<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NBC INTERNET, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7372 94-3333463
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
Incorporation or Organization) Classification Code Number)
</TABLE>
300 MONTGOMERY STREET, SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
(415) 288-2500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
CHRIS KITZE
CHIEF EXECUTIVE OFFICER
NBC INTERNET, INC.
300 MONTGOMERY STREET, SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
(415) 288-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
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<S> <C> <C>
R. CLAYTON MULFORD, ESQ. BRUCE ALAN MANN, ESQ. RICHARD CAPELOUTO, ESQ.
Hughes & Luce, L.L.P. P. RUPERT RUSSELL, ESQ. Simpson Thacher & Bartlett
1717 Main Street, Suite 2800 KRISTIAN E. WIGGERT, ESQ. 425 Lexington Avenue
Dallas, TX 75201 BRIAN D. LEWANDOWSKI, ESQ. New York, NY 10017
(214) 939-5500 Morrison & Foerster LLP (212) 455-2000
425 Market Street
San Francisco, CA 94105-2482
(415) 268-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effective time of this registration statement and the
satisfaction or waiver of all other conditions to the acquisitions described in
the enclosed proxy statement/prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock, $0.0001
per share (1)................. 18,786,980 shares (2) (2) $293,291.76(2)
</TABLE>
(1) Represents the number of shares of the Class A common stock of the
Registrant which may be issued to stockholders of XOOM.com, Inc., a Delaware
corporation ("Xoom.com"), pursuant to the merger of Xenon 3, Inc., a wholly
owned subsidiary of Registrant, with and into Xoom.com as described herein.
(2) Pursuant to 457(f)(1) and Rule 457(c) under the Securities Act of 1933, as
amended, the registration fee has been calculated based on the average of
the high and low prices per share of Xoom.com common stock on July 2, 1999
as reported on the Nasdaq National Market, which shares of Xoom.com will be
cancelled upon consummation of the merger of Xenon 3, Inc. with and into
Xoom.com.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
PRIOR TO THE TIME THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED IN FINAL FORM.
THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT
IS NOT SOLICITING ANY OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO OF XOOM.COM]
August , 1999
Dear Xoom.com Stockholder:
I am pleased to send you this proxy statement/prospectus for a special
meeting of the stockholders of Xoom.com. At the meeting, you will be asked to
approve agreements entered into by Xoom.com and two of its subsidiaries, NBC and
affiliates of NBC, CNET and SNAP, relating to the formation of a new company to
be named NBC Internet, Inc., and referred to as NBCi. NBCi would combine the
businesses of Xoom.com, SNAP and three Internet-related businesses of NBC, as
well as a 10% equity interest in CNBC.com.
Upon the closing of the transactions, you, as a group, will own
approximately 37.2% of the common stock of NBCi, CNET will own approximately
14.1% and affiliates of NBC will own approximately 48.5%. Affiliates of NBC may
increase their ownership percentage to 53.8% in the future upon the exercise in
full of two convertible notes issued by NBCi.
You will receive shares of Class A common stock of NBCi in the proposed
transactions. Although there is currently no public market for those shares,
NBCi has applied to have the shares of Class A common stock approved for listing
on the Nasdaq National Market under the symbol "NBCI." Upon the closing of the
transactions, NBCi expects to have approximately 26,032,043 shares of its Class
A common stock outstanding, of which 18,786,980 shares are being registered.
Affiliates of NBC will receive shares of Class B common stock of NBCi. The Class
A common stock and the Class B common stock are the same in all respects, except
for important governance rights and the fact that only the Class A common stock
will be publicly traded and that only NBC and its affiliates may own the Class B
common stock.
You will not be taxed on the shares of Class A common stock you receive in
the transactions. You should consult your tax advisor to learn how this
transaction may affect you.
BEFORE YOU MAKE A DECISION, YOU SHOULD CONSIDER THE "RISK FACTORS" BEGINNING
ON PAGE 18 OF THIS PROXY STATEMENT/PROSPECTUS.
THE BOARD OF DIRECTORS OF XOOM.COM HAS APPROVED THE PROPOSED TRANSACTIONS
AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSALS.
Please use this opportunity to take part in the affairs of Xoom.com by
voting. Whether or not you plan to attend the meeting, please complete, sign,
date and return the accompanying proxy card in the enclosed self-addressed
stamped envelope, to ensure your shares are voted at the meeting. YOUR VOTE IS
VERY IMPORTANT.
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Sincerely,
Chris Kitze
Chairman of the Board
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE CLASS A COMMON STOCK TO BE ISSUED IN CONNECTION WITH
THE TRANSACTIONS DESCRIBED HEREIN OR DETERMINED WHETHER THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS IS DATED AUGUST , 1999 AND WAS FIRST
MAILED TO STOCKHOLDERS ON OR ABOUT AUGUST , 1999.
SUBJECT TO COMPLETION DATED JULY 12, 1999.
<PAGE>
XOOM.COM, INC.
300 MONTGOMERY STREET, SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date: , September , 1999
Time: 10:00 a.m.
Place: The Sir Francis Drake Hotel, 450 Powell Street, San Francisco,
California 94102
At the meeting you will be asked to:
(1) Adopt the Agreement and Plan of Contribution and Merger, dated as of
May 9, 1999 (the "Merger Agreement"), among Xoom.com, NBCi, a newly
organized Delaware corporation and wholly owned subsidiary of Xoom.com,
CNET, Inc., a Delaware corporation, SNAP! LLC, a Delaware limited liability
company, and Xenon 3, Inc., a newly formed Delaware corporation and wholly
owned subsidiary of NBCi. Under the Merger Agreement there will be a merger
of Xoom.com with Xenon 3, a subsidiary of NBCi, with Xoom.com being the
surviving entity. In the merger, each share of Xoom.com common stock will be
converted into the right to receive one share of Class A common stock of
NBCi. At the same time, CNET will contribute its ownership interest in SNAP
to NBCi in exchange for shares of Class A common stock of NBCi.
(2) Approve Xoom.com's adoption, as the sole stockholder of NBCi, of the
Second Amended and Restated Agreement and Plan of Contribution, Investment
and Merger, dated as of July 8, 1999 (the "Contribution Agreement"), among
Xoom.com, National Broadcasting Company, Inc., GE Investments Subsidiary,
Inc., a Delaware corporation, Neon Media Corporation, a newly formed
Delaware corporation, and NBCi. Under the Contribution Agreement, NBC
Multimedia, a subsidiary of NBC, will contribute its ownership interests in
SNAP and the business related to VideoSeeker.com to NBCi and Neon Media
Corporation, a subsidiary of NBC Multimedia, will merge with NBCi. Neon
Media Corporation will own the businesses related to NBC.com and NBC-IN.com
and a 10% equity interest in CNBC.com LLC. NBC Multimedia will receive
shares of Class B common stock of NBCi and a convertible note from NBCi in
connection with these transactions. Finally, an affiliate of NBC will
purchase another convertible note from NBCi in exchange for the assignment
of a note issued by NBC. The NBCi convertible notes are convertible into
Class B common stock of NBCi.
(3) Conduct such other business as may be properly brought before the
meeting or any adjournment or postponement of the meeting.
Please read this proxy statement/prospectus carefully for a description of
the Merger Agreement and the Contribution Agreement. In accordance with the
General Corporation Law of the State of Delaware, Xoom.com shall make available
a complete list of the stockholders of Xoom.com entitled to vote at the special
meeting at Xoom.com's principal office at least ten days prior to the date of
the special meeting.
Only stockholders of Xoom.com of record at the close of business on August
, 1999 are entitled to notice of, and to vote at, the meeting or any
adjournments or postponements of the meeting.
Under Delaware law, holders of Xoom.com common stock are not entitled to
appraisal rights in connection with the transactions.
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By order of the board of directors
Chris Kitze
Chairman of the Board
</TABLE>
San Francisco, California
August , 1999
Whether or not you expect to attend the meeting, please complete, date and
sign the enclosed proxy card and mail it promptly in the enclosed postage-paid
envelope. Stockholders who attend the meeting may revoke their proxies and vote
in person if they desire. PLEASE DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR
PROXY CARDS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE
TRANSACTIONS................................ 1
SUMMARY....................................... 6
The Companies............................... 6
Merger Agreement............................ 7
Contribution Agreement...................... 8
Related Agreements.......................... 9
Reasons for the Transactions................ 11
Recommendation to Xoom.com Stockholders..... 11
Opinions of Financial Advisors to
Xoom.com.................................. 11
Interests of Certain Persons in the
Transactions.............................. 11
The Special Meeting......................... 11
Stockholder Approval........................ 12
Voting Shares Held by Your Broker in Street
Name...................................... 12
Changing Your Vote.......................... 12
Exchanging Your Stock Certificate........... 12
No Appraisal Rights......................... 12
Nasdaq Listing.............................. 12
Governmental and Regulatory Matters......... 12
Material Federal Income Tax Consequences.... 12
Anticipated Accounting Treatment............ 13
Forward-Looking Statements May Prove
Inaccurate................................ 13
SUMMARY SELECTED FINANCIAL INFORMATION........ 14
RISK FACTORS.................................. 18
Risks Related to the Transactions and to
NBCi's Business........................... 18
Investment Risks............................ 36
FORWARD-LOOKING STATEMENTS MAY PROVE
INACCURATE.................................. 38
TRADEMARKS.................................... 38
XOOM.COM SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA.............................. 39
SNAP SELECTED FINANCIAL DATA.................. 41
NBC MULTIMEDIA DIVISION SELECTED HISTORICAL
FINANCIAL DATA.............................. 42
MARKET PRICE AND DIVIDEND INFORMATION......... 43
Dividend Information........................ 43
Number of Stockholders...................... 43
THE SPECIAL MEETING........................... 44
<CAPTION>
PAGE
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<S> <C>
Date, Time And Place of Special Meeting..... 44
Matters to be Considered at the Special
Meeting................................... 44
Record Date for Voting on the Merger;
Stockholders Entitled to Vote............. 44
Voting and Revocation of Proxies............ 44
Stockholder Vote............................ 45
Recommendation of Xoom.com Board of
Directors................................. 45
Solicitation Of Proxies..................... 46
THE TRANSACTIONS.............................. 47
Background.................................. 47
Recommendation of Xoom.com's Board of
Directors and Reasons for the
Transactions.............................. 49
Opinion of Xoom.com's Financial Advisors.... 53
Opinion of Bear Stearns..................... 53
Opinion of Hambrecht & Quist................ 60
Interests of Certain Persons in the
Transactions.............................. 66
Governmental and Regulatory Matters......... 68
Material Federal Income Tax Consequences.... 69
Accounting Treatment........................ 70
No Appraisal Rights......................... 70
Listing of NBCi Class A Common Stock........ 71
Delisting and Deregistration of Xoom.com
Common Stock.............................. 71
Restriction on Resales of NBCi Common
Stock..................................... 71
THE MERGER AGREEMENT AND THE CONTRIBUTION
AGREEMENT................................... 72
The Merger Agreement........................ 72
The Contribution Agreement.................. 78
DESCRIPTION OF RELATED AGREEMENTS............. 88
The Stock Option Agreement.................. 88
The Registration Rights Agreement........... 90
The Voting Agreement........................ 91
The Brand Integration and License
Agreement................................. 92
The Convertible Notes....................... 93
Advertising Agreement....................... 93
Governance Agreement........................ 94
CNET Voting And Right of First Offer
Agreement................................. 94
</TABLE>
i
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<CAPTION>
PAGE
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CNET Standstill Agreement................... 94
CNET Carriage Agreement..................... 94
CNBC Carriage Agreement..................... 94
Equity Investment and Restructuring......... 94
NBCI UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (STEP ONE)............ 96
NBCI UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (STEP TWO)............ 100
NBCI'S BUSINESS............................... 106
Overview.................................... 106
Industry Background......................... 107
The NBCi Approach........................... 108
NBCi Strategy............................... 110
Technology and Infrastructure............... 112
Competition................................. 113
Intellectual Property and Proprietary
Rights.................................... 114
Legal Proceedings........................... 115
Employees................................... 115
Facilities.................................. 115
Disclosures About Market Risk............... 115
MANAGEMENT OF NBCI FOLLOWING TRANSACTIONS..... 116
Executive Officers, Directors and Key
Employees of NBCi......................... 116
Board Committees............................ 120
Director Compensation....................... 120
NBCI EXECUTIVE COMPENSATION................... 120
Stock Incentive Plan........................ 120
401(k) Plan................................. 120
Welfare Benefit Plans....................... 121
NBCI CERTAIN TRANSACTIONS..................... 121
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL
STOCKHOLDERS OF XOOM.COM AND NBCI........... 124
XOOM.COM BUSINESS............................. 126
Overview.................................... 126
Community and E-Commerce Industry
Background................................ 126
Approach.................................... 127
Strategy.................................... 129
Products and Services....................... 130
Strategic Alliances......................... 131
Sales and Marketing......................... 133
Customer Service and Support................ 134
Warehousing and Fulfillment................. 134
<CAPTION>
PAGE
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<S> <C>
Technology and Infrastructure............... 135
Competition................................. 135
Intellectual Property and Proprietary
Rights.................................... 136
Legal Proceedings........................... 136
Employees................................... 137
Facilities.................................. 137
XOOM.COM'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................... 138
Overview.................................... 138
Recent Events............................... 141
Results of Operations....................... 142
Quarterly Results of Operations............. 153
Liquidity and Capital Resources............. 155
Disclosures About Market Risk............... 156
Year 2000 Compliance........................ 156
SNAP BUSINESS................................. 158
Overview.................................... 158
Portal Industry Background.................. 159
The SNAP Strategy........................... 159
Products and Services....................... 161
Strategic Alliances......................... 164
Revenue Sources............................. 165
Marketing................................... 166
Technology and Infrastructure............... 167
Competition................................. 168
Research and Development.................... 168
Intellectual Property and Proprietary
Rights.................................... 168
Legal Proceedings........................... 168
Employees................................... 168
Facilities.................................. 169
SNAP'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................. 170
Overview.................................... 170
Recent Events............................... 171
Results of Operations....................... 172
Quarterly Results of Operations............. 176
Liquidity and Capital Resources............. 178
Disclosures About Market Risk............... 179
Year 2000 Compliance........................ 179
Recent Accounting Pronouncements............ 180
NBC CONTRIBUTED INTERNET BUSINESSES........... 181
Overview.................................... 181
NBC.com..................................... 181
NBC-IN.com.................................. 183
VideoSeeker................................. 185
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
General Matters Affecting NBC.com,
NBC-IN.com and VideoSeeker................ 186
CNBC.com.................................... 187
NBC MULTIMEDIA DIVISION'S MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......... 191
Overview.................................... 191
Results of Operations....................... 192
Liquidity and Capital Resources............. 196
Year 2000 Compliance........................ 197
Impact of Recently Issued Accounting
Pronouncements............................ 198
COMPARISON OF CAPITAL STOCK...................
Description of NBC Internet Capital Stock...
NBCi Certificate of Incorporation and
Bylaws.................................... 199
<CAPTION>
PAGE
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<S> <C>
Other Agreements............................ 204
Antitakeover Effects of Provisions of NBCi's
Charter and Bylaws........................
Section 203 of the Delaware General
Corporation Law...........................
Comparison of Rights of NBCi Stockholders
and Xoom.com Stockholders.................
FUTURE STOCKHOLDER PROPOSALS..................
LEGAL MATTERS.................................
EXPERTS.......................................
WHERE YOU CAN FIND MORE INFORMATION........... 206
INDEX TO FINANCIAL STATEMENTS................. F-1
</TABLE>
iii
<PAGE>
APPENDICES TO THE PROXY STATEMENT/PROSPECTUS
<TABLE>
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APPENDIX A-1 Merger Agreement
APPENDIX A-2 Contribution Agreement
APPENDIX B-1 Stock Option Agreement
APPENDIX B-2 Voting Agreement
APPENDIX C-1 Opinion of Bear, Stearns & Co. Inc.
APPENDIX C-2 Opinion of Hambrecht & Quist LLC
APPENDIX D-1 Form of Amended and Restated Certificate of Incorporation of NBCi
APPENDIX D-2 Form of Amended and Restated Bylaws of NBCi
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: WHAT IS XOOM.COM PROPOSING TO DO? HOW WILL I BENEFIT?
A: Xoom.com is proposing to become part of a new Internet company, NBCi.
Upon completion of the transactions, NBCi will include the businesses of:
- Xoom.com, the owner of www.xoom.com, one of the fastest-growing community-
based sites on the Internet from July 1998 to May 1999, according to Media
Metrix,
- SNAP, the owner of www.snap.com, the fastest-growing major Internet portal
from July 1998 to May 1999, according to Media Metrix, and
- certain Internet assets of a subsidiary of NBC, a wholly owned subsidiary
of General Electric Company. NBC is the most watched television network
among adults age 18 to 54 in the United States for the television season
that ended in May 1999, according to Nielsen Media Research.
Under its umbrella consumer brand SNAP, NBCi will integrate portal,
community and e-commerce services throughout the NBCi Web sites. Xoom.com
stockholders will have a stake in one of the first publicly traded Internet
companies combining these services in a strategic relationship with a major
broadcast television network. Xoom.com believes, based on these attributes, that
NBCi will be well positioned to capitalize on the growth opportunities available
in the Internet industry.
Q: WHAT IS SNAP.COM? WHO OWNS IT NOW?
A: SNAP, through the Snap.com Web site, develops and provides Web-based
tools that help users access, navigate and personalize the vast resources of the
Internet. SNAP is primarily owned by NBC and CNET. CNET is a publicly traded
media company that provides consumers with information online and on television
regarding computers, the Internet and digital technologies.
Q: WHAT ARE THE NBC CONTRIBUTED INTERNET ASSETS THAT WILL BE PART OF NBCI?
A: The NBC contributed Internet assets consist of NBC's businesses related
to three separate Internet properties, together with a 10% equity interest in a
fourth Internet business, namely:
- NBC.com (www.nbc.com), a Web site that provides entertainment information
and specially designed Web spin-offs of popular NBC televisions programs,
as well as chat and bulletin board services related to NBC's network
television programming.
- NBC-IN.com (www.nbc-in.com), a portal service that provides access to
local content via the Web sites of over 100 television stations owned by
or affiliated with NBC. NBC-IN fills out the offerings of the local
stations' Web sites by delivering customized content relating to real
estate, job searches, automobiles and various other topics.
- VideoSeeker (www.videoseeker.com), a Web site that offers a large and
comprehensive selection of on-demand video programming, including
entertainment news, movie trailers, television clips and interviews.
- A 10% equity interest in CNBC.com LLC, which owns the CNBC.com Web site
(www.cnbc.com). The CNBC.com Web site was launched on June 21, 1999 and
provides comprehensive financial information and analytic tools on the
Web. CNBC.com also offers personal finance commentary and data, community
features and other services designed to satisfy an individual's financial
planning needs.
Q: HOW IS NBCI GOING TO BE CREATED?
A: NBCi will be created through a series of transactions occurring on
successive days.
1
<PAGE>
On the first day, Xoom.com will be merged with a subsidiary of NBCi, and
CNET and an unaffiliated third party will contribute their ownership interests
in SNAP to NBCi. The transactions occurring on the first day will result in NBCi
owning Xoom.com and approximately 81% (approximately 40% on a fully-diluted
basis) of the ownership interests in SNAP. The following charts illustrate the
transactions contemplated by the Merger Agreement:
[Diagram illustrating merger of Xenon 3 with Xoom.com]
[Diagram illustrating transfer of CNET's ownership in SNAP to NBCi]
[Diagram illustrating ownership structure after closing of Merger Agreement]
Immediately thereafter, on the succeeding day, Neon Media Corporation, a
newly formed entity that will own the businesses related to NBC.com and
NBC-IN.com and a 10% equity interest in CNBC.com LLC, will be merged with NBCi;
NBC Multimedia, a subsidiary of NBC, will contribute its ownership interests in
SNAP to NBCi; and NBC Multimedia will transfer the business related to
VideoSeeker.com to NBCi in exchange for a convertible note of NBCi. In addition,
an affiliate of NBC will purchase a second convertible note from NBCi in
exchange for the assignment to NBCi of a $340 million note issued by NBC.
Thereafter, it is intended that NBCi will transfer the Internet assets
contributed by NBC into a newly formed, wholly owned subsidiary of NBCi. Upon
the conclusion of the transactions, NBCi will be owned principally by NBC
affiliates, CNET and the former stockholders of Xoom.com.
The following charts illustrate the transactions contemplated by the
Contribution Agreement:
[Diagram illustrating merger of Neon Media Corporation with NBCi]
[Diagram illustrating the transfer of NBC Multimedia's ownership interest in
SNAP and the assets of VideoSeeker.com to NBCi]
2
<PAGE>
[Diagram illustrating owndership structure after closing of all transactions]
It is expected that NBCi's holding company structure will increase operating
and structural flexibility, minimize regulatory concerns and isolate risks of
its business.
Q: CAN THE TRANSACTIONS ON THE FIRST DAY HAPPEN WITHOUT THE TRANSACTIONS ON THE
SECOND DAY?
A: While the transactions on the first day could happen without the
transactions on the second day occurring, it is intended that all the
transactions will occur as part of a series of steps in the formation of NBCi.
If the transactions on the second day do not close, however, NBCi will lose its
right to use "NBC" in its name. The net effect of the transactions on the first
day will be the acquisition by Xoom.com of an equity interest in SNAP. It is a
condition to the closing of the transactions contemplated by the Merger
Agreement that all of the conditions set forth in the Contribution Agreement
have been satisfied or waived. See page 31 for a discussion of the risks if the
transactions contemplated by the Contribution Agreement do not occur.
Q: CAN I VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT AND AGAINST XOOM.COM'S
ADOPTION OF THE CONTRIBUTION AGREEMENT?
A: Yes. If the requisite majority votes against Xoom.com's adoption of the
Contribution Agreement, the board of directors of Xoom.com has agreed to cause
Xoom.com to vote against adoption of the Contribution Agreement. If the
requisite majority votes against the adoption of the Merger Agreement, the
transactions contemplated by the Merger Agreement and the Contribution Agreement
will not occur. See page 45.
Q: WHAT ARE NBCI AND XENON 3?
A: NBCi and Xenon 3 are companies newly formed at the direction of Xoom.com
for the purpose of effecting the transactions. Xenon 3 is a subsidiary of NBCi
that will be merged with Xoom.com on the first day. On the second day, Neon
Media Corporation will merge into NBCi.
Q: WHAT WILL XOOM.COM STOCKHOLDERS BE ENTITLED TO AS A RESULT OF THE
TRANSACTIONS?
A: Xoom.com stockholders will be entitled to receive one share of NBCi Class
A common stock in exchange for each share of Xoom.com common stock they hold.
Upon completion of the transactions, Xoom.com's former stockholders, other than
NBC and its affiliates, are expected to own approximately 18,786,980 shares of
Class A common stock of NBCi, representing approximately 37.2% of NBCi's
outstanding common stock upon the closing of the transactions.
Q: WHAT DOES CNET RECEIVE?
A: In exchange for its ownership interests in SNAP, CNET will receive
7,147,584 shares of NBCi Class A common stock, representing approximately 14.1%
of NBCi's outstanding common stock upon the closing of the transactions. The
shares of Class A common stock owned by CNET will not be registered under this
proxy statement/prospectus.
Q. WHAT DOES NBC RECEIVE?
A. NBC has agreed to acquire or cause its affiliates to acquire 960,028
shares of Xoom.com common stock under a stock purchase agreement dated June 11,
1999. As a result, in connection with the merger of Xoom.com with Xenon 3, an
affiliate of NBC will receive 960,028 shares of Class A common stock that will
convert into Class B common stock in connection with the merger of Neon Media
Corporation and NBCi. In exchange for NBC Multimedia's ownership interests in
SNAP and in connection with the merger of Neon Media Corporation with NBCi, NBC
Multimedia will receive 23,590,680 shares of NBCi Class B common stock in
addition to the 960,028 shares discussed above. Affiliates of NBC will own
3
<PAGE>
approximately 48.5% of NBCi's outstanding common stock upon the closing of the
transactions. Assuming no issuances of additional shares of common stock by
NBCi, if both NBCi convertible notes are converted after one year, NBC and its
affiliates could own approximately 53.8% of NBCi's outstanding common stock.
Q: WHAT'S THE DIFFERENCE BETWEEN THE CLASS A COMMON STOCK AND THE CLASS B COMMON
STOCK OF NBCI?
A: NBCi will initially have two classes of common stock: Class A common
stock and Class B common stock. The Class A common stock and the Class B common
stock are the same in all respects except for important governance rights and
the fact that only the Class A common stock will be publicly traded and that
only NBC and its affiliates may hold shares of Class B common stock. Upon the
transfer of Class B common stock to any person other than NBC or any of its
affiliates, such Class B common stock will automatically convert into Class A
common stock. See page 199 for a description of the NBCi common stock.
Q: WHAT ARE THE DIFFERENCES IN GOVERNANCE RIGHTS BETWEEN THE CLASS A COMMON
STOCK AND THE CLASS B COMMON STOCK?
A: Under NBCi's restated certificate of incorporation, the holders of the
Class B common stock initially have the right to elect six of the 13 members of
the NBCi board of directors (and will retain that right so long as such holders
beneficially own at least 20% of the outstanding shares of common stock of
NBCi). The holders of the Class A common stock will have the right to elect the
remaining seven members, with the nomination of the seventh member by NBCi
requiring the approval of at least seven members of the NBCi board of directors.
If, and for so long as, NBC and its affiliates would own 35% or more of the
outstanding shares of NBCi common stock following conversion of the NBCi
convertible notes in full, the holders of the Class B common stock would have
the right to appoint seven of the 13 members of the NBCi board of directors. The
holders of the Class A common stock will have the right to appoint the remaining
six members. As long as the directors elected by the holders of the Class B
common stock do not constitute a majority of the NBCi board of directors,
several significant corporate actions by NBCi will require the approval of the
Class B Directors. As long as the holders of the Class B common stock have the
right to elect seven directors to the NBCi board of directors, several
significant corporate actions by NBCi will require the approval of the Class A
Directors. See page 200 for a description of these governance rights.
Q: WHO IS GOING TO RUN NBCI?
A: Robert C. Wright, the president and chief executive officer of NBC, will
be the chairman of the board of NBCi, and Chris Kitze, the chairman of the board
of Xoom.com, will be the chief executive officer of NBCi. The designees to the
initial board of directors of NBCi are set forth on page 116. NBCi will be
managed principally by individuals that currently manage Xoom.com and SNAP. See
page 116 for a description of the other executive officers and key employees of
NBCi.
Q: WHAT WILL HAPPEN TO XOOM.COM AFTER THE MERGER?
A: Xoom.com will become a wholly owned subsidiary of NBCi and will continue
to operate its Web site at www.xoom.com. NBCi will, however, integrate the
Xoom.com Web site with the other NBCi Internet assets under the consumer brand
SNAP, at www.snap.com, as described more fully on page 106.
Q: WHAT AM I VOTING ON?
A: You will vote on whether to adopt the Merger Agreement and whether to
approve Xoom.com's adoption, as the sole stockholder of NBCi, of the
Contribution Agreement.
Q: DOES THE BOARD OF DIRECTORS OF XOOM.COM RECOMMEND VOTING IN FAVOR OF THE
TRANSACTIONS?
A: Yes. After careful consideration, Xoom.com's board of directors
recommends that its stockholders vote to adopt the Merger
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Agreement and vote in favor of Xoom.com's adoption of the Contribution
Agreement.
For a more complete description of the recommendation of the board of
directors of Xoom.com, see page 49.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
TRANSACTIONS?
A: Yes. In evaluating the transactions, you should carefully consider the
factors discussed in the section entitled "Risk Factors" on page 18.
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: No. Under Delaware law, holders of Xoom.com common stock are not entitled
to dissenters' or appraisal rights in connection with the proposed transactions.
Accordingly, if you vote against the adoption of the Merger Agreement and
against Xoom.com's adoption of the Contribution Agreement, but such agreements
are nevertheless adopted, you will become a stockholder of NBCi.
Q: WHAT DO I NEED TO DO NOW?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting of
Xoom.com's stockholders. If you do not include instructions on how to vote your
properly signed proxy, your shares will be voted "FOR" the adoption of the
Merger Agreement and "FOR" approval of Xoom.com's adoption of the Contribution
Agreement.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: If you want to change your vote, send the secretary of Xoom.com a
later-dated, signed proxy card before the special meeting or attend the Xoom.com
meeting and vote in person. You may also revoke your proxy by sending written
notice to the secretary of Xoom.com before the special meeting.
For a more complete description of how to change your vote, see page 44.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote by following the information provided to you by your broker.
For a more complete description of voting shares held in "street name," see
page 45.
Q: SHOULD I SEND IN MY XOOM.COM STOCK CERTIFICATES NOW?
A: No. After the transactions are completed, NBCi will send you written
instructions for exchanging your Xoom.com stock certificates for NBCi stock
certificates.
Q: WHEN DO YOU EXPECT THE TRANSACTIONS TO BE COMPLETED?
A: Xoom.com is working toward completing the transactions as soon as
possible after the special meeting. Xoom.com hopes to complete the transactions
near the end of the third quarter of 1999.
For a more complete description of the conditions to the transactions, see
pages 72 and 78.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: Please call Xoom.com Investor Relations at (415) 288-2500 or send an
e-mail to [email protected] with any questions about the merger. You
may also call Corporate Investor Communications, Inc., a proxy solicitation firm
retained by Xoom.com, at (201) 896-5670.
You may also obtain additional information about Xoom.com from documents it
files with the Securities and Exchange Commission by following the instructions
in the section entitled "Where You Can Find More Information" on page 211.
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important you. To understand the transactions fully, including the merger of
Xoom.com with Xenon 3, and for a more complete description of the legal terms of
the transactions, you should carefully read this entire document and the
documents to which Xoom.com has referred you. Refer to the section entitled
"Where You Can Find More Information" on page 211 for additional sources of
information.
THE COMPANIES (PAGES 106, 126, 158 AND 181)
NBCI
One Beach Street
San Francisco, California
Attn: Investor Relations
(415) 875-7900
NBCi is a newly formed corporation that upon completion of the transactions
will encompass two of the fastest growing companies on the Internet, Xoom.com
and SNAP. NBCi will also integrate the NBC contributed Internet assets and have
the backing of a major broadcast network company, NBC. NBCi, through its primary
consumer brand, SNAP, will represent one of the first publicly traded Internet
companies combining portal, community and content services in a strategic
relationship with a major television network. NBCi intends to capitalize on the
rapid growth in the Internet by leveraging key assets of a traditional media
company, such as on-air promotion and established advertising relationships. The
full integration of the NBCi Internet properties will provide access to a broad
base of differentiated users, unique content and opportunities for
cross-selling.
XOOM.COM
300 Montgomery Street, Suite 300
San Francisco, California
Attn: Investor Relations
(415) 288-2500
From July 1998 to May 1999, Xoom.com was one of the fastest growing
community based Web sites on the Internet, according to Media Metrix. Xoom.com
attracts members to its community site with a variety of free services,
including homepages, e-mail, chat rooms, electronic newsletters, clip art and
software libraries, page counters and online greeting cards. Upon registration,
members agree to receive periodic offers of products and services via e-mail. By
offering its members a variety of attractive free services, participation in
virtual communities and competitively priced products, Xoom.com believes it has
created an innovative online sales channel with low customer acquisition costs.
SNAP! LLC
One Beach Street
San Francisco, California
Attn: Chief Financial Officer
(415) 875-7900
Snap.com, the fastest-growing major Internet portal on the Web from July
1998 to May 1999 according to Media Metrix, is a free, comprehensive
information, navigation and content aggregation service targeted at both
consumer and business users. Snap.com uses proprietary technology to integrate
the enormous and varied resources of the Internet into a single user interface
with personalization capability. SNAP encourages users to rely on Snap.com to
meet their personal daily information needs, such as financial portfolio
tracking, e-mail service and local weather, as well as to satisfy more complex,
non-routine search needs.
NBC MULTIMEDIA DIVISION
c/o National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10012
Attn: Corporate Communications
(212) 664-7142
Through the merger of Neon Media Corporation with NBCi, NBC Multimedia will
contribute the NBC.com and NBC-IN.com businesses, plus a 10% equity interest in
CNBC.com LLC, to NBCi. NBC Multimedia will also transfer the business related to
VideoSeeker.com to NBCi in exchange for a convertible note of NBCi. Currently,
each of NBC.com, NBC-IN.com and VideoSeeker are operated as separate business
units within NBC Multimedia. CNBC.com LLC is owned by NBC. NBC.com is the
Internet venue for NBC's
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entertainment programming and information on the Internet. NBC-IN.com is a
portal to a network of local community sites developed for more than 100
television stations throughout the United States owned by or affiliated with
NBC. VideoSeeker is an on-demand Internet video aggregation service. CNBC.com
provides comprehensive financial information and analytical tools for personal
financial planning.
MERGER AGREEMENT (PAGE 72)
Under the Agreement and Plan of Contribution and Merger (the "Merger
Agreement"):
- each share of Xoom.com common stock will be converted into the right to
receive one share of NBCi Class A common stock, which is expected to
result in the issuance of approximately 18,786,980 shares of Class A
common stock;
- CNET will receive 7,147,584 shares of Class A common stock in exchange for
its ownership interest in SNAP; and
- an unaffiliated third party will receive 97,479 shares of Class A common
stock in exchange for its ownership interest in SNAP.
Upon completion of these transactions, the former stockholders of Xoom.com
will control NBCi and NBCi will own 100% of the common stock of Xoom.com and
approximately 81% (approximately 40% on a fully diluted basis) of the ownership
interests in SNAP, subject to NBC Multimedia's options to purchase additional
equity interests in SNAP.
CONDITIONS TO MERGER AGREEMENT
The transactions contemplated by the Merger Agreement will occur only if the
following conditions specified in the Merger Agreement are either satisfied or
waived:
- there is no injunction, restraining order or other decree that restrains
or prohibits the consummation of any of the transactions contemplated by
the Merger Agreement;
- no action taken or statute, rule, regulation or order will make the
consummation of the transactions contemplated by the Merger Agreement
illegal;
- all orders, consents and approvals of any governmental authorities legally
required for the consummation of the transactions contemplated by the
Merger Agreement will have been obtained and the related waiting periods
under applicable antitrust or merger control or competition laws or
regulations have expired or been terminated except as would not have a
material adverse effect;
- the Xoom.com stockholders have adopted the Merger Agreement;
- the Class A common stock has been approved for quotation, subject to
notice of issuance, on the Nasdaq National Market;
- the conditions to the closing of the transactions contemplated by the
Contribution Agreement have been satisfied or waived;
- the representations and warranties of the respective parties made in the
Merger Agreement remain true and correct in all material respects;
- the parties have performed their respective obligations under the Merger
Agreement in all material respects;
- each of the parties has entered into the additional agreements
contemplated by the Merger Agreement; and
- Xoom.com shall have received an opinion in form and substance reasonably
satisfactory to it from its counsel as to the effect of the Xoom.com
merger for federal income tax purposes.
TERMINATION OF MERGER AGREEMENT
Either CNET or Xoom.com may terminate the Merger Agreement at any time prior
to the completion of the Xoom.com merger if:
- the transactions contemplated by the Merger Agreement are not completed by
December 31, 1999;
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- a governmental authority or legal action permanently prohibits
consummation of the transactions contemplated by the Merger Agreement; or
- the Xoom.com stockholders do not adopt the Merger Agreement.
In addition, prior to receiving stockholder approval, Xoom.com may terminate
the Merger Agreement if it receives a proposal to acquire Xoom.com and the
Xoom.com board of directors determines in good faith, after consultation with
its financial adviser:
- that the proposal is more favorable to the Xoom.com stockholders than the
transactions contemplated by the Merger Agreement and the Contribution
Agreement; and
- that termination of the Merger Agreement is required to comply with its
fiduciary duties under Delaware law.
CONTRIBUTION AGREEMENT (PAGE 78)
Under the Second Amended and Restated Agreement and Plan of Contribution,
Investment and Merger (the "Contribution Agreement"):
- each share of Neon Media Corporation common stock will be converted into
one share of Class B common stock of NBCi, which will result in the
issuance of 12,173,111 shares of Class B common stock to NBC Multimedia, a
wholly owned subsidiary of NBC;
- NBC Multimedia will receive 11,417,569 shares of Class B common stock of
NBCi in exchange for its ownership interests in SNAP (including its
options to purchase additional equity interests of SNAP);
- NBC Multimedia will transfer the business related to VideoSeeker.com to
NBCi in exchange for a $39,477,852 zero coupon convertible note of NBCi
due 2006, and
- an affiliate of NBC will purchase a $447,416,845 zero coupon convertible
note of NBCi due 2006 in exchange for an assignment of a $340 million note
issued by NBC.
The NBCi convertible notes may be converted by the holder into an aggregate
of 5,809,388 shares of Class B common stock beginning one year after their
issuance. The $340 million NBC note has a term of four years and bears interest
at 5.4% per annum.
CONDITIONS TO CONTRIBUTION AGREEMENT
The transactions contemplated by the Contribution Agreement will occur only
if the following conditions specified in the Contribution Agreement are either
satisfied or waived:
- there is no injunction, restraining order or other decree that restrains
or prohibits the consummation of any of the transactions contemplated by
the Merger Agreement;
- no action taken or statute, rule, regulation or order will make the
consummation of the transactions contemplated by the Contribution
Agreement illegal;
- all orders, consents and approvals of any governmental authorities legally
required for the consummation of the transactions contemplated by the
Contribution Agreement will have been obtained and the waiting periods
applicable under applicable antitrust or merger control or competition
laws or regulations have expired or been terminated, except as would not
cause a material adverse effect;
- the Xoom.com stockholders have adopted the Merger Agreement and Xoom.com
has adopted the Contribution Agreement;
- the transactions contemplated by the Merger Agreement have occurred;
- the representations and warranties of the respective parties made in the
Contribution Agreement remain true and complete in all material respects;
- the parties have performed their respective covenants and obligations
under the Contribution Agreement in all material respects; and
- the officers and directors of NBCi will consist of those persons
designated in the Contribution Agreement upon the consummation of the
transactions contemplated thereby.
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TERMINATION OF CONTRIBUTION AGREEMENT
The Contribution Agreement may be terminated at any time prior to the
completion of the Neon Media Corporation merger:
- by the mutual written consent of NBC and NBCi;
- by either NBC or NBCi if the transactions contemplated by the Contribution
Agreement are not completed by December 31, 1999;
- by either NBC or NBCi if a governmental authority or legal action
permanently prohibits consummation of the transactions contemplated by the
Contribution Agreement;
- by either NBC or NBCi if the Xoom.com stockholders do not adopt the Merger
Agreement or Xoom.com does not adopt the Contribution Agreement;
- by NBC if the board of directors of Xoom.com or NBCi shall have withdrawn
or modified in a manner adverse to NBC its approval or recommendation of
the Merger Agreement, the Contribution Agreement or any of the
transactions contemplated thereby; or
- by NBC if the Xoom.com board of directors has accepted or recommended a
transaction that would result in a change in control of Xoom.com or shall
have resolved to do so;
- by Xoom.com or NBCi if, prior to receiving stockholder approval, Xoom.com
receives, having complied in all material respects with the provisions of
the Contribution Agreement, a BONA FIDE proposal to acquire Xoom.com and
the Xoom.com board of directors determines in good faith in consultation
with its financial and legal advisers, that:
- the proposal is more favorable to the Xoom.com stockholders than the
transactions contemplated by the Merger Agreement and the Contribution
Agreement; and
- termination of the Contribution Agreement is required to comply with
its fiduciary duties;
- by either NBC or NBCi if there has been a material default or breach of
the Contribution Agreement by NBC, if NBCi is terminating the Contribution
Agreement, or by NBCi or Xoom.com, if NBC is terminating the Contribution
Agreement, and such default or breach is not curable or, if curable, is
not cured within 30 days after written notice of such default or breach;
- automatically and without any action by the parties upon the termination
of the Merger Agreement.
RELATED AGREEMENTS (PAGE 88)
NBC STOCK OPTION (PAGE 88)
In connection with the execution of the Contribution Agreement, Xoom.com
granted NBC a stock option to purchase up to 3,415,249 shares of Xoom.com common
stock at a price of $73.50 per share. This number represents approximately 19.9%
of the outstanding shares of Xoom.com at the time the Contribution Agreement was
signed. The stock option is not currently exercisable. However, if the
Contribution Agreement is terminated because the required approval of Xoom.com's
stockholders is not obtained and certain other conditions exist or if another
triggering event occurs, NBC may be able to exercise the stock option. The
triggering events are described on page 88. If the Contribution Agreement is
consummated in accordance with its terms, the stock option will terminate.
NBC required Xoom.com to grant the stock option as a condition to entering
into the Contribution Agreement. The stock option and the non-solicitation
provisions of the Contribution Agreement may discourage third parties who are
interested in acquiring a significant stake in Xoom.com and are intended to
increase the likelihood that the transactions will be completed.
VOTING AGREEMENT (PAGE 91)
Chris Kitze, Xoom.com's Chairman and, through a company he controls, the
owner of approximately 20% of Xoom.com outstanding common stock, has agreed to
vote all of his shares of Xoom.com common stock to adopt the
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Merger Agreement and to approve Xoom.com's adoption of the Contribution
Agreement.
BRAND INTEGRATION AND LICENSE AGREEMENT (PAGE 92)
In connection with the transactions, NBC and NBC Multimedia entered into a
licensing agreement. This agreement will become an asset of NBCi and be binding
on NBC with respect to NBCi upon consummation of the transactions. Among other
rights, the agreement grants NBC Multimedia a non-exclusive license to use the
trademark "NBC", the NBC peacock logo and the NBC soundmark in connection with
NBC.com, VideoSeeker and NBC-IN.com and the portal, community and e-commerce
services of NBCi. In addition, NBC may not license competitors of NBC Multimedia
to co-brand their portal, community and e-commerce services with certain NBC
marks, and NBC may not operate such services itself, other than through NBC
Multimedia. The license agreement also provides NBC Multimedia an exclusive
license to use, reproduce and display short excerpts from television programs
owned entirely by NBC or to which NBC has all rights necessary to provide
interactive delivery rights to NBC Multimedia and to create interactive programs
therefrom on the NBC Multimedia Web sites, in accordance with the terms of the
license.
The license agreement also provides NBC Multimedia with certain license
rights to the universal resource locators ("URLs") for NBC.com, NBC-IN.com and
VideoSeeker.com, although NBC retains title to such URLs.
ADVERTISING AGREEMENT (PAGE 93)
NBC and NBCi will enter into an agreement to purchase at least $380 million
of NBC television network advertising over the next four years pursuant to the
terms of an advertising agreement. At the end of the four year period, NBC and
NBCi have agreed to negotiate in good faith concerning the purchase of an
additional $500 million of advertising on NBC during the following six years.
GOVERNANCE AGREEMENT (PAGE 94)
NBC and NBCi will enter into an agreement with respect to the governance of
NBCi, the form of which was negotiated in connection with the Contribution
Agreement. Pursuant to the governance agreement, NBC will enter into a
standstill agreement with NBCi under which it will agree not to transfer or
acquire additional shares of NBCi's capital stock except in accordance with the
terms and conditions of the governance agreement. The governance agreement will
also contain provisions with respect to NBC's rights to purchase additional
shares of Class B common stock in the event NBCi issues shares of capital stock
in order to maintain its percentage ownership interest in NBCi.
OTHER AGREEMENTS (PAGE 94)
In connection with the transactions, CNET will enter into (1) a voting and
right of first offer agreement with NBC under which CNET will (a) agree to vote
its shares of Class A common stock in the same manner as NBC and its affiliates
with respect to certain change in control transactions involving NBCi and (b)
provide NBC with a right of first offer to purchase shares of Class A common
stock owned by CNET, and (2) a standstill agreement with NBCi under which it
will agree not to transfer or acquire additional shares of NBCi's capital stock
except in accordance with the terms and conditions of the standstill agreement.
In connection with the transactions, CNET, SNAP and NBC and its affiliates
entered into an amendment to their existing carriage agreement. Under the
amendment, specified information provided by CNET will receive preferred
placement on SNAP's Web sites. The amendment also provides that SNAP will be a
preferred provider of directory services on any CNET Web site and contains
limited provisions restricting CNET's ability to compete with SNAP, both of
which expire on May 9, 2000.
On June 11, 1999, Xoom.com and NBC entered into a stock purchase agreement.
Under the agreement NBC agreed to acquire 960,028 shares of Xoom.com's common
stock for $55 million. NBC also agreed to vote all of such shares in favor of
the adoption of the Merger Agreement and in favor of Xoom.com's adoption of the
Contribution Agreement. The closing of the stock purchase is independent of the
closing of the transactions contemplated by the Merger Agreement or the
Contribution Agreement.
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REASONS FOR THE TRANSACTIONS (PAGE 49)
The Xoom.com board of directors considered a number of factors in
determining to approve the transactions and recommend approval of them to its
stockholders, including the opportunity of Xoom.com's stockholders to
participate in the potential growth of NBCi following the closing of the
transactions, the value of NBC's name and trademarks, the enhanced financial and
operational resources of NBCi, and the enhanced ability of NBCi to take
advantage of future strategic opportunities.
RECOMMENDATION TO XOOM.COM STOCKHOLDERS (PAGE 45)
The Xoom.com board of directors has determined that the transactions
contemplated by the Merger Agreement and the Contribution Agreement are in the
best interests of Xoom.com and its stockholders. Accordingly, the Xoom.com board
of directors has approved the Merger Agreement and the Contribution Agreement,
and recommends that you vote for the adoption of the Merger Agreement and for
Xoom.com's adoption of the Contribution Agreement at the special meeting.
OPINIONS OF FINANCIAL ADVISORS TO XOOM.COM (PAGES 53 AND 60 AND APPENDIX C-1 AND
APPENDIX C-2)
In deciding to approve the transactions, Xoom.com's board of directors
considered the opinions of Bear, Stearns & Co. Inc. and Hambrecht & Quist LLC,
its financial advisors, that, as of May 9, 1999, after issuance of NBCi shares
to Xoom.com stockholders in the merger of Xenon 3 with Xoom.com, the aggregate
issuance of NBCi shares to NBC and CNET in the transactions contemplated by the
Merger Agreement and the Contribution Agreement, taken together (both before and
after conversion of the NBCi convertible notes), in exchange for the aggregate
contribution of SNAP and the NBC contributed Internet businesses, was fair, from
a financial point of view, to Xoom.com. In addition, Xoom.com's board of
directors considered the opinion of Bear Stearns that, after issuance of NBCi
shares to Xoom.com stockholders in the merger of Xenon 3 with Xoom.com, the
issuance of NBCi shares to CNET in the transactions contemplated by the Merger
Agreement, if the transactions contemplated by the Contribution Agreement are
not consummated, in exchange for CNET's contribution of its equity interests in
SNAP, was fair, from a financial point of view, to Xoom.com. On June 11, 1999,
Bear Stearns and Hambrecht & Quist confirmed that their respective opinions
remained in full force and effect and were unaffected by the equity investment
and restructuring entered into as of June 11, 1999. On July 7 and 8, 1999,
Hambrecht & Quist and Bear Stearns respectively confirmed that their respective
opinions remained in full force and effect and were unaffected by the second
restructuring entered into as of July 8, 1999. Such opinions were provided for
the information and assistance of Xoom.com's board of directors in connection
with the transactions and do not constitute a recommendation as to how any
holder of shares of Xoom.com common stock should vote with respect to the
transactions. The full text of the written opinions of each of Bear Stearns and
Hambrecht & Quist, which set forth assumptions made, matters considered and
limitations on the review undertaken in connection with the opinions, are
attached as Appendix C-1 and Appendix C-2. You are urged to read such opinions
in their entirety.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS (PAGE 66)
In considering Xoom.com's board of directors' recommendation that you vote
to approve the adoption of the Merger Agreement and vote to approve Xoom.com's
adoption of the Contribution Agreement, you should note that certain officers
and directors of Xoom.com have interests in the transactions that are different
from, or in addition to, your interests. These interests include accelerated
vesting of stock options and indemnification rights. As a result, directors and
officers may be more likely to vote to approve the transactions than Xoom.com's
stockholders generally.
THE SPECIAL MEETING (PAGE 44)
At the meeting of Xoom.com, you will be asked to consider and vote upon the
adoption of the Merger Agreement, and Xoom.com's adoption of the Contribution
Agreement and the
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transactions contemplated thereby, including the merger of Xoom.com with Xenon
3. You also will be asked to consider and vote upon Xoom.com's adoption of the
NBCi 1999 stock incentive plan.
STOCKHOLDER APPROVAL (PAGE 45)
The holders of a majority of the outstanding shares of Xoom.com common stock
must vote for adoption of the Merger Agreement. Although not required by
Delaware law, the board of directors of Xoom.com is seeking approval by the
holders of a majority of the shares of Xoom.com common stock present in person
or by proxy at the meeting and entitled to vote on Xoom.com's adoption of the
Contribution Agreement.
VOTING SHARES HELD BY YOUR BROKER IN STREET NAME (PAGE 45)
Your broker will vote your shares only if you provide instructions on how to
vote. If you do not instruct your broker on how to vote, your shares will not be
voted at the special meeting. This will have the same effect as voting against
the adoption of the Merger Agreement, but will not constitute a vote against
Xoom.com's adoption of the Contribution Agreement.
CHANGING YOUR VOTE (PAGE 44)
If you want to change your vote, just send a later-dated, signed proxy card
to the Secretary of Xoom.com before the special meeting or attend the special
meeting in person and vote. You may also revoke your proxy by sending written
notice or revocation to the Secretary of Xoom.com before the special meeting.
EXCHANGING YOUR STOCK CERTIFICATES (PAGE 78)
Do not send in your Xoom.com stock certificates now. After the transactions
are completed, NBCi will send you written instructions for exchanging your
Xoom.com stock certificates for NBCi stock certificates.
NO APPRAISAL RIGHTS (PAGE 70)
Under Delaware law, you do not have any right to an appraisal of the value
of your Xoom.com common stock in connection with the merger of Xenon 3 with
Xoom.com.
NASDAQ LISTING (PAGE 71)
NBCi will apply for the listing of the Class A common stock on the Nasdaq
National Market under the symbol "NBCI." It is a condition to the closing of the
Merger Agreement and Contribution Agreement that the Nasdaq National Market has
approved for listing the shares of Class A common stock to be issued in
connection with the transactions, subject only to official notice of issuance.
GOVERNMENTAL AND REGULATORY MATTERS (PAGE 68)
U.S. antitrust laws prohibit NBC, Xoom.com and CNET from completing the
transactions until they have furnished information to the Antitrust Division of
the U.S. Department of Justice and the Federal Trade Commission and a required
waiting period has ended or been terminated early. NBC, Xoom.com and CNET
furnished the required information on July 2, 1999 and the waiting period
expires August 1, 1999 unless the waiting period is terminated early or the
parties receive a request for additional documentary material.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 69)
The obligation of Xoom.com to complete the merger of Xenon 3 with Xoom.com
pursuant to the Merger Agreement is conditioned upon the receipt by Xoom.com of
an opinion of its counsel that, for U.S. federal income tax purposes, the merger
will qualify as either or both of (A) a contribution of Xoom.com stock to NBCi
qualifying under Section 351 of the Internal Revenue Code, or (B) a tax-free
reorganization under Section 368 of the Internal Revenue Code. Provided the
merger so qualifies, Xoom.com stockholders will not recognize any gain or loss
upon the exchange of their Xoom.com common stock for NBCi Class A common stock.
In the event that Xoom.com is unable to obtain this opinion, Xoom.com is
permitted under the Merger Agreement to waive the receipt of the opinion as a
condition to its obligation to complete the merger. As of the date of this proxy
statement/prospectus, Xoom.com does not intend to waive the receipt of this
opinion as a condition to its obligation to complete the merger. In the event of
such a failure to obtain the opinion and a
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determination by Xoom.com to waive receipt of an opinion as a condition to the
completion of the merger, Xoom.com will resolicit the votes of its stockholders
to approve the adoption of the Merger Agreement.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER OF
XENON 3 WITH XOOM.COM WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF
THE MERGER TO YOU.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 70)
The transactions contemplated by the Merger Agreement and the Contribution
Agreement will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 38)
Each of NBCi and Xoom.com has made forward-looking statements in this
document that are subject to risks and uncertainties. Forward-looking statements
include expectations concerning matters that are not historical facts. Words
such as "projects," "believes," "anticipates," "plans," "expects," "intends" or
similar expressions, indicate forward-looking statements. For more information
regarding factors that could cause actual results to differ from these
expectations, you should refer to "Risk Factors" on page 18.
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<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
SELECTED HISTORICAL AND SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following selected historical financial data of Xoom.com, SNAP and the
NBC Multimedia Division, which consists of NBC.com, NBC-IN.com and VideoSeeker,
have been derived from their respective historical financial statements, and
should be read in conjunction with those financial statements and the related
notes. The selected unaudited pro forma condensed combined financial data of
Xoom.com, SNAP and the NBC Multimedia Division are derived from the unaudited
pro forma condensed combined financial information, which gives effect to the
transactions as a purchase, and should be read in conjunction with the unaudited
pro forma condensed combined financial information and related notes, which
begin on page 96 of this proxy statement/prospectus.
For pro forma purposes, the historical statements of operations of Xoom.com,
SNAP and the NBC Multimedia Division for the year ended December 31, 1998 and
the three months ended March 31, 1999 have been combined to give effect to the
transactions as if they had occurred on January 1, 1998 and January 1, 1999,
respectively.
The unaudited pro forma condensed combined balance sheet data assumes that
the transactions took place as of March 31, 1999 and combine the historical
balance sheets of Xoom.com, SNAP and the NBC Multimedia Division and other
purchase adjustments at that date.
The total estimated purchase cost of the transactions, with Xoom.com treated
as the accounting acquiror, has been allocated on a preliminary basis to assets
and liabilities based on management's best estimates of their fair value with
the excess costs over the net assets acquired allocated to goodwill. This
allocation is subject to change pending a final analysis of the total purchase
cost and the fair value of the assets acquired and liabilities assumed. The
impact of such changes could be material.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or financial condition of NBCi.
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<PAGE>
XOOM.COM'S SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) DECEMBER 31, MARCH 31,
THROUGH ----------------- -------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS DATA:
Net revenue.................................. $ -- $ 841 $ 8,318 $ 849 $ 4,422
Loss from operations......................... (439) (3,132) (9,356) (1,000) (3,918)
Net loss..................................... (439) (3,132) (10,798) (1,000) (3,308)
Net loss per share--basic and diluted........ (0.89) (0.64) (1.37) (0.17) (0.24)
Number of shares used in per share
calculation--basic and diluted.............. 496 4,874 7,879 5,884 13,811
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998 1999
---- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments............. $ 1 $ 6 $56,575 $52,671
Working capital (deficit)........................................ 156 (1,400) 52,560 48,175
Total assets..................................................... 705 782 66,874 64,790
Long-term debt and capital lease obligations..................... -- -- 528 475
Total stockholders' equity (deficit)............................. 560 (873) 60,333 57,450
</TABLE>
SNAP! LLC'S SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------ -------------------------
1997 1998 1998 1999
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS DATA:
Revenues..................................... $ 817 $ 7,317 $ 861 $ 5,361
Loss from operations......................... (15,568) (39,213) (3,949) (23,912)
Net loss..................................... (15,568) (39,288) (3,949) (24,175)
Net loss per unit--basic and diluted......... (1.33) (2.95) (0.34) (1.67)
Number of units used in per share
calculation--basic and diluted.............. 11,700 13,301 11,700 14,444
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1997 1998 1999
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash and cash equivalents.................... $ -- $ 865 $ 587
Working capital (deficit).................... (561) 193 (5,870)
Total assets................................. 1,530 11,634 12,942
Long-term debt............................... -- 13,500 20,500
Total members' equity (deficit).............. 602 (7,986) (17,986)
</TABLE>
15
<PAGE>
NBC MULTIMEDIA DIVISION'S SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- -------------------------
1997 1998 1998 1999
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL COMBINED STATEMENTS OF OPERATIONS DATA:
Revenues............................................... $ 3,232 $11,615 $ 1,816 $ 3,482
(Loss) income from operations.......................... (7,739) (3,050) (1,216) 838
Net (loss) income...................................... (7,739) (3,050) (1,216) 838
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
HISTORICAL COMBINED BALANCE SHEET DATA:
Working capital (deficit).............................. $ 350 $ 407 $ (474)
Total assets........................................... 2,321 2,909 2,384
Long-term debt......................................... -- -- --
Parent Company's investment and net advances........... (429) (13,610) (16,819)
</TABLE>
NBCI'S SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH
1998 31, 1999
------------ --------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA:
Net revenue........................................................................ $ 27,844 $ 13,338
Loss from operations............................................................... (290,628) (88,378)
Net loss........................................................................... (290,159) (87,141)
Net loss per share--basic and diluted.............................................. (7.12) (1.87)
Number of shares used in per share calculation--basic and diluted.................. 40,760 46,692
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH
31,
1999
------------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments.................................................. $ 87,996
Working capital..................................................................................... 131,121
Total assets........................................................................................ 2,112,179
Long-term debt and capital lease obligations........................................................ 370,475
Total stockholders' equity.......................................................................... 1,698,137
</TABLE>
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following table sets forth (1) historical net loss per share of Xoom.com
and SNAP and historical book value per share of Xoom.com and SNAP; (2) unaudited
pro forma condensed combined net loss per share and unaudited pro forma
condensed combined book value per share data of NBCi after giving effect to the
transactions; and (3) unaudited equivalent pro forma condensed combined net loss
per share and unaudited equivalent pro forma condensed combined book value per
share data of SNAP based on the exchange ratio of 1.2853 of a share of NBCi's
common stock for each unit of SNAP. As the NBC Multimedia Division consists of
operating units, and not subsidiaries, of NBC, net loss per share information is
not meaningful.
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<PAGE>
The information in the table should be read in conjunction with the
financial statements of Xoom.com, SNAP and the NBC Multimedia Division and the
related notes beginning on pages F-2, F-30 and F-46, respectively, in this proxy
statement/prospectus and the unaudited pro forma condensed combined financial
information and related notes included elsewhere in this proxy statement/
prospectus. The unaudited pro forma condensed combined financial information is
not necessarily indicative of the net loss per share or book value per share
that would have been achieved had the transaction been consummated as of the
dates indicated and should not be construed as representative of these amounts
for any future dates or periods.
<TABLE>
<CAPTION>
SNAP
EQUIVALENT
PRO FORMA PRO FORMA
HISTORICAL (1) CONDENSED CONDENSED
------------------------ COMBINED COMBINED
XOOM.COM SNAP (2) (2)(3)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss per share--basic and diluted
For the year ended December 31, 1998...................... $ (1.37) $ (2.95)
For the three months ended March 31, 1999................. (0.24) (1.67)
Book value per share at March 31, 1999...................... 3.82 (1,245.22) $ 1.55 $ 2.00
</TABLE>
- ------------------------
(1) Historical book value per share is computed by dividing stockholders' equity
less goodwill and other intangible assets by the number of shares of common
stock or units outstanding at the end of each period. Because the NBC
Multimedia Division consists of operating units, and not subsidiaries, of
NBC, net loss per share information is not meaningful.
(2) The pro forma condensed combined book value per share is computed by
dividing pro forma stockholders' equity less goodwill and other intangible
assets, including the effect of pro forma adjustments, by the pro forma
number of shares of NBCi common stock which would have been outstanding had
the transactions been consummated as of March 31, 1999.
(3) The SNAP equivalent pro forma condensed combined per share amounts are
calculated by multiplying the pro forma condensed combined book value per
share amounts by the exchange ratio of 1.2853 of a share of Xoom.com common
stock for each unit of SNAP. Because the NBC Multimedia Division consists of
operating units, and not subsidiaries, of NBC, equivalent pro forma
condensed combined book value per share information is not meaningful.
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<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE
DECIDING WHETHER TO VOTE FOR THE TRANSACTIONS. THESE ARE NOT THE ONLY RISKS NBCI
FACES. SOME RISKS ARE NOT YET KNOWN TO US AND THERE ARE OTHERS NBCI DOES NOT
CURRENTLY BELIEVE ARE MATERIAL BUT COULD LATER TURN OUT TO BE SO. ALL OF THESE
COULD IMPAIR NBCI'S BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION. IN
EVALUATING THE RISKS OF INVESTING IN NBCI, YOU SHOULD ALSO EVALUATE THE OTHER
INFORMATION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE
FINANCIAL STATEMENTS.
RISKS RELATED TO THE TRANSACTIONS AND TO NBCI'S BUSINESS
NBCI'S SUCCESS IS DEPENDENT UPON THE SUCCESSFUL INTEGRATION OF THE
OPERATIONS OF XOOM.COM, SNAP AND THE NBC CONTRIBUTED INTERNET BUSINESSES
The anticipated benefits of the transactions will depend substantially on
whether Xoom.com, SNAP and the NBC contributed Internet businesses can be
integrated by NBCi in an efficient and effective manner. NBCi can provide no
assurance that this will occur. The combination of the NBCi properties will
require, among other things, the technological integration of the Xoom.com,
Snap.com, NBC.com, NBC-IN.com and VideoSeeker.com Web sites and the coordination
of the sales, marketing and research and development efforts of Xoom.com, SNAP
and the NBC contributed Internet businesses.
Some of the factors contributing to the risks attendant to integration faced
by NBCi are:
- difficulties and expenses of integrating operations, technology and
personnel into NBCi's operations while preserving goodwill of the NBCi
businesses;
- the additional financial resources that may be needed to fund the
operations of NBCi;
- the potential disruption caused to the businesses of Xoom.com, SNAP and
the NBC contributed Internet properties by the need to dedicate management
and other resources to completing the transactions;
- the difficulty of creating and maintaining uniform standards, controls,
procedures and policies;
- the ability of NBCi's management to manage the substantial expansion of
NBCi's employee base and the integration of teams that have not previously
worked together while dealing with the potential loss of any key employees
of Xoom.com, SNAP and the NBC contributed Internet properties;
- the impairment of relationships with employees and customers as a result
of changes in management; and
- the different geographic locations of the principal operations of each of
Xoom.com, SNAP and the NBC contributed Internet businesses.
NBCi cannot assure you that NBCi will be able to integrate the NBCi
businesses smoothly or successfully. The integration of operations following the
closing of the transactions will require the dedication of management resources,
which may distract attention from the day-to-day operations of NBCi. The
inability of NBCi's management to integrate successfully the operations of SNAP
and Xoom.com and the NBC contributed Internet businesses could have a material
adverse effect upon the business, operating results and financial condition of
NBCi. In addition, the benefits of the transactions may not be realized and
NBCi's stock price could be adversely affected.
NBCI CANNOT ASSURE YOU THAT IT WILL BE PROFITABLE BECAUSE IT HAS NO
OPERATING HISTORY AND THE COMPANIES AND PROPERTIES COMPRISING NBCI HAVE A
LIMITED OPERATING HISTORY
NBCi was incorporated in May 1999 and has no operating history. Xoom.com was
founded in April 1996 and has a limited operating history. SNAP began operations
in December 1996 and the
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<PAGE>
Snap.com Web site was launched by CNET in September 1997. SNAP was spun-off from
CNET as an independent entity owned by CNET and NBC in June 1998. NBC.com,
NBC-IN.com and VideoSeeker.com began operations in August 1995, October 1997,
and May 1998, respectively. NBC launched CNBC.com in June 1999.
Because of the limited operating histories of NBCi's businesses and the
uncertain nature of the rapidly changing markets NBCi will serve, future results
of operations cannot be predicted. Moreover, it is difficult for NBCi to plan or
anticipate NBCi's revenue potential and operating expenses based on the limited
historical financial data of the NBCi businesses.
NBCi currently expects that its operating expenses will continue to increase
significantly as NBCi expands its sales and marketing operations, continues to
develop and extend the SNAP and other NBCi brands, funds greater levels of
product development, develops and commercializes additional media properties,
and acquires complementary businesses and technologies. Accordingly, NBCi will
need to increase revenues to be profitable. As a result, NBCi may experience
significant losses on a quarterly and annual basis. If NBCi's actual revenue is
lower than predicted, it may be unable to adjust its operating expenses
accordingly. If revenues do not grow as expected or increases in expenses are
not in line with forecasts, there could be a material adverse effect on NBCi's
business, results of operations and financial condition. If NBCi's operating
results in any period fall below the expectations of securities analysts and
investors, the market price of NBCi's shares would likely decline.
NBCI AND THE NBCI BUSINESSES WILL BE SUBJECT TO ALL OF THE RISKS AND
DIFFICULTIES FREQUENTLY ENCOUNTERED BY EARLY STAGE COMPANIES.
The prospects of the NBCi businesses are subject to all of the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets, particularly those involved in the Internet and in e-commerce.
These risks include the following uncertainties and potential adverse
developments:
- the uncertainty of the level of use of the Internet and online services
and the acceptance of the Internet and other online services and products
such as those NBCi will offer;
- the lack of success of NBCi's proposed business model on the Internet;
- NBCi's failure to continue to develop and extend the SNAP and other NBCi
brands;
- NBCi's inability to obtain needed financing;
- higher than anticipated marketing costs that NBCi will need to incur in
order to maintain and enhance SNAP and the other NBCi brands;
- NBCi's inability to generate significant e-commerce revenue or premium
service revenue from its members;
- NBCi's inability to maintain and increase levels of traffic and membership
on the NBCi Web sites or to manage rapidly expanding operations
effectively;
- the emergence of new services offered by NBCi's competitors that affect
the level of traffic on the NBCi Web sites and NBCi's ability to expand
its membership base;
- NBCi's ability to predict demand for products and services it offers and
to optimize inventory levels accordingly;
- NBCi's inability to meet minimum guaranteed impressions under advertising
agreements;
- NBCi's failure to adapt to the mix of types of advertising NBCi will sell
and developments relating to advertising on the Web;
- NBCi's failure to anticipate and adapt to a developing Internet market and
increased competition;
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<PAGE>
- NBCi's inability to upgrade, develop and deploy its network, systems and
infrastructure and attract new personnel in a timely and effective manner;
and
- the failure of NBCi's server and networking systems to handle traffic on
NBCi's Web sites efficiently.
RISKS RELATED TO DEVELOPMENT, INTRODUCTION AND ACCEPTANCE OF NBCI'S INTERNET
PROPERTIES IS SUBJECT TO A NUMBER OF UNCERTAINTIES
NBCi believes that combining the content, promotion, brands and technologies
of the NBCi Internet properties is a critical aspect of NBCi's efforts to
attract and expand its Internet audience and to differentiate NBCi from its
competitors. While NBCi intends to integrate the Xoom.com, NBC.com, NBC-IN.com
and VideoSeeker.com Web sites with the Snap.com Web site as soon as practicable
after the closing of the transactions, there can be no assurance that the
integrated service can be successfully developed and launched in this time
frame. In addition, NBCi's Web sites may not have all of the functionality and
services currently planned. If consumers do not perceive the content and
experience of NBCi's Web sites to be of high quality, or if NBCi introduces new
Internet sites or enters into new business ventures that are not favorably
received by consumers, NBCi will be unsuccessful in expanding its Internet
audience. NBCi can provide no assurances that it will be able to successfully
integrate the Xoom.com, NBC.com, NBC-IN.com and VideoSeeker.com Web sites with
the Snap.com Web site on a timely basis, or at all.
NBCI ANTICIPATES THAT BUSINESS WILL FLUCTUATE FROM ONE PERIOD TO THE NEXT
DUE TO ITS INITIAL RELIANCE ON SHORT-TERM ADVERTISING AGREEMENTS AND
SEASONAL FLUCTUATIONS, WHICH COULD HARM NBCI'S RESULTS OF OPERATIONS
Initially, a substantial portion of NBCi's net revenue is expected to be
from short-term advertising contracts, usually one to two months in length. That
means NBCi's quarterly net revenue will be a function of the contracts it enters
into within the quarter and its ability to adjust spending in light of any net
revenue shortfalls. As a result, the cancellation of even a small number of
advertising contracts could significantly affect NBCi's operating results.
NBCi's operating expenses are likely to increase significantly over the near
term. To the extent that NBCi's expenses increase but its revenues do not, its
business, operating results and financial condition may be materially and
adversely affected.
Advertising revenue is also linked to the level of traffic on NBCi's Web
sites, so if traffic is less than the level expected by NBCi's advertising
customers, revenue from this source could be affected. NBCi will have certain
advertising contracts that include a guaranteed minimum number of impressions on
NBCi's Web sites. Reduced traffic on NBCi's Web sites would cause NBCi to fall
short in meeting these minimum requirements and, as a result, NBCi may give
credits to its advertisers and reduce advertising rates, which would lead to a
reduction in NBCi's revenue from advertising.
Advertising revenues are also subject to seasonal fluctuations.
Historically, advertisers spend less in the first and third calendar quarters
and user traffic on online media properties has been lower during the summer and
during year-end vacation and holiday periods. As a result, NBCi's results of
operations can be expected to fluctuate throughout the year, which may have a
material adverse effect on NBCi's business and financial condition.
NBCI'S FAILURE TO ATTRACT ADVERTISING REVENUE IN QUANTITIES AND AT RATES
THAT ARE SATISFACTORY TO NBCI COULD HARM ITS BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
NBCi expects to derive a significant portion of NBCi's net revenue from the
sale of advertisements, including banners, buttons, windows and text links.
It is uncertain whether Web advertising will continue to grow at a rate that
will support expansion in NBCi's revenue. The Internet as a marketing and
advertising medium has not been available for a
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<PAGE>
sufficient period of time to gauge accurately its effectiveness as compared with
traditional media. Many of NBCi's suppliers and advertisers have only limited
experience with the Web as a marketing and advertising medium.
The ability to generate significant advertising revenues will depend upon:
- the development of a large base of users of services possessing
demographic characteristics attractive to advertisers;
- the ability to continue to develop and update effective advertising
delivery and measurement systems; and
- advertising rates.
No standards have yet been widely accepted for the measurement of the
effectiveness of Web-based advertising. Advertisers may determine that banner
advertising, which will comprise a substantial portion of NBCi's revenues, is
not an effective advertising medium. If other forms of Web-based advertising
prove more popular than banner advertisements, NBCi may not be able to change
its operations to take advantage of such forms. Certain advertising filter
software programs are available that limit or remove advertising from an
Internet user's desktop. Such software, if generally adopted by users, may have
a materially adverse effect upon the viability of advertising on the Internet.
NBCi's advertising customers may not accept the internal and third-party
measurements of impressions received by advertisements on NBCi online media
properties and such measurements may contain errors. NBCi will rely primarily on
NBCi's internal advertising sales force for domestic advertising sales, which
involves additional risks and uncertainties, including risks associated with the
recruitment, retention, management, training and motivation of sales personnel.
As a result of these factors, NBCi may not be able to sustain or increase
advertising sales levels. Failure to do so may have a material adverse effect on
NBCi's business, operating results and financial position.
INCREASED COMPETITION MAY EXERT DOWNWARD PRICING PRESSURE ON ADVERTISING
CONTRACTS
NBCi will compete for a fixed amount of money available for advertising and
promotions. NBCi will compete with online services as well as traditional
offline media such as television, radio, print and outdoor advertising for a
share of advertisers' total advertising budgets. Industry sources indicate that
the number of companies selling Web-based advertising and the available
inventory of online advertising space has recently increased substantially.
Advertisers have not yet devoted a significant portion of their advertising
budgets to Web-based advertising and may not find such advertising to be
effective for promoting their products and services relative to traditional
print and broadcast media. In 1998, advertising on the Web represented less than
1% of overall advertising spending in the United States according to industry
sources. Accordingly, NBCi may face increased pricing pressure for the sale of
advertisements, which could reduce its advertising revenues. In addition, NBCi's
sales may be adversely affected to the extent that its competitors offer
superior advertising services that better target users or provide better
reporting of advertising results.
NBC WILL HAVE SIGNIFICANT INFLUENCE OVER THE MANAGEMENT AND STRATEGY OF NBCI
Upon the closing of the transactions, NBC and its affiliates will own
approximately 49% of the outstanding common stock of NBCi. If the convertible
notes are converted, their ownership interest in NBCi could increase up to
approximately 54%, although such conversion cannot occur for a period of one
year following closing. Even before the convertible notes are converted,
however, CNET has agreed to vote its shares of Class A common stock in the same
manner as NBC with respect to certain change in control transactions involving
NBCi, enabling NBC to determine the outcome of such vote. In addition, NBC and
its affiliates have rights to maintain their percentage ownership in the event
of dilutive issuances of stock by NBCi. As a result, NBC may be able to exercise
effective control in the future over many matters requiring approval by NBCi's
stockholders, including amending NBCi's
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certificate of incorporation and amended and restated bylaws, the issuance of
additional shares of Class B common stock of NBCi or the adoption of a
stockholders rights plan.
In addition, NBC and its affiliates have the right to elect six of the 13
members of the NBCi board of directors, and will retain that right so long as
they own 20% of the outstanding shares of common stock of NBCi. Following
conversion of the convertible notes, for so long as NBC and its affiliates own
35% or more of the outstanding shares of NBCi common stock, NBC and its
affiliates will have the right to elect seven of the 13 members of the NBCi
board of directors. As long as the NBC directors do not constitute a majority of
the NBCi board of directors, several significant corporate actions by NBCi will
require the approval of NBC's directors, including a change in control of NBCi
or its significant subsidiaries and certain sales of assets or securities by
NBCi. For as long as there are any Class B directors, those directors will have
the exclusive ability to remove the chief executive officer and to appoint the
chief financial officer and the general counsel of NBCi. In addition, Robert C.
Wright, the president and chief executive officer of NBC, will serve as the
chairman of the board of NBCi. Many of these rights will be embodied in the
certificate of incorporation of NBCi, and as a result any amendment will require
a vote of the stockholders of NBCi. See "Description of Capital Stock."
Because of these rights, NBC will have the ability to exert significant
influence over the management and strategy of NBCi. While NBC's directors are
obligated by Delaware law to act in the best interests of NBCi and its
stockholders, NBC's views concerning the management and strategy of NBCi may be
different from the strategy taken in the past by the board of directors and
management of Xoom.com.
NBC WILL BE ABLE TO ENGAGE FREELY IN MANY ACTIVITIES WHICH MAY BE
COMPETITIVE WITH THE BUSINESS OF NBCI
Under the brand integration and license agreement, NBC is obligated not to
license competitors of NBCi to co-brand the portal community and e-commerce
services of such competitors with certain NBC marks, and NBC may not operate a
general portal service, a broad-based community service or a broad-based
e-commerce service other than through NBCi. However, apart from the restrictions
in the brand integration and the license agreement, the certificate of
incorporation of NBCi provides that NBC has the right to engage in, and has no
duty to refrain from engaging in, the same or similar activities or lines of
business as NBCi, doing business with potential or actual customers and
suppliers of NBCi and employing any employee of NBCi. In the event that NBC
learns of a potential corporate opportunity of both NBC and NBCi, NBC has no
duty to communicate or present the opportunity to NBCi management. NBC will have
no liability to NBCi or its stockholders for breach of any fiduciary duty which
may be applicable to NBC as a major stockholder of NBCi for acquiring or
pursuing any corporate opportunity for itself, directing the opportunity to
another person or company, or failing to communicate information about the
opportunity to NBCi.
Moreover, the certificate of incorporation of NBCi provides that persons who
are directors or officers of NBCi and also of NBC are deemed to have fully
satisfied their fiduciary duties to NBCi with respect to corporate opportunities
of NBC and NBCi if they act consistently with the policy regarding corporate
opportunities set forth in the certificate of incorporation of NBCi. In
particular, a corporate opportunity offered to any person who is a director, but
not an officer, of NBCi and who is also a director or officer of NBC belongs to
NBCi only if offered in writing to such person solely in his or her capacity as
a director of NBCi, and otherwise belongs to NBC.
These provisions are effective for so long as NBC owns at least 20% of the
common stock of NBCi and at least one person who is a director or officer of
NBCi is also a director or officer of NBC. In addition, amendment of these
provisions of the certificate of incorporation of NBCi in a manner adverse to
NBC's interests will require the approval of at least 80% of the outstanding
common stock of NBCi.
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While as NBCi's principal stockholder NBC has a significant financial
interest in NBCi's success, NBC also has the objective of maximizing value for
its parent company, GE, and the stockholders of GE. There may be circumstances
under which NBC's corporate objectives conflict with the operations or strategy
of NBCi, and, except as may otherwise be required by law, NBC has no obligation
to act in a manner beneficial to NBCi in the event of such a conflict. For
example, NBC has entered into a distribution and marketing agreement with
ValueVision International, Inc. with respect to its home shopping and
transactional television service, and an affiliate of NBC is a principal
shareholder of ValueVision. In addition, NBC is the parent company of the CNBC
cable channel and will own 90% of CNBC.com LLC. Moreover, NBC distributes its
owned and licensed television programming and other content over a wide array of
media in varied formats, including videostreaming and other methods of
distribution of video content via the Internet, and the transactions will not
limit its ability to continue to do so or to develop new methods of distribution
or delivery or forms of content independently from NBCi. Although NBC is
obligated to comply with the terms of the brand integration and license
agreement, there can be no assurance that NBC will not engage in activities
which are competitive with or otherwise negatively affect the business of NBCi.
Any such action by NBC may have a material adverse effect on NBCi's business,
operating results and financial condition.
NBCI MAY NOT BE ABLE TO ENTER INTO NEW STRATEGIC RELATIONSHIPS OR OFFER
CERTAIN PRODUCTS OR SERVICES BECAUSE IT MAY COMPETE WITH EXISTING OR FUTURE
STRATEGIC PARTNERS
NBC's relationships with its existing strategic partners and NBCi's future
relationships with partners may limit NBCi's ability to enter into other
strategic relationships or provide certain services on its Web sites. For
example, NBC has a relationship with Microsoft which limits in significant
respects the ability of NBC and its affiliates to provide news, including sports
and business news, on any Web site other than MSNBC.com. In addition, the
ability of NBC and its affiliates to deliver business news video on an
interactive basis via the Internet is restricted by the terms of NBC's joint
ventures with Microsoft and Dow Jones. NBCi may enter into similar or other
non-compete arrangements with strategic partners that may limit its ability to
engage in certain activities or provide certain services.
EXISTING USERS, MEMBERS AND CUSTOMERS OF XOOM.COM, SNAP AND THE NBC
CONTRIBUTED INTERNET BUSINESSES MAY NOT CONTINUE TO USE NBCI'S PRODUCTS AND
SERVICES
There can be no assurance that the present and potential customers of SNAP,
Xoom.com and the NBC Internet properties will continue their current usage and
buying patterns without regard to the proposed transactions. For example, there
can be no assurance that large media companies and certain other competitors of
NBC will elect to advertise or provide content to the integrated Snap.com Web
site. Any significant delay or reduction in sales or orders could have an
adverse effect on the near-term business and results of operations of NBCi. In
addition, there can be no assurance that the integration of NBCi's Internet
properties with the Snap.com Web site will not confuse or cause a decline in
loyalty among users or customers of the Xoom.com, Snap.com and the NBC Internet
property Web sites.
THE COSTS OF THE TRANSACTIONS AND THE COSTS OF INTEGRATING NBCI'S PROPERTIES
ARE SUBSTANTIAL
NBCi estimates that it will incur costs of approximately $21.9 million
associated with the transactions. These costs will consist of transaction fees
for investment bankers, attorneys, accountants and other related costs incurred
by NBC, Xoom.com, SNAP and CNET. These nonrecurring transaction costs will be
recorded as goodwill upon consummation of the transactions. NBCi expects to
incur additional nonrecurring restructuring charges, currently estimated to be
approximately $1.6 million. There can be no assurance that NBCi will not incur
additional charges in excess of these amounts to reflect costs associated with
the transactions, including the costs of integrating the NBCi properties.
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NBCI IS IN A HIGHLY COMPETITIVE INDUSTRY AND SOME OF ITS COMPETITORS MAY BE
MORE SUCCESSFUL IN ATTRACTING AND RETAINING CUSTOMERS
The market for Internet products and services is highly competitive. There
are no substantial barriers to entry in these markets, except that the ability
to secure financial resources necessary to promote brand awarness is
increasingly becoming a barrier to entry in the market in which NBCi intends to
compete. NBCi expects that competition will continue to intensify. Negative
competitive developments could have a material adverse effect on NBCi's business
and the trading price of its Class A common stock. In addition, even if the
integration of NBCi Internet properties is successful, NBCi's competitors may
still have superior or more attractive product offerings.
NBCi will compete with many other providers of online navigation,
information and community services, such as Yahoo! (including GeoCities and
Broadcast.com), America Online (including AOL.com, Netcenter and ICQ),
AltaVista, Excite@Home, Disney (including the GO Network, which is jointly
operated with Infoseek), Lycos (including HotBot and Tripod) and Microsoft
Corporation (including msn.com).
The NBCi businesses will compete directly with a great number of other
Internet sites and other media companies across a wide range of different online
services with advantages in technical expertise, brand recognition and other
factors, including:
- metasearch services and software applications that allow a user to search
the databases of several directories and catalogs simultaneously;
- database vendors that offer information search and retrieval capabilities
with their core database products;
- Web-based e-mail and instant messaging services either on a stand alone
basis or integrated into other products and media properties;
- online merchant hosting services and the entry of an increasing number of
companies selling goods and services on the Internet;
- online content Web sites such as ESPN.com and ZDNet.com;
- online local interactive content Web sites, such as Excite@Home's City
Guides, Lycos City Guides, America Online's Digital City, Ticketmaster
Online-CitySearch, Yahoo! Get Local and Microsoft Sidewalk;
- online video broadcast services, such as CNN VideoSelect, RealNetworks and
FoxNews;
- online community Web sites, such as iVillage, Tripod, WhoWhere, GeoCities
and theglobe.com; and
- potential new entrants in any one or all of these areas, or new areas not
considered.
In order to effectively compete, NBCi may need to expend significant
internal engineering resources or acquire other technologies and companies to
provide such capabilities. Any of these acquisitions could be dilutive to NBCi's
stockholders.
The amended carriage agreement limits CNET's ability to compete with SNAP to
provide a broad based information, navigation and content aggregation service.
These restrictions, however, will no longer apply after May 9, 2000. As a
result, CNET could become a competitor of SNAP. This could have a material
adverse effect on NBCi's business and the trading price of its Class A common
stock.
ANY INCREASE IN COMPETITION IN THE E-COMMERCE MARKET COULD ADVERSELY AFFECT
NBCI'S ABILITY TO MAINTAIN OR IMPROVE ITS POSITION IN THE MARKET RELATIVE
TO THAT OF NBCI'S COMPETITORS
NBCi expects intense competition in the e-commerce market from an ever
increasing number of companies selling goods and services over the Internet,
particularly goods and services that relate to the
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use of computers. These competitors include: traditional computer retailers
including CompUSA; various mail-order retailers; Internet-focused retailers
including Amazon.com, Egghead's Egghead.com, software.net and New England
Circuit Sales' NECX Direct; manufacturers that sell directly over the Internet
including IBM, Dell Computer, Gateway 2000 and Apple Computer; and many software
companies. In addition, a number of online service providers including America
Online and the Microsoft Network offer computer products directly or in
partnership with other retailers. Finally, new competitors may also emerge.
Increased competition from these and other sources could require NBCi to
respond to competitive pressures by establishing pricing, marketing and other
programs or seeking out additional strategic alliances or acquisitions that may
be less favorable to NBCi than it could otherwise establish or obtain, and thus
could have a material adverse effect on NBCi's business, prospects, financial
condition and results of operations.
MARKET CONSOLIDATION IS CREATING MORE FORMIDABLE COMPETITORS
In the recent past, there have been a number of significant acquisitions and
strategic plans announced among and between certain of NBCi's competitors,
including:
- Disney's acquiring the remaining interest in Infoseek not already owned by
Disney;
- AOL's acquiring Netscape;
- @Home Network, a provider of high-speed Internet access serving the cable
television infrastructure and whose largest stockholder is AT&T, acquiring
Excite;
- Yahoo!'s acquiring both GeoCities and Broadcast.com; and
- CMGI's acquiring 83% of AltaVista.
The effect of these completed and pending acquisitions and strategic plans
on NBCi cannot be predicted with accuracy, but certain of these competitors are
aligned with companies that are larger or more well established than NBCi. In
addition, these competitors include television broadcasters with access to
unique content and substantial marketing resources that could be used to assist
NBCi's competitors. As a result, these competitors may have access to greater
financial, marketing and technical resources than NBCi.
RECENT ALLIANCES MAY MAKE IT MORE DIFFICULT TO ACCESS NBCI'S PRODUCTS AND
MEDIA PROPERTIES
These recent acquisitions and alliances will result in greater competition
as more users of the Internet consolidate on fewer services that incorporate
search and retrieval features. In addition, providers of software and other
Internet products and services are incorporating search and retrieval features
into their offerings. For example, Web browsers offered by Microsoft and by
America Online's Netscape increasingly incorporate prominent search buttons that
direct search traffic to competing services. These features could make it more
difficult for Internet users to find and use NBCi's products and services.
In the future, Netscape, Microsoft and other browser suppliers may also more
tightly integrate products and services similar to SNAP's into their browsers or
their browsers' pre-set home pages. Microsoft recently announced that it will
feature and promote Internet search services provided by Alta Vista and signed a
long term partnership with LookSmart to provide directory services in the
Microsoft Network and other Microsoft online properties. Such search services
may be tightly integrated into future versions of the Microsoft operating
system, the Internet Explorer browser, and other software applications, and
Microsoft may promote such services within the Microsoft Network or through
other Microsoft affiliated end-user services such as WebTV Networks. Each of
these situations creates a potential competitive advantage over NBCi because
Internet navigational offerings of competitors are more conveniently accessed by
users.
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IF NBCI'S INVESTMENT OF RESOURCES IN PROMOTING SNAP AND THE OTHER NBCI
BRANDS IS NOT SUCCESSFUL, THE RESULTS OF NBCI'S OPERATIONS COULD BE
ADVERSELY AFFECTED.
As the number of Internet sites grows, brand recognition will play an
increasingly important role. Establishing and promoting SNAP and the other NBCi
brands in the face of pressures from NBCi's competitors will be critical to
further developing its member and user base as well as various strategic and
commercial relationships. NBCi will need to continue to devote substantial
financial and other resources to maintain the distinctiveness of SNAP and other
NBCi brands to members, advertisers and commerce partners through:
- Web advertising and marketing;
- traditional media advertising campaigns in television, print, radio and
billboards; and
- providing a high quality user experience.
For this purpose, NBCi has agreed to purchase at least $380 million of
promotional services from NBC over a four year period to promote SNAP and the
other NBCi brands as well as NBCi's products and services. The results of NBCi's
operations could be adversely affected if this investment of financial and other
resources in promoting NBCi's brands does not generate a corresponding increase
in net revenue, or if the expense of promoting SNAP and the other NBCi brands
becomes excessive.
NBCI WILL BE SIGNIFICANTLY DEPENDENT UPON THE QUALITY OF THE NBC BRAND
Xoom.com, SNAP and NBC believe licensed use of the NBC brand is a critical
aspect of NBCi's efforts to retain, attract and expand its user and advertiser
base, both through the advertising and promotion NBCi will purchase on the NBC
television network as well as the inclusion of the NBC brand on the NBCi Web
sites. The television industry is characterized by a small number of
participants with significant financial resources and substantial experience in
a wide variety of media, and consequently is extremely competitive. The success
of each television network is often dependent upon its ability to deliver
programming that appeals to viewers. Television programming often requires
substantial lead time to develop and produce, and seasonal network schedules are
typically designed months before actually being aired. This limits a network's
flexibility to alter programming to respond to changes in viewers' tastes. The
relative ranking of television networks fluctuates continuously. Each network
conducts its own research and obtains research from third parties in order to
evaluate its appeal to a complex variety of demographic groups, and each network
uses this information to promote its television programming and negotiate
pricing with advertisers. While NBC has enjoyed significant success in broadcast
and cable television and will continue to devote its efforts to continuing this
success, NBCi cannot assure that NBC television programming will continue to
appeal to viewers generally, or to the particular demographic groups which are
valued by advertisers. Consequently, NBCi cannot predict the extent to which use
of the NBC brand will have a positive effect on NBCi's ability to attract users
and advertisers. In addition, NBC may terminate the brand integration and
license agreement if, among other reasons, its percentage ownership in NBCi is
equal to or less than 5% or if there is a change in control of NBCi. A
deterioration in the quality or value of the NBC brand or the termination of the
brand integration and license agreement may have a material adverse effect on
the business, operating results and financial condition of NBCi.
THE USE OF A COMMUNITY PLATFORM IS UNPROVEN AND DEPENDS ON MAINTAINING AND
EXPANDING NBCI'S MEMBERSHIP BASE; NBCI DOES NOT KNOW WHETHER THE NBCI'S
COMMUNITY PLATFORM WILL BE VIABLE AND PROFITABLE
A part of NBCi's business model relies on using Xoom.com's community
platform and membership base to generate revenues from different sources. To be
profitable, NBCi will need to provide goods and services that are attractive to
NBCi's members, advertisers and vendors. Xoom.com has previously relied on
member-generated content and the "grassroots" voluntary promotional efforts of
its members to develop and maintain Xoom.com's profile as a community site. A
decline in voluntary promotional activities by the members or member-generated
content could make the community services offered by NBCi less attractive.
NBCi cannot be sure that Internet users will continue to be interested in
communities on the Web, or that direct e-mail marketing will prove to be a
profitable or effective method of selling goods and services.
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NBCI'S SUCCESS WILL DEPEND UPON THE GROWTH IN THE USE OF THE INTERNET FOR
E-COMMERCE TRANSACTIONS
The future success of NBCi also depends on the continued growth in the use
of the Internet and the Web for e-commerce transactions. Use of the Internet for
retail transactions is a recent development, and the continued demand and growth
of a market for services and products via the Internet is uncertain. The
Internet may ultimately prove not to be a viable commercial marketplace for a
number of reasons, including:
- unwillingness of consumers to shift their purchasing from traditional
retailers to online purchases;
- lack of acceptable security for data and concern for privacy of personal
information;
- limitations on access and ease of use;
- congestion leading to delayed or extended response times;
- inadequate development of Web infrastructure to keep pace with increased
levels of use; and
- increased or excessive government regulation.
Because of these factors, NBCi does not know whether the business model of
NBCi will ultimately be viable and profitable. It is also possible that, in the
future, certain Internet access providers will act to block or limit the use of
e-mail for direct e-commerce solicitations, whether at their own initiative or
at the request of users. Members of NBCi may also choose not to receive NBCi's
e-mail offerings or may fail to respond to such offerings. If these blocking or
limiting programs become popular, there could be a material adverse effect upon
the viability of e-commerce on the Web and on NBCi's business, results of
operations and financial condition.
ANY FAILURE OF NBCI'S NETWORK INFRASTRUCTURE COULD HAVE A MATERIAL ADVERSE
EFFECT ON ITS RESULTS OF OPERATIONS
NBCi's success depends upon the capacity, reliability and security of its
networking hardware and software infrastructure. SNAP and Xoom.com have
developed an open standard hardware and software system that is designed for
reliability. System architecture is based on a distributed model that is highly
scalable, flexible and modular, emphasizing extensive automation and a high
degree of redundancy that is designed to minimize single points of failure. The
system integrates site management, network monitoring, quality assurance,
transaction processing and fulfillment services.
SNAP and Xoom.com have developed their systems for maintaining their Web
sites, processing transactions and managing orders internally. If, in the
future, NBCi cannot modify these systems to accommodate increased traffic and an
increased volume of transactions and orders, it could suffer slower response
time, problems with customer service and delays in reporting accurate financial
information. Any of these factors could significantly and adversely impact the
results of NBCi's operations.
Xoom.com uses network servers that are housed separately by application at
Exodus Communications, Inc. in Santa Clara, California and Frontier Global
Center in Sunnyvale, California. SNAP uses network servers housed at CNET's
facility in San Francisco, California, but expects to relocate these servers to
the Frontier Global facility by October 1999. There is a risk that the backup
system for SNAP's servers constructed at the Frontier Global facility may fail
or be inadequate to effect the relocation without any disruption in Internet
access. The NBCi Web sites will be connected to the Internet via multiple DS-3
and OC-3 links on a 24 hour-a-day, seven days per week basis by Exodus and
Frontier Global Center. Exodus and Frontier Global Center will also provide and
manage power and environmentals for NBCi's networking and server equipment. NBCi
will manage and monitor its servers and network remotely from its headquarters
in San Francisco, California. NBCi will
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strive to rapidly develop and deploy high-quality tools and features into its
systems without interruption or degradation in service.
Although agreements with hosting companies will give NBCi remedies for
service interruptions, NBCi cannot guarantee that:
- NBCi will have uninterrupted access to the Internet;
- NBCi's members and users will be able to reach its Web sites; or
- communications via NBCi's Web sites will be secure.
Any disruption in the Internet access provided by NBC's hosting companies,
or any interruption in the service that NBC's hosting companies receive from
other providers, or any failure of NBC's hosting companies to handle higher
volumes of Internet users to NBCi's Web sites could have a material adverse
effect on NBCi's business, results of operations and financial condition.
Despite precautions taken by the NBCi businesses and by the companies that
will host NBCi's Web sites, its system will be susceptible to natural and
man-made disasters such as earthquakes, fires, floods, power loss and sabotage.
NBCi's systems also will be vulnerable to disruptions from computer viruses and
attempts by hackers to penetrate NBCi's network security.
NBCi will be covered by insurance for loss of income from some of the events
listed above, but this insurance may not be adequate to cover all instances of
system failure. NBCi also will have insurance against loss of income due to
earthquakes, but the amount of such insurance may be insufficient, especially
given the frequency and magnitude of earthquakes in Northern California where
NBCi's primary facilities and servers will be located.
Any of the events listed above could cause interference, delays, service
interruptions or suspensions and adversely affect NBCi's business and results of
operations.
NBCi must continue to expand and adapt its system infrastructure to keep
pace with the increase in the number of members who use the free services it
expects to provide. Demands on infrastructure that exceed NBCi's current
forecasts could result in technical difficulties with its Web sites. Any system
failure that interferes with the access to NBCi's Web sites and the use of the
free services NBCi will provide could diminish the level of traffic on its Web
sites. Continuing or repeated system failures could impair NBCi's reputation and
the NBCi brand names and reduce NBCi's commerce and advertising revenue. At
present, NBCi does not know if it will be able to scale the systems to handle a
larger amount of traffic at higher transmission speeds. Expanding the network
infrastructure will require substantial financial, operational and management
resources following the consummation of the transactions, all of which could
affect the results of NBCi's operations.
If, in the future, NBCi cannot modify these systems to accommodate increased
traffic and an increased volume of transactions and orders, NBCi could suffer
slower response times, problems with customer service and delays in reporting
accurate financial information. Any of these factors could significantly and
adversely impact the results of NBCi's operations.
DIFFICULTIES NBCI MAY ENCOUNTER IN DEALING WITH ITS GROWTH AND EXPANSION
COULD ADVERSELY AFFECT THE RESULTS OF NBCI'S OPERATIONS
NBCi's strategy is to continue growing its membership and user base at a
rapid pace. This strategy is likely to place a significant strain on NBCi's
resources and, if this growth continues following the completion of the
transactions, NBCi will experience a significant strain on its resources because
of:
- the need to manage relationships with various strategic partners,
technology licensors, members, advertisers and other third parties;
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- difficulties in hiring and retaining skilled personnel necessary to
support NBCi's businesses;
- the need to train and manage a growing employee base; and
- pressures for the continued development of NBCi's financial and
information management systems.
Difficulties NBCi may encounter in dealing successfully with the above risks
could adversely affect the results of NBCi's operations.
