient shall continue to comply
with the terms of this Agreement with respect to any Confidential Information
disclosed by Disclosing Party to Company prior to and during the course of that
business relationship.
9. GOVERNING LAW; ETC. This Agreement shall be governed by and
construed in accordance with the laws of California, without reference to
conflict of laws principles. Any disputes under this Agreement shall be subject
to the exclusive jurisdiction and venue of the California state courts and the
Federal courts located in Santa Clara County, California. The parties hereby
consent to the personal and exclusive jurisdiction and venue of these courts.
Recipient acknowledges that improper disclosure, or threatened disclosure, of
Disclosing Party Confidential Information will cause irreparable harm to
Disclosing Party, and thus that Disclosing Party shall be entitled to, among
other forms of relief, injunctive relief to prevent any such unauthorized
disclosure. There are no understandings, agreements, or representations,
expressed or implied, not specified herein. This Agreement may not be amended,
nor
Page 84
<PAGE>
may any obligation hereunder be waived, except by a writing signed by both
parties hereto. Recipient's obligations under this Agreement shall survive
termination of its association with Disclosing Party regardless of the manner of
such termination and shall be binding upon Recipient's heirs, successors and
assigns. This Agreement supersedes any course of dealing, usage of trade and
any previous agreements between the parties relating to the subject matter
hereof.
ADFORCE, INC. SINA.COM
By:/s/ By: /s/
----------------------------- ----------------------------
Duly Authorized Signatory Duly Authorized Signatory
Printed Name: Rex S. Jackson Printed Name: Daniel Mao
------------------- ------------------
Title: Title:Director
-------------------------- -------------------------
ADFORCE ASIA LIMITED COMPUSERVE CONSULTANTS, LTD.
By: (To be signed) By: /s/
----------------------------- ----------------------------
Duly Authorized Signatory Duly Authorized Signatory
Printed Name: Printed Name: Terrence Fok
------------------- ------------------
Title: Title: Executive Director
-------------------------- -------------------------
Page 85
<PAGE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
SCHEDULE 1
----------
Capitalization
The parties shall purchase shares in the JV according to the following schedule:
COMMON SHARES
Price per Share: HK$[*]
<TABLE>
<CAPTION>
Party Investment Shares
--------------------------------------------------------------
<S> <C> <C>
AdForce [*] 3,051,242
Sina.com [*] 2,934,783
CompuServe [*] 388,199
--------------------------------------------------------------
Total [*] 6,374,224
</TABLE>
SERIES A PREFERRED SHARES
Price per Share: HK$[*]
<TABLE>
<CAPTION>
Party Investment Shares
--------------------------------------------------------------
<S> <C> <C>
AdForce [*] 1,500,000
Sina.com [*] 1,275,000
--------------------------------------------------------------
Total [*] 2,775,000
</TABLE>
SERIES A1 PREFERRED SHARES
Price per Share: HK$[*]
<TABLE>
<CAPTION>
Party Investment Shares
--------------------------------------------------------------
<S> <C> <C>
AdForce [*] 2,750,000
--------------------------------------------------------------
Total [*] 2,750,000
</TABLE>
* Reserved for Option Pool: 700,000 shares of Common Stock.
Page 86
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 15,872 15,872
<SECURITIES> 54,709 54,709
<RECEIVABLES> 3,446 3,446
<ALLOWANCES> (1,676) (1,676)
<INVENTORY> 0 0
<CURRENT-ASSETS> 73,780 73,780
<PP&E> 14,073 14,073
<DEPRECIATION> (5,230) (5,230)
<TOTAL-ASSETS> 86,806 86,806
<CURRENT-LIABILITIES> 9,053 9,053
<BONDS> 0 0
0 0
0 0
<COMMON> 20 20
<OTHER-SE> 72,495 72,495
<TOTAL-LIABILITY-AND-EQUITY> 86,806 86,806
<SALES> 5,085 12,487
<TOTAL-REVENUES> 5,085 12,487
<CGS> 3,631 9,075
<TOTAL-COSTS> 3,631 9,075
<OTHER-EXPENSES> 8,638 21,086
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 245 635
<INCOME-PRETAX> (6,460) (16,691)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,460) (16,691)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,460) (16,691)
<EPS-BASIC> (0.34) (1.38)
<EPS-DILUTED> (0.34) (1.01)
</TABLE>