THE SUCCESSFUL OPERATION OF NBCI'S BUSINESS DEPENDS UPON THE SUPPLY OF
CRITICAL ELEMENTS FROM OTHER COMPANIES
NBCi will depend substantially upon third parties for several critical
elements of its business in addition to infrastructure, including technology,
order fulfillment, content development and distribution activities.
TECHNOLOGY: NBCi will license technology and related databases from third
parties for certain elements of NBCi's properties, including, among others,
technology underlying the delivery of stock quotes and current financial
information, chat services, street mapping, telephone listings and similar
services. NBCi expects to experience interruptions and delays in service and
availability for such elements, from time to time. Furthermore, NBCi will be
dependent on hardware suppliers for prompt delivery, installation and service of
servers and other equipment used to deliver its products and services. Any
errors, failures, or delays experienced in connection with these third-party
products and information services could negatively affect NBCi's relationship
with users and adversely affect its brands and its business, and could expose
NBCi to third party liability.
ORDER FULFILLMENT: NBCi will rely on other companies for critical aspects
of its business. For example, Banta Corporation is primarily responsible for
fulfilling orders for products and services sold via the Xoom.com Web site and
in response to direct e-mail marketing. If NBCi's relationship with Banta were
to terminate without sufficient advance notice, NBCi's operations would be
negatively affected, even if NBCi were able to quickly establish a relationship
with a comparable vendor to fulfill orders. The success of NBCi's specific
e-mail direct e-commerce campaigns depends on the timely supply of inventory by
the manufacturers and suppliers of the products NBCi will offer for sale to its
members. The failure of the suppliers on whom NBCi will depend would adversely
affect the results of NBCi's operations.
CONTENT DEVELOPMENT: A key element of NBCi's strategy involves the
implementation of NBCi-branded media properties targeted for specific interest
areas, demographic groups and geographic areas. In these efforts, NBCi will rely
on content development and localization efforts of third parties. NBCi cannot
guarantee that the third parties will effectively implement these properties, or
that their efforts will result in significant revenue to NBCi. Any failure of
these parties to develop and maintain high-quality and successful media
properties also could hurt the NBCi brands.
DISTRIBUTION RELATIONSHIPS: In order to create traffic for its online
properties and make them more attractive to advertisers and consumers, NBCi
expects to have certain distribution agreements and informal relationships with
leading Web browser providers/portals such as America Online's Netscape,
operators of online networks and leading Web sites, manufacturers of Internet
devices and computer manufacturers. These distribution arrangements typically
are not exclusive, and may be terminated upon little or no notice. Third parties
that provide distribution typically charge fees or otherwise impose additional
conditions on the listing of NBCi's online properties. Any failure to
cost-effectively obtain distribution could have a material adverse effect on
NBCi's business, results of operations and financial condition.
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PLANNED INTERNATIONAL OPERATIONS ARE SUBJECT TO RISKS THAT COULD HAVE A
MATERIAL ADVERSE EFFECT ON NBCI'S RESULTS OF OPERATIONS
NBCi plans to establish operations or form business partnerships in other
parts of the world. The businesses comprising NBCi have very limited experience
in international markets and may not be able to compete effectively in
international markets. The expansion of operations into additional international
markets will require substantial management attention and financial resources.
NBCi cannot be certain that its investment in establishing operations in other
countries will produce the desired levels of revenue. In addition, international
operations are subject to other inherent risks and problems, including:
- the impact of recessions in economies outside the United States;
- slower adoption by users of and advertisers on the Internet in foreign
countries;
- greater difficulty in collecting accounts receivable;
- higher costs to develop new or specialized content;
- widely varied and changing regulatory requirements;
- difficulties and costs of staffing and managing foreign operations;
- reduced protection for intellectual property rights in some countries;
- political and economic instability;
- continued acceptance of euro;
- fluctuations in currency exchange rates; and
- difficulty in maintaining effective communications due to distance and
language and cultural barriers.
Some or all of the above factors could have a material adverse effect on the
results of NBCi's operations.
IMPOSITION OF NEW TAXES OR FEES BY FEDERAL, STATE OR FOREIGN GOVERNMENTS ON
INTERNET TRANSACTIONS OR ON THE USE OF THE INTERNET AS A MEANS OF
COMMUNICATION COULD ADVERSELY AFFECT NBCI
Imposition of sales or other similar taxes on NBCi's sales of merchandise in
states or countries where it ships goods could have a material adverse effect on
its results of operations. Imposition of new taxes or fees by federal, state or
foreign governments on Internet transactions or on the use of the Internet as a
means of communication could also adversely affect NBCi.
COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE, AND THE LOSS OF KEY
PERSONNEL AND NBCI'S INABILITY TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED
PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON NBCI'S RESULTS OF
OPERATIONS
NBCi's success depends to a significant degree upon the contributions of its
executive management team, most of whom have not previously worked together, as
well as technical, marketing and sales personnel of NBCi and the NBCi
businesses. Due to the integration of the operations of the NBCi businesses,
NBCi's employees may have different job responsibilities and may be required to
work with new people. Accordingly, NBCi may experience loss of key management
and other personnel due to the change in job responsibilities and work
environment. NBCi's employees may voluntarily terminate their employment with
NBCi at any time. NBCi's success also depends upon its ability to attract and
retain additional highly qualified management, technical, sales and marketing
and customer support personnel. Locating personnel with the combination of
skills and attributes required to carry out
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NBCi's strategy is often a lengthy process. In addition, competition for
qualified employees is intense, specifically in the areas of Web site
development, design and integration. The loss of key personnel, or the inability
to attract and retain additional, qualified personnel, could have a material
adverse effect on NBCi's results of operations.
TO BE SUCCESSFUL IN THE CONTINUALLY EVOLVING MARKET FOR ONLINE SERVICES,
NBCI MUST CONTINUE TO ENHANCE ITS PROPERTIES AND DEVELOP NEW ONES
Rapid technological change, changing customer needs, frequent new product
and service introductions and evolving industry standards characterize the
Internet market. These market characteristics could render NBCi's existing
services, technology and systems obsolete. NBCi must continually improve the
performance features and reliability of its services to respond to evolving
market demands and competition. NBCi's business, operating results and financial
condition would be materially adversely affected if it is unable to respond in a
cost-effective and timely manner to changing market conditions or customer
requirements.
To remain competitive, NBCi must continue to enhance and improve the
functionality, features and content of the NBCi Web sites. NBCi may not be able
to successfully maintain competitive user response times or implement new
features and functions, as these changes will likely involve the development of
increasingly complex technologies. Personalized information services, such as
NBCi's Web-based e-mail services, message boards, stock portfolios and NBCi's
community features, require significantly greater expenses than NBCi's general
services. NBCi cannot guarantee that these higher expenses will be offset by
additional revenues.
A key element of NBCi's business strategy is the development and
introduction of new NBCi-branded online properties targeted for specific user
groups with particular demographic characteristics and geographic concentration.
NBCi may not be successful in developing, introducing and marketing such
products or media properties and such properties may not achieve market
acceptance, enhance its brand name recognition, or increase user traffic.
Furthermore, enhancements of or improvements to NBCi's Web sites or new media
properties may contain undetected errors that require significant design
modifications, resulting in a loss of customer confidence and user support and a
decrease in the value of its brand name. If NBCi fails to effectively develop
and introduce new properties, or those properties fail to achieve market
acceptance, NBCi's business, results of operations and financial condition could
be adversely affected.
THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT MAY OCCUR WITHOUT THE
TRANSACTIONS CONTEMPLATED BY THE CONTRIBUTION AGREEMENT OCCURRING
The closing of the Contribution Agreement is not a condition to the closing
of the Merger Agreement. If the transactions contemplated by the Contribution
Agreement do not happen, many of the perceived benefits of the Xoom.com merger
with Xenon 3 would not occur. Specifically, the surviving entity:
- would consist of Xoom.com as it currently exists plus a 40%
non-controlling interest in SNAP, on a fully diluted basis (which may be
reduced to 20% upon NBC's exercise of an additional option to purchase
ownership interests in SNAP);
- would not be affiliated with NBC;
- would not have access to NBC's name, trademarks or the NBC contributed
Internet properties; and
- would not have the right to use "NBC" in its name.
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In addition, the Class B Directors would not serve as directors of the
surviving entity nor would Robert C. Wright become the chairman of the board of
the surviving entity.
STOCKHOLDERS OF XOOM.COM WILL BE ENTITLED TO RECEIVE ONE SHARE OF NBCI
COMMON STOCK DESPITE CHANGES IN MARKET VALUE OF XOOM.COM COMMON STOCK
Each share of Xoom.com common stock will be exchanged for one share of NBCi
common stock upon completion of the Xoom.com merger. This exchange ratio will
not be adjusted for changes in the market price of Xoom.com common stock.
Accordingly, an increase or decrease in the market value of Xoom.com's common
stock will have no effect on the number of shares of Class A common stock that
stockholders of Xoom.com will receive.
PRIVACY CONCERNS, GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD HAVE
AN ADVERSE EFFECT ON NBCI'S BUSINESS AND RESULTS OF OPERATIONS
Laws and regulations that apply directly to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the United
States Congress resulted in Internet laws regarding privacy and the protection
of children, copyrights, taxation and the transmission of sexually explicit
material. The European Union recently enacted its own privacy regulations and
other countries may do so in the future. In addition new laws may be adopted in
the United States and in other countries covering issues such as music
licensing, broadcast licensing fees and the characteristics and quality of
Internet services. Laws regulating the Internet, however, remain largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws that govern intellectual
property, privacy, libel and taxation apply to the Internet. The development of
laws governing these areas, or the application to the Internet of existing laws
not designed for the Internet, may decrease the growth in the use of the
Internet. In addition, the growth and development of the e-commerce market may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business online. The adoption or modification of laws or regulations relating to
the Internet could adversely affect NBCi's business.
The Federal Communications Commission is currently reviewing its regulatory
positions on data transmissions over telecommunications networks and could seek
to impose some form of telecommunications carrier regulation on
telecommunications functions of information services. State public utility
commissions generally have declined to regulate information services, although
the public service commissions of some states continue to review potential
regulation of such services. Future regulation or regulatory changes could have
an adverse effect on NBCi's business and results of operations.
NBCI'S INABILITY TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON ITS BUSINESS AND FINANCIAL CONDITION
NBCi views its technology as proprietary and will seek to protect it under
existing United States and international laws relating to protection of
intellectual property. NBCi will also develop internal procedures to control
access to and dissemination of NBCi's proprietary information. Despite NBCi's
precautions, third parties may succeed in misappropriating NBCi's intellectual
property or independently developing similar intellectual property. Protecting
NBCi's intellectual property against infringement could result in substantial
legal and other costs and could divert NBCi's limited management resources and
attention. This could adversely impact NBCi's business and the results of its
operations.
Some of the technology to be incorporated into NBCi's Web sites is based on
technology licensed from third parties. As NBCi continues to introduce new
services, it may need to license additional
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<PAGE>
technology. If NBCi is unable to license needed technology in a timely manner
and on commercially reasonable terms, NBCi could experience delays and
reductions in the quality of its services, all of which could adversely affect
its business and results of operations. NBCi's reputation and the value of its
proprietary information could also be adversely affected by actions of third
parties to whom NBCi licenses its proprietary information and intellectual
property. If someone asserts a claim relating to proprietary technology or
information against NBCi, NBCi may seek licenses to such intellectual property.
NBCi cannot assure you, however, that it will be able to obtain licenses on
commercially reasonable terms, if at all. The failure to obtain any necessary
licenses or other rights could have a material adverse effect on NBCi's business
and results of operations.
Each of the NBCi businesses has been subject to claims that they have
allegedly infringed the proprietary rights of third parties, and NBCi cannot
assure you that third parties will not assert claims against NBCi or the NBCi
businesses in the future. These claims, whether or not meritorious, sometimes
result in litigation and could become a drain on NBCi's management and financial
resources. If successful, claims of this nature could subject NBCi to liability
for money damages as well as injunctive relief restricting NBCi's use of
intellectual property important to its operations, and could ultimately cause
NBCi to lose rights to some of its intellectual property. Any of these events
could have a material adverse effect on NBCi's business and results of
operations.
NBCI COULD BE SUBJECT TO LIABILITY FOR ONLINE CONTENT THAT MAY NOT BE
COVERED BY NBCI'S INSURANCE
The nature and breadth of information to be disseminated on NBCi's Web sites
and through the sites of its members could expose it to liability in various
areas, including claims relating to:
- product information and reviews NBCi will offer;
- the content and publication of various materials based on defamation,
libel, negligence, personal injury and other legal theories;
- copyright or trademark infringement and wrongful action due to the actions
of third parties;
- use of third party content made available through NBCi's Web site or
through content and material posted by members on their home pages or in
chat rooms and bulletin boards; and
- damages arising from the use or misuse of the free e-mail services NBCi
will offer.
Claims of these kinds against NBCi could result in NBCi incurring
substantial costs and could also be a drain on its financial and other
resources. If the number or severity of claims of this nature were significant,
NBCi would need to implement measures to reduce its exposure and potential
liability. In addition to being a drain on NBCi's resources, this could also
require taking measures that could make its services less attractive to its
members and visitors. This in turn could reduce traffic on NBCi's Web sites,
negatively impact its member and user base, and reduce NBCi's revenue from
e-commerce and advertising. NBCi's general liability insurance may be
insufficient to cover expenses and losses arising in connection with any claims
against NBCi. To the extent NBCi's insurance coverage does not cover liability
or expenses NBCi incurs, NBCi's business and results of operations would be
adversely affected.
E-COMMERCE ACTIVITIES MAY EXPOSE NBCI TO UNCERTAIN LEGAL RISKS AND POTENTIAL
LIABILITIES
As part of its business, NBCi will enter into agreements with sponsors,
content providers, service providers and merchants under which it is entitled to
receive a share of revenue from the purchase of goods and services by users of
NBCi's Web sites. In addition, NBCi will provide hosting and other services to
online merchants. These types of arrangements may expose NBCi to additional
legal risks and uncertainties, including potential liabilities relating to the
products and services offered by such third parties.
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Although NBCi will maintain liability insurance, insurance may not cover
these claims or may not be adequate. Even to the extent these types of claims do
not result in material liability, investigating and defending claims is
expensive and, if the number or severity of claims defended were significant,
this could have a material adverse effect on NBCi's business and operations.
NBCI COULD FACE LIABILITY FROM LEGAL PROCEEDINGS THAT COULD ADVERSELY AFFECT
NBCI'S BUSINESS AND RESULTS OF OPERATIONS
Because SNAP and Xoom.com will become wholly owned subsidiaries of NBCi,
claims made against SNAP and Xoom.com will impact the financial condition and
results of operations of NBCi. SNAP is currently litigating a dispute with SNAP
Technologies, Inc., which claims to own the SNAP trademark. An adverse result of
the litigation could have a material adverse effect on the business and results
of operations of SNAP and NBCi, particularly if the litigation forces SNAP to
make substantial changes to its name and trademark usage. Any name change could
result in confusion to consumers and investors, which could adversely affect the
results of NBCi's operations and the market price of its common stock. The
dispute with SNAP Technologies and one additional matter SNAP is litigating are
described on page 168.
Xoom.com is also litigating certain matters which are described on page 136.
An unfavorable outcome in any of this litigation could adversely affect the
business and results of operations of NBCi and the market price of NBCi's common
stock.
IF FUTURE ACQUISITIONS ARE NOT SUCCESSFUL, OR IF NBCI IS NOT ABLE TO
STRUCTURE FUTURE ACQUISITIONS IN A FINANCIALLY EFFICIENT MANNER, THERE
COULD BE AN ADVERSE EFFECT ON NBCI'S BUSINESS AND RESULTS OF OPERATIONS
Acquiring complementary businesses, products and technologies is an integral
part of NBCi's business strategy. This acquisition strategy will subject NBCi to
integration risks similar to those it faces in integrating the NBCi businesses.
NBCi will also face increased competition with other entities for desirable
acquisition targets. In addition, the success of the acquisitions will be
dependent upon the ability of NBCi's management to maximize NBCi's financial and
strategic position when incorporating the technology or businesses. Any of these
risks could prevent NBCi from realizing significant benefits from NBCi's
acquisitions.
In addition, issuing common stock in acquisitions will dilute existing
stockholders interests in NBCi, while the use of cash will deplete cash
reserves. NBCi anticipates that it will be unable to account for its
acquisitions under the "pooling of interests" method of accounting in the future
and, therefore, expects to incur significant, one-time write-offs and
amortization charges. These write-offs and charges would decrease NBCi's future
earnings or increase its future losses. Due to all of the foregoing, NBCi's
inability to structure acquisitions in a financially efficient manner may have a
material adverse effect on NBCi's business and results of operations.
IF NBCI'S CAPITAL IS INSUFFICIENT TO PROMOTE ITS BUSINESS, AND IF NBCI
CANNOT OBTAIN NEEDED FINANCING, IT WILL BE UNABLE TO PROMOTE NBCI'S BRAND
NAMES, EXPLOIT ACQUISITION OPPORTUNITIES AND OTHERWISE MAINTAIN ITS
POSITION RELATIVE TO ITS COMPETITORS
Upon consummation of the transactions, NBCi will have sufficient capital
resources to support its operations at least for the next 12 months.
Nevertheless, NBCi anticipates that it will need to raise funds to maintain and
develop NBCi's position in the marketplace. It may be difficult or impossible
for NBCi to obtain financing on favorable terms, if at all. Neither GE nor its
affiliates, including NBC, has made any commitment to provide financing to NBCi.
NBCi cannot assure you that there will be a market for NBCi's securities at any
time when NBCi may seek to raise needed funds by equity financing. Raising funds
by issuing equity securities or convertible debt securities will dilute the
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<PAGE>
percentage ownership of NBCi's stockholders, subject to NBC's exercise of its
preemptive rights, and there can be no assurance that an offering of securities
would be completed successfully. Also, new securities NBCi may issue could have
rights senior to the rights of NBCi's common stock. If NBCi cannot obtain needed
financing, it could jeopardize NBCi's ability to complete the integration of the
Xoom.com, SNAP and the NBC contributed Internet businesses and otherwise meet
its business plan and NBCi will likely be unable to promote its brand names,
exploit acquisition opportunities and otherwise maintain NBCi's position
relative to that of its competitors, which would have a material adverse effect
on NBCi's business and results of operations.
IF IMPORTANT STRATEGIC RELATIONSHIPS ARE DISCONTINUED FOR ANY REASON, THERE
WOULD BE A MATERIAL ADVERSE EFFECT ON NBCI'S BUSINESS AND FINANCIAL
CONDITION
Although strategic relationships are a key factor in NBCi's overall business
strategy, its strategic partners may not view their relationships with NBCi as
significant to their own business. There is a risk that parties with whom NBCi
will have strategic alliance agreements may not perform their obligations as
agreed. NBCi expects that its arrangements with strategic partners generally
will not establish minimum performance requirements but instead rely on the
voluntary efforts of NBCi's partners. In addition, NBCi expects that most of its
agreements with strategic partners will be terminable by either party with
little notice. If important strategic relationships are discontinued for any
reason, NBCi's business and results of operations may be adversely affected.
YEAR 2000 ISSUES COULD NEGATIVELY AFFECT NBCI'S BUSINESS
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software that
records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
Each of the NBCi businesses has made inquiries of vendors of systems it
believes to be critical to its business regarding Year 2000 readiness. Although
the NBCi businesses have received various assurances, they have not received
affirmative documentation of Year 2000 compliance from any of these vendors and
operational tests have not been performed on the systems. NBCi generally will
not have contractual rights with third party providers should their equipment or
software fail due to Year 2000 issues. If this third party equipment or software
does not operate properly with regard to Year 2000, NBCi may incur unexpected
expenses to remedy any problems. These expenses could potentially include
purchasing replacement hardware and software. NBCi has not determined the state
of compliance of certain third-party suppliers of services such as warehousing
and fulfillment services, phone companies, long distance carriers, financial
institutions and electric companies, the failure of any one of which could
severely disrupt NBCi's ability to carry on its business.
NBCi anticipates that its review of Year 2000 issues and any remediation
efforts will continue throughout the remainder of calendar 1999. The costs
incurred to date by the NBCi businesses to remediate Year 2000 issues have not
been material. If any Year 2000 issues are uncovered with respect to these
systems or its other internal systems, NBCi believes that it will be able to
resolve these problems without material difficulty, as replacement systems are
available on commercially reasonable terms. NBCi presently estimates that the
total remaining cost of addressing Year 2000 issues will not exceed $300,000.
NBCi derived these estimates using a number of assumptions, including the
assumption that the NBCi businesses have already identified their most
significant Year 2000 issues. However, these assumptions may not be accurate,
and actual results could differ materially from those anticipated. In view of
the Year 2000 review to date made by the NBCi businesses, the recent development
of their products and services, the recent installation of the networking
equipment and servers that NBCi will use in operating the NBCi business, and the
limited activities that remain to be completed, NBCi does not consider
contingency planning to be necessary at this time.
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<PAGE>
NBCi's applications will operate in complex network environments and
directly and indirectly interact with a number of other hardware and software
systems. NBCi is unable to predict to what extent its business may be affected
if its systems or the systems that operate in conjunction with its systems
experience a material Year 2000 failure. Known or unknown errors or defects that
affect the operation of software and systems that NBCi will use in operating the
NBCi businesses could result in delay or loss of revenue, interruption of
services, cancellation of contracts and memberships, diversion of development
resources, damage to NBCi's reputation, increased service and warranty costs,
and litigation costs, any of which could adversely affect NBCi's business,
financial condition and results of operations. The worst case scenario is that
the Internet fails and NBCi is unable to offer any services on its Web sites or
make any of its direct e-commerce offerings.
INVESTMENT RISKS
NBCI'S CLASS A COMMON STOCK HAS NOT BEEN PUBLICLY TRADED AND THE MARKET
PRICE OF NBCI COMMON STOCK MAY DECLINE AFTER THE TRANSACTIONS
Prior to the closing of the transactions, no public market existed for
NBCi's Class A common stock. The market price of NBCi's Class A common stock may
bear no relation to the market price of the Xoom.com common stock prior to the
closing of the transactions. In addition, financial analysts may not accept or
understand NBCi's business model which may cause the market price of the NBCi
Class A common stock to decline or trade at a depressed price.
NBCI'S STOCK PRICE MAY BE VOLATILE
The trading price of NBCi's Class A common stock is likely to be highly
volatile. NBCi's stock price could be subject to wide fluctuations in response
to a variety of factors, including:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations;
- new products or services offered by NBCi or its competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet industry and the portal and community
services segment in particular;
- NBCi's announcement of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of common stock; and
- other events or factors that may be beyond NBCi's control.
In addition, the Nasdaq National Market, where most publicly held Internet
companies are traded, has recently experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or disproportionate
to the operating performance of these companies. The trading prices of many
Internet companies' stocks are, or recently have been, at or near historical
highs and these trading prices and multiples are substantially above historical
levels. These trading prices and multiples may not be sustainable. These broad
market and industry factors may materially adversely affect the market price of
NBCi's common stock, regardless of its actual operating performance. In the
past, following periods of volatility in the market price of an individual
company's securities, securities class action litigation often has been
instituted against that company. This type of litigation, if instituted, could
result in substantial costs and a diversion of management's attention and
resources.
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<PAGE>
THE SIGNIFICANT INFLUENCE OF NBC AND ANTI-TAKEOVER PROVISIONS IN THE
TRANSACTION DOCUMENTS INCLUDING NBCI'S CHARTER DOCUMENTS COULD NEGATIVELY
IMPACT NBCI'S STOCKHOLDERS
NBC will have significant influence with respect to the management and
strategy of NBCi. NBC and its affiliates have enhanced voting rights with
respect to the approval of certain types of acquisition transactions. In the
event that a third party initiates a tender offer for NBCi common stock or NBCi
agrees to enter into any transaction which would result in a change of control
of NBCi, the limitations on NBC's ability to acquire additional shares of NBCi,
to solicit proxies in connection with an amendment to NBCi's restated
certificate of incorporation or for the election of Class A directors, or to
propose to the holders of the Class A common stock a merger, business
combination or similar transaction will terminate. Moreover, NBC has the right
to terminate NBCi's use of the NBC trademarks and logos in the event of a change
of control of NBCi. Other provisions of NBCi's charter documents and in the
transaction documents could make it more difficult for a third party to acquire
NBCi, even if doing so would be beneficial to NBCi's stockholders. Any of these
factors could impede or prevent transactions that would cause a change in
control of NBCi's company. This might discourage bids for NBCi's common stock at
a premium over the market price of NBCi's common stock and adversely affect the
trading price of its common stock.
SALES OF SUBSTANTIAL AMOUNTS OF NBCI'S COMMON STOCK IN THE OPEN MARKET COULD
DEPRESS NBCI'S STOCK PRICE
If NBCi's stockholders sell substantial amounts of NBCi's common stock in
the public market following the closing of the transactions (including shares
issued upon the exercise of outstanding options and warrants), the market price
of NBCi's common stock could fall. Such sales might also make it more difficult
for NBCi to sell equity or equity related securities in the future at a time and
price that NBCi deems appropriate.
Sales of a large number of shares of common stock in the public market
following the closing of the transactions, or the belief that such sales could
occur, could cause a drop in the market price of NBCi's common stock and could
impair NBCi's ability to raise capital through offerings of NBCi's equity
securities. Following the closing of the transactions, there will be
approximately 25,283,227 shares of NBCi Class A common stock outstanding. All of
the shares issued to the Xoom.com stockholders will be freely tradable without
restrictions or further registration under the Securities Act, unless such
shares are held by any NBCi "affiliate," as that term is defined under the
Securities Act.
The remaining approximately 7,147,584 shares of Class A common stock held by
CNET and approximately 24,550,717 shares of Class B common stock held by NBC and
its affiliates will not be available for sale in the public market without
registration or an available exemption from the Securities Act. NBC and CNET
will enter into a registration rights agreement with NBCi under which they will
be able to register their shares. Upon sale, those shares would be converted
into Class A common stock. Exercise by NBC or CNET of these registration rights
with respect to a significant portion of the shares of common stock to be issued
to in the transactions could substantially increase the number of shares of
Class A common stock available for sale in the public market. As a result, any
such exercise, or the perception that such exercise could occur, could
materially adversely affect prevailing market prices for NBCi common stock and
the ablitity of NBCi to raise equity capital in the future.
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<PAGE>
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to expectations concerning matters
that are not historical facts. Words such as "projects," "believes,"
"anticipates," "plans," "expects," "intends," and similar words and expressions
are intended to identify forward-looking statements. Although each of NBCi and
Xoom.com believe that such forward-looking statements are reasonable, neither
can assure you that such expectations will prove to be correct. Important
language regarding factors that could cause actual results to differ materially
from such expectations are disclosed herein including, without limitation, in
the "Risk Factors" beginning on page 18. All forward-looking statements
attributable to NBCi or Xoom.com are expressly qualified in their entirety by
such language. Neither NBCi nor Xoom.com undertake any obligation to update any
forward-looking statements.
TRADEMARKS
This document contains trademarks of GE, NBC and its affiliates, Xoom.com,
CNET and SNAP.
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XOOM.COM
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of Xoom.com and the Notes
thereto of Xoom.com beginning on page F-2 of this proxy statement/prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on Page 138 of this proxy statement/prospectus. The
selected historical consolidated statements of operations data presented below
for the period from April 16, 1996 (inception) through December 31, 1996 and for
the years ended December 31, 1997 and 1998, and selected historical consolidated
balance sheet data at December 31, 1997 and 1998 are derived from the
consolidated statements of Xoom.com, which have been audited by Ernst & Young
LLP, independent auditors, and begin on page F-2 of this proxy
statement/prospectus. The selected historical consolidated balance sheet data at
December 31, 1996 are derived from Xoom.com's consolidated financial statements,
not included in this proxy statement/prospectus. The selected historical
consolidated statements of operations data for the three months ended March 31,
1998 and 1999 and the selected historical consolidated balance sheet data as of
March 31, 1999 are derived from Xoom.com's unaudited interim consolidated
financial statements and begin on page F-2 of this proxy statement/prospectus.
The unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which Xoom.com considers necessary for a fair presentation
of the financial position and the results of operations for these periods.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) DECEMBER 31, MARCH 31,
THROUGH DECEMBER 31, -------------------- --------------------
1996 1997 1998 1998 1999
------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue:
E-commerce................................... $ -- $ 327 $ 5,582 $ 677 $ 2,636
Advertising.................................. -- 60 2,144 83 1,765
License fees and other....................... -- 454 592 89 21
------ --------- --------- --------- ---------
Total net revenue.......................... -- 841 8,318 849 4,422
Cost of net revenue:
Cost of e-commerce........................... -- 171 3,542 278 2,041
Cost of license fees and other............... -- 148 42 8 1
------ --------- --------- --------- ---------
Total cost of net revenue.................. -- 319 3,584 286 2,042
------ --------- --------- --------- ---------
Gross profit................................... -- 522 4,734 563 2,380
Operating expenses:
Operating and development.................... 266 1,150 3,841 576 1,149
Sales and marketing.......................... 23 292 2,834 262 2,434
General and administrative................... 150 721 3,366 316 1,623
Purchased in-process research and
development................................ -- -- 790 330 --
Amortization of deferred compensation........ -- 248 1,416 79 230
Amortization of intangible assets............ -- -- 1,843 -- 862
Non-recurring charges........................ -- 1,243 -- -- --
------ --------- --------- --------- ---------
Total operating expenses................... 439 3,654 14,090 1,563 6,298
------ --------- --------- --------- ---------
Loss from operations....................... (439) ($ 3,132) (9,356) (1,000) (3,918)
Other interest income (expense), net......... -- -- 52 -- 640
Interest expense related to warrant.......... -- -- (1,494) -- (30)
------ --------- --------- --------- ---------
Net loss..................................... $ (439) $ (3,132) $ (10,798) $ (1,000) $ (3,308)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Basic and diluted net loss per share......... $ (0.89) $ (0.64) $ (1.37) $ (0.17) $ (0.24)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Number of shares used in per share
calculation--basic and diluted............. 496 4,874 7,879 5,884 13,811
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- MARCH 31,
1996 1997 1998 1999
----- --------- --------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments........................ $ 1 $ 6 $ 56,575 $ 52,671
Working capital (deficit)................................................... 156 (1,400) 52,560 48,175
Total assets................................................................ 705 782 66,874 64,790
Long-term obligations, less current portion................................. -- -- 528 475
Total stockholders' equity (deficit)........................................ 560 (873) 60,333 57,450
</TABLE>
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SNAP SELECTED FINANCIAL DATA
The following selected financial data presented below for each of the years
in the two-year period ended December 31, 1998, and as of December 31, 1997 and
1998, are derived from the financial statements of SNAP, which financial
statements have been audited by KPMG LLP, independent certified public
accountants, and begin on page F-30 of this proxy statement/prospectus. The
selected financial data presented below for the three months ended March 31,
1998 and 1999, and as of March 31, 1999, are derived from the unaudited
financial statements of SNAP, and begin on page F-30 of this proxy
statement/prospectus, and include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, that SNAP
considers necessary for a fair presentation of SNAP's results of operations and
financial position for those periods. The selected financial data set forth
below is qualified in its entirety by, and should be read in conjunction with,
"Management's Dicussion and Analysis of Financial Condition and Results of
Operations of SNAP" beginning on page 170 of this proxy statement/prospectus and
the SNAP financial statements and the related notes beginning on page F-30 of
this proxy statement/prospectus. The operating results for the periods presented
are not necessarily indicative of the results to be expected for the full fiscal
year or any other period.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MARCH
DECEMBER 31, 31,
---------------------- ------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
STATEMENT OF OPERATIONS DATA
Net revenues.................................................... $ 817 $ 7,317 $ 861 $ 5,361
Cost of net revenues............................................ 1,520 7,626 1,624 2,701
---------- ---------- ----------- -----------
Gross profit (deficit)...................................... (703) (309) (763) 2,660
Operating expenses:
Product development........................................... 9,403 6,263 1,184 2,195
Sales and marketing........................................... 4,090 12,482 1,332 7,497
General and administrative.................................... 1,372 5,939 670 2,705
Amortization of deferred compensation......................... -- 160 -- 519
Promotion and advertising provided by NBC..................... -- 14,060 -- 13,656
---------- ---------- ----------- -----------
Total operating expenses.................................... 14,865 38,904 3,186 26,572
---------- ---------- ----------- -----------
Operating loss.............................................. (15,568) (39,213) (3,949) (23,912)
Other expense, net.............................................. -- (75) -- (263)
---------- ---------- ----------- -----------
Net loss.................................................... $ (15,568) $ (39,288) $ (3,949) $ (24,175)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Basic and diluted net loss per unit............................. $ (1.33) $ (2.95) $ (0.34) $ (1.67)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Units used in per unit calculation.............................. 11,700 13,301 11,700 14,444
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash................................................................................ -- 865 587
Working capital (deficit)........................................................... (561) 193 (5,870)
Total assets........................................................................ 1,530 11,634 12,942
Long-term obligations, less current portion......................................... -- 13,500 20,500
Total member's equity (deficit)..................................................... 602 (7,986) (17,986)
</TABLE>
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NBC MULTIMEDIA DIVISION
SELECTED HISTORICAL FINANCIAL DATA
The following selected combined financial data should be read in conjunction
with the combined Financial Statements and Notes thereto of the NBC Multimedia
Division, which consists of NBC.com, NBC-IN.com and VideoSeeker, beginning on
page F-46 of this proxy statement/prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 191
of this proxy statement/prospectus. The combined statement of operations data
for each of the years in the two-year period ended December 31, 1998 and the
combined balance sheet data at December 31, 1997 and 1998 are derived from the
combined financial statements of the NBC Multimedia Division which have been
audited by KPMG LLP, independent accountants, beginning on page F-46 of this
proxy statement/prospectus. The statement of operations data for each of the
three months ended March 31, 1998 and 1999, and the balance sheet data as of
March 31, 1999, are derived from the unaudited interim combined financial
statements of the NBC Multimedia Division beginning on page F-46 of this proxy
statement/prospectus. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future, and results of interim periods are
not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenue................................................................. $ 3,232 $ 11,615 $ 1,816 $ 3,482
Cost of revenue......................................................... 4,398 5,249 1,020 1,365
--------- --------- --------- ---------
Gross profit (loss)................................................. (1,166) 6,366 796 2,117
Operating expenses:
Operating and development............................................. 677 938 301 163
Sales and marketing................................................... 2,356 3,989 744 323
General and administrative............................................ 3,540 4,489 967 793
--------- --------- --------- ---------
Total operating expenses............................................ 6,573 9,416 2,012 1,279
--------- --------- --------- ---------
Income (loss) from operations....................................... (7,739) (3,050) (1,216) 838
--------- --------- --------- ---------
Net income (loss)................................................... $ (7,739) $ (3,050) $ (1,216) $ 838
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Working capital (deficit)....................................................... $ 350 $ 407 $ (474)
Total assets.................................................................... 2,321 2,909 2,384
Long-term obligations, less current portion..................................... -- -- --
Parent Company's investment and net advances.................................... (429) (13,610) (16,819)
</TABLE>
42
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
There is no established trading market for the common stock of NBCi or any
of the NBC contributed Internet businesses or for the units of SNAP. Xoom.com's
common stock has been traded on the Nasdaq National Market under the symbol
"XMCM" since December 9, 1998, the date of its initial public offering. NBCi's
Class A common stock is expected to trade on the Nasdaq National Market under
the symbol "NBCI." The following table sets forth, for the periods indicated,
the high and low sales prices for Xoom.com common stock as reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1998
Fourth Quarter (from December 9, 1998)................................... $45 1/8 $21 1/8
FISCAL YEAR ENDED DECEMBER 31, 1999
First Quarter............................................................ $79 $28 1/4
Second Quarter........................................................... $98 1/2 $41
Third Quarter (through July 9, 1999)..................................... $61 15/16 50 9/16
</TABLE>
On July 9, 1999, the last reported sale price for the Xoom.com common stock
on the Nasdaq National Market was $57 1/4 per share.
The table below sets forth the closing sales prices per share of Xoom.com
common stock on the Nasdaq National Market on May 7, 1999, the last full trading
date prior to the public announcement of the signing of the Merger Agreement,
and on August , 1999, the latest practicable trading day before the printing
of this proxy statement/prospectus.
<TABLE>
<S> <C>
May 7, 1999.......................................................... $75 1/8
August , 1999...................................................... $
</TABLE>
DIVIDEND INFORMATION
To date, none of NBCi, Xoom.com or the NBC contributed Internet businesses
have declared or paid dividends on their common stock and SNAP has not made any
distributions to its members. NBCi, Xoom.com and SNAP anticipate they will
continue to retain any earnings for the foreseeable future for use in the
operation of their respective businesses.
NUMBER OF STOCKHOLDERS
As of August , Xoom.com estimates that there were approximately
holders of record and over beneficial owners of Xoom.com
common stock.
43
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The special meeting will be held on September , 1999 at 10:00 a.m. local
time at the Sir Francis Drake Hotel, 450 Powell Street, San Francisco,
California 94102.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, stockholders of Xoom.com will be asked to vote
separately to approve (A) the adoption of the Merger Agreement and (B)
Xoom.com's adoption, as the sole stockholder of NBCi, of the Contribution
Agreement; and to transact such other business as may properly come before the
special meeting or any postponements or adjournments thereof.
RECORD DATE FOR VOTING ON THE MERGER; STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of Xoom.com common stock at the close of
business on August , 1999, are entitled to notice of and to vote at the
special meeting. As of the close of business on that record date, there were
shares of Xoom.com common stock outstanding and entitled to vote,
held of record by stockholders. Each Xoom.com stockholder is
entitled to one vote for each share of Xoom.com common stock held as of the
record date.
VOTING AND REVOCATION OF PROXIES
The Xoom.com proxy accompanying this document is solicited on behalf of
Xoom.com's board of directors. The required quorum for the transaction of
business at the special meeting is a majority of the votes eligible to be cast
by holders of shares of common stock issued and outstanding on the record date.
For purposes of determining the presence of a quorum, abstentions and broker
non-votes will be counted by Xoom.com as present at the meeting.
Stockholders are requested to complete, date and sign the accompanying proxy
and promptly return it in the accompanying envelope or otherwise mail it to
Xoom.com. All properly executed proxies received by Xoom.com prior to the
special meeting that are not revoked, will be voted at the special meeting in
accordance with the instructions indicated on the proxies or, if no direction is
indicated, will be voted "FOR" adoption of the Merger Agreement and "FOR" the
approval of Xoom.com's adoption of the Contribution Agreement. Xoom.com's board
of directors does not presently intend to bring any other business before the
special meeting and, so far as is known as of the date of this document, no
other matters are to be brought before the special meeting. As to any other
business that may properly come before the special meeting, however, it is
intended that proxies, in the form enclosed, will be voted in respect thereof in
accordance with the judgment of the persons voting such proxies.
A Xoom.com stockholder who has given a proxy may revoke it at any time
before it is exercised at the special meeting by:
- delivering to the Secretary of Xoom.com a written notice, bearing a date
later than the date of the proxy, stating that the proxy is revoked,
- signing and delivering a proxy relating to the same shares and bearing a
later date than the date of the previous proxy prior to the vote at the
special meeting, or
- attending the special meeting and voting in person.
44
<PAGE>
STOCKHOLDER VOTE
Adoption of the Merger Agreement by Xoom.com's stockholders is required by
the General Corporation Law of the State of Delaware. By approving the adoption
of the Merger Agreement you will approve the merger of Xenon 3 with and into
Xoom.com. The adoption of the Merger Agreement requires the affirmative vote of
the holders of a majority of the shares of Xoom.com common stock outstanding and
entitled to vote at the special meeting. Abstentions and broker non-votes are
not affirmative votes and, therefore, will have the same effect as votes against
the adoption of the Merger Agreement.
WITH RESPECT TO THE VOTE TO ADOPT THE MERGER AGREEMENT, THE REQUIRED VOTE OF
THE STOCKHOLDERS OF XOOM.COM IS BASED UPON THE NUMBER OF OUTSTANDING SHARES OF
XOOM.COM COMMON STOCK RATHER THAN UPON THE SHARES ACTUALLY VOTED IN PERSON OR BY
PROXY AT THE SPECIAL MEETING. THEREFORE, IF THE HOLDERS OF ANY SUCH SHARES FAIL
TO EITHER SUBMIT A PROXY OR VOTE IN PERSON AT THE SPECIAL MEETING, SUCH FAILURE
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE ADOPTION OF THE MERGER
AGREEMENT.
Although not required by the General Corporation Law of the State of
Delaware, the Xoom.com board of directors is seeking your approval of Xoom.com's
adoption of the Contribution Agreement. Under the Contribution Agreement, the
board of directors of Xoom.com has agreed to cause Xoom.com to vote for or
against the adoption of the Contribution Agreement in accordance with the vote
of the stockholders of Xoom.com. The approval of Xoom.com's adoption of the
Contribution Agreement requires the affirmative vote of the holders of a
majority of the shares of Xoom.com present in person or by proxy at the special
meeting and entitled to vote. Broker non-votes are not entitled to vote on the
approval of Xoom.com's adoption of the Contribution Agreement and therefore will
not affect the outcome of the vote. Abstentions will have the effect of a vote
against Xoom.com's adoption of the Contribution Agreement.
On the date the Merger Agreement and Contribution Agreement were signed,
Chris Kitze, the chairman of Xoom.com (who as of the record date was deemed to
beneficially own in the aggregate approximately 20% of the outstanding shares of
Xoom.com common stock) entered into an agreement with NBC which obligates him to
vote all of his shares in favor of the adoption of the Merger Agreement and in
favor of Xoom.com's adoption of the Contribution Agreement. As of the record
date, NBC will own 960,028 shares of Xoom.com common stock, which represents
approximately 5.3% of the outstanding shares of Xoom.com common stock. NBC has
agreed to vote all of such shares for the adoption of the Merger Agreement and
for Xoom.com's adoption of the Contribution Agreement.
RECOMMENDATION OF XOOM.COM BOARD OF DIRECTORS
After careful consideration, the board of directors of Xoom.com has declared
the advisability of and approved the Merger Agreement, the Contribution
Agreement and the transactions contemplated thereby and has determined that the
Merger Agreement and the Contribution Agreement are fair to, and in the best
interests of, Xoom.com and its stockholders. THE BOARD OF DIRECTORS OF XOOM.COM
RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT AND OF
XOOM.COM'S ADOPTION OF THE CONTRIBUTION AGREEMENT.
The matters to be considered at the special meeting are of great importance
to the stockholders of Xoom.com. Accordingly, you are urged to read and
carefully consider the information presented in this document, and to complete,
date, sign and promptly return the enclosed proxy card in the enclosed
postage-paid envelope.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. A
transmittal form with instructions for the surrender of certificates for
Xoom.com common stock will be mailed to you as soon as practicable after
completion of the transactions. For more information regarding the procedures
for
45
<PAGE>
exchanging your Xoom.com stock certificates for NBCi stock certificates, please
see the section entitled "Procedures for Exchanging Stock Certificates" on page
78 of this proxy statement/prospectus.
SOLICITATION OF PROXIES
Xoom.com will initially pay the costs of soliciting proxies. In addition to
solicitation by mail, Xoom.com's directors, officers and employees may solicit
proxies by telephone, telegram or otherwise. The directors, officers and
employees of Xoom.com will not receive compensation for such solicitation but
may receive reimbursement by Xoom.com for out-of-pocket expenses incurred in
connection with such solicitation. Xoom.com will request that brokerage firms,
fiduciaries and other custodians forward copies of the proxies and this proxy
statement/prospectus to the beneficial owners of shares of Xoom.com common stock
held of record by them and Xoom.com will reimburse them for their reasonable
expenses incurred in forwarding such material. Xoom.com has retained a proxy
solicitation firm, Corporate Investor Communications, Inc., to aid it in the
solicitation. Xoom.com anticipates that fees plus expenses will be approximately
$5,000. If the transactions contemplated by the Merger Agreement close, NBCi
will reimburse Xoom.com for these expenses.
46
<PAGE>
THE TRANSACTIONS
This section of the proxy statement/prospectus describes the material
aspects of the proposed transactions. To the extent it relates to the Merger
Agreement and the Contribution Agreement and the terms of the Xoom.com merger,
the following description is qualified in its entirety by reference to the
Merger Agreement and Contribution Agreement which are attached as Appendix A-1
and Appendix A-2, respectively, and are incorporated herein by reference. You
are urged to read the Merger Agreement and Contribution Agreement.
BACKGROUND
In August of 1998, Mr. Chris Kitze, chairman of the board of directors of
Xoom.com, requested Bear Stearns to explore strategic alternatives for Xoom.com.
As a result of the efforts of Bear Stearns from August 1998 through March 1999,
Mr. Kitze, Mr. Marc Sznajderman and Mr. Russell S. Hyzen of Xoom.com discussed
potential strategic relationships, including the sale of Xoom.com with a number
of companies in the multimedia industry.
At board of directors meetings held on September 16, 1998 and October 7,
1998, the board of directors of Xoom.com discussed Xoom.com's strategic
alternatives including possible businesses which Xoom.com could merge with or be
acquired by.
In addition to the efforts of Bear Stearns, Xoom.com's management publicized
its willingness to consider transactions with a strategic partner through
statements at analyst meetings, financial conferences and on the road shows for
its initial public offering and follow-on offering.
On February 16, 1999, SNAP's senior management met to review alternatives
preferred for becoming a public company and concluded that a strategic
transaction with Xoom.com was the best choice. On February 24, 1999, this
proposal was presented to Snap board of directors and Mr. Halsey Minor, Chief
Executive Officer of SNAP and CNET, and Mr. Martin Yudkovitz of NBC, a member of
SNAP's board, were authorized to initiate discussions for this purpose.
Subsequently, Mr. Minor and Mr. Yudkovitz contacted Mr. Kitze.
During March 1999, Xoom.com and NBC entered into preliminary discussions
regarding a possible business combination or investment that would have resulted
in a change in control of Xoom.com. On April 8, 1999, those discussions ended as
Xoom.com and NBC could not reach agreement on the transaction terms.
On April 12, 1999, NBC contacted Mr. Kitze to reopen discussions on a
possible strategic alliance of NBC and Xoom.com.
On April 14, 1999, Mr. Kitze met with Mr. Thomas Rogers of NBC and Mr.
Yudkovitz to discuss a comprehensive strategic alliance with NBC. NBC
conditioned its offer on Xoom.com and certain of its stockholders entering into
an exclusive negotiation agreement with NBC.
On April 15, 1999, with only NBC having expressed a strong interest in
pursuing a strategic relationship with Xoom.com, Xoom.com and NBC entered into a
non-solicitation and confidentiality agreement. Under this letter agreement,
Xoom.com and NBC agreed to negotiate exclusively with each other for a period of
thirty days concerning a potential strategic relationship. After Xoom.com and
NBC entered into this letter agreement on April 15, 1999, Bear Stearns was
requested to prepare its opinion in connection with the proposed transactions
involving NBC. At this time, Bear Stearns was directed not to and did not seek
or pursue alternative transactions to the proposed transactions involving NBC,
including the possible sale of Xoom.com as an entirety.
On April 20, 1999, representatives of Xoom.com, NBC and SNAP met in San
Francisco to conduct business and legal due diligence. During this time, the
companies exchanged financial information and
47
<PAGE>
discussed their respective business models and financial projections. The
companies agreed to exchange additional information and continue the preliminary
due diligence process in future meetings.
From April 20, 1999 through April 25, 1999 the management of Xoom.com and
NBC, together with certain of their respective legal and financial advisors
negotiated the principal terms of the agreements providing for the formation of
NBCi.
On April 26, 1999, a special meeting of Xoom.com's board of directors was
held. At the meeting, Mr. Kitze described the proposal from NBC to combine
certain existing Internet-related businesses of CNET and NBC with the existing
business of Xoom.com and issue equity interests in the new entity. Bear Stearns
informed the board of directors of comparable transactions that have been
entered into involving media-related owned businesses and Internet-related
businesses or involving the multimedia industry generally. The business
rationale for the transactions was also discussed. At this meeting, the
directors raised the advisability of engaging Hambrecht & Quist to provide the
board with an additional fairness opinion. At the conclusion of this meeting,
the board of directors authorized Xoom.com's management to proceed with the
transaction and authorized the engagement of Hambrecht & Quist to render a
fairness opinion.
On April 28 and 29, 1999, Mr. Kitze, Mr. Sznajderman and Mr. Harris, as a
representative of Bear Stearns, met with members of NBC to continue to discuss
certain additional terms of the proposed transactions. From April 30, 1999
through May 9, 1999, Xoom.com, NBC, SNAP and CNET, together with their
respective legal and financial advisors, conducted due diligence reviews and
negotiated the final terms of the definitive agreements.
On May 9, 1999, Xoom.com's board of directors met with senior management and
Xoom.com's financial advisors and legal counsel at a special meeting of the
board to review the status of the negotiations with NBC and CNET, and the terms
of the draft agreements, including the stock option agreement. At this meeting,
representatives of Bear Stearns and Hambrecht & Quist reviewed the financial
terms of the transactions and rendered their oral opinions that, after issuance
of NBCi shares to Xoom.com stockholders in the merger of Xenon 3 with Xoom.com,
the aggregate issuance of NBCi shares to NBC and CNET in the transactions
contemplated by the Merger Agreement and the Contribution Agreement, taken
together (both before and after conversion of the NBCi convertible notes), in
exchange for the aggregate contribution of SNAP and the NBC contributed Internet
businesses, was fair, from a financial point of view, to Xoom.com. Bear Stearns
also opined at the meeting that the issuance of NBCi shares to CNET in the
transactions contemplated by the Merger Agreement, if the transactions
contemplated by the Contribution Agreement are not consummated, was fair, from a
financial point of view, to Xoom.com. Following these presentations, Xoom.com's
board of directors engaged in a full discussion of the terms of the proposed
transactions and their advisability. At the conclusion of this meeting,
Xoom.com's board of directors approved the terms of the transaction documents
and authorized management to proceed with the execution of the transaction
documents.
During the night of May 9, 1999, the parties executed the Merger Agreement,
the Agreement and Plan of Contribution, Investment and Merger, prior to its
amendment, and the related agreements discussed beginning on page 88.
The transactions were jointly announced by NBC, CNET and Xoom.com on the
morning of May 10, 1999.
On June 9, 1999, a special meeting of Xoom.com's board of directors was
held. At the meeting the board of directors discussed preliminarily the proposed
terms of an equity investment by NBC or its affiliates in Xoom.com with a
related restructuring of the transactions with NBC and its affiliates
contemplated by the agreement executed on May 9, 1999. Subsequently, on June 11,
1999, Xoom.com's board of directors met with senior management and Xoom.com's
financial advisors and legal counsel to
48
<PAGE>
review the terms and the advisability of the equity investment and restructuring
proposal. At the meeting, Mr. Harris described the equity investment and
restructuring proposal. Representatives of Bear Stearns and Hambrecht & Quist
confirmed that their respective opinions rendered on May 9, 1999 remained in
full force and effect and were unaffected by the equity investment and
restructuring proposal. Following these presentations, Xoom.com's board of
directors engaged in a full discussion of the terms of the proposed equity
investment and restructuring and its advisability. At the conclusion of this
meeting, Xoom.com's board of directors approved the terms of the stock purchase
agreement, registration rights agreement and the Amended and Restated Agreement
and Plan of Contribution, Investment and Merger described below and authorized
management to proceed with the execution of such documents.
On June 11, 1999, Xoom.com and certain of its subsidiaries and NBC and
certain of its affiliates entered into (A) a stock purchase agreement, (B) the
Amended and Restated Agreement and Plan of Contribution, Investment and Merger,
and (C) a registration rights agreement with respect to the common stock
purchased pursuant to the stock purchase agreement. The restructuring was
jointly announced by NBC and Xoom.com on the evening of June 14, 1999.
On July 7, 1999, Xoom.com's board of directors met with senior management
and Xoom.com's financial advisors and legal counsel at a special meeting to
discuss the terms and advisability of a second restructuring proposal. At the
meeting, Mr. Harbottle of Xoom.com described the proposal. A representative of
Hambrecht & Quist confirmed that its opinion rendered on May 9, 1999 remained in
full force and effect and was unaffected by the second restructuring proposal.
Following these presentations, Xoom.com's board of directors engaged in a full
discussion of the terms of the proposal and its advisability. At the conclusion
of this meeting, Xoom.com's board approved the terms of the Contribution
Agreement and authorized management to proceed with the execution of the
Contribution Agreement (subject to confirmation from Bear Stearns that its
opinion rendered on May 9, 1999 remained in full force and effect and was
unaffected by the second restructuring proposal).
On July 8, 1999, Bear Stearns confirmed that its opinion rendered on May 9,
1999 remained in full force and effect and was unaffected by the second
restructuring proposal. Subsequently, on July 8, 1999, Xoom.com and certain of
its subsidiaries and NBC and certain of its affiliates entered into the
Contribution Agreement, which amends and restates the Amended and Restated
Agreement and Plan of Contribution, Investment and Merger, dated as of June 11,
1999.
On July 8, 1999, the name of NBCi was changed from Xenon 2, Inc. to NBC
Internet, Inc. following the execution by NBC, Xoom.com and SNAP of a license
agreement and the execution by NBC and NBCi of a trademark agreement relating to
NBCi's name and the use of the NBC mark in connection with this proxy
statement/prospectus.
RECOMMENDATION OF XOOM.COM'S BOARD OF DIRECTORS AND REASONS FOR THE TRANSACTIONS
At its meeting on May 9, 1999, the board of directors of Xoom.com (a)
determined that the terms of the Merger Agreement and Contribution Agreement and
the transactions contemplated thereby are advisable and fair to and in the best
interests of Xoom.com and its stockholders, (b) approved the Merger Agreement
and the Contribution Agreement, (c) directed that the Merger Agreement and the
Contribution Agreement be submitted for consideration by the Xoom.com
stockholders and (d) recommended that the Xoom.com stockholders vote for the
adoption of the Merger Agreement and for Xoom.com's adoption of the Contribution
Agreement. In reaching this conclusion, the board of directors of Xoom.com, with
the assistance of its financial and legal advisors, considered and analyzed a
number of factors, including, without limitation, the following:
- based on information with respect to the financial condition, results of
operations, cash flow, business and prospects of Xoom.com on both a
stand-alone basis and as compared with those
49
<PAGE>
available in combination with NBCi, the Xoom.com stockholders would
benefit substantially from the transactions. Such benefits would consist
of:
- the ability of the Xoom.com stockholders to own an interest in NBCi and
thereby benefit from the enhanced prospects of NBCi in terms of enhanced
financial and operational resources and flexibility and larger audience,
- the combination of Xoom.com, SNAP and the NBC contributed Internet
properties will result in a larger company, with more members, users,
products and services which, should enable NBCi to more effectively
compete in the Internet market where size is becoming an important
competitive factor,
- the combination of complementary skills and experience of NBC, Xoom.com
and SNAP,
- the synergies that would result from integration of the Internet related
activities of NBC, Xoom.com and SNAP,
- NBCi's enhanced ability to take advantage of future strategic
opportunities,
- the value of NBC's name and trademarks, and
- the license to use NBC's name and brand with the Internet properties of
NBCi;
- the belief that merger should allow NBCi to meet the challenges of the
increasingly competitive environment in the Internet market more
effectively than Xoom.com could on its own;
- the oral presentation of Bear Stearns and its oral opinion (later
confirmed in writing) that, after issuance of NBCi shares to Xoom.com
stockholders in the merger of Xenon 3 with Xoom.com, (a) the aggregate
issuance of NBCi shares to NBC and CNET in the transactions contemplated
by the Merger Agreement and the Contribution Agreement, taken together
(both before and after conversion of the NBCi convertible notes), in
exchange for the aggregate contribution of SNAP and the NBC contributed
Internet businesses, and (b) the issuance of NBCi shares to CNET in the
transactions contemplated by the Merger Agreement, if the transactions
contemplated by the Contribution Agreement are not consummated, in
exchange for CNET's contribution of its equity interests in SNAP, were
fair from a financial point of view, to Xoom.com. On June 11, 1999, Bear
Stearns confirmed that its opinion remained in full force and effect and
was unaffected by the equity investment and restructuring entered into as
of June 11, 1999. On July 8, 1999 Bear Stearns confirmed that its opinion
remained in full force and effect and was unaffected by the second
restructuring entered into as of July 8, 1999; and
- the oral presentation of Hambrecht & Quist and its oral opinion (later
confirmed in writing), that, after issuance of NBCi shares to Xoom.com
stockholders in the merger of Xenon 3 with Xoom.com, the aggregate
issuance of NBCi shares to NBC and CNET in the transactions contemplated
by the Merger Agreement and the Contribution Agreement, taken together
(both before and after conversion of the NBCi convertible notes), in
exchange for the aggregate contribution of SNAP and the NBC contributed
Internet businesses, was fair from a financial point of view, to Xoom.com.
On June 11, 1999, Hambrecht & Quist confirmed that its opinion remained in
full force and effect and was unaffected by the equity investment and
restructuring entered into as of June 11, 1999. On July 7, 1999, Hambrecht
& Quist confirmed that its opinion remained in full force and effect and
was unaffected by the second restructuring entered into as of July 8,
1999.
In addition to the factors set forth above, in the course of its
deliberations concerning the transactions, the Xoom.com board of directors
consulted with Xoom.com's management, as well as its
50
<PAGE>
financial and legal advisors, and reviewed a number of other factors relevant to
the Xoom.com merger and related transactions, including:
- reports from Xoom.com's management and legal and financial advisors on
specific terms of the Merger Agreement, Contribution Agreement and the
other related agreements described below on page 88;
- the legal and business due diligence examination of SNAP and the NBC
contributed Internet assets conducted by Xoom.com management, and its
legal and financial advisors;
- information concerning the financial performance, business operations and
prospects of Xoom.com presented at meetings of Xoom.com's board of
directors, including among other things, Xoom.com's recent and historical
stock and earnings performance;
- the need of Xoom.com to enter into a strategic relationship to effectively
compete in the Internet market;
- the fact that the resulting holding company structure of NBCi following
consummation of the transactions, will provide NBCi flexibility with
respect to financing, state tax planning, employee compensation and
acquisitions, minimize regulatory concerns and provide NBCi with
additional protection from bankruptcy and other risks by having separate
operating subsidiaries;
- the expected tax and accounting treatment of the Xoom.com merger;
- the fact that if NBC willfully fails to close the transactions
contemplated by the Contribution Agreement after all of the conditions to
closing have been satisfied, NBC will pay NBCi $475 million; and
- the fact that the no-solicitation provision of the Contribution Agreement
would permit the Xoom.com board of directors, in accordance with their
fiduciary duties and the provisions of the Contribution Agreement, to:
- entertain unsolicited offers,
- provide information to such offerors,
- terminate the Merger Agreement and Contribution Agreement to enter into
an agreement for such proposal if it were more favorable than the
transactions contemplated by the Merger Agreement and the Contribution
Agreement, and that the cost to Xoom.com in doing so would be capped at
4% of Xoom.com's market value.
The Xoom.com board of directors also considered a number of potentially
negative factors in its deliberations concerning the transactions, including:
- that the closing of the transactions contemplated by the Contribution
Agreement is not a condition to the closing of the transactions
contemplated by the Merger Agreement and that, should the transactions
under the Merger Agreement close but not the transactions under the
Contribution Agreement, many of the perceived benefits of the Xoom.com
merger may not occur;
- the possibility of management and employee disruption associated with the
transactions and the implications of disruptive aspects of the
transactions on retaining key technical and management personnel;
- the risks associated with obtaining necessary regulatory and stockholder
approvals of the transactions;
51
<PAGE>
- the possibility that the transactions and the resulting relationship with
SNAP and NBC might adversely affect Xoom.com's relationship with certain
of its customers, including other large media companies;
- the risk that the potential benefits of the transactions might not be
realized;
- the relative complexity of the several transactions contemplated by the
Merger Agreement, the Contribution Agreement and the related agreements;
- that the option agreement, if exercised, would eliminate the ability of a
third party acquiror to account for an acquisition of Xoom.com using the
pooling of interest accounting treatment, which could reduce the number of
potential acquirors;
- the increased resources that may be required to manage the larger
operations of the combined companies, with a substantially increased
employee base in diverse geographic locations; and
- the other risks described under "Risk Factors."
The Xoom.com board of directors concluded, however, that the potential
benefits of the transactions to Xoom.com and its stockholders outweighed the
risks associated with the foregoing factors.
At its meeting on June 11, 1999, the board of directors of Xoom.com approved
the terms of the stock purchase agreement, the registration rights agreement and
the Amended and Restated Agreement and Plan of Contribution, Investment and
Merger. In reaching this conclusion, the board of directors of Xoom.com, with
the assistance of its financial and legal advisors, considered and analyzed the
equity investment and the restructuring and determined that the restructuring
did not adversely affect the potential benefits of the transactions to Xoom.com
and its stockholders.
At its meeting on July 7, 1999, the board of directors of Xoom.com approved
the terms of the Contribution Agreement and directed that the Contribution
Agreement be submitted for consideration by the Xoom.com stockholders (subject
to confirmation from Bear Stearns that its opinion rendered on May 9, 1999
remained in full force and effect and was unaffected by the second restructuring
proposal, which confirmation was received on July 8, 1999). In reaching this
conclusion, the board of directors of Xoom.com with the assistance of its
financial and legal advisors, considered and analyzed the second restructuring
and determined that the second restructuring did not adversely affect the
potential benefits of the transactions to Xoom.com or its stockholders.
The foregoing discussion of the information and factors considered by the
Xoom.com board of directors in connection with its evaluation of the
transactions contemplated by the Merger Agreement, the Contribution Agreement
and the related agreements is not intended to be exhaustive but is intended to
include the material factors considered by the directors.
FOR THE REASONS DESCRIBED ABOVE, THE XOOM.COM BOARD OF DIRECTORS RECOMMENDS
THAT THE HOLDERS OF XOOM.COM COMMON STOCK VOTE "FOR" ADOPTION OF THE MERGER
AGREEMENT AND ALSO VOTE "FOR" XOOM.COM'S ADOPTION OF THE CONTRIBUTION AGREEMENT.
In considering the recommendation of the board of directors of Xoom.com with
respect to adopting the Merger Agreement and Xoom.com adopting the Contribution
Agreement, Xoom.com stockholders should be aware that certain officers and
directors of Xoom.com have certain interests in the proposed transactions that
are different from and in addition to the interests of Xoom.com stockholders
generally. The Xoom.com board of directors was aware of these interests and
considered them in approving the Merger Agreement and the Contribution Agreement
and the transactions contemplated thereby. See page 66 of this proxy
statement/prospectus.
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<PAGE>
OPINION OF XOOM.COM'S FINANCIAL ADVISORS
Xoom.com retained Bear Stearns and Hambrecht & Quist to act as its financial
advisors with respect to the Xoom.com merger and the transactions contemplated
by the Merger Agreement and the Contribution Agreement. In connection with such
engagement, Xoom.com requested that each of Bear Stearns and Hambrecht & Quist
provide to the board of directors of Xoom.com a fairness opinion. At the meeting
of Xoom.com's board of directors on May 9, 1999, Bear Stearns and Hambrecht &
Quist each rendered their oral opinion to the board of directors of Xoom.com,
subsequently confirmed in writing by Bear Stearns and by Hambrecht & Quist, to
the effect that, as of such date and based upon the assumptions made, matters
considered and limits of such review, as set forth in such opinions, after
issuance of NBCi shares to Xoom.com stockholders in the merger of Xenon 3 with
Xoom.com, the aggregate issuance of NBCi shares to NBC and CNET in the
transactions contemplated by the Merger Agreement and the Contribution
Agreement, taken together (both before and after conversion of the NBCi
convertible notes), in exchange for the aggregate contribution of SNAP and the
NBC contributed Internet businesses, was fair, from a financial point of view,
to Xoom.com. In addition, Bear Stearns also opined at the meeting that the
issuance of NBCi shares to CNET in the transactions contemplated by the Merger
Agreement, if the transactions contemplated by the Contribution Agreement are
not consummated, in exchange for CNET's contribution of its equity interests in
SNAP, was fair, from a financial point of view, to Xoom.com.
OPINION OF BEAR STEARNS
Xoom.com engaged Bear Stearns as its financial advisor based on Bear
Stearns' experience and expertise in the merger and acquisition advisory
business. Bear Stearns is an internationally recognized investment banking firm
that has substantial experience in transactions similar to the proposed
transactions. Bear Stearns, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
At the May 9, 1999 meeting of the Xoom.com board of directors, Bear Stearns
delivered its oral opinion (which was subsequently confirmed in a writing dated
May 9, 1999) to the effect that, as of the date thereof, and subject to the
assumptions, qualifications and limitations set forth therein, after issuance of
NBCi shares to Xoom.com stockholders in the merger of Xenon 3 with Xoom.com, (a)
the aggregate issuance of NBCi shares to NBC and CNET in the transactions
contemplated by the Merger Agreement and the Contribution Agreement, taken
together (both before and after conversion of the NBCi convertible notes), in
exchange for the aggregate contribution of SNAP and the NBC contributed Internet
businesses, and (b) the issuance of NBCi shares to CNET in the transactions
contemplated by the Merger Agreement, if the transactions contemplated by the
Contribution Agreement are not consummated, in exchange for CNET's contribution
of its equity interests in SNAP, were fair, from a financial point of view, to
Xoom.com. On June 11, 1999, Bear Stearns confirmed that its opinion remained in
full force and effect and was unaffected by the equity investment and
restructuring entered into as of June 11, 1999. On July 8, 1999, Bear Stearns
confirmed that its opinion remained in full force and effect and was unaffected
by the second restructuring entered into as of July 8, 1999.
The full text of the opinion, which sets forth the assumptions made, matters
considered and qualifications and limitations on the review undertaken by Bear
Stearns, is incorporated herein by reference. THE SUMMARY OF THE BEAR STEARNS
OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION WHICH IS ATTACHED AS APPENDIX C-1 TO THIS PROXY STATEMENT/
PROSPECTUS. Xoom.com shareholders are urged to read carefully the Bear Stearns
opinion in its entirety.
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In reading the discussion of the fairness opinion set forth below, Xoom.com
stockholders should be aware that the Bear Stearns opinion:
- was provided to the Xoom.com board of directors for its information and is
to the effect that, after issuance of NBCi shares to Xoom.com stockholders
in the merger of Xenon 3 with Xoom.com, (a) the aggregate issuance of NBCi
shares to NBC and CNET in the transactions contemplated by the Merger
Agreement and the Contribution Agreement, taken together (both before and
after conversion of the NBCi convertible notes), in exchange for the
aggregate contribution of SNAP and the NBC contributed Internet
businesses, and (b) the issuance of NBCi shares to CNET in the
transactions contemplated by the Merger Agreement, if the transactions
contemplated by the Contribution Agreement are not consummated, in
exchange for CNET's contribution of its equity interests in SNAP, were
fair, from a financial point of view, to Xoom.com;
- did not constitute a recommendation to the Xoom.com board of directors in
connection with the proposed transactions;
- did not address the merits of the underlying decision by Xoom.com to
engage in the proposed transactions or the price or range of prices at
which shares of Xoom.com common stock may trade subsequent to the
announcement or consummation of the proposed transactions; and
- does not constitute a recommendation to any holder of Xoom.com common
stock as to how such shareholder should vote on the proposed transactions,
or any matter related thereto.
Although Bear Stearns was engaged to provide a fairness opinion to the board
of directors of Xoom.com, the financial terms in the proposed transactions were
determined by NBC, CNET and Xoom.com through arms-length negotiations. Bear
Stearns provided advice to Xoom.com during the course of such negotiations.
Xoom.com did not provide specific instructions to, or place any limitations on,
Bear Stearns with respect to the procedures to be followed or factors to be
considered by it in performing its analyses or providing its opinion.
BEAR STEARNS OPINION
In arriving at its opinion, Bear Stearns, among other things:
- reviewed drafts of the Agreement and Plan of Contribution and Merger, the
Agreement and Plan of Contribution, Investment and Merger and certain
other transaction documents;
- reviewed Xoom.com's Annual Report to Shareholders and Annual Report on
Form 10-K for the year ended December 31, 1998;
- reviewed certain operating and financial information, including
projections provided to Bear Stearns by the management of Xoom.com
relating to Xoom.com's business and prospects;
- met with certain members of Xoom.com's senior management to discuss its
operations, historical financial statements and future prospects;
- reviewed the historical prices and trading volume of Xoom.com common
stock;
- reviewed the trading activity of various Internet companies, including
those which Bear Stearns deemed generally comparable to Xoom.com;
- reviewed certain operating and financial information, including
projections, provided to Bear Stearns by the management of Xoom.com
relating to the NBC contributed Internet assets and SNAP;
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<PAGE>
- met with certain members of the senior management of NBC to discuss the
operations, historical financial statements, projections and future
prospects relating to SNAP and the NBC contributed Internet assets;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which Bear Stearns deemed generally
comparable to Xoom.com, to the businesses proposed to be acquired in the
proposed transactions and to the combined company on a pro forma basis
giving effect to the proposed transactions;
- reviewed the terms of recent acquisitions of companies which Bear Stearns
deemed generally comparable to the proposed transactions; and
- conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
In preparing its opinion, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of all financial and
other projections provided to it by Xoom.com, SNAP and NBC. With respect to the
projected financial results provided to Bear Stearns, Bear Stearns assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior managements of Xoom.com, SNAP
and NBC as to the expected future performance of Xoom.com, SNAP and the NBC
contributed Internet businesses, respectively. Bear Stearns did not assume any
responsibility for the independent verification of any such information or of
the projections provided to Bear Stearns, and relied upon the assurances of the
senior managements of Xoom.com, Snap.com and NBC, respectively, that they were
unaware of any facts that would make the information or projections provided to
Bear Stearns incomplete or misleading.
In arriving at its opinion, Bear Stearns did not perform or obtain any
independent appraisal of the assets or liabilities of Xoom.com, SNAP or the NBC
contributed Internet assets, nor was it furnished with any such appraisals. The
Bear Stearns opinion is necessarily based on economic, market and other
conditions, and the information made available to Bear Stearns, as of the date
of its opinion. In addition, Bear Stearns recognized that the market prices for
Internet related companies such as Xoom.com have been the subject of significant
speculation and movement in recent months and the Bear Stearns' opinion was not
intended to predict or otherwise guarantee the trading prices of Xoom.com
following the announcement or consummation of the proposed transactions.
Bear Stearns was initially engaged to explore strategic alternatives for
Xoom.com. After Xoom.com and NBC entered into a non-solicitation and
confidentiality agreement on April 15, 1999, Bear Stearns was requested to
prepare its opinion in connection with the proposed transactions involving NBC.
At this time, Bear Stearns was directed not to and did not seek or pursue
alternative transactions to the proposed transactions involving NBC, including
the possible sale of Xoom.com as an entirety. Although upon the consummation of
the transactions contemplated by the Merger Agreement and the Contribution
Agreement, NBC and its subsidiaries will own only approximately 48.5% of the
common stock of NBCi, in its capacity as financial advisor to Xoom.com, Bear
Stearns conservatively assumed, consistent with Delaware law, solely for
purposes of rendering its fairness opinion, that this ownership interest should
be viewed as a change of control transaction for purposes of evaluating whether,
after issuance of NBCi shares to Xoom.com stockholders in the merger of Xenon 3
with Xoom.com, (a) the aggregate issuance of NBCi shares to NBC and CNET in the
transactions contemplated by the Merger Agreement and the Contribution
Agreement, taken together (both before and after conversion of the NBCi
convertible notes), in exchange for the aggregate contribution of SNAP and the
NBC contributed Internet businesses, and (b) the issuance of NBCi shares to CNET
in the transactions contemplated by the Merger Agreement, if the transactions
contemplated by the Contribution Agreement are not consummated, in exchange for
CNET's contribution of its equity interests in SNAP, were fair, from a financial
point of view, to Xoom.com.
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<PAGE>
In rendering its opinion, Bear Stearns did not address whether and under
what circumstances any third party interest in Xoom.com may arise as a result of
entering into the agreements related to the transactions. In addition, the
opinion did not address or make any assumptions with respect to the accounting
treatment applicable to the proposed transactions to each of Xoom.com, CNET and
NBC.
FINANCIAL ANALYSIS OF BEAR STEARNS
The following is a brief summary of the material valuation, financial and
comparative analyses underlying the presentation by Bear Stearns to the Xoom.com
board of directors in connection with the rendering of the Bear Stearns opinion.
Such summary does not purport to be a complete description of the analyses
underlying the Bear Stearns opinion and is qualified in its entirety by
reference to the full text of the Bear Stearns opinion, but does summarize the
material analyses underlying the Bear Stearns opinion.
In performing its analysis, Bear Stearns made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Bear Stearns, NBC, CNET, SNAP and Xoom.com. Any estimates contained in the
analysis performed by Bear Stearns is not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analysis. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities may actually be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. In addition, as
described above, the Bear Stearns opinion was among several factors taken into
consideration by the Xoom.com board of directors in making its determination to
approve the Merger Agreement, the Contribution Agreement and the proposed
transactions.
TRANSACTION VALUE. In conducting a transaction value analysis, Bear Stearns
arrived at a range of enterprise values for the combined company,
post-synergies, using the following valuation methodologies: (i) discounted cash
flow analysis, (ii) comparable company analysis, and (iii) comparable
acquisition analysis. The range of enterprise values for each of the different
valuation methodologies is indicated in the table below.
<TABLE>
<CAPTION>
VALUATION METHOD ENTERPRISE VALUE RANGE
- ------------------------------------------------------------------------------ ----------------------------------
($ MILLIONS)
<S> <C> <C>
Discounted Cash Flow Analysis................................................. $ 4,500 $ 5,000
Comparable Company Analysis................................................... 4,250 4,750
Comparable Acquisition Analysis............................................... 4,250 5,000
Summary Reference Range....................................................... $ 4,250 $ 4,750
</TABLE>
DISCOUNTED CASH FLOW. Using the financial projections provided by
Xoom.com, SNAP and NBC for the combined company through year 2002, Bear
Stearns calculated a range of enterprise values for the combined company using a
discounted cash flow valuation method. The discounted cash flow analysis
assumed, solely for purposes of this analysis, a terminal value multiple of 2002
revenues ranging from 12.0x to 14.0x and a discount rate for the combined
company ranging from 17% to 20%. Based on such assumptions, Bear Stearns
calculated a range of enterprise values for the combined company of $4,500 to
$5,000 million.
COMPARABLE COMPANY ANALYSIS. Bear Stearns compared certain operating,
financial, trading and valuation information for the operations of the
combined company to certain publicly available operating, financial, trading and
valuation information of twenty selected portal/communities, content and
e-commerce companies which, in Bear Stearns' judgment, were comparable to the
operations of the combined company for purposes of this analysis. Bear Stearns
used the following metrics to arrive at its valuation range: (i) enterprise
value as a multiple of calendar year 1999 and 2000 projected
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<PAGE>
revenues, (ii) enterprise value as a multiple of unique visitors, and (iii)
enterprise value as a multiple of daily page views. These companies included:
<TABLE>
<CAPTION>
PORTALS / COMMUNITIES CONTENT E-COMMERCE
- ------------------------ ------------------------ ------------------------
<S> <C> <C>
- - America Online - Broadcast.com - Amazon.com
- - Excite@Home - CNET - Beyond.com
- - Infoseek - EarthWeb - eBay
- - Lycos - MarketWatch.com - Preview Travel
- - theglobe.com - SportsLine USA - Priceline.com
- - Yahoo!-GeoCities - iVillage - uBid
- iTurf
- About.com
</TABLE>
Based on this analysis, Bear Stearns calculated the enterprise value of the
combined company to be in the range of $4,250 to $4,750 million.
Bear Stearns noted that none of the comparable companies were exactly
identical to the combined company and that, accordingly, any analysis of
comparable companies necessarily involved complex consideration and judgments
concerning differences in financial and operating characteristics and other
factors that would necessarily affect the relative trading and acquisition
values.
COMPARABLE ACQUISITIONS ANALYSIS. Bear Stearns reviewed and analyzed the
publicly available financial terms of four selected acquisition transactions
in the Internet sector which, in Bear Stearns' judgment, were reasonably
comparable to the proposed transactions, and compared the financial terms of
such transactions to those of the proposed transactions. The four transactions
included:
- Disney's investment in Infoseek
- USA Network's proposed acquisition of Lycos
- @Home Network's acquisition of Excite
- Yahoo!'s acquisition of GeoCities
Bear Stearns reviewed the prices paid in such transactions and analyzed
various operating and financial information and imputed valuation multiples and
ratios. Specifically, Bear Stearns reviewed the target's enterprise value as a
multiple of the one-year and two-year forward revenues at the time of the
announcement of each transaction. Bear Stearns' analysis of the comparable
acquisitions indicated an enterprise value range of the combined company of
$4,250 to $5,000 million.
Bear Stearns also noted that none of the comparable transactions were
identical to the proposed transactions and that, accordingly, any analysis of
the comparable acquisitions necessarily involved complex consideration and
judgments concerning the differences in financial and operating characteristics
and other factors that would necessarily affect the acquisition values.
VALUATION OF SNAP AND NBC'S CONTRIBUTED INTERNET ASSETS. Bear Stearns also
valued each of SNAP, NBC.com, NBC-IN.com, VideoSeeker and a 10% interest in
CNBC.com using comparable company analyses and comparable acquisition analyses.
With respect to the 10% interest in CNBC.com, Bear Stearns also performed a
discounted cash flow analysis. The discounted cash flow analysis assumed, solely
for purposes of the analysis of CNBC.com, a terminal value multiple of 20.0x to
26.0x 2002 revenues and a discount rate range between 20% and 26%. Bear Stearns
valued the NBC brand and other intangibles provided by NBC by discounting back
an assumed royalty stream that Xoom.com would have to pay NBC for the use of the
NBC brand. The royalty stream was estimated at 6% to 8% of the difference
between the combined company's revenue and Xoom.com's stand-alone revenue, and
discounted using a cost of capital of 18%.
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<PAGE>
Bear Stearns used the following acquisition transactions in the Internet
sector as comparables for the proposed acquisition of each of SNAP, NBC.com,
NBC-IN.com and the 10% equity interest in CNBC.com:
- Disney's investment in Infoseek,
- USA Networks' proposed acquisition of Lycos,
- @Home Network's acquisition of Excite and
- Yahoo!'s acquisition of GeoCities.
Bear Stearns used Yahoo!'s acquisition of Broadcast.com as a comparable for the
proposed acquisition of VideoSeeker.
Bear Stearns used the following comparable companies for the operations of
SNAP, NBC.com, NBC-IN.com, VideoSeeker and CNBC.com.
<TABLE>
<CAPTION>
NBC.COM COMPARABLE PORTALS/
SNAP COMPARABLE PORTALS/COMMUNITY COMMUNITY SERVICE AND CONTENT
SERVICE COMPANIES COMPANIES
- ---------------------------------- ------------------------------------
<S> <C> <C>
America Online America Online Broadcast.com
Excite@Home Excite@Home CNET
Infoseek Infoseek Sportsline USA
Lycos Lycos iVillage
theglobe.com theglobe.com iTurf
Yahoo!-GeoCities Yahoo!-GeoCities About.com
</TABLE>
<TABLE>
<CAPTION>
NBC-IN.COM COMPARABLE CONTENT VIDEOSEEKER COMPARABLE BROADBAND
SERVICE COMPANIES CONTENT COMPANIES
- ----------------------------------- -----------------------------------
<S> <C>
CNET Broadcast.com
Sportsline USA InterVU
iVillage RealNetworks
iTurf
InfoSpace.com CNBC.COM COMPARABLE CONTENT
Ticketmaster Online-CitySearch PROVIDER COMPANIES
-----------------------------------
About.com MarketWatch.com
Multex.com
</TABLE>
Based on these analyses, Bear Stearns determined a range of enterprise
values for the NBC contributed Internet businesses and SNAP, of approximately
$2,863 to $3,433 million.
HAS/GETS ANALYSIS. Bear Stearns also conducted a per share "Has/Gets"
analysis based on the May 6, 1999 closing share price of Xoom.com common stock
of $68.00 per share. A "Has/Gets" analysis is a mathematical comparison of what
shareholders have prior to consummation of a transaction (and thus will have
absent consummation of such transaction) to what shareholders will get upon
consummation of such transaction.
Based on the May 6, 1999 stock price, the equity value of Xoom.com as of
such date was approximately $1,312 million. After adjusting for cash, option
proceeds, indebtedness, minority interests in subsidiaries and preferred stock,
Bear Stearns calculated the May 6, 1999 enterprise value of Xoom.com to be
approximately $1,077 million.
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<PAGE>
Next, Bear Stearns calculated the value of the combined company,
pre-synergies, by adding in the estimated range of enterprise values of the NBC
contributed Internet assets. The calculation resulted in a range of enterprise
values for the combined company of $3,940 to $4,510 million. If Xoom.com's
stockholders received approximately 33.3% of the combined company, they would
receive a value of $1,313 to $1,503 million. Bear Stearns also noted that, based
on the post-synergies enterprise value range of $4,250 to $4,750 million for the
combined company, Xoom.com's stockholders would receive $1,417 to $1,583
million, assuming Xoom.com's stockholders received approximately 33.3% of such
value.
<TABLE>
<CAPTION>
VALUE RANGE
--------------------
($ IN MILLIONS)
<S> <C> <C>
Xoom.com's Enterprise Value................................. $1,077.0 -- $1,077.0
Value of the NBC contributed Internet assets and SNAP....... $2,863.0 -- $3,433.0
Value of the Combined Company, Pre-Synergies................ $3,940.0 -- $4,510.0
Xoom.com's approximately 33.3% of the Combined Company,
Pre-Synergies............................................. $1,313.3 -- $1,503.3
Value of the Combined Company, Post-Synergies............... $4,250.0 -- $4,750.0
Xoom.com's approximately 33.3% of the Combined Company,
Post-Synergies............................................ $1,416.7 -- $1,583.3
</TABLE>
Although, for purposes of this analysis, Bear Stearns assumed that
Xoom.com's stockholders would receive approximately 33.3% of the value of the
combined company, Xoom.com's stockholders will actually receive approximately
36% of the equity of the combined company (before conversion of the NBCi
convertible notes).
OTHER ANALYSES. Bear Stearns conducted such other analyses as it deemed
necessary, including reviewing historical and projected financial and operating
data for Xoom.com, the NBC contributed Internet assets and SNAP and selected
investment research reports on each of the entities, including information
pertaining to the estimated revenues and cash flow for each of the entities and
assessing future acquisition and growth opportunities for each of the companies.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Such an opinion is therefore not readily
susceptible to partial analysis or summary description, and taking portions of
the analyses set out above, without considering the analysis as a whole, would,
in the view of Bear Stearns, create an incomplete and misleading picture of the
processes underlying the analyses considered in rendering the Bear Stearns
opinion. Bear Stearns did not form an opinion as to whether any individual
analysis or factor (positive or negative), considered in isolation, supported or
failed to support the Bear Stearns opinion. In arriving at its opinion, Bear
Stearns considered the results of its separate analyses and did not attribute
particular weight to any one analysis or factor considered by Bear Stearns. The
analyses performed by Bear Stearns, particularly those based on estimates and
projections, are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of the Bear Stearns
analysis of the fairness to Xoom.com, from a financial point of view, of the
financial terms of the transactions.
FEE ARRANGEMENTS
Pursuant to the terms of its engagement letter with Bear Stearns, Xoom.com
has agreed to pay Bear Stearns a total fee equal to $1.0 million, plus 0.75% of
the greater of the total fair market value of all cash, equity securities,
property, debt or other obligations obtained by Xoom.com's holders of common
stock as of May 9, 1999 or on the date the transactions contemplated by the
Merger Agreement are consummated. On May 9, 1999, the amount of the fee on this
basis would have been approximately $12 million in the aggregate. $2.5 million
of Bear Stearns' fee became payable to Bear
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Stearns upon the delivery of its opinion and the remainder of which will become
payable upon consummation of the proposed transactions. In addition, Xoom.com
has agreed to reimburse Bear Stearns for all reasonable out-of-pocket expenses
incurred by it in connection with the proposed transactions, including
reasonable fees and disbursements of its legal counsel. Xoom.com has also agreed
to indemnify Bear Stearns against certain liabilities in connection with its
engagement, including certain liabilities under the federal securities laws.
Bear Stearns has previously rendered certain investment banking and
financial advisory services to Xoom.com. Bear Stearns served as Xoom.com's
financial advisor in connection with its IPO and follow-on equity offerings, for
which it received customary compensation. In the ordinary course of its
business, Bear Stearns may actively trade the securities of Xoom.com, General
Electric (the publicly-traded parent of NBC) and/or CNET for its own account and
for accounts of its customers and, accordingly, Bear Stearns may at any time
hold a long or short position in such securities. Bear Stearns may provide
financial advisory and financing services to the combined company and/or its
affiliates and may receive fees for the rendering of such services.
OPINION OF HAMBRECHT & QUIST
Xoom.com engaged Hambrecht & Quist to act as its financial advisor in
connection with the proposed transactions solely for the purpose of issuing an
opinion to the effect that, after issuance of NBCi shares to Xoom.com
stockholders in the merger of Xenon 3 with Xoom.com, the aggregate issuance of
NBCi shares to NBC and CNET in the transactions contemplated by the Merger
Agreement and the Contribution Agreement, taken together (both before and after
conversion of the NBCi convertible notes), in exchange for the aggregate
contribution of SNAP and the NBC contributed Internet businesses, was fair, from
a financial point of view, to Xoom.com. Hambrecht & Quist was selected by the
Xoom.com board of directors based on Hambrecht & Quist's qualifications,
expertise and reputation, as well as Hambrecht & Quist's historic investment
banking relationship and familiarity with Xoom.com. Hambrecht & Quist rendered
its oral opinion (subsequently confirmed in writing) on May 9, 1999 to the
Xoom.com board of directors that, as of such date, the aggregate issuance of
NBCi shares to NBC and CNET in the transactions contemplated by the Merger
Agreement and the Contribution Agreement, taken together (both before and after
conversion of the NBCi convertible notes), in exchange for the aggregate
contribution of SNAP and the NBC contributed Internet businesses was fair, from
a financial point of view, to Xoom.com. On June 11, 1999, Hambrecht & Quist
confirmed that its opinion remained in full force and effect and was unaffected
by the equity investment and restructuring entered into as of June 11, 1999. On
July 7, 1999, Hambrecht & Quist confirmed that its opinion remained in full
force and effect and was unaffected by the second restructuring entered into as
of July 8, 1999.
THE FULL TEXT OF THE OPINION DELIVERED BY HAMBRECHT & QUIST TO THE XOOM.COM
BOARD OF DIRECTORS, DATED MAY 9, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE,
GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND LIMITATIONS ON THE SCOPE OF
REVIEW UNDERTAKEN BY HAMBRECHT & QUIST IN RENDERING ITS OPINION, IS ATTACHED AS
APPENDIX C-2 TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THE HAMBRECHT & QUIST OPINION IS TO THE EFFECT THAT, AFTER ISSUANCE
OF NBCI SHARES TO XOOM.COM STOCKHOLDERS IN THE MERGER OF XENON 3 WITH XOOM.COM,
THE AGGREGATE ISSUANCE OF NBCI SHARES TO NBC AND CNET IN THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT AND THE CONTRIBUTION AGREEMENT, TAKEN
TOGETHER (BOTH BEFORE AND AFTER CONVERSION OF THE NBCI CONVERTIBLE NOTES), IN
EXCHANGE FOR THE AGGREGATE CONTRIBUTION OF SNAP AND THE NBC CONTRIBUTED INTERNET
BUSINESSES, WAS FAIR, FROM A FINANCIAL POINT OF VIEW TO XOOM.COM. THE HAMBRECHT
& QUIST OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY XOOM.COM STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT AND
THE CONTRIBUTION AGREEMENT. THE SUMMARY OF THE HAMBRECHT & QUIST OPINION SET
FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
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SUCH FAIRNESS OPINION ATTACHED HERETO AS APPENDIX C-2. XOOM.COM STOCKHOLDERS ARE
URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY.
In reviewing the proposed transactions, and in arriving at its opinion,
Hambrecht & Quist, among other things:
- Reviewed the financial statements of SNAP, NBC-IN.com, NBC.com,
VideoSeeker and CNBC.com for recent years and interim periods to date and
other relevant financial and operating data of SNAP and the NBC
contributed Internet businesses made available to Hambrecht & Quist from
the internal records of SNAP and the NBC contributed Internet businesses;
- Reviewed certain internal financial and operating information, including
certain projections, related to SNAP and the NBC contributed Internet
businesses, prepared by management of Xoom.com;
- Discussed the business, financial condition and prospects of SNAP and the
NBC contributed Internet businesses with certain members of senior
management of SNAP and the NBC contributed Internet businesses;
- Reviewed Xoom.com's publicly available financial statements for recent
years and interim periods to date and certain other relevant financial and
operating data of Xoom.com made available to Hambrecht & Quist from
published sources and from the internal records of Xoom.com;
- Discussed Xoom.com's business, financial condition and prospects with
members of senior management of Xoom.com;
- Reviewed the recent reported prices and trading activity for the common
stock of Xoom.com and compared such information and certain financial
information for SNAP, the NBC contributed Internet businesses and Xoom.com
with similar information for certain other companies engaged in businesses
Hambrecht & Quist considered generally comparable;
- Reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions;
- Reviewed drafts of the Agreement and Plan of Contribution and Merger and
the Agreement and Plan of Contribution, Investment and Merger, each dated
as of May 6, 1999 and certain other transaction documents; and
- Performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and financial,
economic and market data as Hambrecht & Quist deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning Xoom.com, SNAP or the NBC contributed Internet businesses considered
in connection with its review of the proposed transactions and, for purposes of
its opinion, Hambrecht & Quist assumed and relied upon the accuracy and
completeness of all such information. In connection with its opinion, Hambrecht
& Quist did not prepare or obtain any independent valuation or appraisal of any
of the assets or liabilities of Xoom.com, SNAP or the NBC contributed Internet
businesses, nor did it conduct a physical inspection of the properties and
facilities of Xoom.com, SNAP or the NBC contributed Internet businesses. With
respect to the financial forecasts and projections used in its analysis,
Hambrecht & Quist assumed that they reflected the best currently available
estimates and judgments of the expected future financial performance of
Xoom.com, SNAP and the NBC contributed Internet businesses. For the purposes of
its opinion, Hambrecht & Quist also assumed that none of Xoom.com, SNAP or the
NBC contributed Internet businesses was a party to any pending transactions,
including external
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recapitalizations or material merger discussions, other than the proposed
transactions and transactions in the ordinary course of conducting their
respective businesses. For purposes of its opinion, Hambrecht & Quist assumed
that the proposed transactions will be implemented on a tax-free basis.
Hambrecht & Quist's opinion is necessarily based upon market, economic,
financial and other conditions as they existed and can be evaluated as of the
date of the opinion and any subsequent change in such conditions would require a
reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the Xoom.com
board of directors, but does summarize the material analyses presented to the
Xoom.com board of directors. In arriving at its opinion, Hambrecht & Quist did
not attribute any particular weight to any analyses or factors considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Hambrecht & Quist believes that its
analyses and the summary set forth below must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, or of the
following summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the
Hambrecht & Quist presentation to the Xoom.com board of directors and its
opinion. In performing its analyses, Hambrecht & Quist made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Xoom.com, SNAP and
the NBC contributed Internet businesses. The analyses performed by Hambrecht &
Quist and summarized below are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be acquired.
In performing its analyses, Hambrecht & Quist used published Hambrecht &
Quist research estimates of calendar year 1999 and 2000 financial performance by
Xoom.com and used estimates by Xoom.com management of calendar year 1999 and
2000 financial performance by SNAP and the NBC contributed Internet businesses.
The following is a brief summary of certain financial analyses performed by
Hambrecht & Quist in connection with providing its written opinion to the
Xoom.com board of directors on May 9, 1999. In performing the various financial
analyses, Hambrecht & Quist valued the combined company assuming consummation of
the transactions contemplated by both the Merger Agreement and the Contribution
Agreement. Hambrecht & Quist did not value the intermediate company formed
pursuant to the Merger Agreement that existed immediately before the
transactions contemplated by the Contribution Agreement. The summary of
financial analyses includes information presented in tabular format. You should
read these tables together with the text of each summary.
VALUATION ANALYSIS OF XOOM.COM
ANALYSIS OF PUBLICLY TRADED COMPANIES COMPARABLE TO XOOM.COM. Using
Hambrecht & Quist research and published Wall Street estimates, Hambrecht &
Quist compared, among other things, the equity values, enterprise values,
revenues for the last twelve-month period and projected revenues for calendar
1999 and calendar 2000 for Xoom.com to corresponding measures for publicly
traded Internet companies that Hambrecht & Quist considered comparable to
Xoom.com. The Internet companies that Hambrecht & Quist considered comparable to
Xoom.com were:
<TABLE>
<S> <C>
- - Autoweb.com - iVillage
- - Beyond.com - Lycos
- - Earthweb - theglobe.com
- - GeoCities - iTurf
</TABLE>
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Hambrecht & Quist determined average revenue multiples for the comparable
companies. Applying such multiples for the comparable companies to projected
calendar 1999 and calendar 2000 revenues of Xoom.com resulted in the ranges of
implied equity values and enterprise values of Xoom.com set forth in the
following table:
<TABLE>
<CAPTION>
IMPLIED RANGE OF VALUE OF XOOM.COM
-------------------------------------
<S> <C>
Implied Enterprise Value................................................... $798.3 million - $1,080.7 million
Implied Equity Value (Enterprise Value plus $219.7 million cash less $1.7
million in debt):........................................................ $1,016.3 million - $1,298.7 million
</TABLE>
ANALYSIS OF SELECTED TRANSACTIONS. Using Hambrecht & Quist research and
published Wall Street estimates, Hambrecht & Quist compared the proposed
transactions with selected mergers and acquisitions transactions. This analysis
included seven transactions involving companies in the Internet industry. The
Internet transactions that Hambrecht & Quist deemed comparable to the proposed
transactions were (listed as acquiror/target):
<TABLE>
<S> <C>
- - Yahoo!/ Broadcast.com - America Online/ Netscape
- - America Online/ MovieFone Communications
- - Yahoo!/ GeoCities - CDnow/ N2K
- - @Home Network / Excite - USWeb/ CKS Group
</TABLE>
In examining these transactions, Hambrecht & Quist analyzed, among other
things, the multiples of offer prices to revenues for the last twelve-month
period and projected revenues for calendar 1999 for the acquired companies.
Applying the foregoing multiples to the revenues of Xoom.com for the last
twelve-month period and projected calendar 1999 revenues resulted in the ranges
of implied equity values and enterprise values of Xoom.com set forth in the
following table:
<TABLE>
<CAPTION>
IMPLIED RANGE OF VALUE OF XOOM.COM
-------------------------------------
<S> <C>
Implied Enterprise Value................................................... $1,170.1 million - $1,734.0 million
Implied Equity Value (Enterprise Value plus $219.7 million cash less $1.7
million in debt)......................................................... $1,388.1 million - $1,952.1 million
</TABLE>
PREMIUM ANALYSIS. Hambrecht & Quist compared the implied premium of the
offer as of May 7, 1999 to similar premiums for the comparable public company
transactions listed above. Hambrecht & Quist applied the mean premiums paid to
Xoom.com's closing price on May 7, 1999, resulting in the following enterprise
and equity values of Xoom.com.
<TABLE>
<CAPTION>
IMPLIED
MEAN ENTERPRISE IMPLIED
DATE OF SALES PRICE COMPARISON PREMIUM PAID VALUE EQUITY VALUE
- ------------------------------------------------------------------- ----------------- --------------- ------------
($ IN MILLIONS)
<S> <C> <C> <C>
One trading day prior.............................................. 32.5% $ 1,679.5 $ 1,897.6
Twenty trading days prior.......................................... 79.1% $ 2,407.3 $ 2,625.4
52 week high....................................................... (6.9%) $ 1,530.2 $ 1,748.3
</TABLE>
VALUATION ANALYSIS OF SNAP AND THE NBC CONTRIBUTED INTERNET BUSINESSES
ANALYSIS OF PUBLICLY TRADED COMPANIES COMPARABLE TO THE NBC CONTRIBUTED
INTERNET BUSINESSES. Using Hambrecht & Quist research and published Wall Street
estimates, Hambrecht & Quist compared, among other things, the equity values,
enterprise values, revenues for the last twelve-month period and projected
revenues for calendar 1999 and calendar 2000 of companies Hambrecht & Quist
considered comparable to SNAP and the NBC contributed Internet businesses.
Hambrecht & Quist
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determined that the following companies were comparable to SNAP and the NBC
contributed Internet businesses.
<TABLE>
<CAPTION>
SNAP COMPARABLES NBC-IN.COM COMPARABLES
- ----------------------------------- -----------------------------------
<S> <C>
America Online CNET
@Home Network Infospace.com
Excite iVillage
Infoseek Launch
Lycos MarketWatch.com
Yahoo! Sportsline USA
Ticketmaster Online-CitySearch
iTurf
ZDNet
<CAPTION>
NBC.COM COMPARABLES VIDEOSEEKER COMPARABLES
- ----------------------------------- -----------------------------------
<S> <C>
CNET Big Entertainment
iVillage Broadcast.com
Launch Launch
MarketWatch.com RealNetworks
Sportsline USA
iTurf
ZDNet
<CAPTION>
CNBC.COM COMPARABLES
- -----------------------------------
<S> <C>
CNET
iVillage
Launch
MarketWatch.com
Sportsline USA
iTurf
ZDNet
</TABLE>
Hambrecht & Quist determined average revenue multiples for the companies
considered comparable to SNAP and each of the NBC contributed Internet
businesses and applied these multiples to projected calendar 1999 and calendar
2000 revenues supplied by Xoom.com's management for SNAP and each of the NBC
contributed Internet businesses. Using the implied enterprise value and the
implied equity value of SNAP and each of the NBC contributed Internet businesses
and excluding any value associated with the advertising agreement between NBC
and NBCi, and the NBC note (which, at the time of Hambrecht & Quist's analysis
had an assumed value of $360 million), Hambrecht & Quist determined a range of
aggregate implied equity values of SNAP and the NBC contributed Internet
businesses taken together of $1,949 million to $2,770 million.
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VALUATION ANALYSIS OF NBCI
ANALYSIS OF PUBLICLY TRADED COMPANIES COMPARABLE TO NBCI. Using Hambrecht &
Quist research and published Wall Street estimates, Hambrecht & Quist compared,
among other things, the equity values, enterprise values, revenues for the last
twelve-month period and projected revenues for calendar 1999 and calendar 2000
for NBCi to corresponding measures for publicly traded Internet companies that
Hambrecht & Quist considered comparable to NBCi. Internet companies considered
comparable to NBCi were divided into two categories set forth below:
<TABLE>
<CAPTION>
INTERNET COMMERCE/SERVICES COMPANIES INTERNET CONTENT COMPANIES
- ------------------------------------- --------------------------
<S> <C>
- - Amazon.com - CNET
- - America Online - iVillage
- - @Home Network - Launch
- - eBay Inc - MarketWatch.com
- - Excite - Sportsline USA
- - Infoseek - iTurf
- - Lycos - ZDNet
- - Ticketmaster Online-CitySearch
- - Yahoo!
</TABLE>
Hambrecht & Quist determined average equity values as multiples of revenue and
enterprise values as multiples of revenue for the comparable companies. All such
multiples were based on closing stock prices as of May 7, 1999. As set forth in
the following table, applying such multiples for the comparable companies to
projected calendar 1999 and calendar 2000 revenues of NBCi, based on Xoom.com
management estimates (excluding synergies), resulted in the following ranges of
implied equity values and enterprise values of NBCi, excluding any value
associated with the advertising agreement between NBC and NBCi, the NBCi cash,
the NBC note (which, at the time of Hambrecht & Quist's analysis had an assumed
value of $360 million) and the value of the interest in CNBC.com.
<TABLE>
<CAPTION>
IMPLIED VALUE OF NBCI
-------------------------------------
<S> <C>
Implied Enterprise Value................................................... $3,119.6 million - $4,512.8 million
Implied Equity Value (Enterprise Value plus $219.7 million cash less $1.7
million in debt)......................................................... $3,337.6 million - $4,730.8 million
</TABLE>
ANALYSIS OF THE PROPOSED XOOM.COM SHARE OF NBCI. Hambrecht & Quist
calculated the range of equity values attributable to the portion of NBCi to be
received by Xoom.com's stockholders in the proposed transaction by adjusting the
implied equity values calculated above for the advertising agreement between NBC
and NBCi, the NBCi cash, the NBC note (which, at the time of Hambrecht & Quist's
analysis had an assumed value of $360 million) and the value of the interest in
CNBC.com, and multiplying by the Xoom.com ownership stake in NBCi, both before
and after conversion of the NBCi convertible notes. Based on this analysis,
Hambrecht & Quist calculated a range of implied equity values for the portion of
NBCi to be received by Xoom.com's stockholders in the proposed transaction from
approximately $1,240 million to $1,759 million before conversion of the NBCi
convertible notes and from approximately $1,248 million to $1,720 million
assuming conversion of the NBCi convertible notes.
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COMPARISON OF IMPLIED EQUITY VALUES
Hambrecht & Quist analyzed the contribution of each of Xoom.com, SNAP and
the NBC contributed Internet assets to the total implied equity value of the
combined company, both before and after the conversion of the NBCi convertible
notes. Hambrecht & Quist determined the equity value of NBCi by comparing
projected financial information for Xoom.com, SNAP and the NBC contributed
Internet assets to publicly traded companies comparable to such entities.
Hambrecht & Quist observed that, based on the implied equity values of Xoom.com
and NBCi, the implied range of aggregate percentage equity interests of the
Xoom.com stockholders in NBCi was between 42.0% and 33.8% before the conversion
of the NBCi convertible notes, and between 38.0% and 31.2% after the conversion
of the NBCi convertible notes. These figures were compared to the 36.6% equity
interest (33.3% after conversion of the NBCi convertible notes) that Hambrecht &
Quist assumed that the Xoom.com stockholders would have received pursuant to the
Merger Agreement and the Agreement and Plan of Contribution, Investment and
Merger entered into as of May 9, 1999.
No company or transaction used in the above analyses is identical to
Xoom.com or the proposed transactions. Accordingly, an analysis of the results
of the foregoing is not mathematical; rather it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies and other factors that could affect the public trading values
of the companies or company to which they are compared.
The foregoing description of Hambrecht & Quist's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Appendix C-2 to this joint proxy statement/ prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, corporate restructurings,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Hambrecht & Quist has acted as a financial advisor to the board of directors of
Xoom.com in connection with the transactions solely for the purpose of issuing
its fairness opinion.
In the past, Hambrecht & Quist has provided investment banking and other
financial advisory services to Xoom.com and has received fees for rendering
these services, including serving as a co-manager in Xoom.com's April 9, 1999
international and U.S. secondary offering. In the ordinary course of business,
Hambrecht & Quist acts as a market maker and broker in the publicly traded
securities of Xoom.com and receives customary compensation in connection
therewith, and also provides research coverage for Xoom.com. In the ordinary
course of business, Hambrecht & Quist actively trades in the equity and
derivative securities of Xoom.com for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Hambrecht & Quist may in the future provide investment banking
or other financial advisory services to Xoom, SNAP or the NBC contributed
Internet businesses.
Pursuant to an engagement letter dated April 26, 1999, Xoom.com has agreed
to pay Hambrecht & Quist a fee of approximately $1.0 million in connection with
the delivery of the fairness opinion rendered on May 9, 1999. Xoom.com also has
agreed to reimburse Hambrecht & Quist for its reasonable out-of-pocket expenses
and to indemnify Hambrecht & Quist against certain liabilities, including
liabilities under the federal securities laws or relating to or arising out of
Hambrecht & Quist's engagement as financial advisor.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
GENERAL
Certain executive officers and certain members of the Xoom.com board of
directors have interests in the transactions contemplated by the Merger
Agreement and the Contribution Agreement that are
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different from, or in addition to, the interests of stockholders of Xoom.com
generally. These include, among other things, provisions in the Merger Agreement
and the Contribution Agreement relating to indemnification and the acceleration
and/or payout of benefits under certain agreements and employee benefit plans.
The Xoom.com board of directors was aware of these interests and considered
them, among other matters, in approving the Merger Agreement, the Contribution
Agreement and the transactions contemplated thereby.
The Merger Agreement provides that NBCi will cause Xoom.com, as the
surviving corporation in the merger of Xenon 3 with Xoom.com (the "Surviving
Corporation"), to assume and honor in accordance with their terms certain
compensation agreements, plans and arrangements which existed prior to the
execution of the Merger Agreement between Xoom.com and any of its directors,
officers or employees.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that NBCi shall cause the Surviving
Corporation to indemnify (including the payment of any costs, judgments,
settlements or attorneys' fees and providing advances of expenses) each present
and former director or officer of Xoom.com or any of its subsidiaries, to the
fullest extent permitted under Xoom.com's certificate of incorporation, bylaws
or applicable law, for liabilities for acts or omissions occurring at or prior
to the date of the Xoom.com merger. The Merger Agreement also provides that NBCi
shall cause the Surviving Corporation to maintain Xoom.com's current directors'
and officers' liability insurance coverage on terms no less favorable than the
policy currently in effect for six years after the date of the Xoom.com merger,
but the Surviving Corporation is not obligated to pay for any annual premium
more than 200% of the amount paid for premiums by Xoom.com as of the date of the
Merger Agreement.
OPTIONS
Pursuant to the Merger Agreement, all outstanding stock options granted
under the Xoom.com 1998 Stock Incentive Plan (the "Option Plan," and each option
granted under the Option Plan, a "Plan Option") as well as all outstanding stock
options to acquire Xoom.com shares granted outside of the Option Plan (the
"Non-Plan Options") will, upon the closing of the Merger Agreement, be converted
into options to purchase an equal number of shares of NBCi on the same terms and
conditions as were applicable to such Plan Options and Non-Plan Options prior to
such conversion.
Pursuant to the Option Plan, upon the occurrence of a corporate transaction
(as defined in the Option Plan), each outstanding Plan Option would become
vested with respect to 75% of the unvested portion of such Plan Option, unless
the Option Plan administrator exercises its discretion to prevent such
acceleration. As discussed below, on page 87, Xoom.com has agreed to modify the
accelerated vesting of the Plan Options. In addition, under the terms of the
option agreement evidencing each Non-Plan Option (the "Non-Plan Option
Agreement"), upon the occurrence of a corporate transaction (as defined in the
Non-Plan Option Agreement) each outstanding Non-Plan Option would become vested
with respect to 75% of the unvested portion of such Non-Plan Option and the
remaining unvested portion of such Non-Plan Option, as well as any vested
portion of the Non-Plan Option which is not in fact exercised prior to the
consummation of the corporate transaction, will expire upon the occurrence of
the corporate transaction.
The administrator of the Option Plan and Xoom.com's board of directors have
each determined that the closing of the Contribution Agreement will constitute a
corporate transaction for purposes of the Option Plan and the Non-Plan Option
Agreement, respectively. As contemplated by the Contribution Agreement, the
Option Plan administrator will use its discretion to modify the accelerated
vesting provision of the Plan Options to provide that they will vest and become
exercisable with respect to all shares which would have otherwise vested within
12 months following the closing of the Contribution Agreement. In addition,
pursuant to their terms, all Non-Plan Options will vest and
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become exercisable with respect to 75% of the then unvested portion of such
Non-Plan Options and any portion of the Non-Plan Options which remain
unexercised as of the closing of the Contribution Agreement will terminate.
Notwithstanding the foregoing, any options to acquire Xoom.com shares granted
after May 9, 1999 will not vest on an accelerated basis.
It is possible that the accelerated vesting of the Plan Options and/or
Non-Plan Options could constitute "excess parachute payments" resulting in the
imposition of an excise tax on the holder of such options and the loss of a tax
deduction by Xoom.com or NBCi. NBCi has agreed to make available to any Xoom.com
employee, a loan to pay the amount of any such excise tax that becomes payable
as a result of such accelerated vesting. The loan will (i) have a term of 2
years, (ii) bear interest at the lowest permissible rate without the imputation
of income, (iii) become repayable upon the termination of such employee's
employment with NBCi and its affiliates for cause or due to resignation and (iv)
be forgiven (x) with respect to 1/24 of the principal amount of the loan
(together with accrued interest) on the last day of each 1 month anniversary of
the closing of the Contribution Agreement if the employee remains employed
through such dates and (y) entirely if such employee is terminated by NBCi
without cause or due to the employee's death or disability.
Based upon the Plan Options and Non-Plan Options outstanding as of the
record date, the transactions will result in the accelerated vesting of Plan
Options and Non-Plan Options relating to 901,431 shares of Xoom.com common
stock, held by the executive officers and employees of Xoom.com.
DIRECTORS AND EXECUTIVE OFFICERS
Under the Contribution Agreement Chris Kitze, the chairman of the board of
Xoom.com, will be appointed as the chief executive officer of NBCi and John
Harbottle, the chief financial officer and vice president, finance of Xoom.com,
will be appointed as the chief financial officer and executive vice president,
finance of NBCi. In addition Mr. Kitze and the five current outside directors of
Xoom.com will be appointed to the board of directors of NBCi.
SEVERANCE AGREEMENTS
In connection with the consummation of the transactions, Xoom.com expects to
enter into a severance agreement with Laurent Massa, Xoom.com's president and
chief executive officer. To date, Xoom.com and Mr. Massa have not agreed on the
terms of the severance agreement.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Act (the "HSR Act"), and the rules promulgated
thereunder by the FTC, the transactions contemplated by the Merger Agreement and
Contribution Agreement cannot be consummated until notifications have been given
to the FTC and the Antitrust Division of the Department of Justice and the
specified waiting periods have expired or terminated early. The notifications
required under the HSR Act were furnished to the FTC and the Antitrust Division
by Xoom.com and CNET with respect to the transactions contemplated by the Merger
Agreement and by Xoom.com and NBC with respect to the transactions contemplated
by the Contribution Agreement on July 2, 1999. Accordingly, the waiting period
under the HSR Act will expire at 11:59 p.m., Eastern Standard time, on August 1,
1999 unless Xoom.com, NBC or CNET receive a request for additional documentary
material, or the Antitrust Division and the FTC terminate the waiting period
prior thereto. In practice, complying with a request for additional information
or material can take a significant amount of time. In addition, if the Antitrust
Division or the FTC raises substantive issues in connection with a proposed
transaction, the parties may engage in negotiations with the relevant
governmental agency concerning possible means of addressing those issues and may
agree to delay consummation of the transactions while such negotiations
continue. Notwithstanding the termination of the applicable waiting periods
under the HSR Act, the Antitrust Division, the FTC or any state or
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foreign governmental authority could take such action under the antitrust laws
as it deems necessary or desirable in the public interest. Such action could
include seeking to enjoin the consummation of the transactions contemplated by
the Merger Agreement and Contribution Agreement or seeking divestiture of
portions of the businesses intended to be part of NBCi. Private parties may also
seek to take legal action under the antitrust laws under certain circumstances.
Pursuant to the Merger Agreement, any filing fees required by the HSR Act with
respect to CNET's filing will be paid by Xoom.com.
There can be no assurance that a challenge to the consummation of the
transactions on antitrust grounds will not be made or that, if such a challenge
were made, the parties to the Merger Agreement and Contribution Agreement would
prevail.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the merger of Xenon 3 into Xoom.com pursuant to the Merger
Agreement that are applicable to Xoom.com stockholders. It is based on the
Internal Revenue Code, applicable U.S. Treasury Regulations, judicial authority,
and administrative rulings and practice, all as of the date of this proxy
statement/prospectus and all of which are subject to change, including changes
with retroactive effect. The discussion below does not address any state, local
or foreign tax consequences of the Xoom.com merger. Your tax treatment may vary
depending upon your particular situation. You may also be subject to special
rules not discussed below if you are a certain kind of stockholder of Xoom.com,
including:
- an individual who hold options for Xoom.com common stock;
- an insurance company;
- a tax-exempt organization;
- a financial institution or broker-dealer;
- a person who is neither a citizen nor resident of the United States;
- a holder of Xoom.com common stock as part of a hedge, straddle or
conversion transaction; or
- a person that does not hold Xoom.com common stock as a capital asset at
the time of the Xoom.com merger.
Neither NBCi nor Xoom.com has requested or will request an advance ruling
from the Internal Revenue Service as to the tax consequences of the Xoom.com
merger or any related transaction. The Internal Revenue Service may adopt
positions contrary to that discussed below and such positions could be
sustained.
You are urged to consult your own tax advisor as to the particular tax
consequences of the merger to you, including the applicability and effect of any
state, local or foreign laws, and the effect of possible changes in applicable
tax laws.
The obligation of Xoom.com to consummate the merger is conditioned upon the
receipt by Xoom.com of an opinion of Morrison & Foerster LLP, counsel to
Xoom.com, that on the basis of the representations set forth or referred to in
the opinion, the Xoom.com merger will be treated for federal income tax purposes
as either or both of (A) a contribution of Xoom.com stock to NBCi qualifying
under Section 351 of the Internal Revenue Code, or (B) a tax-free reorganization
under Section 368(a) of the Internal Revenue Code (and that each of Xoom.com,
NBCi and Xenon 3 will be a party to the reorganization within the meaning of
Section 368(b) of the Internal Revenue Code). Provided that the merger so
qualifies:
- You will not recognize any gain or loss as a result of the receipt of NBCi
Class A common stock in exchange for your Xoom.com common stock pursuant
to the Xoom.com merger.
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- Your aggregate tax basis for the shares of NBCi Class A common stock
received pursuant to the Xoom.com merger will equal your aggregate tax
basis in shares of Xoom.com common stock held immediately before the
Xoom.com merger.
- Your holding period for the shares of NBCi Class A common stock received
pursuant to the Xoom.com merger will include the period during which the
shares of Xoom.com common stock are held.
The tax opinion of Morrison & Foerster LLP described above is based upon
certain facts, representations and assumptions set forth or referred to in the
opinion and the continued accuracy and completeness of certain representations
made by NBCi, Xenon 3 and Xoom.com, including representations in certificates to
be delivered to counsel by the management of each of NBCi and Xoom.com which, if
incorrect in certain material respects, would jeopardize the conclusions reached
by Morrison & Foerster LLP in the opinion. In addition, in the event that
Xoom.com is unable to obtain the tax opinion, Xoom.com is permitted under the
Merger Agreement to waive the receipt of such tax opinion as a condition to its
obligation to consummate the Xoom.com merger. As of the date of this proxy
statement/prospectus, Xoom.com does not intend to waive the receipt of the tax
opinion as a condition to its obligation to consummate the Xoom.com merger. In
the event of such a failure to obtain the tax opinion and a determination by
Xoom.com to waive such condition to the consummation of the Xoom.com merger,
Xoom.com will resolicit the votes of its stockholders to approve consummation of
the merger.
The parties to the Xoom.com merger intend that the merger qualify as
tax-free to you pursuant to Section 351 of the Internal Revenue Code and as a
tax-free reorganization pursuant to Section 368 of the Internal Revenue Code.
Therefore, you should report the transaction in your tax returns as tax-free
pursuant to both Sections 351 and Section 368 of the Internal Revenue Code. To
do so, you must include with your federal income tax return for the year of the
Xoom.com merger the statements required by the applicable U.S. Treasury
Regulations. Xoom.com will provide to you a form of statement for filing with
your federal income tax return for the year of the Xoom.com merger.
ACCOUNTING TREATMENT
NBCi intends to account for the transactions with Xoom.com as the accounting
acquiror in a purchase business combination for financial reporting and
accounting purposes, under generally accepted accounting principles. After the
merger, the results of operations of Xoom.com, the NBC contributed Internet
businesses and SNAP will be included in the consolidated financial statements of
NBCi. The purchase price, that is, the aggregate merger consideration for the
NBC contributed Internet businesses and SNAP, will be allocated based on the
fair values of the assets acquired and the liabilities assumed. Any excess of
cost over the fair value of the net tangible assets acquired of the NBC
contributed Internet businesses and SNAP will be recorded as goodwill and other
intangible assets and will be amortized by charges to operations over their
estimated useful lives in accordance with generally accepted accounting
principles. These allocations will be made based upon valuations and other
studies that have not yet been finalized.
NO APPRAISAL RIGHTS
Delaware law provides appraisal rights to stockholders of Delaware
corporations in certain situations. However, such appraisal rights are not
available to stockholders of a corporation, such as Xoom.com:
- whose securities are listed on a national securities exchange or are
designated as a national market security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD");
and
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- whose stockholders are not required to accept in exchange for their stock
anything other than (A) stock in another corporation listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the NASD, and (B) cash in lieu of
fractional shares.
Due to the following factors, stockholders of Xoom.com will not have
appraisal rights with respect to the Xoom.com merger with Xenon 3:
- Xoom.com common stock is traded on The Nasdaq National Market; and
- Xoom.com stockholders are being offered stock of NBCi, which as a
condition to the closing of the Merger Agreement, will be accepted for
listing on The Nasdaq National Market.
LISTING OF NBCI CLASS A COMMON STOCK
It is a condition to the transactions that the Class A common stock of NBCi
to be issued pursuant to the Merger Agreement be approved for listing on The
Nasdaq National Market. NBCi will seek to obtain such listing on The Nasdaq
National Market prior to consummation of the transactions.
DELISTING AND DEREGISTRATION OF XOOM.COM COMMON STOCK
If the Xoom.com merger is consummated, Xoom.com common stock will be
delisted from The Nasdaq National Market and will be deregistered under the
Securities Exchange Act of 1934.
RESTRICTION ON RESALES OF NBCI COMMON STOCK
The NBCi Class A common stock to be issued under the Merger Agreement will
have been registered under the Securities Act, thereby allowing such shares to
be freely traded without restriction by all former holders of Xoom.com common
stock who are not "affiliates" of Xoom.com at the time of the special meeting
and who do not become "affiliates" of NBCi after the Xoom.com merger. Persons
who may be deemed to be affiliates of NBCi or Xoom.com generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of NBCi
and Xoom.com, as well as significant stockholders.
Shares of NBCi Class A common stock received by those stockholders of
Xoom.com who are deemed to be affiliates of Xoom.com may be resold without
registration under the Securities Act only as permitted by Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. The Merger
Agreement requires Xoom.com to use commercially reasonable efforts to cause its
affiliates to enter into agreements not to make any public sale of any Xoom.com
Class A common stock received in connection with the Xoom.com merger, except in
compliance with the Securities Act and the rules and regulations thereunder.
This document does not cover resales of NBCi Class A common stock received
by any person who may be deemed to be an affiliate of NBCi, SNAP or Xoom.com.
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THE MERGER AGREEMENT AND THE CONTRIBUTION AGREEMENT
THE MERGER AGREEMENT
CONDITIONS TO THE CLOSING OF THE MERGER AGREEMENT TRANSACTIONS
Each party's obligation to effect the transactions contemplated by the
Merger Agreement is subject to the satisfaction or waiver of the following
conditions on or before the closing:
- no injunction, restraining order or other decree will be in effect that
restrains or prohibits the consummation of any of the transactions
contemplated by the Merger Agreement;
- no action taken or statute, rule, regulation or order will make the
consummation of the transactions contemplated by the Merger Agreement
illegal;
- all orders, consents and approvals of any governmental authorities legally
required for the consummation of the transactions contemplated by the
Merger Agreement will have been obtained and the waiting periods
applicable under the HSR Act and other applicable antitrust or merger
control or competition laws or regulations will have expired or have been
terminated, except as would not cause a material adverse effect to
Xoom.com;
- the adoption of the Merger Agreement by holders of a majority of all
outstanding shares of Xoom.com common stock;
- the shares to be issued by NBCi in accordance with the terms of the Merger
Agreement shall have been approved for quotation (subject to notice of
issuance) on the Nasdaq National Market; and
- all of the conditions to the closing of the transactions contemplated by
the Contribution Agreement shall have been satisfied or waived.
In addition, CNET's obligation to consummate the Merger Agreement is further
subject to the satisfaction or waiver of the following additional conditions:
- the representations and warranties of Xoom.com contained in the Merger
Agreement being true and correct in all material respects as of the date
of the Merger Agreement and as of the closing date as though made on and
as of such time, except to the extent that a representation or warranty by
its terms speaks as of a specified date, in which case as of that date,
and CNET shall have received from Xoom.com a certificate to such effect
dated as of the closing date and signed by an officer of Xoom.com;
- Xoom.com having performed in all material respects all obligations
required to be performed by it under the Merger Agreement and CNET having
received from Xoom.com a certificate to such effect dated as of the
closing date and signed by an officer of Xoom.com; and
- each of the registration rights agreement, the CNET voting agreement and
the CNET standstill agreement having been entered into by Xoom.com, its
subsidiaries and NBC.
In addition, the obligation of Xoom.com to consummate the Merger Agreement
is further subject to the satisfaction or waiver of the following additional
conditions:
- the representations and warranties of CNET and SNAP contained in the
Merger Agreement being true and correct in all material respects as of the
date of the Merger Agreement and as of the closing date as though made on
and as of such time, except to the extent that a representation or
warranty by its terms speaks as of a specified date, in which case as of
that date, and Xoom.com shall have received from each of SNAP and CNET a
certificate to such effect with respect to each, dated as of the closing
date and signed by an officer of SNAP and CNET, respectively;
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- each of SNAP and CNET having performed in all material respects all
obligations required to be performed by each of them under the Merger
Agreement, and Xoom.com having received from each of SNAP and CNET a
certificate to such effect with respect to each, dated as of the closing
date and signed by an officer of SNAP and CNET, in each case;
- each of the Registration Rights Agreement, the CNET Voting Agreement and
the CNET standstill agreement having been entered into by CNET; and
- Xoom.com's having received an opinion in form and substance reasonably
satisfactory to it from its counsel as to the effect of the merger for
federal income tax purposes.
TERMINATION
The Merger Agreement may be terminated at any time before the closing of the
Merger Agreement, whether before or after adoption of the Merger Agreement by
Xoom.com stockholders or by NBCi in its capacity as sole stockholder of Xenon 3:
(1) by CNET or Xoom.com by written notice to the other parties if the
transactions contemplated by the Merger Agreement have not been consummated
by December 31, 1999, unless extended by written agreement of the parties
thereto; PROVIDED that this termination right will not be available to a
party who is in material breach or default under the Merger Agreement or
whose failure to perform any of its obligations under the Merger Agreement
has been the cause of or resulted in the failure to consummate the
transactions contemplated by the Merger Agreement by that date;
(2) by CNET or Xoom.com, if any governmental authority makes a final and
unappealable determination not to grant any required consent or approval or
if any final permanent injunction, order, judgment or other decree will have
been issued restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by the Merger Agreement, PROVIDED that this
termination right will not be available to a party who is in material breach
under the Merger Agreement or who has failed to use its reasonable
commercial efforts to avoid the issuance of such order, decree or ruling;
(3) by CNET or Xoom.com, if the Xoom.com stockholders have not adopted
the Merger Agreement at a Xoom.com stockholders meeting; or
(4) by Xoom.com, at any time before the adoption of the Merger Agreement
by Xoom.com stockholders, on five business days written notice, where
Xoom.com receives a BONA FIDE takeover proposal if:
- the board of directors of Xoom.com determines in good faith and after
consultation with a nationally recognized financial advisor that the terms
of the takeover proposal are more favorable to the Xoom.com stockholders
than the transactions contemplated by the Merger Agreement and the
Contribution Agreement, and
- the board of directors of Xoom.com concludes in good faith and based on
the advice of outside legal counsel that termination of the Merger
Agreement is required to comply with its fiduciary duties under applicable
law.
CONDUCT OF BUSINESS PENDING THE CLOSING OF THE MERGER AGREEMENT
TRANSACTIONS--XOOM.COM
Under the Merger Agreement, Xoom.com has agreed that prior to the closing of
the Merger Agreement, except where CNET consents to such action (provided that
if NBC has consented to any
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Xoom.com action under the Contribution Agreement, Xoom.com shall not be required
to get CNET's consent under the Merger Agreement to take the same action):
(1) Xoom.com will, and will cause its subsidiaries to, operate their
businesses only in the usual, regular and ordinary manner, consistent with
past practice and, to the extent consistent with such operation, use its
reasonable efforts to preserve its present business organization intact,
keep available the services of its present employees, preserve its present
business relationships (consistent with past practice) and maintain all
rights, privileges and franchises in the normal conduct of Xoom.com's
businesses and
(2) except as expressly permitted in the Merger Agreement, Xoom.com will
not:
- amend its certificate of incorporation or bylaws;
- issue, purchase or redeem, or declare or pay any dividend with respect to,
any shares of Xoom.com capital stock or any class of securities
convertible into, or any rights, warrants or options to acquire, any of
these securities, other than issuances of Xoom.com common stock upon the
exercise of stock options outstanding on the date of the Merger Agreement
in accordance with its terms and limited issuances of new Xoom.com options
in accordance with the Merger Agreement;
- adopt any stockholders rights plan or take any other action which would
restrict or impede the ability of CNET or its subsidiaries to acquire
shares of Xoom.com stock to the extent permitted by the Merger Agreement;
- acquire any business or any assets (other than inventory and any other
assets acquired solely for use in an existing business in the ordinary
course consistent with past practice) or acquire any minority investment
in any business or entity, except for any acquisitions for consideration
not more than $10,000,000 individually or $25,000,000 for all such
acquisitions;
- dispose of any business or any assets (other than inventory and any other
assets acquired solely for use in an existing business in the ordinary
course consistent with past practice) or dispose of any minority
investment in any business or entity, except for any dispositions having a
fair market value not more than $10,000,000 individually or $25,000,000
for all such dispositions;
- make expenditures other than those in the ordinary course of business and
which do not exceed the amounts in the aggregate in Xoom.com's current
annual budget and operating plan;
- enter into any transaction involving a cash expenditure other than in the
ordinary course of business consistent with past practice;
- enter into any transaction involving the incurrence of indebtedness other
than in the ordinary course of business consistent with past practice;
- enter into any transaction involving the merger, consolidation or sale of
all or substantially all of the assets of Xoom.com;
- file any voluntary petition for bankruptcy or receivership of Xoom.com or
fail to oppose any other person's petition for bankruptcy or action to
appoint a receiver of Xoom.com;
- except as required by applicable law, as provided in the Merger Agreement
or the Contribution Agreement, or required under existing employee benefit
plans, agreements or arrangements as in effect on the date of the Merger
Agreement, (1) increase the compensation or fringe benefits of any present
or former director, officer or employee except for increases, in the
ordinary course of business, in salary or wages of employees who are not
officers, (2) grant any severance or termination pay to any present or
former director, officer or employee except in the ordinary course of
business or (3) enter into or amend or terminate any collective
bargaining, bonus,
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profit sharing, thrift, compensation, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any present or
former director, officer or employee of Xoom.com;
- allow any payables or other obligations to become delinquent, except where
the amount or validity of such payables or obligations is currently being
contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been recorded, or change or
modify the usual, regular and ordinary manner of collecting receivables
from past practice;
- enter into any contract, agreement, joint venture or other commitment that
is not terminable in Xoom.com's sole discretion on or prior to one year
from the date of the Merger Agreement without payment of any termination
fee or penalty; or
- settle any claim, action or proceeding involving money damages over a
total of $50,000 or that could result in any injunction or prohibition on
any part of the business of Xoom.com.
CONDUCT OF BUSINESS PENDING THE CLOSING OF THE MERGER AGREEMENT
TRANSACTIONS--SNAP
Under the Merger Agreement, SNAP has agreed that prior to the effective time
of the consummation of the Merger Agreement, except with the consent of
Xoom.com:
(1) SNAP shall and it shall cause its subsidiary to operate its business
only in the usual, regular and ordinary manner, consistent with past
practice and, to the extent consistent with such operation, use its
reasonable efforts to preserve SNAP's present business organization intact,
keep available the services of its present employees, preserve its present
business relationships and maintain all rights, privileges and franchises in
the normal conduct of SNAP's businesses and
(2) except as permitted in the Merger Agreement, SNAP shall not:
- amend its organizational documents;
- issue, purchase or redeem, or make any distribution with respect to, any
equity interests of SNAP or any class of securities convertible into, or
any rights, warrants or options to acquire, any of these securities, other
than issuances of SNAP units upon the exercise of stock options
outstanding on the date of the Merger Agreement and limited issuances of
new SNAP options in accordance with the Merger Agreement;
- acquire any business or any assets (other than inventory and any other
assets acquired solely for use in an existing business in the ordinary
course consistent with past practice) or acquire any minority investment
in any business or entity, except for any acquisitions for consideration
not more than $10,000,000 individually or $25,000,000 for all such
acquisitions;
- dispose of any business or any assets (other than inventory and any other
assets acquired solely for use in an existing business in the ordinary
course consistent with past practice) or dispose of any minority
investment in any business or entity, except for any dispositions having a
fair market value not more than $10,000,000 individually or $25,000,000
for all such dispositions;
- make expenditures other than those made in the ordinary course of business
and which together with all such expenditures do not exceed the amounts in
the aggregate in SNAP's current annual budget and operating plan;
- enter into any transaction involving a cash expenditure other than in the
ordinary course of business consistent with past practice;
- enter into any transaction involving the incurrence of indebtedness other
than in the ordinary course of business consistent with past practice;
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- file any voluntary petition for bankruptcy or receivership of SNAP or fail
to oppose any other person's petition for bankruptcy or action to appoint
a receiver of SNAP;
- enter into any contract, agreement, joint venture or other commitment that
is not terminable in SNAP's sole discretion on or prior to one year from
the date of the Merger Agreement without payment of any termination fee or
penalty;
- except as required by applicable law, as provided in the Merger Agreement
or the Contribution Agreement or as required under existing employee
benefit plans, agreements or arrangements as in effect on the date of the
Merger Agreement, (1) increase the compensation or fringe benefits of any
employee except for increases, in the ordinary course of business, in
salary or wages of employees who are not officers, (2) grant any severance
or termination pay to any employee except in the ordinary course of
business, (3) hire any new employees or consultants, except in the
ordinary course of business or (4) enter into or amend or terminate any
collective bargaining, bonus, profit sharing, thrift, compensation,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any employee of SNAP;
- allow any payables or other obligations to become delinquent, except where
the amount or validity of such payables or obligations is currently being
contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been recorded, or change or
modify the usual, regular and ordinary manner of collecting receivables
from past practice;
- dispose of or abandon any assets of SNAP that are material, individually
or in the aggregate, to SNAP, except in the ordinary course of business or
transfer any rights of material value of SNAP;
- mortgage, pledge or encumber any material assets of SNAP or waive any
material claims or rights of SNAP;
- acquire or agree to acquire any assets that are material, individually or
in the aggregate, to SNAP, except in the ordinary course of business;
- enter into any transaction involving the merger, consolidation or sale of
all or substantially all of the assets of SNAP; or
- settle any claim, action or proceeding involving money damages over a
total of $50,000 or that could result in any injunction or prohibition on
any part of the business of SNAP.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
relating to, among other things:
- corporate organization and similar corporate matters concerning SNAP, CNET
and Xoom.com;
- authorization, execution, delivery, performance and enforceability of,
conflicts and defaults created by, and required consents, approvals and
authorizations of governmental authorities relating to, the Merger
Agreement and related matters of each of SNAP, CNET, and Xoom.com;
- engagement and payment of fees of brokers, investment bankers, finders and
financial advisors by each of SNAP, CNET and Xoom.com;
- receipt of a fairness opinion by Xoom.com;
- the capital structure of each of SNAP, Xoom.com and NBCi and CNET's status
as an accredited investor;
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- stock options of Xoom.com and SNAP;
- financial information of SNAP and Xoom.com being presented fairly and the
absence of undisclosed liabilities of SNAP and Xoom.com, documents having
been filed by Xoom.com with the Securities and Exchange Commission, the
accuracy of information contained in those documents and the absence of
undisclosed liabilities of Xoom.com;
- the absence of material changes or events concerning SNAP and Xoom.com;
- the validity and enforceability of contracts and other agreements of SNAP
and Xoom.com;
- the absence of legal proceedings relating to SNAP, CNET and Xoom.com;
- the absence of labor controversies of SNAP and Xoom.com;
- intellectual property of SNAP and Xoom.com;
- governmental licenses and permits of SNAP and Xoom.com;
- compliance with applicable laws by each of SNAP and Xoom.com;
- employee benefit matters of SNAP and Xoom.com;
- the absence of certain business practices of SNAP and Xoom.com relating to
the giving of gifts or other benefits to customers, suppliers and
governmental employees;
- filing of tax returns and payment of taxes by each of SNAP and Xoom.com;
- Board of Directors of Xoom.com having taken appropriate action so that
Section 203 of the General Corporation Law of the State of Delaware will
not apply to the transactions contemplated by the Merger Agreement or the
Contribution Agreement;
- Year 2000 compliance of SNAP and Xoom.com; and
- no business activities of NBCi and Xenon 3 being conducted prior to the
closing.
AMENDMENT
The Merger Agreement may not be amended or modified except in a writing
signed by all parties to the Merger Agreement; provided, however, that after the
adoption of the Merger Agreement by the stockholders of Xoom.com, the Merger
Agreement shall only be amended, without the further approval of such
stockholders, as permitted by law.
XOOM.COM AND SNAP STOCK OPTION PLANS
Pursuant to the Merger Agreement, all outstanding Plan Options as well as
all outstanding Non-Plan Options will, upon the closing of the Merger Agreement,
be converted into options to purchase an equal number of shares of NBCi on the
same terms and conditions as were applicable to such Plan Options and Non-Plan
Options prior to such conversion. In addition, each outstanding option to
purchase ownership interests in SNAP will be converted into an option to
purchase a number of shares of NBCi's Class A common stock equal to the number
of shares the optionholder would have received if the optionholder exercised the
option in full immediately prior to the closing of the Contribution Agreement
and contributed the units with CNET in exchange for shares of NBCi's Class A
common stock. The per share exercise price of the NBCi options will equal the
aggregate exercise price of the SNAP options divided by the number of shares of
NBCi Class A common stock subject to the NBCi option.
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PROCEDURES FOR EXCHANGING XOOM.COM STOCK CERTIFICATES
THE EXCHANGE AGENT. Promptly after the effective time, NBCi is required to
deposit with a bank or trust company certificates representing the shares of
NBCi Class A common stock to be exchanged for shares of Xoom.com common stock
and any dividends or distributions to which holders of Xoom.com common stock may
be entitled to receive under the Merger Agreement.
PROCEDURES FOR EXCHANGING STOCK CERTIFICATES. Promptly after the effective
time, NBCi will cause the exchange agent to mail to the holders of record of
Xoom.com stock certificates, (1) a letter of transmittal and (2) instructions on
how to surrender Xoom.com stock certificates in exchange for certificates
representing shares of Class A common stock of NBCi and any dividends or other
distributions that they may be entitled to receive under the Merger Agreement.
HOLDERS OF XOOM.COM COMMON STOCK SHOULD NOT SURRENDER THEIR XOOM.COM STOCK
CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE
AGENT.
Upon surrendering their Xoom.com stock certificates to the exchange agent
for cancellation, together with the letter of transmittal and any other
documents required by the exchange agent, the holders of Xoom.com stock
certificates will be entitled to receive a certificate representing that number
of shares of NBCi Class A common stock which that holder has the right to
receive and any dividends or other distributions to which the holder is
entitled. Until surrendered to the exchange agent, from and after the effective
time, outstanding Xoom.com stock certificates will be deemed to evidence (1)
only the right to receive the number of full shares of NBCi Class A common stock
into which the shares of Xoom.com common stock formerly represented thereby have
been converted and (2) the right to receive any dividends or distributions
payable under the Merger Agreement.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. Until each Xoom.com
stockholder surrenders his or her Xoom.com stock certificate in exchange for
NBCi Class A common stock, that stockholder will not receive any dividends or
other distributions declared or made by NBCi after the effective time of the
Xoom.com merger. However, once that stockholder surrenders his or her Xoom.com
stock certificate to the exchange agent, he or she will receive (1) an NBCi
Class A stock certificate, and (2) cash, without interest, as payment for any
dividends or other distributions previously made by NBCi after the effective
time of the Xoom.com merger.
THE CONTRIBUTION AGREEMENT
CONDITIONS TO THE CLOSING OF THE CONTRIBUTION AGREEMENT TRANSACTIONS
Each party's obligation to effect the transactions contemplated by the
Contribution Agreement is subject to the satisfaction or waiver of the following
conditions on or before the closing:
- no injunction, restraining order or other decree will be in effect that
restrains or prohibits the consummation of any of the transactions
contemplated by the Contribution Agreement;
- no action taken or statute, rule, regulation or order will make the
consummation of the transactions contemplated by the Contribution
Agreement illegal;
- all orders, consents and approvals of any governmental authorities legally
required for the consummation of the transactions contemplated by the
Contribution Agreement will have been obtained and the waiting periods
applicable under the HSR Act and other applicable antitrust or merger
control or competition laws or regulations will have expired or been
terminated, except as would not cause a material adverse effect;
- the adoption of the Merger Agreement by holders of a majority of all
outstanding shares of Xoom.com common stock and the adoption of the
Contribution Agreement by Xoom.com as the sole stockholder of NBCi; and
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- all of the transactions contemplated by the Merger Agreement will have
been completed, as set forth in the Merger Agreement.
In addition, NBC's obligation to consummate the Contribution Agreement is
further subject to the satisfaction or waiver of the following additional
conditions:
- the representations and warranties of Xoom.com contained in the
Contribution Agreement being true and correct in all material respects as
of the date of the Contribution Agreement and as of the closing date as
though made on and as of such time, except to the extent a representation
or warranty by its terms speaks as of a specified date, in which case as
of that date, and NBC's having received from Xoom.com a certificate to
such effect dated as of the closing date and signed by an officer of
Xoom.com;
- Xoom.com having performed in all material respects all obligations
required to be performed by it under the Contribution Agreement and NBC's
having received from Xoom.com a certificate to such effect dated as of the
closing date and signed by an officer of Xoom.com;
- each of the NBC note, the NBCi convertible note, the governance agreement,
the registration rights agreement, the advertising agreement the CNET
voting agreement and the CNET standstill agreement having been entered
into by each of CNET, Xoom.com and NBCi, as applicable; and
- NBC's designees' having been elected or appointed as officers and
directors of NBCi in accordance with the terms of the Contribution
Agreement.
In addition, the obligation of NBCi to consummate the Contribution Agreement
is further subject to the satisfaction or waiver of the following additional
conditions:
- the representations and warranties of NBC contained in the Contribution
Agreement being true and correct in all material respects as of the date
of the Contribution Agreement and as of the closing date as though made on
and as of such time, except to the extent a representation or warranty by
its terms speaks as of a specified date, in which case as of that date,
and NBCi having received from NBC a certificate to such effect dated as of
the closing date and signed by an officer of NBC;
- each of NBC and its subsidiaries having performed in all material respects
all obligations required to be performed by it under the Contribution
Agreement and NBCi's having received from NBC a certificate to such effect
dated as of the closing date and signed by an officer of NBC; and
- each of the NBC note, the NBCi convertible note, the governance agreement,
the registration rights agreement, the license agreement, the advertising
agreement, the CNET voting agreement and the CNET standstill agreement
having been entered into by each of NBC and its subsidiaries, as
applicable.
NO SOLICITATION
The Contribution Agreement provides that, from the date of the Contribution
Agreement until the closing or termination of the Contribution Agreement,
Xoom.com will not:
- solicit, initiate, encourage or knowingly facilitate any transaction
proposal, as defined below, or the submission of any transaction proposal;
- enter into or participate in any discussions or negotiations regarding any
transaction proposal;
- furnish any information to any person relating to any transaction
proposal;
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- prior to obtaining the approval of the Xoom.com stockholders, withdraw or
modify in any manner adverse to NBC (1) its approval or recommendation of
the adoption of the Merger Agreement or (2) its vote in favor of
Xoom.com's adopting the Contribution Agreement, in Xoom.com's capacity as
the sole stockholder of NBCi;
- approve, recommend or propose publicly to approve or recommend any
transaction proposal; or
- agree or enter into any other agreement relating to any transaction
proposal;
PROVIDED, HOWEVER, that at any time before obtaining the approval of the
Xoom.com stockholders, in response to an unsolicited BONA FIDE takeover
proposal, as defined below, Xoom.com may, to the extent that the board of
directors of Xoom.com determines in good faith based on the advice of outside
legal counsel that such action is required to comply with their fiduciary duties
under applicable law:
- furnish information under a confidentiality agreement to the person making
the takeover proposal;
- participate in negotiations regarding the takeover proposal;
- prior to obtaining the approval of the Xoom.com stockholders, withdraw or
modify in any manner adverse to NBC, (1) its approval or recommendation of
the adoption of the Merger Agreement or (2) its vote in favor of
Xoom.com's adopting the Contribution Agreement, in Xoom.com's capacity as
sole stockholder of NBCi;
- approve or recommend, propose publicly to approve or recommend any
transaction proposal; or
- enter into any other agreement relating to any transaction proposal;
except that, at least five business days before taking any action described
in the third, fourth or fifth bullet points above, Xoom.com must notify NBC of
the intention of the board of directors of Xoom.com to take such action and
Xoom.com must terminate the Contribution Agreement as described below under
"--Termination."
Xoom.com will keep NBC fully informed on a current basis of the status and
details of any request for information or any transaction proposal.
The term "transaction proposal" means any inquiry, proposal or offer from
any third party relating to the direct or indirect acquisition or purchase of
20% or more of the assets of Xoom.com and its subsidiaries taken together, 20%
or more of any class of the equity securities of Xoom.com or any of its
subsidiaries (including by tender offer or exchange offer) or any merger,
consolidation, business combination, sale of all or substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving
Xoom.com or any of its subsidiaries, other than the transactions contemplated by
the Contribution Agreement and other than a transaction involving only Xoom.com
and/or its wholly owned subsidiaries.
The term "takeover proposal" means any inquiry, proposal or offer from any
third party relating to the direct or indirect acquisition or purchase of 50% or
more of the assets of Xoom.com and its subsidiaries taken together or 50% or
more of any class of the equity securities of Xoom.com or any of its
subsidiaries (including by tender offer or exchange offer); or a sale or all or
substantially all of the assets of Xoom.com and its subsidiaries; or a merger or
consolidation of Xoom.com which results in the stockholders of Xoom.com
immediately prior to such merger or consolidation owning less than 50% of the
resulting or surviving entity (or its parent).
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TERMINATION
The Contribution Agreement may be terminated at any time before the closing
of the Contribution Agreement:
(1) by mutual written consent of NBC and NBCi;
(2) by NBC or NBCi by written notice to the other parties if the
transactions contemplated by the Contribution Agreement have not been
consummated by December 31, 1999, unless extended by written agreement of
the parties hereto, provided that this termination right will not be
available to a party who is in material breach or default under the
Contribution Agreement or whose failure to perform any of its obligations
under the Contribution Agreement has been the cause of the failure to
complete the transactions contemplated by the Contribution Agreement by that
date;
(3) by NBC or NBCi, if any governmental authority makes a final and
unappealable determination not to grant any required consent or approval or
if any final permanent injunction, order, judgment or other decree will have
been issued restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by the Contribution Agreement, provided
that this termination right will not be available to a party who is in
material breach under the Contribution Agreement or who has failed to use
its reasonable commercial efforts to avoid the issuance of such order,
decree or ruling;
(4) by NBC or NBCi, if the Xoom.com stockholders have not adopted the
Merger Agreement at a Xoom.com stockholders meeting;
(5) by NBC, if the NBCi stockholders have not adopted the Contribution
Agreement;
(6) by NBC, if the Xoom.com board of directors, or any committee of the
Xoom.com board of directors, withdraws or modifies in any manner adverse to
NBC its approval or recommendation of the Contribution Agreement, the Merger
Agreement or any of the contemplated transactions;
(7) by NBC, if the Xoom.com board of directors accepts or recommends a
takeover proposal as described above under "--No Solicitation;"
(8) by Xoom.com or NBCi, at any time before the special meeting, on five
business days written notice, if Xoom.com receives a BONA FIDE takeover
proposal and:
- Xoom.com has complied in all material respects with the provisions of
the Contribution Agreement described above under "--No Solicitation;"
- the board of directors of Xoom.com determines in good faith and after
consultation with a nationally recognized financial advisor that the
terms of the takeover proposal are more favorable to the Xoom.com
stockholders than the transactions contemplated by the Contribution
Agreement; and
- the board of directors of Xoom.com concludes in good faith and based on
the advice of outside legal counsel that termination of the
Contribution Agreement is required to comply with its fiduciary duties
under applicable law.
(9) by NBC, if Xoom.com or NBCi has materially defaulted or breached the
Contribution Agreement and such default or breach (1) cannot be cured or (2)
if it can be cured, is not cured within 30 days after written notice of the
breach is given by NBC;
(10) by NBCi, if NBC has materially defaulted or breached the
Contribution Agreement and such default or breach (1) cannot be cured or (2)
if it can be cured, is not cured within 30 days after written notice of the
breach is given by NBCi; or
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(11) automatically if the Merger Agreement terminates.
TERMINATION FEES
NBC is required to pay NBCi a $475 million termination fee if NBC willfully
fails to close the transactions contemplated by the Contribution Agreement after
all of the conditions to each party's and to NBC's obligations described in
"--Conditions to the Completion of the Contribution" described above have been
satisfied.
CONDUCT OF BUSINESS PENDING THE CLOSING OF THE CONTRIBUTION AGREEMENT
TRANSACTIONS--XOOM.COM
Under the Contribution Agreement, Xoom.com has agreed that prior to the
closing of the Contribution Agreement, except with the consent of NBC:
(1) Xoom.com will, and will cause its subsidiaries to, operate their
businesses only in the usual, regular and ordinary manner, consistent with
past practice and, to the extent consistent with such operation, use its
reasonable efforts to preserve its present business organization intact,
keep available the services of its present employees, preserve its present
business relationships (consistent with past practice) and maintain all
rights, privileges and franchises in the normal conduct of Xoom.com's
businesses; and
(2) except as permitted in the Contribution Agreement, Xoom.com will
not:
- amend its certificate of incorporation or bylaws;
- issue, purchase or redeem, or declare or pay any dividend with respect
to, any shares of Xoom.com capital stock or any class of securities
convertible into, or any rights, warrants or options to acquire, any of
these securities, other than issuances of Xoom.com common stock upon
the exercise of stock options outstanding on the date of the
Contribution Agreement and limited issuances of new Xoom.com options in
accordance with the Contribution Agreement;
- adopt any stockholders rights plan or take any other action which would
restrict or impede the ability of NBC or its subsidiaries to acquire
shares of Xoom.com stock to the extent permitted by the Contribution
Agreement;
- acquire any business or any assets (other than inventory and any other
assets acquired solely for use in an existing business in the ordinary
course consistent with past practice) or acquire any minority
investment in any business or entity, except for any acquisitions for
consideration not more than $10,000,000 individually or $25,000,000 for
all such acquisitions;
- dispose of any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the
ordinary course consistent with past practice) or dispose of any
minority investment in any business or entity, except for any
dispositions having a fair market value not more than $10,000,000
individually or $25,000,000 for all such dispositions;
- make expenditures other than those in the ordinary course of business
and which do not exceed the amounts in the aggregate in Xoom.com's
current annual budget and operating plan;
- enter into any transaction involving a cash expenditure other than in
the ordinary course of business consistent with past practice;
- enter into any transaction involving the incurrence of indebtedness
other than in the ordinary course of business consistent with past
practice;
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- enter into any transaction involving the merger, consolidation or sale
of all or substantially all of the assets of Xoom.com;
- file any voluntary petition for bankruptcy or receivership of Xoom.com
or fail to oppose any other person's petition for bankruptcy or action
to appoint a receiver of Xoom.com;
- except as required by applicable law, as provided in the Merger
Agreement or Contribution Agreement, or required under existing
employee benefit plans, agreements or arrangements as in effect on the
date of the Contribution Agreement, (1) increase the compensation or
fringe benefits of any present or former director, officer or employee
except for increases, in the ordinary course of business, in salary or
wages of employees who are not officers, (2) grant any severance or
termination pay to any present or former director, officer or employee
except in the ordinary course of business or (3) enter into or amend or
terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any present or former director, officer
or employee of Xoom.com or its subsidiaries;
- allow any payables or other obligations to become delinquent, except
where the amount or validity of such payables or obligations is
currently being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been
recorded, or change or modify the usual, regular and ordinary manner of
collecting receivables from past practice;
- enter into any contract, agreement, joint venture or other commitment
that is not terminable in Xoom.com's sole discretion on or prior to one
year from the date or the Contribution Agreement without payment of any
termination fee or penalty;
- settle any claim, action or proceeding involving money damages over a
total of $50,000 or that could result in any injunction or prohibition
on any part of the business of Xoom.com; or
- amend, supplement, modify or terminate the Merger Agreement other than
in accordance with its terms.
CONDUCT OF BUSINESS PENDING THE CLOSING OF THE CONTRIBUTION AGREEMENT
TRANSACTIONS--SNAP
Under the Contribution Agreement, NBC has agreed that prior to the closing
of the Contribution Agreement, except with the consent of Xoom.com:
(1) NBC will use its reasonable efforts to cause SNAP and its subsidiary
to be operated only in the usual, regular and ordinary manner, consistent
with past practice and, to the extent consistent with such operation, use
its reasonable efforts to preserve SNAP's present business organization
intact, keep available the services of its present employees, preserve its
present business relationships and maintain all rights, privileges and
franchises in the normal conduct of SNAP's businesses; and
(2) except as permitted in the Contribution Agreement, NBC will use its
reasonable efforts not to permit SNAP to:
- amend its organizational documents;
- issue, purchase or redeem, or make any distribution with respect to,
any equity interests of SNAP or any class of securities convertible
into, or any rights, warrants or options to acquire, any of these
securities, other than issuances of SNAP units upon the exercise of
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stock options outstanding on the date of the Contribution Agreement and
limited issuances of new SNAP options in accordance with the
Contribution Agreement;
- acquire any business or any assets (other than inventory and any other
assets acquired solely for use in an existing business in the ordinary
course consistent with past practice) or acquire any minority
investment in any business or entity, except for any acquisitions for
consideration not more than $10,000,000 individually or $25,000,000 for
all such acquisitions;
- dispose of any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the
ordinary course consistent with past practice) or dispose of any
minority investment in any business or entity, except for any
dispositions having a fair market value not more than $10,000,000
individually or $25,000,000 for all such dispositions;
- make expenditures other than those made in the ordinary course of
business and which do not exceed the amounts in the aggregate in SNAP's
current annual budget and operating plan;
- enter into any transaction involving a cash expenditure other than in
the ordinary course of business consistent with past practice;
- enter into any transaction involving the incurrence of indebtedness
other than in the ordinary course of business consistent with past
practice;
- file any voluntary petition for bankruptcy or receivership of SNAP or
fail to oppose any other person's petition for bankruptcy or action to
appoint a receiver of SNAP;
- enter into any contract, agreement, joint venture or other commitment
that is not terminable in SNAP's sole discretion on or prior to one
year from the date hereof without payment of any termination fee or
penalty;
- except as required by applicable law, as provided in the Merger
Agreement or Contribution Agreement, or required under existing
employee benefit plans, agreements or arrangements as in effect on the
date of the Contribution Agreement, (1) increase the compensation or
fringe benefits of any employee except for increases, in the ordinary
course of business, in salary or wages of employees who are not
officers, (2) grant any severance or termination pay to any employee
except in the ordinary course of business, (3) hire any new employees
or consultants, except in the ordinary course of business or (4) enter
into or amend or terminate any collective bargaining, bonus, profit
sharing, thrift, compensation, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
employee of SNAP;
- allow any payables or other obligations to become delinquent, except
where the amount or validity of such payables or obligations is
currently being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been
recorded, or change or modify the usual, regular and ordinary manner of
collecting receivables from past practice;
- dispose of or abandon any assets of SNAP that are material,
individually or in the aggregate, to SNAP, except in the ordinary
course of business, or transfer any rights of material value of SNAP;
- or mortgage, pledge or encumber any material assets of SNAP, or waive
any material claims or rights of SNAP;
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- acquire or agree to acquire any assets that are material, individually
or in the aggregate, to SNAP, except in the ordinary course of
business;
- enter into any transaction involving the merger, consolidation or sale
of all or substantially all of the assets of SNAP; or
- settle any claim, action or proceeding involving money damages over a
total of $50,000 or that could result in any injunction or prohibition
on any part of the business of SNAP.
CONDUCT OF BUSINESS PENDING THE CLOSING OF THE CONTRIBUTION AGREEMENT
TRANSACTIONS--MULTIMEDIA BUSINESSES
Under the Contribution Agreement, NBC has agreed that prior to the closing
of the Contribution Agreement, except with the consent of Xoom.com:
(1) NBC will, and will cause its subsidiaries to, operate the NBC
contributed Internet businesses (excluding CNBC.com LLC) only in the usual,
regular and ordinary manner, consistent with past practice and, to the
extent consistent with such operation, use its reasonable efforts to keep
their respective organizations intact, keep available the services of their
present employees, preserve their present business relationships and
maintain all rights, privileges and franchises in the normal conduct of
their businesses;
(2) NBC shall not cause or permit Neon Media Corporation to conduct any
business or take other actions other than as contemplated by the
Contribution Agreement; and
(3) except as permitted in the Contribution Agreement, NBC will not:
- except as required by applicable law, or required under existing
employee benefit plans, agreements or arrangements as in effect on the
date of the Contribution Agreement, (1) increase the compensation or
fringe benefits of any transferred employee except for increases, in
the ordinary course of business, in salary or wages of transferred
employees who are not officers, (2) grant any severance or termination
pay to any transferred employee except in the ordinary course of
business or (3) enter into or amend or terminate any collective
bargaining, bonus, profit sharing, thrift, compensation, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any transferred employee (transferred employees are those
NBC employees who are primarily employed to work on the Internet
businesses contributed by NBC (excluding CNBC.com LLC));
- transfer, dispose of or abandon any of the material assets of the
Internet businesses contributed by NBC (excluding CNBC.com LLC), except
in the ordinary course of business consistent with past practice;
- mortgage, pledge or encumber any material assets of the Internet
businesses contributed by NBC, or waive any material claims or rights
of the Internet businesses contributed by NBC (in each case, excluding
CNBC.com LLC); or
- transfer any rights of material value included in the Internet
businesses contributed by NBC (excluding CNBC.com LLC).
REPRESENTATIONS AND WARRANTIES
The Contribution Agreement contains customary representations and warranties
relating to, among other things:
- corporate organization and similar corporate matters concerning NBC, SNAP,
Xoom.com, NBCi and GE Investments Subsidiary;
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- authorization, execution, delivery, performance and enforceability of,
conflicts and defaults created by, and required consents, approvals and
authorizations of governmental authorities relating to, the Contribution
Agreement and related matters of each of NBC, SNAP, Xoom.com, NBCi and GE
Investments Subsidiary;
- required stockholder vote of Xoom.com and NBCi;
- required board approval of Xoom.com;
- engagement and payment of fees of brokers, investment bankers, finders and
financial advisors by each of NBC, SNAP, Xoom.com and NBCi;
- receipt of fairness opinions by Xoom.com;
- the capital structure of each of SNAP, Xoom.com and NBCi;
- stock options of Xoom.com and SNAP;
- financial information of SNAP and Xoom.com being presented fairly and the
absence of undisclosed liabilities of SNAP and Xoom.com, the financial
information with respect to the Internet businesses contributed by NBC
being true and correct in all material respects, documents having been
filed by Xoom.com with the Securities and Exchange Commission, the
accuracy of information contained in those documents and the absence of
undisclosed liabilities of Xoom.com;
- the absence of material changes or events concerning the Internet
businesses contributed by NBC, SNAP, Xoom.com and NBCi;
- the validity and enforceability of contracts and other agreements of NBC,
SNAP, Xoom.com, GE Investments Subsidiary and NBCi;
- the absence of legal proceedings relating to the Internet businesses
contributed by NBC, SNAP, Xoom.com and NBCi;
- the absence of labor controversies of the Internet businesses contributed
by NBC, SNAP, Xoom.com and NBCi;
- intellectual property of the Internet businesses contributed by NBC, SNAP,
Xoom.com and NBCi;
- governmental licenses and permits of the Internet businesses contributed
by NBC, SNAP, Xoom.com and NBCi;
- compliance with applicable laws by each of the Internet businesses
contributed by NBC, SNAP, Xoom.com and NBCi;
- employee benefit matters of NBC, SNAP, Xoom.com and NBCi;
- the absence of certain business practices of the Internet businesses
contributed by NBC, SNAP, Xoom.com and NBCi relating to the giving of
gifts or other benefits to customers, suppliers and governmental
employees;
- filing of tax returns and payment of taxes by each of the Internet
businesses contributed by NBC, SNAP, Xoom.com and NBCi;
- Board of Directors of Xoom.com having taken appropriate action for Section
203 of the General Corporation Law of the State of Delaware not to apply
to the transactions contemplated by the Contribution Agreement;
- Year 2000 compliance; and
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- interim operations and structure of Neon Media Corporation, NBCi and Xenon
3.
AMENDMENT
The Contribution Agreement provides that the Contribution Agreement may not
be amended or modified except in a writing signed by all the parties to that
agreement.
AMENDMENTS TO NBCI'S CERTIFICATE OF INCORPORATION
At the closing of the Contribution Agreement, the certificate of
incorporation of NBCi will contain, among other things, provisions which grant
NBC the right to elect directors of NBCi voting separately as a class and which
acknowledge the right of NBC to engage in activities which may be competitive
with NBCi. A description of the certificate of incorporation is set forth below
under "Comparison of Capital Stock."
AMENDMENTS TO NBCI'S BY-LAWS
At the closing of the Contribution Agreement, the bylaws of NBCi will be as
described below under "Comparison of Capital Stock".
XOOM.COM STOCK OPTION PLANS
As contemplated by the Contribution Agreement, the Option Plan administrator
will use its discretion to modify the accelerated vesting provision of the Plan
Options to provide that they will vest and become exercisable with respect to
all shares which would have otherwise vested within 12 months following the
closing of the Contribution Agreement. In addition, pursuant to their terms, all
Non-Plan Options will vest and become exercisable with respect to 75% of the
then unvested portion of such Non-Plan Options and any portion of the Non-Plan
Options which remain unexercised as of the closing of the Contribution Agreement
will terminate. Notwithstanding the foregoing, any options to acquire Xoom.com
shares granted after May 9, 1999 will not vest on an accelerated basis.
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DESCRIPTION OF RELATED AGREEMENTS
THE STOCK OPTION AGREEMENT
The stock option agreement grants NBC the unconditional, irrevocable option
to purchase up to 3,415,249 fully paid and nonassessable shares of Xoom.com's
common stock at a price of $73.50 per share; provided that in no event will the
number of shares of common stock for which the option is exercised exceed 19.9%
of the issued and outstanding shares of Xoom.com common stock at the time of
exercise without giving effect to any shares subject or issued pursuant to the
option. The number of shares that may be received upon the exercise of the
option and the option price are subject to adjustments. In the event that any
additional shares of Xoom.com common stock are issued or otherwise become
outstanding after the date of this agreement, the number of shares of common
stock subject to the option shall be increased to equal 19.9% of the Xoom.com
common stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the option. NBC required Xoom.com to grant this
stock option as a condition to entering into the Contribution Agreement. The
stock option agreement is attached to this prospectus/proxy statement as
Appendix B-1, and you are urged to read it in its entirety.
The option is intended to increase the likelihood that the merger will be
completed. Certain aspects of the stock option agreement may have the effect of
discouraging persons who might now or at any time be interested in acquiring all
or a significant interest in Xoom.com or its assets before the closing of the
Contribution Agreement.
NBC and/or any person that becomes a holder of all or part of the option in
accordance with the stock option agreement may exercise the option, in whole or
in part, and from time to time following an "initial triggering event" (as
described below) that occurs prior to the termination of the option from an
"exercise termination event" (as described below).
The option will terminate and fail to become exercisable upon the occurrence
of each of the following exercise termination events:
- the closing of the transactions contemplated by the Contribution
Agreement;
- termination of the Contribution Agreement if the termination occurs prior
to an initial triggering event, except a termination by NBC as a result of
a material default or breach by Xoom.com or NBCi where the default or
breach is not curable, or if curable, is not cured within 30 days after
written notice of such breach is given by NBC; and
- 12 months after termination of the Contribution Agreement (or a later
period for certain rights (1) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the
expiration of all statutory waiting periods; (2) during any period for
which an injunction or similar legal prohibition on exercise shall be in
effect; or (3) to the extent necessary to avoid liability under section
16(b) of the Exchange Act by reason of such exercise) if the termination
follows or is concurrent with an initial triggering event or is a
termination by NBC as a result of a material default or breach by Xoom.com
or NBCi where the default or breach is not curable, or if curable, is not
cured within 30 days after written notice of such breach is given by NBC.
The "initial triggering event" is any of the following events or
transactions (other than the transactions contemplated by the Merger Agreement)
occurring after the date of the stock option agreement:
- Xoom.com, without NBC's prior written consent, enters into an agreement to
engage in an "acquisition transaction" (as defined below) with any person
other than NBC or any of its subsidiaries or affiliates, or the Board of
Directors of Xoom.com recommends that its stockholders approve or accept
any acquisition transaction (other than the transactions contemplated by
the Contribution Agreement);
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- Xoom.com, without NBC's prior written consent, authorizes, recommends,
proposes or publicly announces its intention to authorize, recommend or
propose, to engage in an acquisition transaction with any person other
than NBC or its subsidiaries or affiliates, or the Board of Directors of
Xoom.com fails to recommend or publicly withdraws or modifies, or publicly
announces its intention to withdraw or modify, in any manner adverse to
NBC, its recommendation that the stockholders of Xoom.com adopt the Merger
Agreement in anticipation of engaging in an acquisition transaction;
- stockholders of Xoom.com vote and fail to adopt the Merger Agreement, or
vote and fail to instruct Xoom.com, to vote to adopt the Contribution
Agreement, at a meeting held for that purpose or at any adjournment or
postponement thereof, or such meeting shall not have been held in
violation of the Contribution Agreement or shall have been canceled prior
to termination of the Contribution Agreement if, prior to such meeting,
any person (other than NBC or its subsidiaries or affiliates) makes a bona
fide proposal to Xoom.com or its stockholders by public announcement or
written communication that is or becomes the subject of public disclosure
to engage in an acquisition transaction;
- any person other than NBC or its subsidiaries or affiliates or any
subsidiary of Xoom.com acting in a fiduciary capacity in the ordinary
course of its business acquires beneficial ownership or the right to
acquire beneficial ownership of, or commences (as defined in Rule 14d-2
under the Exchange Act) or files a registration statement with respect to
a tender offer or exchange offer to purchase any shares of Xoom.com common
stock where consummation results in a beneficial ownership of 20% or more
of the then outstanding shares of Xoom.com common stock;
- any group (as defined in Section 13(d)(3) of the Exchange Act), other than
a group that NBC or its subsidiaries or affiliates are a member, is formed
that beneficially owns 20% or more of the shares of Xoom.com common stock
then outstanding; or
- after a third party has made a bona fide proposal to Xoom.com or its
stockholders by public announcement or written communication that is or
becomes the subject of public disclosure to engage in an acquisition
transaction, Xoom.com (1) terminates the Contribution Agreement, prior to
receipt of the Xoom.com stockholder approval, on five business days
written notice, after receiving an unsolicited bona fide takeover proposal
(as described under "--Contribution Agreement") from a third party on
terms which the Board of Directors of Xoom.com determines in good faith
and after consultation with a financial advisor of nationally recognized
reputation to be more favorable to the Xoom.com stockholders than the
transactions contemplated by the Contribution Agreement and the Board of
Directors concludes in good faith based on the advice of outside legal
counsel that termination of the Contribution Agreement is required to
comply with its fiduciary duties under applicable law or (2) shall have
breached any covenant or obligation contained in the Merger Agreement or
the Contribution Agreement and such breach would entitle a party other
than Xoom.com to terminate such and the breach is not cured prior to the
date on which the holder of the option gives written notice to Xoom.com of
its exercise of the option.
For the purposes of the stock option agreement, an "acquisition transaction"
is any:
- direct or indirect acquisition or purchase of 20% or more of the assets of
Xoom.com and its subsidiaries, taken as a whole, or 20% or more of any
class of equity securities of Xoom.com or any of its subsidiaries, or
- any tender offer or exchange offer (including by Xoom.com or its
subsidiaries) that if consummated would result in any person having
beneficial ownership (as defined in Section 13(d) of the Exchange Act) of
20% or more of any class of equity securities of Xoom.com or any of its
subsidiaries, or
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- any merger, consolidation, business combination, sale of all or
substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving Xoom.com or any of its subsidiaries;
provided that any merger, consolidation, sale or similar transaction
involving only Xoom.com and one or more of its wholly owned subsidiaries
or involving only any two or more of its wholly owned subsidiaries, will
not be deemed to be an acquisition transaction if the transaction is not
entered into in violation of the terms of the Contribution Agreement
A "subsequent triggering event" is either of the following events or
transactions:
- the acquisition by any person or by a group of beneficial ownership of 50%
or more of the then outstanding Xoom.com common stock; or
- where Xoom.com, without NBC's prior written consent, enters into an
agreement relating to a takeover proposal with any person other than NBC
or its subsidiaries or affiliates, or the board of directors of Xoom.com
accepts or approves or recommends that the stockholders of Xoom.com accept
or approve a takeover proposal.
The stock option agreement also grants certain rights to NBC with respect
to:
- the registration of shares of Xoom.com common stock represented by the
option;
- NBC's ability to require that Xoom.com repurchase the option or option
shares, under certain specified circumstances and if a subsequent trigging
event has occurred; and
- NBC's ability to require that Xoom.com issue a substitution option and
repurchase the substitution option, under certain specified circumstances.
In addition, NBC's total profit following exercise of the option will not
exceed $56,707,803.
In a separate agreement with CNET, NBC has agreed that it will assign to
CNET 20% of its option under the stock option agreement.
THE REGISTRATION RIGHTS AGREEMENT
NBC, CNET, NBCi, Xoom.com and Mr. Kitze will enter into the registration
rights agreement.
SHELF REGISTRATION
NBCi has no obligation to file a registration statement with the SEC with
respect to an offering to be made on a continuous basis covering the shares of
NBCi common stock issued pursuant to the Merger Agreements until at least the
18-month anniversary of the date of the registration rights agreement.
DEMAND REGISTRATION RIGHTS
At any time and from time to time during which there is no effective shelf
registration statement, NBC and its transferees, CNET and its transferees or Mr.
Kitze may make a written demand that NBCi effect the registration under the
Securities Act of all or part of the shares of NBCi common stock issued to each
pursuant to the Merger Agreements, provided that (i) NBC and its transferees
shall have only four such demand rights (one of which can be made on Form S-1),
CNET and its transferees shall have only three such demand rights (two of which
can be made on Form S-1), and Mr. Kitze shall have only three such demand rights
(one of which can be made on Form S-1), (ii) the market value of the shares to
be included in the demand registration on Form S-1 must be at least $25,000,000,
(iii) no demand can be made prior to six months after the effective date of the
immediately preceding demand registration, (iv) in any underwritten offering,
shares may be excluded by the underwriters based on market conditions and
marketing factors, and (v) CNET will be entitled to exercise its initial demand
right before other parties for a period of 60 days following consummation of the
Merger Agreement. Priority of inclusion in demand registrations is given first
to the party
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initiating the demand registration; then pro rata among the other parties based
on the amount of shares requested to be included.
PIGGYBACK REGISTRATION
If, at any time, NBCi proposes to register any of its equity securities,
whether for its own account or for the account of a third party, each party may
request that NBCi include any or all of their shares in the registration.
Priority of inclusion in piggyback registrations is given first to the party
initiating the registration, then pro rata among the other parties based on the
amount of shares requested to be included. Securities of a different class than
those included by NBCi may be excluded at the reasonable discretion of the
underwriters.
CERTAIN OTHER PROVISIONS
The Registration Rights Agreement contains customary terms and conditions
for transactions of this type including provisions that NBCi (i) will covenant
to become S-3 eligible, (ii) will file any requested registration statement as
soon as practicable but in no event later than 45 days after the notice of
demand or 90 days in the case of the initial demand registration statement, and
(iii) will use its best efforts to cause the effectiveness of any registration
statement filed on behalf of the parties.
THE VOTING AGREEMENT
Concurrently with the execution of the Merger Agreement and the Contribution
Agreement, Xoom.com, Flying Disc Investments Limited Partnership ("Flying
Disc"), Chris Kitze, NBC and CNET entered into the voting agreement. On the
record date, the number of shares beneficially owned by Flying Disc and Chris
Kitze was 3,350,680. This includes 3,350,680 shares of common stock held by
Flying Disc, of which Mr. Kitze is a general partner. Mr. Kitze may be deemed to
be the beneficial owner of the shares held by Flying Disc.
At every meeting of the stockholders of Xoom.com called with respect to any
of the following, and at every adjournment of any of these meetings, and on
every action or approval by written consent of the stockholders of Xoom.com with
respect to any of the following, Flying Disc and Mr. Kitze have agreed, among
other things, to vote (or cause to be voted) their shares of Xoom.com common
stock:
- in favor of the adoption of the Merger Agreements and the approval of the
terms (with such modifications as the parties may make (except for
modifications that would adversely affect Flying Disc and Mr. Kitze)) and
each of the other transactions contemplated by the Merger Agreements; and
- against any of the following (or any agreement to enter into or effect any
of the following):
- prior to the effective time of the consummation of the transactions
contemplated by the Contribution Agreement, any takeover proposal,
transaction proposal, and
- any amendment of Xoom.com's certificate of incorporation or bylaws or
other proposal, action or transaction involving Xoom.com or any of its
subsidiaries which amendment or other action or transaction would
reasonably be expected to prevent or materially impede or delay the
consummation of the transactions contemplated by the Merger Agreements.
Under the terms of the voting agreement, Flying Disc and Mr. Kitze,
severally and not jointly, have granted an irrevocable proxy and power of
attorney to NBC and the President and Treasurer of NBC and the Secretary of NBC,
in their respective capacities as officers of NBC, and any individual who shall
hereafter succeed to any such office of NBC, and any other designee of NBC, to
vote or act by written consent with respect to the shares they hold. Flying Disc
and Mr. Kitze will take further action or execute other instruments as may be
necessary to effectuate the intent of the proxy and revoke any proxy previously
granted with respect to the shares they hold. The proxies granted pursuant
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to the voting agreement shall be automatically revoked without further action on
the part of either Flying Disc, Mr. Kitze, NBC or CNET upon the termination of
the voting agreement.
Flying Disc and Mr. Kitze have agreed not to, and shall not authorize or
permit any of his or its affiliates, partners, investment bankers, attorneys,
agents, other advisors or representatives to directly or indirectly solicit,
knowingly encourage (including by way of providing confidential information or
data) or have any discussion or negotiate with any person or entity (other than
NBC, CNET or any of their respective affiliates) concerning any proposal by such
person or entity with respect to Xoom.com that constitutes or could reasonably
be expected to lead to any inquiry, proposal or offer from any person relating
to a takeover proposal or a transaction proposal.
Flying Disc and Mr. Kitze have also agreed not to:
- offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of (including by gift), or enter into any contract,
option or other arrangement or understanding with respect to or consent to
the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of any or all of their shares, unless the
transferee or pledgee of the shares agrees in writing in a form reasonably
satisfactory to NBC (with a copy furnished to NBC and CNET) to be bound by
all of the provision of the voting agreement;
- grant any proxies or powers of attorney, deposit any of their shares into
a voting trust or enter into a voting agreement with respect to their
shares; or
- take any action that would prevent or disable the Flying Disc or Mr. Kitze
from performing its or his obligations under the voting agreement.
The voting agreement shall be terminated upon the first to occur of:
- the consummation of the transactions contemplated by the Contribution
Agreement; and
- the termination of the Contribution Agreement.
THE BRAND INTEGRATION AND LICENSE AGREEMENT
In connection with the transactions, NBC and NBC Multimedia entered into a
license agreement (which will be assigned to NBCi upon consummation of the
transactions). Among other rights, the agreement grants NBC Multimedia a
non-exclusive license to use the trademark "NBC", the NBC multicolor logo and
the NBC soundmark in connection with NBC.com, VideoSeeker.com and NBC-IN.com and
the portal, community and e-commerce services of NBCi. In addition, the license
agreement also provides NBC Multimedia with certain license rights to the URLs
for NBC.com, NBC-IN.com and VideoSeeker.com, although NBC retains title to such
URLs.
The license agreement also grants the licensee an exclusive license to use,
reproduce and display on the NBCi Internet sites short excerpts from certain NBC
television programs and to create interactive programs therefrom, in accordance
with the terms of the license.
The license agreement further provides for certain quality controls to
ensure that standards are met in the use of the licensed marks. Among other
things, NBC retains control over the creative and editorial aspects of NBC.com
and the licensee covenants to maintain and assist in maintaining the quality of
the contributed sites and related services and to submit for approval to NBC
proposed uses of the licensed marks.
The license agreement contains certain limited non-competition provisions
restricting both parties from competing with each other in some areas of
business. For example:
- both parties are limited in their ability to authorize co-branding of any
of the their respective marks by a competitor of the other;
- neither party can invest in, purchase or loan money to a competitor of the
other; and
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- NBC grants certain first look rights in relation to acquisitions of
certain non-primary competitors of NBCi and related businesses.
The provisions of the license agreement are subject to general exceptions
concerning, among other things, investments, market research and transactions in
the ordinary course of business. In particular, NBC is expressly permitted to
own, control and operate the businesses connected with CNBC.com and MSNBC.com.
The license agreement will continue in perpetuity unless terminated on
grounds set forth in the license agreement, including:
- by either party, if NBC or its subsidiaries no longer own at least 5% of
NBCi;
- by either party, in the event of, among other things, the insolvency,
bankruptcy or receivership of the other party;
- by NBC, in the event of a change of control of NBCi;
- material breach of the license agreement; or
- repeated breaches of substantive quality controls in the license
agreement.
THE CONVERTIBLE NOTES
In connection with the transactions, NBCi will issue two zero coupon
convertible notes due 2006. The convertible note to be issued to NBC Multimedia
will have a principal at maturity of $39,477,852 and will be convertible by NBC
Multimedia into 471,031 shares of Class B common stock of NBCi at any time after
the first anniversary of closing. The other convertible note to be purchased by
an affiliate of NBC, will have a principal at maturity of $447,416,845 and will
be convertible into 5,338,357 shares of Class B common stock of NBCi at any time
after the first anniversary of closing. The imputed original issue discount
interest rate on both of the convertible notes is 4%.
If both convertible notes are converted in full at a time when NBC and its
affiliates own 35% or more of the outstanding shares of NBCi common stock, the
holders of the Class B common stock would have the right to elect seven of the
13 members of the NBCi board of directors and the holders of the Class A common
stock would have the right to elect the remaining six directors.
Each of the notes matures on the seventh anniversary of the closing of the
transactions and contains customary anti-dilution provisions. In the event of a
change of control, merger or similar transactions, each note is redeemable at
the purchaser's option at a price equal to the aggregate principal amount or
equivalent value in shares. NBCi may redeem each of the notes with cash, stock
or both after the fifth anniversary of the closing on at least 30 days notice
and at a redemption price equal to the principal at maturity of such note less
any original issue discount not accrued on the redemption date.
ADVERTISING AGREEMENT
At closing, NBC and NBCi will enter into an advertising agreement pursuant
to which NBCi will purchase 15 and 30-second advertising spots valued at $380
million over a four-year period. The advertisements will generally be broadcast
nationally and be subject to NBC Television Network's standard terms and
conditions for such advertising. The advertising agreement may be terminated by
NBC in the event of a change of control of NBCi, a bankruptcy event with respect
to NBCi or a material breach by NBCi not cured within 30 days.
At the end of the four-year advertising period, NBC and NBCi have agreed to
negotiate in good faith concerning the purchase of an additional $500 million of
advertising on NBC during the following six years, at a price and subject to
terms and conditions to be mutually agreed upon by NBC and NBCi.
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GOVERNANCE AGREEMENT
NBC and NBCi will enter into an agreement with respect to the governance of
NBCi. Pursuant to the governance agreement, NBC will enter into a standstill
agreement with NBCi under which it will agree not to transfer or acquire
additional shares of NBCi's capital stock except in accordance with the terms
and conditions of the governance agreement. The governance agreement will also
contain provisions with respect to NBC's rights to purchase additional shares of
Class B common stock in the event NBCi issues shares of capital stock and the
right to designate nominees to the board of directors of NBCi. See page 205.
CNET VOTING AND RIGHT OF FIRST OFFER AGREEMENT
In connection with the transactions, CNET will enter into an agreement with
NBC under which CNET will agree to vote its shares of the NBCi Class A common
stock in the same manner as NBC with respect to certain change in control
transactions (including a merger, business combination and sale of substantially
all assets or equity securities of NBCi) and certain other material transactions
(including any sale of more than 5% of the total assets or equity securities of
NBCi) involving NBCi. In addition, NBC has a right of first offer to purchase
shares of Class A common stock owned by CNET upon CNET's notice to NBC
describing the material terms of the proposed sale or transfer to a third party
other than NBC.
CNET STANDSTILL AGREEMENT
CNET will enter into a standstill agreement with NBCi under which it will
agree not to transfer or acquire additional shares of NBCi's capital stock
except in accordance with the terms and conditions of the standstill agreement.
CNET CARRIAGE AGREEMENT
In connection with the transactions, CNET, SNAP and NBC amended the carriage
agreement between CNET, SNAP and NBC. As amended, the carriage agreement
provides that certain headlines, summaries and other information services from
CNET Internet sites receive preferred placement on SNAP Internet sites, through,
among other things, preferred links and certain restrictions on the sale by SNAP
of positions on its Internet sites to third party content providers. The amended
carriage agreement also provides that for an exclusivity period of one year from
May 9, 1999, with the exception of certain news or editorial content, SNAP will
be the preferred general Internet directory service on any CNET site. The
amended carriage agreement contains limited non-compete provisions restricting
CNET from entering into certain relationships with competitors of SNAP,
including certain co-branding agreements, investments and acquisitions, and
restricting CNET from operating its Search.com Web site in competition with SNAP
until May 9, 2000.
CNBC CARRIAGE AGREEMENT
In connection with the transactions, CNBC and NBCi intend to enter into a
carriage agreement pursuant to which CNBC will provide certain services and some
content from CNBC.com to NBCi.
EQUITY INVESTMENT AND RESTRUCTURINGS
On June 11, 1999, Xoom.com and certain of its subsidiaries and NBC and
certain of its affiliates entered into the stock purchase agreement, the Amended
and Restated Agreement and Plan of Contribution, Investment and Merger, which
amended and restated the Agreement and Plan of Contribution, Investment and
Merger entered into on May 9, 1999 and a registration rights agreement with
respect to the common stock purchased pursuant to the stock purchase agreement.
The registration rights terminate upon consummation of the Contribution
Agreement. Pursuant to the stock purchase agreement, subject to regulatory and
other conditions, NBC will acquire 960,028 shares of
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common stock of Xoom.com, for $57.29 per share in cash. NBC also agreed to vote
all of the shares it acquires pursuant to the stock purchase agreement in favor
of the adoption of the Merger Agreement and in favor of the approval of
Xoom.com's adoption of the Contribution Agreement. The Amended and Restated
Agreement and Plan of Contribution, Investment and Merger resulted in the
following changes from the original Agreement and Plan of Contribution,
Investment and Merger: (A) the issuance of 12,173,111 shares of Class B common
stock as compared to 13,764,726 shares of Class B common stock to NBC Multimedia
pursuant to the merger of Neon Media Corporation with NBCi; (B) the purchase by
an affiliate of NBC of a $486,894,758 NBCi convertible note for certain assets
and the assignment of the NBC note to NBCi, as compared to the assignment of the
NBC note and a cash payment of $30 million to NBCi; and (C) the conversion of a
$486,894,758 NBCi convertible note into 5,809,388 shares of NBCi Class B common
stock, as compared to 4,651,493 shares of NBCi Class B common stock.
The closing of the transactions contemplated by the stock purchase agreement
is independent of the Contribution Agreement and is subject to customary closing
conditions for a cash purchase of stock.
On July 8, 1999, Xoom.com and certain of its subsidiaries and NBC and
certain of its affiliates entered into the Contribution Agreement, which amended
and restated the Amended and Restated Agreement and Plan of Contribution,
Investment and Merger. The Contribution Agreement resulted in the following
changes from the Amended and Restated Agreement and Plan of Contribution,
Investment and Merger: (A) the purchase by an affiliate of NBC of a $447,416,845
NBCi convertible note convertible into 5,338,357 shares of NBCi Class B common
stock for the assignment of the $340 million NBC note, as compared to the
purchase of a $486,894,758 NBCi convertible note convertible into 5,809,388
shares of NBCi Class B common stock and the transfer of the business related to
VideoSeeker.com as part of the consideration for the purchase of the
$486,894,758 NBCi convertible note; and (B) the transfer by NBC Multimedia of a
$39,477,852 NBCi convertible note convertible into 471,031 shares of NBCi Class
B common stock in exchange for the business related to VideoSeeker.com.
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NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(STEP ONE)
The following unaudited pro forma condensed combined financial information
for NBCi gives effect to the step one transaction among Xoom.com, NBC, CNET and
SNAP. The step one transaction includes NBCi's acquisition of CNET's ownership
interest in SNAP. In addition, the unaudited pro forma condensed combined
financial information for NBCi reflects NBC's earlier purchase of 960,028 shares
of Xoom.com's common stock for $55 million, which was separate and apart from
step one. The pro forma historical financial information has been derived from
the historical financial statements of Xoom.com and the Xoom.com pro forma
financial statements, and should be read in conjunction with those financial
statements and the related notes which begin on page F-2 of this proxy
statement/prospectus.
The step one unaudited pro forma condensed combined balance sheet assumes
that step one of the transaction took place as of March 31, 1999.
The step one unaudited pro forma condensed combined statements of operations
gives effect to Xoom.com's pro forma historical statements of operations and the
equity loss attributable to SNAP for the year ended December 31, 1998 and for
the three months ended March 31, 1999 as if step one had occurred at the
beginning of each period presented.
The step one unaudited pro forma condensed combined information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the
transaction had been consummated at the dates indicated, nor is it necessarily
indicative of future operating results or financial position of the combined
companies and should not be construed as representative of these amounts for any
future dates or periods.
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NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(STEP ONE)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------------------------
XOOM.COM NBC
PRO FORMA INVESTMENT INVESTMENT IN PRO FORMA
(1) IN SNAP (2) XOOM.COM (3) (STEP 1)
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 43,619 $ -- $ 55,000 $ 98,619
Short-term investments.................................... 9,290 -- -- 9,290
Accounts receivable, net.................................. 1,719 -- -- 1,719
Inventories............................................... 282 -- -- 282
Other current assets...................................... 635 -- -- 635
------------ ----------- ------------- -----------
Total current assets........................................ 55,545 -- 55,000 110,545
Fixed assets, net......................................... 3,345 -- -- 3,345
Goodwill, net............................................. 54,728 -- -- 54,728
Intangible assets, net.................................... 10,015 -- -- 10,015
Investments............................................... 1,004 338,852 -- 339,856
Prepaid royalties and licenses............................ 74 -- -- 74
Other assets.............................................. 769 -- -- 769
------------ ----------- ------------- -----------
Total assets................................................ $ 125,480 $ 338,852 $ 55,000 $ 519,332
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,946 $ -- $ -- $ 2,946
Accrued compensation and related expenses................. 902 -- -- 902
Other accrued liabilities................................. 1,264 -- -- 1,264
Deferred revenue.......................................... 423 -- -- 423
Notes payable............................................. 1,252 -- -- 1,252
Capital lease obligations................................. 39 -- -- 39
Contingency accrual....................................... 1,000 -- -- 1,000
------------ ----------- ------------- -----------
Total current liabilities................................... 7,826 -- -- 7,826
Notes payable, less current portion......................... 370 -- -- 370
Capital lease obligations, less current portion............. 105 -- -- 105
Stockholders' equity:
Common stock.............................................. 138,164 338,852 55,000 532,016
Notes receivable from stockholders........................ (10) -- -- (10)
Deferred compensation..................................... (674) -- -- (674)
Accumulated deficit....................................... (20,301) -- (20,301)
------------ ----------- ------------- -----------
Total stockholders' equity.................................. 117,179 338,852 55,000 511,031
------------ ----------- ------------- -----------
Total liabilities and stockholders' equity.................. $ 125,480 $ 338,852 $ 55,000 $ 519,332
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
</TABLE>
- ------------------------------
(1) Represents pro forma combination of Xoom.com, MightyMail Networks, Inc. and
Paralogic Software Corporation (beginning on page F-81 in this proxy
statement/prospectus).
(2) Issuance of 7,245,063 shares of NBCi's Class A common stock with a fair
value of $338,852,000 (or approximately 39% of SNAP). The fair value per
share of NBCi's common stock issued is based on the average closing price of
Xoom.com's common stock on June 14, 1999 (the announcement date of the stock
purchase agreement between Xoom.com and NBC) and the three days prior and
subsequent to such date.
(3) To reflect the issuance of 960,028 shares of Xoom.com common stock to NBC at
a price of $57.29 per share, as agreed to in the stock purchase agreement
dated June 11, 1999.
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NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(STEP ONE)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------
XOOM.COM
PRO FORMA INVESTMENT PRO FORMA
(1) IN SNAP(2) (STEP 1)
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue.............................................. $ 8,912 $ -- $ 8,912
Cost of net revenue...................................... 3,812 -- 3,812
----------- ----------- -----------
Gross profit............................................. 5,100 -- 5,100
Operating expenses:
Operating and development.............................. 4,048 -- 4,048
Sales and marketing.................................... 2,964 -- 2,964
General and administrative............................. 3,698 -- 3,698
Purchased in-process research and development.......... 790 -- 790
Amortization of deferred compensation.................. 1,598 -- 1,598
Amortization of goodwill and other intangible assets... 16,595 -- 16,595
----------- ----------- -----------
Total operating expenses................................. 29,693 -- 29,693
----------- ----------- -----------
Loss from operations..................................... (24,593) -- (24,593)
Other income (expense):
Interest income........................................ 188 -- 188
Interest expense....................................... (142) -- (142)
Interest expense related to warrant.................... (1,494) -- (1,494)
----------- ----------- -----------
Loss before loss on investment recorded using the equity
method................................................. (26,041) -- (26,041)
Equity share in losses of SNAP........................... -- (64,632) (64,632)
----------- ----------- -----------
Net loss................................................. $ (26,041) $ (64,632) $ (90,673)
----------- ----------- -----------
----------- ----------- -----------
Basic and diluted net loss per share..................... (3) $ (5.28)
-----------
-----------
Shares used in per share calculation--basic and
diluted................................................ (3) 17,169
-----------
-----------
</TABLE>
- ------------------------
(1) Represents pro forma combination of Xoom.com, MightyMail Networks, Inc. and
Paralogic Software Corporation (beginning on page F-81 of this proxy
statement/prospectus).
(2) To record NBCi's share in losses of SNAP for the twelve months ended
December 31, 1998, as determined using the equity method of accounting, and
to record amortization of the excess of the cost of the investment in SNAP
over the amount of underlying equity in net assets, over a period of seven
years.
(3) Basic and diluted net loss per share has been adjusted to reflect the
issuance of 960,028 shares of NBCi Class A common stock to NBC and 7,245,063
shares of NBCi Class A common stock primarily to CNET, as if the shares of
Class A common stock had been outstanding for the entire period.
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NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(STEP ONE)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1999
-------------------------------------
XOOM.COM
PRO FORMA INVESTMENT PRO FORMA
(1) IN SNAP(2) (STEP 1)
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue.............................................. $ 4,495 $ -- $ 4,495
Cost of net revenue...................................... 2,049 -- 2,049
----------- ----------- -----------
Gross profit............................................. 2,446 -- 2,446
Operating expenses:
Operating and development.............................. 1,705 -- 1,705
Sales and marketing.................................... 2,500 -- 2,500
General and administrative............................. 1,851 -- 1,851
Amortization of deferred compensation.................. 1,201 -- 1,201
Amortization of goodwill and other intangible assets... 4,550 -- 4,550
----------- ----------- -----------
Total operating expenses................................. 11,807 -- 11,807
----------- ----------- -----------
Loss from operations..................................... (9,361) -- (9,361)
Other income (expense):
Interest income........................................ 642 -- 642
Interest expense....................................... (32) -- (32)
----------- ----------- -----------
Loss before loss on investment recorded using the equity
method................................................. (8,751) -- (8,751)
Equity share in losses of SNAP........................... -- (21,730) (21,730)
----------- ----------- -----------
Net loss................................................. $ (8,751) $ (21,730) $ (30,481)
----------- ----------- -----------
----------- ----------- -----------
Basic and diluted net loss per share..................... (3) $ (1.32)
-----------
-----------
Shares used in per share calculation--basic and
diluted................................................ (3) 23,101
-----------
-----------
</TABLE>
- ------------------------
(1) Represents pro forma combination of Xoom.com, MightyMail Networks Inc., and
Paralogic Software Corporation (beginning on page F-81 of this proxy
statement/prospectus).
(2) To record NBCi's share of losses in SNAP for the three months ended March
31, 1999, as determined using the equity method of accounting, and to record
amortization of the excess of the cost of the investment in SNAP over the
amount of underlying equity in net assets, over a period of seven years.
(3) Basic and diluted net loss per share has been adjusted to reflect the
issuance of 960,028 shares of NBCi Class A common stock to NBC and 7,245,063
shares of NBCi Class A common stock primarily to CNET, as if the shares of
Class A common stock had been outstanding for the entire period.
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NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(STEP TWO)
The following unaudited pro forma condensed combined financial information
for NBCi gives effect to the step two transaction among Xoom.com, NBC and the
NBC Multimedia Division, which consists of NBC.com, NBC-IN.com and VideoSeeker,
CNET and SNAP. Step two reflects the combination of the following:
- Xoom.com including its acquisition of CNET's ownership interest in SNAP
(see step one pro forma, beginning on page 96 of this proxy
statement/prospectus);
- NBC.com;
- NBC-IN.com;
- VideoSeeker;
- NBC's ownership interest in SNAP; and
- 10% equity interest in CNBC.com LLC.
The total purchase costs of step two of the transactions have been calculated
with Xoom.com treated as the accounting acquiror and give effect to the purchase
of the NBC Multimedia Division and to NBCi's acquisition of NBC's ownership
interest in SNAP. The historical financial information has been derived from the
respective historical and/or pro forma financial statements of Xoom.com, SNAP,
and the NBC Multimedia Division, and should be read in conjunction with those
financial statements and the related notes which begin on pages F-2, F-30 and
F-46 in this proxy statement/prospectus, respectively.
The step two unaudited pro forma condensed combined balance sheet as of
March 31, 1999 has been prepared assuming step two of the transaction took place
as of that date and includes the allocation of the total purchase consideration
to the fair values of the assets and liabilities of SNAP and the NBC Multimedia
Division, based on a preliminary valuation.
The step two unaudited pro forma condensed combined statements of operations
combine NBCi's step one pro forma historical statements of operations and the
historical statements of operations of SNAP and the NBC Multimedia Division for
the year ended December 31, 1998 and the three months ended March 31, 1999, and
give effect to the transaction, including the amortization of goodwill and other
intangible assets, as if it had occurred at the beginning of each period
presented.
The total estimated purchase costs of the step two transaction have been
allocated on a preliminary basis to assets and liabilities based on management's
estimates of their fair value, with the excess costs over the net assets
acquired allocated to goodwill. This allocation is subject to change pending a
final analysis of the total purchase costs and the fair value of the assets
acquired and liabilities assumed. The impact of these changes could be material.
The step two unaudited pro forma condensed combined information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the
transaction had been consummated at the dates indicated, nor is it necessarily
indicative of future operating results or financial position of the combined
companies and should not be construed as representative of these amounts for any
future dates or periods.
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NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(STEP TWO)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
PRO FORMA MULTIMEDIA COMBINATION PRO FORMA
("STEP 1")(1) SNAP DIVISION COMBINED ADJUSTMENTS ("STEP 2")
---------------- -------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 98,619 $ 587 $ -- $99,206 $ (20,500)(G) $ 78,706
Short-term investments..................... 9,290 -- -- 9,290 -- 9,290
Accounts receivable, net................... 1,719 3,166 1,797 6,682 -- 6,682
Note receivable from NBC................... -- -- -- -- 78,288(E) 78,288
Inventories................................ 282 -- -- 282 -- 282
Other current assets....................... 635 805 -- 1,440 -- 1,440
-------- -------- ---------- -------- -------------- -------------
Total current assets......................... 110,545 4,558 1,797 116,900 57,788 174,688
Fixed assets, net.......................... 3,345 6,313 587 10,245 -- 10,245
Goodwill, net.............................. 54,728 -- -- 54,728 1,416,043(B) 1,470,771
Intangible assets, net..................... 10,015 -- -- 10,015 100,830(B) 110,845
Investments................................ 339,856 2,031 -- 341,887 (258,852)(B)(D) 83,035
Note receivable from NBC, less current
portion.................................. -- -- -- -- 261,712(E) 261,712
Prepaid royalties and licenses............. 74 -- -- 74 -- 74
Other assets............................... 769 40 -- 809 -- 809
-------- -------- ---------- -------- -------------- -------------
Total assets................................. $519,332 $ 12,942 $ 2,384 $534,658 $1,577,521 $2,112,179
-------- -------- ---------- -------- -------------- -------------
-------- -------- ---------- -------- -------------- -------------
LIABILITIES, STOCKHOLDERS' EQUITY,
MEMBERS' EQUITY AND PARENT
COMPANY'S INVESTMENT AND NET ADVANCES
Current liabilities:
Accounts payable........................... $ 2,946 $ 4,175 $ 1,976 $ 9,097 $ 23,500(B) $ 32,597
Accrued compensation and related
expenses................................. 902 3,313 295 4,510 -- 4,510
Other accrued liabilities.................. 1,264 -- -- 1,264 -- 1,264
Deferred revenue........................... 423 915 16,932 18,270 (17,390)(F) 880
Notes payable.............................. 1,252 -- -- 1,252 -- 1,252
Due to CNET................................ -- 833 -- 833 -- 833
Due to NBC................................. -- 1,192 -- 1,192 -- 1,192
Capital lease obligations.................. 39 -- -- 39 -- 39
Contingency accrual........................ 1,000 -- -- 1,000 -- 1,000
-------- -------- ---------- -------- -------------- -------------
Total current liabilities.................... 7,826 10,428 19,203 37,457 6,110 43,567
Convertible notes payable to NBC and its
affiliates, less current portion........... -- -- -- -- 370,000(A) 370,000
Other notes payable, less current portion.... 370 -- -- 370 -- 370
Capital lease obligations, less current
portion.................................... 105 -- -- 105 -- 105
Line of credit............................... -- 20,500 -- 20,500 (20,500)(G) --
Stockholders' equity, Members' equity and
Parent Company's investment and net advances:
Common stock............................... 532,016 -- -- 532,016 1,187,106(A)(B) 1,719,122
Members' equity............................ -- 65,918 -- 65,918 (65,918)(C) --
Parent Company's investment and net
advances................................. -- -- (16,819) (16,819 ) 16,819(C) --
Notes receivable from stockholders......... (10) -- -- (10 ) -- (10)
Deferred compensation...................... (674) (4,873) -- (5,547 ) 4,873(C) (674)
Accumulated deficit........................ (20,301) (79,031) -- (99,332 ) 79,031(C) (20,301)
-------- -------- ---------- -------- -------------- -------------
Total stockholders' equity................... 511,031 (17,986) (16,819) 476,226 1,221,911 1,698,137
-------- -------- ---------- -------- -------------- -------------
Total liabilities and stockholders' equity... $519,332 $ 12,942 $ 2,384 $534,658 $1,577,521 $2,112,179
-------- -------- ---------- -------- -------------- -------------
-------- -------- ---------- -------- -------------- -------------
</TABLE>
- ------------------------------
(1) Represents NBCi pro forma condensed combined balance sheet resulting from
step one (beginning on page 96 of this proxy statement/prospectus).
101
<PAGE>
NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(STEP TWO)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
PRO FORMA MULTIMEDIA COMBINATION PRO FORMA
("STEP 1")(1) SNAP DIVISION COMBINED ADJUSTMENTS ("STEP 2")
---------------- -------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................. $ 8,912 $ 7,317 $11,615 $ 27,844 $ -- $ 27,844
Cost of net revenue.......................... 3,812 7,626 5,249 16,687 -- 16,687
-------- -------- ---------- --------- ------------- -------------
Gross profit................................. 5,100 (309) 6,366 11,157 -- 11,157
Operating expenses:
Operating and development.................. 4,048 6,263 938 11,249 -- 11,249
Sales and marketing........................ 2,964 12,482 3,989 19,435 -- 19,435
General and administrative................. 3,698 5,939 4,489 14,126 -- 14,126
Purchased in-process research and
development.............................. 790 -- -- 790 -- 790
Amortization of deferred compensation...... 1,598 160 -- 1,758 -- 1,758
Amortization of goodwill and other
intangible assets........................ 16,595 -- -- 16,595 223,772(H) 240,367
Promotion and advertising provided by
NBC...................................... -- 14,060 -- 14,060 -- 14,060
-------- -------- ---------- --------- ------------- -------------
Total operating expenses..................... 29,693 38,904 9,416 78,013 223,772 301,785
-------- -------- ---------- --------- ------------- -------------
Loss from operations......................... (24,593) (39,213) (3,050) (66,856) (223,772) (290,628)
Other income (expense):
Interest income............................ 188 -- -- 188 16,792(I) 16,980
Interest expense........................... (142) -- -- (142) (14,800)(J) (14,942)
Interest expense related to warrant........ (1,494) -- -- (1,494) -- (1,494)
Other expense.............................. -- (75) -- (75) -- (75)
-------- -------- ---------- --------- ------------- -------------
Loss before loss on investment recorded using
the equity method.......................... (26,041) (39,288) (3,050) (68,379) (221,780) (290,159)
Equity share in losses of SNAP............... (64,632) -- -- (64,632) 64,632(K) --
-------- -------- ---------- --------- ------------- -------------
Net loss..................................... $(90,673) $(39,288) $(3,050) $(133,011) $(157,148) $ (290,159)
-------- -------- ---------- --------- ------------- -------------
-------- -------- ---------- --------- ------------- -------------
Basic and diluted net loss per share......... (L) $ (7.12)
-------------
-------------
Shares used in per share calculation--basic
and diluted................................ (L) 40,760
-------------
-------------
</TABLE>
- ------------------------
(1) Represents the NBCi pro forma condensed combined statement of operations
resulting from step one (beginning on page 96 of this proxy
statement/prospectus).
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<PAGE>
NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(STEP TWO)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
PRO FORMA MULTIMEDIA COMBINATION PRO FORMA
("STEP 1")(1) SNAP DIVISION COMBINED ADJUSTMENTS ("STEP 2")
---------------- -------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................. $ 4,495 $ 5,361 $3,482 $ 13,338 $ -- $ 13,338
Cost of net revenue.......................... 2,049 2,701 1,365 6,115 -- 6,115
-------- -------- ---------- -------- ------------- -------------
Gross profit................................. 2,446 2,660 2,117 7,223 -- 7,223
Operating expenses:
Operating and development.................. 1,705 2,195 163 4,063 -- 4,063
Sales and marketing........................ 2,500 7,497 323 10,320 -- 10,320
General and administrative................. 1,851 2,705 793 5,349 -- 5,349
Purchased in-process research and
development.............................. -- -- -- -- -- --
Amortization of deferred compensation...... 1,201 519 -- 1,720 -- 1,720
Amortization of goodwill and other
intangible assets........................ 4,550 -- -- 4,550 55,943(H) 60,493
Promotion and advertising provided by
NBC...................................... -- 13,656 -- 13,656 -- 13,656
-------- -------- ---------- -------- ------------- -------------
Total operating expenses..................... 11,807 26,572 1,279 39,658 55,943 95,601
-------- -------- ---------- -------- ------------- -------------
(Loss) income from operations................ (9,361) (23,912) 838 (32,435) (55,943) (88,378)
Other income (expense):
Interest income............................ 642 -- -- 642 4,590(I) 5,232
Interest expense........................... (32) -- -- (32) (3,700)(J) (3,732)
Other expense.............................. -- (263) -- (263) -- (263)
-------- -------- ---------- -------- ------------- -------------
Loss before loss on investment recorded using
the equity method.......................... (8,751) (24,175) 838 (32,088) (55,053) (87,141)
Equity share in losses of SNAP............... (21,730) -- -- (21,730) 21,730(K) --
-------- -------- ---------- -------- ------------- -------------
Net (loss) income............................ $(30,481) $(24,175) $ 838 $(53,818) $(33,323) $ (87,141)
-------- -------- ---------- -------- ------------- -------------
-------- -------- ---------- -------- ------------- -------------
Basic and diluted net loss per share......... (L) $ (1.87)
-------------
-------------
Shares used in per share calculation--basic
and diluted................................ (L) 46,692
-------------
-------------
</TABLE>
- ------------------------
(1) Represents the NBCi pro forma condensed combined statement of operations
resulting from step one (beginning on page 96 of this proxy
statement/prospectus).
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<PAGE>
NBCI
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(STEP TWO)
The total estimated purchase cost of the transaction assumes step two is
completed and has been allocated on a preliminary basis to assets and
liabilities based on management's estimate of their fair values, with Xoom.com
treated as the accounting acquiror. The excess of the purchase cost over the
fair value of the net assets acquired has been allocated to goodwill. This
allocation is subject to change pending the completion of the final analysis of
the fair value of the assets acquired and liabilities assumed. The impact of
these changes could be material.
The adjustments to the unaudited pro forma condensed combined balance sheet
as of March 31, 1999, have been calculated as if step two occurred on March 31,
1999 and are as follows:
(A) To reflect the acquisition by NBCi of NBC.com, NBC-IN.com and VideoSeeker,
NBC Multimedia's ownership interest in SNAP, and a 10% ownership interest in
CNBC.com for an estimated purchase price of $1,473,336,000. The purchase
consideration consists of the following:
- Issuance of 23,590,680 shares of NBCi Class B common stock with a fair
value of $1,103,336,000. The fair value per share of Xoom.com's common
stock is being used to determine the purchase price, as Xoom.com is
treated as the accounting acquiror. Therefore, the fair value per share of
NBCi's common stock issued is based on the average closing price of
Xoom.com's common stock on June 14, 1999 (the date of the announcement of
the stock purchase agreement between Xoom.com and NBC) and the three days
prior and subsequent to such date.
- Issuance of (i) a zero coupon convertible note of NBCi with a principal at
maturity of $39,447,852; and (ii) a zero coupon convertible note of NBCi
with a principal at maturity of $447,416,845. The convertible notes
payable have been recorded at their present value of approximately
$370,000,000, with an effective interest rate of 4% per annum.
(B)(1)To reflect the additional estimated purchase price of $107,270,000 related
to (i) the assumption of SNAP's options and (ii) estimated merger costs.
This additional estimated purchase price of $107,270,000 consists of the
following:
- Assumption of options to purchase 2,029,193 shares of NBCi's Class A
common stock with a fair value of $83,770,000. The fair value of the
options assumed is based on the Black-Scholes model using the following
assumptions:
- Fair market value of the underlying shares is based on the average
closing price of Xoom.com's common stock on June 14, 1999 and the three
days prior and subsequent to such date
- Expected life of 4 years
- Expected volatility of 1.0
- Risk free interest rate of 5.9%
- Expected dividend rate of 0%
- Estimated related merger costs consisting of the following:
- Investment banking fees $17,250,000
- Attorney, accountant and printing fees 4,250,000
- Filing and registration costs 400,000
- Merger-related restructuring costs __1,600,000
$23,500,000
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<PAGE>
NBCI
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(STEP TWO)
(2) To allocate the total purchase price of step one ($338,852,000, as
described on page 97) and step two ($1,580,606,000) of the transactions,
which together aggregate $1,919,458,000, and recognize the excess
purchase cost of $1,596,873,000 over the fair value of the net assets
acquired, which has been recorded as goodwill and other intangible assets
as follows:
- Purchased technology $ 15,200,000
- Investment in CNBC.com LLC 80,000,000
- Affiliate and other contracts 33,500,000
- Acquired workforce 1,530,000
- License agreement to NBC brand name and
content, and other brand name 50,600,000
- Goodwill _1,416,043,000
$1,596,873,000
(C) To reflect the elimination of (i) the historical members' equity
accounts of SNAP and (ii) the historical parent company investment and
net advances of the NBC Multimedia Division.
(D) To eliminate NBCi's equity ownership in SNAP acquired in step one.
(E) To record the assignment to NBCi of a note of NBC in the amount of $340
million ($78,288,000 current portion and $261,712,000 long-term portion),
with a term of 4 years and an interest rate of 5.4% per annum.
(F) To eliminate the gross margin associated with the SNAP deferred revenue
and to eliminate the deferred revenue of the NBC Multimedia Division.
(G) To record the repayment by NBCi of SNAP's revolving line of credit.
The adjustments to the unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1998 and the three months ended March
31, 1999, assume that step two occurred as of January 1, 1998 and January 1,
1999, respectively and are as follows:
(H) To reflect the amortization of goodwill and other intangible assets
resulting from the transactions. The goodwill and other intangible assets
are being amortized over periods ranging from 3 to 7 years.
(I) To reflect interest income in connection with the note receivable
assigned to NBCi by NBC.
(J) To reflect interest charges in connection with the two zero coupon
convertible notes issued to NBC and its affiliates using an effective
interest rate of 4% per annum.
(K) To eliminate NBCi's share in equity losses of SNAP, as determined using
the equity method of accounting, and to eliminate the amortization of the
excess of the cost of the investment in SNAP over the amount of
underlying equity in SNAP's net assets.
(L) Basic and diluted net loss per share has been adjusted to reflect both
step one and step two of the transaction including the issuance of (i)
960,028 shares of NBCi Class A common stock to NBC; (ii) 7,245,063 shares
of Class A common stock to CNET and an unaffiliated third party; and
(iii) 23,590,680 shares of NBCi's Class B common stock to an affiliate of
NBC, as if the shares had been outstanding for the entire period. The
effect of stock options assumed in the transactions has not been
included, as its inclusion would be anti-dilutive.
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<PAGE>
NBCI'S BUSINESS
OVERVIEW
NBCi seeks to combine the NBC media brand with the complementary portal and
navigation services of SNAP and community and direct e-commerce services of
Xoom.com to deliver a comprehensive and compelling Internet experience to a
broad audience. NBCi, through its primary consumer brand, SNAP, will represent
one of the first publicly traded Internet companies combining portal, content
and community services in a strategic relationship with a major television
network. NBCi believes its core services will provide the foundation for a next
generation media company capable of reaching users through a variety of media
including television and the Internet. NBCi believes that its services will
create an environment that attracts users and encourages repeat visits, long
term usage and customer loyalty. As a result, NBCi expects to have a large
consumer audience as well as an extensive consumer data base that will be
attractive to advertisers and e-commerce partners seeking to deliver targeted
messages and offers. By providing these services, NBCi intends to become a
critical meeting point for consumers, vendors and advertisers.
Upon the closing of the transactions, NBCi's Internet properties and
services will include:
- SNAP, the owner of Snap.com, the fastest growing major Internet portal
from July 1998 to May 1999 according to Media Metrix, providing a
comprehensive set of information, navigation and content aggregation
services;
- Xoom.com, the owner of one of the fastest growing community sites from
July 1998 to May 1999, according to Media Metrix, providing direct
e-commerce and community services which will be integrated within the
Snap.com Web site;
- NBC.com, NBC-IN.com and VideoSeeker, providing access to a broad base of
differentiated users, unique content and opportunities for cross-selling
through the full integration of these properties throughout the Snap.com
Web site;
- a 10% ownership interest in CNBC.com LLC, which operates CNBC.com, a newly
launched Web site providing comprehensive financial information and
analytic tools on the Web; and
- a multi-year television network advertising agreement with NBC.
NBCi also plans to deliver value-added services to users such as content
designed specifically for broadband users, enhanced e-mail and private community
services. The following chart indicates the services to be offered by NBCi
immediately following the closing of the proposed transactions:
<TABLE>
<CAPTION>
NBC MULTIMEDIA
SERVICES NBCI XOOM.COM SNAP.COM ASSETS
- --------------------------------------------- ----- --------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Search Engine................................ - -
Directory.................................... - -
Broadband Services........................... - - -
News and Media Content....................... - - -
User-created Content......................... - -
Web Community Services....................... - -
E-Commerce Engine............................ - -
Chat Rooms................................... - - - -
Online Greeting Cards........................ - -
Personalization.............................. - -
Web-based E-mail............................. - - -
Digital Storage.............................. - -
Financial News............................... - - -
</TABLE>
106
<PAGE>
For so long as the brand integration and license agreement remains in
effect, NBCi will be the exclusive vehicle for NBC to operate a general portal
service, a broad-based community service or a broad-based e-commerce service.
The NBC relationship will offer NBCi opportunities to access content as well as
to leverage NBC's extensive and highly developed advertising relationships to
create unique ways for advertisers to reach consumers, by capitalizing on
synergies between on-air and online media. NBCi will also purchase $380 million
in advertising on the NBC television network over four years. NBCi will use the
advertising to market the integrated Snap.com Web site to Internet users,
especially those with little or no experience on the Web.
On a pro forma basis based on data available from Media Metrix, if the
transaction had been completed on April 30, 1999, NBCi would have been the sixth
ranked site on the Internet in May 1999 based on the number of unique users, and
the fastest growing major Internet company from July 1998 to May 1999. In May
1999 the Internet properties to be combined in forming NBCi had an aggregate
Internet reach of approximately 31%, with over 19 million unique visitors, based
on data available from Media Metrix. The total number of registered users of the
Internet properties to be combined in forming NBCi totaled over 10 million as of
June 30, 1999, up from 2 million on June 30, 1998. For the last 30 days the
average number of users registering per day exceeded 35,000 for the combined Web
sites. In May 1999 the Internet properties to be combined in forming NBCi had
over 600 million page views.
NBCi expects to have a diversified revenue stream. Had the transactions
forming NBCi been completed on January 1, 1999, NBCi would have had $13.3
million of total revenue in the first quarter of 1999, 69% of which would have
been advertising revenue, 20% of which would have been e-commerce revenue and
11% of which would have been other revenue, primarily relating to outsourcing
agreements. Pro forma first quarter revenue represented an increase of 276% over
the first quarter of 1998. There can be no assurance that NBCi can continue to
generate revenue from equity instruments received, which would have comprised
$3.3 million, or 25%, of total revenue in the first quarter of 1999.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET
The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business electronically.
International Data Corporation estimates that the number of Web users will grow
from approximately 97 million worldwide in 1998 to approximately 320 million
worldwide by the end of 2002. This growth is expected to be driven by the large
and growing number of personal computers installed in homes and offices, the
decreasing cost of personal computers, easier, faster and cheaper access to the
Internet, improvements in network infrastructure, the proliferation of Internet
content and the increasing familiarity with and acceptance of the Internet by
businesses and consumers. The Internet possesses a number of unique
characteristics that differentiate it from traditional media: a lack of
geographic or temporal limitations; real-time access to dynamic and interactive
content; and instantaneous communication with a single individual or with groups
of individuals. As a result of these characteristics, Web usage is expected to
continue to grow rapidly. The proliferation of users, combined with the Web's
reach and lower cost of marketing, has created a powerful channel for conducting
commerce, marketing and advertising.
In the first few years of the development of the Internet, general portals
attracted the largest base of users as a result of the provision of search and
directory services. Over the last few years community sites have been among the
fastest growing Internet sites in numbers of users, as a result of the growing
attraction of user generated content and the desire for communication among
like-minded individuals. The nature and form of content being provided on the
Internet has also expanded dramatically as a result of an increase in the
participation of media and commerce companies conducting their businesses
107
<PAGE>
on the Internet. In addition, traditional media companies have used their access
to content and promotion to create significant Web properties.
More recently, as the number of Internet users has increased, highly focused
consumer and business sites, known as vertical hubs, have developed to attract
audiences with a particular interest. At the same time, the vertical hubs have
begun to offer their users an expanding portfolio of information and resources
and Internet portals have continued to offer increasingly deeper content on
vertical channels provided on their Web sites. Both vertical hubs and portals
are also creating their own e-commerce businesses, primarily in partnership with
e-commerce sites. These trends are expected to continue in the future.
RECENT CONSOLIDATION OF INTERNET COMPANIES
Over the last twelve months, Internet companies, including portals,
community and e-commerce sites, have experienced significant consolidation as a
result of increased competition for users, the desire to rapidly offer a
comprehensive set of Web services that may be more quickly acquired than built,
the need to maintain growth rates in user levels, and competition for
advertising and e-commerce sales revenue.
By providing a complete set of content, information and services, Internet
portals and communities attract a larger audience, providing a more attractive
platform for companies advertising on the Internet or attempting to develop
e-commerce businesses. Traditional media and cable companies have participated
in this consolidation using their access to content, promotion and distribution
to create significant Web properties. The cost savings realized as a result of
the elimination of overlapping services allows Internet companies to more fully
take advantage of economies of scale in their businesses. In addition, the
development of higher bandwidth distribution methods is beginning to result in
significant changes in the dynamics of business on the Internet. The development
of vertical Internet hubs focused on particular areas of interest such as
women's interests or financial topics has also accelerated the pace of
consolidation as companies seek to offer a full portfolio of products.
The ability to compete effectively in the current environment requires
Internet companies to offer a sufficiently high level of service to attract a
strong user base, the ability to access capital and the leverage to establish
partnerships with companies offering complementary services.
THE NBCI APPROACH
NBCi seeks to combine the NBC media brand with the complementary portal and
navigation services of Snap.com and the community and direct e-commerce services
of Xoom.com to deliver a comprehensive and compelling Internet experience to a
broad audience. NBCi intends to capitalize on the demonstrated ability to grow
and the leading edge technologies of the NBCi businesses, in conjunction with
NBC's strong appeal to television viewers and consequent attractiveness to
advertisers, to expand the audience for its primary consumer brand, SNAP, as
well as the other NBCi brands. By offering attractive free services and content
and maintaining a large and diverse range of active communities, NBCi will
encourage visitors to its Web sites to become members of NBCi. With information
provided by its members when registering with the NBCi services, NBCi intends to
use its proprietary consumer database to offer advertisers and e-commerce
partners the ability to deliver highly targeted messages and product offers to
NBCi's members.
STRENGTH OF THE NBC BRAND
NBCi will seek to expand its audience by capitalizing on the broad reach and
appeal of the NBC television network brand. With its ability to coordinate
access to the NBC television viewing audience, NBCi intends to increase its
appeal to advertisers by offering a unique opportunity to promote sales across
multiple media. According to data furnished by Nielsen Media Research, for the
television
108
<PAGE>
season that ended in May 1999, NBC was the most-watched television network
during primetime (8:00 p.m. to 11:00 p.m. Monday through Saturday and 7:00 p.m.
to 11:00 p.m. Sunday) among adults age 18 to 54 in the United States. Throughout
the 1998-1999 television season, an average of more than 156 million people
watched NBC television programming at least once each week, representing more
than 60% of the population of the United States. In addition, the results of a
study commissioned by NBC from Nielsen Media Research in 1999 indicate that
during the February sweeps period among viewers with access to the Internet, NBC
primetime programming attracted 25% more viewers than the primetime programming
of its nearest network competitor, and 65% more viewers than the primetime
programming of the top ten cable networks combined.
Since NBC acquired an equity interest in SNAP in June 1998, NBC has promoted
SNAP on the NBC television network, including sponsorship and cross-promotional
initiatives. NBCi will promote SNAP, its primary consumer brand, as well as
other NBCi brands through the purchase of $380 million in advertising on the NBC
television network over a four-year term. NBCi and NBC have agreed to negotiate
in good faith concerning the purchase of an additional $500 million in
advertising over the following six years. NBCi believes that this promotional
capability will position NBCi well to compete against the leading diversified
Internet service providers.
USER APPEAL AND ATTRACTIVENESS TO ADVERTISERS
NBCi will offer users a single unified Web site providing search, community,
communication and e-commerce services, together with access to rich and varied
content through the vast resources of the Internet. NBCi intends to offer a
sufficient breadth of information and services to attract a large and growing
base of users, while providing sufficient depth through its multiple
relationships with content providers to maintain the interest of users seeking
very specific content. In addition, by integrating a complete set of community
services throughout the NBCi Web sites, users will be able to establish
relationships with individuals having similar interests, express themselves
through user-generated content and attract other users to the NBCi Web sites.
NBCi also plans to deliver value-added services to users by enabling them to
register as members to receive targeted offers of products and services via
e-mail. By expanding its varied offerings to users in a seamless Internet
experience, NBCi seeks to increase its user base.
NBCi believes the ability to integrate multiple online product offerings
with deep vertical content, in combination with its ability to coordinate
network advertising with NBC, will provide cross-selling and promotional
opportunities that will enable NBCi to distinguish itself from its competitors
in the Internet industry. As competition for new Internet users intensifies and
the cost of establishing a recognized brand grows, NBCi expects that its ability
to coordinate cross-promotional opportunities with NBC will enhance the
attractiveness of NBCi to advertisers, by offering exposure to a broad
population of Internet users. In addition, NBCi will have the ability to target
messages using demographic data and information on buying habits compiled by
NBCi through its systems for tracking users and managing advertising inventory.
NBCi can use this information to assist advertisers to intelligently target and
monitor the effectiveness of their presentations, as well as to offer relevant
e-commerce opportunities. Through its direct e-commerce platform and proprietary
database management system, sales opportunities can be offered through the NBCi
Web sites as well as by e-mail to the registered user base.
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<PAGE>
DEMONSTRATED GROWTH CAPABILITY
From July 1998 to May 1999, Snap.com and Xoom.com were two of the
fastest-growing Web sites among home users according to data provided by Media
Metrix. SNAP has succeeded in increasing traffic to its Web site and recognition
of its brand in part through the promotion of SNAP on the NBC television network
since NBC acquired an equity interest in SNAP in June 1998. SNAP has also grown
traffic and brand awareness through the expansion of channel partnerships
offering custom branded versions of Snap.com to over 50 Internet service
providers, PC manufacturers and other SNAP distribution partners such as
RealNetworks, GTE and Sony. Xoom.com has achieved its growth principally through
word-of-mouth marketing among its users as well as links from member Web sites
to the Xoom.com Web site.
NBCi intends to leverage the demonstrated growth capability of Snap.com and
Xoom.com to expand brand awareness and consequently increase the member base of
NBCi. NBCi believes that it will be well positioned to strengthen awareness of
the NBCi brands, including SNAP, and thus increase online traffic and build
member loyalty as a result of the substantial levels of on-air promotional
expenditures available to the NBCi Web sites over the next four years in
comparison to the promotional expenditures of SNAP, Xoom.com and the NBC
contributed Internet assets over the past year. NBCi intends to capitalize on
Xoom.com's experience and success in expanding its user base by offering its
members a variety of compelling free services, and communities and competitively
priced product offerings. In addition, by combining the strategic and financial
resources of each of Xoom.com, SNAP and the NBC contributed Internet businesses,
NBCi believes that it will be better able to compete in the rapidly
consolidating Internet services industry, and thus better able to grow through
acquisitions, strategic alliances and joint ventures.
LEADING EDGE INTERNET PRODUCTS AND SERVICES
NBCi will combine leading edge Internet products and services offered by
SNAP, Xoom.com and the NBC contributed Internet businesses to offer users a rich
and varied Internet experience. Through SNAP's proprietary search technologies
and personalization capability together with its ability to offer enhanced
content such as rich media streaming, the navigation and content aggregation
services offered by NBCi are well positioned to compete with leaders in the
portal market. Snap.com For Higher Speed Users, launched by SNAP in March 1999,
uses proprietary technology to optimize users' access to rapidly evolving forms
of content including video, audio, animation and gaming. Xoom.com's array of
free user services coupled with a large and diverse range of active communities
focused on special interest categories will enable NBCi to increase its member
base. NBCi intends to leverage Xoom.com's direct e-commerce platform and
proprietary database targeting system to offer advertisers the ability to
deliver a focused, relevant message to potential consumers and targeted product
offers to the NBCi member base.
NBCI STRATEGY
By providing a broad array of professionally created and user-created
content in a single service, NBCi intends to develop the leading site on the
Internet. NBCi continually intends to upgrade and expand Snap.com's portfolio of
services to increase the level of Internet traffic on the Snap.com Web site and
NBCi's related properties and grow NBCi's registered user base. NBCi intends to
capture relevant data on such users to provide more relevant information to
advertisers and more personalized service to its user base. NBCi plans to
accomplish these goals through the strategies discussed below.
RAPIDLY COMPLETE THE INTEGRATION OF XOOM.COM, SNAP AND THE NBC CONTRIBUTED
INTERNET ASSETS
NBCi believes that a key component to its success will be its ability to
integrate the NBCi Internet businesses rapidly and cost-effectively. A number of
integration initiatives, which are expected to be advantageous to the component
companies even if the proposed NBCi transactions are not
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consummated, have already been completed. SNAP search functionality is now
available on Web pages of Xoom.com and NBC.com, and Xoom.com's electronic
greeting cards and buyer's guide are accessible on Snap.com's shopping pages.
SNAP has developed technology to check user names across both Snap.com and
Xoom.com, in order to minimize potential transition problems resulting from
duplicate and multiple user names. SNAP product managers have begun mapping the
directories and sub-directories of Snap.com and Xoom.com in order to permit
their ultimate interconnection as well as understand differences in user
behavior.
The planning process for integration of the Web sites to ensure the ease of
navigation and provide a consistent look and feel among the Web sites has
already begun. Xoom.com, SNAP and NBC have established a senior-level steering
committee to begin planning the business integration process and the potential
deployment of existing personnel should the transactions be consummated. The
businesses have also formed separate integration teams in such areas as product
development, sales and infrastructure. The integration teams report on a weekly
basis to the steering committee on the status of the planned integration and
potential problems that may occur. All planning being completed today is
designed to ensure a smooth transition following the anticipated closing of the
transactions.
BUILD THE SNAP BRAND AND THE OTHER NBCI BRANDS
NBCi intends to promote SNAP and the other NBCi brands through a variety of
media including television, radio, print and Internet advertising. NBCi will
realize a significant television presence through its purchase of at least $380
million of advertising from NBC over the next four years. In addition, NBCi
expects to benefit from radio campaigns conducted by Xoom.com and SNAP to
promote their brands. NBCi will continue this radio strategy for SNAP. NBCi
believes the ability to develop a well-recognized brand name will be critical to
the long term success of the company.
INCREASE REVENUE AND CREATE VALUE
NBCi intends to maximize revenue streams by focusing on a number of key
strategies, including:
- expanding its advertising customer base through the integration of the
NBCi businesses in the Snap.com Web site;
- obtaining higher average advertising rates across all of the NBCi Internet
properties and increasing the average size and length of advertising
contracts;
- hiring additional direct sales representatives and continuing to invest in
improving NBCi's advertisement serving and targeting technology;
- expanding NBCi's e-commerce product offerings and services, such as
magazine subscriptions, appliances, games, photography supplies, home and
auto insurance, wireless telecommunication services and membership clubs;
- increasing margins by reducing operating costs; and
- acquiring minority equity positions in companies with attractive growth
opportunities.
NBCi also intends to offer special sponsorship and events-driven promotional
advertising programs to build brand awareness, generate leads and drive traffic
to an advertiser's site. In addition, NBCi plans to sell sponsorships of special
interest pages where topically focused content is aggregated on a permanent area
within a community.
CONTINUE TO GROW NBCI'S USER BASE
NBCi intends to continue to expand its user base through the integration of
the NBCi Internet properties and by increasing awareness of the NBCi businesses
through the promotion of the SNAP brand and the other NBCi brands. In addition,
NBCi intends to increase traffic to its Web sites by offering visitors
attractive free services and content, and maintaining a large and diverse range
of active
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communities focused on special interest categories. NBCi will also seek to
acquire selected businesses to supplement its product offerings.
DEVELOP VERTICAL HUBS
NBCi believes there are opportunities to selectively develop vertical hubs
in order to create an active set of users with similar interests. NBCi will also
seek to identify opportunities to leverage partner relationships or selectively
seek acquisitions in areas of particular value to accomplish this goal. As
opposed to a general Web audience, users with a specific set of interests
provide opportunities to sell more targeted advertising and lead generation.
Advertisers are willing to pay premium prices to reach such targeted audiences.
By providing unique content through partners and the integration of the NBC
contributed Internet businesses, NBCi intends to develop a large database of
users with common interests. A key component of this strategy will be to
leverage and build upon Xoom.com's community sites and membership base.
EXPAND BROADBAND INITIATIVES
The Internet is increasingly being used as a means to distribute video and
audio content, gaming services and distributed applications. Widespread
deployment and adoption of broadband technology should accelerate the acceptance
of the Internet as an important new medium for distributing such content, as
well as next generation products with significantly more functionality and value
for users. SNAP, through its Snap.com For Higher Speed Users Web site is a
recognized leader in the delivery of broadband content. VideoSeeker.com will
provide NBCi's users with access to streaming video content on the Web. A
Xoom.com property, The Media Sharehouse, provides a repository for user created
content. NBCi intends to seek additional opportunities to vastly expand the
nature and amount of broadband content available to its user base both through
internal development and acquisitions.
ACCELERATE PURSUIT OF INTERNATIONAL OPPORTUNITIES
NBCi intends to rapidly expand its platform internationally by providing the
Snap.com Web site and the other NBCi Web sites in local languages and offering
its services to local advertisers and e-commerce companies. NBCi also plans to
leverage NBC's worldwide relationships to expand its operations internationally.
The international market for Internet services is not as mature as in the United
States and opportunities exist to take a leadership position in several foreign
markets. NBCi has targeted several European and Asian countries for possible
international expansion and is currently seeking local partners to help
facilitate such expansion and provide local support in terms of personnel and
promotion.
CONTINUE TO DEVELOP OR ACQUIRE LEADING EDGE TARGETING TECHNOLOGY AND
SOFTWARE
NBCi intends to continue to develop leading edge technologies to provide its
users the highest possible level of service and its advertisers and e-commerce
partners the benefit of its proprietary targeting capabilities. Areas of focus
for consumer services include broadband technologies for the delivery of
streaming video and audio, and communication tools such as e-mail, messaging and
internet telephony, among others. Advertisers currently benefit from the
integration of advertisements and product offers within search requests on Snap.
Xoom.com has developed a proprietary database stratification, offer targeting
and delivery system. NBCi intends to expand and improve on these capabilities by
continuing to invest in the development of new technologies or by acquiring such
technologies through acquisitions or otherwise.
TECHNOLOGY AND INFRASTRUCTURE
A critical part of NBCi's success will be its ability to successfully
integrate the technology and infrastructure of Xoom.com, SNAP and the NBC
contributed Internet properties in an efficient and
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effective manner. The infrastructure integration team is responsible for the
integration of the hardware and software systems of the NBCi businesses.
Xoom.com and SNAP currently use Exodus Communications, Inc. and Frontier Global
Center to house their network servers and to provide and manage power and
maintain the correct environment for their networking and server equipment. NBCi
expects to continue to use the services of these companies, which will help
avoid disruption and degradation in service to NBCi's Web sites. NBCi intends to
standardize its network and mail platforms between its principal and satellite
offices. In addition, NBCi will seek to standardize the hardware and software
used by the various NBCi businesses by making purchases through a select group
of vendors. NBCi does not presently expect to incur any material costs due to
the consolidation of vendor and supplier relationships. NBCi will continue to
strive to rapidly develop and deploy high-quality tools and features into its
systems without interruption or degradation in service. In addition, NBCi will
continue to upgrade and expand its server and networking infrastructure in an
effort to ensure fast and reliable access to its Web sites.
The separate technology and infrastructures of Xoom.com and SNAP are
discussed on pages 135 and 167, respectively.
COMPETITION
The market for Internet products and services is highly competitive with no
substantial barriers to entry, except that the ability to secure financial
resources necessary to promote brand awareness is increasingly becoming a
barrier to entry in the market in which NBCi intends to compete. The market for
NBCi's products and services continues to develop, is rapidly evolving and is
characterized by an increasing number of market entrants with competing products
and services. NBCi expects that competition will continue to intensify with
brand name recognition becoming an increasingly important competitive factor. To
achieve brand name recognition, Internet companies are consolidating a broad
array of products and services under a single brand. For example, recently a
number of significant acquisitions and strategic plans have been announced
involving certain of NBCi's competitors, including:
- Disney's acquiring the remaining interest in Infoseek not already owned by
Disney;
- AOL's acquiring Netscape;
- @Home Networks, a provider of high-speed Internet access serving the cable
television infrastructure and the largest stockholder of which is AT&T,
acquiring Excite;
- Yahoo!'s acquiring GeoCities and Broadcast.com; and
- CMGI's acquiring 83% of AltaVista.
These acquisitions and proposed strategic relationships will result in more
formidable competitors, some of whom are aligned with other media companies.
A number of companies offer competitive products and services addressing
many of NBCi's target markets. These companies include Yahoo! (including
GeoCities and Broadcast.com), America Online (including AOL.com, Netcenter and
ICQ), Alta Vista, Excite@Home, Disney (including the Go Network, which is
jointly operated with Infoseek), Lycos (including Hotbot and Tripod) and
Microsoft (including msn.com). In addition, the NBCi businesses will compete
directly with a great number of other Internet sites and other media companies
across a wide range of different online services with advantages in expertise,
brand recognition and other factors, including:
- metasearch services and software applications that allow a user to search
the databases of several directories and catalogs simultaneously;
- database vendors that offer information search and retrieval capabilities
with their core database products;
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- Web-based e-mail and instant messaging services either on a stand alone
basis or integrated into other products and media properties;
- online merchant hosting services and the entry of an increasing number of
companies selling goods and services on the Internet;
- online community Web sites such as Tripod, WhoWhere, GeoCities,
theglobe.com and iVillage;
- online content Web sites such as ESPN.com and ZDNet.com;
- online local interactive content Web sites, such as Excite@Home's City
Guides, Lycos City Guides, America Online's Digital City, Ticketmaster
Online-CitySearch and Microsoft Sidewalk;
- online video broadcast services, such as CNN VideoSelect, RealNetworks and
FoxNews; and
- potential new entrants in any one or all of these areas.
The competitive products and services for each of the separate markets under
which NBCi and the NBCi businesses will compete are described more fully on
pages 135, 168 and 186.
Many of NBCi's existing and potential competitors have significantly greater
financial, technical and marketing resources than NBCi. NBCi may also be
adversely affected by competition from licensees of its products and technology,
and current and future advertisers, as well as from its current, future and
former content providers. There can be no assurance that NBCi's competitors will
not develop Internet products and services that are superior to those of NBCi or
that achieve greater market acceptance than NBCi's offerings. Moreover, a number
of NBCi's competitors, future advertising customers, licensees and licensors may
establish similar relationships. In addition, because of NBC's relationships
with its existing strategic partners including Microsoft and Dow Jones, NBCi, as
an affiliate of NBC, will be restricted in significant respects in its ability
to provide certain types of content and services on its Web sites, such as its
ability to provide news, including business and sports news. These restrictions
may limit NBCi's ability to compete for users by limiting the services it can
offer to meet users' needs. NBCi also competes with online services and other
Web site operators as well as traditional offline media such as print and
television for a share of advertisers' total advertising budgets. There can be
no assurance that NBCi will be able to compete successfully against its current
or future competitors or that competition will not have a material adverse
effect on NBCi's business, results of operations and financial conditions. See
"Risk Factors" on page 18.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
NBCi will view the technology of the NBCi businesses as proprietary and will
try to protect it under existing United States and international laws relating
to protection of intellectual property. NBCi intends to develop internal
procedures to control access and dissemination of its proprietary information
and will also use the existing policies and procedures of the NBCi businesses.
Despite NBCi's precautions, third parties may succeed in misappropriating its
intellectual property or independently developing similar intellectual property.
Protecting NBCi's intellectual property against infringement could result in
substantial legal and other costs and could divert NBCi's limited management
resources and attention.
Some of the technology that will be incorporated in the SNAP Web site is
based on technology licensed from third parties. As NBCi introduces new
services, it may need to license additional technology. If NBCi is unable to
license needed technology on a timely basis and on commercially reasonable
terms, it could experience delays and reductions in the quality of its services,
all of which could adversely affect its business and results of operations.
NBCi's reputation and the value of its proprietary information could also be
adversely affected by actions of third parties to whom the NBCi businesses
license their proprietary information and intellectual property. If someone
asserts a claim relating to proprietary technology or information against NBCi
or its subsidiaries, NBCi may seek licenses to such intellectual property. NBCi
cannot assure you, however, that it could obtain these
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licenses on commercially reasonable terms, if at all. The failure to obtain the
necessary licenses or other rights could have a material adverse effect on
NBCi's business and results of operations.
Although NBCi does not believe the NBCi businesses infringe the proprietary
rights of any third parties, it cannot assure you that third parties will not
assert claims against it in the future. From time to time, the NBCi businesses
have been subject to claims of alleged infringement of intellectual property
rights of others on the basis of the actions of such businesses and the content
generated by their members and users. These categories of claims, whether or not
meritorious, could result in litigation and become a drain on NBCi's management
and financial resources. If successful, claims of this nature could subject NBCi
to liability, injunctive relief restricting its use of intellectual property
important to its operations, and could ultimately cause NBCi to lose rights to
some of its intellectual property. Any of these events could have a material
adverse effect on NBCi's business and results of operations.
LEGAL PROCEEDINGS
As a newly formed company, NBCi is not subject to any pending or threatened
litigation. NBCi's operations and financial performance, however, may be
affected by pending litigation against Xoom.com and SNAP. See pages 136 and 168
"Risk Factors" on page 18.
EMPLOYEES
Upon consummation of the transactions, NBCi will have approximately 500
full-time employees, including 215 in sales and marketing, 195 in operating and
product development and 90 in finance and administration. All of these
individuals are currently employees of Xoom.com, SNAP and NBC and its
affiliates. The future success of NBCi will depend, in part, on its ability to
continue to attract, retain and motivate highly qualified technical and
management personnel, for whom competition is intense. From time to time, NBCi
will employ independent contractors to support its research and development,
marketing, sales and support and administrative organizations. NBCi's employees
are not covered by any collective bargaining agreement.
FACILITIES
Upon consummation of the transactions, NBCi's headquarters will be located
at SNAP's facilities in San Francisco, California. Initially, NBCi's facilities
will include the facilities of SNAP and the facilities of Xoom.com. NBCi will
also employ certain persons formerly employed by NBC Multimedia at NBC
Multimedia's facilities. NBCi intends to consolidate the operations of Xoom.com
and SNAP into Xoom.com's office space in New York, New York and into SNAP's
office space in San Francisco, California.
DISCLOSURES ABOUT MARKET RISK
NBCi's exposure to market risk is expected to be confined principally to its
short-term available-for-sale securities, which have short maturities and,
therefore, minimal and immaterial market risk. NBCi expects to invest in equity
securities of privately held companies for business and strategic purposes. For
investments in which no public market exists, NBCi's policy will be to regularly
review the operating performance, recent financing transactions and cash flow
forecasts for such companies in assessing the net realizable values of the
securities of these companies. NBCi expects to identify and record impairment
losses on long-lived assets when events and circumstances indicate that such
assets might be impaired.
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MANAGEMENT OF NBCI FOLLOWING TRANSACTIONS
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF NBCI
Upon the closing of the transaction, the authorized number of directors of
NBCi will be thirteen. Initially, NBC shall have the right to designate six
directors, each referred to as a "Class B Director", Xoom.com shall have the
right to designate six directors, each referred to as a "Class A Director" and
NBC and Xoom.com shall mutually agree on the designation of the thirteenth
director, as described fully on pages 200 and 207. To date, Xoom.com and NBC
have not designated the thirteenth director, Xoom.com has not designated its
sixth director and the titles of the executive officers and key employees of
NBCi have not been finally determined. The executive officers, directors and key
employees of NBCi following the closing of the transactions and their respective
ages as of June 1, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Robert C. Wright................... 56 Chairman of the Board and Class B Director
Chris Kitze........................ 39 Chief Executive Officer and Class A Director
John Harbottle..................... 44 Chief Financial Officer and Executive Vice President, Finance
Diane Cordova...................... 38 Vice President, Human Resources
Shawn Hardin....................... 37 Executive Vice President, Product and Executive Producer
Andrew Hyde........................ 41 Senior Vice President, Finance
Kenneth S. Norton.................. 28 Chief Technology Officer
Edmond P. Sanctis.................. 37 Executive Vice President and General Manager of Broadband
Marc Sznajderman................... 32 Vice President, Corporate Development
Jeffrey Ballowe.................... 43 Class A Director
Robert C. Harris, Jr............... 53 Class A Director
James Heffernan.................... 57 Class A Director
Philip Schlein..................... 64 Class A Director
Thomas S. Rogers................... 44 Vice Chairman of the Board and Class B Director
Mark W. Begor...................... 41 Class B Director
Gary M. Reiner..................... 44 Class B Director
John F. Welch, Jr.................. 63 Class B Director
Martin J. Yudkovitz................ 45 Class B Director
</TABLE>
ROBERT C. WRIGHT has been the President and Chief Executive Officer of NBC
since September 1986. Prior to joining NBC, Mr. Wright was President of General
Electric Financial Services from April 1984 to August 1986, head of GE's
housewares and audio division from May 1983 to April 1984, and President of Cox
Cable Communications from January 1980 to April 1983. Mr. Wright serves on the
Board of Directors of the Motion Picture and Television Fund Corporation and the
Board of Trustees of the Museum of Television and Radio and the American Film
Institute, and is an honorary trustee of the Foundation of American Women in
Radio and Television. Mr. Wright received his A.B. from the College of the Holy
Cross and his L.L.B. from the University of Virginia School of Law.
CHRIS KITZE has been a director and president of NBCi since May 1999. Mr.
Kitze co-founded Xoom.com and has served as Chairman of the Board and Secretary
since that time. Since December 1996, Mr. Kitze has been an independent
investor. From April 1996 until December 1996, Mr. Kitze also served as
Xoom.com's President and Chief Executive Officer. In June 1995, Mr. Kitze
co-founded Point Communications Corporation, a Web directory company, which was
acquired by Lycos in October 1995, after which Mr. Kitze served as Lycos' Vice
President of Marketing until
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June 1996. From June 1994 until June 1995, Mr. Kitze served as Publisher at
Softkey International (now The Learning Company). In September 1991, Mr. Kitze
co-founded Aris Entertainment, a CD-ROM publishing company and served as its
President until June 1994. Mr. Kitze holds a B.S. in Chemical Engineering from
the University of Colorado.
JOHN HARBOTTLE has served as Xoom.com's Vice President, Finance and Chief
Financial Officer since August 1998 and as Xoom.com's Secretary since April
1999. From February 1996 to February 1998, Mr. Harbottle was the Vice President
of Finance and Chief Financial Officer of Mastering Computers, Inc., an
information technology training and CBT software development and manufacturing
company, and then worked as an independent consultant for Mastering Computers,
Inc. from February to July 1998. From October 1994 to February 1996, Mr.
Harbottle was the Vice President of Finance and Chief Financial Officer of
Zenger-Miller, an international management/leadership training, consulting and
education company. From January 1992 to October 1994, Mr. Harbottle was the Vice
President of Finance and Chief Financial Officer of IFS, an international
consumer products and direct marketing company. Mr. Harbottle is a director of
WebSoftware Corporation. Mr. Harbottle holds a B.S. in Business Administration
from the University of California, Berkeley.
DIANE CORDOVA has served as Vice President of Human Resources of SNAP since
September 1998. From April 1997 to September 1998, Ms. Cordova served as
Director of Human Resources for Imagine Media, Inc., a publisher of interactive
entertainment and technology magazines and websites. Beginning in April 1992
until April 1997, Ms. Cordova served as Senior Manager of Human Resources for
Xerox Corp., where she was a founding member of a startup division spun out of
Xerox's Palo Alto Research Center. From 1990 until she joined Xerox, Ms. Cordova
was the Senior Human Resources Manager at Conner Peripherals, a hard disk drive
manufacturer in San Jose, California.
SHAWN HARDIN has served as Senior Vice President of SNAP since July 1998.
Beginning in July 1996 until June 1998, Mr. Hardin served as the Vice President
and Executive Producer of NBC Multimedia, Inc., a wholly owned subsidiary
responsible for NBC's Internet and new technology operations. Prior to this,
from July 1995 to June 1996, he served as Creative Director of NBC Multimedia,
Inc. From July 1994 to June 1995, Mr. Hardin was the Supervising Producer and
Creative Director of a technology and programming division at NBC known as
NBC-2000. Prior to joining NBC, Mr. Hardin operated his own business where he
worked on more than seventy productions including features, shorts, commercials,
music videos and a variety of Interactive Media projects. Mr. Hardin has a B.A.
from the University of Southern California, School of Cinema/Television. In
January 1995, Mr. Hardin filed for personal bankruptcy resulting from personal
debt incurred through financing multiple film and video projects.
ANDREW P. HYDE has served as Chief Financial Officer of SNAP since August
1998. From June 1994 to July 1998, Mr. Hyde served as Vice President and Chief
Financial Officer at MiTek, Inc., a global supplier of custom CAD/CAM software,
engineering services and machinery. Beginning in 1979 until May 1994, Mr. Hyde
held various positions in financial management at GE, including Manager of
Finance for GE Lighting Systems and Program Manager of Finance Education for GE
Corporate Management Development. Mr. Hyde holds a B.A. in Economics and
Business Administration from Principia College and an M.B.A. from Columbia
University.
KENNETH S. NORTON has served as Vice President of Technology of SNAP since
August 1998. From July 1996 to August 1998, Mr. Norton was Director of Software
Engineering at CNET where he was the original chief architect of the Snap.com
service and the lead designer of the SnapLENS architecture. Beginning in
November 1993 until January 1996, Mr. Norton developed transaction-processing
software at Softbank Services Group, a high technology outsourcing company. He
sits on the Advisory Committee of the World Wide Web Consortium and is a member
of the Association for Computing Machinery and the Institute of Electrical and
Electronics Engineers. Mr. Norton has a B.A.
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with honors from Boston University and is certified as a Project Management
Professional by the Project Management Institute.
EDMOND P. SANCTIS has served as Chief Operating Officer of SNAP since July
1998. From 1996 to July 1998, Mr. Sanctis was Senior Vice President and General
Manager of NBC Multimedia, Inc., a wholly owned subsidiary responsible for NBC's
Internet and new technology operations. From 1993 to 1996, Mr. Sanctis held
various management positions at NBC, including General Manager of NBC Digital
Productions and Manager of Cable and Business Development. Mr. Sanctis has also
been a Communications Associate for Sony USA and previously worked as a
television news reporter. Mr. Sanctis holds a B.S. in Journalism from the
University of Maryland and an M.B.A. from Columbia University.
MARC SZNAJDERMAN has served as Xoom.com's Vice President, Corporate
Development since December 1998. From August 1993 until November 1998, Mr.
Sznajderman served as a member of the Investment Banking Division of Bear,
Stearns & Co., Inc., most recently as Vice President. Prior to joining Bear
Stearns, Mr. Sznajderman served as Vice President of Business Development for
Qantix Corporation, a manufacturer and marketer of computer accessories, from
August 1991 until June 1993. From August 1989 until July 1991, Mr. Sznajderman
was a member of the Investment Banking Division of Goldman, Sachs & Co. Mr.
Sznajderman holds a B.S. in Finance from Syracuse University and a Masters in
Management from the J.L. Kellogg Graduate School of Management at Northwestern
University.
JEFFREY BALLOWE has served as a director of Xoom.com since July 1998. Mr.
Ballowe retired at the end of 1997 from Ziff-Davis, where during his 11 years at
the company he was instrumental in transforming Ziff-Davis from a U.S. magazine
publisher to an international, integrated media company. Aside from serving in
magazine publishing roles including Publisher of PC Magazine, Mr. Ballowe held a
number of corporate posts in which he was responsible for establishing
Ziff-Davis European operations, managing Ziff-Davis' largest magazine group,
launching the company's Internet publications, creating ZDNet, and launching
ZDTV. At his retirement he was President, Interactive Media and Development
Group, in charge of Ziff-Davis' Internet publications, ZDNet, ZDTV, and all
development at the company. His development activities included spearheading
Ziff-Davis' and Softbank's investments in Yahoo!, USWeb Corporation, where he
served as a founding director), Gamespot, and Herring Communications. Prior to
his work at Ziff-Davis, Mr. Ballowe worked as a marketing executive at various
technology and marketing services companies. Currently Mr. Ballowe is Chairman
of Deja News and serves on the boards of drkoop.com, VerticalNet and ZDTV. He
received a bachelor's degree from Lawrence University, a master's degree in
French from the University of Wisconsin- Madison, and an M.B.A. from the
University of Chicago.
ROBERT C. HARRIS, JR. has served as a director of Xoom.com since August
1998. Mr. Harris is a Senior Managing Director at Bear, Stearns & Co. Inc. From
1989 to October 1997, he was a co-founder and Managing Director of Unterberg
Harris. From 1984 to 1989, he was a General Partner, Managing Director and
Director of Alex. Brown & Sons Inc. Mr. Harris is also a director of MDSI Mobile
Data Solutions, Inc. and SoftNet Systems, Inc. Mr. Harris holds a B.S. and
M.B.A. from the University of California at Berkeley.
JAMES HEFFERNAN has served as a director of Xoom.com since June 1998. Mr.
Heffernan co-founded USWeb Corporation, an Internet professional services
company, in December 1995 and served as its Executive Vice President, Chief
Financial Officer, Secretary and as a director until May 1998. From May 1993 to
July 1994, he worked as an independent consultant and then joined Interlink
Computer Sciences, Inc. in July 1994 as Chief Financial Officer, where he served
until December 1995. From March 1992 to May 1993, Mr. Heffernan served as Chief
Financial Officer and Chief Operating Officer of Serius. Mr. Heffernan has also
served as an officer of several other technology companies, including Software
Publishing Corp., Zital Inc. and Measurex Corp. Mr. Heffernan is a director of
Savoir
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Technology Group, Inc. Mr. Heffernan has a B.S. in Business and an M.B.A. from
Santa Clara University.
PHILIP SCHLEIN has served as a director of Xoom.com since July 1998. Since
April 1985, Mr. Schlein has been a general partner of U.S. VenturePartners, a
venture capital firm specializing in retail and consumer products companies.
From January 1974 to January 1985, Mr. Schlein served as President and Chief
Executive Officer of Macy's California, a division of R. H. Macy & Co., Inc., a
department store chain. Mr. Schlein also serves on the board of directors of
Ross Stores, Inc., BEBE, QRS Corporation and Burnham Pacific Properties, Inc.
Mr. Schlein holds a B.S. in Economics from the University of Pennsylvania.
THOMAS S. ROGERS has been President of NBC Cable since 1988, and Executive
Vice President of NBC since November 1992. Mr. Rogers founded NBC's major cable
networks (CNBC and MSNBC) and international operations and is responsible for
overseeing and coordinating NBC's interests in cable and new media. Prior to
joining NBC in 1987, Mr. Rogers served as Senior Counsel to the House
Subcommittee on Telecommunications, Consumer Protection and Finance. Mr. Rogers
is a member of the board of managers of SNAP and the board of directors of
Rainbow Media Holdings and the Arts & Entertainment and History Channels. Mr.
Rogers is Chairman of the International Council of the National Academy of
Television Arts and Sciences. He also serves on the board of directors of the
International Radio & Television Society. Mr. Rogers graduated from Wesleyan
University and received his J.D. from Columbia Law School.
MARK W. BEGOR has been Executive Vice President and Chief Financial Officer
of NBC since April 1998, with responsibility for NBC's global finance,
accounting, tax and information technology activities. Mr. Begor began his
career with GE in 1980, holding various financial positions in GE and GE
Plastics, including Manager-Finance and Business Development for GE Plastics
Pacific in Singapore, before being named General Manager of GE Plastics' Global
Sourcing and Petrochemicals operations in October 1993. From August 1995 to
March 1998, Mr. Begor served as GE's Manager of Investor Communications and was
appointed a corporate officer of GE in December 1996. Mr. Begor is a member of
the board of managers of SNAP. Mr. Begor received his B.S. from Syracuse
University and his M.B.A. from Rennselaer Polytechnic Institute.
GARY M. REINER is Senior Vice President and Chief Information Officer of GE.
Mr. Reiner joined GE in 1991 as Vice President-Corporate Business Development,
and assumed his current position in April 1996. Mr. Reiner leads GE's
information technology efforts. Mr. Reiner received his B.A. from Harvard and
earned an M.B.A. from Harvard Business School.
JOHN F. WELCH, JR. has been Chairman of the Board and Chief Executive
Officer of GE since 1981. A 1957 graduate of the University of Massachusetts
with M.S. and Ph.D. degrees from the University of Illinois, Mr. Welch joined GE
in 1960. Following managerial assignments in the plastics, chemical and
metallurgical businesses, he was elected a Vice President in 1972. In 1973, he
was named Vice President and Group Executive of the Components and Materials
Group. He became a Senior Vice President and Sector Executive of the Consumer
Products and Services Sector in 1977, and was elected a vice chairman and named
an executive officer of GE in 1979.
MARTIN J. YUDKOVITZ has been President of NBC Interactive Media since
December 1995. Mr. Yudkovitz is responsible for developing NBC's new media
strategy and managing NBC's interactive operations. From December 1993 to
December 1995, Mr. Yudkovitz served as Senior Vice President of NBC Multimedia,
and in addition was appointed Senior Vice President of Strategic Development of
NBC in March 1993. He has also served as General Counsel and Vice President for
Business Affairs of CNBC. Mr. Yudkovitz joined NBC in 1984. Mr. Yudkovitz is a
director of iVillage, Inc. and Talk City, Inc., as well as a member of the board
of managers of SNAP. Mr. Yudkovitz holds a B.A. from Rutgers University and
received his J.D. from Columbia Law School.
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Subject to the terms of NBCi's restated certificate of incorporation, all
directors hold office until the next annual meeting of the stockholders and
until their successors have been duly elected and qualified. Executive officers
are appointed by and serve at the discretion of the Board of Directors.
BOARD COMMITTEES
The board of directors has established an Audit Committee and a Compensation
Committee. The Audit Committee, which will consist of James Heffernan, Philip
Schlein, Mark Begor and Thomas Rogers, recommends the selection of independent
public accountants to the board of directors of NBCi, reviews the scope and
results of the audit and other services provided by NBCi's independent
accountants, and reviews NBCi's accounting practices and systems of internal
accounting controls.
The Compensation Committee, consisting of James Heffernan and Mark Begor,
reviews and approves the salaries, bonuses and other compensation payable to
NBCi's executive officers and administers and makes recommendations concerning
NBCi's employee benefit plans.
DIRECTOR COMPENSATION
At the present time, NBCi's directors receive no cash compensation for their
services as board members or committee members and NBCi does not reimburse them
for expenses incurred in connection with attending board and committee meetings.
NBCI EXECUTIVE COMPENSATION
None of the executive officers or directors of NBCi received any annual or
longer term compensation from NBCi during the last fiscal year.
STOCK INCENTIVE PLAN
Prior to the consummation of the transactions, the board of directors of
NBCi intends to adopt a stock incentive plan. The purposes of the stock
incentive plan will be to promote the interests of NBCi and its stockholders by
(1) attracting and retaining exceptional officers, directors and other employees
and consultants of NBCi and its subsidiaries; (2) motivating those individuals
with performance-related incentives to achieve longer-range performance goals;
and (3) enabling those individuals to participate in the long-term growth and
financial success of NBCi. To date, the board of directors of NBCi has not
determined all of the material terms of the stock incentive plan including the
type of awards and the number of shares to reserve for issuance under the stock
incentive plan.
401(K) PLAN
Each of Xoom.com and SNAP has a 401(k) plan, pursuant to which eligible
employees may elect to reduce their current salary by up to the statutorily
prescribed annual limit and have the amount of such reduction contributed to the
401(k) plan. Neither plan provides for a matching contribution from the
employer. Both of the 401(k) plans are intended to qualify under Section 401 of
the Internal Revenue Code so that contributions to the 401(k) plan, and income
earned on plan contributions, are not taxed until withdrawn from the 401(k)
plan. Initially after the transaction, each of Xoom.com and SNAP will keep its
401(k) plan in place. NBCi may consolidate the two plans into a single plan for
the combined group of companies. No such change will reduce benefits earned
prior to the effective date of the change. NBCi is committed to providing a
program of benefits to the employees of each subsidiary that is no less
favorable, when considered in its entirely, than the program of the subsidiary
before the transaction.
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WELFARE BENEFIT PLANS
Each of Xoom.com and SNAP maintains a comprehensive program of health,
dental, vision care, disability and life insurance for its employees. Generally,
participation in these plans is available to all full-time employees after a
qualification period. Initially after the transaction each of Xoom.com and SNAP
will keep its welfare benefit plans in place. NBCi may consolidate the plans
into a single plan for the combined group of companies. No decision has been
made as to the terms and form of such combined plans. NBCi is committed to
providing a program of benefits to the employees of each subsidiary that is no
less favorable, when considered in its entirety, than the programs of the
subsidiaries before the transaction.
NBCI CERTAIN TRANSACTIONS
Some of NBCi's directors, executive officers and affiliates have entered
into stock purchase transactions with Xoom.com, as follows:
- Following Xoom.com's incorporation, Chris Kitze, one of Xoom.com's
founders, purchased 333,334 shares of common stock for cash at a price of
$0.0003 per share, resulting in aggregate proceeds to Xoom.com of $100. In
connection with this transaction, Xoom.com entered into a stockholders'
agreement with Mr. Kitze. This stockholders' agreement was terminated on
February 10, 1998.
- Pursuant to a common stock purchase agreement dated December 31, 1996, Mr.
Kitze purchased 2,333,334 shares of common stock of Xoom.com in exchange
for the cancellation of promissory notes in the amount of $700,000.
- Pursuant to a common stock purchase agreements dated February 13, 1997 and
November 23, 1997, Flying Disc Investments Limited Partnership, of which
Mr. Kitze is a general partner, purchased 1,333,336 and 94,445 shares of
common stock, respectively, from Xoom.com for cash at $0.45 and $0.90 per
share, respectively, resulting in aggregate proceeds to Xoom.com of
approximately $685,000.
- Flying Disc purchased an additional 108,228 shares of common stock of
Xoom.com in February 1998 pursuant to a common stock purchase agreement
for cash at a price of $2.31 per share.
- Under a common stock and warrant purchase agreement dated as of April 25,
1998, Flying Disc purchased 30,030 shares of common stock of Xoom.com for
cash at a price of $3.33 per share along with a warrant to purchase an
additional 6,006 shares at $3.33 per share, resulting in aggregate
proceeds to Xoom.com of approximately $100,000.
All of the warrants described above were exercised before the completion of
Xoom.com's initial public offering.
Xoom.com entered into a consulting agreement, dated May 15, 1998, with James
J. Heffernan, one of NBCi's and Xoom.com's outside directors. This agreement
will terminate on November 15, 1999. The agreement provides for Mr. Heffernan to
receive options to buy 16,667 shares of common stock at an exercise price of
$3.33 per share and monthly compensation of $10,000, paid in the form of common
stock. Mr. Heffernan was granted stock options to buy an additional 16,667
shares of common stock of Xoom.com at an exercise price of $3.33 per share upon
completion of Xoom.com's initial public offering. In addition, Mr. Heffernan was
entitled to a finder's fee, payable in shares of common stock, of 5% of any
investment he secured on Xoom.com's behalf between May 15, 1998 and June 30,
1998. Under this arrangement, Mr. Heffernan received 50,203 shares of common
stock of Xoom.com.
On July 28, 1998, Jeffrey Ballowe, one of NBCi's and Xoom.com's outside
directors, entered into a letter agreement with Xoom.com, which was amended as
of December 2, 1998. Under this letter
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agreement, as amended, Mr. Ballowe agreed to serve as a member of the board of
directors of Xoom.com. The letter agreement provides for compensation in the
form of options to buy 23,334 shares of common stock of Xoom.com at an exercise
price of $6.75 per share, which will vest monthly over a two year period or
immediately upon a sale of Xoom.com. Mr. Ballowe also receives a monthly fee of
$10,000 as compensation for his service as a director of Xoom.com. This fee is
payable in shares of common stock based upon the stock's closing price on the
last trading day of the month. Mr. Ballowe also receives compensation equal to
5% of all funds he raises for Xoom.com, payable in common stock. Mr. Ballowe's
agreement has a term of 18 months.
On July 28, 1998, Philip Schlein, one of NBCi's and Xoom.com's outside
directors, entered into a letter agreement with Xoom.com, which was amended as
of December 2, 1998. Under this letter agreement, as amended, Mr. Schlein agreed
to serve as a member of the board of directors of Xoom.com. The letter agreement
provides for compensation in the form of options to buy 23,333 shares of common
stock at an exercise price of $6.75 per share, which will vest monthly over a
two year period or immediately upon a sale of Xoom.com. Mr. Schlein also
receives a monthly fee of $10,000 payable in cash or in common stock, at Mr.
Schlein's option, as compensation for his service as a director of Xoom.com. Mr.
Schlein's agreement has a term of 18 months.
On July 28, 1998, Robert Harris, one of NBCi's and Xoom.com's outside
directors, entered into a letter agreement with Xoom.com, which was amended as
of December 2, 1998. Under this letter agreement, as amended, Mr. Harris agreed
to serve as a member of the board of directors of Xoom.com. The letter agreement
provides for compensation in the form of options to buy 23,334 shares of common
stock at an exercise price of $6.75 per share, which will vest monthly over a
two year period or immediately upon a sale of Xoom.com. Mr. Harris also receives
a monthly fee of $10,000 payable in cash or in common stock, at Mr. Harris'
option, as compensation for his service as a director of Xoom.com. Mr. Harris'
agreement has a term of 18 months.
On August 4, 1998, John Harbottle, Xoom.com's Chief Financial Officer,
entered into an employment agreement with Xoom.com. The employment agreement
provides for an annual salary of $144,000. Mr. Harbottle is also eligible for a
discretionary quarterly bonus of up to $10,000. Should Xoom.com terminate Mr.
Harbottle without Cause (as defined in the agreement), Xoom.com must provide Mr.
Harbottle 180 days' advance written notice. Xoom.com may, in its discretion,
terminate Mr. Harbottle's employment at any time prior to the end of this notice
period, provided Xoom.com pays Mr. Harbottle an amount equal to his base
compensation plus any benefits Mr. Harbottle would have earned through the
balance of the notice period. If Xoom.com exercises its right to terminate Mr.
Harbottle without Cause, Mr. Harbottle shall be immediately entitled to exercise
100% of any stock options Xoom.com has granted to him that had not previously
vested. Mr. Harbottle may exercise his vested stock options for a four month
period from the date Xoom.com notifies him of its intention to terminate his
employment.
Should Xoom.com terminate Mr. Harbottle for Cause, Xoom.com must pay Mr.
Harbottle all compensation due on the date of termination. In the event of a
Change in Control or Corporate Transaction (as defined in the agreement) as a
result of which Mr. Harbottle's employment with Xoom.com is involuntarily
terminated, with or without cause, Mr. Harbottle will be entitled to payment of
an amount equal to 6 months' base compensation plus benefits, and all stock
options Xoom.com previously granted to Mr. Harbottle will immediately become
fully vested and exercisable.
Under the terms of his agreement, Mr. Harbottle may terminate his employment
with Xoom.com at any time for any reason by providing Xoom.com with thirty days'
advance written notice. Should Mr. Harbottle's employment with Xoom.com
terminate for any reason, the agreement further provides that Mr. Harbottle: (A)
will not use any of Xoom.com's proprietary information without Xoom.com's prior
written consent; (B) will not use any confidential information to compete
against Xoom.com or
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any of Xoom.com's employees; and (C) will not, for one year following
termination, solicit any of Xoom.com's customers or employees.
Pursuant to a letter agreement entered into prior to Mr. Harbottle's
employment agreement, Xoom.com granted Mr. Harbottle options to purchase up to
86,667 shares of common stock at a per share exercise price of $6.75 and options
to purchase up to 20,000 shares of common stock of Xoom.com at a per share
exercise price of $12.00. In addition, in December 1998, Xoom.com granted Mr.
Harbottle options to purchase up to 46,667 shares of common stock at a per share
exercise price of $14.00. Also, in May 1999, Xoom.com granted Mr. Harbottle
options to purchase up to 31,792 shares of common stock at a per share exercise
price of $45.50.
NBCi intends to enter, and Xoom.com has entered, into indemnification
agreements with its respective directors and officers.
Xoom.com entered into a content license agreement dated February 22, 1998,
with Classic Media Holdings, whereby Xoom.com was granted certain non-exclusive,
perpetual, world-wide licensing rights in connection with Classic Media
Holdings' library of public domain movies. As consideration for the license,
Xoom.com issued 43,290 shares of its common stock to Classic Media Holdings'
principals. Mr. Kitze is a principal of Classic Media Holdings.
Mr. Kitze and Flying Disc, of which Mr. Kitze serves as general partner,
entered into a voting agreement dated May 9, 1999 with NBC and CNET. Under the
terms of the voting agreement, Mr. Kitze and Flying Disc agreed to vote all
3,350,680 shares of Xoom.com common stock they beneficially own to approve the
adoption of the Merger Agreement and to approve Xoom.com's adoption of the
Contribution Agreement.
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SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF XOOM.COM AND NBCI
The following table sets forth certain information known to Xoom.com with
respect to beneficial ownership of common stock as of May 31, 1999 by (1) each
person known to Xoom.com to own beneficially more than 5% of the outstanding
shares of Xoom.com common stock, (2) each director or director nominee of
Xoom.com, (3) the chief executive officer of Xoom.com and Xoom.com's three other
most highly compensated executive officers whose aggregate salary, bonus and
other compensation exceeded $100,000 during the fiscal year ended December 31,
1998 and (4) all directors and executive officers of Xoom.com as a group.
The following table also sets forth, on a pro forma basis, the beneficial
ownership of NBCi's common stock following the consummation of the transactions
by (A) each person known to NBCi who will own beneficially more than 5% of the
outstanding shares of NBCi common stock, (B) each director or director nominee
of NBCi, (C) the chief executive officer of NBCi and (D) all directors and
executive officers of NBCi as a group.
<TABLE>
<CAPTION>
XOOM.COM NBCI (PRO FORMA)
------------------------------- -------------------------------
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY BENEFICIALLY
HELD(1) PERCENTAGE HELD(2) PERCENTAGE
------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C>
NBC(3)........................................... 960,028 5.3% 24,550,708 48.5%
CNET(4).......................................... -- -- 7,147,584 14.1%
Chris Kitze(5)................................... 3,350,680 19.5% 3,350,680 6.6%
Naveen Jain(6)................................... 562,162 3.3% -- --
Bob Ellis(7)..................................... 416,649 2.4% -- --
Laurent Massa(8)................................. 133,997 * -- --
James J. Heffernan(9)............................ 137,648 * 145,980 *
Alicia Molnar(10)................................ 68,903 * -- --
Janine Popick(11)................................ 24,869 * -- --
Jeffrey Ballowe(12).............................. 17,705 * 29,113 *
Robert C. Harris, Jr.(13)........................ 16,158 * 25,151 *
Philip Schlein(14)............................... 5,371 * 21,169 *
Mark W. Begor.................................... -- --
Gary M. Reiner................................... -- -- -- --
Thomas Rogers.................................... -- -- -- --
John F. Welch, Jr................................ -- -- -- --
Robert C. Wright................................. -- -- -- --
Martin J. Yudkovitz.............................. -- -- -- --
All executive officers and directors as a group
(Xoom.com--14 persons)(15)
(NBCi--15 persons)(16)......................... 4,233,986 24.1% 3,779,904 7.4%
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Xoom.com common stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of May 31, 1999 and
warrants to purchase shares of common stock that are exercisable within 60
days of May 31, 1999 are deemed outstanding. Percentage of beneficial
ownership is based upon 17,220,021 shares of Xoom.com common stock
outstanding on May 31, 1999. To Xoom.com's knowledge, except as set forth in
the footnotes to this table and subject to applicable community property
laws, each person named in the table has a sole voting and investment power
with respect to the shares set forth
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opposite such person's name. Except as otherwise indicated, the address of
each director, executive officer and 5% stockholder in this table is as
follows: c/o Xoom.com, Inc., 300 Montgomery Street, Suite 300, San
Francisco, California 94104.
(2) The beneficial ownership table for NBCi assumes that (1) the transactions
contemplated by the Merger Agreement and the Contribution Agreement are
consummated on September 30, 1999 and (2) each share of Xoom.com common
stock will be converted into one share of NBCi Class A common stock upon the
consummation of the transactions. The number of shares of NBCi Class A
common stock subject to options for each person (A) assumes the acceleration
of the vesting provisions for stock options in accordance with the
Contribution Agreement, (B) assumes the conversion of shares of Xoom.com
common stock or units of SNAP into shares of NBCi Class A common stock in
accordance with the Merger Agreement, and (C) includes ownership of that
person of shares of NBCi common stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of September
30, 1999. Percentage of beneficial ownership of NBCi common stock is based
upon 50,582,751 shares of NBCi common stock estimated to be outstanding upon
the closing of the transactions. To NBCi's knowledge, except as set forth in
the footnotes to this table and subject to applicable community property
laws, each person named in the NBCi beneficial ownership table is expected
to have sole voting and investment power with respect to the shares set
forth opposite such person's name.
(3) Includes 960,028 shares of Xoom.com common stock expected to be purchased by
NBC within 60 days of May 31, 1998 under the stock purchase agreement dated
June 11, 1999. The address of NBC is 30 Rockfeller Plaza, New York, New York
10012.
(4) The address of CNET is 150 Chestnut Street, San Francisco, California 94111.
(5) Includes 3,350,680 shares of Xoom.com common stock held by Flying Disc, of
which Mr. Kitze is a general partner. Mr. Kitze may be deemed to be the
beneficial owner of the shares held by Flying Disc.
(6) Includes 28,829 shares of Xoom.com common stock held by Internet Ventures.
Mr. Jain is the managing member of Internet Ventures and may be deemed to be
the beneficial owner of the shares held by Internet Ventures.
(7) Includes 409,844 shares of Xoom.com common stock held by the Robert A. Ellis
Revocable Trust. Also includes options exercisable for 6,805 shares of
Xoom.com common stock.
(8) Includes options exercisable for 133,997 shares of Xoom.com common stock
exercisable within 60 days after May 31, 1999.
(9) Includes options exercisable for 25,001 shares of Xoom.com common stock and
options to purchase 33,334 shares of NBCi Class A common stock. Also
includes 7,999 shares of Xoom.com common stock held by J. J. Heffernan, LLC,
of which Mr. Heffernan is the managing member, and Xoom.com 100,647 shares
of common stock held by the Heffernan Family Trust. Mr. Heffernan may be
deemed to be the beneficial owner of the shares and warrants to purchase
shares of common stock held by the Heffernan LLC and the Heffernan Family
Trust. Also includes 4,000 shares of Xoom.com common stock held by Sandra
Heffernan, who is Mr. Heffernan's wife.
(10) Includes options exercisable for 68,903 shares of Xoom.com common stock.
(11) Includes options exercisable for 24,869 shares of Xoom.com common stock.
(12) Includes options exercisable for 17,196 shares of Xoom.com common stock and
options to purchase 28,604 shares of NBCi Class A common stock.
(13) Includes options exercisable for 11,667 shares of Xoom.com common stock and
options to purchase 20,660 shares of NBCi Class A common stock.
(14) Includes options exercisable for 4,862 shares of common stock and options
to purchase 20,660 shares of NBCi Class A Common Stock.
(15) Includes options to purchase 322,884 shares of Xoom.com common stock.
(16) Includes options to purchase 305,569 shares of NBCi Class A common stock.
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XOOM.COM BUSINESS
OVERVIEW
Xoom.com is one of the fastest growing direct e-commerce companies on the
Internet. Xoom.com attracts members to its community site with a variety of free
services, including homepages, e-mail, chat rooms, electronic newsletters, clip
art and software libraries, page counters, online greeting cards and media
storage. Xoom.com's members can also join topical communities where they can
exchange ideas and information. Members may also enter specialized forums such
as Investor Place, Women's Circle or Health & Fitness, where they can gain
access to professional content and special product and service offers available
only on Xoom.com's Web site. Upon registration, members agree to receive
periodic offers of products and services via e-mail. These competitively priced
and continuously updated offers include computer software, computer accessories
and peripherals, consumer electronics, clip art on CD-ROM and collectible items.
In addition, Xoom.com offers services such as a travel club, long distance
telephone services and a DVD club. Xoom.com's new offerings will include
services such as home and auto insurance, wireless telecommunications services
and membership clubs, and products such as magazine subscriptions, appliances,
games, photography supplies and gardening tools, among others. Xoom.com believes
that its rapidly growing base of self-qualified members provides it with highly
attractive e-commerce opportunities. In addition, Xoom.com believes that its
high levels of traffic and the number of unique users that visit its site or
affiliated sites on which Xoom.com offers services on a monthly basis (often
referred to as "reach") present an attractive platform for advertising.
According to Media Metrix, Xoom.com was the twelfth most visited site on the
Internet in May 1999, and its reach increased to 14.5% in May 1999 from less
than 2% in January 1998. In May 1999, the Xoom.com site and Xoom.com's network
of chat rooms and page counters had a total reach of 30.7%, according to Media
Metrix. Xoom.com had approximately 8.7 million members as of June 30, 1999,
adding an average of approximately 24,000 new members per day for the last 30
days. Xoom.com believes that its ability to achieve a high level of reach and
membership with minimal investment gives it a significant advantage as its
e-commerce and advertising businesses expand. In the quarter ended March 31,
1999, Xoom.com delivered approximately 60% of its net revenue from e-commerce
and approximately 21% of net revenue from non-U.S. sales. Quarterly net revenue
increased from approximately $849,000 in the first quarter of 1998 to $4.4
million in the first quarter of 1999, representing compound quarterly sales
growth of approximately 51%.
COMMUNITY AND E-COMMERCE INDUSTRY BACKGROUND
THE GROWTH OF ONLINE COMMUNITIES AND OTHER FREE INTERNET SERVICES
Traditional use of the Web has consisted largely of one-way communications
in which users "surf" and view different Web sites containing
professionally-created content on topics of general interest such as news,
sports and weather. However, there is a growing demand for online community
sites where users can publish content and engage in community activities
including home page building, chat and discussion forums. In addition, many
users are interested in gaining access to other free services for entertainment,
such as interactive games or streaming video, or for their utility to the end
user, such as e-mail or greeting cards. Online communities provide a medium for
such access and interaction. Communities generate significant volumes of
traffic, as visitors tend to return to those sites where they have established
an online presence or have become familiar with the services. According to
statistics published by Media Metrix, online community sites have recently been
one of the fastest growing sectors of the Web.
COMMUNITY, E-COMMERCE AND ADVERTISING
The growing adoption of the Web represents a significant opportunity for
businesses to conduct commerce over the Internet. The Internet allows companies
to develop one-to-one relationships with
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customers worldwide without making significant investments in traditional
infrastructure such as retail outlets, distribution networks and sales
personnel. The Internet is an increasingly significant global medium for
e-commerce. According to IDC, transactions on the Internet are expected to
increase from approximately $32 billion in 1998 to approximately $426 billion in
2002, with the number of users that are buyers of products and services rising
from 26% to 40% in the same period.
Increases in consumer purchases on the Internet are expected to be a
significant factor in the growth of e-commerce. Online shopping is a shopping
experience that offers convenience to the shopper. An online consumer's ability
to comparison shop is greatly enhanced by the ability to access multiple
retailers via the Internet. Products commonly sold on the Internet included
items such as software, books, music CDs, videocassettes and airline tickets.
More recently, as Internet usage and familiarity has increased, businesses have
begun selling specialty retail products, service items and large ticket
household consumer goods.
According to Forrester Research, total online retail sales in the U.S. are
expected to increase from $7.8 billion in 1998 to $76.3 billion in 2002,
representing a compound annual growth rate of 76.9%. Forrester Research also
projects that the number of U.S. households that shop online will increase from
8.7 million in 1998 to 30.3 million in 2002.
Online community sites provide more detailed demographic data and
self-selected groups of consumers with an affinity for particular products.
Advertisers can thus more easily deliver targeted messages in a cost-effective
manner. Growth in the Web has also created an important new advertising channel.
Tools not available in traditional advertising media, such as real-time
measurement of "click-through" on advertising banners, further increase the
attractiveness of Web advertising by giving advertisers instant feedback on
campaigns. Jupiter Communications projects that the dollar value of advertising
on the Web is expected to increase from approximately $1.9 billion in 1998 to
approximately $7.7 billion in 2002.
THE DIRECT E-COMMERCE OPPORTUNITY ON THE INTERNET
The same advantages that facilitate the growth of e-commerce and advertising
make the Internet a compelling medium for direct e-commerce campaigns. Direct
e-commerce over the Internet uses e-mail to reach potential buyers worldwide,
potentially offering them a significantly broader selection of products and
services than is available locally. Internet-based direct e-commerce also allows
marketers to rapidly collect meaningful demographic information from consumers
and to use this information to target their direct e-commerce campaigns.
Further, the costs of direct e-commerce via e-mail are dramatically lower than
those of traditional direct e-commerce techniques. As a result, Internet-based
direct e-commerce campaigns can be profitable at response rates that are a
fraction of the rates for traditional campaigns.
APPROACH
Xoom.com uses the unique characteristics of the Web to cost-effectively
market products and services to its rapidly growing member base. By offering its
members a variety of compelling free services and communities and competitively
priced product offerings, Xoom.com believes it has created an innovative online
sales channel with low customer acquisition costs. The key elements of
Xoom.com's approach are:
COST-EFFECTIVE DIRECT E-COMMERCE CAPABILITY
Xoom.com applies a sophisticated direct e-commerce approach, modeled after
traditional direct mail campaigns, to generate product sales. Unlike traditional
direct e-commerce campaigns, which typically use paper-based promotional
materials delivered by mail, Xoom.com's campaigns use regular e-mails to
communicate offers to members, significantly reducing the cost of reaching the
consumer.
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The interactive nature of the Web and the ability to display attractive graphics
to users clicking through on product offerings enables Xoom.com to present such
offerings in a more complete and dynamic manner than allowed by paper-based
delivery systems.
RAPID FORMULATION OF EFFECTIVE DIRECT E-COMMERCE CAMPAIGNS
Prior to introducing new product offerings to its entire membership base,
Xoom.com selects a subset of members for the purpose of test-marketing a
campaign. Xoom.com has developed campaign-management software that uses
statistical techniques to analyze a test campaign and to predict the expected
response rate to such a campaign if it is rolled out to a larger group of
members. Xoom.com can also analyze the effects of variations in price, graphics
and copy. Results are usually available in less than one day. On the basis of
these tests, Xoom.com selects product offers for a larger audience and modifies
them to maximize response rates, sales, profitability and member retention.
Testing also increases the accuracy of Xoom.com's forecasts of product demand.
As a result, Xoom.com is typically able to carry small amounts of inventory,
thus lowering overhead and the risk of write-offs.
DIVERSE PRODUCT OFFERINGS AND MULTIPLE E-COMMERCE CHANNELS
Xoom.com establishes a relationship with its members by providing free
services, which helps create a context for commerce opportunities. Because of
these relationships, Xoom.com is able to offer a wide variety of product and
service offerings to its members under the Xoom.com brand name. Xoom.com is also
able to reach its members with offers through multiple direct e-commerce
channels. In addition to offers via e-mail, members may purchase products
through various themed areas on the Xoom.com site such as Investor Place and
Health & Fitness and, beginning in the second quarter of 1999, through other
sites controlled by Xoom.com such as the Xoom.com shopping channel.
PROVISION OF FREE SERVICES TO ATTRACT A GROWING MEMBERSHIP BASE
Xoom.com offers its members a variety of free services, including home
pages, e-mail, chat rooms, electronic newsletters, clip art and software
libraries, page counters and online greeting cards. Xoom.com provides its
members with unlimited disk space on its servers to develop personal Web sites
or to use as personal Web storage space. Xoom.com also allows members to access
proprietary software in order to create a Web page quickly, as well as
ready-made multimedia tools that can be used to develop a fully-customized,
content-rich site. Members can join one or more of over 200 communities free of
charge. Members also promote their Web sites elsewhere on the Internet, using
hyperlinks on other individual sites as well as listings on directories and
search engines, resulting in millions of new visitors to the Xoom.com site.
Xoom.com believes that providing free services is critical to maintaining
membership growth.
DEVELOPMENT OF A DETAILED MEMBER DATABASE
To date, Xoom.com has gathered a significant base of information about its
members through registration information, responses to promotional campaigns and
purchasing information obtained from third parties. As more members join
Xoom.com, participate in its topical communities and use Xoom.com's other free
services, and as Xoom.com obtains additional purchasing history data, the level
of information about its members will continue to grow. Xoom.com intends to use
this growing database to target offers, increase the range of product offerings
and encourage future transactions and involvement with the Xoom.com site.
ATTRACTIVE ADVERTISING PLATFORM
Xoom.com's free services and extensive community offerings create high
volumes of traffic, enabling business advertisers to cost-effectively promote
their products and services on the Xoom.com
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site. Xoom.com's community structure and registration data provide valuable
demographic information and affinity-based member segmentation that increase
advertisers' ability to target campaigns. Further, the diversity of interest
groups among members creates potential markets for a broad range of products and
services, resulting in a correspondingly broad range of advertising customers.
STRATEGY
Xoom.com's objective is to be a leading direct e-commerce company on the
Internet. Historically, key strategies to achieve this objective include:
FOCUS ON MEMBERSHIP GROWTH
Xoom.com has driven significant membership levels by providing attractive
free services and content, maintaining a large and diverse range of active
communities, using Web-based promotion to attract new members and offering
special incentives and promotions.
CONVERT MEMBERS TO BUYERS THROUGH NEW INITIATIVES
Xoom.com has used its proprietary database marketing technology and other
e-commerce channels to effectively convert reach into e-commerce revenue.
Xoom.com's goal is to foster user loyalty and encourage users to take advantage
of Xoom.com's services in their future e-commerce transactions. Xoom.com has
worked to develop incremental channels of e-commerce, thereby enhancing the
Xoom.com database and increasing the number of members qualified to receive
relevant direct product offers.
CONTINUE TO OFFER NEW PRODUCTS AND SERVICES
In addition to its primary product offerings such as computer software,
computer accessories and peripherals, consumer electronics and clip art on
CD-ROM, Xoom.com has introduced a DVD movie club, gift items, health related
products, a travel club, long distance services and personal finance
newsletters, among other products.
EXPAND INTERNATIONALLY
For the year ended December 31, 1998, international sales comprised 25% of
Xoom.com's total net revenue and 31% of e-commerce revenue. Xoom.com believes
that it is particularly well-positioned to benefit from international sales
growth because, unlike traditional retailers, Xoom.com is not encumbered with an
international distribution infrastructure that can depress margins. In February
1999, in partnership with WebNext s.r.l., an Italian corporation, Xoom.com
launched its Italian site, Xoom.it, the first of Xoom.com's international
partnerships, and is currently targeting several other European nations for
further expansion.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES
Xoom.com has entered into a number of acquisitions, license arrangements and
strategic alliances in order to build its membership base and services, provide
community-specific content, generate additional traffic and establish additional
sources of net revenue. Xoom.com intends to continue making acquisitions to
increase reach and membership and to seek additional strategic alliances with
content and distribution partners, including alliances that create co-branded
sites through which Xoom.com markets its services.
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USE DATABASE EXPERTISE TO GAIN ACCESS TO MEMBERS OF THIRD PARTY SITES
Xoom.com currently manages e-mail databases containing a total of
approximately four million names on behalf of third party sites in exchange for
the right to conduct direct e-commerce campaigns to the members of those sites.
Xoom.com generally shares the revenue generated through direct offers with the
partner site. Xoom.com intends to use its expertise in direct e-commerce to
increase the number of e-mail addresses under management and the number of
individuals receiving offers from Xoom.com.
DEVELOP LEADING EDGE TARGETING TECHNOLOGY AND SOFTWARE
Xoom.com has developed a proprietary, sophisticated database stratification,
offer targeting and delivery system. The system utilizes demographic and
personal interest information provided by Xoom.com's members prior purchasing
history, along with data appended from third party providers, to determine a set
of offers most likely to appeal to individual members. Xoom.com intends to
continue to enhance and upgrade its database marketing technology and software
to provide more relevant offers to its members.
INCREASE ADVERTISING REVENUE
Xoom.com intends to increase advertising revenue by focusing on a number of
key strategies, including expanding its advertising customer base, increasing
advertising rates, page views and the average size and length of advertising
contracts, hiring additional direct sales representatives and continuing to
invest in improving its advertisement serving and targeting technology.
PRODUCTS AND SERVICES
By offering free services, Xoom.com creates a diverse range of communities
and a critical mass of members with whom to interact. Xoom.com provides each
member with unlimited disk space on its servers and the use of powerful Web
publishing tools for the rapid creation of a personalized Web site.
Additionally, Xoom.com offers members free e-mail, chat, page counters, online
clip art, electronic newsletters and online greeting cards, as well as excellent
customer service and high-quality site performance. Members can participate in
one or more of over 200 communities and set up direct links to their personal
Web sites, allowing them to take advantage of Xoom.com's services without the
need to access the Xoom.com site directly.
HOW VISITORS BECOME MEMBERS
To become a member, a visitor must provide a valid e-mail address as well as
permission to be re-contacted with targeted news and product offers by e-mail. A
new member can then use one or more of our free services, such as building a Web
page, joining a community or sending an online greeting card, or can purchase
products at a discount. Xoom.com's services are designed so that their use
attracts new members. For example, online greeting cards contain a message that
informs the recipient of the card's origins and provides information on how the
recipient can learn more about Xoom.com and become a member. Xoom.com also
encourages members to link their Web sites and communities to users outside of
Xoom.com, thereby increasing Xoom.com's visibility among potential members.
CONVERTING MEMBERSHIP INTO E-COMMERCE REVENUE
Following membership registration, Xoom.com sends the new member an e-mail
with password and membership confirmation, along with an initial product offer.
Thereafter, Xoom.com sends the member an e-mail approximately once a week,
containing product offerings or informational newsletters. Each e-mail contains
directions for removal from Xoom.com's address list, should the
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member wish to stop receiving offers. Product offers are made to members
worldwide using direct e-commerce techniques. Currently, Xoom.com typically
makes product offers to its entire membership base or target segments of its
membership based on the Web services they use. As Xoom.com includes additional
purchasing history and third party data in its member database, Xoom.com
believes it will be able to target consumers having an affinity for certain
products and services effectively. Frequent directed e-mail offers, combined
with ease of ordering, provide a context for on-demand purchases of products and
services. The following chart details Xoom.com's major product and service
offerings for the year ended December 31, 1998 and approximate prices for each
category:
<TABLE>
<CAPTION>
PRODUCT CATEGORIES PRICE RANGE OFFERINGS
- ------------------------------------------------- ------------ -------------------------------------------------
<S> <C> <C>
Computer Software................................ $ 15-$ 50 Photo editing software, Web utilities, operating
systems, video games, reference, hobby, voice
recognition
Computer Accessories and Peripherals............. $ 19-$ 99 Modems, digital video cameras, hard drives,
keyboards, mice, cables, CD cleaner
Consumer Electronics............................. $ 179-$399 Digital cameras, DVD players
DVD Movies....................................... $ 16-$ 37 Comedy, drama, horror, action
Collectibles..................................... $ 6-$199 Beanie Babies, Furbys, South Park collections
Gifts............................................ $ 14-$ 99 Jewelry, picture frames, Xoom.com branded gifts
Clip Art......................................... $ 19-$ 79 CD-ROM clip art collections
Services......................................... $ 10-$199 Long distance telephone service, financial
newsletters
</TABLE>
XOOM.COM BUYER'S CLUB AND LIST PARTNERING
The Xoom.com Buyer's Club affiliate program allows third party sites to
place a Xoom.com registration engine on their site. The registration engine
allows users to opt-in to receive direct e-mail offers from Xoom.com. The
revenue Xoom.com generates from members registering through this program is
shared with the site hosting the registration engine. Sites participating in the
Xoom.com Buyer's Club include InfoSpace.com, Talk City, Deja News, Mplayer.com
and NetNoir among others. In addition, a number of third party sites allow
Xoom.com to send pre-approved product offers to their membership base in
exchange for managing the e-mail database of such sites and sharing revenue
generated from product sales. Among the sites participating in this program are
Talk City, Deja News, Ulead Software, BUYDIRECT.com and Sausage Software.
Xoom.com currently manages approximately three million e-mail addresses on
behalf of third party sites through these two programs.
STRATEGIC ALLIANCES
Xoom.com has entered into a number of strategic alliances, including the
following:
- HANOVER DIRECT AND IMPULSE! BUY NETWORK. Xoom.com has formed a strategic
alliance with Hanover Direct, a leading catalog direct e-commerce company,
and Impulse! Buy Network, a leading developer of online merchandising
software, to create a new Internet e-commerce shopping channel. Under the
alliance, Xoom.com and Hanover Direct plan to combine their respective
products and those of third parties for sale via the channel, which will
operate 24 hours-a-day, seven days per week on the Xoom.com site. Using
Impulse! Buy Networks' technology, new merchandise in limited quantities
will be rotated on an hourly basis around the
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clock so that consumers are motivated toward immediate purchases. Xoom.com
will share revenue from this channel with Hanover Direct and Impulse! Buy
Network.
- ZDNET. Xoom.com has created and hosts a co-branded site, with the look and
feel of the ZDNet Web site, that markets Xoom.com's clip art to ZDNet
visitors. Xoom.com and ZDNet share revenue from advertising and product
sales on the co-branded site. Also, ZDNet has created and hosts a
co-branded site, with the look and feel of the Xoom.com Web site, that
promotes ZDNet's Software Library to Xoom.com members. The Library
consists of thousands of shareware and freeware programs that have been
carefully reviewed and are available for free download. Xoom.com is
offering the co-branded Software Library as a new, free member service,
and will share revenue from advertising on the co-branded site.
- QUINTEL COMMUNICATIONS. Xoom.com has signed an agreement with Quintel
Communications, the nation's leading direct marketer of telecommunications
products to consumers and small businesses, to offer Qwest Communications'
long distance service to Xoom.com members. The Qwest long distance rate is
being offered to Xoom.com's members throughout the Xoom.com network of
sites, within Xoom.com's member newsletter and through its direct e-mail
offers. Xoom.com recently expanded its relationships with Quintel to
promote and market IP telephony and unified messaging.
- MYPOINTS.COM, INC. Xoom.com has entered into an agreement with
MyPoints.com, a leading provider of Internet loyalty reward solutions,
pursuant to which MyPoints.com will develop and implement XoomPoints, a
privately labeled loyalty rewards program that will enable Xoom.com
members to collect and redeem loyalty reward points.
- NETGATEWAY, INC. Xoom.com has entered into an agreement with NetGateway to
launch Xoom.com Member Stores, a free service that allows small business
owners to build and promote their own online stores. The service uses
NetGateway's technology to allow Xoom.com members to quickly and easily
create an online store, as well as the opportunity to promote their store
in the Xoom.com Member Stores shopping area.
Xoom.com's strategic alliances are under agreements with a duration of one
year or less. Although Xoom.com views its strategic relationships as a key
factor in its overall business strategy, it is not certain that the strategic
partners will view their relationships with Xoom.com as significant to their own
business or that they will not reassess their commitment to Xoom.com in the
future. In addition, it is possible that one of the strategic partners will
break its agreement with Xoom.com, and Xoom.com might not be able to
specifically enforce the terms of the agreement. Xoom.com's arrangements with
strategic partners generally do not establish minimum performance requirements
for the strategic partners but instead rely on their voluntary efforts. In
addition, most of the agreements with strategic partners may be terminated by
either party with little notice. Therefore, there is no guarantee these
relationships will be successful. In the event that a strategic relationship is
discontinued for any reason, Xoom.com's business, results of operations and
financial condition may be materially adversely affected. In addition, Xoom.com
cannot guarantee that Xoom.com will be successful in establishing additional
strategic relationships.
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SALES AND MARKETING
Xoom.com's sales and marketing strategy is designed to strengthen awareness
of the Xoom.com brand, increase online traffic, build member loyalty, maximize
repeat purchases, increase the size and frequency of e-commerce transactions and
develop additional revenue opportunities.
MARKETING THE XOOM.COM SITE
Historically, Xoom.com has marketed its services primarily by word-of-mouth
and indirect promotions by members with links to the Xoom.com site and through
the use of Xoom.com's services. For example, each e-mail that a member sends
using Xoom.com's e-mail service contains a message from Xoom.com that promotes
its service offerings. Xoom.com believes that such relationship marketing will
continue to generate a substantial amount of additional traffic and new members.
In the future, Xoom.com expects to develop other cost-effective methods of
marketing the Xoom.com brand through relevant media, potentially including
print, radio and television. All promotions will be designed to increase traffic
and brand awareness of the Xoom.com name. Xoom.com also intends to introduce a
number of other brand awareness and membership retention programs on its Web
site to make use of Xoom.com's large and growing member base and visitor
traffic.
PRODUCT MARKETING
Xoom.com applies a sophisticated direct e-commerce program, modeled after
traditional direct mail campaigns, to generate product sales. Regular e-mails
communicate targeted offers to members at an extremely low cost. As Xoom.com
gathers additional information about its members, Xoom.com intends to further
target its offers and increase its range of product offerings. Xoom.com has
developed marketing campaign-management software that uses statistical
techniques to analyze a test campaign and to predict the expected response rate
to such campaign if it is rolled out to a larger group of members. Results are
usually available in less than one day. This allows Xoom.com quickly and
efficiently to test-market potential product offerings. On the basis of these
tests, Xoom.com selects product offers for a larger audience and tests price to
maximize response, sales or profitability. Tests also allow Xoom.com to
structure campaigns that maximize member retention.
ADVERTISING
Xoom.com has a direct sales organization, located in New York and San
Francisco, that is dedicated to developing and maintaining close relationships
with top advertisers and leading advertising agencies nationwide. As of May 31,
1999, Xoom.com had 20 employees in its direct sales organization. From time to
time, Xoom.com also enters into arrangements with a number of third-party
advertising sales representatives, although, as of May 31, 1999, Xoom.com had no
such arrangements. Xoom.com's sales organization is focused solely on selling
advertising on all Xoom.com properties. Xoom.com's sales organization consults
regularly with advertisers and agencies on design and placement of their
Web-based advertising, provides advertisers with advertising measurement
analysis and focuses on providing a high level of customer service and
satisfaction.
Advertisers and advertising agencies typically enter into short-term
agreements, of an average of one to two months in duration, under which they
receive a guaranteed number of impressions for a fixed fee. Xoom.com has
experienced, and expects to continue to experience, a variable renewal rate for
its advertising contracts. Advertising on the Xoom.com site currently consists
primarily of banner-style advertisements that are prominently displayed at the
top of pages on a rotating basis throughout the Xoom.com site. From each banner
advertisement, viewers can directly access the advertiser's own Web site through
a hyperlink, thus providing the advertiser an opportunity to directly interact
with an interested customer. Xoom.com's standard rate card cost per thousand
impressions for banner
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advertisements currently ranges from $8 to $12, depending upon location of the
advertisement and the extent to which it is targeted for a particular audience.
Xoom.com may provide discounts from standard rates for higher volume,
longer-term advertising contracts.
ADVERTISING SPONSORSHIPS
Xoom.com has signed a number of long-term sponsorships of a minimum of six
months duration as a result of the growth in reach of the Xoom.com site and the
desire of advertisers to reach Xoom.com's membership and user base. Such
sponsorships generally provide for specific placement on the Xoom.com site and
the delivery of a minimum number of impressions over the course of the contract.
Xoom.com has signed such agreements with BUYDIRECT.com, eBay, InfoSpace and
NECX, among others.
ADVERTISING CUSTOMERS
During the twelve months ended December 31, 1998, Xoom.com had approximately
133 advertisers on its Web site. For the year ended December 31, 1998,
Xoom.com's five largest advertising customers, GoTo.com, About.com, Maaznet
Directory Services, NECX and Yoyodyne Entertainment, accounted for approximately
35% of advertising revenue (approximately 9% of total net revenue). The
following is a list of our top 15 advertising customers by net revenue for the
year ended December 31, 1998:
<TABLE>
<S> <C> <C>
Apartments.com About.com USA Net
BUYDIRECT.com Musicblvd Network Visual Properties
eBay NECX VR Services
GoTo.com Sportsline USA Yoyodyne Entertainment
Maaznet Directory Services Spree.com Ziff-Davis
</TABLE>
CUSTOMER SERVICE AND SUPPORT
Xoom.com believes that the strength of its customer service and technical
support operations is critical to Xoom.com's success in maintaining its
membership base, increasing membership and encouraging repeat usage and
purchases. Xoom.com has established a team of customer service and technical
support professionals who process inquiries and monitor the status of orders,
shipments and payments, operating from 7 a.m. to 6 p.m. Pacific time Monday
through Friday. Members can access customer service by e-mail and through a
toll-free telephone number. Xoom.com intends to enhance and automate the e-mail
response portions of its customer service and technical support operations in
the near future.
WAREHOUSING AND FULFILLMENT
Xoom.com has no fulfillment operation or warehouse facility of its own, and
currently relies primarily on Banta for warehousing and fulfillment services. As
a result of its product testing, Xoom.com does not generally carry large amounts
of inventory of any given product. Most shipments are made from Banta's
warehouse in Orem, Utah. In the event that Xoom.com's product sales increase
substantially, particularly abroad, Banta has facilities within and outside of
the United States that can handle additional shipment and warehousing needs.
Xoom.com uses automated interfaces for accepting, sorting and processing
orders to enable it to achieve the most rapid and economical purchase and
delivery terms. Xoom.com processes approximately 95% of orders online, with the
remainder by telephone, fax or mail. Once Xoom.com receives an order, Xoom.com
sends a confirmation by e-mail to the customer. At the end of each day, Xoom.com
sends orders to Banta or to other suppliers for processing. When Xoom.com sends
orders
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to Banta, Banta provides confirmation to Xoom.com along with shipping
information for all ground-shipped U.S. orders. International orders through
Banta are sent by international air mail. Xoom.com forwards shipping information
by e-mail to customers.
TECHNOLOGY AND INFRASTRUCTURE
Xoom.com has developed an open standard hardware and software system that is
designed for reliability. System architecture is based on a distributed model
that is highly scalable, flexible and modular, emphasizing extensive automation
and a high degree of redundancy that is designed to minimize single points of
failure. The system integrates site management, network monitoring, quality
assurance, transactions processing and fulfillment services. Currently, the
system has 2.5 terabytes of unformatted disk space, supports over 25 million
hits per day, has a peak bandwidth of over 90 megabits per second and transfers
350 megabytes of data each day.
Xoom.com uses network servers that are housed separately by application at
Exodus Communications, Inc. in Santa Clara, California and Frontier Global
Center in Sunnyvale, California, third-party and public domain server software
that Xoom.com has optimized internally, and internally developed tools and
utilities. Requests for files are distributed to the appropriate servers using
load distribution and balancing hardware. Xoom.com also employs in-house
monitoring software that includes automated diagnostic programs and intelligent
agents that test and measure system response, create reports for evaluation by
technical staff and generate pager calls in the event of system failures.
Additional software monitors abuse of the site by members and potential hackers.
Reporting and tracking systems generate daily membership, order and campaign
reports. Membership and mailing engines allow for efficient deployment of member
data and targeting of e-mail campaigns.
Xoom.com stores member-generated content on a redundant array of independent
disks. Xoom.com stores member profile information on multiple disk arrays using
Oracle database software and backs it up on long-term tape storage devices on a
daily basis. Xoom.com will continue to upgrade and expand its server and
networking infrastructure in an effort to improve Xoom.com's fast and reliable
access to its Web site and communities. Any system failure that causes an
interruption in service or a decrease in responsiveness of the Xoom.com Web site
could result in less traffic on the Web site and, if sustained or repeated,
could impair Xoom.com's reputation and the attractiveness of its brand.
Xoom.com's site is connected to the Internet via multiple DS-3 and OC-3
links on a 24 hour-a-day, seven days per week basis by Exodus and Frontier
Global Center. Exodus and Frontier Global Center also provide and manage power
and maintain the correct environment for Xoom.com's networking and server
equipment. Xoom.com manages and monitors servers and networks remotely from its
headquarters in San Francisco, California. Xoom.com strives to rapidly develop
and deploy high-quality tools and features into its system without interruption
or degradation in service. Any disruption in the Internet access provided by
Exodus or Frontier Global Center, or any interruption in the service that Exodus
or Frontier Global Center receives from other providers, or any failure of
Exodus or Frontier Global Center to handle higher volumes of Internet users to
the Xoom.com site could have a material adverse effect on Xoom.com's business,
results of operations and financial condition.
COMPETITION
The market for community-based direct selling channels on the Internet is
new and rapidly evolving. Competition for members, consumers, visitors and
advertisers is intense and is expected to increase over time. Barriers to entry
are relatively low. Other companies that are primarily focused on creating
Web-based communities on the Internet and with whom Xoom.com competes are Tripod
and WhoWhere, subsidiaries of Lycos, GeoCities, recently acquired by Yahoo!, and
theglobe.com.
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Xoom.com also faces competition from, and competes for visitors and traffic
with, Web directories, search engines, shareware archives, content sites, online
service providers, and traditional media companies such as Disney (including ABC
and ESPN), America Online (including Netscape), CBS, Excite@Home, Infoseek,
Lycos, Microsoft, Time Warner and Yahoo!.
Xoom.com also expects intense competition in the e-commerce market from an
ever increasing number of companies selling goods and services over the
Internet, particularly goods and services that relate to the use of computers.
These competitors include:
- traditional computer retailers including CompUSA and Micro Electronics'
MicroCenter;
- various mail-order retailers including CDW Computer Centers, Micro
Warehouse, Insight Enterprises, Inc., PC Connection, Inc. and Creative
Computers;
- Internet-focused retailers including Amazon.com, Egghead's Egghead.com,
software.net, and New England Circuit Sales' NECX Direct;
- manufacturers that sell directly over the Internet including Dell
Computer, Gateway 2000, Apple Computer and many software companies;
- a number of online service providers including America Online and the
Microsoft Network that offer computer products directly or in partnership
with other retailers;
- some non-computer retailers such as Wal-Mart Stores that sell a limited
selection of computer products in their stores; and
- computer products distributors that may develop direct sales channels to
the consumer market.
Increased competition from these and other sources could require Xoom.com to
respond to competitive pressures by establishing pricing, marketing and other
programs or seeking out additional strategic alliances or acquisitions that may
be less favorable to Xoom.com than it could otherwise establish or obtain, and
thus could have a material adverse effect on Xoom.com's business, prospects,
financial condition and results of operations.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Xoom.com's success depends significantly upon its proprietary technology.
The nature of Xoom.com's intellectual property protections and the associated
risks faced by Xoom.com are substantially similar to those discussed above with
respect to NBCi on page 114.
LEGAL PROCEEDINGS
Xoom.com is litigating a dispute with Imageline, Inc., which claims to own
the copyright in certain clip art images licensed to Xoom.com by Sprint Software
Pty Ltd, an unrelated third party. Some of the disputed images were included in
versions of Xoom.com's Web Clip Empire CD-ROM product licensed by Xoom.com to
third parties, including other software clip publishers. The images licensed
from Sprint Software generated less than 1.0% of Xoom.com's total net revenue in
1998, and since September 30, 1998, Xoom.com has not received any net revenue
for images licensed from Sprint Software.
To resolve this matter, Xoom.com filed a lawsuit against Imageline in August
1998 in the United States District Court for the Eastern District of Virginia.
Xoom.com asked for a declaration with respect to Imageline's allegations of
copyright infringement regarding the clip art images. In September 1998
Imageline filed a counterclaim, which they amended in January 1999, seeking up
to $60 million in damages. In March 1999, the parties completed the discovery
process and filed separate motions for partial summary judgment. On April 5,
1999, the court granted one of Xoom.com's motions for partial summary judgment
and stayed the case to allow Imageline to file all necessary copyright
registration applications to cover the clip art images.
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Xoom.com believes that the claims asserted in Imageline's counterclaim are
without merit and continues to defend against them vigorously. As part of the
lawsuit, Xoom.com is seeking to enforce its right to indemnification under its
license agreement with Sprint Software for any damages that may be imposed on
Xoom.com. Xoom.com does not know whether Sprint Software will be able to fulfill
its indemnity obligations. Depending on the outcome of the litigation, Xoom.com
may also need to indemnify third parties for damages in connection with the use
of the Imageline images. An unfavorable outcome to this litigation could
adversely affect Xoom.com's business and results of operations.
Zoom Telephonics, Inc. filed a lawsuit against Xoom.com in September 1998 in
the United States District Court for the District of Massachusetts alleging
trademark infringement and related statutory violations. Xoom.com was not served
with Zoom Telephonics' complaint until January 1999. Zoom Telephonics has
demanded that Xoom.com stop using the Xoom.com trademark and has asked for an
unspecified amount of money damages. Xoom.com responded to the complaint in
February 1999. In April 1999, Zoom Telephonics filed a motion for preliminary
injunction to stop Xoom.com from using any mark containing "Xoom". Xoom.com has
filed a motion to oppose Zoom Telephonic's motion for preliminary injunction.
Xoom.com believes that the claims asserted by Zoom Telephonics are without merit
and intends to defend against them vigorously. Xoom.com cannot assure you,
however, that the results of this litigation will be favorable to Xoom.com. An
adverse result of the litigation could have a material adverse effect on
Xoom.com's business and results of operations, particularly if the litigation
forces Xoom.com to make substantial changes to its name and trademark usage. Any
name change could result in confusion to consumers and investors, which could
adversely affect the results of Xoom.com's operations and the market price of
its common stock.
EMPLOYEES
As of May 31, 1999, Xoom.com had 136 full-time employees, including 78 in
sales and marketing, 28 in operating and development and 32 in finance and
administration. Xoom.com's future success will depend, in part, on its ability
to continue to attract, retain and motivate highly qualified technical and
management personnel, for whom competition is intense. From time to time,
Xoom.com also employs independent contractors to support its research and
development, marketing, sales and support and administrative organizations.
Xoom.com's employees are not covered by any collective bargaining agreement, and
Xoom.com has never experienced a work stoppage. Xoom.com believes its relations
with its employees are good.
FACILITIES
Xoom.com's headquarters are currently located in a leased facility in San
Francisco, California, consisting of approximately 29,000 square feet of office
space, which is under leases that expire through September 30, 2007. Xoom.com
also leases approximately 6,500 square feet of office space in New York, New
York for its East Coast sales offices under a lease that expires July 15, 2004.
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XOOM.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this proxy
statement/prospectus. The results shown in this proxy statement/ prospectus do
not necessarily indicate the results to be expected in any future periods. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward looking
statements due to a number of factors, including those set forth in the section
entitled "Risk Factors" and elsewhere in this proxy statement/prospectus.
OVERVIEW
Xoom.com is one of the fastest growing direct e-commerce companies on the
Internet. Xoom.com attracts members to its community site with a variety of free
services, including homepages, e-mail, chat rooms, electronic newsletters, clip
art and software libraries, page counters and online greeting cards. Xoom.com's
members can also join topical communities where they can exchange ideas and
information. Members may also enter specialized forums such as Investor Place,
Women's Circle or Health & Fitness, where they can gain access to professional
content and special product and service offers available only on the Xoom.com
Web site. Upon registration, members agree to receive periodic offers of
products and services via e-mail. These competitively priced and continuously
updated offers include computer software, computer accessories and peripherals,
consumer electronics, clip art on CD-ROM and collectible items. In addition,
Xoom.com offers services such as a travel club, long distance telephone services
and a DVD club. Xoom.com's new offerings will include services such as home and
auto insurance, wireless telecommunications services and membership clubs, and
products such as magazine subscriptions, appliances, online games, photography
supplies and gardening tools, among others. Xoom.com believes that its rapidly
growing base of self-qualified members provides Xoom.com with highly attractive
e-commerce opportunities. In addition, Xoom.com believes that its high levels of
traffic and the number of unique users, as well as the number of unique users as
a percentage of all Internet users, that visit its site or affiliated sites on
which Xoom.com offers services on a monthly basis (often referred to as "reach")
present an attractive platform for advertising.
Xoom.com was incorporated in April 1996 and commenced offering products for
sale on its Web site in March 1997. From inception through December 1996,
Xoom.com had no sales and its operating activities related primarily to
developing necessary computer infrastructure, recruiting personnel, raising
capital and initial planning and development of the Xoom.com site. For the
period beginning with the operation of the Xoom.com site through December 31,
1997, Xoom.com continued these activities and focused on building sales
momentum, establishing relationships with manufacturers, marketing the Xoom.com
brand and establishing customer service and fulfillment operations.
Xoom.com generates net revenue from e-commerce, primarily through the use of
direct e-mail marketing, licensing and the sale of advertising on its Web site.
Total net revenue was $841,000, $8.3 million and $4.4 million for the years
ended December 31, 1997 and 1998 and for the three months ended March 31, 1999,
respectively. The increase in total net revenue was primarily due to the growth
of its member base, which resulted in increases in e-commerce revenue, increased
Web-based advertising revenue and, to a lesser extent, an increase in license
and other fees. Cost of net revenue increased substantially in absolute dollars,
reflecting the increased sales volume. As Xoom.com has grown, its operating
expenses in absolute dollars have increased. Xoom.com expects that the dollar
amount of its operating expenses will continue to increase as a result of
acquisitions, sales and marketing efforts, increased funding of site
development, branding of the Xoom.com name and the expansion of technology,
operating infrastructure and general and administrative staff needed to support
its growth.
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From inception through March 31, 1999, Xoom.com generated total net revenue
of approximately $13.6 million. Quarterly net revenue increased from
approximately $420,000 in the fourth quarter of 1997 to $4.4 million in the
first quarter of 1999. Since January 1998, the number of members has grown from
100,000 to 7.6 million as of March 14, 1999.
As of March 31, 1999, Xoom.com had an accumulated deficit of $17.7 million.
Although Xoom.com has experienced growth in net revenue, members, customers and
reach in recent periods, these growth rates are not sustainable. These growth
rates will decrease and are not indicative of future growth rates that Xoom.com
may experience.
Xoom.com has not achieved profitability on a quarterly or annual basis to
date, and anticipates that it will incur net losses for the foreseeable future.
The extent of these losses will depend, in part, on the amount and rates of
growth in its net revenue from e-commerce and advertising. Xoom.com expects its
operating expenses to increase significantly, especially in the areas of sales
and marketing and brand promotion. As a result, Xoom.com will need to increase
its quarterly net revenue to achieve profitability. Xoom.com believes that
period-to-period comparisons of its operating results are not meaningful and
that you should not rely upon the results for any period as an indication of
future performance. Xoom.com's business, results of operations and financial
condition will be materially and adversely affected if:
- net revenue does not grow at anticipated rates;
- increases in operating expenses are not offset by commensurate increases
in net revenue; or
- Xoom.com is unable to adjust operating expense levels in light of net
revenue.
Xoom.com's operating losses might increase in the future, and Xoom.com
cannot guarantee that it will ever achieve or sustain profitability.
To date, Xoom.com has entered into business and technology acquisitions,
license arrangements and strategic alliances in order to build its communities,
provide community-specific content, generate additional traffic, increase the
number of members and establish additional sources of net revenue. In March
1998, Xoom.com acquired Paralogic Corporation, a chat service, for a purchase
price of approximately $3.0 million (consisting of 682,410 shares of its common
stock with a fair value of $2.31 per share, $1.4 million of debt, and $61,000 of
acquisition costs). Xoom.com also acquired Sitemail, an HTML-based e-mail
product, through its purchases of Global Bridges and certain assets of
Revolutionary Software in June 1998. Global Bridges, which Xoom.com purchased
for approximately $1.2 million (consisting of 215,018 shares of common stock
with a weighted average fair value of $4.64 per share, $143,000 in cash, a note
payable for $63,000 and approximately $23,000 of acquisition costs), owned the
exclusive selling rights to Sitemail. Revolutionary Software, from which
Xoom.com purchased certain assets for approximately $1.7 million (consisting of
191,232 shares of common stock with a weighted average fair value of $6.28 per
share, $273,000 in cash and a note payable for $263,000, along with certain
earnout provisions), developed Sitemail and had licensed it to Global Bridges.
Also in June 1998, Xoom.com purchased from ArcaMax an exclusive, perpetual
license to use Greetings Online, an online greeting card service, for
approximately $644,000 (consisting of 133,334 shares of common stock with a fair
value of $3.33 per share, $20,000 in cash and a note payable for $180,000).
Additionally, in July 1998, Xoom.com acquired Pagecount, a Web page counter and
guestbook service, for approximately $1.5 million (consisting of $200,000 in
cash, a note payable for $1.2 million and approximately $60,000 of acquisition
costs).
Because most Internet business acquisitions involve the purchase of
significant amounts of intangible assets, acquisitions of such businesses also
result in goodwill and purchased technology and significant charges for
purchased in-process research and development. During 1998, Xoom.com expensed
$790,000 for purchased in-process research and development and approximately
$1.8 million for the amortization of goodwill and purchased technology. During
the three months ended March 31,
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1998 and 1999, Xoom.com expensed $330,000 and $0 for purchased in-process
research and development and approximately $0 and $862,000 for the amortization
of goodwill and purchased technology, respectively.
Xoom.com intends to continue making acquisitions to increase online reach
and membership and to seek additional strategic alliances with content and
distribution partners, including alliances that create co-branded sites through
which Xoom.com markets its services. Acquisitions carry numerous risks and
uncertainties, including:
- difficulties in integrating operations, personnel, technologies, products
and the information systems of the acquired companies;
- diversion of management's attention from other business concerns;
- risks of entering geographic and business markets in which Xoom.com has
little or no prior experience; and
- potential loss of key employees of acquired entities.
Xoom.com cannot guarantee that it will be able to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future. A failure to integrate acquired entities or assets successfully could
have a material adverse effect on its business, results of operations and
financial condition. In addition, Xoom.com cannot guarantee that it will be
successful in identifying and closing transactions with potential acquisition
candidates.
International sales comprised approximately 30%, 25% and 21% of total net
revenue for the years ended December 31, 1997 and 1998 and the three months
ended March 31, 1999, respectively. This consisted of $252,000, $2.1 million and
$929,000 in net revenue, respectively, during such periods.
Xoom.com has recorded deferred stock compensation charges of $0, $551,000
and $2.0 million during the period from April 16, 1996 (inception) through
December 31, 1996 and for the years ended December 31, 1997 and 1998,
respectively. These charges account for the difference between the exercise
price and the fair value of certain stock options Xoom.com granted to its
employees. The deferred compensation charges include options granted to various
employees that vest upon certain events, such as the successful completion of an
initial public offering or the achievement of individual performance goals. In
June 1998, Xoom.com modified these options so that they fully vest upon the
earlier of such an event or two years from the date of grant. Therefore,
Xoom.com recorded related deferred compensation charges of approximately
$783,000 and amortization charges (based on cumulative vesting to that date) of
approximately $618,000 in June 1998. Xoom.com recorded amortization of deferred
stock compensation of $248,000, $1.4 million and $230,000 in the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999,
respectively. Xoom.com expects to record amortization expense related to these
deferred stock compensation charges of approximately $580,000, $225,000, $80,000
and $20,000 in the years ended December 31, 1999, 2000, 2001 and 2002,
respectively. Xoom.com cannot guarantee, however, that it will not accrue
additional charges for other reasons or that its current estimates of these
charges will prove accurate, either of which events could have a material
adverse effect on its business, results of operations and financial condition.
Xoom.com will need to increase its inventory levels in the future to support
a wider base of e-commerce products and to take advantage of volume purchase
discounts. Xoom.com contracts with a third party warehousing and order
fulfillment company to stock inventory and ship products directly to customers.
Xoom.com takes title to this inventory, has responsibility for this inventory,
and records inventory on its balance sheet until the final shipment to customers
or other disposition of the inventory. There are inherent risks and costs in
stocking inventory and coordinating with a third party warehousing and order
fulfillment company. These risks include, but are not limited to, product
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obsolescence, excess inventory and inventory shortages resulting in unfulfilled
orders, which could materially adversely affect operating results in the future.
RECENT EVENTS
On April 1, 1999, Xoom.com acquired 100% of the outstanding shares of a
company, which operates a global directory of small businesses. The purchase
consideration consisted of 21,894 shares of Xoom.com common stock with an
estimated fair value of $77.23 per share. Xoom.com will account for this
acquisition as a purchase.
On April 9, 1999, Xoom.com completed a secondary public offering of Xoom.com
common stock and issued 4,600,000 shares (including 600,000 shares issued in
connection with the exercise of the underwriter over-allotment option) at a
price of $66.00 per share. Of the 4,600,000 shares of common stock sold in the
offering, 2,659,800 shares were sold by Xoom.com and 1,940,200 shares were sold
by existing stockholders. Xoom.com received net proceeds from the offering of
approximately $167 million.
On May 3, 1999, Xoom.com acquired 100% of the outstanding shares of
MightyMail Networks, Inc., a developer of an enhanced e-mail product which
enables customization of e-mail according to user preferences. The purchase
consideration consisted of 268,761 shares of Xoom.com common stock with an
estimated fair value of $72.10 per share. In addition, Xoom.com will place
67,186 shares of Xoom.com common stock into an escrow account. Of the shares
held in escrow, 25% will be released in November 1999 and 25% in May 2000, upon
the completion of certain performance objectives, and 50% will be released in
May 2000, upon the expiration of certain indemnification obligations. Xoom.com
will account for this acquisition as a purchase.
On May 5, 1999, Xoom.com acquired 100% of the outstanding shares of Net
Floppy, Inc., a provider of online file storage for web users. The purchase
consideration consisted of 7,528 shares of Xoom.com common stock with an
estimated fair value of $72.10 per share and $560,467 in cash. In addition,
Xoom.com will place 7,526 shares of Xoom.com common stock into an escrow
account. Of the shares held in escrow, 50% will be released upon completion of
certain performance objectives in November 1999 and 50% will be released in May
2000, upon the expiration of certain indemnification obligations. Xoom.com will
account for this acquisition as a purchase.
On May 9, 1999 Xoom.com entered into the Merger Agreement and the
Contribution Agreement as discussed in this proxy statement/prospectus.
On June 16, 1999, Xoom.com acquired 100% of the outstanding shares of
Paralogic Software Corporation, a provider of Java based community products and
services, such as customizable chat rooms, discussion boards, guestbooks, and
event calendars. The purchase consideration consisted of 748,816 shares of
Xoom.com common stock with an estimated fair value of $47.13 per share. Xoom.com
will account for this acquisition as a purchase.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue. From
inception through December 31, 1996, Xoom.com had no net revenue as operations
were limited and consisted primarily of start-up activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Net revenue:
E-commerce.................................................................................. 38.9% 67.1%
Advertising................................................................................. 7.1 25.8
License fees and other...................................................................... 54.0 7.1
--------- ---------
Total net revenue............................................................................. 100.0 100.0
Cost of net revenue(1):
Cost of e-commerce.......................................................................... 20.3 42.6
Cost of license fees and other.............................................................. 17.6 0.5
--------- ---------
Cost of net revenue........................................................................... 37.9 43.1
--------- ---------
Gross profit.................................................................................. 62.1 56.9
Operating expenses:
Operating and development................................................................... 136.8 46.2
Sales and marketing......................................................................... 34.7 34.1
General and administrative.................................................................. 85.7 40.5
Purchased in-process research and development............................................... -- 9.5
Amortization of deferred compensation....................................................... 29.5 17.0
Amortization of intangible assets........................................................... -- 22.1
Non-recurring charges....................................................................... 147.8 --
--------- ---------
Total operating expenses...................................................................... 434.5 169.4
--------- ---------
Loss from operations.......................................................................... (372.4) (112.5)
Other income, net............................................................................. -- 0.6
Interest expense related to warrant........................................................... -- (17.9)
--------- ---------
Net loss...................................................................................... (372.4)% (129.8)%
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) There are no material costs of advertising revenue.
NET REVENUE
Xoom.com began generating net revenue in the first quarter of 1997.
Xoom.com's total net revenue increased to $8.3 million in the year ended
December 31, 1998 from $841,000 in the year ended December 31, 1997. Net revenue
is composed of e-commerce product sales (which includes outbound shipping and
handling fees), advertising revenue, license fees and other revenue. The
increase in net revenue was primarily due to the following four factors: (A) the
expansion of its membership base; (B) an increase in the frequency of e-mail
offerings and broader product offerings (which resulted in an increase in
product sales through e-commerce); (C) an increase in Web-based advertising
(Xoom.com's higher Web site traffic increased its attractiveness to
advertisers); and to a lesser extent (D) an increase in license fees. No
customer accounted for more than 10% of total net revenue for the year ended
December 31, 1998, and one licensing customer accounted for 12% of total net
revenue for the year ended December 31, 1997.
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E-COMMERCE REVENUE
E-commerce revenue increased to $5.6 million in the year ended December 31,
1998 from $327,000 in the year ended December 31, 1997. The increase in net
revenue was primarily due to the expansion of its membership base, which
resulted in an increase in product sales, as well as expansion of the breadth of
products offered. The percentage of its total net revenue attributable to
e-commerce revenue increased to 67.1% in the year ended December 31, 1998 from
38.9% in the year ended December 31, 1997. Xoom.com expects e-commerce revenue
to continue to account for a large percentage of net revenue as Xoom.com expands
its product offerings and increases its direct e-commerce response rates through
better member demographic information and targeting of product offers.
Xoom.com believes that offering its customers attractive prices is an
essential component of its business strategy. Xoom.com may in the future
increase the discounts Xoom.com offers its customers and may otherwise alter its
pricing structures and policies. Xoom.com anticipates that any increase in
discounts or price reductions will reduce gross margins below those Xoom.com
experienced for the years ended December 31, 1998 and 1997.
ADVERTISING REVENUE
Advertising revenue increased to $2.1 million in the year ended December 31,
1998 from $60,000 in the year ended December 31, 1997. The increase in
advertising revenue is primarily a result of the increase in Xoom.com's
membership, site traffic and expansion of its advertising sales force. The
percentage of Xoom.com's total net revenue attributable to advertising revenue
increased to 25.8% in the year ended December 31, 1998 from 7.1% in the year
ended December 31, 1997.
LICENSE FEES AND OTHER REVENUE
License fees and other revenue increased to $592,000 in the year ended
December 31, 1998 from $454,000 in the year ended December 31, 1997. The
increase in license fees and other revenue is primarily a result of additional
clip art and other utilities Xoom.com was able to license to third parties. The
percentage of its total net revenue attributable to license fees decreased to
7.1% in the year ended December 31, 1998 from 54% in the year ended December 31,
1997. As Xoom.com expands its e-commerce and advertising revenue, license fees
and other revenue will continue to represent a smaller percentage of net
revenue.
COST OF NET REVENUE
Gross margins decreased to 56.9% in the year ended December 31, 1998 from
62.1% in the year ended December 31, 1997, as a result of the increase in
e-commerce revenue as a percentage of total net revenue. As a percentage of
total net revenue, the cost of e-commerce increased to 42.6% of net revenue in
the year ended December 31, 1998 from 20.3% of net revenue in the year ended
December 31, 1997. There were no material costs of net revenue associated with
advertising.
COST OF E-COMMERCE REVENUE
Cost of e-commerce consists primarily of the costs of merchandise sold to
customers, credit card commissions, product fulfillment, and outbound shipping
and handling costs. Cost of e-commerce was $3.5 million and $171,000 for the
years ended December 31, 1998 and 1997, respectively. As a percentage of
e-commerce revenue, the cost of e-commerce was 63.4% and 52.3% for the years
ended December 31, 1998 and 1997, respectively. The increase was primarily
attributable to the fact that in 1998 Xoom.com broadened its product offerings.
Xoom.com's new product offerings included items with higher costs than in the
prior year.
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COST OF LICENSE FEES AND OTHER REVENUE
Cost of license fees and other consists primarily of royalties on net
revenue from license fees. Cost of license fees was $42,000 and $148,000 for the
years ended December 31, 1998 and 1997, respectively. As a percentage of license
fees and other, cost of license fees and other were 7.2% and 32.7% for the years
ended December 31, 1998 and 1997, respectively. Cost of license fees and other
for the year ended December 31, 1997 included $81,000 in amortization of prepaid
royalties related to a product that Xoom.com discontinued in the fourth quarter
of 1997.
The mix of products Xoom.com sells will impact its gross margins and the
overall mix of e-commerce revenue, advertising revenue and license and other
fees. Xoom.com typically recognizes higher gross margins on advertising revenue
and license and other fees, which are expected to comprise a lower percentage of
total net revenue in the future. Therefore, Xoom.com expects shifts in the mix
of sales will adversely impact its overall gross margin and could materially
adversely impact its business, results of operations and financial condition.
OPERATING AND DEVELOPMENT EXPENSES
Operating and development expenses consist primarily of payroll and related
expenses for development and network operations personnel and consultants, costs
related to systems infrastructure including Web site hosting, and costs of
acquired content to enhance its Web site. Operating and development expenses
increased to $3.8 million in the year ended December 31, 1998 from $1.2 million
in the year ended December 31, 1997, and $266,000 in the period from April 16,
1996 through December 31, 1996. From inception to the year ended December 31,
1997, apart from its Web site, Xoom.com incurred approximately $300,000 in costs
relating to the development of a home office software product, which was
subsequently abandoned due to low sales volume. From June 30, 1997 to December
31, 1998, the absolute dollar increases from quarter to quarter in operating and
development expenses were primarily attributable to increases in the number of
personnel and associated costs related to enhancing the functionality and
content of its Web site. Operating and development costs decreased as a
percentage of total net revenue to 46.2% in the year ended December 31, 1998
from 136.8% in the year ended December 31, 1997.
Xoom.com believes operating and development expenses will increase
significantly in the future, especially in relation to Web site hosting costs,
as its membership grows, thus requiring additional bandwidth to support the many
free services offered to members. Xoom.com believes that it will need to make
significant investments in its Web site to remain competitive. Therefore,
Xoom.com expects that its operating and development expenses will continue to
increase in absolute dollars for the foreseeable future.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of payroll and related
expenses for personnel engaged in sales, marketing, publishing and customer
support, as well as advertising and promotional expenditures. Sales and
marketing expenses increased to $2.8 million in the year ended December 31, 1998
from $292,000 in the year ended December 31, 1997, and $24,000 in the period
from April 16, 1996 to December 31, 1996. The absolute dollar increases from
period to period in sales and marketing expenses were primarily attributable to
increased personnel and related expenses required to implement its sales and
marketing strategy as well as increased public relations and other promotional
expenses. Sales and marketing costs decreased as a percentage of total net
revenue to 34.1% in the year ended December 31, 1998 from 34.7% in the year
ended December 31, 1997. Xoom.com expects to continue hiring additional
personnel and to pursue a branding and marketing campaign. Therefore, Xoom.com
expects marketing and sales expenses to increase significantly in absolute
dollars.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and related
costs for general corporate functions, including finance, accounting, business
development, human resources, investor relations, facilities and administration,
as well as legal fees, and fees for professional services and directors. General
and administrative expenses increased to $3.4 million in the year ended December
31, 1998 from $721,000 in the year ended December 31, 1997, and $150,000 from
April 16, 1996 to December 31, 1996. The absolute dollar increases from period
to period in general and administrative expenses were primarily due to increases
in the number of general and administrative personnel, professional services,
directors fees and facility expenses to support the growth of its operations.
General and administrative expenses decreased as a percentage of total net
revenue to 40.5% in the year ended December 31, 1998 from 85.7% in the year
ended December 31, 1997. General and administrative expenses as a percentage of
net revenue have decreased because of the growth in net revenue. Xoom.com
expects general and administrative expenses to increase in absolute dollars in
future periods as Xoom.com expands its staff, incurs additional costs related to
its operations, and is subject to the requirements of being a publicly traded
company.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
For the year ended December 31, 1998, Xoom.com recognized charges to
operations for purchased in-process research and development of $330,000 in
connection with the acquisition of Paralogic Corporation, $330,000 in connection
with the purchase of certain assets of Revolutionary Software and $130,000 in
connection with the acquisition of Pagecount. Xoom.com did not recognize such
charges for the year ended December 31, 1997 or for the period from April 16,
1996 through December 31, 1996.
In connection with the Paralogic Corporation acquisition, Xoom.com acquired
Paralogic Corporation's chat technology, called ParaChat. ParaChat is designed
to provide Web sites with an option to offer chat technology without requiring
Web site hosts to buy the software, maintain or upgrade the software, or learn
any additional skills beyond what is necessary to construct a Web site. The chat
software is maintained on ParaChat's server and the Web site host is provided
with bits of source code or "tags" that are incorporated into the Web site. The
tags interface via the Internet with the ParaChat server, and thus provide the
Web site with chat capabilities. In exchange for the free service, the Web site
host allows banner advertising on its site.
As of the time of acquisition, ParaChat was not completely functional as a
commercially viable product. The nature, amount and timing of the remaining
estimated efforts necessary to develop the acquired, incomplete ParaChat
technology into a commercially viable product included:
(A) REMOTE DATABASE AUTHENTICATION: The chat server used a very simple
flat-file database to maintain authentication information. In order to allow
users to control their own password and user information, it was necessary
to design a protocol using the Java programming language. This language
enabled the chat server to remotely query an external Oracle database
through the Internet to retrieve and modify information relating to the user
and the chat room (e.g., the topic of discussion).
(B) CREATION OF NEW CHAT CLIENT: The chat software is comprised of two
parts: the client and the server. Although the server claimed compatibility
with Internet Standard RFC1459 (a standard message format for Internet relay
chat, allowing usage on multiple platforms), this feature was not useable on
a commercial basis. The server functioned only with the limited ParaChat
client, which did not allow for configuration or reconfiguration by the
end-user to match the look and feel of an existing Web site. In order to
allow deployment on an existing site, it was necessary to create an entirely
new client that consisted of various building blocks that could be composed
by the end-user using Hypertext Markup Language, also known as HTML, a
computer language that
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people use widely to create Web sites. These building blocks would then use
a Java-based communication protocol known as Inter-Applet-Communication
(IAC) to communicate with each other and coordinate communication with the
chat server. Since IAC is not well defined, and differs between browser
implementations, a substantial amount of additional software development was
required, particularly because no comparable client exists in the market
today.
(C) CONTROL INTERFACE: The acquired ParaChat network did not allow
users to control or administer their chat room in any way (e.g., eject
abusive users, close the chat room or even specify a discussion topic). The
enhancements necessary to make these features available, and to allow them
to be maintained and administered via the central authentication database
(also still under development at the time of acquisition), were complex and
required significant additional development.
(D) ADVANCES IN BROWSER TECHNOLOGY: In addition to the above
modifications and other maintenance modifications and bug fixes, the rapid
advances in Web browser technology implied continuous implementation of new
features to exploit new browser technologies.
As of the date of the technology's valuation, Xoom.com estimated that 55% of
the research and development effort had been completed at the date of
acquisition and expected the remaining research and development efforts relating
to the completion of the ParaChat technology would require approximately six
months of effort from the date of valuation through its release date of
September 1, 1998. Xoom.com estimated that three full-time engineers would be
required to complete the in-process projects. These projects included the use of
one full-time engineer for six months to work on the external database
connectivity efforts, one full-time engineer for six months to work on the
client layout efforts, and one full-time engineer for six months to work on the
management and control interface efforts. Accordingly, it was determined that
total estimated research and development costs-to-complete for the ParaChat
in-process project were $112,500. Xoom.com completed the project by the
scheduled date and the actual costs of completion were not materially different
than estimated.
As of the date of valuation, Xoom.com expected the benefit of the acquired
project to begin immediately after the estimated completion date. Xoom.com
expected that the in-process project would be developed to technological
feasibility concurrent with the September 1998 release date. Xoom.com has
demonstrated the ability to implement the on-going research and development on
time and on budget.
The technology that Xoom.com acquired from Revolutionary Software was a
Web-based e-mail technology known as SiteMail. This in-process Web-based e-mail
technology was designed to allow users to receive and send e-mail through the
Internet using a Web browser. Since the technology was Web-based, it would allow
for the integration of e-mail functionality into Web sites and would be
accessible by any Web-connected device anywhere in the world. Furthermore, by
integrating e-mail into a specific site, it would force the subscriber to visit
that site to access e-mail, thereby increasing traffic. In addition, when users
apply for e-mail accounts at Web sites offering SiteMail, they are given the
domain name of that Web site or company. The personalization of the domain name
in an e-mail address has become an innovative way of promoting a company's name
or Web site.
As of the date of acquisition, SiteMail was in the alpha testing stage of
development and required the resolution of certain scalability technological
hurdles in order to complete the technology. In addition to the scalability
issues, the following functionality requirements also needed to be addressed by
on-going research and development efforts: (A) improving the user interface; (B)
connecting the e-mail server with external databases; (C) completing spam
detection and filtering functions; and (D) completing security enhancements for
Unix Internet applications.
As of the date of acquisition, Xoom.com estimated that approximately 50% of
the research and development effort had been completed and expected the
remaining research and development efforts
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relating to the completion of the SiteMail technology to continue from the date
of acquisition through the release date of November 1998. The remaining
development effort was estimated to require approximately 4.5 months of
engineering effort. Xoom.com estimated that 3.5 full-time developers would be
required to complete this project. The total cost of remaining development was
estimated to be approximately $98,000. Xoom.com completed the project by the
scheduled date and the actual costs of completion were not materially different
than estimated.
In connection with the Pagecount acquisition, Xoom.com acquired a Web page
counter product, titled Pagecount. This product is a banner page counter that
tracks the number of visitors that view a member's site. It further breaks down
impression statistics, or page views by day, date and time. Other statistics
include a list of locations from where the requests originated and the host
names of up to 100 visitors. The software is maintained on the Pagecount server
and tags are integrated into the Web site which interface with the Pagecount
server. In exchange for the use of the Pagecount service, a banner advertisement
may be placed on each counter image.
Specifically, the nature, amount and timing of the remaining estimated
efforts necessary to develop the acquired incomplete Pagecount technology into a
commercially viable product included:
(A) STAGE OF DEVELOPMENT: As of the date of the transactions, Pagecount
was not yet able to handle large usage volumes and was only able to maintain
statistical information for small members experiencing low levels of
traffic. In addition, Pagecount did not have an advertising delivery
capability and, historically, advertisements had to be superimposed onto the
Web site by a human operator. This is a very inefficient method of placing
advertisements onto Web sites and as volume increases it would be impossible
to maintain the advertising inventory. At the date of valuation, Pagecount
was developing an advertising delivery system that would maximize the
advertising inventory being generated. Furthermore, additional development
was required to integrate the Pagecount technology into its infrastructure
in order for it to be compatible with its network.
(B) ADDITIONAL RESEARCH AND DEVELOPMENT REQUIRED: Ultimately the most
significant research and development efforts related to the remaining
engineering of the Pagecount server to permit (A) advertisers in the network
access to industry-standard reports, (B) advertisements to be placed into
the network using industry standard delivery software and (C) users to
attain enhanced reporting and credit for having displayed a large number of
banners (perhaps as a banner exchange offering).
Xoom.com estimated that approximately 55% of the research and development
effort had been completed at the date of acquisition and expected the remaining
research and development efforts relating to the completion of the Pagecount
technology to continue from the date of acquisition through the release date of
mid-December 1998. The remaining development effort at the date of acquisition
was estimated to require approximately five months of engineering effort.
Xoom.com estimated that 2.5 full-time developers would be required to complete
this project. The total estimated remaining development effort equates to a
total cost to complete of approximately $78,000. Xoom.com completed the project
by the scheduled date and the actual costs of completion were not materially
different than estimated.
AMORTIZATION OF DEFERRED COMPENSATION
Deferred compensation expense reflects the amortization of stock
compensation charges resulting from stock options and restricted stock purchase
agreements. Stock compensation charges increased to $1.4 million for the year
ended December 31, 1998 from $248,000 for the year ended December 31, 1997. This
increase was primarily attributable to the modification of certain options,
which required Xoom.com to accelerate the amortization of the related deferred
compensation, which occurred during
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the quarter ended June 30, 1998, as well as an increase in the number of options
Xoom.com granted to employees and consultants.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets totaled $1.8 million for the year ended
December 31, 1998. This amount represents amortization of intangible assets and
goodwill resulting from its acquisitions of Paralogic, Global Bridges and
Pagecount and the purchase of certain assets of Revolutionary Software,
amortized over periods ranging from 24 to 42 months.
Xoom.com has determined that, in relation to the intangible assets and based
on general and specific analysis, 2 to 3.5 year estimated useful lives are
appropriate. In general, the Internet is characterized by rapid technological
change, changes in users and customer requirements and preferences, frequent new
product and service introductions and the emergence of new industry standards
and practices.
The market for community-based direct selling channels on the Internet is
new and rapidly evolving and competition for members, consumers, visitors and
advertisers is intense. In addition, Xoom.com attracts members to its Web site
with a variety of free services, including home pages, e-mail, chat rooms,
electronic newsletters, clip art and software libraries, online greeting cards
and page counters. In order to continue attracting members using these various
methods, the free services must be constantly updated and improved.
With respect to the purchased technology associated with all business and
technology acquisitions, Xoom.com considered the effects of obsolescence,
demand, competition, and other economic factors. Due to the rapid technological
change involved in the Internet, Xoom.com estimated that new technologies would
replace the intangible assets relating to the purchased technology within a 2 to
3.5 year period.
With respect to the goodwill associated with all of the acquisitions,
Xoom.com considered the effects of obsolescence, demand, competition, other
economic factors and expected actions of competitors and others. Based on these
considerations, Xoom.com determined the positive effect of the acquisitions, and
therefore the life of the goodwill, to be from 24 to 42 months.
With respect to the intangible assets associated with Global Bridges,
Pagecount, Revolutionary Software, and ArcaMax, Xoom.com considered the
competition for users of electronic mail, Web page counters, and online greeting
card services. Xoom.com also considered the fact that they provide free e-mail
and online greeting card services to all members. Xoom.com expects to generate
revenue from advertising and direct e-commerce to such users. The competition
for these users is intense and Xoom.com expects that within two years Xoom.com
or its competitors will develop new technologies that will render the existing
products obsolete. The obsolescence of its existing technologies, without the
introduction of new products, could result in a loss of members. As a result,
Xoom.com determined the positive effect of the Global Bridges, Pagecount,
Revolutionary Software and ArcaMax transactions, and therefore the life of
intangible assets, to be from 24 to 42 months.
NON-RECURRING CHARGES
Non-recurring charges totaled approximately $1.2 million in the year ended
December 31, 1997. These charges consisted of a $243,000 write-off of costs
associated with a discontinued product, and a $1.0 million provision for a legal
dispute for a copyright infringement claim from Imageline relating to certain
clip art images that Xoom.com had licensed from an unrelated third party. This
litigation might subject Xoom.com to significant liability for damages which
could have a material adverse impact on its business, results of operations,
cash flows and financial condition. This might result in invalidation of its
proprietary rights. Even if the suit is without merit, it could be time
consuming and expensive to
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defend, and this could result in the diversion of management time and attention,
any of which might have a material adverse impact on its business, results of
operations, cash flows and financial condition.
INCOME TAXES
There was no provision for federal or state income taxes for any period as
Xoom.com has incurred operating losses. As of December 31, 1998, Xoom.com had
net operating loss carryforwards for federal income tax purposes of
approximately $4.9 million. Xoom.com cannot assure you that it will realize the
benefit of the net operating loss carryforwards. The federal net operating loss
carryforwards will expire at various dates beginning in fiscal year 2011 through
2018 if Xoom.com does not use them. Due to the "change of ownership" provisions
of the Internal Revenue Code, the availability of Xoom.com's net operating loss
and credit carryforwards will be subject to an annual limitation against taxable
income in future periods if the transactions are consummated.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998
The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1998 1999
--------- ---------
Net revenue:
E-commerce.................................................................................. 79.7% 59.6%
Advertising................................................................................. 9.8 39.9
License fees and other...................................................................... 10.5 0.5
--------- ---------
Total net revenue............................................................................. 100.0 100.0
Cost of net revenue(1):
Cost of e-commerce.......................................................................... 32.8 46.1
Cost of license fees and other.............................................................. 0.90 0.1
--------- ---------
Cost of net revenue........................................................................... 33.7 46.2
--------- ---------
Gross profit.................................................................................. 66.3 53.8
Operating expenses:
Operating and development................................................................... 67.8 26.0
Sales and marketing......................................................................... 30.9 55.0
General and administrative.................................................................. 37.2 36.7
Purchased in-process research and development............................................... 38.9 --
Amortization of deferred compensation....................................................... 9.3 5.2
Amortization of intangible assets........................................................... -- 19.5
Non-recurring charges....................................................................... -- --
--------- ---------
Total operating expenses...................................................................... 184.1 142.4
--------- ---------
Loss from operations.......................................................................... (117.8) (88.6)
Interest income............................................................................... -- 14.5
Interest expense.............................................................................. -- (0.7)
--------- ---------
Net loss...................................................................................... (117.8)% (74.8)%
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) There are no material costs of advertising revenue.
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NET REVENUE
Total net revenue for the three months ended March 31, 1999 was $4.4
million, an increase of approximately $3.6 million over revenues of $849,000 for
the three months ended March 31, 1998. The increase in net revenue was primarily
due to the following three factors: (A) the expansion of Xoom.com's membership
base; (B) an increase in the frequency of e-mail offerings and broader product
offerings (which resulted in an increase in product sales through e-commerce);
(C) an increase in the average sales price per order; and (D) an increase in
Web-based advertising (higher Web site traffic increased Xoom.com's
attractiveness to advertisers).
E-COMMERCE REVENUE
E-commerce revenue increased to $2.6 million in the three months ended March
31, 1999 from $677,000 in the three months ended March 31, 1998. The increase in
net revenue was primarily due to the expansion of Xoom.com's membership base,
which resulted in an increase in product sales, as well as expansion of the
breadth of products offered. The percentage of our total net revenue
attributable to e-commerce revenue decreased to 59.6% in the three months ended
March 31, 1999 from 79.9% in the three months ended March 31, 1998. Xoom.com
expects e-commerce revenue to continue to account for a large percentage of net
revenue as Xoom.com expands its product offerings and increases its direct
e-commerce response rates through better member demographic information and
targeting of product offers.
Xoom.com believes that offering its customers attractive prices is an
essential component of its business strategy. Xoom.com may in the future
increase the discounts offered its customers and may otherwise alter its pricing
structures and policies. Xoom.com anticipates that any increase in discounts or
price reductions will reduce gross margins below those Xoom.com experienced for
the three months ended March 31, 1999 and 1998.
ADVERTISING REVENUE
Advertising revenue increased to $1.8 million in the three months ended
March 31, 1999 from $83,000 in the three months ended March 31, 1998. The
increase in advertising revenue is primarily a result of the increase in
Xoom.com's membership, site traffic and expansion of its advertising sales
force. The percentage of Xoom.com's total net revenue attributable to
advertising revenue increased to 39.9% in the three months ended March 31, 1999
from 9.8% in the three months ended March 31, 1998.
LICENSING REVENUE
Licensing revenue decreased to $21,000 in the three months ended March 31,
1999 from $89,000 in the three months ended March 31, 1998. As Xoom.com expands
its e-commerce and advertising revenue, license fees and other revenue will
continue to represent a smaller percentage of net revenue.
COST OF NET REVENUE
Gross margins decreased to 53.8% in the three months ended March 31, 1999
from 66.3% in the three months ended March 31, 1998, as a result of the increase
in e-commerce revenue as a percentage of total net revenue. As a percentage of
total net revenue, the cost of e-commerce increased to 46.1% of net revenue in
the three months ended March 31, 1999 from 32.8% of net revenue in the three
months ended March 31, 1998. There were no material costs of net revenue
associated with advertising.
COST OF E-COMMERCE REVENUE
Cost of e-commerce consists primarily of the costs of merchandise sold to
customers, credit card commissions, product fulfillment, and outbound shipping
and handling costs. Cost of e-commerce was
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$2.0 million and $278,000 for the three months ended March 31, 1999 and 1998,
respectively. As a percentage of e-commerce revenue, the cost of e-commerce was
77% and 41.1% for the three months ended March 31, 1999 and 1998, respectively.
The increase was primarily attributable to the fact that in 1998 Xoom.com
broadened its product offerings. Xoom.com's new product offerings included items
with higher costs than in the prior year.
COST OF LICENSING REVENUE
Cost of license fees and other consists primarily of royalties on net
revenue of license fees. Cost of license fees were $1,600 and $8,000 for the
three months ended March 31, 1999 and 1998, respectively. Cost of license fees
and other should continue to be a small percentage of total cost of revenues as
compared to the cost of e-commerce revenues.
The mix of products Xoom.com sells will impact its gross margins and the
overall mix of e-commerce revenue, advertising revenue and license and other
fees. Xoom.com typically recognizes higher gross margins on advertising revenue
and license and other fees, which are expected to comprise a lower percentage of
total net revenue in the future. Therefore, Xoom.com expects shifts in the mix
of sales will adversely impact its overall gross margin and could materially
adversely impact its business, results of operations and financial condition.
OPERATING AND DEVELOPMENT EXPENSES
Operating and development expenses consist primarily of payroll and related
expenses for development and network operations personnel and consultants, costs
related to systems infrastructure including Web site hosting, and costs of
acquired content to enhance Xoom.com's Web site. Operating and development
expenses increased to $1.1 million in the three months ended March 31, 1999 from
$576,000 in the three months ended March 31, 1998. Operating and development
costs decreased as a percentage of total net revenue to 26.0% in the three
months ended March 31, 1999 from 67.8% in the three months ended March 31, 1998
because of the growth in net revenue.
Xoom.com believes operating and development expenses will increase
significantly in the future, especially in relation to Web site hosting costs,
as its membership grows, thus requiring additional bandwidth to support the many
free services offered to members. Xoom.com believes that it will need to make
significant investments in its Web site to remain competitive. Therefore,
Xoom.com expects that its operating and development expenses will continue to
increase in absolute dollars for the foreseeable future.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of payroll and related
expenses for personnel engaged in sales, marketing, publishing and customer
support, as well as advertising and promotional expenditures. Sales and
marketing expenses increased to $2.4 million in the three months ended March 31,
1999 from $262,000 in the three months ended March 31, 1998. The absolute dollar
increases from period to period in sales and marketing expenses were primarily
attributable to increased personnel and related expenses required to implement
its sales and marketing strategy as well as increased public relations and other
promotional expenses. Sales and marketing costs increased as a percentage of
total net revenue to 55.0% in the three months ended March 31, 1999 from 30.9%
in the three months ended March 31, 1998. Xoom.com expects to continue hiring
additional personnel and to pursue a branding and marketing campaign. Therefore,
Xoom.com expects marketing and sales expenses to increase significantly in
absolute dollars.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and related
costs for general corporate functions, including finance, accounting, business
development, human resources, investor
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relations, facilities and administration, as well as legal fees, insurance, and
fees for professional services and directors. General and administrative
expenses increased to $1.6 million in the three months ended March 31, 1999 from
$316,000 in the three months ended March 31, 1998. The absolute dollar increases
from period to period in general and administrative expenses were primarily due
to increases in the number of general and administrative personnel, professional
services, directors fees and facility expenses to support the growth of its
operations. General and administrative expenses decreased as a percentage of
total net revenue to 36.7% in the three months ended March 31, 1999 from 37.2%
in the three months ended March 31, 1998. Xoom.com expects general and
administrative expenses to increase in absolute dollars in future periods as
Xoom.com expands its staff, incurs additional costs related to its operations,
and is subject to the requirements of being a publicly traded company.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
Xoom.com did not recognize purchased in-process research and development
charges for the three months ended March 31, 1999. For the three months ended
March 31, 1998, Xoom.com recognized the cost of purchased in-process research
and development of $330,000 in connection with the acquisition of Paralogic
Corporation.
AMORTIZATION OF DEFERRED COMPENSATION
Xoom.com has recorded deferred stock compensation charges of $0 and $1,450
during the three months ended March 31, 1999 and 1998. The deferred compensation
charges account for the difference between the exercise price and the deemed
fair value of certain stock options Xoom.com granted to its employees. Xoom.com
cannot guarantee that it will not accrue additional charges, which could have a
material adverse effect on its business, results of operations and financial
condition.
Deferred compensation expense reflects the amortization of stock
compensation charges resulting from stock options and restricted stock purchase
agreements. Xoom.com has recorded deferred compensation expense of $230,000 and
$79,000, during the three months ended March 31, 1999 and 1998, respectively.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets totaled $862,000 for the three months
ended March 31, 1999. This amount represents amortization of intangible assets
and goodwill resulting from Xoom.com's acquisitions of Paralogic Corporation,
Global Bridges and Pagecount and the purchase of certain assets of Revolutionary
Software, amortized over periods ranging from 24 to 42 months.
INTEREST INCOME
Interest income represents interest Xoom.com earned on its cash and
investments. Xoom.com has recorded approximately $640,000 and $0 in interest
income in the three months ended March 31, 1999 and 1998, respectively. This
increase was primarily due to the increased cash balances available to invest
resulting from Xoom.com's initial public offering in December 1998.
INTEREST EXPENSE
Interest expense represents interest charges related to notes payable and
capital leases. Interest expense recorded in the three months ended March 31,
1999 and 1998 was approximately $30,000 and $0, respectively.
1998 FISCAL YEAR TO INCEPTION
From inception through the first quarter of 1997, its operations were
limited and consisted primarily of start-up activities. Accordingly, Xoom.com
believes that year-to-year comparisons of 1996 against 1997, and 1997 against
1998, are not meaningful.
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QUARTERLY RESULTS OF OPERATIONS
The following tables present certain consolidated statements of operations
data for Xoom.com's nine most recent quarters ended March 31, 1999 in dollars
and as a percentage of net revenue. In management's opinion, this unaudited
information has been prepared on the same basis as the audited annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for fair presentation of the unaudited information for
the quarters presented. You should read this information in conjunction with the
consolidated financial statements, including the notes thereto, included
elsewhere in this prospectus. The results of operations for any quarter are not
necessarily indicative of results that Xoom.com might achieve for any subsequent
periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
E-commerce.................................. $ 9 $ 12 $ 38 $ 268 $ 677 $ 1,157
Advertising................................. -- 7 14 39 83 272
License fees and other...................... 20 151 170 113 89 287
----------- ----------- ----------- ----------- ----------- -----------
Total net revenue......................... 29 170 222 420 849 1,716
----------- ----------- ----------- ----------- ----------- -----------
Cost of net revenue(1):
Cost of e-commerce.......................... 4 49 19 99 278 621
Cost of license fees and other.............. 82 23 31 12 8 19
----------- ----------- ----------- ----------- ----------- -----------
Total cost of net revenue................. 86 72 50 111 286 640
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................................. (57) 98 172 309 563 1,076
Operating expenses:
Operating and development................... 397 350 132 271 576 773
Sales and marketing......................... 37 83 51 121 262 455
General and administrative.................. 152 130 195 244 316 783
Purchased in-process research and
development............................... -- -- -- -- 330 330
Amortization of deferred compensation....... 5 6 100 137 79 728
Amortization of intangible assets........... -- -- -- -- -- 346
Non-recurring charges....................... -- 243 1,000 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.................. 591 812 1,478 773 1,563 3,415
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations........................ (648) (714) (1,306) (464) (1,000) (2,339)
Other income, net........................... -- -- -- -- -- --
Interest expense related to warrant......... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss...................................... $ (648) $ (714) $ (1,306) $ (464) $ (1,000) $ (2,339)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue:
E-commerce.................................. $ 1,532 $ 2,216 $ 2,636
Advertising................................. 598 1,191 1,765
License fees and other...................... 170 46 21
----------- ----------- -----------
Total net revenue......................... 2,300 3,453 4,422
----------- ----------- -----------
Cost of net revenue(1):
Cost of e-commerce.......................... 1,067 1,576 2,041
Cost of license fees and other.............. 7 8 1
----------- ----------- -----------
Total cost of net revenue................. 1,074 1,584 2,042
----------- ----------- -----------
Gross profit.................................. 1,226 1,869 2,380
Operating expenses:
Operating and development................... 1,209 1,283 1,149
Sales and marketing......................... 853 1,264 2,434
General and administrative.................. 1,059 1,208 1,623
Purchased in-process research and
development............................... 130 -- --
Amortization of deferred compensation....... 304 305 230
Amortization of intangible assets........... 741 756 862
Non-recurring charges....................... -- -- --
----------- ----------- -----------
Total operating expenses.................. 4,296 4,816 6,928
----------- ----------- -----------
Loss from operations........................ (3,070) (2,947) (3,918)
Other income, net........................... 17 35 640
Interest expense related to warrant......... -- (1,494) (30)
----------- ----------- -----------
Net loss...................................... $ (3,053) $ (4,406) $ (3,308)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
E-commerce.................................. 31.0% 7.1% 17.1% 63.8% 79.7% 67.4%
Advertising................................. -- 4.1 6.3 9.3 9.8 15.9
License fees and other...................... 69.0 88.8 76.6 26.9 10.5 16.7
----------- ----------- ----------- ----------- ----------- -----------
Total net revenue......................... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of net revenue(1):
Cost of e-commerce.......................... 13.8 28.9 8.6 23.5 32.8 36.2
Cost of license fees and other.............. 282.8 13.5 13.9 2.9 0.9 1.1
----------- ----------- ----------- ----------- ----------- -----------
Total cost of net revenue................. 296.6 42.4 22.5 26.4 33.7 37.3
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................................. (196.6) 57.6 77.5 73.6 66.3 62.7
Operating expenses:
Operating and development................... 1,369.0 205.9 59.5 64.6 67.8 45.0
Sales and marketing......................... 127.6 48.8 23.0 28.8 30.9 26.5
General and administrative.................. 524.1 76.5 87.8 58.1 37.2 45.7
Purchased in-process research and
development............................... -- -- -- -- 38.9 19.2
Amortization of deferred compensation....... 17.2 3.5 45.0 32.6 9.3 42.4
Amortization of intangible assets........... -- -- -- -- -- 20.2
Non-recurring charges....................... -- 142.9 450.5 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.................. 2,037.9 477.6 665.8 184.1 184.1 199.0
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations........................ (2,234.5) (420.0) (588.3) (110.5) (117.8) (136.3)
Other income, net........................... -- -- -- -- -- --
Interest expense related to warrant......... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss...................................... (2,234.5)% (420.0 )% (588.3 )% (110.5 )% (117.8 )% (136.3)%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue:
E-commerce.................................. 66.6% 64.2% 59.6%
Advertising................................. 26.0 34.5 39.9
License fees and other...................... 7.4 1.3 0.5
----------- ----------- -----------
Total net revenue......................... 100.0 100.0 100.0
Cost of net revenue(1):
Cost of e-commerce.......................... 46.4 45.6 46.1
Cost of license fees and other.............. 0.3 0.2 0.1
----------- ----------- -----------
Total cost of net revenue................. 46.7 45.9 46.2
----------- ----------- -----------
Gross profit.................................. 53.3 54.1 53.8
Operating expenses:
Operating and development................... 52.6 37.2 26.0
Sales and marketing......................... 37.1 36.6 55.0
General and administrative.................. 46.0 35.0 36.7
Purchased in-process research and
development............................... 5.7 -- --
Amortization of deferred compensation....... 13.2 8.8 5.2
Amortization of intangible assets........... 32.2 21.9 19.5
Non-recurring charges....................... -- -- --
----------- ----------- -----------
Total operating expenses.................. 186.8 139.5 142.4
----------- ----------- -----------
Loss from operations........................ (133.5) (85.3) (88.6)
Other income, net........................... 0.7 1.0 13.8
Interest expense related to warrant......... -- (43.3) --
----------- ----------- -----------
Net loss...................................... (132.8 )% (127.6 )% (74.8 )%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------
(1) There are no material costs of advertising revenue.
Xoom.com's operating expenses have increased significantly in absolute
dollar amounts in each quarter during 1998, 1997 and 1996 as Xoom.com has made
the transition from the development stage to the commercialization of its
services and products and expansion of its business. Xoom.com expects operating
expenses will continue to increase in the future as Xoom.com continues to seek
to expand its business. To the extent that these expenses are not accompanied by
an increase in net revenue, Xoom.com's business, results of operations and
financial condition could be materially adversely affected.
Xoom.com expects operating results to fluctuate significantly in the future
as a result of a variety of factors, many of which are outside of its control.
As a strategic response to changes in the competitive environment, Xoom.com
might from time to time make certain pricing, service or marketing decisions or
pursue business combinations that could have a material adverse effect on its
business, results of operations and financial condition. In order to accelerate
the promotion of the Xoom.com brand, Xoom.com intends to increase its marketing
budget significantly, which could materially and adversely affect its business,
results of operations and financial condition. Xoom.com expects to experience
seasonality in its business, with user traffic on the Xoom.com site potentially
being lower during the summer and year-end vacation and holiday periods when
overall usage of the Web is lower. Additionally, seasonality may significantly
affect its advertising revenue during the first and third calendar quarters, as
advertisers historically spend less during these periods. As Web-based commerce
and advertising is an emerging market, additional seasonal and other patterns
may develop in the future as the market matures. Any seasonality is likely to
cause quarterly fluctuations in Xoom.com's operating results, and these patterns
could have a material adverse effect on its business, results of operations and
financial condition.
Due to the foregoing factors, Xoom.com's quarterly net revenue and operating
results are difficult to forecast. Consequently, Xoom.com believes that period
to period comparisons of its operating results will not necessarily be
meaningful and you should not rely on them as an indication of future
performance. It is likely that in some future quarter or quarters its operating
results will fall below the expectations of
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securities analysts and investors. In such event, the trading price of its
common stock would likely be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, Xoom.com financed its operations
primarily through the private placement of common stock. On December 9, 1998,
Xoom.com completed its initial public offering of common stock, in which
Xoom.com issued 4,600,000 shares of common stock at a price of $14.00 per share.
Proceeds from the offering were approximately $57.3 million, net of offering
costs.
As of December 31, 1998 and March 31, 1999, Xoom.com had cash and cash
equivalents and short-term investments of approximately $56.6 million and 52.7
million, respectively. Xoom.com regularly invests excess funds in short-term
money market funds, government securities and commercial paper.
Net cash used in operating activities for the years ended December 31, 1998
and 1997 and for the period from April 16, 1996 through December 31, 1996 was
$3.6 million, $1.4 million and $635,000, respectively. Cash used in operating
activities for the year ended 1997 was primarily the result of net losses,
partially offset by an increase in the contingency accrual. Cash used in
operating activities for the year ended December 31, 1998 was primarily the
result of net losses and an increase in accounts receivable related to the
growth of advertising revenues, partially offset by amortization of intangible
assets related to its acquisitions, amortization of deferred compensation
incurred in connection with the granting of options to employees to purchase
common stock, an increase in current liabilities as a result of the growth of
its business, and a non-cash charge related to the issuance of warrants in
connection with a loan agreement.
Net cash used in operating activities for the three months ended March 31,
1999 and 1998 was $1.3 million and $208,000, respectively. Cash used in
operating activities in each period was primarily the result of net losses and
an increase in accounts receivable related to the growth of advertising
revenues, partially offset by amortization of intangible assets related to our
acquisitions, amortization of deferred compensation incurred in connection with
the granting of options to employees to purchase common stock, and an increase
in current liabilities as a result of the growth of Xoom.com's business.
Additionally, in the three months ended March 31, 1998, cash used in operating
activities was offset by a $330,000 charge to in-process research and
development related to the acquisition of Paralogic Corporation.
Net cash used in investing activities for the years ended December 31, 1998
and 1997, and for the period from April 16, 1996 through December 31, 1996, was
$4.7 million, $393,000, and $64,000, respectively. Cash used in investing
activities in each period was primarily related to purchases of fixed assets,
except for the year ended December 31, 1998, in which cash used in investing
activities also included $2 million for the purchase of short-term investments
and $731,000 of net cash for business and asset acquisitions.
Net cash used in investing activities for the three months ended March 31,
1999 and 1998 was $9.7 million and $259,000, respectively. Cash used in
investing activities in each period was primarily related to purchases of fixed
assets, except for the three months ended March 31, 1999, in which cash used in
investing activities also included $8.3 million for the purchase of short-term
investments. From time to time, Xoom.com expects to evaluate the acquisition of
products, businesses and technologies that complement its business. These
acquisitions may involve cash investments.
Net cash provided by financing activities for the years ended December 31,
1998 and 1997 and for the period from April 16, 1996 through December 31, 1996
was $62.8 million, $1.8 million and $700,000, respectively. Cash provided by
financing activities was primarily attributable to net proceeds from the
issuance of common stock and the issuance of notes payable to stockholders. In
addition, for the year ended December 31, 1998, cash provided by financing
activities includes $511,715 received in connection with a secured financing
agreement with a leasing company and $1,250,000 received in connection with a
loan agreement. For the year ended December 31, 1998, cash provided by financing
activities also included cash received from the issuance of 4,600,000 shares of
common stock upon the completion of its initial public offering. Proceeds from
the offering were approximately $57.3 million, net of offering costs. The cash
generated by financing activities in 1998 was offset by $3.2 million used to
repay notes payable.
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Net cash used in financing activities in the three months ended March 31,
1999 was $99,000, and net cash provided by financing activities in the three
months ended March 31, 1998 was $726,000. Cash used in financing activities in
the three months ended March 31, 1999 was primarily related to the repayment of
notes payable. Cash provided by financing activities in the three months ended
March 31, 1998 was primarily attributable to net proceeds from the issuance of
common stock and the issuance of notes payable to stockholders.
As of December 31, 1998, Xoom.com's principal commitments consisted of
obligations outstanding under operating and capital leases. Although Xoom.com
has no material commitments for capital expenditures, it anticipates a
substantial increase in its capital expenditures and lease commitments
consistent with anticipated growth in operations, infrastructure and personnel.
Also, in the future Xoom.com may require a larger merchandise inventory in order
to provide better availability to customers and achieve purchasing efficiencies.
As of December 31, 1998, Xoom.com had a total of $1.7 million in notes
payable relating to its acquisitions, $1.3 million of which was due in 1999.
This includes a non-interest bearing note payable in the amount of $1.1 million
payable to the stockholders of Paralogic Corporation in minimum monthly
installments of $30,000 through September 1999, including additional payments up
to $860,000 based on performance measurements. Total notes payable also includes
a note payable of $47,500, which bears interest at a rate of 5% and is due in
equal monthly payments of $2,500 through August 2000 to the stockholders of
Global Bridges.
In the year ended December 31, 1998, Xoom.com issued warrants to purchase a
total of 314,747 shares of common stock at a price of $3.33 per share. These
warrants were exercised prior to its initial public offering on December 9,
1998.
On October 1, 1998, Xoom.com entered into a secured financing agreement with
a leasing company. The agreement provides for borrowings of up to a cumulative
amount of $1.0 million through July 31, 1999. As of March 31, 1998, its
outstanding principal balance under this agreement was approximately $484,000.
On November 3, 1998, Xoom.com entered into a secured loan agreement, which
provided for borrowings of up to $2,750,000. In November 1998, Xoom.com borrowed
$1,250,000 under this agreement. Under the terms of the loan agreement, Xoom.com
agreed to issue the lender a warrant to purchase up to 183,333 shares of common
stock at an exercise price equal to $14 share. Xoom.com recorded a non-cash
charge classified as a non-operating expense of approximately $1.5 million
during the fourth quarter of 1998 based on the fair value of this warrant. As of
December 31, 1998, all interest and principal amounts had been fully paid, and
the loan agreement had been canceled. On January 11, 1999, the lender exercised
the warrants in a net exercise transactions and purchased 116,231 shares of
Xoom.com's common stock at a price of $14 per share. The effective interest rate
on this secured loan agreement for the year ended December 31, 1998 was
approximately 1,450%.
Xoom.com believes that it has the financial resources needed to meet its
presently anticipated business requirements, including capital expenditure and
strategic operating programs, for at least the next 12 months. Thereafter, if
cash generated by operations is insufficient to satisfy its liquidity
requirements, Xoom.com may need to sell additional equity or debt securities or
obtain additional credit facilities. The sale of additional equity or
convertible debt securities may result in additional dilution to its
stockholders. Xoom.com may not be able to raise any such capital on terms
acceptable to Xoom.com or at all.
DISCLOSURES ABOUT MARKET RISK
Xoom.com's exposure to market risk is principally confined to its short-term
available-for-sale securities, which have short maturities and, therefore,
minimal and immaterial market risk.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software that
records only the last two digits of the calendar year
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may not be able to distinguish whether "00" means 1900 or 2000. This may result
in software failures or the creation of erroneous results.
Xoom.com has conducted an internal review of software systems which it uses
for site management, network monitoring, quality assurance, transactions
processing and fulfillment services. Because Xoom.com developed these software
systems internally, beginning at inception in 1996 when the Year 2000 problem
already had some visibility, Xoom.com was largely able to anticipate four digit
requirements. In conjunction with ongoing reviews of its own products and
services, Xoom.com is also reviewing its computer infrastructure, including
network equipment and servers. Xoom.com does not anticipate material problems
with network equipment, as its current configuration was installed within the
last three years. Similarly, Xoom.com purchased most of its servers in 1997 and
1998. With this relatively current equipment, Xoom.com does not anticipate
material Year 2000 compliance problems, and Xoom.com will replace any servers
that cannot be updated either in the normal replacement cycle or on an
accelerated basis. Xoom.com has also internally standardized its personal
computers on Windows NT 4.0, using reasonably current service packs, which its
vendor has advised Xoom.com are Year 2000 compliant. Xoom.com uses multiple
software systems for internal business purposes, including accounting, e-mail,
development, human resources, customer service and support and sales tracking
systems. All of these applications have been purchased within the last three
years.
Xoom.com has made inquiries of vendors of systems Xoom.com believes to be
mission critical to its business regarding their Year 2000 readiness. Although
Xoom.com has received various assurances, Xoom.com has not received affirmative
documentation of Year 2000 compliance from any of these vendors and Xoom.com has
not performed any operational tests on its internal systems. Xoom.com generally
does not have contractual rights with third party providers should their
equipment or software fail due to Year 2000 issues. If this third party
equipment or software does not operate properly with regard to Year 2000,
Xoom.com may incur unexpected expenses to remedy any problems. These expenses
could potentially include purchasing replacement hardware and software. Xoom.com
has not determined the state of compliance of certain third-party suppliers of
services such as warehousing and fulfillment services, phone companies, long
distance carriers, financial institutions and electric companies, the failure of
any one of which could severely disrupt its ability to carry on its business.
Xoom.com anticipates that its review of Year 2000 issues and any remediation
efforts will continue throughout calendar 1999. The costs incurred to date to
remediate its Year 2000 issues have not been material. If any Year 2000 issues
are uncovered with respect to these systems or its other internal systems,
Xoom.com believes that Xoom.com will be able to resolve these problems without
material difficulty, as replacement systems are available on commercially
reasonable terms. Xoom.com presently estimates that the total remaining cost of
addressing Year 2000 issues will not exceed $150,000. Xoom.com derived these
estimates using a number of assumptions, including the assumption that Xoom.com
has already identified its most significant Year 2000 issues. However, these
assumptions may not be accurate, and actual results could differ materially from
those anticipated. In view of its Year 2000 review and remediation efforts to
date, the recent development of its products and services, the recent
installation of its networking equipment and servers, and the limited activities
that remain to be completed, Xoom.com does not consider contingency planning to
be necessary at this time.
Xoom.com's applications operate in complex network environments and directly
and indirectly interact with a number of other hardware and software systems.
Xoom.com is unable to predict to what extent its business may be affected if its
systems or the systems that operate in conjunction with it experience a material
Year 2000 failure. Known or unknown errors or defects that affect the operation
of its software and systems could result in delay or loss of revenue,
interruption of services, cancellation of contracts and memberships, diversion
of development resources, damage to its reputation, increased service and
warranty costs, and litigation costs, any of which could adversely affect
Xoom.com's business, financial condition and results of operations. The most
likely worst case scenario is that the Internet fails and Xoom.com is unable to
offer any services on its community site or make any of its direct e-commerce
offerings.
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SNAP BUSINESS
OVERVIEW
Snap.com has been the fastest-growing major portal on the Web from July 1998
to May 1999, according to data provided by Media Metrix. Snap.com is a free,
comprehensive information, navigation and content aggregation service targeted
at both consumer and business users. SNAP believes that Snap.com goes beyond the
basic functions offered by other search engines and directory services by
utilizing proprietary technology to integrate the vast resources of the Internet
into a single user interface. SNAP encourages users to rely on Snap.com to meet
their personal daily information needs, such as financial portfolio tracking,
e-mail service and local weather data, as well as to satisfy their varied and
unpredictable Internet search needs.
SNAP creates an Internet experience for each user that is simple and
tailored to the user's specific demands by combining robust content obtained
from numerous content providers with personalization capability through MySnap.
Snap.com delivers highly accurate and relevant search results using a hand-built
search directory, together with proprietary content harvesting, data management
and response compilation technologies. In addition to providing a specific and
relevant response to a search, Snap.com also directs the user to related content
resources of the Web in a way that serves the user's unique interests, creating
a richer, more relevant Internet experience seamlessly via a single interface.
SNAP believes that users respond better to a service that aggregates specific
and relevant responses to queries with additional "sticky" content such as
related Web sites and discussion groups. Snap.com enhances this content by
allowing a user to create his or her own daily information service, as well as
offering personal productivity services such as a reminder feature. In addition,
SNAP offers users the ability to access rapidly-evolving forms of content such
as streaming video and audio through advanced technologies such as Snap.com For
Higher Speed Users.
In addition, SNAP uses its proprietary SnapLENS-TM- technology to provide
customized services to significant third party distribution partners such as
RealNetworks, GTE and Sony. This enables SNAP to develop co-branded navigation
and content aggregation sites with a special focus on the partner's content.
This also enables these partners to communicate specialized information to users
while SNAP benefits from increased user traffic and brand awareness. By assuring
a robust experience to attract and keep users, together with its ability to
coordinate on-air promotional opportunities through its strategic relationship
with NBC, SNAP believes that Snap.com delivers better value to advertisers by
combining broad audience reach and segmentation and measurement capability to
better target an advertiser's message.
SNAP's reach increased more than 211% in the eleven months since NBC
acquired its equity interest in SNAP, from less than 5% in July 1998 to 14.3% in
May 1999, according to Media Metrix. SNAP's registered users increased from
approximately 16,000 at the end of June 1998 to more than 2.3 million at the end
of May 1999, adding approximately 10,000 new members per day for the last 30
days. SNAP believes that the rapid growth generated by television and other
promotions, as well as distribution partnerships, indicates the potential for
significant future growth in reach and membership, positioning SNAP to increase
its audience size and scale to make Snap.com uniquely attractive to advertisers.
For the quarter ended March 31, 1999, SNAP increased revenues approximately $1.4
million, or 34% compared with the preceding calendar quarter. Quarterly net
revenue increased from approximately $861,000 for the first quarter of 1998 to
$5.4 million for the first quarter of 1999, representing compound quarterly
sales growth of approximately 58%.
Snap.com was launched as "SNAP" by CNET in September 1997. In June 1998, NBC
and CNET formed SNAP! LLC as a Delaware limited liability company to conduct the
operations of Snap.com. SNAP's headquarters are located in San Francisco,
California.
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PORTAL INDUSTRY BACKGROUND
The rapid growth in content on the Internet, combined with its unindexed
nature, presents a significant challenge to users seeking the information and
resources the Internet offers. Prior to the development of navigational tools,
users had to know a lengthy Web address for each specific site or rely on
hypertext links between Web sites to locate relevant information. Content
providers and advertisers also faced difficulties in making the existence and
location of their Web sites widely known and available to their target
audiences.
Web directories and search engines were developed to assist users in
locating information on the Internet. Directories are typically compiled by a
staff of editors, and list Web sites by specific topics of interest. Directories
generally list Web sites by hypertext address, enabling a user to go directly to
the listed site by clicking on the address. Entries in a directory also may
contain Web site descriptions or reviews. Search engines offer users the ability
to search Web sites based upon specific word or phrase queries. Search engines
typically use automated software that "crawls" the Web to continuously capture
and store updated Web site information. The information is then indexed in a
database in order to provide immediate retrieval of relevant Web site listings
in response to a user's query.
Although search engines and directories help users navigate the Web, SNAP
believes that there is an opportunity to provide added value to the user
experience by offering:
- Breadth and depth of content, unique in its relevance to user demands,
- Highly accurate search results, generated by a hand-built search
capability together with proprietary content harvesting, data management
and response compilation technologies,
- Personalization capability for frequently-requested daily information such
as financial data, sports scores and local weather, and
- Access to leading edge technologies such as rich media streaming.
THE SNAP STRATEGY
SNAP's objective is to establish itself as one of the leading branded
service providers for media navigation and content aggregation on the Internet.
SNAP seeks to provide a readily-accessible, content-rich Web experience to meet
users' demands and to establish the SNAP Web site as a highly attractive
platform for advertisers and e-commerce partners. Key elements of SNAP's
strategy include:
LEVERAGE MULTIPLE MEDIA PLATFORMS
SNAP intends to leverage its access to multiple media platforms to enhance
the user experience and to attract advertisers. SNAP has been able to offer a
variety of program integration opportunities across on-line and traditional
broadcast media because of its strategic relationship with NBC. As a result,
SNAP is positioned to attract broadcast viewers to Snap.com. In addition to
pursuing on-air visibility and cross-marketing opportunities, SNAP seeks to
capitalize on successful NBC television programming in promoting Snap.com. For
example, in promotions aired during NBC's encore broadcast of "Schindler's List"
in March 1999, television viewers were directed to Snap.com for a comprehensive
collection of Holocaust research, information and links available on the Web.
SNAP will continue to pursue an integrated strategy capitalizing on multiple
media platforms for marketing, promoting and sharing content, which SNAP refers
to as its "trans-media" capability. SNAP believes that its trans-media
capability is unique and will enable it to provide a richer offering that is
more attractive to users.
Moreover, SNAP's trans-media capability allows it to provide coordinated
marketing opportunities to its advertising customers and enables SNAP to
increase awareness of the SNAP brand through promotion on NBC. By offering
on-line advertising inventory in coordination with NBC's broadcast and
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cable advertising sales opportunities, SNAP can offer a variety of
cross-promotional opportunities for advertisers. This is attractive to many
advertisers as it offers broadcast and cable reach as well as the measurable
demographic information that Web advertising allows. SNAP intends to continue to
leverage its relationship with NBC and its unique trans-media capability to
become the preferred online option for advertisers.
EXPAND AND ENHANCE ON-LINE CONTENT AND SERVICES
SNAP seeks to establish itself as a leader in the Internet navigation and
content aggregation market by offering the broadest variety of high quality
content. In addition to providing a specific and relevant response to a search,
Snap.com points the user to related content resources through a single user
interface. SNAP believes that users respond better to a service that augments
specific and relevant responses to queries with related Web sites, targeted
advertising, personalized news services, discussion groups and other resources.
SNAP also seeks to attract users and promote repeat visits by meeting users'
anticipated daily online information needs with a comprehensive set of online
personalization and personal productivity services. These services include
financial portfolio tracking, local weather data, e-mail and calendaring
functions through "MySnap". SNAP seeks to enhance its users' Internet experience
by providing access to leading edge technologies, such as higher bandwidth
platforms allowing rich media streaming. SNAP intends to leverage its
technological capability to segment affinity groups and communities as well, to
meet the demand for real-time interaction among users. By expanding and
enhancing the breadth and functionality of SNAP's online services and
personalization features, SNAP believes that it can strengthen the SNAP brand
and increase user loyalty.
MAINTAIN AND EXTEND LEADERSHIP IN SEARCH TECHNOLOGY
SNAP's search service utilizes a hand-built search directory and proprietary
content harvesting and data management technologies. This enables Snap.com's
users to access robust content aggregated from numerous content providers,
delivering a search capability that is intelligent, comprehensive and readily
accessible to the user. SNAP believes that its search functionality, addressing
users' unique and unanticipated search needs, is superior to that of many other
search engines and directories because of its combination of hand-built and
automated technology. To complement its search capability, SNAP has developed
niche portals, called "Guides to", that address topics for which there is
significant interest among users or which are particularly timely, such as a
recent Kosovo Relief Resource Center. As new media such as audio and video
streaming become more prevalent on the Internet, SNAP's strategy is to expand
and enhance its universal search capability to access all potential resources in
a single search.
INCREASE ADVERTISING EFFECTIVENESS THROUGH CROSS PROMOTION AND COMMUNITY
SEGMENTING
SNAP believes it can leverage its strategic relationship with NBC to offer
advertisers cross-promotion capability by coordinating network advertising with
a variety of advertising opportunities on Snap.com. Through its relationship
with NBC, SNAP has the ability to coordinate advertising strategies to reach
NBC's substantial broadcast and cable television viewing audience. In addition,
the capabilities of the Internet have increased advertisers' emphasis on
tracking users carefully to connect with audiences that fit specific buying
profiles. Targeted "narrowcast" Internet advertising campaigns, through
directory and channel ads or keyword ads, provide opportunities to engage in
high response, product-specific advertising. In order to provide such audiences
to advertisers, services and sites must develop technologies to enable them to
conduct complex demographic profiling of consumers. SNAP has developed a
registration methodology and underlying databases that enable it to
differentiate among users. Through user segmentation SNAP intends to continue to
provide highly-targeted, producer-selected content in conjunction with related
e-commerce opportunities, increasing the effectiveness of advertising messages.
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MAXIMIZE REACH THROUGH DISTRIBUTION CHANNELS
SNAP intends to expand its user base and reach through multiple distribution
channels including co-branding relationships, creation of affinity groups and
community building. SNAP's proprietary SnapLENS system enables the rapid and
cost-effective creation of custom branded versions of the Snap.com site, with a
unique "look and feel," customized content and targeted advertising
opportunities. SnapLENS enables SNAP to become the default co-branded home page
or search engine on third party Internet sites. The SnapLENS technology is a key
component of SNAP's distribution model. The SnapLENS technology allows SNAP to
generate, manage and operate unique editions of the site for an expanding group
of Internet service providers, PC manufacturers and other SNAP distribution
partners. Similarly, SNAP believes that it can increase its reach by customizing
its service for special affinity groups and user communities.
CAPITALIZE ON BROADBAND CAPABILITY
SNAP intends to continue to invest in resources that will enable it to
address future developments in Internet technology and architecture such as
platform transitions or expansions. SNAP believes that it is well-positioned to
provide its services in the Internet environment of the future as the Internet
infrastructure evolves. The emergence of broadband Internet access has led to
increased demand for broadband content. SNAP's relationships with a wide array
of content providers position SNAP to take advantage of this development.
Furthermore, as the Internet expands to connect to diverse devices other than
computers, SNAP believes its robust searching technology will allow it to
provide access to Internet resources, regardless of location or mode of
delivery. SNAP intends to continue to invest in its technology and services to
be well-positioned for the Internet of the future.
PRODUCTS AND SERVICES
Through Snap.com, its flagship service, and Snap.com For Higher Speed Users,
SNAP offers users a free information, navigation and content aggregation
service. This service is targeted at both consumer and business users, enabling
them to access and personalize the vast resources of the Internet. SNAP's search
service uses a hand-built search directory and proprietary content harvesting
and data management technologies. This enables Snap.com's users to access robust
content aggregated from numerous content providers, delivering a search
capability that is both comprehensive and readily accessible to the user. In
addition, Snap.com provides its users with a personalization capability through
MySnap, emphasizing Snap.com as a single source for personal daily information
needs, such as financial portfolio tracking, e-mail, a reminder feature and
local weather updates, permitting the creation of a user-formatted source for
regularly needed information. At the same time, SNAP optimizes users' access to
rapidly-evolving forms of content such as rich media streaming through advanced
technologies such as Snap.com For Higher Speed Users. SNAP also enables users to
purchase goods and services, interact in community chat and bulletin board
environments and communicate through free e-mail, search classified
advertisements, make travel arrangements and engage in a wide variety of other
Internet activities aggregated on the service. To increase distribution and
forge significant partnering relationships, SNAP offers its proprietary SnapLENS
technology to third party distribution partners, such as RealNetworks, GTE and
Sony, to develop co-branded navigation and content aggregation sites with a
special focus on the partner's content and services. The SnapLENS technology
enables these partners to communicate specialized information to users while
SNAP benefits from increased user traffic and brand awareness.
Snap.com and Snap.com For Higher Speed Users offer users a powerful way to
search and organize the vast resources of the Internet. Logically arranged to
give users a quick route to the best of what they are looking for on the Web,
Snap.com and Snap.com For Higher Speed Users provide efficient, high-quality
Internet search results and directory listings based on broad, intelligently
selected content. At the heart of SNAP's portal services is a directory of Web
sites and over 500 SNAP "Guides
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to", hand built and continually updated by a team of producers and reviewers to
ensure quality, freshness and relevance. Users may either search the SNAP
directory by using keywords, or browse through the directory's 16 topic
categories. By integrating the capabilities of a search engine and a directory,
SNAP packages specific responses to search queries with information that may
include relevant Web content, branded third party content and targeted, related
advertising and e-commerce opportunities. By aggregating information around a
user's specific interest, SNAP believes that Snap.com and Snap.com For Higher
Speed Users meet the needs of consumers and business to access relevant and
related information, the needs of content providers to reach interested
audiences and the needs of advertisers to deliver advertisements to a targeted
group of potential buyers.
Snap.com offers producer-selected content from over 100 leading Web
publishers integrated with information from over 400,000 third party Web sites
and 50,000 categories, as well as Inktomi's index of over one hundred million
Web pages, to provide a comprehensive and seamless search experience. SNAP
focuses on establishing relationships with premium content providers noted for
their depth and accuracy of information. SNAP typically does not enter into
exclusive content relationships, in order to maintain editorial independence and
preserve the flexibility to select intelligently from the variety of sources
which a user can access. SNAP's presentation model directs users to third party
content through the Snap.com site's "look and feel," while allowing a content
provider to maintain its content within the "look and feel" of its own site,
enabling SNAP to aggregate third party content without expending significant
resources to repackage the information for the user. SNAP believes that through
Snap.com, content providers gain increased exposure to interested users since
these users are linked to broader communities of related content when
undertaking search requests. Moreover, because the range and breadth of material
on the Web is often confusing for consumers, SNAP believes that branded,
credible information providers are valuable elements of its content pool.
Snap.com enhances the user experience by including intelligently compiled
editorial material from premium branded content providers such as MSNBC,
iVillage, Women.com (HomeArts), InsWeb, Weather Labs and E! Online, among
others.
Snap.com and Snap.com For Higher Speed Users integrate multiple methods of
obtaining information from the Internet. Users are presented with five principal
resources--Search, Directory, Content Harvests, SNAP "Guides to" Resource
Centers, and Sponsored Links--from which they can launch specific queries,
browse the Web, access proprietary content and organize content in a
personalized format.
SEARCH
SNAP's Search capability allows the user to execute query-based searches of
the Web and other premium content databases or the SNAP Directory. To perform a
search, a user types a query in the search box and receives a highly specific
response from a search of the entire SNAP database, consisting of both
producer-selected content from leading Web publishers as well as Inktomi's index
of over one hundred million Web pages. A search can be effected using either
simple keywords, phrases or full text (natural languages). In addition to its
general search function, Snap.com also offers Advanced Search capability, which
gives users a more focused or "search only" service to exploit fully SNAP's
technology and search the Web using either natural language queries or special
search expressions. A search using Advanced Search will return only a list of
relevant Web pages and exclude related information included in a general
Snap.com search, and can be tailored to retrieve information by date, language,
location or media type, such as audio or video clips. For every search, SNAP's
proprietary response compilation technology gives users ready access to highly
relevant results via targeted links to related URLs. In addition, SNAP uses
exclusive licensed technology to intelligently rank search results based on the
popularity and freshness of the Web sites to which the user is referred.
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DIRECTORY
The SNAP Directory is a hierarchical listing of Web pages that have been
selected and summarized by SNAP and organized by category. The SNAP Directory
enables a user to click on a Directory entry such as Health or Entertainment and
look through a hierarchy of relevant Internet sites for areas of interest. For
example, under Entertainment, the user can proceed from Entertainment to Books
to Authors and finally to Oscar Wilde. Directory assists the user by providing
abstracts of each Directory entry. The Directory is hand built by SNAP editors,
and therefore searches through the Directory return more accurate results than
searches through most competitors' directories, which are compiled mechanically.
As of June 1, 1999, SNAP had increased its directory to over 400,000 entries,
putting Snap.com among the top five largest directories provided by a search and
navigation service.
CONTENT HARVESTS
Content harvests from a variety of third party services provide users with
high quality, up-to-date information from a wide array of familiar and highly
reputable sources. For example, MySnap offers users access to the latest
business, world, technology, cultural and sports information from a variety of
data sources including MSNBC, CNET and the BBC. With CNET, SNAP co-developed a
proprietary system for efficiently harvesting, managing and delivering content
and links to content from content providers in accordance with a predefined
schedule, giving users access to regular updates of rapidly changing
information, such as breaking news from news partner MSNBC as well as sports
scores, financial data and weather updates. These content harvests allow SNAP to
provide the high volume of information that consumers and businesses demand,
without expenditure of significant resources by SNAP to generate and update this
data.
SNAP "GUIDES TO" RESOURCE CENTERS
SNAP has created SNAP "Guides to" resource centers to provide a
comprehensive, targeted first stop for searches in popular areas of interest on
Snap.com. SNAP's "Guides to" serve as "mini-portals", delivering intelligently
compiled search results in over 500 niche areas of interest. In addition,
because SNAP product managers can build "Guides to" and assemble relevant
content quickly, SNAP has used "Guides to" to build search capability
opportunistically around topics of current interest as well as contextual
programming developed through SNAP's strategic relationship with NBC. For
example, as the international defense and relief effort in the Balkans advanced,
SNAP created a Kosovo Relief Resource Center with the relief organization CARE,
enabling users to link to information about participating in refugee relief
efforts, as well as maps and related information via a single query. NBC viewers
were directed to Snap.com and the Kosovo Relief Resource Center for more
information on events in Kosovo through promotions created by SNAP. Other SNAP
resource centers, such as Insurance Center, Auto Center and Real Estate Center,
provide users with the most relevant tools and information organized around key
areas of interest. Resource centers provide full-service access to information
sources as well as to e-commerce opportunities, enabling users to commence and
complete transactions, from locating a source of information about a particular
service or product, to identifying appropriate providers, and finally to
consummating a transaction for the specific product or service needed.
SPONSORED LINKS
Users can be linked directly to third party sites by clicking on several
different ad banners and buttons listed at the side of the search screen or
icons presented on the Snap.com home page. Standard Internet advertising on
Snap.com contains direct links to the advertiser's home page. Without direct
hypertext links such as these a user must either conduct a new search or know
and enter a precise URL to move to another site.
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MYSNAP
With MySnap, SNAP has developed a number of personalization tools to allow
users to compile and format Internet content and advertising information
according to their specific interests. This encourages users to make Snap.com an
integral part of their daily routine by offering access to regularly-needed
content in a format determined by the user. MySnap allows users to create
permanent filters for continually changing Internet-based information such as
stock quotes, weather and sports scores, compile linked news headlines in
selected categories, and access personalized locally-relevant information such
as movie and television listings simply by entering a zip code. In addition,
MySnap offers e-mail and a reminder feature that users would otherwise manage
using desktop software, enabling users to enhance the power of a connected
network with access to value-added Internet content. MySnap seeks to complement
SNAP's comprehensive search functionality by positioning Snap.com and Snap.com
For Higher Speed Users as a single source for users' recurring information needs
as well.
SNAP.COM FOR HIGHER SPEED USERS
Snap.com For Higher Speed Users, launched in March 1999, uses proprietary
technology to optimize users' access to rapidly-evolving forms of content,
creating a richer Internet experience including video, audio, animation and
gaming. Snap.com For Higher Speed Users enhances and supports the core
functionality of Snap.com by offering multimedia content and navigation services
to the expanding number of users with high-speed Internet access. Snap.com For
Higher Speed Users features rich media content in all Snap topic categories.
Users can easily switch to the higher speed service from a prominent link
displayed on the home page of Snap.com. By positioning Snap.com For Higher Speed
Users as another "view" into the Internet, SNAP is able to offer navigation and
targeted content to users able to view video clips, hear audio files and
participate in other interactive features that typically perform less well in a
lower bandwidth environment. In addition, because Snap.com For Higher Speed
Users is positioned as an alternative view rather than a separate product
experience, users can switch easily between Snap.com and Snap.com For Higher
Speed Users while keeping all of their personalization and membership settings
intact. SNAP believes this continuity and ease of transit between the two sites
encourages users to access its services at work and at home, irrespective of
variations in access to high-speed technologies.
SNAPLENS
To serve the needs of its distribution partners and increase traffic, and
consequently brand awareness, SNAP created the proprietary SnapLENS-TM- system
to produce custom versions of the Snap.com portal for specific audiences. With
SnapLENS, Snap.com and Snap.com For Higher Speed Users become the default
co-branded home pages and Internet portals for certain third party Internet
sites, including those of RealNetworks, GTE and Sony. SnapLENS allows the rapid
and cost-effective creation of custom branded versions of Snap.com, with a
unique look and feel, customized content and targeted advertising opportunities.
The SnapLENS technology is key to SNAP's distribution model, allowing it to
generate, manage and operate unique editions of the site for over 50 Internet
service providers, PC manufacturers and other SNAP distribution partners.
SnapLENS benefits both advertisers and third party hosts by allowing advertisers
to increase the reach and frequency of their messages and enabling third party
sites to more easily sell their advertising space.
STRATEGIC ALLIANCES
SNAP's primary strategic alliance is with its principal equity holders, NBC
and CNET. Upon formation of SNAP in June 1998, 4 employees of NBC and 120
employees of CNET also joined the SNAP staff in San Francisco.
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In the eleven-month period from NBC's acquisition of an equity interest in
SNAP through May 31, 1999, SNAP has obtained promotion on the NBC television
network worth in excess of $38 million. Over this period, SNAP research
indicates that 94% of adults age 18 to 49 in the United States have seen an
average of 17 television promotions for Snap.com. Since July 1998, SNAP has
increased its monthly reach by more than 211%, to 14.3% of Internet users, and
increased the number of unique users per month by 236%, to approximately 8.9
million in May 1999.
In addition to co-developing a number of technologies used by SNAP, SNAP and
CNET also have a preferred carriage arrangement. Until May 9, 2000, SNAP is the
preferred general content aggregation service on all CNET web sites, except for
links to Web sites of SNAP competitors, which CNET may provide as part of
editorial content such as news, and such service is branded as SNAP. CNET has
agreed not to enter into a relationship with a SNAP competitor that allows the
competitor to co-brand a general Internet portal service with the CNET brand.
CNET also has agreed, on behalf of itself and its controlled subsidiaries, not
to invest in, develop or operate a broad-based information, navigation and
content aggregation service in competition with SNAP until May 9, 2000.
NBC also has a carriage arrangement with SNAP, which gives SNAP the ability
to provide news, finance and sports content from NBC-controlled Web sites on
Snap.com. SNAP is also able to expand its users' ability to access local content
by providing links to NBC-IN.com Web sites and by including each of those Web
sites in SNAP's Directory listings for the cities in which the local stations
are located.
REVENUE SOURCES
Snap.com provides advertisers with the ability to undertake measurable,
targeted, cost-effective and interactive advertising to a broad audience of
Internet users. Users may arrive at Snap.com via promotional initiatives
co-developed by SNAP and NBC, as well as through traditional Internet search
demand and specific channel alliances with third parties using the SnapLENS
technology. In addition to offering the ability to coordinate advertising
strategies to reach NBC's broadcast audience, which averaged 156 million viewers
per week during the 1998 - 1999 television season, SNAP's services provide
advertisers with the flexibility to reach the mass audience of the Internet by
advertising on general search pages of Snap.com, to target special interest
groups by placing advertisements on directory and channel pages, or to
narrowcast advertisements for specific audiences by keyword advertising and
content and usage affinities. Through the use of its proprietary search and
retrieval technologies, SNAP will be able to link highly-targeted,
producer-selected content with specific e-commerce opportunities, increasing the
effectiveness of advertising.
Traditional advertising on Snap.com includes a wide variety of Internet
media units such as buttons, banners, windows, portals, text links and e-mail,
among others. These placements appear on the Web page when a user enters the
service, performs a search, or browses through the Directory or through the
"Guides to" resource centers. Advertising, lead generation and member
acquisition revenues represented 100% of SNAP's total revenues in 1998 and the
first six months of 1999. SNAP believes it has been able to generate advertising
revenues to date primarily through the extensive knowledge and relationship base
of its direct-sales force, through the products and technological advantages it
can offer advertisers, and through its strategic relationship with NBC which
enables advertisers to leverage traditional on-air advertising reach.
SNAP offers advertisers three principal advertising options that may be
purchased individually or in packages: run-of-site, topic channels and keyword
search results. These options all contain hypertext links to the advertiser's
home page. Run-of-site advertisements are media units that appear throughout
Snap.com when a user browses through general search and other less-targeted
sections of the site. Current prices for run-of-site placements range from $18
to $22 per thousand page views. Topic channels advertisements appear when a user
browses through Snap.com's topic channels such as
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Business & Money, Computing & Internet, Entertainment or Travel. These
advertisements allow advertisers to target an audience with a specific area of
interest. Because of the greater selectivity of the audience relative to general
search pages, current prices for topic channels advertisements range from $20 to
$55 per thousand page views, depending on the specific channel selected. Keyword
advertisements offer the advertiser a highly targeted, self-selected audience,
appearing when a Snap.com user's search contains a particular keyword purchased
by the advertiser. Through its proprietary advertising management system, SNAP
tracks every word queried by Snap.com users, and is able to identify keywords
most frequently queried by Snap.com users and requested by advertisers. The
current rate card for keyword advertisements ranges from $55 to $72 per thousand
page views, depending on the degree of exclusivity requested by the advertiser.
In addition to revenue from traditional Internet advertising placements,
SNAP derives revenue from production, content integration, lead generation and
revenue-sharing relationships with a limited number of significant clients. SNAP
offers selected clients prominent placement on specific content areas in the
Snap Directory and the "Guides to" resource centers. This enables advertisers to
target audience groups based on content and usage affinities. Through its
relationship with NBC, SNAP has a unique ability to coordinate trans-media
advertising, allowing customers to drive traffic from the NBC television viewing
audience to the directed Internet resources available to users via Snap.com.
SNAP has licensed the Accipiter-TM- system for the instantaneous placement
of advertisements with targeted audiences on appropriate Snap.com Web pages,
augmenting the system with internally developed proprietary additions to enable
SNAP to track its users, manage advertising inventory and protect exclusive
placements. SNAP's technology additionally enables clients to monitor the
effectiveness of their advertisements by tracking click-through rates to learn
more about their target audiences. SNAP advertising sales representatives work
closely with advertisers to understand the data provided by users and apply it
to improve their advertising strategies. SNAP is exploring new technologies to
enhance user behavior tracking and advertising management capabilities.
During 1998, over 150 advertisers placed advertisements on SNAP's service.
For the three months ended March 31, 1999, one advertiser comprised 27% of
SNAP's revenues. No single advertiser accounted for 10% or more of SNAP's
revenues for the year ended December 31, 1998. To date, most of SNAP's contracts
with large advertisers have terms of one year or more.
As of March 31, 1998, SNAP's advertising sales force and account management
group consisted of 47 employees located in San Francisco and New York, with
advertising, business development and account management experience including
experience at media companies such as NBC, Time Warner, Ziff Davis and CNET.
SNAP believes that having an internal sales force with significant prior
experience enables it to better understand and meet advertisers' needs, increase
its access to potential advertisers and maintain strong relationships with its
existing base of advertising clients.
MARKETING
SNAP's trans-media strength has driven organic growth through a powerful
brand awareness campaign on the NBC television network, which commenced in July
1998. SNAP's strategy is to leverage the promotional reach of NBC to turn
television viewers into Snap.com visitors and registered members. SNAP develops
its link to these members by sending them direct e-mail updates and offers that
they may elect to receive during registration. SNAP believes a permission-based
method for ongoing marketing fosters retention and user loyalty.
National promotional spots began airing on NBC in July 1998 and were
integrated into NBC's fall television season to stimulate awareness of Snap.com.
SNAP has further stimulated brand awareness and user demand through integrated
marketing elements including outdoor and radio advertising, and online
advertising, promotions and sponsorships. SNAP also seeks to leverage the
marketing reach of its distribution partners and content providers through a
range of joint marketing programs such as the
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SnapLENS initiative, thus differentiating SNAP from many of its competitors. In
addition, SNAP cross-promotes its services with content providers though
advertising swaps in both traditional and online media.
Since February 1999, Snap.com has been listed as a search and navigation
service on Netscape's Netcenter Web site accessible via the "Internet Search"
button, for which SNAP pays Netscape a fee based in part on the number of visits
to Snap.com initiated through Netscape. Netscape currently displays eight
premier providers, including Snap.com, on an equal placement basis, and has
agreed to limit the total number of premier providers to nine. SNAP's agreement
with Netscape has a term of one year, expiring June 30, 2000.
TECHNOLOGY AND INFRASTRUCTURE
SNAP believes it can differentiate Snap.com by developing innovative
proprietary technology and integrating high-quality technology licensed from
third parties where appropriate. SNAP's strategy is to develop and license only
technologies that are able to scale with the growth in content, in order to
enable SNAP cost-effectively to adapt and grow with the Internet.
SNAP's current search engine technology was developed by SNAP based on a
collection of third party licensed proprietary tools. SNAP engineers developed
an enhanced search technology to offer an approach to information retrieval that
provides users enhanced levels of accuracy, currency, comprehensiveness and
speed. The SNAP search engine includes built-in intelligence with advanced
search features, accessing producer-selected content from over 100 leading Web
publishers and information from over 400,000 third party Web sites while
utilizing Inktomi's index of over one hundred million Web pages to provide a
comprehensive and seamless search experience.
SNAP's search engine seeks to deliver highly accurate and relevant search
results, emphasizing high precision and recall in responding to user queries. In
addition, due to the dynamic nature of the Internet, the retrieval of up-to-date
information has become another key factor for the evaluation of Internet search
services. To bring current information to the user, SNAP's producers continually
refresh SNAP's database of Web pages and regularly update the database with new
Web pages.
SNAP's search engine is able to recognize proper nouns and analyze keyword
proximity to generate more accurate results. For example, a request on Snap.com
for Helen Hunt, with or without quotation marks, will retrieve the information
about the movie and television star and not a large selection of responses about
hunting or other women named "Helen". Another key element of SNAP's technology
is the ability to search using word stems so that tenses and inflections of a
word (such as ask, asks, asked and asking) are considered in the query.
For every search, SNAP's proprietary response compilation technology allows
the importation of producer-selected data collections into the SNAP system and
gives users ready access to highly relevant results via targeted links to
related URLs. In addition, in April 1999 SNAP entered into an exclusive license
agreement with GlobalBrain.net, Inc. for GlobalBrain.net's proprietary search
technology, which enables the SNAP search engine to rank sites by user
preferences and formulate a search response that reflects the popularity and
freshness of the sites to which the user is referred. The GlobalBrain.net
technology will also enable the customization of search results for different
user groups, by reflecting differences in preferences based on country of
residence, occupation or age. This will allow SNAP to develop new portals
targeted at distinct user segments. In addition to this license, GlobalBrain.net
will furnish SNAP with five additional engineers over three years, to work with
SNAP's research and development team in developing new applications using the
GlobalBrain.net technology.
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COMPETITION
The market for SNAP's products and services continues to develop, is rapidly
evolving and is characterized by an increasing number of market entrants with
competing products and services. A number of companies offer competitive
products and services addressing certain of SNAP's target markets, including
America Online, AltaVista, Excite@Home, Infoseek, Lycos and Yahoo!.
In addition, SNAP is expected to compete with metasearch services that allow
a user to search the databases of several catalogs and directories
simultaneously. SNAP is also expected to compete indirectly with database
vendors that offer information search and retrieval capabilities with their core
database products. In the future, SNAP may encounter competition from providers
of Web browser software, including Netscape and Microsoft, online services and
other providers of other Internet products and services who elect to incorporate
their own search and retrieval features into their offerings.
RESEARCH AND DEVELOPMENT
During 1998, SNAP spent approximately $6.3 million on research and
development activities. As of March 31, 1999, SNAP had a research and
development staff of 41 full-time employees located at SNAP's headquarters in
San Francisco, California. In addition, pursuant to its agreement with
GlobalBrain.net, GlobalBrain.net will provide five full-time engineers to SNAP
on a consulting basis to engage in research and development of new search
technologies.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
SNAP's success depends significantly upon its proprietary technology. The
nature of SNAP's intellectual property protections and the associated risks
faced by SNAP are substantially similar to those discussed above with respect to
NBCi on page 114.
LEGAL PROCEEDINGS
SNAP is presently litigating a dispute with SNAP Technologies, Inc., which
claims to own the SNAP trademark. SNAP Technologies filed a lawsuit against CNET
on November 19, 1998, alleging trademark infringement and related statutory
violations, to which SNAP filed an answer on November 24, 1998. SNAP believes
that the claims asserted by SNAP Technologies are without merit and intends to
defend against them vigorously. There can be no assurance, however, that the
results of this litigation will be favorable to SNAP. An adverse outcome of this
litigation could have a material adverse effect on the business of SNAP and, by
extension, NBCi, particularly if the litigation forces SNAP to make substantial
changes to its name and trademark usage.
SNAP filed a complaint against CityAuction, Inc. in March 1999 in connection
with an agreement entered into between SNAP and CityAuction to promote
CityAuction's online auction site in exchange for monetary compensation and
warrants to purchase shares of CityAuction. SNAP is claiming that CityAuction
breached the agreement by refusing to honor SNAP's exercise in February 1999 of
its CityAuction warrants, failing to make a $125,000 payment due to SNAP and
failing to provide SNAP with notice of CityAuction's pending acquisition by
Ticketmaster Online-CitySearch, Inc. SNAP is also claiming that Ticketmaster
induced CityAuction to breach its contractual obligations to SNAP. This matter
is in the discovery stage. An unfavorable outcome in this litigation would deny
SNAP the economic benefit of the claimed payments and stock ownership of
CityAuction.
EMPLOYEES
As of March 31, 1999, SNAP had 208 full-time employees, including 41 in
research and development, 47 in sales and marketing, 83 in product development
and design, and 37 in finance and
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administration. SNAP's future success will depend, in part, on its ability to
continue to attract, retain and motivate highly qualified technical and
management personnel, for whom competition is intense. In the past, SNAP has
provided incentives such as salary, benefits and option grants (which are
typically subject to vesting over four years) to attract and retain qualified
employees. The loss or substantial diversion of the services of SNAP's officers
or other key employees could have a material adverse effect on SNAP's business,
operating results and financial condition.
FACILITIES
SNAP's headquarters are located in a leased facility in San Francisco,
California, consisting of approximately 96,000 square feet, of which SNAP uses
approximately 71,000 square feet for its operations and subleases the remainder
to unaffiliated third parties. The lease of this facility expires on June 30,
2008. SNAP licenses approximately 1,500 square feet of office space from
Xoom.com in New York, New York for its East Coast sales personnel. This license
expires on the earlier of the closing of the transactions or December 31, 1999.
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SNAP'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this proxy
statement/prospectus. The results shown in this proxy statement/ prospectus do
not necessarily indicate the results to be expected in any future periods. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward looking
statements due to a number of factors, including those set forth in the section
entitled "Risk Factors" and elsewhere in this proxy statement/prospectus.
OVERVIEW
Snap.com was the fastest-growing major portal on the Web from July 1998 to
May 1999, according to data provided by Media Metrix. Snap.com is a free,
comprehensive information, navigation and content aggregation service targeted
at both consumer and business users. Snap.com enables users to access and
personalize the vast resources of the Internet. SNAP believes that Snap.com goes
beyond the basic functionality offered by other search engines and directory
services by utilizing proprietary technology to integrate the enormous and
varied resources of the Internet into a single user interface. This single user
interface encourages users to rely on Snap.com to meet their personal daily
information needs, such as financial portfolio tracking, e-mail service and
local weather, as well as to satisfy more complex, non-routine search needs.
SNAP began operations as a division of CNET during December, 1996, and
launched the first version of the Snap.com Web site during September 1997. From
inception through December 31, 1996, SNAP had no sales, and operating activities
related primarily to developing necessary computer infrastructure, recruiting
personnel, and initial planning and development of the Snap.com Web site. For
the period beginning with the September 1997 launch of the Snap.com Web site
through December 31, 1997, these activities continued with emphasis on growing
traffic and reach, building sales momentum, establishing relationships with
advertisers, and beginning to promote the Snap.com brand.
SNAP generates net revenue from sales of on-line advertising on the Snap.com
Web site, including lead generation. Total net revenues was $7.3 million and
$817,000 for the years ended December 31, 1998 and 1997, respectively. The
year-on-year increase in total net revenues was attributable to higher Web-based
advertising revenue on substantial traffic growth. Cost of net revenues
increased similarly in absolute dollars, reflecting increased sales volume. As
Snap.com has grown, SNAP's operating expenses in absolute dollars have
increased. SNAP expects that the dollar amount of its operating expenses will
continue to increase as a result of acquisitions, sales and marketing efforts,
increased funding of site development, branding of the Snap.com name and
expansion of technology, operating infrastructure and general and administrative
staff needed to support its growth.
From inception through March 31, 1999, SNAP generated total net revenues of
approximately $13.5 million. From the first quarter to the fourth quarter of
1998, quarterly net revenues increased from approximately $861,000 to $4.0
million. The number of unique users has grown from 685,000 in January 1998 to
9.8 million in March 1999, according to Media Metrix.
As of December 31, 1998 and March 31, 1999, SNAP had an accumulated deficit
of $54.9 million and $79.0 million, respectively. Although SNAP has experienced
rapid growth in net revenue, customers and reach in recent periods, these growth
rates are not sustainable. These growth rates will slow and are not indicative
of future growth rates that SNAP may experience.
SNAP has not achieved profitability on a quarterly or annual basis to date,
and anticipates that it will incur net losses for the foreseeable future. The
extent of these losses will depend, in part, on the amount and rates of growth
in its net revenue from advertising. SNAP expects its operating expenses to
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continue at relatively high levels, especially in the areas of distribution,
sales and marketing, and brand promotion. As a result, SNAP will need to
increase its quarterly net revenues to achieve profitability. SNAP believes that
period-to-period comparisons of its operating results are not meaningful and
that you should not rely upon the results for any period as an indication of
future performance. SNAP's business, results of operations and financial
condition will be materially and adversely affected if:
- net revenue does not grow at anticipated rates;
- increases in operating expenses are not offset by commensurate increases
in net revenue; or
- SNAP is unable to adjust operating expense levels in light of net revenue.
SNAP's operating losses might increase in the future, and SNAP cannot
guarantee that it will ever achieve or sustain profitability.
To date, SNAP has entered into business and technology acquisitions, license
arrangements and strategic alliances in order to increase reach and unique user
base, build its communities, provide community-specific content, generate
additional traffic, increase the number of members and establish additional
sources of net revenue. SNAP intends to continue making acquisitions to increase
online reach and membership and to seek additional strategic alliances with
content and distribution partners, including alliances that create co-branded
sites through which SNAP makes its services available. Acquisitions carry
numerous risks and uncertainties, including:
- difficulties in integrating operations, personnel, technologies, products
and the information systems of the acquired companies;
- diversion of management's attention from other business concerns;
- risks of entering geographic and business markets in which Snap.com has
little or no prior experience; and
- potential loss of key employees of acquired entities.
SNAP cannot guarantee that it will be able to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future. A failure to successfully integrate acquired entities or assets could
have a material adverse effect on its business, results of operations and
financial condition. In addition, SNAP cannot guarantee that it will be
successful in identifying and closing transactions with potential acquisition
candidates.
Snap.com has had no international revenues to date.
RECENT EVENTS
In April 1999, SNAP entered into a series of agreements with
GlobalBrain.net, Inc. (GlobalBrain). In aggregate, SNAP provided GlobalBrain
with $2 million in cash and 75,000 membership units in exchange for (1) a
seven-year, exclusive right to utilize certain GlobalBrain technology within a
portal service, with an option to extend an additional five years, (2)
non-exclusive rights to utilize the GlobalBrain technology in other SNAP
products and to sublicense the GlobalBrain technology, (3) a commitment from
GlobalBrain to provide a minimum of five dedicated GlobalBrain engineers working
full time at the discretion of SNAP on custom research and development work for
three years, (4) a 10% ownership interest in GlobalBrain and (5) warrants to
purchase an additional 41% of GlobalBrain in three separate tranches over a five
year period. SNAP expects to account for this transaction as the acquisition of
certain tangible and intangible assets, which will include allocations of the
consideration surrendered by SNAP relating to purchased technology, prepaid
development fees, and an equity investment in a private company.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998
The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Net revenues................................................................................ 100.0% 100.0%
Cost of net revenues........................................................................ 188.6% 50.4%
Gross profit (deficit).............................................................. (88.6%) 49.6%
Operating expenses:
Product development....................................................................... 137.5% 40.9%
Sales and marketing....................................................................... 154.7% 139.8%
General and administrative................................................................ 77.8% 50.5%
Amortization of deferred compensation..................................................... -- 9.7%
Promotion and advertising provided by NBC................................................. -- 254.7%
Total operating expenses............................................................ 370.0% 495.7%
--------- ---------
Operating loss.............................................................................. (458.7%) (446.0%)
Other expense, net.......................................................................... -- (4.9%)
--------- ---------
Net loss............................................................................ (458.7%) (450.9%)
--------- ---------
--------- ---------
</TABLE>
NET REVENUES
Total net revenues for the three months ended March 31, 1999 was $5.4
million, an increase of approximately $4.5 million over revenues of $861,000 for
the three months ended March 31, 1998. The increase in net revenues was
primarily due to an increase in SNAP's Web-based advertising as higher Web site
traffic increased Snap.com's attractiveness to advertisers. Traffic growth was
attributable principally to promotion on the NBC television network and to
co-branded editions of Snap.com and other distribution partnerships. One
customer comprised 27% of net revenues for the quarter ended March 31, 1999 in a
non-cash transaction using equity as consideration for services sold by SNAP.
COST OF NET REVENUES
Cost of net revenues increased to $2.7 million during the three months ended
March 31, 1999 from $1.6 million for the three months ended March 31, 1998 as a
result of increased payroll and related expenses for personnel engaged in
supporting SNAP's products, additional content license fees, and increased
bandwidth and hosting charges.
Gross margins increased to 49.6% in the three months ended March 31, 1999
from a negative 88.6% in the three months ended March 31, 1998 as a result of
growth in net revenue.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of payroll and related
expenses for modifications, enhancements and new development operations
personnel and consultants. Product development expenses increased to $2.2
million in the three months ended March 31, 1999 from $1.2 million in the three
months ended March 31, 1998. Product development costs decreased as a percentage
of total net
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revenues to 40.9% in the three months ended March 31, 1999 from 137.5% in the
three months ended March 31, 1998, because of the growth in net revenues.
SNAP believes product development expenses will continue to increase in the
future as management initiates new product features and builds and invests in
new technologies for the Snap.com Web site to remain competitive.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of payroll and related
expenses for personnel engaged in sales, marketing, publishing and customer
support, advertising and promotional expenditures, and costs paid to third
parties to distribute pageviews to the Snap Web site (distribution expenses).
Sales and marketing expenses increased to $7.5 million in the three months ended
March 31, 1999 from $1.3 million in the three months ended March 31, 1998. The
absolute dollar increases from period to period in sales and marketing expenses
were primarily attributable to increased personnel and related expenses required
to implement its sales and marketing strategy as well as increased distribution,
public relations and other promotional expenses. Distribution expenses increased
as a percentage of total net revenues to 75% for the three months ended March
31, 1999, from 5% for the three months ended March 31, 1998. Sales and marketing
costs decreased as a percentage of total net revenues to 139.8% in the three
months ended March 31, 1999 from 154.7% in the three months ended March 31,
1998. SNAP expects to continue hiring additional personnel and to expand SNAP's
branding and marketing campaign. Therefore, SNAP expects marketing and sales
expenses to increase in absolute dollars.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and related
costs for general corporate functions, including finance, accounting, human
resources, facilities and administration, as well as legal fees, insurance and
fees for professional services. General and administrative expenses increased to
$2.7 million in the three months ended March 31, 1999, from $670,000 in the
three months ended March 31, 1998. The absolute dollar increases from period to
period in general and administrative expenses were primarily due to increases in
the number of general and administrative personnel, professional services and
facility expenses to support the growth of its operations. General and
administrative expenses decreased as a percentage of total net revenues to 50.5%
in the three months ended March 31, 1999 from 77.8% in the three months ended
March 31, 1998. SNAP expects general and administrative expenses to increase in
absolute dollars in future periods as SNAP expands its staff and incurs
additional costs related to its operations.
AMORTIZATION OF DEFERRED COMPENSATION
SNAP has recorded deferred stock compensation charges of $3.3 million during
the three months ended March 31, 1999. The deferred compensation charges account
for the difference between the exercise price and the deemed fair value of
certain unit options SNAP granted to its employees. SNAP cannot guarantee that
it will not accrue additional charges, which could have a material adverse
effect on its business, results of operations and financial condition.
Deferred compensation expense reflects the amortization of compensation
charges resulting from unit options and restricted unit purchase agreements.
SNAP has recorded deferred compensation expense of $519,000 during the three
months ended March 31, 1999.
PROMOTION AND ADVERTISING PROVIDED BY NBC
SNAP has recorded approximately $13.7 million in promotion and advertising
expense provided by NBC in the three months ended March 31, 1999. The promotion
and advertising services provided have
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been recorded as capital contributions based on the average CPM value for
commercial air time during the period the services were provided.
OTHER EXPENSE, NET
Other expense, net represents interest expense arising from the line of
credit, net of interest income SNAP earned on its cash and investments. SNAP has
recorded approximately $263 and $0 in other expense, net in the three months
ended March 31, 1999 and 1998, respectively. This increase was primarily due to
borrowings on the line of credit.
INCOME TAXES
Prior to June 25, 1998 SNAP's taxable losses were included in the
consolidated tax returns of CNET, Inc. SNAP did not receive any benefit from
CNET Inc.'s receipt of such operating losses or research and development
credits.
Upon the incorporation as a Delaware limited liability company on June 26,
1998, SNAP's net operating losses inured to the benefit of its members.
Accordingly, no provision for income taxes is recognized in the accompanying
financial statements as the net losses generated from SNAP's operations have
been passed through to its members.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
The following table presents certain statement of operations data for the
periods indicated as a percentage of total net revenue. Prior to 1997, SNAP had
no net revenue because operations were limited and consisted primarily of
start-up activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net revenues............................................................................... 100.0% 100.0%
Cost of net revenues....................................................................... 186.0% 104.2%
Gross profit (deficit)............................................................. (86.0%) (4.2%)
Operating expenses:
Product development...................................................................... 1150.9% 85.6%
Sales and marketing...................................................................... 500.6% 170.6%
General and administrative............................................................... 167.9% 81.2%
Amortization of deferred compensation.................................................... -- 2.2%
Promotion and advertising provided by NBC................................................ -- 192.2%
Total operating expenses........................................................... 1819.5% 531.7%
--------- ---------
Operating loss............................................................................. (1905.5%) (535.9%)
Other expense, net......................................................................... -- (1.0%)
--------- ---------
Net loss........................................................................... (1905.5%) (536.9%)
--------- ---------
--------- ---------
</TABLE>
NET REVENUES
SNAP began generating net revenues during 1997. SNAP's total net revenues
increased to $7.3 million for the year ended December 31, 1998 from $817,000 for
the year ended December 31, 1997. The increase in net revenues was primarily due
to an increase in Web-based advertising (higher Web site traffic increased
Snap.com's attractiveness to advertisers) and strategic partnership growth. One
customer accounted for 18% of net revenues for the year ended December 31, 1997.
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COST OF NET REVENUES
Cost of net revenues increased to $7.6 million for the year ended December
31, 1998 from $1.5 million for the year ended December 31, 1997 as a result of
increased payroll and related expenses for personnel engaged in supporting
SNAP's product, additional content license fees, and increased bandwidth and
hosting charges.
Gross deficit improved to a negative 4.2% in the year ended December 31,
1998 from a negative 86.0% in the year ended December 31, 1997, as a result of
growth in net revenue.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of payroll and related
expenses for modifications, enhancements and new development operations
personnel and consultants. Product development expenses decreased to $6.3
million in the year ended December 31, 1998 from $9.4 million in the year ended
December 31, 1997. Product development costs decreased as a percentage of total
net revenues to 85.6% in the year ended December 31, 1998 from 1,150.9% in the
year ended December 31, 1997, due to growth in net revenues.
SNAP believes product development expenses will continue to increase in the
future as management initiates new product features and builds and invests in
new technologies for the Snap.com Web site to remain competitive. Therefore,
SNAP expects that its product development expenses will increase in absolute
dollars for the foreseeable future.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of payroll and related
expenses for personnel engaged in sales, marketing, publishing and customer
support, advertising and promotional expenditures and costs paid to third
parties to distribute page views to the Snap Web site (distribution expenses).
Sales and marketing expenses increased to $12.5 million in the year ended
December 31, 1998 from $4.1 million in the year ended December 31, 1997. The
absolute dollar increases from period to period in sales and marketing expenses
were primarily attributable to increased personnel and related expenses required
to implement its sales and marketing strategy as well as increased distribution,
public relations and other promotional expenses. Distribution expenses increased
as a percentage of total net revenues to 29% for the year ended December 31,
1998 compared to 2% for the year ended December 31, 1997. Sales and marketing
costs decreased as a percentage of total net revenues to 170.6% in the year
ended December 31, 1998, from 500.6% in the year ended December 31, 1997. SNAP
expects to continue hiring additional personnel and to expand SNAP's branding
and marketing campaign. Therefore, SNAP expects marketing and sales expenses to
increase in absolute dollars.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and related
costs for general corporate functions, including finance, accounting, human
resources, facilities and administration, as well as legal fees, insurance and
fees for professional services. General and administrative expenses increased to
$5.9 million in the year ended December 31, 1998 from $1.4 million in the year
ended December 31, 1997. The absolute dollar increases from period to period in
general and administrative expenses were primarily due to increases in the
number of general and administrative personnel, professional services, and
facility expenses to support the growth of SNAP's operations. General and
administrative expenses decreased as a percentage of total net revenue to 81.2%
in the year ended December 31, 1998 from 167.9% in the year ended December 31,
1997. General and administrative expenses as a percentage of net revenues have
decreased because of the growth in net revenues. SNAP expects general and
administrative expenses to increase in absolute dollars in future periods as
SNAP expands its staff and incurs additional costs related to its operations.
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AMORTIZATION OF DEFERRED COMPENSATION
SNAP has recorded deferred stock compensation charges of $2.3 million for
the year ended December 31, 1998. The deferred compensation charges account for
the difference between the exercise price and the deemed fair value of certain
unit options SNAP granted to its employees. SNAP cannot guarantee that it will
not accrue additional charges, which could have a material adverse effect on its
business, results of operations and financial condition.
Deferred compensation expense reflects the amortization of compensation
charges resulting from unit options and restricted unit purchase agreements.
SNAP has recorded deferred compensation expense of $160,000 for the year ended
December 31, 1998.
PROMOTION AND ADVERTISING PROVIDED BY NBC
SNAP has recorded approximately $14.1 million in promotion and advertising
expenses provided by NBC for the year ended December 31, 1998. The promotion and
advertising services provided have been recorded as capital contributions based
on the average CPM value for commercial air time during the period the services
were provided.
INCOME TAXES
Prior to June 25, 1998 SNAP's taxable losses were included in the
consolidated tax returns of CNET, Inc. SNAP did not receive any benefit from
CNET Inc.'s receipt of such operating losses or research and development
credits.
Upon the incorporation as a Delaware limited liability company on June 26,
1998, SNAP's net operating losses inured to the benefit of its members.
Accordingly, no provision for income taxes is recognized in the accompanying
financial statements as the net losses generated from SNAP's operations have
been passed through to its members.
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain consolidated statements of operations
data for SNAP's five most recent quarters ended March 31, 1999 in dollars and as
a percentage of net revenues. In management's opinion, this unaudited
information has been prepared on the same basis as the audited annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for fair presentation of the unaudited information for
the quarters presented. You should read this information in conjunction with the
consolidated financial statements, including
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the notes thereto, included elsewhere in this prospectus. The results of
operations for any quarter are not necessarily indicative of results that SNAP
might achieve for any subsequent periods.
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
--------- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues............................................. $ 861 $ 1,097 $ 1,352 $ 4,007 $ 5,361
Cost of net revenues..................................... 1,624 2,310 1,679 2,013 2,701
Gross profit (deficit)................................... (763) (1,213) (327) 1,994 2,660
Operating expenses:
Product development.................................... 1,184 1,119 1,928 2,032 2,195
Sales and marketing.................................... 1,332 2,036 2,742 6,372 7,497
General and administrative............................. 670 737 1,701 2,831 2,705
Amortization of deferred compensation.................. -- -- -- 160 519
Promotion and advertising provided by NBC.............. -- -- 3,484 10,576 13,656
Total operating expenses................................. 3,186 3,892 9,855 21,971 26,572
--------- --------- ---------- ---------- ----------
Operating loss........................................... (3,949) (5,105) (10,182) (19,977) (23,912)
Other expense, net....................................... -- -- 36 (111) (263)
--------- --------- ---------- ---------- ----------
Net loss $ (3,949) $ (5,105) $ (10,146) $ (20,088) $ (24,175)
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenues........................................... 188.6% 210.6% 124.2% 50.2% 50.4%
Gross profit (deficit)......................................... (88.6%) (110.6%) (24.2%) 49.8% 49.6%
Operating expenses:
Product development.......................................... 137.5% 102.0% 142.6% 50.7% 40.9%
Sales and marketing.......................................... 154.7% 185.6% 202.8% 159.0% 139.8%
General and administrative................................... 77.8% 67.2% 125.8% 70.7% 50.5%
Amortization of deferred compensation........................ -- -- -- 4.0% 9.7%
Promotion and advertising provided by NBC.................... -- -- 257.7% 263.9% 254.7%
----------- ----------- ----------- ----------- -----------
Total operating expenses....................................... 370.0% 354.8% 729.0% 548.3% 495.7%
----------- ----------- ----------- ----------- -----------
Operating loss................................................. (458.7%) (465.4%) (753.2%) (498.6%) (446.0%)
Other income (expense), net.................................... -- -- 2.7% (2.8%) (4.9%)
----------- ----------- ----------- ----------- -----------
Net loss....................................................... (458.7%) (465.4%) (750.5%) (501.3%) (450.9%)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
SNAP's operating expenses have increased significantly in absolute dollar
amounts in each quarter as SNAP has transitioned from the development stage to
the commercialization of its services and products and expansion of its
business. SNAP expects operating expenses will continue to increase in the
future as SNAP continues to seek to expand its business. To the extent that
these expenses are not accompanied by an increase in net revenues, SNAP's
business, results of operations and financial condition could be materially
adversely affected.
SNAP expects operating results to fluctuate significantly in the future as a
result of a variety of factors, many of which are outside of its control.
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As a strategic response to changes in the competitive environment, SNAP
might from time to time make certain pricing, service or marketing decisions or
pursue business combinations that could have a material adverse effect on its
business, results of operations and financial condition. In order to accelerate
the promotion of the SNAP brand, SNAP intends to significantly increase its
marketing budget, which could materially and adversely affect its business,
results of operations and financial condition. SNAP expects to experience
seasonality in its business, with user traffic on the Snap.com Web site
potentially being lower during the summer and year-end vacation and holiday
periods when overall usage of the Web is lower. Additionally, seasonality may
significantly affect its advertising revenue during the first and third calendar
quarters, as advertisers historically spend less during these periods, and more
in the fourth quarter. Because Web-based commerce and advertising is an emerging
market, additional seasonal and other patterns may develop in the future as the
market matures. Any seasonality is likely to cause quarterly fluctuations in
SNAP's operating results, and these patterns could have a material adverse
effect on its business, results of operations and financial condition.
Due to the foregoing factors, SNAP's quarterly net revenue and operating
results are difficult to forecast. Consequently, SNAP believes that period to
period comparisons of its operating results will not necessarily be meaningful
and you should not rely on them as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the commencement of the proposed business combination, SNAP
financed its operations primarily through capital contributions by CNET and NBC,
and a line of credit.
At December 31, 1998 and March 31, 1999, SNAP had cash and cash equivalents
and short-term investments of approximately $865,000 and $587,000, respectively.
Net cash used in operating activities for the years ended December 31, 1998
and 1997 was $24.6 million and $14.7 million, respectively. Cash used in
operating activities for the year ended December 31, 1998 was primarily the
result of net losses and an increase in accounts receivable related to the
growth of revenues, partially offset by non-cash promotion and advertising
provided by NBC and an increase in accounts payable and accrued and other
liabilities as a result of the growth of SNAP's business. Cash used in operating
activities for the year ended 1997 was primarily the result of net losses.
Net cash used in operating activities for the three months ended March 31,
1999 and 1998 was $4.9 million and $4.2 million, respectively. Cash used in
operating activities for the three months ended March 31, 1999 was primarily the
result of net losses, partially offset by promotion and advertising provided by
NBC and an increase in accounts payable and accrued and other liabilities as a
result of the growth of SNAP's business. Cash used in operating activities for
the three months ended March 31, 1998 was primarily the result of net losses.
Net cash used in investing activities for the years ended December 31, 1998
and 1997 was $4.5 million and $1.5 million respectively. Cash used in investing
activities in each period was primarily related to purchases of fixed assets.
Net cash used in investing activities for the three months ended March 31,
1999 and 1998 was $2.4 million and $255,000, respectively. Cash used in
investing activities in each period was primarily related to purchases of fixed
assets.
Net cash provided by financing activities for the years ended December 31,
1998 and 1997 was $30.0 million and $16.2 million, respectively. Cash provided
by financing activities was primarily attributable to capital contributions. For
the year ended December 31, 1998 cash provided by financing activities also
included a cash contribution from NBC and proceeds from SNAP's line of credit.
Net cash provided by financing activities for the three months ended March
31, 1999 was $7.0 million, and net cash provided by financing activities in the
three months ended March 31, 1998
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was $4.5 million. Cash provided by financing activities in the three months
ended March 31, 1999 related to proceeds from the line of credit. Cash provided
by financing activities in the three months ended March 31, 1998 was
attributable to CNET's capital contribution.
As of December 31, 1998, SNAP's principal commitments consisted of
obligations outstanding under operating leases.
As of December 31, 1998, SNAP had a total of $13.5 million outstanding under
its line of credit, all of which is due in 1999, but is expected to be
refinanced. The borrowings are classified as long-term on the face of the
balance sheet because SNAP has the ability and intent to extend the due dates
beyond December 31, 1999. On June 25, 1999 SNAP was granted an increase to the
line of credit to $45,000,000.
SNAP has sustained losses and negative cash flows from operations since
inception and expects these conditions to continue into the foreseeable future.
As of March 31, 1999, SNAP had accumulated losses from inception of
approximately $79 million. The implementation of SNAP's business plan is
dependent upon obtaining additional equity or debt financing through public or
private financing, strategic partnerships or other arrangements. There can be no
assurance that such additional financing will be available on terms attractive
to SNAP, or at all. Should additional external financing not be available,
management would curtail SNAP's current growth plans to enable SNAP to continue
operations through 1999.
DISCLOSURES ABOUT MARKET RISK
SNAP invests in equity instruments of privately held companies for business
and strategic purposes. These investments are included in other long term assets
and are accounted for under the cost method when ownership is less than 20%. For
investments in which no public market exists, SNAP's policy is to regularly
review the operating performance, recent financing transactions and cash flow
forecasts for these companies in assessing the net realizable values. SNAP
identifies and records impairment losses on long-lived assets when events and
circumstances indicate that such assets might be impaired. To date, no such
impairment has been recorded.
YEAR 2000 COMPLIANCE
SNAP has conducted an internal review of software systems which it uses for
site management, network monitoring, quality assurance, transactions processing
and fulfillment services. Because SNAP developed these software systems
internally when the Year 2000 problem already had some visibility, SNAP was
largely able to anticipate four digit requirements. In conjunction with ongoing
reviews of its own products and services, SNAP is also reviewing its computer
infrastructure, including network equipment and servers. SNAP does not
anticipate material problems with network equipment, as its current
configuration was installed within the last three years. Similarly, SNAP
purchased most of its servers in 1998. With this relatively current equipment,
SNAP does not anticipate material Year 2000 compliance problems, and SNAP will
replace any servers that cannot be updated either in the normal replacement
cycle or on an accelerated basis. SNAP has also internally standardized its
personal computers on Windows NT 4.0 using reasonably current service packs
which SNAP's vendor has advised SNAP are Year 2000 compliant. SNAP uses multiple
software systems for internal business purposes, including accounting, e-mail,
development, human resources, customer service and support and sales tracking
systems. All of these applications have been purchased within the last three
years.
SNAP has made inquiries of vendors of systems SNAP believes to be mission
critical to its business regarding their Year 2000 readiness. Although SNAP has
received various assurances, SNAP has not received affirmative documentation of
Year 2000 compliance from any of these vendors and SNAP has not performed any
operational tests on its internal systems. SNAP generally does not have
contractual rights with third party providers should their equipment or software
fail due to Year 2000 issues. If this third party equipment or software does not
operate properly with regard to Year 2000,
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SNAP may incur unexpected expenses to remedy any problems. These expenses could
potentially include purchasing replacement hardware and software. SNAP has not
determined the state of compliance of certain third-party suppliers of services
such as warehousing and fulfillment services, phone companies, long distance
carriers, financial institutions and electric companies, the failure of any one
of which could severely disrupt its ability to carry on its business.
SNAP anticipates that its review of Year 2000 issues and any remediation
efforts will continue throughout calendar 1999. The costs incurred to date to
remediate its Year 2000 issues have not been material. If any Year 2000 issues
are uncovered with respect to these systems or its other internal systems, SNAP
believes that it will be able to resolve these problems without material
difficulty, as replacement systems are available on commercially reasonable
terms. SNAP presently estimates that the total remaining cost of addressing Year
2000 issues will not exceed $150,000. SNAP derived these estimates using a
number of assumptions, including the assumption that SNAP has already identified
its most significant Year 2000 issues. However, these assumptions may not be
accurate, and actual results could differ materially from those anticipated. In
view of SNAP's Year 2000 review and remediation efforts to date, the recent
development of SNAP's products and services, the recent installation of SNAP's
networking equipment and servers, and the limited activities that remain to be
completed, SNAP does not consider contingency planning to be necessary at this
time.
SNAP's applications operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems. SNAP
is unable to predict to what extent its business may be affected if its systems
or the systems that operate in conjunction with SNAP experience a material Year
2000 failure. Known or unknown errors or defects that affect the operation of
SNAP's software and systems could result in delay or loss of revenue,
interruption of services, cancellation of contracts and memberships, diversion
of development resources, damage to its reputation, increased service and
warranty costs, and litigation costs, any of which could adversely affect its
business, financial condition and results of operations. SNAP's worst case
scenario is that the Internet fails due to Year 2000 problems and SNAP is unable
to offer any services on its Web sites.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. SNAP must adopt SFAS No. 133 by January 1,
2000. Management does not believe the adoption of SFAS No. 133 will have a
material effect on the financial positions or operations of SNAP.
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NBC'S CONTRIBUTED INTERNET BUSINESSES
OVERVIEW
NBC, a wholly owned subsidiary of GE, is one of the leading television
networks in the United States. NBC produces, acquires and distributes a
comprehensive schedule of entertainment, news and sports programming, and
provides network television services to 13 owned stations as well as more than
220 affiliated stations throughout the United States. Through NBC Multimedia,
NBC pursues an array of new media initiatives, including the development of Web
sites related to its principal programming services and strategic relationships
with leading edge interactive technology companies. In addition, NBC produces
and distributes CNBC, a 24-hour cable business and financial news channel, and,
in a joint venture with Microsoft, produces and distributes MSNBC, a 24-hour
cable news channel. NBC also has cable business and financial news channels
offered internationally through a joint venture with Dow Jones.
NBC was the most-watched television network during the primetime period
(8:00 p.m. to 11:00 p.m. Monday through Saturday and 7:00 p.m. to 11:00 p.m.
Sunday) among adults age 18 to 54 in the United States, according to data
furnished by Nielsen Media Research for the television season that ended in May
1999. Throughout the 1998-1999 season, an average of more than 156 million
people watched NBC television programming at least once each week, representing
more than 60% of the population of the United States, and, on average, a single
30-second advertisement on the highly-rated "ER" program on NBC reached more
than 22 million viewers. In addition, the results of a study commissioned by NBC
from Nielsen Media Research in 1999 indicate that, during the February sweeps
period, among viewers with access to the Internet, NBC primetime programming
attracted 25% more viewers than primetime programming of its nearest television
network competitor, and 65% more viewers than primetime programming of the top
ten cable networks combined.
Currently, NBC.com, NBC-IN.com and VideoSeeker are separate business units
within NBC Multimedia, and CNBC.com LLC is a wholly owned subsidiary of NBC.
NBC.com is the online home for NBC's entertainment programming on the Internet,
offering information about NBC television programs and original episodic
programming designed specifically for Internet users, as well as news and
information from MSNBC and NBC-related merchandise. NBC-IN.com is a portal to a
network of local community sites created for more than 100 NBC-owned and
NBC-affiliated television stations in the United States. NBC-IN.com provides
customized advertising and community directory services to complement each
station's news and other local information on its Web site. VideoSeeker is an
on-demand Internet video service featuring television and movie clips, DVD
trailers and related shopping opportunities. Together, NBC.com, NBC-IN.com and
VideoSeeker achieved a reach of 2.8 among home users in March 1999, recording
1.6 million unique visitors, a 45% increase over the 1.1 million unique visitors
recorded in June 1998, the first month in which all three services were
operational. CNBC.com, launched on June 21, 1999, is a Web site developed by NBC
in connection with its CNBC cable channel, offering financial information and
analytic tools to assist users in personal financial planning.
NBC.COM
PRODUCTS AND SERVICES
Launched by NBC in August 1995, NBC.com is the Internet venue for NBC's
television programming. NBC.com provides information and promotion for NBC
on-air broadcasts as well as original show extensions developed specifically for
Internet users. NBC.com also offers shopping services, as well as bulletin
boards and chat rooms, including chat sessions with NBC on-air talent, through
its cobranded site www.nbc.talkcity.com, operated by Talk City, Inc. NBC.com's
strategy has been to build on the NBC brand to establish itself as a leading
entertainment information Web site. NBC.com has ranked among the top 30
"news/info/entertainment" Web sites of Media Metrix in terms of reach since
April 1998.
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NBC.com delivers information about NBC on-air programming. NBC.com provides
show descriptions, episode updates, actor biographies, schedule information and
program trivia for all NBC entertainment programming. NBC.com gives fans of NBC
programming an opportunity to learn more about their favorite television shows
with such features as "backstage tours" and online-only interviews. NBC.com
frequently adapts NBC program content for interactive uses on NBC.com, such as
games and photo galleries. NBC.com maintains direct links to MSNBC News, MSNBC
Sports and CNBC.com. NBC.com also provides direct links to local news and
weather delivered by NBC's local station affiliates through NBC-IN.com.
In addition, NBC.com presents customized Internet extensions of NBC
television programming in the form of online "spin-offs" and Internet-only
segments derived from on-air material. NBC links original content from the
enhanced site with the "parent" on-air program, so that characters, story
elements and sketches connect television and Internet media. For example,
through the "Profiler" link on NBC.com, users can participate interactively in a
story extension derived from episodes of the television program. NBC.com
recently created "Virtual Jay," an extension of The Tonight Show with Jay Leno,
which features an animated likeness of Jay Leno performing original material
designed for NBC.com. To date, enhanced show sites have been created for ten
additional NBC television programs including Late Night with Conan O'Brien and
Saturday Night Live.
NBC.com offers real-time communication through show-related chat rooms
hosted by Talk City through a strategic relationship with NBC, in the form of
online discussions among fans as well as scheduled chat events with on-air
celebrities. In addition, NBC.com offers bulletin board services dedicated to
particular television shows. NBC.com also provides e-commerce functionality,
enabling sales of home video editions of NBC programs and made-for-television
movies, NBC-branded merchandise, and links to online shopping pages not
affiliated with NBC.
NBC.com has been recognized within the Internet industry for its
achievements, winning several awards including Best Story/Script and Best Design
for "Homicide: Second Shift" from Invision, and Promax Awards for on-air
promotions of The Tonight Show and Homicide. NBC.com was a Webby Award finalist
for 1998 Entertainment Site of the Year and an Academy of Interactive Arts &
Sciences finalist for 1998 Entertainment Site of the Year.
STRATEGIC RELATIONSHIPS
NBC Multimedia has entered into agreements with USWeb Corporation for
production and hosting services for NBC.com and VideoSeeker.com, and with Talk
City, Inc. for chat services for NBC.com and several of the NBC-IN.com local
station Web sites.
Under the agreement with USWeb, NBC Multimedia receives Internet production
services as well as Web site hosting, support and technical services from USWeb
for NBC.com and VideoSeeker.com in addition to other NBC Web sites. NBC
Multimedia retains creative and editorial control over all content on its Web
sites hosted by USWeb. NBC Multimedia pays USWeb an annual fee for the services
provided by USWeb. The USWeb agreement has a term of four years expiring in May
2002, and NBC Multimedia has the right to extend the agreement unilaterally for
an additional four-year term at a fixed increase in the annual fee. NBC
Multimedia may terminate the agreement with three months' prior written notice
to USWeb, and beginning in November 1999, USWeb may terminate the agreement with
six months' prior written notice to NBC Multimedia.
Talk City furnishes all services required to create, maintain and operate
chat services on NBC.com and several of the NBC-IN.com local station Web sites,
in addition to other NBC Web sites. NBC Multimedia receives promotion of the NBC
Web sites on the Talk City Web sites. The term of the Talk City agreement
extends until August 2001, and may be renewed automatically unless either party
notifies the other at least sixty days in advance of the end of the term that it
elects to have the
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agreement expire. Either party may terminate the agreement at any time with
sixty days' prior written notice.
REVENUE SOURCES
NBC.com leverages the power of the NBC television brand to drive traffic to
NBC.com. This provides exposure for NBC.com's advertisers seeking to turn NBC's
television viewers into potential customers for products and services. NBC
believes that its high television viewership and favorable demographics offer a
strong platform to develop NBC.com's ability to attract advertisers. During the
1998-1999 television season, NBC television programming reached approximately
156 million viewers in the United States every week. The NBC.com URL is included
with NBC's logo graphic at the end of most entertainment programming broadcast
on the NBC television network in primetime, although NBC is not obligated to
continue to display the NBC.com logo or URL in this particular manner. NBC.com
has experienced rapid growth as a result of NBC's promotional efforts, including
spots during NBC primetime programming as well as The Tonight Show, Saturday
Night Live, Late Night with Conan O'Brien and NBC's "TNBC" block of
teen-targeted shows.
NBC.com generates revenue from the sale of advertising on its site as well
as by providing links to online shopping pages not affiliated with NBC. NBC.com
draws users who represent an attractive demographic group for companies that
advertise and conduct business over the Internet, yielding a wide array of major
advertisers and sponsors including Honda, Johnson & Johnson, Levi Strauss,
Lincoln, Microsoft, Pontiac and VISA. NBC.com also offers advertisers on NBC
television mini-series and special events programming the opportunity to
purchase integrated online sponsorships that feature the on-air sponsor in the
NBC.com area promoting the mini-series or special event.
NBC.com also generates revenue from development of specialized content for
advertisers. For example, NBC.com developed an area in the NBC.com Web site,
"Jay's Garage", to capitalize on the enthusiasm for cars and driving frequently
expressed on-air during The Tonight Show by host Jay Leno. As a result, NBC.com
has been able to offer automobile advertisers cross-promotional capability by
coordinating television network advertising with sponsorship of "Jay's Garage"
on NBC.com. In addition, NBC.com has provided production capability to
advertisers seeking access to the desirable demographic groups to which NBC
television programming has traditionally appealed. For example, the NBC.com
production team produced an Internet advertising campaign for Levi Strauss that,
although not linked to NBC television programming, increased brand awareness for
NBC.com.
NBC-IN.COM
PRODUCTS AND SERVICES
The NBC-IN.com Web site serves as a portal to a network of local news and
information Web sites developed with 104 NBC-owned and NBC-affiliated television
stations throughout the United States. When a user identifies a particular city
of interest, NBC-IN.com connects the user with the Web site of the local
NBC-owned or NBC-affiliated station in that city. On the local station Web sites
connected by NBC-IN.com, users can access news, sports and weather from MSNBC
and, in the case of NBC affiliates, the local station itself. Users can also
access services such as job searching, local advertising for real estate and
automobiles, restaurant reviews and telephone directories customized for the
relevant geographic area. Most of the content appearing on the NBC-IN.com Web
sites is obtained from unaffiliated content providers, often through exclusive
relationships with NBC-IN.com. NBC believes that the NBC-IN.com network of
station Web sites provides advertisers with a unique promotional advantage,
offering a city-by-city advertising platform tailored to local needs with on-air
and online cross-promotion, anchored by the NBC brand.
NBC-IN.com was launched in October 1997 with participation by NBC's 13 owned
stations and 30 stations affiliated with NBC. As of May 31, 1999, an additional
61 local NBC-affiliated stations had joined NBC-IN.com, bringing the total
participation to 104 NBC-owned and NBC-affiliated stations
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throughout the United States. NBC-IN.com expects to add up to 45 additional
NBC-affiliated stations by the end of 1999.
Each station participating in the NBC-IN.com network has significant
discretion to tailor the look and feel of its Web site and the content it
presents to appeal to its local market. NBC-IN.com delivers approximately 25% of
each Web site's content in the form of search services and directories through
relationships with Web sites. NBC-IN.com's reach among home and work users
averaged approximately 1.7 in March 1999 according to data provided by Media
Metrix. For the three-month period ended March 31, 1999, users averaged
approximately 2.2 visits per month.
STRATEGIC RELATIONSHIPS
NBC-IN.com delivers approximately 25% of each local site's content through
strategic relationships with Web sites such as Realtor.com, Rent.net, Big
Yellow, Auto-by-Tel and CareerBuilder. These content providers pay a fee to
NBC-IN.com to furnish search or other functionality in a particular category
such as auto and real estate sales, apartment rentals, telephone directory
services and job searching services for the geographic areas covered by each
site throughout the NBC-IN.com site network. For instance, by clicking on "Cars"
on the station Web site, a user is connected to Autobytel.com and can obtain
product reviews and manufacturers' information as well as purchase, lease or
finance a new or used automobile. These strategic relationships typically have
terms of one to three years.
In addition, NBC-IN.com has entered into an agreement with 24/7 Media to
place sales representatives on site at NBC stations in each of the top twenty
U.S. markets covered by NBC-IN.com. These sales representatives seek to sell
coordinated packages of on-air and online advertising to local advertisers in
their assigned markets in order to develop online advertising sales at each of
the participating stations and capitalize on the cross-promotional opportunities
presented by the local on-air platform. In addition, 24/7 Media provides
training and marketing services to the other stations participating in the
NBC-IN.com network. Under the agreement with 24/7 Media, NBC-IN.com is entitled
to share in revenues from advertisement sales completed by 24/7 sales
representatives. The agreement with 24/7 Media extends to March 11, 2002.
REVENUE SOURCES
NBC-IN.com generates revenue from the sale of traditional online advertising
in the form of banners and direct links to non-NBC online shopping pages, and
from content providers seeking access to NBC-IN.com distribution for their
products and services. NBC-IN.com sites attract a wide array of local
advertising categories, including automobiles, real estate sales and rentals,
and job opportunities. NBC-IN.com draws users who represent an attractive
demographic group for companies that advertise and conduct business over the
Internet, leveraging the NBC brand to supplement marketing opportunities that
have been tailored for local audiences.
Jupiter Communications estimates that online advertising revenues will
exceed $8 billion by 2002, with local advertising revenues representing an
increasing percentage of this total, growing from approximately 10% in 1996 to
over 50% in 2002. NBC believes that NBC-IN.com is well positioned to take
advantage of this growth in local online advertising revenues, offering
advertisers an extensive network of Web sites designed to capture regional
differences in consumer demand together with the opportunity for network and
local television cross-promotion. The NBC-IN.com network enables local
advertisers, which traditionally have focused on local radio and print
advertising platforms because of cost, to access the greater reach and richer
media offered by television and the Internet in a more cost-effective manner. By
combining mentions of several advertisers in a single on-air promotion of a
local NBC-IN.com Web site, stations owned by or affiliated with NBC can provide
local advertisers with access to a television audience at a fraction of the cost
for a full advertising spot. In addition,
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advertisers have the ability to furnish more extensive information about the
products and services they offer to viewers who visit a station's Web site.
Moreover, the Internet is changing buying patterns, as consumers
increasingly obtain product information and make purchases via the Internet. For
example, research by J.D. Power & Associates indicates that by 2000, one in five
buyers of new cars will use the Internet in their search, whether to obtain
product reviews and manufacturers' information or to identify potential sellers
and complete a purchase or lease transaction. Department of Commerce statistics
indicate that the cost of online auto sales is approximately 20% of the cost
through traditional dealership sales methods. Consequently, a study by Forrester
Research estimates that spending for online advertising by auto dealers will
exceed $200 million per year by 2000, up from approximately $16 million in 1997.
Through its arrangement for auto sales search and transaction functionality with
Auto-By-Tel, NBC-IN.com is well positioned to capitalize on this growth in
online auto dealer advertising throughout the NBC-IN.com network of local sites.
VIDEOSEEKER
PRODUCTS AND SERVICES
VideoSeeker is a leading full-service video aggregator that provides content
licensed on a non-exclusive basis from a variety of sources including NBC, MSNBC
and CNBC. VideoSeeker's searchable database currently offers users free online
access to topical and archival news video from MSNBC, clips from NBC television
programming, movie trailers, interviews and links to music videos and other Web
sites with streaming video content. In addition to relationships with NBC,
certain of NBC's subsidiaries and NBC's joint ventures with Microsoft and Dow
Jones, VideoSeeker has annual agreements with third party content providers
including Film Scouts, PR Newswire and Universal Studios. VideoSeeker also
obtains content from major content producers, including Fox, Disney, Sony and
MGM. On VideoSeeker.com, users may select from popular video formats (RealVideo,
Windows Media or QuickTime) and connection speeds (from 28.8Kbps to T1), using
video capturing and encoding processes approved by Microsoft and RealNetworks to
ensure high-quality video playback. There is also a high-bandwidth area on
VideoSeeker.com to showcase video clips played back at higher speeds up to
300Kbps.
Users are offered several convenient ways to access videos and text,
including by keyword search and genre channels such as "Television", "Movies"
and "Best of the Web". Within each content channel, VideoSeeker promotes new and
noteworthy "hot clips", which account for more than 75% of the videos served on
VideoSeeker. For the "Best of the Web" channel, VideoSeeker producers search the
Web to identify the best video-enabled sites and content on the Web. VideoSeeker
creates co-branded areas for video partners such as MSNBC, in which the content
provider is given a special area on the site and advertising and promotion by
VideoSeeker in exchange for a royalty-free license of the video content to
VideoSeeker. VideoSeeker also creates specialized areas of the site to promote
categories of content without the need for third-party branding, such as "Movie
Lounge", offering popular movie trailers collected and promoted by VideoSeeker's
production team. Users are offered the opportunity to register as members, but
registration is optional.
VideoSeeker has shown demonstrated growth since its redesign in October
1998, delivering over 700,000 clips to users in June 1999 compared to
approximately 126,000 in November 1998. In 1998, VideoSeeker.com was Yahoo!'s
"cool Web site" pick of the week and also received the SAV Streaming Media Award
for outstanding achievement. VideoSeeker.com has received critical accolades
from THE NEW YORK TIMES, DAILY VARIETY and INTERACTIVE AGE.
STRATEGIC RELATIONSHIPS
VideoSeeker was formed by NBC in October 1997 through a strategic
relationship with InterVU, Inc., a leading Internet and broadband video hosting
and delivery services company. In
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coordination with NBC, InterVU built the video search engine, database, and
video-publishing and proprietary traffic analysis tools used by VideoSeeker.
Except for certain news video clips, all content is hosted on InterVU's
distributed video network. NBC has a royalty-free nonexclusive license from
InterVU for the use of all software and code required to operate the
VideoSeeker.com search engine and video publishing tools. In addition, NBC has
an agreement with InterVU for the technical maintenance of the VideoSeeker.com
Web site, its video databases and NBC-owned servers.
REVENUE SOURCES
VideoSeeker derives revenues from traditional Internet advertisers, offering
banner advertising as well as sponsorships of various areas in the
VideoSeeker.com Web site. VideoSeeker's major customers include Microsoft, DVD
Express and ImpulseBuy Network. In addition, VideoSeeker is a reseller of
InterVU's live events services. VideoSeeker also derives revenue from video
distributors and companies with video libraries. In addition, VideoSeeker is
exploring the insertion of advertisements before and after video clips in order
to deliver advertising similar in format to that carried on television, but to a
more targeted audience.
VideoSeeker develops Internet user traffic through strategic linking
campaigns with content and commerce partners, homepage promotion on NBC.com and
through the NBC-IN.com network of Web sites. VideoSeeker also develops Internet
user traffic through distribution arrangements such as the inclusion of
VideoSeeker.com in pre-loaded links in Microsoft's Windows Media Player.
GENERAL MATTERS AFFECTING NBC.COM, NBC-IN.COM AND VIDEOSEEKER
COMPETITION
In addition to competing with other Web sites for Internet users, NBC.com
competes with traditional media such as television, radio and print. Each of
NBC's television network competitors has one or more Internet sites with content
designed to complement its programming, as do many cable networks and most major
newspapers. Large content providers in other media, including movie and
television studios, cable television providers and print publishers have the
ability to translate their products into online services and cross-promote these
services through the Internet as well as traditional media channels.
The market for local interactive content and services is also highly
competitive. The NBC-IN.com network of local Web sites competes for users with
local Web site networks such as Excite@Home's City Guides, Lycos City Guides,
America Online's Digital City, Ticketmaster Online-CitySearch, Yahoo! Get Local
and Microsoft Sidewalk. In addition, each Web site in the NBC-IN.com network
competes for advertising revenue with traditional television, print and radio
advertising platforms within its local geographic area.
The market for broadcast of video via the Internet is immature and highly
fragmented, and thus highly competitive. Such competition is expected to
intensify as the number of video-enabled users and digital distribution outlets
expands. VideoSeeker faces significant competition in the delivery of video
content via the Internet from general and niche video aggregation services such
as Broadcast.com, Inc., CNN VideoSelect, RealNetworks, FoxNews and FasTV. In
addition, search engines and Internet service providers such as Yahoo!, America
Online, and Excite@Home offer users access to video content via the Internet,
including through broadband platforms. Moreover, media companies such as Disney,
Warner Brothers, Sony, Viacom and Fox, which possess both significant content
libraries and strong brand recognition, may devote significant resources to
developing competitive services for the delivery of owned and acquired video
content.
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INTELLECTUAL PROPERTY
The financial success of NBC.com, the NBC-IN.com network of Web sites and
VideoSeeker depends in part on the protection of the intellectual property
rights related to their operation. The nature of the intellectual property
protections and the associated risks faced by NBC.com, NBC-IN.com and
VideoSeeker.com are substantially similar to those discussed above with respect
to NBCi on page 114.
LEGAL PROCEEDINGS
From time to time NBC has been subject to legal proceedings and claims in
the ordinary course of its business, including claims of alleged infringement of
third-party trademarks and other intellectual property rights. By distributing
content over the Internet, the NBC contributed Internet assets expose NBC to
potential liability for claims based on the nature and content of the materials
distributed, including claims for defamation, negligence or copyright, patent or
trademark infringement. Such claims have been litigated successfully against
Internet companies, but even if unsuccessful may result in the expenditure of
significant financial and managerial resources.
EMPLOYEES
As of June 30, 1999, NBC had 21 full-time employees devoted to operations
relating to the operation of NBC.com, NBC-IN.com and VideoSeeker. None of those
employees is subject to a collective bargaining agreement and NBC believes that
its relations with such employees are good.
FACILITIES
NBC's operations relating to NBC.com, NBC-IN.com and VideoSeeker are located
in facilities beneficially owned by NBC in New York, New York through existing
synthetic lease arrangements with the New York Industrial Development Agency and
NBC Trust No. 1996A, and in facilities owned in fee by NBC located in Burbank,
California.
CNBC.COM
Upon the closing of the proposed transaction, NBC will contribute a 10%
equity interest in CNBC.com LLC, a newly formed limited liability company which
operates, maintains and markets the CNBC.com Web site. The CNBC.com Web site was
launched on June 21, 1999, and has only a limited operating history as a beta
test Web site. CNBC.com LLC has no operating history upon which its future
prospects may be evaluated. Consequently its prospects must be considered in
light of the substantial risks and expenses associated with the introduction of
a new Web site such as CNBC.com and the highly competitive market for delivery
of financial information and analytic tools via the Internet.
PRODUCTS AND SERVICES
CNBC.com is an Internet financial information service developed by NBC in
connection with its CNBC cable television channel, one of the leading business
and financial news channels on television. According to data provided by Nielsen
Media Research, CNBC is the most widely-distributed cable business and financial
news channel in the United States, distributed to over 69 million homes and
watched at least once each week by more than 15.9 million adults 18 or older
during March 1999, the last month for which weekly data is available. CNBC.com
seeks to leverage the CNBC cable brand to become the leading Internet provider
of comprehensive, real-time financial information and analytic tools. CNBC.com
also offers commentary and analysis from CNBC.com editorial personnel, personal
financial portfolio tracking, and community features together with links to
selected business news via MSNBC to satisfy the full array of its users'
financial information needs. CNBC.com plans to feature subscription services and
finance-related e-commerce services. CNBC on-air personalities are featured
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on different areas of the Web site, to contribute to the identification of
CNBC.com with the CNBC cable brand.
CNBC.com provides stock quotes from all major U.S. stock markets. Users can
receive real-time quotes, presented without a material time delay from their
release by the markets, by registering with CNBC.com. On stock quote pages,
users can link to other valuable information about a particular company,
including summaries of SEC filings and annual reports, summaries of analysts'
information and a variety of fundamental and technical information about its
stock. CNBC.com also plans to offer third party financial data and other
services such as company profiles, company earnings estimates and company and
industry research reports. In addition, CNBC.com provides an array of data that
fluctuates throughout the business day, including domestic and international
market indices, industry indices and currency exchange rates. In order to take
advantage of CNBC.com's real-time stock quotes and portfolio tracking services,
users must complete registration forms and provide demographic information about
themselves, enabling CNBC.com to target advertising opportunities within the Web
site.
CNBC.com offers users a variety of analytic tools to assess stock trends and
assist in personal financial planning. Through CNBC.com's "Tools" bar, users are
directed to a page with several stories describing, for example, different
methods for identifying stock investment opportunities. Through links in these
stories or via buttons on the "Tools" front page, users can proceed to an array
of search engines and pre-built algorithms that identify publicly-traded
securities that meet criteria selected by the user. CNBC.com plans to offer
additional financial planning tools in such areas as home mortgage and
retirement planning.
While substantially all of the programming available on CNBC.com is
currently free of charge, CNBC.com plans to offer subscription services in the
future. CNBC.com does not intend to derive a material amount of revenue from
these services.
CNBC.com offers frequent live chat events with on-air and online guests and
CNBC personalities. CNBC.com also plans to offer a bulletin board service where
users can discuss market trends, investments and other information of interest.
Additionally, because CNBC.com intends to integrate related market data and
charts offered throughout its service, NBC believes that providing a place for
its television viewers and Internet audience to meet and share ideas with
financial commentators and industry experts will help increase brand awareness
for CNBC.com and will motivate users to return to CNBC.com. NBC believes that
the personal and interactive nature of communicating with other people who share
similar interests will help generate an affinity for the community and increased
brand loyalty to CNBC.com.
REVENUE STRATEGY
CNBC.com presently has no revenues. NBC expects CNBC.com to derive a
substantial majority of its future revenues from sales of advertising, including
sponsorship arrangements and advertisements coordinated with on-air advertising
on the CNBC cable channel. There can be no assurance that the current strategy
for CNBC.com to generate revenue will be successful, or that CNBC.com will
receive revenues from advertising or other sources.
CNBC.com is focused on providing advertisers with a large, demographically
desirable audience. CNBC.com's relationship with CNBC will give CNBC.com access
to a national cable audience to help build traffic at CNBC.com. CNBC reaches
over 69 million cable homes throughout the United States. The CNBC.com logo and
URL is expected to be identified during CNBC television broadcasts, although
CNBC will not be obligated to do so. This increased visibility among existing
and anticipated Internet users is intended to position CNBC.com well to compete
for Internet advertisers, including e-commerce services, by offering
cross-promotional opportunities with the CNBC cable television platform.
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In order to attract new users and grow a loyal audience that appeals to a
broad range of advertisers and business partners, CNBC.com intends to continue
to develop compelling content for its users. Advertisements are expected to be
displayed throughout the site, when a user enters the service, reviews an
analysis or accesses a quote or portfolio. In addition, by continuing to offer
community services such as chat rooms and bulletin boards, CNBC.com will offer
members the ability to gravitate towards others who share their specific
interests, encouraging the creation of niche user groups which can be targeted
with relevant marketing campaigns and transaction opportunities. CNBC.com
intends to pursue e-commerce opportunities aggressively through strategic and
marketing relationships with a variety of financial services companies. With
focused content and a targeted audience, CNBC.com will seek strategic
relationships with financial services companies such as marketers of credit
cards, consumer and home loan companies and insurance providers.
CNBC.com's community building efforts are focused on strengthening audience
loyalty, increasing page views and providing opportunities for premium
sponsorships, such as moderated chat events. As CNBC.com gathers more
information about the interests of its community members, it intends to offer
targeted advertising in specialized community forums and pursue e-commerce
services with the goal of entering into revenue sharing relationships based on
transactions derived from community members.
RELATIONSHIP WITH NBCI
Upon the closing of the proposed transactions. NBC will own 90% of CNBC.com
LLC. The equity interest contributed to NBCi will be subject to restrictions
against transfer by NBCi. The equity interest will have no governance rights
with respect to CNBC.com LLC other than the right to vote such equity interest
with respect to matters required to be approved by a vote of equity holders of
CNBC.com LLC under the limited liability company agreement of CNBC.com LLC.
However, as the holder of the remaining 90% interest in CNBC.com LLC, NBC will
have effective control over any matters subject to approval by a vote of equity
holders. In addition, in the event that NBC assigns or transfers more than 50%
of the equity interests in CNBC.com LLC to a third party, NBC may compel NBCi to
transfer NBC's equity interest in CNBC.com LLC as well, and NBCi in some
circumstances may compel NBC to include NBCi's equity interest in such a
transfer by NBC.
In connection with the transactions, CNBC and NBCi intend to enter into a
carriage agreement pursuant to which CNBC will provide certain services and some
content from CNBC.com to NBCi.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
CNBC.com is hosted at and all of its network operations are controlled from
the facilities of Telescan, Inc. in Houston, Texas.
COMPETITION
The market for delivery of financial information and analytic tools via the
Internet is relatively new, intensely competitive and rapidly evolving. The
number of sites on the Internet offering financial information similar to that
of CNBC.com has expanded and NBC expects that competition will continue to
intensify. Within this segment of Internet content, CNBC.com competes for users'
attention with traditional media targeted to business, finance and investing
needs such as television networks and cable channels as well as THE WALL STREET
JOURNAL and BARRON'S. Many of these entities have strong brand recognition
within their medium and have recently developed Web sites. In addition, both
general purpose consumer online services, such as America Online and Microsoft
Network, and online services targeted to business, finance and investing needs,
such as TheStreet.com, Marketwatch.com and Motley Fool, provide financial and
business-related content and services over the Internet. Moreover, a number of
search and retrieval services, such as Excite@Home, Infoseek, Lycos and Yahoo!,
offer stock quotes, financial news and other programming and links to other Web
sites related to business and finance. NBC anticipates that the number of direct
and indirect competitors of CNBC.com will increase in the
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future. Moreover, because of NBC's relationships with its existing strategic
partners including Microsoft and Dow Jones, CNBC.com LLC, as an affiliate of
NBC, will be restricted in significant respects in its ability to provide
certain types of content and services, including business news, on CNBC.com.
These restrictions may limit CNBC.com's ability to compete by limiting the
services it can offer to meet users' needs.
In addition, the Internet competes with traditional advertising media for a
share of advertisers' total advertising budgets. Competition for users'
attention and spending ability may result in price reductions for advertising,
reduced margins, operating losses or inability to obtain market share, any of
which would materially adversely affect CNBC.com's prospects. Many existing
competitors of CNBC.com, as well as a number of potential new competitors, have
longer operating histories in the Internet, greater name recognition, larger
customer bases and higher amounts of user traffic than CNBC.com. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies, and consequently make more attractive offers
to potential distribution partners, advertisers and content providers than
CNBC.com. As a result, there can be no assurance that CNBC.com will be able to
compete successfully against current or future competitors or that competition
will not have a material adverse effect on CNBC.com's business, results of
operations and financial condition.
LEGAL PROCEEDINGS
CNBC.com LLC is a newly formed limited liability company and is not subject
to any pending or threatened litigation.
EMPLOYEES
As of June 30, 1999, CNBC.com had 25 full-time employees of NBC devoted to
its operations, including one in sales and marketing, 14 in operations and
product development and 10 in finance and administration. The future success of
CNBC.com will depend, in part, on its ability to continue to attract, retain and
motivate highly qualified technical, creative and management personnel.
CNBC.com's employees are not covered by any collective bargaining agreement.
FACILITIES
CNBC.com LLC conducts its operations principally from CNBC's leased
facilities in Ft. Lee, New Jersey.
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NBC MULTIMEDIA DIVISION'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the combined
financial statements of NBC Multimedia Division, which consists of NBC.com,
NBC-IN.com and VideoSeeker, and related notes included elsewhere in this proxy
statement/prospectus. The results shown in this proxy statement/ prospectus do
not necessarily indicate the results to be expected in any future periods. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward looking
statements due to a number of factors, including those set forth in the section
entitled "Risk Factors" and elsewhere in this proxy statement/prospectus.
OVERVIEW
NBC, a wholly owned subsidiary of GE, is one of the leading television
networks in the United States. NBC produces, acquires and distributes a
comprehensive schedule of entertainment, news and sports programming, and
provides network television services to 13 owned stations as well as more than
220 affiliated stations throughout the United States. Through NBC Multimedia,
NBC pursues an array of new media initiatives, including the development of Web
sites related to its principal programming services and strategic relationships
with leading edge interactive technology companies. In addition, NBC produces
and distributes CNBC, a 24-hour cable business and financial news channel, and,
in a joint venture with Microsoft, produces and distributes MSNBC, a 24-hour
cable news channel. NBC also has cable business and financial news channels
offered internationally through a joint venture with Dow Jones.
Upon the closing of the transactions, NBCi will include the businesses
associated with NBC.com, NBC-IN.com and VideoSeeker.com. Currently, each of
these assets is a separate business unit within NBC Multimedia. NBC.com,
launched in August 1995, is the online home for NBC's entertainment programming
on the Internet, offering information about NBC television programs and original
episodic programming designed specifically for Internet users, as well as news
and information from MSNBC and NBC-related merchandise. NBC-IN.com, launched in
October 1997, is a portal to a network of local news and information Web sites
created for more than 100 NBC-owned and NBC-affiliated television stations,
providing advertising and community directory services to complement each
station's news and other local information on its Web site. VideoSeeker.com,
launched in May 1998, is an on-demand Internet video service featuring
television programming, movie clips, music videos and related shopping
opportunities.
The historical combined financial statements of the NBC Multimedia Division,
included elsewhere in this prospectus and discussed below, reflect various
assumptions relating to the allocation of certain corporate general and
administrative expenses incurred on a consolidated basis by NBC. These
assumptions may not be indicative of the financial results that would have
resulted if the NBC Multimedia Division had been an independent company during
the periods presented. The cash flows reflected as parent company's investment
and net advances in the statements of cash flows represent net contributions
from NBC to finance the NBC Multimedia Division's operations. These cash flows
may not be indicative of the cash flows that would have resulted had the NBC
Multimedia Division been operating as a separate stand-alone company during the
periods presented.
In view of the rapidly changing nature of the businesses associated with the
NBC Multimedia Division, the limited operating history and the seasonality of
the businesses, NBC believes that comparisons of the NBC Multimedia Division's
operating results for any period with those of the preceding period are not
necessarily meaningful and should not be relied upon as an indication of future
performance. The revenue and operating results of the NBC Multimedia Division
may vary from quarter to quarter due to a number of factors, some of which are
beyond the control of NBC.
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The NBC Multimedia Division derives revenue from the sale of banner
advertisements under short-term contracts as well as sponsorship contracts for
fees related to the design, coordination and integration of the customers'
content and links to its Web sites. The NBC Multimedia Division prices such
advertising and sponsorships based on a variety of factors, including whether
the advertisement is targeted to a specific category of users or runs across the
entire Web site, and whether the sponsorship is exclusive or non-exclusive.
Banner advertisements are generally sold based on a cost per thousand, also
referred to as "CPM". Sponsorships are generally sold on a fixed price basis
over a defined time period and the revenue is recognized ratably over the
agreement.
The NBC Multimedia Division also derives revenue from license fees from
various service providers who pay a fee to furnish content, e-commerce or
services in a particular category of its Web sites such as chat, search, travel,
classifieds and yellow pages. These fees are payable in either cash or equity
instruments and are recognized ratably over the term of the license period.
Finally, the NBC Multimedia Division derives revenue through the receipt of
cash and equity instruments from third parties under outsourcing agreements. NBC
Multimedia has entered into the following outsourcing agreements on behalf of
the NBC Multimedia Division: (1) a two-year strategic alliance agreement with
InterVU, Inc. whereby InterVU is the exclusive provider, subject to certain
limitations, of technology and services for VideoSeeker; (2) a four-year
strategic alliance with USWeb whereby USWeb performs production and hosting
services for the NBC interactive properties including the NBC Multimedia
Division, and (3) a three-year agreement under which 24/7 Media, Inc. will sell
advertising on participating NBC-owned and NBC-affiliated television stations
and their associated Web sites. It is unlikely the NBC Multimedia Division will
be able to continue to receive cash and equity instruments if and when it enters
into future outsourcing agreements.
When the measurement date is fixed for equity instruments received under
service provider agreements, and there is a sufficient disincentive to breach
the contract, the NBC Multimedia Division records the receipt of the equity
instruments and corresponding deferred revenue. When equity instruments are
contingent upon the achievement of certain targets, each business records the
benefit of the equity instruments at the time the targets are achieved at the
then fair market value of the equity instruments. Such amounts are amortized
ratably to revenue over the length of the contract commencing on the measurement
date.
Equity instruments are transferred to NBC upon the measurement date and are
charged to parent company's investment and net advances. Changes in value
subsequent to the measurement date are not reflected in the combined financial
statements of the NBC Multimedia Division. In accordance with the terms of the
Contribution Agreement, equity instruments received from service provider
agreements will not be contributed by NBC to NBCi.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998
NET REVENUE
Total net revenue for the three months ended March 31, 1999 was $3.5
million, an increase of $1.7 million over revenue of $1.8 million for the three
months ended March 31, 1998. Included in net revenue is revenue from equity
instruments received of $1.9 million and $966,000 during the three months ended
March 31, 1999 and 1998, respectively. The increase in net revenue was primarily
due to an increase in the number of advertising and sponsorship packages sold,
an increase in license fees from additional content and service partners, and an
increase in equity and warrants received as part of entering into outsourcing
agreements.
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ADVERTISING AND SPONSORSHIP REVENUE
Advertising and sponsorship revenue increased to $870,000 in the three
months ended March 31, 1999 from $502,000 in the three months ended March 31,
1998. The increase in advertising and sponsorship revenue is primarily a result
of an increase in site traffic at NBC.com and NBC-IN.com, and to a lesser
extent, advertising and sponsorship packages sold on VideoSeeker.com during the
three months ended March 31, 1999. VideoSeeker.com was not in operation during
the three months ended March 31, 1998.
LICENSE FEE REVENUE
License fee revenue increased to $1.2 million in the three months ended
March 31, 1999 from $180,000 in the three months ended March 31, 1998. Included
in license fee revenue is revenue from equity instruments received of $754,000
and $82,000 in the three months ended March 31, 1999 and 1998, respectively. The
increase in license fee revenue is primarily a result of an increase in the
number of service provider agreements for placement of content and/or services
on the NBC Multimedia Division's Web sites. The increase is also attributable to
the increase in market value of the equity instruments on the applicable
measurement date.
Revenue attributable to the equity instruments is likely to decrease as a
percentage of total revenue due to the fact that NBC Multimedia has entered into
exclusive agreements for many of the services offered on the NBC Multimedia
Division's Web sites, an increase in the NBC Multimedia Division's focus on
receiving cash as opposed to equity instruments for the license arrangements and
the uncertainty and volatility of the Internet stock market.
OTHER REVENUE
Other revenue increased to $1.4 million in the three months ended March 31,
1999 from $1.1 million in the three months ended March 31, 1998. Included in
other revenue is revenue from equity instruments received of $1.2 million and
$883,000 in the three months ended March 31, 1999 and 1998, respectively. The
increase in other revenue is a result of recognizing revenue associated with
equity instruments received under outsourcing agreements. The increase is also
attributable to the increase in market value of the equity instruments on the
applicable measurement date.
Revenues are likely to decline significantly in the future as the focus of
the NBC Multimedia Division is to grow traffic and, therefore, advertising,
sponsorship and license-fee revenue. It is unlikely the NBC Multimedia Division
will be able to continue to receive cash and equity instruments with respect to
future third party outsourcing agreements. Furthermore, it is not possible to
predict future values of such equity instruments when received.
COST OF NET REVENUE
Cost of revenue consists primarily of costs incurred to create and produce
the content of the NBC Multimedia Division's Web sites as well as the technical
hosting and bandwidth charges associated with transmitting such content over the
Internet. Cost of revenue increased to $1.4 million in the three months ended
March 31, 1999 from $1.0 million in the three months ended March 31, 1998. The
increase was primarily the result of the costs to produce VideoSeeker.com, which
was not in operation during the three months ended March 31, 1998. Although,
during 1998, the NBC Multimedia Division outsourced certain Web production
functions to USWeb, this did not have a material impact on cost of revenue.
Cost of revenue is likely to continue to increase due to an increase in the
quality and quantity of the content on NBC.com and incremental expenditures to
license third party video content for VideoSeeker.com and third party local
content for NBC-IN.com.
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OPERATING AND DEVELOPMENT EXPENSES
Operating and development expenses consist primarily of payroll and related
costs for network operations personnel and technology consultants. Operating and
development expenses decreased to $163,000 in the three months ended March 31,
1999 from $301,000 in the three months ended March 31, 1998. The decrease was
primarily the result of a reallocation of resources to assist in the development
of new media initiatives within NBC such as the re-launch of CNBC.com. These
costs are likely to increase during the remainder of 1999, but are expected to
remain at or below levels of 1998.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of payroll and related costs
for personnel engaged in sales, marketing and customer support as well as
advertising and promotional expenditures. Sales and marketing expenses decreased
to $323,000 in the three months ended March 31, 1999 from $744,000 in the three
months ended March 31, 1998. Included in sales and marketing expenses are
noncash charges related to advertising provided by NBC of $0 and $97,000 during
the three months ended March 31, 1999 and 1998, respectively, which have been
recorded based on average values for commercial air time sold by NBC during the
period the services were provided. The decrease was primarily the result of
decreased third party advertising and promotional expenditures. These costs are
likely to increase during the remainder of 1999, but are expected to remain at
or below levels of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and related
costs for general corporate purposes, including finance, accounting, human
resources, legal and facilities, as well as insurance and other administrative
expenditures. General and administrative expenses decreased to $793,000 in the
three months ended March 31, 1999 from $1.0 million in the three months ended
March 31, 1998. Included in general and administrative expenses are costs
related to the allocation of certain corporate general and administrative
expenses incurred on a consolidated basis by NBC of $486,000 and $478,000 for
the three months ended March 31, 1999 and 1998, respectively. The decrease was
primarily the result of a reallocation of resources to assist in the development
of new media initiatives within NBC such as the re-launch of CNBC.com. These
costs are likely to increase during the remainder of 1999, but are expected to
remain at or below levels of 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
NET REVENUE
Total net revenue for the year ended December 31, 1998 was $11.6 million, an
increase of $8.4 million over revenue of $3.2 million for the year ended
December 31, 1997. Included in net revenue is revenue from equity instruments
received of $5.1 million and $33,000 during the year ended December 31, 1998 and
1997, respectively. The increase in net revenue was primarily due to an increase
in the number of advertising and sponsorship packages sold, an increase in
license fees from service providers partners, and an increase in equity
instruments received as part of entering into outsourcing agreements. No single
customer exceeded 10% of NBC Multimedia Division's advertising, sponsorship and
license fee revenue for the year ended December 31, 1998. Two customers
accounted for 42% of its accounts receivable at December 31, 1998. Three
customers exceeded 10% of revenue for the year ended December 31, 1997. Three
customers accounted for approximately 74% of accounts receivable at December 31,
1997.
ADVERTISING AND SPONSORSHIP REVENUE
Advertising and sponsorship revenue increased to $4.1 million in the year
ended December 31, 1998 from $2.5 million in the year ended December 31, 1997.
The increase in advertising and
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sponsorship revenue is primarily a result of an increase in site traffic at
NBC.com and NBC-IN.com as well as selling higher priced specialized content
sponsorship packages such as "Jay's Garage," "Back to School" and TNBC. In
addition, during 1998, NBC.com began offering advertisers on NBC television
mini-series and special events programming the opportunity to purchase
integrated online sponsorships that feature the on-air sponsor in the NBC.com
area promoting the mini-series or special event.
LICENSE FEE REVENUE
License fee revenue increased to $2.8 million in the year ended December 31,
1998 from $690,000 in the year ended December 31, 1997. Included in license fee
revenue is revenue from equity instruments received of $1.4 million and $33,000
in the years ended December 31, 1998 and 1997, respectively. The increase in
license fee revenue is primarily a result of an increase in the number of
companies paying fees for prominent placement of their content or services on
the NBC Multimedia Division's Web sites. The increase is also attributable to
the increase in market value of the equity instruments on the applicable
measurement date.
OTHER REVENUE
Other revenue increased to $4.7 million in the year ended December 31, 1998
from $0 in the year ended December 31, 1997. Included in other revenue is
revenue from equity instruments received of $3.7 million and $0 in the years
ended December 31, 1998 and 1997, respectively. The increase in other revenue is
a result of recognizing revenue associated with equity instruments received as
part of entering into outsourcing agreements. No such agreements were entered
into prior to 1998.
COST OF NET REVENUE
Cost of revenue increased to $5.2 million in the year ended December 31,
1998 from $4.4 million in the year ended December 31, 1997. The increase was
primarily the result of the costs incurred in creating additional specialized
content during 1998 and new on-line shows and events such as Saturday Night
Live, Late Night with Conan O'Brien and the Emmy broadcast. During 1998, the NBC
Multimedia Division outsourced certain Web production functions to USWeb,
however, this did not have a material impact on cost of revenue.
OPERATING AND DEVELOPMENT EXPENSES
Operating and development expenses increased to $938,000 in the year ended
December 31, 1998 from $677,000 in the year ended December 31, 1997. The
increase was primarily the result of an increase in technical personnel to
support the overall growth of the NBC Multimedia Division as well as the launch
of NBC-IN.com and VideoSeeker.com.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased to $4.0 million in the year ended
December 31, 1998 from $2.4 million in the year ended December 31, 1997.
Included in sales and marketing expenses are noncash charges related to
advertising provided by NBC of $2.0 million and $0 during the years ended
December 31, 1998 and 1997, respectively, which have been recorded based on
average values for commercial air time sold by NBC during the period the
services were provided. The increase was primarily the result of focusing on
building brand awareness and site traffic by utilizing the power of the NBC
television audience while reducing third party advertising and promotional
expenditures. The NBC Multimedia Division began airing spots on the NBC
television network late in the first quarter of 1998.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $4.5 million in year ended
December 31, 1998 from $3.5 million in the year ended December 31, 1997.
Included in general and administrative expenses are costs related to the
allocation of certain corporate general and administrative expenses incurred on
a consolidated basis by NBC of $1.9 million and $1.6 million during the years
ended December 31, 1998 and 1997, respectively. The increase was primarily the
result of an increase in management and administrative personnel to support the
overall growth of the NBC Multimedia Division as well as the launch of
NBC-IN.com and VideoSeeker.com.
INCOME TAXES
The NBC Multimedia Division has generated net losses for all periods through
December 31, 1998, and has no net income tax expense in any period on a
stand-alone basis.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the NBC Multimedia Division has financed working capital
through advances received from NBC. The NBC Multimedia Division participates in
NBC's cash management system. All cash generated from and cash required to
support the NBC Multimedia Division's operations are deposited and received
through NBC's corporate operating cash accounts. As a result, there are no
separate bank accounts for the NBC Multimedia Division. Accordingly, the amounts
represented by the caption "Advances received from parent, net" in the NBC
Multimedia Division's combined statement of cash flows represent the net effect
of all cash transactions between the NBC Multimedia Division and NBC.
Net cash used in operating activities for the years ended December 31, 1997
and 1998 was $7.0 million and $5.9 million, respectively. Cash used in operating
activities for the year ended December 31, 1997 was primarily the result of net
losses, partially offset by depreciation and amortization, loss on disposal of
assets and net changes in operating assets and liabilities. Cash used in
operating activities for the year ended December 31, 1998 was primarily the
result of net losses increased by noncash revenue related to partner agreements
and decreased by noncash expenses related to advertising provided by NBC,
partially offset by depreciation and amortization and loss on disposal of
assets.
Net cash used in operating activities for the three months ended March 31,
1998 and 1999 was $2.7 million and $514,000, respectively. Cash used in
operating activities for the three months ended March 31, 1998 was primarily the
result of net losses, increased by noncash revenue related to partner
agreements. Cash used in operating activities for the three months ended March
31, 1999 was primarily the result of net income decreased by noncash revenue
related to partner agreements.
Net cash used in investing activities for the years ended December 31, 1997
and 1998 was $152,000 and $103,000, respectively, and related to purchases of
property and equipment.
Net cash used in investing activities for the three months ended March 31,
1998 and 1999 was $1,500 and $0, respectively, and related to purchases of
property and equipment.
Net cash provided by financing activities for the years ended December 31,
1997 and 1998 was $7.1 million and $6.0 million, respectively, and consisted of
net proceeds from advances from NBC.
Net cash provided by financing activities for the three months ended March
31, 1998 and 1999 was $2.7 million and $514,000, respectively, and consisted of
net proceeds from advances from NBC.
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YEAR 2000 COMPLIANCE
STATE OF READINESS
GE and NBC, including the NBC Multimedia Division, are engaged in an
aggressive and comprehensive effort to identify and address Year 2000 issues.
NBC's program, including the NBC Multimedia Division, focuses on the possible
effects of the Year 2000 problem in four areas:
- Facilities--including building systems, embedded technology and other
systems;
- Information technology systems--including servers and serving
technologies;
- Suppliers--including third-party vendors; and
- Products--including in-house developed software.
Within each of these areas, NBC's approach, including the NBC Multimedia
Division, encompasses:
- Measurement--taking inventories of devices and suppliers that may be
affected by Year 2000 issues and are critical to its business;
- Analysis--testing to determine how the Year 2000 issue might manifest
itself and developing project plans to address any Year 2000 issues;
- Improvement--executing project plans and remediating or replacing the
affected devices, including preparing alternates for suppliers who have
not responded to our requests; and
- Control--taking steps to ensure Year 2000 solutions remain intact
investing the preparation of business continuity plans.
NBC, as well as GE as a whole, is devoting substantial resources to the Year
2000 effort. At the GE level, the Year 2000 Project is directed by the chief
information officer, who is a senior vice president of GE. The chief information
officer and his staff set goals for the Year 2000 program, monitor
implementation by the various businesses within GE, and facilitate the sharing
of best practices among such businesses. Other key participants in GE's Year
2000 effort are its finance organization, including the corporate audit staff,
and the corporate legal staff. Appropriate outside resources have also been
retained, including technical and legal consultants.
NBC, including the NBC Multimedia Division, has prepared inventories,
assessed many of its systems and is remediating or replacing the systems which
may be affected by Year 2000. In addition, NBC has prepared "time-warp tests"
and "cluster tests" testing entire systems, including those of the NBC
Multimedia Division, to catch failures in interoperability between systems.
Although NBC believes that it will be Year 2000 compliant, NBC's contributed
Internet businesses are highly dependent upon third party equipment and software
that may not be Year 2000 compliant.
NBC Multimedia Division has placed its vendors and suppliers in priority
categories according to their importance to its business. NBC has sent letters
to all critical third party service suppliers, including those of the NBC
Multimedia Division, asking about the status of their Year 2000 programs. Vendor
readiness is being assessed and tracked. All vendors responding to date have
asserted that their products will be Year 2000 compliant. In the event NBC does
not receive satisfactory commitments from a key supplier, NBC is making plans
for continuing availability of service through alternate channels. NBC expects
to have certification that all key vendors and suppliers, including those of the
NBC Multimedia Division, are Year 2000 compliant by the end of third quarter of
1999.
The failure of a major supplier to convert its systems on a timely basis or
in a manner compatible with the systems of the NBC Multimedia Division causing
any of the businesses to incur unanticipated
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expenses to remedy any problem could adversely affect the operations of the NBC
Multimedia Division.
COSTS TO ADDRESS OUR YEAR 2000 ISSUE
To date, the NBC Multimedia Division has not incurred any material
expenditure in connection with identifying or evaluating Year 2000 compliance
issues. Most of NBC's expenses have been related to the opportunity cost of time
spent by its employees evaluating NBC's technologies. The costs to evaluate or
address Year 2000 issues relating to the NBC Multimedia Division is not expected
to be material. However, the full impact of the Year 2000 issues cannot be
determined at this time. The failure by certain third parties to address their
Year 2000 issues on a timely basis could adversely affect the NBC Multimedia
Division.
CONTINGENCY PLANS
NBC has developed an extensive program to prepare Year 2000 specific
business continuity plans. Each of its businesses, including the NBC Multimedia
Division, is required to identify critical business processes and to prepare
plans to minimize the impact of any internal or external failures. NBC expects
to have such plans, including those of the NBC Multimedia Division, in place by
the end of the third quarter of 1999.
RISKS
The worst case scenario related to Year 2000 issues would involve a major
shutdown of the Internet, which would result in a total loss of revenue to the
NBC Multimedia Division until it was resolved. Internally, the most likely worst
case scenario would be that the NBC Multimedia Division would have problems with
off-line batch processes that stall or generate incorrect information. This
could result in a substantial delay in billing customers and preparing financial
statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The impact of adopting SFAS No. 133 has not yet been determined.
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ATTACHMENT A
There will be two classes of common stock: Class A common stock and Class B
common stock. The holders of Class A common stock and Class B common stock will
have identical economic rights except that the Class B common stock will not be
publicly traded. Except for those matters discussed below under "--NBCi
Certificate of Incorporation and Bylaws," the holders of Class A common stock
and Class B common stock will have the same governance rights and are entitled
to one vote for each share held of record on all matters submitted to a vote of
the stockholders. In addition, only NBC and its affiliates may own the Class B
common stock. Stockholders of NBCi will not have cumulative voting rights in the
election of directors. Subject to preferences that may be granted to any then
outstanding preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by the board of directors out of funds
legally available therefor as well as any distributions to the stockholders. In
the event of NBCi's liquidation, dissolution or winding up, holders of common
stock are entitled to share ratably in all of NBCi's assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive or other
subscription or conversion rights under NBCi's restated certificate of
incorporation. NBC, however, does have the right to purchase additional shares
of NBCi's Class B common stock under certain circumstances as described below
under "--Other Agreements". There are no redemption or sinking fund provisions
applicable to the common stock.
PREFERRED STOCK
NBCi has 10,000,000 shares of preferred stock authorized. As of the record
date, no shares were outstanding. Subject to the terms of its restated
certificate of incorporation, the NBCi board of directors has the authority to
issue these shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions, qualifications and limitations
granted to or imposed upon any unissued and undesignated shares of preferred
stock and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders. The NBCi board of directors, without stockholder approval except
as set forth below under "NBCi Certificate of Incorporation and
Bylaws--Stockholder Veto Rights," can issue preferred stock with voting and
conversion rights which could adversely affect the voting power or other rights
of the holders of NBCi common stock and the issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of NBCi.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of NBCi is BankBoston, N.A. Its address is
c/o Boston EquiServe Trust Company, 150 Royall Street, Canton, Massachusetts
02021, and its telephone number is (617) 575-6127.
NBCI CERTIFICATE OF INCORPORATION AND BYLAWS
In connection with the merger of Neon Media Corporation with NBCi under the
Contribution Agreement, NBCi's certificate of incorporation and bylaws will be
amended and restated. The following summary of certain provisions of NBCi's
restated certificate of incorporation and restated bylaws does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
restated certificate of incorporation and amended and restated bylaws, which are
attached hereto as Appendix D-1 and Appendix D-2, respectively.
NUMBER OF DIRECTORS
As long as shares of Class B common stock remain outstanding, the number of
directors of NBCi shall be thirteen. The number of directors may be increased
upon the occurrence of certain
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circumstances discussed below, but shall return to thirteen at the next annual
or special meeting where directors are elected. The restated certificate of
incorporation currently provides that when no shares of Class B common stock
remain outstanding, the number of directors shall not be less than seven nor
more than sixteen.
ELECTION OF DIRECTORS
Under the restated certificate of incorporation, the holders of the Class A
common stock and the holders of Class B common stock are entitled to elect a
designated number of directors dependent upon the percentage of the outstanding
common stock of NBCi each class owns.
For so long as the outstanding shares of Class B common stock represent at
least 35% of the outstanding shares of NBCi common stock and the NBCi
convertible notes have not been fully converted into shares of Class B common
stock:
- the holders of the Class A common stock, voting separately as a class,
have the right to elect six members to the board of directors (the "Class
A Directors") and one unaffiliated director nominated by at least seven
members of the board of directors; and
- the holders of the Class B common stock, voting separately as a class,
have the right to elect six members to the board of directors (the "Class
B Directors").
The above rights shall also exist where the holders of a majority of the
outstanding shares of Class B Common Stock, voting separately as a class, elect
to reduce the number of directors they are otherwise entitled to elect from
seven to six (as set forth in the next paragraph) which election shall be
permanent.
After the NBC convertible notes have been fully converted into shares of
Class B common stock, for so long as the outstanding shares of Class B common
stock represent at least 35% of outstanding shares of NBCi common stock:
- the holders of the Class A common stock, voting separately as a class,
have the right to elect six Class A Directors;
- the holders of the Class B common stock, voting separately as a class,
have the right to elect seven Class B Directors; and
- the term of office of the unaffiliated director shall automatically
terminate, unless the Class B nominating committee elects to retain the
unaffiliated director as a Class B Director.
Where the outstanding shares of Class B common stock is equal to or greater
than 20% but less than 35% of the outstanding shares of NBCi common stock:
- the holders of the Class A common stock, voting separately as a class,
have the right to elect seven Class A Directors;
- the holders of the Class B common stock, voting separately as a class,
have the right to elect six Class B Directors; and
- the term of office of the unaffiliated director shall automatically
terminate, unless the Class A nominating committee elects to retain the
unaffiliated director as a Class A Director.
If, at such time, there are seven Class B Directors, the holders of the
Class B common stock shall cause one Class B Director to resign within 30 days
after the Class B common stock constitutes less than 35% of the outstanding
common stock. If a Class B Director does not resign by such time, the number of
directors comprising the board of directors will automatically be increased to
fifteen and two additional Class A Directors will be appointed to the board of
directors. The number of directors shall automatically decrease to thirteen at
the next annual or special meeting of stockholders at which
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directors are elected, at which time the board of directors shall be comprised
of six Class B Directors and seven Class A Directors.
Concurrently with the conversion of all of the outstanding shares of Class B
common stock into shares of Class A common stock, as discussed below, the former
holders of the Class B common stock shall cease to have the absolute right to
designate or cause the nomination or election of any directors of NBCi. Each
Class B Director shall be automatically deemed a Class A Director and shall
continue to hold office for the unexpired portion of such director's term. NBC,
however, will have the right to designate nominees for election to the board of
directors pursuant to the terms of the governance agreement discussed below.
NOMINATIONS AND VACANCIES
CLASS A DIRECTORS. Class A Directors are nominated on behalf of NBCi by the
Class A nominating committee comprised solely of Class A Directors. At such time
as the holders of the Class A common stock are entitled to elect additional
Class A Director(s) to the board of directors, the Class A nominating committee
may appoint such Class A Director(s). If a vacancy is created on the board of
directors by reason of the death, resignation or removal of a Class A Director,
a majority of the Class A Directors then in office, or the holders of Class A
common stock at a meeting called for such purpose, may fill the vacancy.
CLASS B DIRECTORS. Class B Directors are nominated on behalf of NBCi by the
Class B nominating committee comprised solely of Class B Directors. At such time
as the holders of the Class B common stock are entitled to elect an additional
Class B Director to the board of directors, the Class B nominating committee may
appoint such Class B Director. If a vacancy is created on the board of directors
by reason of the death, resignation or removal of a Class B Director, a majority
of the Class B Directors then in office, or the holders of Class B common stock
at a meeting called for such purpose, may fill the vacancy.
UNAFFILIATED DIRECTOR. For the unaffiliated director to be nominated for
election by the holders of the Class A common stock, at least seven directors of
NBCi must approve the nomination. The unaffiliated director's term automatically
expires at such time as either the holders of the Class A common stock or the
holders of the Class B common stock have the right to elect a majority of the
members to the board of directors, provided that the Class A nominating
committee or the Class B nominating committee, as the case may be, may elect to
retain the unaffiliated director in lieu of appointing a new person to the board
of directors.
REMOVAL OF DIRECTORS
A Class A Director may be removed, without cause, only by the affirmative
vote of the holders of a majority of the outstanding shares of Class A common
stock. A Class B Director may be removed, without cause, only by the affirmative
vote of the holders of a majority of the outstanding shares of Class B common
stock.
The unaffiliated director may be removed, without cause, only by the
affirmative vote of the holders of at least 70% of the outstanding shares of
NBCi common stock.
APPOINTMENT AND REMOVAL OF OFFICERS
So long as there are Class B Directors, the Class B Directors shall have the
exclusive power and authority to appoint the chief financial officer and general
counsel of NBCi and remove the chief executive officer.
201
<PAGE>
CONVERSION OF CLASS B COMMON STOCK INTO CLASS A COMMON STOCK
VOLUNTARY CONVERSION. Upon the affirmative vote or written request of the
holders of a majority of the outstanding shares of Class B common stock for the
conversion of the Class B common stock into Class A common stock, all, but not
less than all, of the outstanding shares of Class B common stock shall
automatically convert on a share for share basis into the same number of shares
of Class A common stock. NBCi will also permit the parent corporation of NBC and
its affiliates, to convert shares of Class A common stock held by such person
into shares of Class B common stock upon written request and subject to the
terms and conditions of the governance agreement.
MANDATORY CONVERSION. Shares of Class B common stock will automatically be
converted into shares of Class A common stock upon the occurrence of the
following events:
- any sale, assignment or transfer of shares of Class B common stock by NBC
or any of its affiliates, other than a transfer to an affiliate of such
holder, or
- at such time as the holders of Class B common stock beneficially own less
than 20% of the outstanding shares of NBCi common stock immediately prior
to the time of conversion, after giving effect to NBC's right to purchase
additional shares of Class B common stock under the governance agreement.
AUTOMATIC CONVERSION OF CLASS A COMMON STOCK. So long as shares of Class B
common stock are outstanding, in the event a holder of Class B common stock or
its subsidiary holds, purchases or otherwise acquires any shares of Class A
common stock (other than as a result of a conversions described above), then
such shares of Class A common stock shall automatically convert on a share for
share basis into the same number of shares of Class B common stock.
ACTION BY WRITTEN CONSENTS
Action may be taken by written consent in lieu of a stockholders meeting
only when the Class B common stock constitutes a majority of the outstanding
shares of common stock of NBCi.
VETO RIGHTS OF DIRECTORS
VETO RIGHTS OF CLASS A DIRECTORS. As long as the holders of Class B common
stock have the right to elect seven directors, the following actions require the
approval of a majority of the Class A Directors:
- any amendment to the restated certificate of incorporation or restated
bylaws;
- entering into, altering or amending any agreement or engaging in any
transactions or series of transactions with NBC or its affiliates that (A)
is not on an arm's-length basis or entered into in the ordinary course of
business or (B) involves an amount, individually or in the aggregate, in
excess of $50,000,000;
- the voluntary filing of a petition for bankruptcy or receivership or the
failure to oppose a petition for bankruptcy or an action to appoint a
receiver of NBCi;
- the appointment of a new chief executive officer of NBCi;
- the adoption of NBCi's annual or other operating budgets and strategic
plans;
- the adoption of a stockholder rights plan or other action which could
adversely affect the rights of any holder of Class A common stock by
virtue of the amount of shares held by such holder; and
- the issuance of any equity securities other than Class A common stock or
Class B common stock.
202
<PAGE>
VETO RIGHTS OF CLASS B DIRECTORS. For so long as the Class B Directors do
not constitute a majority of the board of directors, the approval of a majority
of the Class B Directors will be required to take any of the following actions
and the veto rights of the Class A Directors described above shall no longer be
of any force or effect:
- any of the actions listed above under "--Veto Rights of Class A Directors"
over which the Class A Directors may exercise veto rights, other than with
respect to the appointment of a new chief executive officer of NBCi, or
any transaction with NBC, or the adoption of a stockholders rights plan or
other action which could adversely affect the rights of the holders of the
Class A common stock;
- any action or transactions which would result in a change in control of
NBCi or a change in control of any of its subsidiaries whose total assets
or gross revenues are in excess of $50,000,000;
- the sale or other disposition of assets of NBCi or any of its subsidiaries
in an amount in excess of $50,000,000 in any one transaction or series of
related transactions;
- the sale or issuance of equity securities of NBCi or any of its
subsidiaries (including any issuance pursuant to any merger or
consolidation) for cash or other consideration in an amount that exceeds
$50,000,000 in any one transactions or series of related transactions;
- engaging in any merger, consolidation or other business combination
transactions involving NBCi in which NBCi is not the surviving entity; and
- engaging in any transaction or series of related transactions that
requires the payment in cash by NBCi or any of its subsidiaries or the
incurrence of indebtedness by NBCi or any of its subsidiaries in an amount
that exceeds $50,000,000.
STOCKHOLDER VETO RIGHTS
Subject to the rights of any then outstanding preferred stock, the following
actions require the approval of a majority of the outstanding shares of Class A
common stock and Class B common stock voting separately as a class:
- any amendment to the restated certificate of incorporation or restated
bylaws other than an amendment consisting solely of an increase in the
authorized capital stock of NBCi; and
- the issuance of Class B common stock to any person except to NBC or its
affiliates.
In addition, the approval of the holders of a majority of the outstanding
shares of Class B common stock will be required to adopt a stockholder rights
plan or take any other action that could adversely affect in any material
respect the rights of any holder of Class B common stock by virtue of the amount
of shares held by such holder.
CORPORATE OPPORTUNITIES
In recognition that NBCi and NBC may engage in the same or similar
activities or lines of business and have an interest in the same or similar
areas of corporate opportunities, the restated certificate of incorporation
provides:
- that NBC has the right to engage in the same or similar activities or
lines of business as NBCi, do business with any potential or actual
customers or suppliers of NBCi or employ or otherwise engage any officer
or employee of NBCi;
203
<PAGE>
- that to the fullest extent provided by law, neither NBC nor any of its
officers or directors shall be liable to NBCi or its stockholders for
breach of any fiduciary duty due to NBC or any of its officers or
directors engaging in the above opportunities; and
- that NBC shall not be liable for the breach of any fiduciary duty as a
stockholder of NBCi if (a) NBC pursues or acquires a corporate opportunity
for itself, or (b) directs such corporate opportunity to another person,
or (c) fails to communicates such opportunity to NBCi.
In the event that a director or officer of NBCi is also a director or
officer of NBC and such director or officer acquires knowledge of a corporate
opportunity, such director or officer (A) shall be deemed to have fully
satisfied the fiduciary duty such person owes to NBCi and its stockholders with
respect to that corporate opportunity, (B) shall not be deemed liable to NBCi or
its stockholders for pursuing such corporate opportunity on behalf of NBC, (C)
shall be deemed to have acted in good faith and (D) shall not be deemed to have
breached the duty of loyalty to NBCi or its stockholders, if such person acts in
a manner consistent with the following policy:
- a corporate opportunity offered to any person who is an officer of NBCi,
and who is also a director but not an officer of NBC, shall belong to
NBCi;
- a corporate opportunity offered to any person who is a director but not an
officer of NBCi, and who is also a director or officer of NBC, shall
belong to NBCi if such opportunity is expressly offered to such person in
writing solely in his or her capacity as a director of NBCi, otherwise it
shall belong to NBC; and
- a corporate opportunity offered to any person who is an officer of both
NBCi and NBC shall belong to NBCi if such opportunity is expressly offered
to such person in writing solely in his or her capacity as an officer of
NBCi, otherwise it shall belong to NBC.
The restated certificate of incorporation also provides that any corporate
opportunity that belongs to NBC or to NBCi shall not be pursued by the other
party. If the corporate opportunity is not pursued diligently and in good faith
within 30 calendar days, the other party may pursue such corporate opportunity.
In addition, the approval of a majority of the Class A Directors is required to
commence any action, suit or proceeding against NBC or its affiliates or enter
into any transaction or arrangement with NBC or its affiliates, where such
arrangement would otherwise require the action of the full board of directors.
The provisions contained in NBCi's restated certificate of incorporation
regarding corporate opportunities as described above shall expire on the date
that (a) NBC ceases to beneficially own at least 20% of the voting power of the
outstanding shares of NBCi's common stock, and (b) no person who is a director
or officer of NBCi is also a director or officer of NBC.
OTHER AGREEMENTS
The governance and investor rights agreement between NBCi and NBC provides,
among other things:
- that when no shares of Class B common stock remain outstanding and NBC or
its affiliates beneficially own at least five percent (5%) of the
outstanding shares of NBCi common stock, NBC shall have the right to
designate nominees for election to the board of directors equal to the
greater of:
- one, or
- a number equal to the number of current directors multiplied by NBC's
percentage ownership of NBCi common stock, rounded to the nearest whole
number.
204
<PAGE>
In addition, so long as shares of Class B common stock remain outstanding,
when NBCi issues additional shares of common stock, NBC has an option to
purchase additional shares of Class B common stock in an amount sufficient to
retain its percentage ownership interest in NBCi as it stood immediately prior
to the issuance of the additional shares of common stock.
The voting and right of first offer agreement between NBC and CNET requires,
among other things, CNET to vote its shares of NBCi in the same manner as NBC
regarding certain material or change of control transactions involving NBCi.
CNET also grants a right of first offer to NBC under this agreement with respect
to any proposed sale or transfer of CNET's shares of NBCi to a third party.
205
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Xoom.com files annual, quarterly and special reports, proxy statements and
other information with the Commission and NBCi will begin to file such reports
upon consummation of the transactions. You may read and copy any reports,
statements and other information filed by either company at the Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference room. You will also be able to obtain the Commission
filings from commercial document retrieval services and at the web site
maintained by the Commission at http://www.sec.gov. NBCi filed a registration
statement to register the NBCi Class A common stock to be issued in accordance
with the Merger Agreement. This proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of NBCi in addition to being
a proxy statement of Xoom.com for the special meeting of Xoom.com's
stockholders.
NBC has supplied all information contained in this proxy
statement/prospectus relating to NBC, Neon Media Corporation and NBC Multimedia.
Xoom.com has supplied all information contained in this proxy
statement/prospectus relating to Xoom.com. SNAP has supplied all information
contained in this proxy statement/prospectus relating to SNAP. CNET has supplied
all information contained in this proxy statement prospectus relating to CNET.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS TO VOTE ON THE ADOPTION OF THE MERGER AGREEMENT AND THE
APPROVAL OF XOOM.COM'S ADOPTION OF THE CONTRIBUTION AGREEMENT. NEITHER NBCI,
XOOM.COM, SNAP, NBC, NBC MULTIMEDIA NOR NEON MEDIA CORPORATION HAS AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED
AUGUST , 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE
MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO XOOM.COM'S STOCKHOLDERS NOR THE
ISSUANCE OF NBCI CLASS A COMMON STOCK UNDER THE MERGER AGREEMENT SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
206
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Xoom.com, Inc.
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Consolidated Balance Sheets........................................................ F-3
Consolidated Statements of Operations.............................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit).......................... F-5
Consolidated Statements of Cash Flows.............................................. F-6
Notes to Consolidated Financial Statements......................................... F-9
SNAP! LLC
Independent Auditor's Report....................................................... F-30
Balance Sheets..................................................................... F-31
Statements of Operations........................................................... F-32
Statements of Members' Equity (Deficit)............................................ F-33
Statements of Cash Flows........................................................... F-34
Notes to Financial Statements...................................................... F-35
NBC Multimedia Division
Independent Auditor's Report....................................................... F-46
Combined Balance Sheets............................................................ F-47
Combined Statements of Operations.................................................. F-48
Combined Statements of Cash Flows.................................................. F-49
Notes to Combined Financial Statements............................................. F-50
Paralogic Software Corporation
Report of Ernst & Young LLP, Independent Auditors.................................. F-57
Balance Sheets..................................................................... F-58
Statements of Operations........................................................... F-59
Statements of Stockholders' Equity (Deficit)....................................... F-60
Statements of Cash Flows........................................................... F-61
Notes to Financial Statements...................................................... F-62
MightyMail Networks, Inc.
Report of Ernst & Young LLP, Independent Auditors.................................. F-69
Balance Sheets..................................................................... F-70
Statements of Operations........................................................... F-71
Statements of Stockholders' Equity (Deficit)....................................... F-72
Statements of Cash Flows........................................................... F-73
Notes to Financial Statements...................................................... F-74
Xoom.com, Inc. Unaudited Pro Forma Condensed Combined Financial Information
Introduction....................................................................... F-81
Unaudited Pro Forma Condensed Combined Balance Sheets.............................. F-82
Unaudited Pro Forma Condensed Combined Statements of Operations.................... F-83
Notes to Unaudited Pro Forma Condensed Combined Financial Information.............. F-85
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Xoom.com, Inc.
We have audited the accompanying consolidated balance sheets of Xoom.com,
Inc. as of December 31, 1997 and 1998, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the period from
April 16, 1996 (inception) through December 31, 1996 and for the years ended
December 31, 1997 and 1998. These financial statements are the responsibility of
Xoom.com, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Xoom.com, Inc. at December 31, 1997 and 1998, and the consolidated results of
its operations and its cash flows for the period from April 16, 1996 (inception)
through December 31, 1996 and for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Palo Alto, California
January 25, 1999
except for the fourth paragraph of Note 9,
as to which the date is
April 5, 1999.
F-2
<PAGE>
XOOM.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 6 $ 54,575 $ 43,381
Short-term investments...................................................... -- 2,000 9,290
Accounts receivable, net of allowance for doubtful accounts of
$49, $195, and $279 in 1997, 1998, and 1999............................... 173 1,368 1,610
Stock subscription receivable............................................... 75 -- --
Inventories................................................................. -- 322 282
Other current assets........................................................ 1 308 477
--------- ---------- -----------
Total current assets...................................................... 255 58,573 55,040
Fixed assets, net............................................................. 414 2,071 3,248
Goodwill, net................................................................. -- 3,751 3,165
Purchased technology, net..................................................... -- 1,766 1,490
Investments................................................................... -- -- 1,004
Prepaid royalties and licenses................................................ 53 216 74
Other assets.................................................................. 60 497 769
--------- ---------- -----------
Total assets............................................................ $ 782 $ 66,874 $ 64,790
--------- ---------- -----------
--------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................ $ 462 $ 1,229 $ 2,097
Accrued compensation and related expenses................................... 38 497 863
Other accrued liabilities................................................... 5 1,531 1,264
Deferred revenue............................................................ -- 443 411
Note payable to stockholder................................................. 150 -- --
Notes payable............................................................... -- 1,276 1,191
Capital lease obligations................................................... -- 37 39
Contingency accrual......................................................... 1,000 1,000 1,000
--------- ---------- -----------
Total current liabilities................................................. 1,655 6,013 6,865
Notes payable, less current portion......................................... -- 411 370
Capital lease obligations, less current portion............................. -- 117 105
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value:
Authorized shares--5,000,000
Issued and outstanding shares--none in 1997, 1998, and 1999............... -- -- --
Common stock, $0.0001 par value:
Authorized shares--40,000,000
Issued and outstanding shares--5,541,367, 13,699,555, and 13,830,588 in
1997, 1998 and 1999, respectively....................................... 3,001 75,606 75,801
Deferred compensation......................................................... (303) (904) (674)
Accumulated deficit........................................................... (3,571) (14,369) (17,677)
--------- ---------- -----------
Total stockholders' equity (deficit)...................................... (873) 60,333 57,450
--------- ---------- -----------
Total liabilities and stockholders' equity (deficit).................... $ 782 $ 66,874 $ 64,790
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PERIOD FROM APRIL YEAR ENDED THREE MONTHS ENDED
16, 1996 DECEMBER 31, MARCH 31,
(INCEPTION) THROUGH ----------------- -------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue:
E-commerce.................................................. $ -- $ 327 $ 5,582 $ 677 $ 2,636
Advertising................................................. -- 60 2,144 83 1,765
License fees and other...................................... -- 454 592 89 21
------ ------- -------- ----------- -----------
Total net revenue......................................... -- 841 8,318 849 4,422
Cost of net revenue:
Cost of e-commerce.......................................... -- 171 3,542 278 2,041
Cost of license fees and other.............................. -- 148 42 8 1
------ ------- -------- ----------- -----------
Total cost of net revenue................................. -- 319 3,584 286 2,042
------ ------- -------- ----------- -----------
Gross profit.................................................. 522 4,734 563 2,380
Operating expenses:
Operating and development................................... 266 1,150 3,841 576 1,149
Sales and marketing......................................... 23 292 2,834 262 2,434
General and administrative.................................. 150 721 3,366 316 1,623
Purchased in-process research and development............... -- -- 790 330 --
Amortization of deferred compensation....................... -- 248 1,416 79 230
Amortization of intangible assets........................... -- -- 1,843 -- 862
Non-recurring charges....................................... -- 1,243 -- -- --
------ ------- -------- ----------- -----------
Total operating expenses.................................. 439 3,654 14,090 1,563 6,298
------ ------- -------- ----------- -----------
Loss from operations.......................................... (439) (3,132) (9,356) (1,000) (3,918)
Other income (expense):
Interest income............................................. -- -- 187 -- 640
Interest expense............................................ -- -- (135) -- (30)
Interest expense related to warrant......................... -- -- (1,494) -- --
------ ------- -------- ----------- -----------
Net loss...................................................... $ (439) $(3,132) $(10,798) $(1,000) $(3,308)
------ ------- -------- ----------- -----------
------ ------- -------- ----------- -----------
Net loss per share--basic and diluted......................... $ (0.89) $ (0.64) $ (1.37) $ (0.17) $ (0.24)
------ ------- -------- ----------- -----------
------ ------- -------- ----------- -----------
Number of shares used in per share calculation--basic and
diluted..................................................... 496 4,874 7,879 5,884 13,811
------ ------- -------- ----------- -----------
------ ------- -------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
------------------- DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT COMPENSATION DEFICIT (DEFICIT)
---------- ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to founders at inception......... 666,668 $ -- $ -- $ -- $ --
Issuance of common stock in exchange for cancellation of
notes payable to stockholders........................... 2,666,667 1,000 -- -- 1,000
Net loss.................................................. -- -- -- (439) (439)
---------- ------- ------ ----------- -------------
Balances at December 31, 1996............................... 3,333,335 1,000 -- (439) 561
Issuance of common stock for cash......................... 1,914,452 1,223 -- -- 1,223
Issuance of common stock in exchange for cancellation of
notes payable to stockholders........................... 38,889 35 -- -- 35
Issuance of common stock in exchange for stock
subscription receivable................................. 254,691 175 -- -- 175
Issuance of stock options to consultants.................. -- 17 -- -- 17
Deferred compensation related to grant of stock options... -- 551 (551) -- --
Amortization of deferred compensation..................... -- -- 248 -- 248
Net loss.................................................. -- -- -- (3,132) (3,132)
---------- ------- ------ ----------- -------------
Balances at December 31, 1997............................... 5,541,367 3,001 (303) (3,571) (873)
Issuance of common stock for cash, net of issuance costs
of $139................................................. 1,815,432 5,532 -- -- 5,532
Issuance of common stock in exchange for Classic Media
Holdings license rights................................. 43,292 100 -- -- 100
Issuance of common stock in connection with
acquisitions............................................ 1,221,992 4,219 -- -- 4,219
Issuance of common stock in exchange for cancellation of
notes payable to stockholders........................... 64,937 150 -- -- 150
Issuance of common stock in exchange for stock
subscription receivable................................. 78,224 261 -- -- 261
Issuance of common stock to directors and consultants in
exchange for services................................... 19,564 205 -- -- 205
Issuance of stock options to consultants.................. -- 238 -- -- 238
Issuance of common stock in initial public offering, net
of offering costs of $7,059............................. 4,600,000 57,341 -- -- 57,341
Issuance of common stock upon exercise of warrants, net of
issuance costs of $28................................... 314,747 1,048 -- -- 1,048
Issuance of warrant in connection with loan agreement..... -- 1,494 -- -- 1,494
Deferred compensation related to grant of stock options... -- 2,017 (2,017) -- --
Amortization of deferred compensation..................... -- -- 1,416 -- 1,416
Net loss.................................................. -- -- -- (10,798) (10,798)
---------- ------- ------ ----------- -------------
Balances at December 31, 1998............................... 13,699,555 75,606 (904) (14,369) 60,333
Issuance of common stock to directors and consultants in
exchange for services (unaudited)....................... 3,468 158 -- -- 158
Issuance of common stock upon issuance of warrants
(unaudited)............................................. 116,231 -- -- -- --
Issuance of common stock upon issuance of options
(unaudited)............................................. 11,334 37 -- -- 37
Amortization of deferred compensation (unaudited)......... -- -- 230 -- 230
Net loss (unaudited)...................................... -- -- -- (3,308) (3,308)
---------- ------- ------ ----------- -------------
Balances at March 31, 1999 (unaudited)...................... 13,830,588 $75,801 $ (674) $(17,677) $ 57,450
---------- ------- ------ ----------- -------------
---------- ------- ------ ----------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM APRIL 16,
1996 (INCEPTION) YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------- -----------------------
1996 1997 1998 1998 1999
----------------------- ------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH USED IN OPERATING ACTIVITIES:
Net loss.................................................... $ (439) $(3,132) $(10,798) $ (1,000) $ (3,308)
Adjustments to reconcile net loss to net cash used in
operating activities:
Interest expense related to warrant..................... -- -- 1,494 -- --
Purchased in-process research and development........... -- -- 790 330 --
Depreciation and amortization........................... 2 254 796 100 328
Amortization of intangible assets....................... -- -- 1,843 -- 862
Amortization of deferred compensation................... -- 248 1,416 79 230
Write-off of prepaid royalties.......................... -- 243 -- -- --
Issuance of common stock in exchange for Classic Media
Holdings license rights............................... -- -- 100 100 --
Issuance of stock options to consultants................ -- 17 238 1 --
Issuance of common stock to directors and consultants... -- -- 205 -- 157
Changes in operating assets and liabilities:
Accounts receivable................................... -- (173) (1,167) (108) (242)
Inventories........................................... -- -- (322) (6) 40
Other current assets.................................. -- (1) (303) (80) (169)
Prepaid royalties and licenses........................ (324) (186) (426) -- --
Other assets.......................................... (19) (41) (445) (34) (181)
Accounts payable...................................... 136 326 762 282 868
Accrued compensation and related expenses............. 9 29 418 52 366
Other accrued liabilities............................. -- 5 1,403 76 (265)
Deferred revenue...................................... -- -- 443 -- (32)
Contingency accrual................................... -- 1,000 -- -- --
------- ------- -------- ---------- ----------
Net cash used in operating activities....................... (635) (1,411) (3,553) (208) (1,346)
Cash used in investing activities:
Purchases of fixed assets................................. (64) (392) (1,954) (231) (1,455)
Purchase of short-term investments........................ -- -- (2,000) -- (8,294)
Business combinations, net of cash acquired............... -- -- (458) (28) --
Cash paid in connection with the purchase of certain
assets from Revolutionary Software, Inc................. -- -- (273) -- --
------- ------- -------- ---------- ----------
Net cash used in investing activities..................... (64) (392) (4,685) (259) (9,749)
</TABLE>
See accompanying notes.
F-6
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM APRIL 16, MARCH 31,
1996 (INCEPTION) YEAR ENDED -----------------------
THROUGH DECEMBER 31, 1998 1999
DECEMBER 31, ----------------- ---------- ----------
Cash provided by financing activities: 1996 1997 1998 (UNAUDITED) (UNAUDITED)
----------------------- ------- --------
<S> <C> <C> <C> <C> <C>
Proceeds from issuance of common stock in initial public
offering................................................ -- -- 57,341 -- --
Proceeds from issuance of common stock.................... -- 1,223 5,532 421 --
Proceeds from exercise of warrants........................ -- -- 1,048 -- --
Proceeds from exercise of options......................... -- -- -- -- 36
Proceeds from issuance of notes payable to stockholders... 700 185 -- 335 --
Proceeds from repayment of stock subscriptions
receivable.............................................. -- 400 335 -- --
Proceeds from notes payable............................... -- -- 1,762 -- --
Principal payments on capital lease obligations........... -- -- (10) -- (11)
Repayment of notes payable................................ -- -- (3,201) (30) (124)
------- ------- -------- ---------- ----------
Net cash provided by (used in) financing activities....... 700 1,808 62,807 726 (99)
------- ------- -------- ---------- ----------
Net increase (decrease) in cash........................... 1 5 54,569 259 (11,194)
Cash and cash equivalents at beginning of period.......... -- 1 6 6 54,575
------- ------- -------- ---------- ----------
Cash and cash equivalents at end of period................ $ 1 $ 6 $ 54,575 $ 265 $ 43,381
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
</TABLE>
See accompanying notes.
F-7
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM APRIL 16, MARCH 31,
1996 (INCEPTION) YEAR ENDED -----------------------
THROUGH DECEMBER 31, 1998 1999
DECEMBER 31, ----------------- ---------- ----------
SUPPLEMENTAL DISCLOSURES: 1996 1997 1998 (UNAUDITED) (UNAUDITED)
----------------------- ------- --------
<S> <C> <C> <C> <C> <C>
Non-cash transactions:
Issuance of common stock in exchange for stock
subscriptions receivable................................ $ -- $ 175 $ 261 $ 261 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Issuance of notes payable to stockholders for stock
subscriptions receivable................................ $ 300 $ -- $ -- $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Issuance of common stock in exchange for cancellation of
notes payable to stockholder............................ $ 1,000 $ 35 $ 150 $ 150 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Deferred compensation resulting from grant of stock
options................................................. $ -- $ 551 $ 2,017 $ 59 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Fixed assets acquired under capital lease obligations..... $ -- $ -- $ 165 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Common stock issued to satisfy Paralogic Corporation legal
obligation.............................................. $ -- $ -- $ 165 $ 165 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Issuance of common stock in conjunction with business and
technology acquisitions:
Paralogic Corporation..................................... $ -- $ -- $ 1,576 $ 1,576 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Global Bridges Technologies, Inc. ........................ $ -- $ -- $ 998 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Revolutionary Software, Inc. ............................. $ -- $ -- $ 1,200 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
ArcaMax, Inc. ............................................ $ -- $ -- $ 445 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Issuance of notes payable in conjunction with business and
technology acquisitions:
Paralogic Corporation..................................... $ -- $ -- $ 1,400 $ 1,400 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Global Bridges Technologies, Inc.......................... $ -- $ -- $ 63 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Revolutionary Software, Inc............................... $ -- $ -- $ 262 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
ArcaMax, Inc.............................................. $ -- $ -- $ 180 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Pagecount, Inc............................................ $ -- $ -- $ 1,200 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Cash paid for interest...................................... $ -- $ -- $ 57 $ -- $ 26
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
</TABLE>
See accompanying notes.
F-8
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F-9
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
THE COMPANY
Xoom.com, Inc. (the "Company"), was formerly known as XOOM, Inc., Xoom
Software, Inc. and originally incorporated as Atomsoft, Inc. in the State of
Delaware on April 16, 1996.
The Company provides free community services such as Web site hosting,
e-mail, on-line chat networks and free proprietary content such as clip art and
greeting cards. The Company uses these free services and content to build a
membership base to direct market goods and services targeted to the interests of
its members. The Company derives a substantial portion of its revenue from
e-commerce, and to a lesser extent from advertising and licensing.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
DEPENDENCE ON CERTAIN VENDORS
The Company currently depends on one vendor to provide warehousing and order
fulfillment. Although the Company believes that there are alternative vendors
for warehousing and order fulfillment, there can be no assurance that the
Company will maintain its relationship with this vendor as the agreement is
cancelable at any time. The loss of this relationship could have a material
adverse effect on the Company's financial condition and results of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial information as of March 31, 1998 and 1999, and for the
three months ended March 31, 1998 and 1999, is unaudited but has been prepared
on the same basis as the audited financial statements and includes all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of its financial position at such
date and its results of operations and cash flows for those periods. Operating
results for the three months ended March 31, 1998 and 1999 are not necessarily
indicative of results that may be expected for any future periods.
CASH AND CASH EQUIVALENTS
The Company considers investments in highly liquid instruments purchased
with original maturities of 90 days or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value. The Company
maintains its cash in depository accounts with three high credit quality
financial institutions.
CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade accounts receivable. The Company conducts
business with companies in various industries throughout the world and with
individuals over the Internet. The Company performs ongoing credit evaluations
of its corporate customers and generally does not require collateral. Sales to
individuals are principally paid for via credit cards. Reserves are maintained
for potential credit losses, and such losses to date have been
F-10
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
within management's expectations. The Company provided $49,000 and $269,000 for
allowance for doubtful accounts in 1997 and 1998, respectively.
For the year ended December 31, 1997, one customer accounted for $100,000 or
12% of total net revenue. No balances were receivable from that customer at
December 31, 1997. For the year ended December 31, 1998, no single customer
accounted for greater than 10% of total net revenue.
INVENTORIES
Inventories are carried at the lower of cost (determined on the average cost
basis) or market. Inventories consist of products available for sale.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of three years. Fixed assets under capital leases are
amortized over the shorter of the estimated useful life or the life of the
lease. The Company identifies and records impairment losses on fixed assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has been recorded.
GOODWILL AND PURCHASED TECHNOLOGY, NET
Goodwill and purchased technology consist of purchased technology and
goodwill related to acquisitions accounted for by the purchase method. See Note
2. Amortization of these purchased intangibles is provided on the straight-line
basis over the respective useful lives of the assets, which ranges from 2 to 3.5
years. Purchased in-process research and development without alternative future
use is expensed when acquired.
The Company identifies and records impairment losses on intangible assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
PREPAID ROYALTIES AND LICENSES
Prepaid royalties represent prepayments of royalties due upon the sale or
sublicense of software technologies. Prepaid royalties are amortized as units
are sold or over estimated useful lives of approximately one year, whichever is
shorter. Licenses represent amounts paid to developers for fully paid licenses
to resell certain software. These licenses are amortized over the estimated
useful lives which are approximately one year. Amortization of prepaid royalties
and licenses, which is included in cost of e-commerce and cost of license fee
revenue, totaled $0, $213,000 and $263,000, for the period from April 16, 1996
(inception) to December 31, 1996, and for the years ended December 31, 1997 and
1998, respectively.
During the second quarter of 1997, the Company discontinued the sale of
certain products where royalty prepayments had been made and accordingly,
recorded a write-off of prepaid royalties included in non-recurring charges
totaling $243,000.
OTHER ASSETS
Other assets consist of non-current deposits relating to various ongoing
agreements entered into by the Company.
DEFERRED REVENUE
Deferred revenue consists of advertising and e-commerce fees to be earned in
the future under agreements existing at the balance sheet date.
F-11
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123").
REVENUE RECOGNITION
E-COMMERCE
The Company recognizes revenue from e-commerce sales when the products are
shipped to customers. The Company provides for potential product returns and
estimated warranty costs in the period of the sale. Such costs have been minimal
to date.
ADVERTISING
Advertising revenues are derived from the sale of banner advertisements and
sponsorships under short-term contracts. Through December 31, 1998, the duration
of the Company's advertising commitments has been principally from one to two
months to a year. Advertising revenues on banner contracts are recognized
ratably in the period in which the advertisement is displayed, provided that no
significant Company obligations remain and collection of the resulting
receivable is probable. Company obligations typically include the guarantee of a
minimum number of "impressions" or times that an advertisement appears in pages
viewed by the users of the Company's online properties. To the extent minimum
guaranteed impressions are not met, the Company defers recognition of the
corresponding revenue until the remaining guaranteed impression levels are
achieved.
LICENSE FEES
The Company licenses software under non-cancelable license agreements to
end-users and non-cancelable sub-license agreements to resellers. License fee
revenues are recognized when a non-cancelable license agreement has been signed,
the product has been delivered, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable, collection is considered
probable and all significant contractual obligations have been satisfied.
F-12
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
EXPORT SALES
Export sales were 30% and 25% of net revenues for the years ended December
31, 1997 and 1998, respectively. The Company's export sales are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
North America.............................................................. $ 39 $ 288
Europe..................................................................... 157 1,008
Asia/Pacific............................................................... 44 392
Rest of the World.......................................................... 12 365
--------- ---------
Total................................................................ $ 252 $ 2,053
--------- ---------
--------- ---------
</TABLE>
ADVERTISING EXPENSE
All advertising costs are expensed when incurred. Advertising costs, which
are included in sales and marketing expense, were $0, $50,000 and $51,000, for
the period from April 16, 1996 (inception) through December 31, 1996, and for
the years ended December 31, 1997 and 1998, respectively.
DEVELOPMENT COSTS
Development costs are expensed as incurred and are included in operating and
development expenses.
COMPUTATION OF NET LOSS PER SHARE
The Company computes net loss per share based on Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share," ("SFAS 128"). In
accordance with SFAS 128, basic net income (loss) per share excludes dilutive
common stock equivalents and is calculated as net income (loss) divided by the
weighted average number of common shares outstanding. Diluted net income (loss)
per share is computed using the weighted average number of common shares
outstanding and dilutive common stock equivalents outstanding during the period.
Common equivalent shares from stock options and warrants (using the treasury
stock method) are excluded from the calculation of net loss per share as their
effect is anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998 the Company adopted Financial Accounting Standards
Board Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
had no material components of comprehensive income. The adoption of this
standard has had no impact on the Company's consolidated financial position,
stockholders' equity, results of operations or cash flows. Accordingly, the
Company's comprehensive loss for the year ended December 31, 1998 is equal to
its reported loss.
Additionally, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 131 ("SFAS 131") "Disclosure about
Segments of an Enterprise and Related Information," which establishes standards
for the way public business enterprises report information in annual statements
and interim financial reports regarding operating segments, products and
services, geographic areas, and major customers. This statement is effective for
financial statements for periods beginning after December 15, 1997. The Company
adopted SFAS 131 in 1998. The Company operates in one business segment, Internet
service to customers.
F-13
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which establishes guidelines
for the accounting for the costs of all computer software developed or obtained
for internal use. The Company is required to adopt SOP 98-1 effective January 1,
1999. The adoption of SOP 98-1 is not expected to have a material impact on the
Company's consolidated financial statements.
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
During the year ended December 31, 1998, the Company made the business and
technology acquisitions described in the paragraphs that follow, each of which
has been accounted for as a purchase. The consolidated financial statements
include the operating results of each business from the date of acquisition.
The amounts allocated to purchased research and development were determined
through established valuation techniques in the high-technology Internet
industry and were expensed upon acquisition, because technological feasibility
had not been established and no future alternative uses existed. Research and
development costs to bring the products from the acquired companies to
technological feasibility are not expected to have a material impact on the
Company's future results of operations or cash flows. Amounts allocated to
goodwill and other intangible assets are amortized on a straight-line basis over
periods of two to three and one-half years.
PARALOGIC CORPORATION
On March 10, 1998, the Company acquired 100% of the outstanding shares of
Paralogic Corporation ("Paralogic"). Paralogic provides free communication
between members via a chat Web site network (i.e., chat rooms). The purchase
consideration was $3,038 consisting of 682,410 shares of common stock with an
estimated fair value of $2.31 per share, $1,400,000 of debt, and $62,000 of
acquisition costs. Contingent consideration, which the Company does consider
probable of paying, consists of an additional $860,000, included in debt above,
which will be paid if certain performance criteria are met.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Cash............................................................ $ 33
Accounts receivables and other current assets................... 9
Fixed assets, net............................................... 50
Purchased in-process research and development charged to
operations in the quarter ended March 31, 1998................ 330
Purchased technology............................................ 160
Goodwill........................................................ 2,539
Liabilities assumed............................................. (83)
---------
Total purchase consideration.............................. $ 3,038
---------
---------
</TABLE>
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. Management estimates that
$330,000 of the purchase price represents purchased in-process technology that
had not yet reached technological feasibility and had no alternative future use.
Accordingly, this amount was expensed in the quarter ended March 31, 1998. The
value assigned to purchased in-process technology was determined by identifying
the on-going research projects for which technological feasibility had not been
achieved and assessing the date of
F-14
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
completion of the research and development effort. The state of completion was
determined by estimating the costs and time incurred to date relative to those
costs and time to be incurred to develop the purchased in-process technology
into commercially viable products, estimating the resulting net cash flows only
from the percentage of research and development efforts complete at the date of
acquisition, and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the purchased in-process technology
projects.
PURCHASED TECHNOLOGY. To determine the value of purchased technology
($160,000), the expected future cash flows of the existing developed
technologies were discounted taking into account the characteristics and
applications of the product, the size of existing markets, growth rates of
existing and future markets as well as an evaluation of past and anticipated
product-life cycles.
GLOBAL BRIDGES TECHNOLOGIES, INC.
On June 11, 1998, the Company acquired 100% of the outstanding shares of
Global Bridges Technologies, Inc. ("GBT"). GBT, owns the exclusive selling
rights to Sitemail, an HTML-based e-mail product, which expands the Company's
suite of member services. The purchase consideration was $709,000 consisting of
183,427 shares of common stock with an estimated fair value of $3.33 per share,
$13,000 cash, a note payable of $63,000 with fixed payment terms and $22,000 of
acquisition costs.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Other current assets.............................................. $ 4
Goodwill.......................................................... 767
Liabilities assumed............................................... (62)
---------
Total purchase consideration...................................... $ 709
---------
---------
</TABLE>
In July 1998, the Company amended the purchase agreement with GBT to provide
for the issuance of an additional 17,304 shares of common stock with an
estimated fair value of $10.80 per share. Upon completion of the Company's
initial public offering, GBT received $200,000 of the Company's common stock at
$14 per share and additional cash consideration of $130,000. This additional
consideration was recorded as goodwill, raising the total consideration to
$1,226,000.
REVOLUTIONARY SOFTWARE, INC.
On June 11, 1998, the Company purchased certain technology of Revolutionary
Software, Inc. ("RSI"). RSI is the developer of the Sitemail technology and had
licensed Sitemail to GBT. The purchase consideration was $701,000, consisting of
128,052 shares of common stock with an estimated fair value of $3.33 per share,
$12,000 cash and a note payable of $263,000 with fixed payment terms. Initially,
RSI may earn up to an additional 34,608 shares of common stock if certain
performance targets are met. In each of the twenty-four months following June
1998, the stockholders of RSI will receive 5% of net revenues less certain costs
from e-commerce and banner advertising from e-mail subscribers of certain
Internet service providers.
F-15
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
The purchase consideration of the acquired assets was allocated based on
fair values as follows (in thousands):
<TABLE>
<S> <C>
Purchased in-process research and development charged to
operations in the quarter ended June 30, 1998................... $ 330
Purchased technology.............................................. 371
---------
Total purchase consideration...................................... $ 701
---------
---------
</TABLE>
In July 1998, the Company amended the agreement with RSI to provide for the
issuance of an additional 34,608 shares of common stock with an estimated fair
value of $10.80 per share. Upon completion of the Company's initial public
offering, RSI received $400,000 of the Company's common stock at $14 per share
and additional cash consideration of $260,000. This additional consideration was
recorded as purchased technology, raising the total consideration to $1,735,000.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. Management estimates that
$330,000 of the purchase price represents purchased in-process technology that
had not yet reached technological feasibility and had no alternative future use.
Accordingly, this amount was expensed in the quarter ended June 30, 1998. The
value assigned to purchased in-process technology was determined by identifying
the on-going research projects for which technological feasibility had not been
achieved and assessing the state of completion of the research and development
effort. The state of completion was determined by estimating the costs incurred
to date relative to those costs to be incurred to develop the purchased
in-process technology into commercially viable products, estimating the
resulting net cash flows only from the percentage of research and development
efforts complete at the date of acquisition, and discounting the net cash flows
back to their present value. The discount rate included a factor that took into
account the uncertainty surrounding the successful development of the purchased
in-process technology projects.
To determine the value of purchased technology ($130,000), the expected
future cash flows of the existing developed technologies were discounted taking
into account the characteristics and applications of the product, the size of
existing markets, growth rates of existing and future markets as well as an
evaluation of past and anticipated product-life cycles. The purchase
consideration above the purchased in-process research and development and
purchased technology amounts were also included in purchased technology.
ARCAMAX, INC.
In June 1998, the Company purchased certain intellectual property and
licensed certain technology from ArcaMax, Inc. ("ArcaMax") for $644,000,
consisting of 133,334 shares of common stock with an estimated fair value of
$3.33 per share, $20,000 cash and a note payable of $180,000 with fixed payment
terms. This technology acquisition gave the Company the ability to offer a free
online greeting card service to members. The Company recorded this amount as
purchased technology and is amortizing it over its estimated useful life of two
years.
PAGECOUNT, INC.
On July 24, 1998, the Company acquired substantially all of the assets of
Pagecount, Inc. ("Pagecount"). The consideration was $1,460,000 and consisted of
$200,000 cash, a note payable of $1,200,000 with fixed payment terms, and
acquisition costs of approximately $60,000.
F-16
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Cash............................................................ $ 32
Accounts receivable and other current assets.................... 19
Fixed assets, net............................................... 21
Purchased in-process research and development charged to
operations in the quarter ended September 30, 1998............ 130
Purchased technology............................................ 140
Goodwill........................................................ 1,164
Liabilities assumed............................................. (46)
---------
Total purchase consideration.................................... $ 1,460
---------
---------
</TABLE>
F-17
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. Management estimates that
$130,000 of the purchase price represents purchased in-process technology that
had not yet reached technological feasibility and had no alternative future use.
Accordingly, this amount was expensed in the quarter ended September 30, 1998.
The value assigned to purchased in-process technology was determined by
identifying the on-going research projects for which technological feasibility
had not been achieved and assessing the date of completion of the research and
development effort. The state of completion was determined by estimating the
costs and time incurred to date relative to those costs and time to be incurred
to develop the purchased in-process technology into commercially viable
products, estimating the resulting net cash flows only from the percentage of
research and development efforts completed at the date of acquisition, and
discounting the net cash flows back to their present value. The discount rate
included a factor that took into account the uncertainty surrounding the
successful development of the purchased in-process technology projects.
PURCHASED TECHNOLOGY. To determine the value of purchased technology
($140,000), the expected future cash flows of the existing developed
technologies were discounted taking into account the characteristics and
applications of the product, the size of existing markets, growth rates of
existing and future markets as well as an evaluation of past and anticipated
product-life cycles.
SUMMARY OF PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT AND PURCHASED
TECHNOLOGY. Values assigned to purchased in-process research and development and
purchased technology were generally determined using an income approach. To
determine the value of in-process research and development, the Company
considered, among other factors, the state of completion of each project, the
time and cost needed to complete each project, expected income, and associated
risks which included the inherent difficulties and uncertainties in completing
the project and thereby achieving technological feasibility and risks related to
the viability of and potential changes to future target markets. This analysis
results in amounts assigned to in-process research and development projects that
had not yet reached technological feasibility (as defined and utilized by the
Company in assessing software capitalization) and does not have alternative
future uses. To determine the value of the purchased technology, the expected
future cash flows of each existing technology product were discounted taking
into account risks related to the characteristics and applications of each
product, existing and future markets and assessments of the life cycle stage of
the product. Based on the analysis, the existing technology that had reached
technological feasibility was capitalized.
<TABLE>
<S> <C>
(IN THOUSANDS)
Purchased technology................................................ $ 2,357
Goodwill............................................................ 5,003
---------
Intangible assets................................................... 7,360
Accumulated amortization............................................ (1,843)
---------
Intangible assets, net.............................................. $ 5,517
---------
---------
</TABLE>
F-17
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
The total purchased in-process research and development that had no
alternative future use, and as such was charged to operations in the year ended
December 31, 1998 is summarized below (in thousands):
<TABLE>
<S> <C>
Paralogic Corporation................................................ $ 330
Revolutionary Software, Inc.......................................... 330
Pagecount, Inc....................................................... 130
---------
Total purchased in-process research and development.................. $ 790
---------
---------
</TABLE>
The following unaudited pro forma summary represents the consolidated
results of operations as if the acquisitions of Paralogic, GBT and Pagecount had
occurred at the beginning of the periods presented and are not intended to be
indicative of future results (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Pro forma net revenue.................................... $ 1,371 $ 8,607
Pro forma loss from operations........................... $ (5,835) $ (10,005)
Pro forma net loss....................................... $ (5,883) $ (11,495)
Pro forma net loss per share--basic and diluted.......... $ (1.02) $ (1.41)
Number of shares used in pro forma per share
calculation-- basic and diluted........................ 5,740 8,142
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire period
presented and are not intended to be a projection of future results. In-process
research and development charges of $0 and $460,000 were excluded from the pro
forma net loss and pro forma net loss per share figures for the years ended
December 31, 1997 and 1998, respectively.
3. RELATED PARTY TRANSACTIONS
During the period from April 16, 1996 (inception) through December 31, 1996,
and during the years ended December 31, 1997 and 1998, the Company issued stock
subscriptions receivable to related parties and to investors in exchange for
shares of common stock and, in some cases, notes payable. These subscriptions
receivable were due upon demand and bore no interest. As of December 31, there
were no outstanding amounts due under subscriptions receivable.
During the period from April 16, 1996 (inception) through December 31, 1996,
and during the years ended December 31, 1997 and 1998, the Company issued notes
payable to related parties in exchange for cash advances and stock subscriptions
receivable. All notes payable issued through December 31, 1998 have been
converted into shares of common stock.
The Company entered into a Consulting Agreement, dated May 15, 1998, with an
outside director of the Company. The Consulting Agreement will terminate on
November 15, 1999. The Agreement provides for the director to receive monthly
compensation of $10,000, paid in the form of common stock. The director also
received options to buy 16,667 shares of the Company's common stock. The options
vest at
F-18
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
the rate of 12.5% per quarter over two years. The director was granted stock
options to buy an additional 16,667 shares of common stock which fully vested
upon completion of the Company's initial public offering.
The Company has entered into a Content License Agreement dated February 22,
1998, with Classic Media Holdings, whereby the Company was granted certain
non-exclusive perpetual, world-wide licensing rights in connection with Classic
Media Holdings' library of public domain movies. As consideration for the
license, the Company issued 43,290 shares of the Company's common stock to the
principals of Classic Media Holdings. The fair value of the stock yielded a
$100,000 charge to operating and development expense in the year ended December
31, 1998. A director of the Company is a principal of Classic Media Holdings.
4. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company has classified all short-term investments as available-for-sale.
Available-for-sale securities are carried at amounts that approximate fair
market value based on quoted market prices. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income. Interest on securities classified as
available-for-sale is also included in interest income.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Demand and money market instrument accounts.............. $ 6 $ 8,731 $ 5,172
Corporate bonds and notes................................ -- 36,444 33,499
Market auction preferred stock........................... -- 11,400 14,000
----------- ---------- ----------
6 56,575 52,671
Less amounts included in cash and cash equivalents....... (6) (54,575) (43,381)
----------- ---------- ----------
Short-term investments................................... $ -- $ 2,000 $ 9,290
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
Unrealized gains and losses at December 31, 1998 and March 31, 1999, and
realized gains and losses for the years then ended, were not material.
Accordingly, the Company has not made a provision for such amounts in its
consolidated balance sheet. The cost of securities sold is based on the specific
identification method. All available-for-sale securities at December 31, 1998
and March 31, 1999 have maturity dates in 1999 or 2000.
F-19
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Computers and equipment, including assets under capital leases of $0 and $53 for 1997 and 1998,
respectively................................................................................... $ 457 $ 2,528
Furniture and fixtures under capital leases...................................................... -- 112
--------- ---------
Fixed assets..................................................................................... 457 2,640
Less accumulated depreciation and amortization, including amounts related to assets under capital
leases of $0 and $18 for 1997 and 1998, respectively........................................... (43) (569)
--------- ---------
$ 414 $ 2,071
--------- ---------
--------- ---------
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following at December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Note payable and other amounts due to the former stockholders of Paralogic
Corporation. The note is non-interest bearing and payable in minimum monthly
installments of $30,000 through September 1999. Additional payments are required
for the $860,000 of contingent payable as the amounts are earned. As of December
31, 1998, $2,248 of the contingent consideration had been earned and paid........ $ 1,128
Note payable issued in connection with a secured financing agreement (the
"Agreement") with a leasing company. The Agreement provides for borrowings of up
to a cumulative amount of $1,000,000 through July 31, 1999. All borrowings under
the Agreement are collateralized by computer and office equipment and bear
interest at the rate of 14.58% annually. Payments are made monthly over 42 months
from the date of each borrowing in the amount of 2.87% of the amount borrowed,
plus a final payment equal to 10% of the amount borrowed......................... 512
Note payable to the former stockholder of Global Bridges Technologies, Inc. bearing
interest of 5% annually. The note is due in monthly installments of $2,500
through July 2000................................................................ 47
---------
1,687
Less amounts due within one year from December 31, 1998............................ (1,276)
---------
Long-term notes payable............................................................ $ 411
---------
---------
</TABLE>
F-20
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. NOTES PAYABLE (CONTINUED)
Scheduled maturities of notes payable and other amounts due are as follows
(in thousands):
<TABLE>
<S> <C>
Year ending December 31,
1999............................................................ $ 1,276
2000............................................................ 155
2001............................................................ 159
2002............................................................ 97
---------
Total....................................................... $ 1,687
---------
---------
</TABLE>
On November 3, 1998, the Company entered into a loan agreement with a
financing company which provided for borrowings up to $2,750,000. The loan bore
interest of 12% annually. All amounts borrowed under this loan agreement were
secured by certain fixed assets. Pursuant to the terms of the loan agreement,
the Company issued the lender a warrant to purchase 183,333 shares of the
Company's common stock at an exercise price equal to the initial public offering
price per share. The Company determined that the fair value of the warrant to be
$1,494,000 at the date of the initial public offering, and in connection with
this issuance recorded the fair value as interest expense. The effective
interest rate on this secured loan agreement for the year ended December 31,
1998 was approximately 1,450%. As of December 31, 1998, all outstanding
principal and interest amounts had been fully paid and the loan agreement had
been canceled.
7. INCOME TAXES
There has been no provision for U.S. federal or state income taxes for any
period as the Company has incurred operating losses.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Deferred tax assets:
Net operating loss carryforwards....................................... $ 537 $ 1,944
Purchased in-process technology........................................ -- 311
Capitalized start up costs............................................. 112 85
Prepaid royalties and licenses......................................... 257 496
Accrued liabilities.................................................... 398 887
Other.................................................................. 17 50
--------- ---------
Total deferred tax assets................................................ 1,321 3,773
Valuation allowance...................................................... (1,321) (3,773)
--------- ---------
Net deferred tax assets.................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-21
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance as it is more likely
than not that the deferred tax assets will not be realized.
During the period from April 16, 1996 (inception) through December 31, 1996,
and during the years ended December 31, 1997 and 1998, the valuation allowance
for the deferred tax assets increased by $175,000, $1,146,000 and $2,452,000,
respectively.
As of December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $4,878,000. There can be no
assurance that the Company will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforwards will expire at
various dates beginning in the fiscal year 2011 through 2018 if not utilized.
Due to the "change of ownership" provisions of the Internal Revenue Code,
the availability of the Company's net operating loss and credit carryforwards
will be subject to an annual limitation against taxable income in future periods
if a change in ownership of more than 50% of the value of the Company's stock
should occur over a three year period, which could substantially limit the
eventual utilization of these carryforwards.
8. COMMITMENTS
The Company leases its facilities, furniture and fixtures and certain
computers and equipment under noncancelable leases for varying periods through
2007. The cost of assets acquired under capital leases during the year ended
December 31, 1998 was $165,000. Amortization expense related to these assets of
$18,000 is included in accumulated depreciation and amortization at December 31,
1998. The following are the minimum lease obligations under these leases at
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
--------------- -----------------
<S> <C> <C>
1999........................................................ $ 63 $ 379
2000........................................................ 63 385
2001........................................................ 63 383
2002........................................................ 17 387
2003........................................................ -- 411
Thereafter.................................................. -- 1,637
----- ------
Minimum lease payments...................................... 206 $ 3,582
------
Less amount representing interest........................... (52)
-----
Present value of minimum lease payments..................... 154
Less current portion........................................ (37)
-----
Long-term portion........................................... $ 117
-----
-----
</TABLE>
Rent expense under operating lease arrangements for the period from April
16, 1996 (inception) through December 31, 1996, and for the years ended December
31, 1997 and 1998, totaled $5,000, $43,000 and $386,000, respectively.
F-22
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. CONTINGENCY ACCRUAL AND OTHER MATTER
In January 1998, the Company became aware that Imageline, Inc. ("Imageline")
claimed to own the copyright in certain images that a third party, Sprint
Software Pty Ltd ("Sprint") had licensed to the Company. Some clip art images
that Imageline alleged infringed Imageline's copyright were included by the
Company in versions of the Company's Web Clip Empire product and licensed by the
Company to third parties, including other software clip publishers. The
Company's contracts with such publishers require the Company to indemnify the
publisher if copyrighted material licensed from the Company infringes a
copyright. Imageline claims that the Company's infringement of Imageline's
copyrights is ongoing. The Company and Imageline had engaged in discussions, but
were unable to reach any agreement regarding a resolution of this matter.
On August 27, 1998, the Company filed a lawsuit in the United States
District Court for the Eastern District of Virginia against Imageline, certain
parties affiliated with Imageline, and Sprint regarding the Company's and its
licensees' alleged infringement on Imageline's copyright in certain clip art
that the Company licensed from Sprint. The lawsuit seeks, among other relief,
disclosure of information from Imageline concerning the alleged copyright
infringement, a declaratory judgment concerning the validity and enforceability
of Imageline's copyrights and copyright registrations, a declaratory judgment
regarding damages, if any, owed by the Company to Imageline, and indemnification
from Sprint for damages, if any, owed by the Company to Imageline. There is no
contractual limitation on Sprint's indemnification. While the Company is seeking
indemnification from Sprint for damages, if any, there can be no assurance that
Sprint will be able to fulfill the indemnity obligations under its license
agreements with the Company. In addition, the Company may be subject to claims
by third parties seeking indemnification from the Company in connection with the
alleged infringement of the Imageline copyrights.
On September 17, 1998, Imageline filed a counterclaim, which Imageline
amended in January 1999, seeking up to $60 million in damages. In March 1999,
the parties completed the discovery process and filed separate motions for
summary judgment.
On April 5, 1999, the Court granted one of the Company's motions for partial
summary judgment and stayed the case to allow Imageline to file all necessary
copyright registration applications to cover the clip art images.
Based on the discussions with Imageline, the Company believes the range of
liability related to this matter is from $0 up to $10,000,000; however, the
Company believes it is unlikely that the liability would exceed $1,000,000.
Accordingly, the Company reserved $1,000,000 for this potential liability, the
expense of which is included in non-recurring charges for the year ended
December 31, 1997. The Company believes that the $1,000,000 accrual represents a
reasonable estimate of the loss that could be incurred in the Imageline dispute.
Based on information available to date management does not believe that the
outcome of this matter will have a material effect on the Company's financial
position, results of operations and cash flows over and above the $1,000,000
accrued in the 1998 financial statements. If not successful in defending this
claim, the resulting outcome could have a material adverse impact on the
Company's business, results of operations, cash flows and financial condition.
Zoom Telephonics, Inc. filed a lawsuit against the Company in September 1998
alleging trademark infringement and related statutory violations. The Company
was not served with Zoom Telephonics' complaint until January 1999. Zoom
Telephonics has demanded that the Company stop using the XOOM trademark and has
asked for an unspecified amount of money damages. The Company responded to the
F-23
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. CONTINGENCY ACCRUAL AND OTHER MATTER (CONTINUED)
complaint in February 1999. In April 1999, Zoom Telephonics filed a motion for a
preliminary injunction to stop the Company from using any mark containing
"Xoom." The Company intends to oppose the Zoom Telephonics' motion for
preliminary injunction. Although the Company believes that Zoom's claims are
without merit, such litigation could have a material adverse effect on the
Company's business, results of operations and financial condition, particularly
if such litigation forces the Company to make substantial changes to its name
and trademark usage.
10. STOCKHOLDERS' EQUITY
In October 1998, the Company's Board of Directors authorized an increase in
the number of authorized shares of common stock and preferred stock from
20,000,000 to 40,000,000 and 1,000,000 to 5,000,000, respectively, each with a
par value of $.0001 per share.
On December 9, 1998, the Company completed its Initial Public Offering and
issued 4,600,000 shares (including 600,000 shares issued in connection with the
exercise of the underwriter over-allotment option) of its common stock to the
public at a price of $14.00 per share. The Company received net proceeds of
$57,341,000.
FOUNDERS STOCK
Pursuant to a Common Stock Purchase Agreement dated August 26, 1996 and
following the incorporation of the Company, two of the Company's founders each
purchased 333,334 shares (666,668 shares in total) of the Company's common stock
for an aggregate of $200 in cash. Pursuant to a Common Stock Purchase Agreement
dated December 31, 1996, the founders purchased an additional 2,333,334 and
1,000,000 shares, respectively, of the Company's common stock in exchange for
the cancellation of promissory notes that the Company owed to the
stockholders/founders in the amount of $700,000 and $300,000, respectively. In
the same agreement, one of the founders contributed 666,667 shares of his common
stock back to the Company without compensation pursuant to an agreement between
the founders.
STOCK SPLITS
In February 1998, the Company completed a one-for-two reverse stock split of
the outstanding shares of common stock. In addition, in November 1998, the
Company completed a two-for-three reverse stock split of the outstanding shares
of common stock. All share information and per share amounts in the accompanying
consolidated financial statements has been retroactively adjusted to reflect the
effect of these stock splits.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock, none
of which is issued or outstanding. The Board of Directors has the authority to
issue the preferred stock in one or more series and to fix the designations,
powers, preferences, rights, qualifications, limitations and restrictions with
respect to any series of preferred stock and to specify the number of shares of
any series of preferred stock without any further vote or action by the
stockholders.
F-24
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
In connection with the issuance of common stock during the year ended
December 31, 1998, the Company issued warrants to purchase a total of 314,747
shares of common stock at an exercise price of $3.33 per share. These warrants
were exercised prior to the Company's initial public offering on December 9,
1998. In November 1998, in connection with the loan agreement mentioned in Note
6, the Company issued a warrant to the lender to purchase 183,333 shares of the
Company's common stock at an exercise price equal to the initial public offering
price per share ($14.00). On January 11, 1999, the lender exercised the warrant
in a net exercise transaction and received 116,231 shares of the Company's
common stock.
STOCK OPTION PLAN
On November 16, 1998, the Company's Board of Directors and stockholders
approved an increase in the number of shares authorized under its 1998 Stock
Incentive Plan (the "Plan") from 1,166,667 to 2,000,000. The Plan provides for
incentive stock options, as defined by the Internal Revenue Code, to be granted
to employees, at an exercise price not less than 100% of the fair value at the
grant date as determined by the Board of Directors. The Plan also provides for
nonqualified stock options to be issued to non-employee officers, directors and
consultants at an exercise price of not less than 85% of the fair value at the
grant date. Option vesting schedules are determined by the Board of Directors at
the time of issuance. Stock options generally vest over different periods
ranging from immediately to 25% at the end of the first year and monthly
thereafter up to a maximum of four years. Upon a change of control of the
Company, as defined in the Plan, 75% of unvested options become immediately
exercisable. Certain options' vesting can also accelerate based on the
achievement of specified performance criteria.
A summary of the option activity follows (amounts include 1,235,224 options
granted outside of the Plan, all of which were outstanding as of December 31,
1998):
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Balance at April 16, 1996......................................... -- $ --
Granted......................................................... 440,000 0.03
Exercised....................................................... -- --
Canceled........................................................ -- --
---------- -----
Balance at December 31, 1996...................................... 440,000 0.03
Granted......................................................... 632,982 0.05
Exercised....................................................... -- --
Canceled........................................................ (95,000) 0.03
---------- -----
Balance at December 31, 1997...................................... 977,982 0.05
Granted......................................................... 1,957,225 9.35
Exercised....................................................... -- --
Canceled........................................................ (136,832) 4.05
---------- -----
Balance at December 31, 1998...................................... 2,798,375 $ 6.20
---------- -----
---------- -----
</TABLE>
As of December 31, 1998, there were 436,849 options available for future
grant under the Plan.
F-25
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about options outstanding and
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------- OPTIONS
WEIGHTED EXERCISABLE
AVERAGE -----------
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
NUMBER OF LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICE SHARES (IN YEARS) PRICE OF SHARES PRICE
- -------------------------------- ---------- ----------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.03--$0.03................... 1,013,890 8.3 $ 0.03 721,547 $ 0.03
$ 0.90--$3.33................... 518,548 9.3 2.88 134,118 2.99
$ 6.30--$10.80.................. 315,986 9.6 8.29 62,069 8.58
$12.00--$14.00.................. 949,951 9.9 13.91 15,962 12.86
---------- -----------
2,798,375 9.2 933,696
---------- -----------
---------- -----------
</TABLE>
DEFERRED COMPENSATION
The Company has recorded deferred compensation charges of $0, $551,000 and
$2,017,000, for the period April 16, 1996 (inception) through December 31, 1996,
and for the years ended December 31, 1997 and 1998, respectively, for the
difference between the exercise price and the deemed fair value of certain stock
options granted by the Company. These amounts are being amortized by charges to
operations, using the accelerated method, over the vesting periods of the
individual stock options, which range from three months to four years.
From December 1996 through June 1998, certain options were granted to
various employees which provided vesting only upon certain events, such as the
Company's successful completion of an initial public offering or individual and
Company performance goals. In June 1998 these options were modified to vest upon
the earlier of an event or two years from the date of grant. As a result, the
related compensation charge was determined in June 1998.
OPTIONS ISSUED TO CONSULTANTS
The Company granted options to purchase 94,883 shares of common stock to
consultants at exercise prices ranging from $0.03 to $14.00 per share during the
period from January 1, 1997 through December 31, 1998. These options were
granted in exchange for consulting services performed. The Company valued these
options using the estimated fair value of the services performed which amounted
to $0, $20,000 and $246,000, for the period from April 16, 1996 (inception)
through December 31, 1996, and for the years ended December 31, 1997 and 1998,
respectively. These amounts are being amortized by charges to operations over
the respective consulting periods. The amounts charged to operations were $0,
$17,000 and $238,000, for the period from April 16, 1996 (inception) through
December 31, 1996, and for the years ended December 31, 1997 and 1998,
respectively.
F-26
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan was adopted by the Board of
Directors in October 1998. The Company has reserved a total of 300,000 shares of
common stock for issuance under the plan. Eligible employees may designate up to
100% of their compensation subject to certain limitations as described in the
Plan, to be deducted each pay period for the purchase of common stock at 85% of
the lesser of the fair market value of the Company's common stock on the first
day of the applicable purchasing period or the last day of the applicable
accrual period. As of December 31, 1998, no shares were issued or committed to
under this plan.
SHARES RESERVED FOR FUTURE ISSUANCE
As of December 31, 1998, shares of common stock reserved for future issuance
were as follows:
<TABLE>
<S> <C>
1998 Stock Incentive Plan and options issued outside the Plan.... 3,235,224
1998 Employee Stock Purchase Plan................................ 300,000
Warrants......................................................... 183,333
---------
Total shares authorized for issuance....................... 3,718,557
---------
---------
</TABLE>
PRO FORMA DISCLOSURE OF THE EFFECT OF STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Pro forma information regarding net income (loss) and net income
(loss) per share is required by FAS 123. This information is required to be
determined as if the Company has accounted for its employee stock options under
the fair value method of FAS 123. Under this method, the estimated fair value of
the options is amortized to expense over the options' vesting period. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 16, 1996 YEAR ENDED
(INCEPTION) DECEMBER 31,
THROUGH --------------------
DECEMBER 31, 1996 1997 1998
------------------ --------- ---------
<S> <C> <C> <C>
Risk-free interest rate.............................. 6.5% 6.5% 4.52%
Expected life of the option in years................. 5 5 5
Expected volatility.................................. 0 0 0.7
Expected dividend yield.............................. 0% 0% 0%
</TABLE>
Because FAS 123 is applicable only to options granted since inception, its
adjusted effect will not be fully reflected until the year 2000.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because
F-27
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The weighted-average fair value of options granted to employees during the
period from April 16, 1996 (inception) through December 31, 1996, and during the
years ended December 31, 1997 and 1998, were $.02, $0.36 and $8.01,
respectively.
The effect of applying the FAS 123 fair value method to the Company's
stock-based awards results in net loss and net loss per share as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE PERIOD YEAR ENDED
APRIL 16, 1996 DECEMBER 31,
(INCEPTION) THROUGH ---------------------
IN THOUSANDS, EXCEPT PER SHARE DATA DECEMBER 31, 1996 1997 1998
- --------------------------------------------------- ------------------- --------- ----------
<S> <C> <C> <C>
Net loss, as reported.............................. $ (440) $ (3,132) $ (10,798)
Net loss, pro forma................................ (442) (3,231) (11,367)
Net loss per share--basic and diluted, as
reported......................................... (0.89) (0.64) (1.37)
Net loss per share--basic and diluted, pro forma... (0.91) (0.66) (1.44)
</TABLE>
11. RETIREMENT PLAN
On March 26, 1998, the Company established a 401(k) Profit Sharing Plan (the
"Plan") available to all employees who meet the Plan's eligibility requirements.
Employees may elect to contribute from 1% to 25% of their eligible earnings to
the Plan subject to certain limitations. This defined contribution plan provides
that the Company may, at its discretion, make contributions to the Plan on a
periodic basis. The Company has not made contributions to the Plan.
12. SUBSEQUENT EVENTS (UNAUDITED)
On April 1, 1999, the Company acquired 100% of the outstanding shares of a
company which operates a global directory of small businesses. The purchase
consideration consisted of 21,894 shares of the Company's common stock with an
estimated fair value of $77.23 per share. The Company will account for this
acquisition as a purchase.
On April 9, 1999, the Company completed a Secondary Public Offering of its
common stock of 4,600,000 shares (including 600,000 shares issued in connection
with the exercise of the underwriter over-allotment option) at a price of $66.00
per share. Of the 4,600,000 shares of common stock sold in the Offering,
2,659,800 were sold by the Company and 1,940,200 shares were sold by existing
stockholders. The Company received net proceeds from the offering of
approximately $167 million.
On May 3, 1999, the Company acquired 100% of the outstanding shares of
MightyMail Networks, Inc., a developer of an enhanced e-mail product which
enables customization of e-mail according to user preferences. The purchase
consideration consisted of 268,761 shares of the Company's common stock with an
estimated fair value of $72.10 per share. In addition, 67,186 shares of the
Company's common
F-28
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
12. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
stock will be placed into an escrow account. Of the shares held in escrow, 25%
will be released in November 1999 and 25% in May 2000, upon the completion of
certain performance objectives, and 50% will be released in May 2000, upon the
expiration of certain indemnification obligations. The Company will account for
this acquisition as a purchase.
On May 5, 1999, the Company acquired 100% of the outstanding shares of Net
Floppy, Inc., a provider of online file storage for web users. The purchase
consideration consisted of 7,528 shares of the Company's common stock with an
estimated fair value of $72.10 per share and $560,000 in cash. In addition,
7,526 shares of the Company's common stock will be placed into an escrow
account. Of the shares held in escrow, 50% will be released upon completion of
certain performance objectives in November 1999 and 50% will be released in May
2000, upon the expiration of certain indemnification obligations. The Company
will account for this acquisition as a purchase.
On May 9, 1999, the Company, SNAP! LLC, NBC, Inc., and certain of its
affiliates (collectively, NBC), and CNET, Inc. entered into a series of
definitive agreements (the Agreements) relating to the formation of a new
company to be named NBC Internet, Inc. (NBCi) upon consummation of all the
transactions contemplated by the Agreements. NBCi is expected to include the
businesses of the Company, SNAP! LLC, and certain of NBC's Internet assets
(including NBC.com, Videoseeker.com and NBC Interactive Neighborhood) and a 10%
interest in CNBC.com. On June 11, 1999, as announced on June 14, 1999, Xoom.com
and NBC entered into a stock purchase agreement. Under the agreement NBC agreed
to acquire 960,028 shares of Xoom.com's common stock for $55 million. NBC also
agreed to vote all of such shares in favor of the adoption of the Merger
Agreement and in favor of Xoom.com's adoption of the Contribution Agreement. The
closing of the stock purchase agreement is independent of the closing of the
Contribution Agreement.
On June 16, 1999, Xoom.com acquired 100% of the outstanding shares of
Paralogic Software Corporation, a provider of Java based community products and
services, such as customizable chat rooms, discussion boards, guestbooks, and
event calendars. The purchase consideration consisted of 748,816 shares of
Xoom.com common stock with an estimated fair value of $47.13 per share. Xoom.com
will account for this acquisition as a purchase.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Managers
Snap! LLC:
We have audited the accompanying balance sheets of Snap! LLC as of December
31, 1997 and 1998, and the related statements of operations, members' deficit,
and cash flows for each of the years in the two-year period ended December 31,
1998. These financial statements are the responsibility of Snap! LLC's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Snap! LLC as of December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
June 18, 1999, except as to Note 11(c) which is as of June 25, 1999
F-30
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ -- 865 587
Accounts receivable, net of allowance for doubtful accounts of $0 at
December 31 1997, $469 at December 31, 1998, and $683 at March 31,
1999..................................................................... 367 3,015 3,166
Due from CNET.............................................................. -- 655 --
Prepaid expenses and other current assets.................................. -- 1,778 805
---------- ---------- -----------
Total current assets..................................................... 367 6,313 4,558
Property and equipment, net.................................................. 1,127 4,674 6,313
Investments.................................................................. -- 605 2,031
Deposits and other assets.................................................... 36 42 40
---------- ---------- -----------
Total assets............................................................. $ 1,530 11,634 12,942
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................... $ 312 2,721 4,175
Accrued and other liabilities.............................................. 216 2,846 3,313
Deferred revenue........................................................... 400 553 915
Due to CNET................................................................ -- -- 833
Due to NBC................................................................. -- -- 1,192
---------- ---------- -----------
Total current liabilities................................................ 928 6,120 10,428
Line of credit............................................................... -- 13,500 20,500
---------- ---------- -----------
Total liabilities........................................................ 928 19,620 30,928
---------- ---------- -----------
Commitments
Members' equity:
Members' equity............................................................ 16,170 48,972 65,918
Deferred compensation...................................................... -- (2,102) (4,873)
Accumulated deficit........................................................ (15,568) (54,856) (79,031)
---------- ---------- -----------
Total members' equity (deficit).......................................... 602 (7,986) (17,986)
---------- ---------- -----------
Total liabilities and members' equity (deficit).......................... $ 1,530 11,634 12,942
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- ------------------------
1997 1998 1998 1999
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net revenues..................................................... $ 817 7,317 861 5,361
Cost of net revenues............................................. 1,520 7,626 1,624 2,701
---------- --------- ----------- -----------
Gross profit (deficit)....................................... (703) (309) (763) 2,660
Operating expenses:
Product development............................................ 9,403 6,263 1,184 2,195
Sales and marketing............................................ 4,090 12,482 1,332 7,497
General and administrative..................................... 1,372 5,939 670 2,705
Amortization of deferred compensation.......................... -- 160 -- 519
Promotion and advertising provided by NBC...................... -- 14,060 -- 13,656
---------- --------- ----------- -----------
Total operating expenses..................................... 14,865 38,904 3,186 26,572
---------- --------- ----------- -----------
Operating loss............................................... (15,568) (39,213) (3,949) (23,912)
Other expense, net............................................... -- (75) -- (263)
---------- --------- ----------- -----------
Net loss..................................................... $ (15,568) (39,288) (3,949) (24,175)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Basic and diluted net loss per unit.............................. $ (1.33) (2.95) (0.34) (1.67)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Units used in per unit calculation............................... 11,700 13,301 11,700 14,444
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
MEMBER UNITS DEFERRED MEMBERS'
-------------------- COMPENSATION ACCUMULATED EQUITY
UNITS AMOUNT EXPENSE DEFICIT (DEFICIT)
--------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contributed capital from CNET, Inc.............. 11,700 $ 16,170 -- -- 16,170
Net loss........................................ -- -- -- (15,568) (15,568)
--------- --------- ------ ------------ -------------
Balances as of December 31, 1997................ 11,700 $ 16,170 -- (15,568) 602
Contributed capital from CNET, Inc.............. -- 10,616 -- -- 10,616
Cash contribution from NBC...................... 2,744 5,864 -- -- 5,864
Promotion and advertising provided by NBC....... -- 14,060 -- -- 14,060
Grant of compensatory stock options............. -- 2,262 (2,262) -- --
Amortization of deferred compensation........... -- -- 160 -- 160
Net loss........................................ -- -- -- (39,288) (39,288)
--------- --------- ------ ------------ -------------
Balances as of December 31, 1998................ 14,444 $ 48,972 (2,102) (54,856) (7,986)
Promotion and advertising provided by NBC
(unaudited)................................... -- 13,656 -- -- 13,656
Grant of compensatory stock options
(unaudited)................................... -- 3,290 (3,290) -- --
Amortization of deferred compensation
(unaudited)................................... -- -- 519 -- 519
Net loss (unaudited)............................ -- -- -- (24,175) (24,175)
--------- --------- ------ ------------ -------------
Balances as of March 31, 1999 (unaudited)....... 14,444 $ 65,918 (4,873) (79,031) (17,986)
--------- --------- ------ ------------ -------------
--------- --------- ------ ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- ------------------------
1997 1998 1998 1999
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss....................................................... $ (15,568) (39,288) (3,949) (24,175)
Adjustments to reconcile net loss to net cash used in operating
activities:
Receipt of stock in exchange for services provided........... -- (605) -- (1,426)
Depreciation and amortization................................ 329 929 99 750
Amortization of deferred compensation expense................ -- 160 -- 519
Promotion and advertising provided by NBC.................... -- 14,060 -- 13,656
Changes in operating assets and liabilities:
Accounts receivable........................................ (367) (2,648) (148) (151)
Receivable from CNET....................................... -- (655) -- 655
Prepaid expenses, deposits and other assets................ (36) (1,784) (31) 973
Accounts payable........................................... 312 2,409 (151) 1,454
Accrued and other liabilities.............................. 216 2,630 152 467
Deferred revenue........................................... 400 153 (200) 362
Due to CNET................................................ -- -- -- 833
Due to NBC................................................. -- -- -- 1,192
---------- --------- ----------- -----------
Net cash used in operating activities.................... (14,714) (24,639) (4,228) (4,891)
---------- --------- ----------- -----------
Cash flows used in investing activities--purchases of fixed
assets......................................................... (1,456) (4,476) (255) (2,387)
---------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from line of credit................................... -- 13,500 -- 7,000
Capital contribution........................................... 16,170 10,616 4,483 --
Cash contribution from NBC..................................... -- 5,864 -- --
---------- --------- ----------- -----------
Net cash provided by financing activities................ 16,170 29,980 4,483 7,000
---------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents............. -- 865 -- (278)
Cash and cash equivalents at beginning of the period............. -- -- -- 865
---------- --------- ----------- -----------
Cash and cash equivalents at end of the period................... $ -- 865 -- 587
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Supplemental non-cash transactions:
Cash paid for interest......................................... $ -- 13 -- --
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Supplemental non-cash investing and financing activities:
Promotion and advertising provided by NBC...................... $ -- 14,060 -- 13,656
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Grant of compensatory stock options............................ $ -- 2,262 -- 3,290
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
(A) THE COMPANY
Snap! LLC (Snap or the Company) commenced operations in December 1996 (the
Company had no significant operating results during 1996) and was introduced as
a service in September 1997. Snap is an Internet portal service company that
offers a branded network of comprehensive information, media, ecommerce,
communication, and navigation services to millions of users daily.
The Company was incorporated on June 25, 1998 as a Delaware limited
liability company (LLC). Prior to that date, the Company was operated as a
wholly-owned and consolidated operation of CNET, Inc. (CNET). The accompanying
financial statements retroactively reflect the incorporation of the Company as
an LLC to the date of the inception of the Company's operations. On or about
June 30, 1998, as part of a Contribution Agreement entered into between CNET and
NBC, Inc. (NBC) (collectively, the Members), CNET contributed its assets and
liabilities used exclusively in the operation of the Snap service to the LLC for
an approximately 81% ownership interest, while NBC contributed approximately
$5.9 million in cash to the LLC for an approximately 19% ownership interest (see
Note 7). CNET's and NBC's contributions were recorded at their respective
historical carrying amounts.
The accompanying financial statements and related notes also reflect the
historical results of operations and cash flows of Snap while it was operated by
CNET. The statement of operations includes all revenues and costs directly
attributable to Snap, including costs for facilities, functions and services
used by the business and allocations of costs for certain administrative
functions and services performed by centralized departments of CNET. Costs have
been allocated to the Snap operation based on CNET management's estimate of
costs attributable to the Snap operation. Such costs are not necessarily
indicative of the costs that would have been incurred if Snap had been a
separate entity.
(B) LIQUIDITY
The Company has sustained losses and negative cash flows from operations
since inception and expects these conditions to continue into the foreseeable
future. As of March 31, 1999, the Company had accumulated losses from inception
of approximately $79 million. The implementation of the Company's business plan
is dependent upon obtaining additional equity or debt financing through public
or private financing, strategic partnerships or other arrangements. There can be
no assurance that such additional financing will be available on terms
attractive to the Company, or at all. Should additional external financing not
be available, management would curtail the Company's current growth plans to
enable the Company to continue operations through 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of banner
advertisements and sponsorships. Advertising revenues are recognized in the
period which the advertisement is displayed, provided that no significant
obligations remain at the end of the period. Company obligations typically
include the
F-35
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
guarantee of a minimum number of "impressions" or times that an advertisement
appears in pages viewed by users of the Company's online properties. To the
extent the minimum guaranteed impressions are not delivered, the Company defers
recognition of the corresponding revenue until the remaining guaranteed
impression levels are achieved.
The Company also earns revenue on sponsorship contracts from fees relating
to the design, coordination, and integration of customers' content and links
into Snap's online media properties. Such developmental fees are recognized as
revenue once the related activities have been performed and the customers' Web
links are available on Snap's online properties. Snap also derives revenues from
development fees and electronic commerce which to date have each comprised less
than 10% of revenues.
Deferred revenue is primarily comprised of billings in excess of recognized
revenue relating to advertising contracts and payments received pursuant to
sponsorship agreements in advance of revenue recognition.
(B) PRODUCT DEVELOPMENT
Development expenses include expenses which were incurred in the development
of new or improved technologies that enhance the performance of the Company's
Internet service. Costs for development are expensed as incurred. Costs related
to specific products or services are no longer recognized as development
expenses when the specific product or service is launched and incorporated into
the Company's internet service.
(C) ADVERTISING COSTS
All advertising costs are expensed when incurred. Advertising expense,
including the value of advertising provided through barter transactions, totaled
approximately $1,007,000, $18,559,000, $410,000 and $15,463,000 for the years
ended December 31, 1997 and 1998, and the three months ended March 31, 1998 and
1999, respectively. These costs include the value of promotion and advertising
provided by NBC (see Note 7).
(D) CONCENTRATIONS OF CUSTOMERS AND CREDIT RISK
One customer comprised 8% and 27% of net revenues for the year ended
December 31, 1998 and the quarter ended March 31, 1999, respectively, in
conjunction with non-monetary transactions in which the Company received equity
in a private company as consideration for services sold by the Company. One
separate customer accounted for 18% of net revenues for the year ended December
31, 1997. During the years ended December 31, 1997 and 1998, and the three
months ended March 31, 1998 and 1999 no other
customer accounted for greater than 10% of revenues and no other revenues were
recorded on non-monetary transactions in which the Company received equity
investments as consideration for services.
Financial instruments which potentially expose the Company to a
concentration of credit risk consists primarily of trade accounts receivable.
Accounts receivable are typically unsecured and are derived from
F-36
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenues earned from customers primarily in the United States. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses. At December 31, 1998 and March 31, 1999, no one
customer accounted for more than 10% of the accounts receivable balance.
(E) CASH, CASH EQUIVALENTS, AND INVESTMENTS
The Company considers investments in highly liquid instruments purchased
with remaining maturities of 90 days or less to be cash equivalents. Cash
equivalents are recorded at cost which approximates fair value. The Company
maintains its cash in two depository accounts with high credit quality financial
institutions.
Equity investments in private companies are recorded initially at fair value
when the Company's rights of ownership vest, and subsequently are carried at the
lower of cost or net realizable value.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally three to seven years. Property
and equipment recorded under leasehold improvements are amortized on a
straight-line basis over the shorter of the lease terms or their estimated
useful lives.
(G) INCOME TAXES
Prior to June 25, 1998 the Company's taxable losses were included in the
consolidated tax returns of CNET, Inc. The Company did not receive any benefit
from CNET Inc.'s receipt of such operating losses or research and development
credits.
Upon the incorporation as a Delaware limited liability company on June 26,
1998, the Company's net operating losses inured to the benefit of the Members.
Accordingly, no provision for income taxes is recognized in the accompanying
financial statements as the net loss generated from the Company's operations was
"passed through" to the Members.
(H) SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standard (SFAS) No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, governs
accounting for software development costs. This statement provides for
capitalization of certain software development costs once technological
feasibility has been established. The costs capitalized are then amortized on a
straight-line basis over the estimated product life, or on the ratio of current
revenue to total projected product revenues, whichever is greater. No such costs
have been capitalized to date.
F-37
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plans using
the intrinsic value method. As such, compensation expense is recorded on the
date of grant if the current market price of the underlying membership unit
exceeded the exercise price.
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Actual results could differ from those estimates.
(K) COMPREHENSIVE LOSS
The Company has no significant comprehensive income or loss items and,
accordingly, the Company's comprehensive loss is the same as net loss for all
periods.
(L) BARTER TRANSACTIONS
The Company trades advertisements on its online properties in exchange for
advertisements on the online properties of other companies. These revenues and
marketing expenses are recorded at the fair value of services provided or the
fair value of the services received, whichever is more reliably determinable in
the circumstances. Revenue from barter transactions is recognized as income when
advertisements are delivered on the Company's online properties. Expense from
barter transactions is recognized when advertisements are provided to the
Company. Barter revenues and expenses were approximately $342,000, $636,000,
$331,000 and $305,000 for the years ended December 31, 1997 and 1998 and for the
three months ended March 31, 1998 and 1999, respectively.
(M) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts
receivable, equity investments, accounts payable and long-term debt approximate
their respective fair values.
(N) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured as
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
F-38
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(O) RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company must adopt SFAS No. 133 by January
1, 2000. Management does not believe the adoption of SFAS No. 133 will have a
material effect on the financial position or operations of the Company.
(P) NET LOSS PER UNIT
Basic and diluted loss per unit is computed using the weighted average
number of outstanding units at the end of each period. The following potentially
dilutive units have been excluded from the determination of net loss per unit
for all periods because the effect of such units would have been anti-dilutive:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Units issuable under unit option plan............................ 986,662 1,145,413
Units issuable under option to NBC (see Note 7).................. 14,805,556 14,805,556
------------ ------------
15,792,218 15,950,969
------------ ------------
------------ ------------
</TABLE>
As of December 31, 1998 and March 31, 1999, the weighted average exercise
price of unit options was $2.47 and $2.58, respectively.
(Q) INTERIM FINANCIAL DATA
The accompanying financial statements as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999, are unaudited. In the opinion of
management, these interim statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the results
of the interim periods. The financial data disclosed in these notes to the
financial statements for these periods are also unaudited. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for any future periods.
F-39
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Furniture, fixtures, leasehold improvements and equipment....... $ 102 1,763 1,915
Purchased software.............................................. 159 242 345
Computer equipment.............................................. 1,195 3,927 6,059
--------- --------- -----
1,456 5,932 8,319
Less accumulated depreciation and amortization.................. 329 1,258 2,006
--------- --------- -----
$ 1,127 4,674 6,313
--------- --------- -----
--------- --------- -----
</TABLE>
(4) CREDIT FACILITIES
As of December 31, 1998, the Company has a revolving line of credit for
$27,000,000 which is secured by substantially all of the Company's assets,
guaranteed by General Electric, parent company of the Company's principal
shareholders, and bears interest at various rates which ranged from 5.40% to
6.86% during the year ended December 31, 1998. Extensions of credit are
available until June 15, 2001. Advances made under the facility shall mature no
later than July 15, 2001. At December 31, 1998, $13,500,000 was outstanding and
$10,170,000 was available under the line of credit. The outstanding balance is
comprised of multiple individual borrowings, which are due between April 6, 1999
and June 28, 1999. The borrowings are classified as long-term on the face of the
balance sheet because the Company has the ability and intent to extend the due
dates beyond December 31, 1999.
At March 31, 1999, $20,500,000 was outstanding and $3,170,000 was available
under the line of credit. The outstanding balance is comprised of multiple
individual borrowings, due between April 6, 1999 and September 22, 1999, and
bear interest at various rates ranging from 5.22% to 8.25%.
In both periods, a total of $3,330,000 of the line of credit was reserved in
accordance with the requirements of the Company's facilities lease.
(5) COMMITMENTS
The Company is obligated under a noncancelable operating lease for office
space, expiring in 2008. Rent expense was $200,000, $1,896,000, $250,000, and
$731,000 for the years ended December 31, 1997 and 1998, and for the three
months ended March 31, 1998 and 1999, respectively. The Company subleases
portions of its facilities under noncancelable operating sublease agreements
which expire over the next three years. Rental income from these subleases was
$0, $360,000, $0, and $197,000 for the years ended December 31, 1997 and 1998,
and for the three months ended March 31, 1998 and 1999, respectively. The
Company has no capital lease obligations.
F-40
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(5) COMMITMENTS (CONTINUED)
As of December 31, 1998, future minimum lease payments for the Company's
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- -----------------------------------------------------------------------------------
<S> <C>
1999............................................................................. $ 2,540
2000............................................................................. 2,540
2001............................................................................. 2,540
2002............................................................................. 2,540
2003............................................................................. 2,926
Thereafter....................................................................... 11,503
---------
$ 24,589
---------
---------
</TABLE>
The minimum operating lease payments have not been reduced by any future
minimum sublease rentals totalling $1,614,000 due under noncancelable subleases
over the next three years.
(6) OPTION PLAN
A summary of the Company's option activity and related information through
March 31, 1999 follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
UNITS PRICES
---------- -----------
<S> <C> <C>
Options outstanding--December 31, 1997................................. -- $ --
Granted................................................................ 1,012,572 7.79
Canceled............................................................... (25,910) 7.79
----------
Options outstanding, December 31, 1998................................. 986,662 7.79
Granted (unaudited).................................................... 173,574 12.38
---------- -----
Canceled (unaudited)................................................... (14,823) 7.79
---------- -----
Options outstanding, March 31, 1999 (unaudited)........................ 1,145,413 8.49
---------- -----
----------
Options exercisable, December 31, 1998 and March 31, 1999
(unaudited).......................................................... 27,673 7.79
---------- -----
----------
</TABLE>
The following summarizes information about options outstanding as of March
31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE NUMBER OF REMAINING CONTRACTUAL
PRICE UNITS LIFE (YRS.)
- ----------- ---------- -----------------------
<S> <C> <C> <C>
$ 7.79 1,111,461 9.42
$ 31.25 33,952 9.95
----------
1,145,413 9.44
----------
----------
</TABLE>
F-41
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(6) OPTION PLAN (CONTINUED)
As of December 31, 1998 and March 31, 1999, options available for grant
under the Company's option plan totaled 618,276 and 459,525, respectively.
For the year ended December 31, 1998 and the three months ended March 31,
1999, the Company recorded $2,262,000 and $3,290,000, respectively, of deferred
compensation charges representing the difference between the deemed fair value
of the membership unit on the date of grant and the option exercise price on the
date of grant. Deferred compensation will be amortized over the four-year
vesting period of the options using an accelerated method. During the year ended
December 31, 1998 and the three months ended March 31, 1999, $160,000 and
$519,000 of amortization of deferred compensation was recognized as expense.
If compensation cost for the Company's option plan had been determined based
on the fair value at the grant date for awards issued in the year ending
December 31, 1998, consistent with the provisions of SFAS No. 123 ACCOUNTING FOR
STOCK-BASED COMPENSATION, then the Company's net loss would have been increased
to the pro forma amounts indicated below (in thousands):
<TABLE>
<S> <C>
Net loss--as reported............................................. $ 39,288
Net loss--pro forma............................................... $ 39,646
</TABLE>
The weighted average fair value at date of grant for options granted for the
year ending December 31, 1998 was $3.88. The fair value of each option grant was
estimated on the date of grant using the minimum value option pricing model with
the following assumptions:
<TABLE>
<S> <C>
Risk free interest rate............................................ 6%
Weighted-average expected life of the options...................... 4 years
Dividend rate...................................................... --
</TABLE>
(7) RELATED PARTY TRANSACTIONS
Prior to June 30, 1998, all of the expenditures of the Company were incurred
by CNET and charged to the Company. These expenditures included allocations for
accounting, legal, network operations, facilities, certain product development
efforts, and other general expenses. Such allocations were generally allocated
to the Company based on headcount, estimates on the percentage usage by the
Company, or estimates of
F-42
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
the time spent by CNET employees on the business of the company. The following
table summarizes direct and indirect expenses of the Company prior to June 30,
1998 (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
1997 TO JUNE 30, 1998
--------- -----------------
<S> <C> <C>
COST OF NET REVENUES
Direct expenses paid by CNET on behalf of the Company.............. $ 1,055 3,066
Expenses allocated by CNET to the Company.......................... 465 868
--------- -----
1,520 3,934
--------- -----
--------- -----
PRODUCT DEVELOPMENT
Direct expenses paid by CNET on behalf of the Company.............. $ 8,471 884
Expenses allocated by CNET to the Company.......................... 932 1,418
--------- -----
9,403 2,302
--------- -----
--------- -----
SALES AND MARKETING
Direct expenses paid by CNET on behalf of the Company.............. $ 1,806 1,862
Expenses allocated by CNET to the Company.......................... 2,284 1,507
--------- -----
4,090 3,369
--------- -----
--------- -----
GENERAL AND ADMINISTRATIVE
Direct expenses paid by CNET on behalf of the Company.............. $ 73 133
Expenses allocated by CNET to the Company.......................... 1,299 1,274
--------- -----
1,372 1,407
--------- -----
--------- -----
</TABLE>
Such allocations are not necessarily indicative of the costs that would have
been incurred if the Company had been a separate entity. However, management
believes the differences between the allocated costs and the cost to obtain such
services from an outside third party would not be significant.
Following June 30, 1998, the Company began direct procurement and payment of
all of its expenses, with the exception of certain services it contracted with
CNET to provide or maintain. Such services include creative services, human
resources, accounting, facilities, technology support, bandwidth and hosting
support, and sales and marketing, and the Company recorded expenses totaling
$3.7 million and $1.6 million for the year ended December 31, 1998 and for the
three months ended March 31, 1999, respectively, for amounts due to CNET for
such services.
NBC has provided certain promotional and other services to the Company since
its investment date. NBC has provided advertising and promotion services to the
Company which have been recorded as capital contributions at the time the
services were provided based on the average CPM value for commercial air time
during the period the services were provided. The Company has recorded
advertising and promotion expenses of approximately $14.1 million and $13.7
million for the year ended December 31, 1998 and the three months ended March
31, 1999, respectively, at the average CPM value for commercial air time during
the period the services were provided. NBC is not committed to provide such
services to
F-43
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
the Company. NBC has provided other services to the Company related to
advertising production and legal support and the Company has recorded expenses
totaling $0.2 million and $1.2 million for the year ended December 31, 1998 and
for the three months ended March 31, 1999, respectively, for amounts due to NBC
for such services.
During the years ended December 31, 1997 and 1998 and the three months ended
March 31, 1998 and 1999, the Company has recorded no significant revenues from
CNET, General Electric, NBC or any of their affiliates.
The Company's credit facility is guaranteed by General Electric, parent
company of NBC (see Notes 4 and 11).
As defined in the Contribution Agreement, NBC has an option to purchase
14,805,556 membership units for an aggregate price of $31,365,802. The option
expires in June, 2001.
(8) DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan pursuant to Section 401(k) of
the Internal Revenue Code covering all eligible employees. Under the plan,
participating employees may defer a portion of their pretax earnings up to the
Internal Revenue Service annual contribution limit. For the year ended December
31, 1998, the Company did not contribute to the plan.
(9) SEGMENT INFORMATION
The Company has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas and major customers.
The method for determining what information to report is based on the way that
management organizes the operating segments within the Company for making
operating decisions and assessing financial performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer ("CEO"). The CEO reviews financial information
accompanied by disaggregated information about revenue and cost of revenue by
operating segment for purposes of making operating decisions and assessing
financial performance. The information reviewed by the CEO is identical to the
information presented in the accompanying financial statement of operations. The
Company operates in one segment, Internet operations. The Company has had no
international revenues to date.
(10) LEGAL PROCEEDINGS
The Company is presently litigating a dispute with SNAP Technologies, Inc.,
which claims to own the SNAP trademark. SNAP Technologies filed a lawsuit
against CNET on November 19, 1998, alleging trademark infringement and related
statutory violations, to which the Company filed an answer on November 24, 1998.
The Company believes that the claims asserted by SNAP Technologies are without
merit, intends to defend against them vigorously, and believes that the ultimate
resolution of this matter will not have a material adverse effect on its
financial position or results of operations.
F-44
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(10) LEGAL PROCEEDINGS (CONTINUED)
In March 1999 the Company filed a complaint against CityAuction, Inc. in
connection with an agreement entered into between the Company and CityAuction to
promote CityAuction's online auction site in exchange for monetary compensation
and warants to purchase shares of CityAuction. The Company is claiming that
CityAuction breached the agreement by refusing to honor the Company's exercise
in February 1999 of its CityAuction warrants, failing to make a $125,000 payment
due to the Company and failing to provide the Company with notice of
CityAuction's pending acquisition by Ticketmaster Online-CitySearch, Inc. The
Company is also claiming that Ticketmaster induced CityAuction to breach it
contractual obligations to the Company. This matter is in the discovery stage.
An unfavorable outcome in this litigation would deny the Company the economic
benefit of the claimed payments and stock ownership of CityAuction. No amounts
contingent upon a favorable outcome in this litigation have been recorded in the
Company's financial statements.
(11) SUBSEQUENT EVENTS
(A) GLOBAL BRAIN INVESTMENT
In April 1999, the Company entered into a series of agreements with
GlobalBrain.net, Inc. (GlobalBrain). In aggregate, the Company provided
GlobalBrain with $2 million in cash and 75,000 membership units in exchange for
(i) a seven-year (with an option to extend an additional five years) exclusive
right to utilize certain GlobalBrain technology (the Technology) within a portal
service, (ii) non-exclusive rights to utilize the Technology in other Snap
products and to sublicense the Technology, (iii) a commitment from GlobalBrain
to provide a minimum of five dedicated GlobalBrain engineers working full time
under the discretion of Snap on custom research and development work for three
years, (iv) a 10% ownership interest in GlobalBrain, and (v) warrants to
purchase an additional 41% of GlobalBrain in three separate tranches over a five
year period. The Company expects to account for this transaction as the
acquisition of certain tangible and intangible assets, which will include
allocations of the consideration surrendered by the Company to the following:
purchased technology, prepaid development fees, and an equity investment in a
private company.
(B) XOOM/NBC/SNAP MERGER
On May 9, 1999, the Company, Xoom.com, Inc., NBC, Inc. and certain of its
affiliates (collectively, NBC), and CNET, Inc. entered into a series of
definitive agreements, (the Agreements) relating to the formation of a new
company to be named NBC Internet, Inc. (NBCi) upon consummation of all the
transactions contemplated by the Agreements. NBCi is expected to include the
businesses of the Company, Xoom.com, Inc., and certain of NBC's Internet assets
(including NBC.com, Videoseeker.com and NBC Interactive Neighborhood) and a 10%
interest in CNBC.com.
(C) EXTENSION OF CREDIT FACILITY
On June 25, 1999, the Company's revolving line of credit, guaranteed by
General Electric, was increased to $45,000,000 (see Note 4).
F-45
<PAGE>
NBC MULTIMEDIA DIVISION
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National Broadcasting Company, Inc.
We have audited the accompanying combined balance sheets of NBC Multimedia
Division as of December 31, 1997 and 1998, and the related combined statements
of operations and changes in parent company's investment and net advances and
cash flows for the years then ended. These combined financial statements are the
responsibility of NBC Multimedia Division's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of NBC Multimedia
Division as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
New York, New York
June 24, 1999
F-46
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Trade accounts receivable, less allowance for doubtful
accounts of $59,000 in 1997, $125,440 in 1998 and
$139,557 in 1999.................................... $1,348,082 2,274,240 1,759,177
Other receivables..................................... 56,848 11,852 37,794
--------- ---------- ----------
Total current assets................................ 1,404,930 2,286,092 1,796,971
Property and equipment, net of accumulated depreciation
of $243,501 in 1997, $339,570 in 1998, and $375,039 in
1999.................................................. 916,513 622,561 586,983
--------- ---------- ----------
Total assets........................................ $2,321,443 2,908,653 2,383,954
--------- ---------- ----------
--------- ---------- ----------
LIABILITIES AND PARENT COMPANY'S INVESTMENT
AND NET ADVANCES
Current liabilities:
Accounts payable...................................... $ 637,044 1,464,743 1,976,009
Accrued expenses and liabilities (note 2)............. 418,227 414,402 294,470
--------- ---------- ----------
Total current liabilities........................... 1,055,271 1,879,145 2,270,479
Deferred revenue (note 1(d))............................ 1,695,637 14,639,258 16,932,609
Parent Company's investment and net advances............ (429,465) (13,609,750) (16,819,134)
Commitments and contingencies (note 5)
--------- ---------- ----------
Total liabilities and Parent Company's investment
and net advances.................................. $2,321,443 2,908,653 2,383,954
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-47
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN
PARENT COMPANY'S INVESTMENT AND NET ADVANCES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
---------------------- ---------------------
1997 1998 1998 1999
---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue (note 1(d)):
Advertising, sponsorship, and license
fees.................................... $3,232,384 6,921,250 682,658 2,060,346
Other revenue............................. -- 4,693,300 1,133,295 1,421,587
---------- ---------- --------- ----------
Total revenue......................... 3,232,384 11,614,550 1,815,953 3,481,933
Cost of revenue............................. 4,398,846 5,248,928 1,019,736 1,364,905
---------- ---------- --------- ----------
Gross (loss) profit................... (1,166,462) 6,365,622 796,217 2,117,028
Operating expenses:
Operating and development................. 677,055 938,295 300,861 162,598
Sales and marketing....................... 2,355,519 3,988,810 744,514 323,291
General and administrative................ 3,540,408 4,488,756 967,162 792,850
---------- ---------- --------- ----------
Total operating expenses.............. 6,572,982 9,415,861 2,012,537 1,278,739
---------- ---------- --------- ----------
(Loss) income from operations......... (7,739,444) (3,050,239) (1,216,320) 838,289
---------- ---------- --------- ----------
Net (loss) income..................... (7,739,444) (3,050,239) (1,216,320) 838,289
Parent Company's investment and net
advances, beginning of period............. 428,008 (429,465) (429,465) (13,609,750)
Advances from (distributions to) Parent
Company, net.............................. 6,881,971 (10,130,046) (2,009,599) (4,047,673)
---------- ---------- --------- ----------
Parent Company's investment and net
advances, end of period................... $ (429,465) (13,609,750) (3,655,384) (16,819,134)
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-48
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------------
1997 1998 1998 1999
------------ ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income..................................................... $ (7,739,444) (3,050,239) (1,216,320) 838,289
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Provision for doubtful accounts..................................... 59,000 66,440 8,121 14,117
Depreciation and amortization....................................... 156,995 176,287 51,832 35,469
Loss on disposal of property and equipment.......................... 109,840 220,576 -- 109
Noncash revenue related to partner agreements (note 1(d))........... (33,305) (5,101,895) (965,782) (1,925,841)
Advertising provided by NBC......................................... -- 2,015,400 96,600 --
Changes in operating assets and liabilities:
Accounts receivable................................................... (1,335,482) (992,598) (132,376) 500,946
Other receivables..................................................... 541,604 44,996 35,601 (25,942)
Accounts payable...................................................... (465,351) 827,699 (151,099) 511,266
Accrued expenses and liabilities...................................... 247,054 (3,825) (192,614) (119,932)
Deferred revenue...................................................... 1,462,499 (67,085) (216,669) (342,866)
------------ ----------- ---------- ----------
Net cash used in operating activities............................. (6,996,590) (5,864,244) (2,682,706) (514,385)
------------ ----------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment................................... (151,823) (102,911) (1,491) --
------------ ----------- ---------- ----------
Cash flows from financing activities:
Advances received from parent, net.................................... 7,148,413 5,967,155 2,684,197 514,385
------------ ----------- ---------- ----------
Net change in cash and cash equivalents........................... -- -- -- --
Cash and cash equivalents at beginning of period........................ -- -- -- --
------------ ----------- ---------- ----------
Cash and cash equivalents at end of period.............................. -- -- -- --
------------ ----------- ---------- ----------
------------ ----------- ---------- ----------
Summary of noncash transactions:
Equity instruments received and transferred to parent (note 4)........ 266,442 18,112,601 4,790,396 4,562,058
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) SUMMARY OF OPERATIONS
The accompanying combined financial statements include the assets and
operations of NBC.com, NBC Interactive Neighborhood (NBC-IN) and VideoSeeker
(collectively, the Division), all of which are operating divisions of NBC
Multimedia, Inc., a wholly owned subsidiary of National Broadcasting Company,
Inc. (NBC), which is a wholly owned subsidiary of General Electric Company (GE).
NBC has agreed to merge the operations and certain defined net assets of the
NBC.com and NBC-IN divisions with Xoom.com, Inc. (Xoom), under an agreement
dated May 9, 1999 and amended on June 11, 1999, which also provides that NBC
will contribute its ownership interests in SNAP! LLC to the merged entity, NBC
Internet, Inc. (NBCi). Upon completion of these transactions, NBC will own
approximately 48.5% of the common stock of NBCi. In addition, NBC will purchase
from NBCi zero coupon convertible subordinated debentures due 2006 with an
aggregate principal amount at maturity of approximately $487 million in exchange
for the net assets of VideoSeeker and a note payable in the amount of $340
million.
The principal activities of the Division are as follows:
NBC.com, launched in August 1995, is the Internet venue for the NBC
television network offering content about NBC on-air programming, providing show
descriptions, episode updates, actor biographies, schedule information and
program trivia for NBC entertainment programming. NBC.com also maintains direct
links to NBC's news, finance and sports sources, MSNBC News, CNBC, and MSNBC
Sports, as well as links to local news and weather through NBC's local station
affiliates via NBC-IN.
NBC-IN, launched in October 1997, is a Web-based network of local news and
information sites developed with certain participating NBC owned and affiliated
television stations throughout the United States. Through NBC-IN.com, Internet
users can access local news, sports and weather as well as services such as job
search, local advertising for real estate and automobiles, restaurant reviews
and telephone directories.
VideoSeeker, launched in May 1998, is a full-service video aggregator,
licensing content from NBC's media properties as well as from third parties to
offer users free online access to topical and archival news video from MSNBC,
clips from NBC television programming, movie trailers, music video and
interviews.
The Division generates revenues primarily through advertising, sponsorship
and licensing agreements.
(B) BASIS OF PRESENTATION
The accompanying combined financial statements include certain corporate
general and administrative expenses incurred on a consolidated basis by NBC for
all periods presented that have been allocated to the Division. Such allocations
are included in general and administrative expenses in the Division's combined
statements of operations and changes in parent company's investment and net
advances. In management's opinion, the basis for the allocation of such costs is
reasonable and is based upon the ratio of the total direct operating costs
incurred by the Division to total NBC direct operating costs. However, the
expenses allocated to the Division, although made on a basis management believes
to be reasonable, may not necessarily be representative of what the Division
would have incurred on a stand-alone basis.
F-50
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allocated costs are as follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ --------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
------------ ---------- --------- ---------
NBC Corporate................................ $ 913,000 1,059,000 264,750 233,352
Rent......................................... 684,209 851,833 212,958 252,943
------------ ---------- --------- ---------
$ 1,597,209 1,910,833 477,708 486,295
------------ ---------- --------- ---------
------------ ---------- --------- ---------
</TABLE>
NBC corporate overhead expenses consist primarily of senior management
salaries and benefits, financial, legal, information technology, and other
administrative costs.
(C) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(D) REVENUE RECOGNITION
The Division derives revenue from the sale of banner advertisements under
short-term contracts. To date, the duration of the Division's advertising
commitments has generally averaged from one to six months. Advertising revenues
are recognized ratably in the period in which the advertisement is displayed,
provided that no significant Division obligations remain and collection of the
resulting receivable is probable. Division obligations typically include the
guarantee of a minimum number of "impressions" or times that an advertisement
appears in pages viewed by the users of the Division's websites. To the extent
minimum guaranteed impressions are not met, the Division defers recognition of
the corresponding revenue until the remaining guaranteed impression levels are
achieved.
The Division (primarily through NBC-IN) also derives revenues from license
fees from various service providers who pay a fee to furnish content, e-commerce
or services in a particular category of the Division's websites. These fees are
deferred and recognized ratably over the term of the related agreement, which is
generally two to three years.
The Division also earns revenue on sponsorship contracts for fees relating
to the design, coordination and integration of the customer's contents and links
to the Division's websites. These development fees are recognized as revenue
once the related activities have been performed. Revenues from electronic
commerce revenue sharing arrangements within the Division's websites are
recognized upon notification from its partners of sales attributable to the
Division's site, and were insignificant in all periods presented.
F-51
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Division receives equity instruments (common or preferred stock, options
and warrants) under certain agreements with service providers and under certain
outsourcing agreements. When the measurement date for such equity instruments is
fixed and there is a sufficient disincentive to breach the contract in
accordance with Emerging Issues Task Force Abstract No. 96-18, "Accounting for
Equity Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," the Division records the receipt
of the equity instruments and corresponding deferred revenue. When equity
instruments are contingent upon the achievement of certain targets, the Company
records the benefit of the equity instruments at the time the targets are
achieved at the then fair market value of the equity instrument. Such amounts
are amortized ratably to revenue over the length of the contract commencing on
the measurement date.
Such equity instruments are transferred to NBC and upon measurement are
charged to Parent company's investment and net advances. Changes in value
subsequent to the measurement date are not reflected in the Division's combined
financial statements.
Revenues recognized under agreements whereby the Division receives equity
instruments in the service provider's stock as described above, in consideration
for the advertising and customer acquisition opportunities, are recorded as
Advertising, sponsorship, and license fee revenue and aggregated $33,305,
$1,408,595, $82,487, and $754,254 in the years ended December 31, 1997, and
1998, and the three months ended March 31, 1998 and 1999, respectively.
Revenue from the receipt of equity instruments in connection with
outsourcing agreements, recorded as Other revenue, aggregated $--0-, $3,693,300,
$883,295, and $1,171,587 in the years ended December 31, 1997 and 1998, and the
three months ended March 31, 1998 and 1999, respectively.
(E) BARTER TRANSACTIONS
The Division trades advertisements on its Web properties in exchange for the
loan of computer equipment. Barter revenues and expenses are recorded at the
fair market value of services provided or received, whichever is more
determinable in the circumstances. Revenue from barter transactions is
recognized as income when advertisements are delivered on the Division's
websites. Barter expense is recognized over the period the equipment is in use,
which is typically in the same period when the barter revenue is recognized.
Advertising barter revenues and expenses were approximately $393,000, $77,000,
$31,000 and $--0- for the years ended December 31, 1997 and 1998, and the three
months ended March 31, 1998 and 1999, respectively.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets,
generally five to seven years. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the assets or the term
of the leases, whichever is shorter.
F-52
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) INCOME TAXES
For all periods, the Division has been included in the consolidated federal,
state and local income tax returns of NBC. Income taxes are calculated and
provided for on a consolidated basis, and the Division has not been allocated
any income tax expense (benefit) by NBC. For purposes of these financial
statements, federal, state and local income taxes are provided as if the
Division had filed a separate return on a stand-alone basis for all periods
presented.
The Division accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized, to the
extent realizable, for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
results of operations in the period that the tax change occurs. Such tax assets
and liabilities are not a part of the merger transaction. Accordingly, all
current and deferred tax assets and liabilities are included as part of Parent
Company's investment and net advances, and are not reflected in the combined
balance sheets of the Division.
(H) IMPAIRMENT OF LONG-LIVED ASSETS
The Division reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(I) ADVERTISING EXPENSES
The Division expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing on the combined
statements of operations and totaled $425,166, $2,569,844, $280,151 and $31,018
for the years ended December 31, 1997 and 1998 and the three months ended March
31, 1998 and 1999, respectively. These costs include the value of advertising
provided by NBC of $0, $2,015,400, $96,600, and $0 for the years ended December
31, 1997 and 1998 and the three months ended March 31, 1998 and 1999,
respectively, which have been recorded based on average values for commercial
air time sold by NBC during the period the services were provided.
(J) PRODUCT DEVELOPMENT COSTS
Product development costs consist principally of salaries and related costs,
and are charged to expense as incurred.
F-53
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Division to significant
concentrations of credit risk consist of accounts receivable and accounts
payable. At December 31, 1997 and 1998, the fair value of these instruments
approximated their financial statement carrying amount because of the short-term
maturity of these instruments. The Division has not experienced any significant
credit loss to date. Revenue from the Division's five largest customers
accounted for approximately 53% and 27% of the Division's advertising,
sponsorship and license fee revenue for the years ended December 31, 1997 and
1998, respectively.
No single customer exceeded 10% of the Division's advertising, sponsorship
and license fee revenue for the year ended December 31, 1998. Two customers
accounted for 42% of the Division's accounts receivable at December 31, 1998.
Three customers exceeded 10% of revenue for the year ended December 31,
1997. Three customers accounted for approximately 74% of accounts receivable at
December 31, 1997.
(L) COMPREHENSIVE INCOME (LOSS)
There were no differences between the Division's comprehensive loss and its
net loss as reported.
(M) SEGMENT INFORMATION
The Division operates in a single segment in the United States.
(N) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Division has not yet determined the impact of adopting SFAS No. 133.
(O) INTERIM RESULTS
The accompanying interim combined financial statements as of March 31, 1999
and for the three months ended March 31, 1998 and 1999 are unaudited. In the
opinion of management, the unaudited interim financial statements have been
prepared on the same basis as the annual financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position as of March 31, 1999 and the results of
the Division's operations and its cash flows for the three months ended March
31, 1998 and 1999. The financial data and other information disclosed in these
notes to combined financial statements related to these periods are unaudited.
The results for the three months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the year ending December 31, 1999.
F-54
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(2) BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ 1999
1997 1998 (UNAUDITED)
------------ ---------- -----------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT, NET
Machinery and equipment.................................................. $ 955,184 762,458 762,349
Leasehold improvements................................................... 204,830 199,673 199,673
------------ ---------- -----------
1,160,014 962,131 962,022
------------ ---------- -----------
Less accumulated depreciation and amortization........................... (243,501) (339,570) (375,039)
------------ ---------- -----------
$ 916,513 622,561 586,983
------------ ---------- -----------
------------ ---------- -----------
ACCRUED EXPENSES AND LIABILITIES
Accrued salaries, incentive compensation and related benefits............ $ 381,802 414,402 294,470
Other.................................................................... 36,425 -- --
------------ ---------- -----------
$ 418,227 414,402 294,470
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
(3) INCOME TAXES
The Division has generated net losses for all periods through December 31,
1998, and has no net income tax expense in any period on a stand-alone basis.
Although no net deferred tax assets with respect to net operating loss benefits
would have been established due to uncertainty of utilization, net operating
loss benefits would have been available to offset net income in the three months
ended March 31, 1999 on a stand-alone basis. Other deferred tax assets
aggregating approximately $3.2 million and $5.2 million at December 31, 1997 and
1998, respectively, arising principally from temporary differences in the
recognition of revenue related to equity instruments also would have been offset
by a valuation allowance on a stand-alone basis.
(4) PARENT COMPANY'S INVESTMENT AND NET ADVANCES
Operations are funded through advances from NBC. Such advances have no
defined repayment terms.
During the years ended December 31, 1997 and 1998, and the three months
ended March 31, 1998 and 1999, respectively, net advances were reduced by
$266,442, $18,112,601, $4,790,396, and $4,562,058, representing the value of
equity instruments received under partner agreements by the Division and
transferred to NBC.
(5) OUTSOURCING AGREEMENTS
In May 1998, the Division entered into a four year strategic alliance with
USWeb whereby USWeb would perform production and hosting services for the
Division's Web sites. The Division is committed to pay approximately $2.6
million per year for these services under the agreement. NBC has the right to
extend the agreement unilaterally for an additional four-year term at a fixed
increase in the annual fee.
F-55
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(5) OUTSOURCING AGREEMENTS (CONTINUED)
NBC may terminate the agreement with three months prior written notice to USWeb.
Beginning in November 1999, USWeb may terminate the agreement with six months
prior written notice to NBC. In connection with the strategic alliance, USWeb
issued warrants to the Division to purchase 1,600,000 and 500,000 shares of
USWeb Common Stock at $22.14 and $25.03 per share, respectively. If the
agreement is cancelled by the Division before May 1999, USWeb can cancel the
warrants to purchase 1,050,000 shares or, if the warrants have been previously
exercised, can repurchase them.
In October 1997, NBC signed a two year strategic alliance agreement with
InterVU, Inc. ("InterVU") whereby InterVU is the exclusive provider, subject to
certain limitations, of technology and services for VideoSeeker. In exchange for
entering into the agreement, InterVU issued 1,280,000 shares of series G
preferred stock to the Division. In addition, InterVU agreed to pay the Division
$2 million in a series of non-refundable payments for promotional value and the
cost of producing and operating VideoSeeker, which is recognized as Other
revenue ratably over the two-year period.
These agreements are accounted for as described in note 1(d).
(6) SUBSEQUENT EVENT (UNAUDITED)
In March 1999, NBC-IN entered into an exclusive three-year agreement under
which 24/7 Media, Inc. will sell advertising on participating NBC television
stations and their associated websites. As part of the agreement, 24/7 Media,
Inc. issued to the Division warrants to purchase up to 150,000 shares of 24/7
Media, Inc.'s common stock for $26.05 per share. These warrants vest and expire
on specified dates and in specified amounts between March 11, 1999 and March 11,
2002. The value of the warrants received is recorded on each vesting date at the
then fair market value and recognized as Other revenue ratably over the term of
the agreement.
F-56
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Paralogic Software Corporation
We have audited the accompanying balance sheet of Paralogic Software
Corporation as of December 31, 1998, and the related statements of operations,
shareholders' equity and cash flows for the period from February 11, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paralogic Software
Corporation at December 31, 1998, and the results of its operations and its cash
flows for the period from February 11, 1998 (inception) through December 31,
1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
June 22, 1999
F-57
<PAGE>
PARALOGIC SOFTWARE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................... $ 125,192 $ 198,533
Accounts receivable..................................................................... 24,745 108,762
Other current assets.................................................................... 4,300 4,975
-------- -----------
Total current assets...................................................................... 154,237 312,270
Fixed assets, net......................................................................... 16,077 21,431
-------- -----------
Total assets.............................................................................. $ 170,314 $ 333,701
-------- -----------
-------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................................................ $ 5,866 $ 26,841
Deferred revenue........................................................................ 26,506 266,460
Notes payable to shareholder............................................................ 500 500
-------- -----------
Total current liabilities................................................................. 32,872 293,801
Shareholders' equity:
Convertible preferred stock, $0.66 par value: authorized shares--400,000; issued and
outstanding: 252,121 at December 31, 1998 and March 31, 1999--less issuance costs of
$1,886; aggregate liquidation preference of $166,400 at December 31, 1998 and March
31, 1999.............................................................................. 164,514 164,514
Common stock, $0.01 par value: authorized shares--7,000,000, issued and
outstanding--4,972,726 at December 31, 1998 and March 31, 1999........................ 436,250 3,861,292
Note receivable from shareholders......................................................... (2,527) (2,527)
Deferred compensation..................................................................... (251,669) (3,229,812)
Accumulated deficit....................................................................... (209,126) (753,567)
-------- -----------
Total shareholders' equity................................................................ 137,442 39,900
-------- -----------
Total liabilities and shareholders' equity................................................ $ 170,314 $ 333,701
-------- -----------
-------- -----------
</TABLE>
See accompanying notes.
F-58
<PAGE>
PARALOGIC SOFTWARE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 11, FEBRUARY 11,
1998 (INCEPTION) 1998 (INCEPTION) THREE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1998 1998 1999
----------------- ------------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenue................................................. $ 239,481 $ 27,166 $ 72,877
Cost of net revenue......................................... 12,918 224 7,387
----------------- ------- -------------
Gross profit................................................ 226,563 26,942 65,490
Operating expenses:
Research and development.................................. 144,791 7,143 93,606
Sales and marketing....................................... 72,395 3,572 46,803
General and administrative................................ 35,089 1,786 23,402
Amortization of deferred compensation..................... 182,054 -- 446,899
----------------- ------- -------------
Total operating expenses.................................... 434,329 12,501 610,710
----------------- ------- -------------
Operating (loss) income..................................... (207,766) 14,441 (545,220)
Other income (expense), net................................. (1,360) -- 779
----------------- ------- -------------
Net (loss) income........................................... $ (209,126) $ 14,441 $ (544,441)
----------------- ------- -------------
----------------- ------- -------------
</TABLE>
See accompanying notes.
F-59
<PAGE>
PARALOGIC SOFTWARE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 11, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE
----------------- --------------------- FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS COMPENSATION
------- -------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders............ -- $ -- 4,000,000 $ -- $ -- $ --
Issuance of common stock in exchange for note
receivable.................................... -- -- 972,726 2,527 (2,527) --
Issuance of Series A convertible preferred stock
net of issuance costs of $1,886............... 252,121 164,514 -- -- -- --
Deferred compensation related to grant of stock
options....................................... -- -- -- 433,723 -- (433,723)
Amortization of deferred compensation........... -- -- -- -- -- 182,054
Net loss........................................ -- -- -- -- -- --
------- -------- --------- ---------- ------------ ------------
Balances at December 31, 1998..................... 252,121 164,514 4,972,726 436,250 (2,527) (251,669)
Deferred compensation related to grant of stock
options (unaudited)........................... -- -- -- 3,425,042 -- (3,425,042)
Amortization of deferred compensation
(unaudited)................................... -- -- -- -- -- 446,899
Net loss (unaudited)............................ -- -- -- -- -- --
------- -------- --------- ---------- ------------ ------------
Balances at March 31, 1999 (unaudited)............ 252,121 $164,514 4,972,726 $3,861,292 $ (2,527) $(3,229,812)
------- -------- --------- ---------- ------------ ------------
------- -------- --------- ---------- ------------ ------------
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Issuance of common stock to founders............ $ -- $ --
Issuance of common stock in exchange for note
receivable.................................... -- --
Issuance of Series A convertible preferred stock
net of issuance costs of $1,886............... -- 164,514
Deferred compensation related to grant of stock
options....................................... -- --
Amortization of deferred compensation........... -- 182,054
Net loss........................................ (209,126) (209,126)
----------- -------------
Balances at December 31, 1998..................... (209,126) 137,442
Deferred compensation related to grant of stock
options (unaudited)........................... -- --
Amortization of deferred compensation
(unaudited)................................... -- 446,899
Net loss (unaudited)............................ (544,441) (544,441)
----------- -------------
Balances at March 31, 1999 (unaudited)............ $(753,567) $ 39,900
----------- -------------
----------- -------------
</TABLE>
See accompanying notes.
F-60
<PAGE>
PARALOGIC SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 11,
1998 (INCEPTION) THREE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1998 1998 1999
------------ ---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income........................................... $(209,126) $14,441 $ (544,441)
Adjustments to reconcile net (loss) income to net cash (used
in) provided by operations:
Depreciation and amortization......................... 3,540 -- 1,301
Amortization of deferred compensation................. 182,054 -- 446,899
Changes in operating assets and liabilities:
Accounts receivable................................. (24,745) (2,098) (84,017)
Other current assets................................ (4,300) (1,108) (675)
Accounts payable and accrued liabilities............ 5,866 1,877 20,975
Deferred revenue.................................... 26,506 -- 239,954
------------ ------- ------------
Net cash (used in) provided by operating activities......... (20,205) 13,112 79,996
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchases of property and equipment..................... (19,617) (62) (6,655)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable to shareholder...... 500 500 --
Proceeds from issuance of preferred stock................... 164,514 -- --
------------ ------- ------------
Net cash provided by financing activities................... 165,014 500 --
------------ ------- ------------
Net increase in cash........................................ 125,192 13,550 73,341
Cash, beginning of period................................... -- -- 125,192
------------ ------- ------------
Cash, end of period......................................... $ 125,192 $13,550 $ 198,533
------------ ------- ------------
------------ ------- ------------
SUPPLEMENTAL DISCLOSURE
Issuance of common stock in exchange for note
receivable from shareholder............................... $ 2,527 $ -- $ --
------------ ------- ------------
------------ ------- ------------
Deferred compensation resulting from issuance of stock
options................................................... $ 433,723 $ -- $3,425,042
------------ ------- ------------
------------ ------- ------------
</TABLE>
See accompanying notes.
F-61
<PAGE>
PARALOGIC SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE PERIOD FROM FEBRUARY 11, 1998 (INCEPTION) THROUGH MARCH 31,
1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Paralogic Software Corporation (the "Company") was incorporated in
California on February 11, 1998.
The Company provides website chat room hosting, fee-for-service web site
development, and sells internet software. The Company is the result of a spin
out of certain technology rights and assets from a predecessor company,
Paralogic Corporation ("PC"). In exchange for the technology rights and assets,
the Company issued to certain shareholders of PC 4,000,000 shares of Paralogic
Software Corporation common stock.
BASIS OF PRESENTATION
The Company has incurred losses since inception and has an accumulated
deficit at December 31, 1998. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
will require additional financing to fund operations in 1999. On June 10, 1999,
the Company entered into an agreement under which it will be acquired by
Xoom.com, Inc. The majority of the shareholders of the Company are also
shareholders and officers of Xoom.com, Inc. Effective June 16, 1999, the Company
was acquired by Xoom.com, Inc. The financial statements do not include any
adjustments to the recorded amounts of assets and liabilities which may result
from this transaction.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial information as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 is unaudited but has been prepared on the
same basis as the audited financial statements and includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at such date and its
results of operations and cash flows for those periods. Operating results for
the three months ended March 31, 1999, are not necessarily indicative of results
that may be expected for any future periods.
CASH
The Company maintains its cash in depository accounts with one financial
institution.
F-62
<PAGE>
PARALOGIC SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM FEBRUARY 11, 1998 (INCEPTION) THROUGH MARCH 31,
1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
The Company conducts business primarily with individuals and companies
throughout the United States. The Company generally does not require collateral.
FIXED ASSETS
Fixed assets are recorded at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three, five, and seven years for computer software, computer
hardware and furniture and fixtures, respectively.
REVENUE RECOGNITION
SERVICES
The majority of the Company's service revenue is from fees charged for chat
network hosting and web site development which are recognized when the services
are performed.
LICENSE FEES
The Company licenses software under non-cancelable license agreements to
end-users. License fee revenue is recognized when a non-cancelable license
agreement has been signed, the product has been delivered, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable and collection is considered probable. Customer support revenues
are deferred and recognized on a straight-line basis over the period covered by
such agreements.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes" ("FAS 109"), which requires the use of the liability method in accounting
for income taxes. Under FAS 109, deferred tax assets and liabilities are
measured based on differences between the financial reporting and tax bases of
assets and liabilities using enacted rates and laws that are expected to be in
effect when the differences are expected to reverse. No provision for income
taxes was recorded on the income for the period from February 11, 1998
(inception) through March 31, 1998, as the Company incurred a loss for the
entire period from February 11, 1998 through December 31, 1998.
STOCK BASED COMPENSATION
The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123").
F-63
<PAGE>
PARALOGIC SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM FEBRUARY 11, 1998 (INCEPTION) THROUGH MARCH 31,
1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("FAS 130") which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The adoption
of this standard had no impact on the Company's financial position,
shareholders' equity, results of operations or cash flows.
AICPA Accounting Standards Executive Committee Statement of Position 97-2,
"Software Revenue Recognition," ("SOP 97-2") and Statement of Position 98-4
("SOP 98-4"), "Deferral of the Effective Date of a Provision" of SOP 97-2,
Software Revenue Recognition or SOP 98-4, which contain new rules for timing of
recognition of software company revenues, particularly as to license fee
revenues where there are multiple elements to be delivered under a contract or
arrangement with a customer, became effective for transactions beginning in
1998. Management believes the Company's current policy and its practices conform
to the rules in these new accounting pronouncements. Under the Company's current
policy, license fees on standard software products not requiring substantial
modification and customization are recognized as revenue upon shipment to
customers.
In December 1998, the American Institute of Certified Public Accountants or
AICPA issued Statement of Position 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect Certain Transactions, or SOP 98-9. SOP 98-9
amends SOP 98-4 to extend the deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March
15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in fiscal years beginning after March 15, 1999. The Company has not
yet determined the effect of the final adoption of SOP 98-9 on its future
revenues and results of operations.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Computer software....................................................................... $ 1,028 $ 1,266
Computer hardware....................................................................... 14,741 21,157
Furniture and fixtures.................................................................. 3,848 3,849
------------ -----------
19,617 26,272
Accumulated depreciation................................................................ (3,540) (4,841)
------------ -----------
$ 16,077 $ 21,431
------------ -----------
------------ -----------
</TABLE>
3. NOTE PAYABLE TO SHAREHOLDER
The note payable to shareholder as of December 31, 1998 represented amounts
funded to the Company by the shareholder for working capital purpose and is
repayable on demand. The note payable bears no interest.
F-64
<PAGE>
PARALOGIC SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM FEBRUARY 11, 1998 (INCEPTION) THROUGH MARCH 31,
1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 IS UNAUDITED)
4. INCOME TAXES
There has been no provisions for federal or state income taxes for any
period as the Company has incurred operating losses in all periods.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward.................................................. $ 8,914
Other............................................................................ 3,051
---------
Net deferred tax assets.......................................................... 11,965
Valuation allowance.............................................................. (11,965)
---------
Total.............................................................................. $ --
---------
---------
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance as it is more likely
than not that the deferred tax assets will not be realized. The net valuation
allowance increased by $11,965 during the period from February 11, 1998
(inception) through December 31, 1998.
As of December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $22,000 which expire in the
year 2018.
Due to the "change in ownership" provisions of the Internal Revenue Code,
the availability of the Company's net operating loss credit carryforwards will
be subject to an annual limitation against taxable income in future periods if a
change in ownership of more than 50% of the value of the Company's stock should
occur over a three-year period which could substantially limit the eventual
utilization of these carryforwards.
5. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 400,000 shares of preferred stock all of
which is designated "Series A Preferred." The Company will from time to time in
accordance with the laws of the State of California increase the authorized
amount of its Common Stock if at any time the number of shares of Common Stock
remaining unissued and available for issuance is not sufficient to permit
conversion of the Preferred Stock.
In November 1998, the Company issued 252,121 shares of Series A Preferred
Stock, which was outstanding as of December 31, 1998 and March 31, 1999. The
holders of the outstanding Preferred Stock are entitled to receive, when and as
declared by the Board of Directors, dividends at the rate of $0.05 per share per
annum, payable in preference and priority to any payment of any dividend on
Common Stock of the Company.
F-65
<PAGE>
PARALOGIC SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM FEBRUARY 11, 1998 (INCEPTION) THROUGH MARCH 31,
1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the holders of the Preferred Stock will be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Company to the holders of the Common Stock by
reason of their ownership of such stock, the amount of $0.66 per share for each
share of Preferred Stock then held by them.
Each share of the Preferred Stock is convertible, at the option of the
holder into such number of fully paid and non assessable shares of Common Stock
as is determined by dividing $0.66 by the Conversion Price in effect at the time
of conversion.
COMMON STOCK
The Company is authorized to issue 7,000,000 shares of common stock at par
value. As of December 31, 1998 and March 31, 1999, the Company has 4,972,726
shares of common stock issued and outstanding.
STOCK OPTIONS
In November 1998, the Board of Directors of the Company approved the
Company's 1998 Stock Incentive Plan (the "1998 Plan") and initially reserved
1,500,000 shares for issuance thereunder. Stock options generally vest over
different periods from immediately to 25% at the end of the first year and
monthly thereafter up to a maximum of four years.
A summary of activity under the 1998 Plan is as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE WEIGHTED-
FOR OPTIONS AVERAGE
GRANT OUTSTANDING EXERCISE PRICE
------------ ----------- ---------------
<S> <C> <C> <C>
Shares authorized...................................................... 1,500,000 -- $ --
Options granted...................................................... (119,250) 119,250 0.07
Options exercised.................................................... -- -- --
------------ ----------- -----
Balance at December 31, 1998........................................... 1,380,750 119,250 0.07
Options granted (unaudited).......................................... (235,000) 235,000 0.07
Options exercised (unaudited)........................................ -- -- --
Options canceled (unaudited)......................................... -- -- --
------------ ----------- -----
Balance at March 31, 1999.............................................. 1,145,750 354,250 $ 0.07
------------ ----------- -----
------------ ----------- -----
</TABLE>
The options outstanding at March 31, 1999 have been segregated for
additional disclosure as follows:
<TABLE>
<CAPTION>
WEIGHTED- OPTIONS
OPTIONS AVERAGE CURRENTLY
OUTSTANDING REMAINING EXERCISABLE WEIGHTED-
EXERCISE AT MARCH 31, CONTRACTUAL AT MARCH 31, AVERAGE
PRICE 1999 LIFE (IN YEARS) 1999 EXERCISE PRICE
- ----------------------------------- ------------ ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
$0.07.............................. 354,250 9.7 75,000 $ 0.07
</TABLE>
F-66
<PAGE>
PARALOGIC SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM FEBRUARY 11, 1998 (INCEPTION) THROUGH MARCH 31,
1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
DEFERRED COMPENSATION
The Company has recorded deferred compensation charges of $433,723 and
$3,425,042 during the period from February 11, 1998 (inception) through December
31, 1998 and for the three months ended March 31, 1999, respectively, for the
difference between the exercise price and the deemed fair value of certain stock
options granted by the Company. These amounts are being amortized by charges to
operations, using the graded method, over the vesting periods of the individual
stock options, which are generally four years.
PRO FORMA DISCLOSURE OF THE EFFECT OF STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use of
option valuation models that were not developed for use in valuing employee
stock options.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by FAS 123. This information is required to be determined as
if the Company has accounted for its employee stock options under the fair value
method of FAS 123. Under this method, the estimated fair value of the options is
amortized to expense over the options' vesting period. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 11
1998
(INCEPTION)
THROUGH
DECEMBER 31,
1998
---------------
<S> <C>
Risk-free interest rate...................................................... 5.5%
Expected life of the option.................................................. 5 years
Expected Volatility.......................................................... 0%
Expected dividend yield...................................................... 0%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The effect of applying the Black-Scholes option valuation model did not
result in pro forma net loss amounts that are materially different from
historical amounts reported. Therefore, such pro forma amounts are not reported
herein. Future pro forma amounts may be materially different from actual amounts
reported.
F-67
<PAGE>
PARALOGIC SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM FEBRUARY 11, 1998 (INCEPTION) THROUGH MARCH 31,
1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
The weighted average fair value of options granted to employees during the
period from February 11, 1998 (inception) through December 31, 1998 was $0.04
per share.
6. LEASE COMMITMENTS
The Company leases its operating facilities under a noncancelable operating
lease agreement that expires in October 1999. The lease commitment for 1999 is
$19,350.
Total rent expense for the period from February 11, 1998 (inception) through
December 31, 1998 was $12,250.
7. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This situation could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company believes that it will not be required to modify or replace any
portion of its software so that its computer system will function properly with
respect to dates in the year 2000 and thereafter.
F-68
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
MightyMail Networks, Inc.
We have audited the accompanying balance sheets of MightyMail Networks, Inc.
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MightyMail Networks, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the periods then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
June 4, 1999
F-69
<PAGE>
MIGHTYMAIL NETWORKS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................................... $ 9,553 $ 21,495 $ 38,719
Accounts receivable....................................................... 203,500 -- --
Stock subscription receivable............................................. -- 200,000 150,000
Prepaid expenses and other current assets................................. 6,500 3,015 2,500
---------- ---------- -----------
Total current assets........................................................ 219,553 224,510 191,219
Fixed assets, net........................................................... 65,999 29,562 76,348
---------- ---------- -----------
Total assets................................................................ $ 285,552 $ 254,072 $ 267,567
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................................... $ 152,123 $ 147,800 $ 206,663
Accrued compensation and related expenses................................. 24,145 31,790 39,081
Other accrued liabilities................................................. 15,065 876 200
Stock subscription payable................................................ -- 60,000 60,000
---------- ---------- -----------
Total current liabilities................................................... 191,333 240,466 305,944
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value
Authorized shares--10,000,000
Issued and outstanding shares--none and 400,000 at December 31, 1997 and
1998, respectively, and 1,020,000 at March 31, 1999; aggregate
liquidation preference of $200,000 and $510,000 at December 31, 1998
and March 31, 1999 respectively....................................... -- 168,421 451,148
Common stock, $0.001 par value
Authorized shares--20,000,000
Issued and outstanding shares--2,480,000 and 2,555,000 at December 31,
1997 and 1998, respectively, and 2,767,000 at March 31, 1999.......... 10,000 41,579 2,392,822
Note receivable from stockholder............................................ -- -- (6,850)
Deferred compensation....................................................... -- -- (1,468,067)
Retained earnings (accumulated deficit)..................................... 84,219 (196,394) (1,407,430)
---------- ---------- -----------
Total stockholders' equity (deficit)...................................... 94,219 13,606 (38,377)
---------- ---------- -----------
Total liabilities & stockholders equity (deficit)......................... $ 285,552 $ 254,072 $ 267,567
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
F-70
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- -----------------------
1997 1998 1998 1999
--------- --------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue:
Consulting revenue............................ $ 931,671 $ 351,042 $ 230,490 $ --
License fees and other........................ 225,000 4,408 -- --
--------- --------- ----------- ----------
Total net revenue............................... 1,156,671 355,450 230,490 --
Cost of revenue................................. 651,533 215,935 167,805 --
--------- --------- ----------- ----------
Gross profit.................................... 505,138 139,515 62,685 --
Operating expenses:
Operating and development..................... 257,613 61,937 50,406 462,228
Sales and marketing........................... 43,387 57,246 14,093 18,467
General and administrative.................... 298,439 296,311 103,554 205,401
Amortization of deferred compensation......... -- -- -- 523,603
--------- --------- ----------- ----------
Total operating expenses........................ 599,439 415,494 168,053 (1,209,699)
--------- --------- ----------- ----------
Loss from operations............................ (94,301) (275,979) (105,368) (1,209,699)
Other income (expense):
Interest income............................... 1,969 878 360 1,122
Interest expense.............................. (3,071) (5,512) (1,390) (2,459)
--------- --------- ----------- ----------
Net loss........................................ $ (95,403) $(280,613) $(106,398) $(1,211,036)
--------- --------- ----------- ----------
--------- --------- ----------- ----------
</TABLE>
See accompanying notes.
F-71
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE
---------------------- ------------------------ FROM
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996.......................... -- $ -- 2,480,000 $ 10,000 $ --
Net income for the year.............................. -- -- -- -- --
---------- ---------- ---------- ------------ -----------
Balances at December 31, 1997.......................... -- -- 2,480,000 10,000 --
Issuance of Series A preferred stock in exchange for
stock subscription receivable...................... 400,000 168,421 -- -- --
Issuance of common stock in exchange for stock
subscription receivable............................ -- -- 75,000 31,579 --
Net loss for the year................................ -- -- -- -- --
---------- ---------- ---------- ------------ -----------
Balances at December 31, 1998.......................... 400,000 168,421 2,555,000 41,579 --
Issuance of Series A preferred stock for cash
(unaudited)........................................ 320,000 132,727 -- -- --
Issuance of common stock for cash (unaudited)........ -- -- 75,000 27,273 --
Issuance of Series A preferred stock in exchange for
stock subscription receivable (unaudited).......... 300,000 150,000 -- -- --
Issuance of stock options to consultants
(unaudited)........................................ -- -- -- 325,450 --
Deferred compensation expense related to the issuance
of stock options to employees (unaudited).......... -- -- -- 1,991,670 --
Amortization of deferred compensation (unaudited).... -- -- -- -- --
Exercise of stock options in exchange for a note
receivable (unaudited)............................. -- -- 137,000 6,850 (6,850)
Net loss (unaudited)................................. -- -- -- -- --
---------- ---------- ---------- ------------ -----------
Balances at March 31, 1999 (unaudited)................. 1,020,000 $ 451,148 2,767,000 $ 2,392,822 $ (6,850)
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
DEFERRED (ACCUMULATED EQUITY
COMPENSATION DEFICIT) (DEFICIT)
------------- ------------- ------------
<S> <C> <C> <C>
Balances at December 31, 1996.......................... $ -- $ 179,622 $ 189,622
Net income for the year.............................. -- (95,403) (95,403)
------------- ------------- ------------
Balances at December 31, 1997.......................... -- 84,219 94,219
Issuance of Series A preferred stock in exchange for
stock subscription receivable...................... -- -- 168,421
Issuance of common stock in exchange for stock
subscription receivable............................ -- -- 31,579
Net loss for the year................................ -- (280,613) (280,613)
------------- ------------- ------------
Balances at December 31, 1998.......................... -- (196,394) 13,606
Issuance of Series A preferred stock for cash
(unaudited)........................................ -- -- 132,727
Issuance of common stock for cash (unaudited)........ -- -- 27,273
Issuance of Series A preferred stock in exchange for
stock subscription receivable (unaudited).......... -- -- 150,000
Issuance of stock options to consultants
(unaudited)........................................ -- -- 325,450
Deferred compensation expense related to the issuance
of stock options to employees (unaudited).......... (1,991,670) -- --
Amortization of deferred compensation (unaudited).... 523,603 -- 523,603
Exercise of stock options in exchange for a note
receivable (unaudited)............................. -- -- --
Net loss (unaudited)................................. -- (1,211,036) (1,211,036)
------------- ------------- ------------
Balances at March 31, 1999 (unaudited)................. $(1,468,067) $ (1,407,430) $ (38,377)
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes.
F-72
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- ---------------------
1997 1998
--------- ---------
1998 1999
--------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................ $ (95,403) $(280,613) $(106,398) $(1,211,036)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.................................. 39,521 41,193 12,471 6,381
Amortization of deferred compensation......... -- -- -- 523,603
Issuance of stock options to consultants...... -- -- -- 325,450
Loss (gain) on disposal of fixed assets....... 414 (850) -- --
Changes in operating assets and liabilities:
Accounts receivable......................... (148,500) 203,500 203,500 --
Prepaid expenses and other current assets... 6,876 3,485 (8,019) 515
Accounts payable............................ 125,704 (4,323) 19,100 58,863
Accrued compensation and related expenses... 13,127 7,645 3,149 7,291
Other accrued liabilities................... 1,003 (14,189) (14,387) (676)
--------- --------- --------- ----------
Net cash provided by (used in) operating
activities.................................... (57,258) (44,152) 109,416 (289,609)
INVESTING ACTIVITIES
Purchases of fixed assets....................... (13,904) (4,756) -- (53,167)
Proceeds from sale of fixed assets.............. 1,750 850 -- --
--------- --------- --------- ----------
Net cash used in investing activities........... (12,154) (3,906) -- (53,167)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock....... -- -- -- 132,727
Proceeds from issuance of common stock.......... -- -- -- 27,273
Proceeds from repayment of stock subscription
receivable.................................... -- -- -- 200,000
Proceeds from issuance of stock subscription
payable....................................... -- 60,000 -- --
--------- --------- --------- ----------
Net cash provided by financing activities....... -- 60,000 -- 360,000
--------- --------- --------- ----------
Net increase (decrease) in cash................. (69,412) 11,942 109,416 17,224
Cash at beginning of period..................... 78,965 9,553 9,553 21,495
--------- --------- --------- ----------
Cash at end of period........................... $ 9,553 $ 21,495 $ 118,969 $ 38,719
--------- --------- --------- ----------
--------- --------- --------- ----------
SUPPLEMENTAL DISCLOSURES:
Non-cash transactions:
Issuance of preferred stock in exchange for
stock subscription receivable............... $ -- $ 168,421 $ -- $ 150,000
--------- --------- --------- ----------
--------- --------- --------- ----------
Issuance of common stock in exchange for stock
subscription receivable..................... $ -- $ 31,579 $ -- $ --
--------- --------- --------- ----------
--------- --------- --------- ----------
Deferred compensation resulting from grant of
stock options............................... $ -- $ -- $ -- $1,991,670
--------- --------- --------- ----------
--------- --------- --------- ----------
Exercise of stock option in exchange for notes
receivable from stockholder................. $ -- $ -- $ -- $ 6,850
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
See accompanying notes.
F-73
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
On October 16, 1998, MightyMail Networks LLC and Oompala, Inc. merged to
form MightyMail Networks, Inc. (the "Company"). MightyMail Networks LLC was
formed on June 15, 1998, in Delaware. Oompala, Inc. was incorporated on January
10, 1995, in California.
Oompala, Inc. was previously a fee-for-service company whereby products were
developed on a contractual basis. After the merger, the Company began focusing
on an enhanced e-mail product which enables customization of e-mail according to
user preferences.
BASIS OF PRESENTATION
The Company experienced recurring losses and has an accumulated deficit at
December 31, 1998. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company will
require additional financing to fund operations in 1999. Effective May 3, 1999,
the Company agreed to be acquired by Xoom.com, Inc. The financial statements do
not include any adjustments to the recorded amounts of assets and liabilities
which may result from this transaction.
INTERIM FINANCIAL INFORMATION
The interim financial information for the three months ended March 31, 1998
and 1999, is unaudited but has been prepared on the same basis as the audited
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of its financial position at such date and its results of
operations and cash flows for those periods. Operating results for the three
months ended March 31, 1999, are not necessarily indicative of results that may
be expected for any future periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
CASH
The Company maintains its cash in depository accounts with one financial
institution.
CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade accounts receivable. The Company conducts
business with companies in various industries throughout the world and with
individuals over the Internet. The Company performs ongoing credit evaluations
of its corporate customers and generally does not require collateral. Sales to
individuals are principally paid for in cash. To date, the Company has not
experienced any credit losses.
F-74
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
three years. Useful lives are evaluated regularly by management in order to
determine recoverability in light of current technological conditions. The
Company identifies and records impairment losses on fixed assets when events and
or circumstances indicate that such assets might be impaired. To date, no such
impairment has been recorded.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the disclosure-only alternative of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123").
REVENUE RECOGNITION
The Company's primary source of revenue during 1997 and 1998 was
fee-for-service on a contractual basis. These revenues were recognized as the
Company provided the services. There has been no revenue since July 1998 when
the Company changed its focus to develop its enhanced e-mail product.
LICENSE FEES
During 1997, the Company licensed software under non-cancelable license
agreements to end-users and non-cancelable sub-license agreements to resellers.
License fee revenues were recognized when a non-cancelable license agreement was
signed, the product was delivered, there were no uncertainties surrounding
product acceptance, the fees were fixed and determinable and collection was
probable.
EXPORT SALES
Export sales were to customers in Japan and totaled $303,900 and $4,408
which represent 26% and 1% of net revenue for the years ended December 31, 1997
and 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income, which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
had no material components of comprehensive income. The adoption of this
standard has
F-75
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
had no impact on the Company's financial position, stockholders' equity, results
of operations or cash flows. Accordingly, the Company's comprehensive loss for
the years ended December 31, 1997 and 1998 and the three months ended March 31,
1998 and 1999, is equal to its reported loss.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Computers and equipment................................ $ 143,500 $ 145,558 $ 198,725
Furniture and fixtures................................. 1,837 1,837 1,837
---------- ----------- -----------
145,337 147,395 200,562
Less accumulated depreciation.......................... (79,338) (117,833) (124,214)
---------- ----------- -----------
$ 65,999 $ 29,562 $ 76,348
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
3. INCOME TAXES
The Company's shareholders have previously elected to be treated as an S
Corporation for federal and state income tax purposes. As an S Corporation, the
current federal and state taxable income is allocated to the stockholders who
are responsible for the payment of taxes thereon. Accordingly, the accompanying
financial statements do not include a provision for federal or state income
taxes.
4. STOCKHOLDERS' EQUITY
The Company's Board of Directors authorized 10,000,000 shares of preferred
stock and 20,000,000 shares of common stock both with a par value of $0.001 per
share.
STOCK SPLIT
In October 1998, the Company completed a 2.48-to-1 stock split of the
outstanding shares of common stock. All share information and per share amounts
in the accompanying financial statements have been retroactively adjusted to
reflect the effect of this stock split.
CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 1,620,000 shares of Series A preferred
stock, of which 1,020,000 shares were issued and outstanding at March 31, 1999
at prices ranging from $0.36 to $0.50 per share. The holders of the outstanding
Preferred Stock are entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of $0.04 per share per annum, payable in
preference and priority to any payment of any dividend on Common Stock of the
Company.
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the holders of the Preferred Stock will be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Company to the holders of the Common Stock by
F-76
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
reason of their ownership of such stock, the amount of $0.50 per share for each
share of Preferred Stock then held by them.
Each share of Preferred Stock is convertible, at the option of the holder
into such number of fully paid and non assessable shares of Common Stock as is
determined by dividing $0.50 by the conversion price in effect at the time of
conversion.
An additional 200,000 shares of Series A preferred shares were issued for
cash on April 5, 1999.
WARRANTS
In connection with the issuance of Series A preferred stock in the year
ended December 31, 1998 and the three months ended March 31, 1999, the Company
issued warrants to purchase a total of 350,000 shares of Series A preferred
stock at a price of $0.50 per share. These warrants are immediately exercisable
and expire on December 31, 1999.
COMMON SHARES
The Company issued 150,000 shares of common stock in conjunction with
subscriptions of Series A preferred stock in the period December 1998 through
January 1999 at prices ranging from $0.36 to $0.42 per share.
STOCK OPTION PLAN
The Company has reserved 1,017,125 shares of common stock under the
Company's 1999 Stock Option Plan (the "Plan"). The Plan provides for incentive
stock options, as defined by the Internal Revenue Code, to be granted to
employees and certain non-employee consultants, at an exercise price not less
than 100% of the fair value at the grant date as determined by the Board of
Directors. The Plan also provides for nonqualified stock options to be issued to
non-employee officers, directors and consultants at an exercise price of not
less than 85% of the fair value at the grant date unless optionee is a 10%
shareholder in which case option price will not be less than 110% of such fair
value. Option vesting schedules are determined by the Board of Directors at the
time of issuance. Stock options generally vest over different periods ranging
from immediately to 50% at the end of the first year and monthly thereafter up
to a maximum of three years. Upon a change of control, as defined in the Plan,
50% of unvested options become immediately vested.
A summary of the option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -----------------
<S> <C> <C>
Balance at December 31, 1998.................................... -- $ --
Options granted (unaudited)................................... 392,000 0.05
Options exercised (unaudited)................................. (137,000) 0.05
Options cancelled (unaudited)................................. -- --
----------- -----
Balance at March 31, 1999 (unaudited)........................... 255,000 $ 0.05
----------- -----
----------- -----
</TABLE>
F-77
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
At March 31, 1999, there are 762,125 shares available for future grant under
the Plan.
The following table summarizes information about options outstanding and
exercisable as at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICE SHARES LIFE (IN YEARS) PRICE SHARES PRICE
- ------------------------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.05 255,000 9.92 $ 0.05 255,000 $ 0.05
</TABLE>
The Company granted options for 674,926 shares of common stock under the
1999 Stock Option Plan to employees and certain non-employee consultants on
April 30, 1999. These options vest over a period of 3 years and are immediately
exercisable at $2.00 per share.
DEFERRED COMPENSATION
The Company has recorded deferred compensation charges of $0 and $1,468,067
for the year ended December 31, 1998 and for the three months ended March 31,
1999, respectively, for the difference between the exercise price and the deemed
fair value of certain stock options granted by the Company. These amounts are
being amortized by charges to operations, using the graded method, over the
vesting periods of the individual stock options, which range from immediately to
three years.
OPTIONS ISSUED TO CONSULTANTS
The Company granted options to purchase 55,000 shares of common stock to
consultants at exercise price of $0.05 per share on March 1, 1999. These options
were granted in exchange for consulting services performed. The Company valued
these options (using the Black-Scholes valuation method) at $325,450, for the
three months ended March 31, 1999. This amount was charged to operations in the
three months ended March 31, 1999.
PRO FORMA DISCLOSURE OF THE EFFECT OF STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Pro forma information regarding net income (loss) and net income
(loss) per share is required by FAS 123. This information is required to be
determined as if the Company has accounted for its employee stock options under
the fair value method of FAS 123. Under this method, the estimated fair value of
the options is amortized to expense over the options' vesting period. The fair
value for these options was
F-78
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
----------------------
NON-QUALIFIED ISO
----------- ---------
<S> <C> <C>
Risk-free interest rate............................... 5.50% 5.73%
Expected life of the option........................... 5 years 10 years
Expected volatility................................... 100% 100%
Expected dividend yield............................... 0% 0%
</TABLE>
Because FAS 123 is applicable only to options granted since inception, its
adjusted effect will not be fully reflected until 2000.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The weighted-average fair value of options granted to employees during the
three months ended March 31, 1999 was $0.04.
5. COMMITMENTS
The Company leases its facilities under noncancelable leases for varying
periods through May 1999. The following are the minimum lease obligations under
these leases at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999............................................................................... $ 12,500
Less current portion............................................................... (12,500)
-----------
Long-term portion.................................................................. $ --
-----------
-----------
</TABLE>
Rent expense under operating lease arrangements for the years ended December
31, 1997 and 1998 and the three months ended March 31, 1998 and 1999 totaled
$82,740, $66,250, $21,306 and $8,583, respectively.
6. RELATED PARTY TRANSACTIONS
During the period from December 23, 1998 through March 31, 1999, the Company
issued stock subscriptions receivable to investors in exchange for shares of
preferred and common stock. These subscriptions receivable are due upon demand
and bear no interest. As of March 31, 1999, there were no outstanding amounts
due under subscriptions receivable.
F-79
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
7. YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two-digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This situation could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company believes that it will not be required to modify or replace any
portion of its software so that its computer system will function properly with
respect to dates in the year 2000 and thereafter.
F-80
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
for Xoom.com gives effect to the merger of MightyMail Networks, Inc., and
Paralogic Software Corporation into Xoom.com, based on a preliminary allocation
of the total purchase cost. The historical financial information has been
derived from the respective historical financial statements of Xoom.com,
Paralogic Software Corporation, and MightyMail Networks, Inc., and should be
read in conjunction with those financial statements and the related notes which
begin on pages F-2, F-57 and F-69 of this proxy statement/prospectus,
respectively.
The unaudited pro forma condensed combined balance sheet assumes the mergers
took place as of March 31, 1999 and allocates the total purchase costs of the
fair values of assets and liabilities of MightyMail Networks, Inc. and Paralogic
Software Corporation based on a preliminary valuation.
The unaudited pro forma condensed combined statements of operations combine
historical statements of operations for Xoom.com, MightyMail Networks, Inc. and
Paralogic Software Corporation for the year ended December 31, 1998, and for the
three months ended March 31, 1999, and give effect to the mergers, including the
amortization of goodwill and other intangible assets, as if it had occurred on
January 1, 1998, and January 1, 1999, respectively.
The total estimated purchased cost of the mergers has been allocated on a
preliminary basis to assets and liabilities based on management's estimates of
their fair value with the excess costs over the net assets acquired allocated to
goodwill. This allocation is subject to change pending a final analysis of the
total purchase cost and the fair value of the assets acquired and liabilities
assumed. The impact of these changes could be material.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transactions had
been consummated at the dates indicated, nor is it necessarily indicative of
future operation results or financial position of the combined companies.
F-81
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------------------------------------------------------
PRO FORMA
PARALOGIC BUSINESS
MIGHTYMAIL SOFTWARE COMBINATION
XOOM.COM NETWORKS, INC. CORPORATION COMBINED ADJUSTMENTS PRO FORMA
----------- --------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 43,381 $ 39 $ 199 $ 43,619 $ -- $ 43,619
Short-term investments......... 9,290 -- -- 9,290 -- 9,290
Accounts receivable, net....... 1,610 -- 109 1,719 -- 1,719
Inventories.................... 282 -- -- 282 -- 282
Other current assets........... 477 153 5 635 -- 635
----------- ------- ------------- ----------- ------------- -----------
Total current assets............. 55,040 192 313 55,545 -- 55,545
Fixed assets, net.............. 3,248 76 21 3,345 -- 3,345
Goodwill, net.................. 3,165 -- -- 3,165 51,563(2) 54,728
Intangibles, net............... 1,490 -- -- 1,490 8,525(2) 10,015
Investments.................... 1,004 -- -- 1,004 -- 1,004
Prepaid royalties and
licenses..................... 74 -- -- 74 -- 74
Other assets................... 769 -- 769 -- 769
----------- ------- ------------- ----------- ------------- -----------
Total assets..................... $ 64,790 $ 268 $ 334 $ 65,392 $ 60,088 $ 125,480
----------- ------- ------------- ----------- ------------- -----------
----------- ------- ------------- ----------- ------------- -----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:.............
Accounts payable............... $ 2,097 $ 207 $ 27 $ 2,331 $ 615(1) $ 2,946
Accrued compensation and
related expenses............. 863 39 -- 902 -- 902
Other accrued liabilities...... 1,264 -- -- 1,264 -- 1,264
Deferred revenue............... 411 -- 266 677 (254) 423
Notes payable.................. 1,191 60 1 1,252 -- 1,252
Capital lease obligations...... 39 -- -- 39 -- 39
Contingency accrual............ 1,000 -- -- 1,000 -- 1,000
----------- ------- ------------- ----------- ------------- -----------
Total current liabilities........ 6,865 306 294 7,465 361 7,826
Notes payable, less current
portion........................ 370 -- -- 370 -- 370
Capital lease obligations, less
current portion................ 105 -- -- 105 -- 105
Stockholders' equity:............
Preferred stock................ -- 451 165 616 (616)(3) --
Common stock................... 75,801 2,393 3,862 82,056 56,108 ( ,(4 138,164
Notes receivable from
shareholder.................. -- (7) (3) (10) -- (10)
Deferred compensation.......... (674) (1,468) (3,230) (5,372) 4,698(3) (674)
Accumulated deficit............ (17,677) (1,407) (754) (19,838) (463)(3) (20,301)
----------- ------- ------------- ----------- ------------- -----------
Total stockholders' equity....... 57,450 (38) 40 57,452 59,727 117,179
----------- ------- ------------- ----------- ------------- -----------
Total liabilities and
stockholders' equity........... $ 64,790 $ 268 $ 334 $ 65,392 $ 60,088 $ 125,480
----------- ------- ------------- ----------- ------------- -----------
----------- ------- ------------- ----------- ------------- -----------
</TABLE>
F-82
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------
PRO FORMA
PARALOGIC BUSINESS
MIGHTYMAIL SOFTWARE COMBINATION
XOOM.COM NETWORKS, INC. CORPORATION COMBINED ADJUSTMENTS PRO FORMA
-------- -------------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenue....................................... $ 8,318 $ 355 $ 239 8,912 $ -- 8,912
Total cost of net revenue......................... 3,584 215 13 3,812 -- 3,812
-------- ----- ----- -------- -------------- ---------
Gross margin...................................... 4,734 140 226 5,100 -- 5,100
Operating expenses:
Operating and development....................... 3,841 62 145 4,048 -- 4,048
Sales and marketing............................. 2,834 57 73 2,964 -- 2,964
General and administrative...................... 3,366 297 35 3,698 -- 3,698
Purchased in-process research and development... 790 -- -- 790 --(A) 790
Amortization of deferred compensation........... 1,416 -- 182 1,598 -- 1,598
Amortization of goodwill and other intangible
assets........................................ 1,843 -- -- 1,843 14,752(B) 16,595
-------- ----- ----- -------- -------------- ---------
Total operating expenses.......................... 14,090 416 435 14,941 14,752 29,693
-------- ----- ----- -------- -------------- ---------
Loss income from operations....................... (9,356) (276) (209) (9,841) (14,752) (24,593)
Other income (expense):
Interest income................................. 187 1 -- 188 -- 188
Interest expense................................ (135) (6) (1) (142) -- (142)
Interest expense related to warrant............. (1,494) -- -- (1,494) -- (1,494)
-------- ----- ----- -------- -------------- ---------
Net loss.......................................... $(10,798) $(281) $(210) $(11,289) $(14,752) $(26,041)
-------- ----- ----- -------- -------------- ---------
-------- ----- ----- -------- -------------- ---------
Basic and diluted net loss per share.............. (C) $ (2.91)
---------
---------
Shares used in per share calculation--basic and
diluted......................................... (C) 8,964
---------
---------
</TABLE>
F-83
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------------------------------------------
PRO FORMA
PARALOGIC BUSINESS
MIGHTYMAIL SOFTWARE COMBINATION
XOOM.COM NETWORKS, INC. CORPORATION COMBINED ADJUSTMENTS PRO FORMA
-------- -------------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenue..................................... $ 4,422 $ -- $ 73 $ 4,495 $ -- $ 4,495
Total cost of net revenue....................... 2,042 -- 7 2,049 -- 2,049
-------- ------- ----- -------- ------- ---------
Gross margin.................................... 2,380 -- 66 2,446 -- 2,446
Operating expenses:
Operating and development..................... 1,149 462 94 1,705 -- 1,705
Sales and marketing........................... 2,434 19 47 2,500 -- 2,500
General and administrative.................... 1,623 205 23 1,851 -- 1,851
Purchased in-process research and
development................................. -- -- -- -- --(A) --
Amortization of deferred compensation......... 230 524 447 1,201 -- 1,201
Amortization of goodwill and other intangible
assets...................................... 862 -- -- 862 3,688(B) 4,550
-------- ------- ----- -------- ------- ---------
Total operating expenses........................ 6,298 1,210 611 8,119 3,688 11,807
-------- ------- ----- -------- ------- ---------
Loss from operations............................ (3,918) (1,210) (545) (5,673) (3,688) (9,361)
Other income (expense):
Interest income............................... 640 1 1 642 -- 642
Interest expense.............................. (30) (2) -- (32) -- (32)
-------- ------- ----- -------- ------- ---------
Net loss........................................ $(3,308) $(1,211) $(544) $(5,063) $(3,688) $(8,751)
-------- ------- ----- -------- ------- ---------
-------- ------- ----- -------- ------- ---------
Basic and diluted net loss per share............ (C) $ (0.59)
---------
---------
Shares used in per share calculation--basic and
diluted....................................... (C) 14,896
---------
---------
</TABLE>
F-84
<PAGE>
XOOM.COM, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The total estimated purchase cost of the MightyMail Networks, Inc. and
Paralogic Software Corporation mergers have been allocated on a preliminary
basis to assets and liabilities based on management's estimate of their fair
values. The excess of the purchase cost over the fair value of the net assets
acquired has been allocated to goodwill. This allocation is subject to change
pending the completion of the final analysis of the fair value of the assets
acquired and liabilities assumed. The impact of these changes could be material.
The adjustments to the unaudited pro forma condensed combined balance sheet
as of March 31, 1999, have been calculated as if the merger occurred on March
31, 1999 and are as follows:
(1) To reflect the acquisition of MightyMail Networks, Inc. and Paralogic
Software Corporation for total estimated purchase prices of approximately
$23,114,000 and $39,864,000, respectively. The purchase consideration
consists of the following:
- Issuance of 302,354 and 748,816 shares of Xoom.com's common stock to the
shareholders of MightyMail Networks, Inc. and Paralogic Software
Corporation respectively, with a fair value of $21,497,000 and
$35,292,000, respectively. The fair value per share of Xoom.com's common
stock issued in the MightyMail Networks, Inc. acquisition is based on the
average closing price of Xoom.com's common stock on May 5, 1999 (the day
the MightyMail Networks, Inc. merger was announced) and the three days
prior and subsequent to such date. The fair value per share of Xoom.com's
common stock issued in the Paralogic Software Corporation acquisition is
based on the average closing price of Xoom.com's common stock on June 17,
1999 (the day the Paralogic Software Corporation merger was announced) and
the three days prior and subsequent to such date.
- Assumption of options related to MightyMail Networks, Inc. and Paralogic
Software Corporation acquisitions to purchase 21,182 and 94,734 shares,
respectively, of Xoom.com's common stock with a fair value of $1,317,000
and $4,257,000 , respectively. The fair value of the options assumed is
based on the Black-Scholes model using the following assumptions:
- Fair market value of the underlying shares is based on the average
closing price of Xoom.com's common stock the day the mergers were
announced and the three days prior and subsequent to such date
- Expected life of 3 years
- Expected volatility of 1.0
- Risk free interest rate of 5.16%
- Expected dividend rate of 0%
- Other related transaction and merger costs estimated to be $300,000 and
$315,000 for the aquisitions of Mighty Mail Networks, Inc. and Paralogic
Software Corporation, respectively.
F-85
<PAGE>
XOOM.COM, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(2) Recognition of the excess purchase cost of $60,088,000 over the fair value
of the net assets acquired, has been recorded as goodwill and other
intangible assets as follows:
<TABLE>
<CAPTION>
MIGHTYMAIL PARALOGIC
NETWORKS, SOFTWARE
INC. CORPORATION TOTAL
------------- ---------------- ------------
<S> <C> <C> <C>
Developed technology.......................... $ 847,000 $ 1,212,000 $ 2,059,000
Core technology............................... 2,436,000 3,774,000 6,210,000
Acquired workforce............................ 176,000 80,000 256,000
Goodwill...................................... 18,604,000 32,959,000 51,563,000
------------- ---------------- ------------
Total......................................... 22,063,000 38,025,000 60,088,000
------------- ---------------- ------------
------------- ---------------- ------------
</TABLE>
(3) To reflect the elimination of the historical stockholders' equity accounts
MightyMail Networks, Inc. and Paralogic Software Corporation, respectively.
(4) Recognition of purchased in-process research and development charges of
$1,082,000 and $1,542,000 related to MightyMail Networks, Inc. and Paralogic
Software Corporation, respectively.
(5) To eliminate the estimated gross margin associated with the Paralogic
Software Corporation deferred revenue.
The adjustments to the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1998 and the three months ended March
31,1999, have been calculated assuming that the mergers occurred as of January
1, 1998 and January 1, 1999, respectively and are as follows:
(A) The purchased in-process research and development charges of $1,082,000 and
$1,542,000 related to MightyMail Networks, Inc. and Paralogic Software
Corporation, respectively, have been excluded from the net loss for the year
ended December 31, 1998 and the three months ended March 31, 1999, as they
represent non-recurring charges.
(B) To reflect the amortization of goodwill and other intangible assets
resulting from the MightyMail Networks, Inc. and Paralogic Software
Corporation acquisitions. The goodwill and other intangible assets are being
amortized over periods of four years.
(C) Basic and diluted net loss per share reflects the issuance of 335,947 and
748,816 shares of Xoom.com's common stock related to the MightyMail
Networks, Inc. and Paralogic Software Corporation acquisitions,
respectively, as if the shares had been outstanding for the entire period.
The effect of stock options issued assumed in the merger have not been
included as their inclusion would be anti-dilutive. The shares issued to the
shareholders of MightyMail Networks, Inc. include 33,593 shares held in
escrow which will be released upon the achievement of certain performance
obligations.
F-86
<PAGE>
APPENDIX A-1
AGREEMENT AND PLAN OF CONTRIBUTION AND MERGER
BY AND AMONG
CNET, INC.,
XOOM.COM, INC.,
XENON 2, INC.(**),
XENON 3, INC.,
AND
SNAP LLC
DATED AS OF MAY 9, 1999
- ------------------------
(**) On July 8, 1999, Xenon 2, Inc. changed its name to NBC Internet, Inc.
<PAGE>
AGREEMENT AND PLAN OF
CONTRIBUTION AND MERGER
AMONG
CNET, INC.
XOOM.COM, INC.
XENON 2, INC.
XENON 3, INC.
AND
SNAP! LLC
DATED AS OF MAY 9, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
ARTICLE I DEFINITIONS .................................................................................. A-1-2
1.1 Definitions................................................................................... A-1-2
ARTICLE II THE MERGER .................................................................................. A-1-6
2.1 The Merger.................................................................................... A-1-6
2.2 Closing....................................................................................... A-1-6
2.3 Effective Time................................................................................ A-1-6
2.4 Effects of the Merger......................................................................... A-1-7
2.5 Certificates of Incorporation................................................................. A-1-7
2.6 By-Laws....................................................................................... A-1-7
2.7 Officers and Directors of Surviving Corporation and Xenon 2................................... A-1-7
2.8 Effect on Capital Stock....................................................................... A-1-7
2.9 Exchange Fund................................................................................. A-1-8
2.10 Exchange Procedures........................................................................... A-1-8
2.11 Distributions with Respect to Unexchanged Shares.............................................. A-1-8
2.12 No Further Ownership Rights in Xoom Stock..................................................... A-1-8
2.13 Termination of Exchange Fund.................................................................. A-1-8
2.14 No Liability.................................................................................. A-1-9
2.15 Lost Certificates............................................................................. A-1-9
2.16 Further Assurances............................................................................ A-1-9
2.17 Stock Transfer Books.......................................................................... A-1-9
2.18 Federal Income Tax Consequences............................................................... A-1-9
ARTICLE III CONTRIBUTIONS AND ISSUANCES OF CLASS A COMMON STOCK ........................................ A-1-9
3.1 Contribution and Issuance of Class A Common Stock to CNET and GBI............................. A-1-9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARTIES ............................................... A-1-10
4.1 Representations and Warranties with respect to SNAP........................................... A-1-10
4.2 Representations and Warranties with respect to Xoom........................................... A-1-17
4.3 Representations and Warranties with respect to CNET........................................... A-1-24
4.4 Survival of Representations and Warranties.................................................... A-1-25
4.5 No Other Representation or and Warranties..................................................... A-1-26
ARTICLE V CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME .................................................. A-1-26
5.1 Conduct of the Business of Xoom Pending the Closing........................................... A-1-26
5.2 Conduct of the Business of SNAP Pending the Closing........................................... A-1-27
5.3 Access to Information......................................................................... A-1-29
5.4 Non-Solicitation of Employees................................................................. A-1-29
5.5 Amendments to Schedules....................................................................... A-1-29
ARTICLE VI OTHER AGREEMENTS ............................................................................ A-1-30
6.1 Registration Statement; Preparation of Proxy Statement........................................ A-1-30
6.2 Stockholder Meeting........................................................................... A-1-31
6.3 Public Statements............................................................................. A-1-31
6.4 Reasonable Commercial Efforts................................................................. A-1-31
6.5 Notification of Certain Matters............................................................... A-1-32
6.6 Xenon 2 Directors............................................................................. A-1-32
6.7 Employee Matters.............................................................................. A-1-32
6.8 Xoom Options.................................................................................. A-1-33
6.9 Release of CNET's Guarantee................................................................... A-1-33
</TABLE>
A-1-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
6.10 Resignation of SNAP's CEO..................................................................... A-1-33
6.11 Tax Cooperation and Consistent Reporting...................................................... A-1-33
6.12 Tax Benefit Payments.......................................................................... A-1-35
6.13 Affiliates.................................................................................... A-1-36
ARTICLE VII CONDITIONS TO CLOSING ...................................................................... A-1-36
7.1 Conditions Precedent to Obligations of Each Party............................................. A-1-36
7.2 Conditions Precedent to Obligations of CNET................................................... A-1-37
7.3 Conditions Precedent to Obligations of Xoom................................................... A-1-37
ARTICLE VIII RESERVED .................................................................................. A-1-38
ARTICLE IX TERMINATION ................................................................................. A-1-38
9.1 Termination Events............................................................................ A-1-38
9.2 Effect of Termination......................................................................... A-1-39
ARTICLE X MISCELLANEOUS AGREEMENTS OF THE PARTIES ...................................................... A-1-39
10.1 Notices....................................................................................... A-1-39
10.2 Integration; Amendments....................................................................... A-1-40
10.3 Waiver........................................................................................ A-1-40
10.4 No Assignment; Successors and Assigns......................................................... A-1-41
10.5 Expenses...................................................................................... A-1-41
10.6 Severability.................................................................................. A-1-41
10.7 Section Headings; Table of Contents........................................................... A-1-41
10.8 Third Parties................................................................................. A-1-41
10.9 GOVERNING LAW; SUBMISSION TO JURISDICTION..................................................... A-1-41
10.10 Specific Performance.......................................................................... A-1-41
10.11 Counterparts.................................................................................. A-1-41
</TABLE>
A-1-ii
<PAGE>
AGREEMENT AND PLAN OF
CONTRIBUTION AND MERGER
This Agreement and Plan of Contribution and Merger, dated as of May 9, 1999
(hereinafter, the "AGREEMENT"), among CNET, Inc., a Delaware corporation
("CNET"), XOOM.com, Inc., a Delaware corporation ("XOOM"), Xenon 2, Inc., a
Delaware corporation ("XENON 2"), Xenon 3, Inc., a Delaware corporation ("XENON
3") and Snap! LLC, a Delaware limited liability company ("SNAP").
W I T N E S S E T H:
WHEREAS, Xenon 2 was formed by Xoom for the purpose of effecting the
transactions contemplated by this Agreement and all of its outstanding capital
stock is owned by Xoom;
WHEREAS, Xenon 3 was formed by Xenon 2 for the purpose of effecting the
transactions contemplated by this Agreement and all of its outstanding capital
stock is owned by Xenon 2;
WHEREAS, the Boards of Directors of each of Xoom, Xenon 2 and Xenon 3
believe it is advisable to enter into this Agreement and to consummate the
transactions contemplated by this Agreement;
WHEREAS, Xoom, Xenon 2, National Broadcasting Company, Inc., a Delaware
corporation ("NBC"), Neon Media Corporation, a Delaware corporation ("NMC"), and
GE Investments Subsidiary, Inc., a Delaware corporation ("GE INVESTMENTS SUB"),
are parties to an Agreement and Plan of Contribution, Investment and Merger
dated as of the date hereof (the "NMC MERGER AGREEMENT") pursuant to which,
among other things, the parties thereto have agreed that (i) NBC will contribute
or cause its subsidiaries to contribute to NMC certain assets, (ii) NMC will
merge with and into Xenon 2, with Xenon 2 as the surviving corporation, and each
outstanding share of common stock of NMC will be converted into one share of
Xenon 2's Class B Common Stock, (iii) NBC will contribute or cause its
subsidiaries to contribute certain assets to Xenon 2 and (iv) GE Investments Sub
will purchase the Xenon 2 Convertible Note in exchange for a combination of cash
and the assignment of the NBC Note;
WHEREAS, while the closing under the NMC Merger Agreement and the closing
under this Agreement are not contingent on each other, it is intended that both
transactions represent a series of steps in the formation of Xenon 2 whereby the
rights of all the parties are defined;
WHEREAS, the consummation of the transactions contemplated by this Agreement
and the NMC Merger Agreement would combine certain assets of NBC and CNET with
the existing business of Xoom in a new holding company structure intended to
achieve important business objectives;
WHEREAS, concurrently with the execution hereof, in order to induce NBC to
enter into the NMC Merger Agreement, NBC, Xoom and certain stockholders of Xoom
are entering into a voting agreement providing for certain voting and other
restrictions with respect to shares of Xoom common stock owned by such
stockholders, all upon the terms and conditions specified therein; and
WHEREAS, Xoom, CNET, Xenon 2, Xenon 3 and SNAP desire to make certain
representations, warranties, covenants and other agreements in connection with
the transactions contemplated hereby.
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<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
I.1 DEFINITIONS. (a) Capitalized terms used and not defined in this
Agreement shall have the following meanings:
"AFFILIATE" means with respect to a specified Person, any Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person. As used in
this definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, as trustee
or executor, by contract or credit arrangement or otherwise.
"BUSINESS DAY" means a day, other than Saturday or Sunday, on which
commercial banks in New York City are open for the general transaction of
business.
"CLASS A COMMON STOCK" means the Class A common stock, $0.0001 par value per
share, of Xenon 2.
"CLASS B COMMON STOCK" means the Class B common stock, $0.0001 par value per
share, of Xenon 2.
"CNET STANDSTILL AGREEMENT" means a Standstill Agreement between Xenon 2 and
CNET to be dated as of the closing date under the NMC Merger Agreement
substantially in the form of EXHIBIT B to the NMC Merger Agreement.
"CNET VOTING AGREEMENT" means a Voting and Right of First Offer Agreement
between CNET and NBC to be dated as of the closing date under the NMC Merger
Agreement substantially in the form of EXHIBIT C to the NMC Merger Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRIBUTED ASSETS" means outstanding Xoom Stock immediately prior to the
Effective Time and the SNAP Units to be contributed by CNET and GBI pursuant to
SECTION 3.1.
"ENVIRONMENTAL LAWS" means any and all laws, rules, orders, regulations,
statutes, ordinances, guidelines, codes, decrees, or other legally enforceable
requirement (including, without limitation, common law) of any foreign
government, the United States, or any state, local, municipal or other
governmental authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment or of human
health, or employee health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FINAL DETERMINATION" means a determination as defined in Section 1313(a) of
the Code or any other event which finally and conclusively establishes the
amount of any liability for Taxes.
"FLYING DISC" means Flying Disc Investments Limited Partnership, a Nevada
limited partnership.
"GAAP" means generally accepted accounting principles in the United States.
"GBI" means Globalbrain.net, Inc., a California corporation.
A-1-2
<PAGE>
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"IMPLEMENTING AGREEMENTS" means, the Registration Rights Agreement, the CNET
Voting Agreement and the CNET Standstill Agreement.
"INDEPENDENT ACCOUNTANTS" means a nationally recognized firm of independent
certified public accountants selected and retained by the mutual agreement of
CNET and Xenon 2.
"INTELLECTUAL PROPERTY" shall mean any patents, patent registrations, patent
applications, trademarks, trademark registrations, trademark applications,
tradenames, copyrights, copyright applications, copyright registrations,
franchises, universal resource locators, domain names, permits, licenses,
processes, formulae, proprietary technology, inventions, trade secrets,
know-how, product descriptions and specifications.
"KNOWLEDGE OF" or "BEST KNOWLEDGE OF" a party hereto when modifying any
representation and warranty shall mean that such party has no actual knowledge
that such representation and warranty is not true and correct to the extent
provided therein and that (i) such party has made appropriate investigations and
inquiries of its officers and responsible employees and (ii) nothing has come to
its attention in the course of such investigation and inquiries which would
cause such party, in the exercise of due care, to believe that such
representation and warranty is not true and correct to the extent provided
therein; PROVIDED that each of the parties hereto shall be deemed to have
satisfied the foregoing requirements by making appropriate investigations and
inquiries of its officers and employees listed on SCHEDULE 1.1(a), and no
knowledge of any other director, officer or employee of such party shall be
imputed to the persons listed on the Schedule or to such party.
"LIABILITY" means, as to any Person, all debts, liabilities and obligations,
direct, indirect, absolute or contingent of such Person, whether accrued, vested
or otherwise, whether known or unknown and whether or not actually reflected, or
required to be reflected, in such Person's balance sheets.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind.
"LOSSES AND EXPENSES" means any and all damages, claims, losses, expenses,
costs, obligations and Liabilities, including, without limiting the generality
of the foregoing, Liabilities for all reasonable attorneys' fees and expenses
(including attorney and expert fees and expenses incurred to enforce the terms
of this Agreement), PROVIDED, HOWEVER, that "Losses and Expenses" shall not
include any lost profits or other incidental, consequential or punitive damages.
"MATERIAL ADVERSE EFFECT" means, for any party, a material adverse effect on
(i) the assets, liabilities, business, results of operations or financial
condition of (A) Xoom and its Subsidiaries, taken as a whole, in the case of
Xoom or (B) SNAP, in the case of SNAP or CNET; or (ii) the ability of such party
to perform its obligations hereunder, under the Option Agreement, under the
Voting Agreement or under the Implementing Agreements to which it is a party.
Notwithstanding the foregoing, the occurrence of one of the following events,
without the occurrence of any other events, shall not be deemed by itself to
constitute a Material Adverse Effect: (i) a change in the market price or
trading volume of the outstanding equity securities of a party that is publicly
traded, (ii) the failure of a party to meet earnings estimates of equity
analysts as reflected in the First Call consensus estimates for any period (or
for which earnings are released) on or after the date of this Agreement and
prior to the Effective Time or (iii) adverse conditions affecting the U.S.
economy as a whole or affecting the multi-media industry (including
internet-related businesses) as a whole (PROVIDED that in each case such changes
do not affect such party in a disproportionate manner).
A-1-3
<PAGE>
"MATERIALS OF ENVIRONMENTAL CONCERN" means any gasoline or petroleum
(including, without limitation, crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos,
pollutants, contaminants, radioactivity, and any other substances of any kind,
whether or not any such substance is defined as hazardous or toxic under any
Environmental Law, that is regulated pursuant to or could give rise to liability
under any Environmental Law.
"MEMBER OF THE CONTROLLED GROUP" means each trade or business, whether or
not incorporated, which would be treated as a single employer with the named
trade or business under Section 4001 of ERISA or Section 414(b), (c), (m) or (o)
of the Code.
"NASDAQ" means the Nasdaq National Market.
"NBC NOTE" means the $340,000,000 note issued by NBC to GE Investments Sub
to be transferred to Xenon 2 on the closing date under the NMC Merger Agreement.
"NMC MERGER AGREEMENT" means the Agreement and Plan of Contribution,
Investment and Merger, dated as of the date hereof, among Xoom, Xenon 2, NBC,
NMC and GE Investments Sub.
"OPTION AGREEMENT" means the Stock Option Agreement, dated as of the date
hereof, between NBC and Xoom.
"OTHER PROPERTY OR MONEY" means other property or money within the meaning
of Section 351(b) or Section 356(a) of the Code.
"PERMITTED LIENS" means (i) Liens for Taxes that (x) are not yet due or
delinquent or (y) are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP;
(ii) statutory Liens or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business with respect to amounts not yet overdue for a period
of 45 days or amounts being contested in good faith by appropriate proceedings
if a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor; (iii) Liens incurred or deposits made in
connection with workers' compensation, unemployment insurance and other types of
social security or similar benefits; (iv) Liens incurred or deposits made to
secure the performance of tenders, bids, leases, statutory obligations, surety
and appeal bonds, government contracts, performance and return-of-money bonds
and other obligations of like nature; (v) easements, rights-of-way, restrictions
and other similar charges or encumbrances on real property interests which,
individually or in the aggregate, do not materially interfere with the ordinary
conduct of the relevant entity or business, taken as a whole or the use of any
such real property for its current uses; (vi) leases or subleases granted to
others which do not materially interfere with the ordinary conduct of the
relevant entity or business, taken as a whole; (vii) with respect to real
property, title defects or irregularities that do not in the aggregate
materially impair the use of the property; (viii) any other Liens imposed by
operation of law that do not, individually or in the aggregate, have a Material
Adverse Effect on the relevant entity or business, taken as a whole; and (ix) as
to any real property leases with respect to which the relevant entity is a
lessee, any Lien affecting the interest of the landlord thereunder.
"PERSON" means any individual, corporation, partnership, joint venture,
trust, incorporated organization, limited liability company, other form of
business or legal entity or Governmental Authority.
"POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending
after the Closing Date.
"PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending on
or before the Closing Date.
A-1-4
<PAGE>
"REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement
among Xenon 2, NBC, CNET and Flying Disc to be dated as of the closing date
under the NMC Merger Agreement having the terms set forth in EXHIBIT G to the
NMC Merger Agreement.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SNAP" means SNAP! LLC, a Delaware limited liability company.
"SNAP LLC AGREEMENT" means the limited liability company agreement of SNAP,
as amended from time to time.
"SNAP UNITS" means the units representing limited liability company
interests under the SNAP LLC Agreement.
"SUBSIDIARY" or "SUBSIDIARIES" of any Person means any corporation,
partnership, limited liability company, joint venture or other legal entity of
which such Person (either alone or through or together with any other
subsidiary) owns, directly or indirectly, more than 50% of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity and any partnership of which such Person serves as general
partner.
"TAX AUTHORITY" shall mean any Governmental Authority having jurisdiction
over Taxes.
"TAXES" shall mean all federal, state, local and foreign taxes, fees,
charges and other assessments of a similar nature, whether imposed directly or
through withholding, including, without limitation, any net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, payroll, employment, excise, severance, stamp,
capital stock, occupation, property, environmental or windfall tax, premium,
custom, duty or other tax, together with any interest, additions to tax, or
penalties applicable thereto.
"TAX RETURNS" shall mean all federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amended tax returns relating to Taxes.
"VOTING AGREEMENT" means the Voting Agreement dated as of the date hereof
among Xoom, NBC, Flying Disc and Chris Kitze.
"XENON 2 CONVERTIBLE NOTE" means the $486,894,758 convertible note to be
issued by Xenon 2 to GE Investments Sub on the closing date under the NMC Merger
Agreement having the terms set forth in EXHIBIT H to the NMC Merger Agreement.
"XOOM PREFERRED STOCK" means shares of preferred stock, par value $.0001 per
share, of Xoom.
"XOOM STOCK" means shares of common stock, par value $.0001 per share, of
Xoom.
(b) As used in this Agreement, each of the following capitalized terms shall
have the meaning ascribed to them in the Section set forth opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
- ------------------------------------------------------------------------------------- -----------
<S> <C>
Affiliate Agreement.................................................................. 6.13
Certificate of Merger................................................................ 2.3
Class A Common Stock................................................................. 1.1
Class B Common Stock................................................................. 1.1
Closing.............................................................................. 2.2
Closing Date......................................................................... 2.2
</TABLE>
A-1-5
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ------------------------------------------------------------------------------------- -----------
<S> <C>
Effective Time....................................................................... 2.3
ERISA................................................................................ 4.1(p)
Exchange Agent....................................................................... 2.9
Form S-4............................................................................. 6.1
Indemnified Party.................................................................... 6.6
Merger............................................................................... 2.1
Merger Consideration................................................................. 2.8
Proxy Statement...................................................................... 6.1
Required Consents.................................................................... 6.4
SEC Documents........................................................................ 4.2(h)(i)
SNAP Balance Sheet................................................................... 4.1(f)
SNAPBudget........................................................................... 4.1(i)
SNAP Employees....................................................................... 6.7(a)(i)
SNAP Intellectual Property........................................................... 4.1(l)
SNAP Options......................................................................... 4.1(t)
SNAP Plans........................................................................... 4.1(p)
Stockholder Approval................................................................. 4.2(b)
Surviving Corporation................................................................ 2.1
Stockholder Meeting.................................................................. 6.2
Xoom Budget.......................................................................... 4.2(k)
Xoom ESPP............................................................................ 6.8(b)
Xoom Intellectual Property........................................................... 4.2(n)
Xoom Non-Plan Options................................................................ 4.2(g)
Xoom Options......................................................................... 4.2(g)
Xoom Option Plan..................................................................... 4.2(g)
Xoom Plan Options.................................................................... 4.2(g)
Xenon 2 Option....................................................................... 6.8(a)
Xenon 2 Option Plan.................................................................. 6.8(a)
</TABLE>
ARTICLE II
THE MERGER
II.1 THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), Xenon 3 shall be merged (the "MERGER") with and into Xoom at the
Effective Time (as defined in SECTION 2.3). Following the Merger, the separate
corporate existence of Xenon 3 shall cease and Xoom shall continue as the
surviving corporation (the "SURVIVING CORPORATION").
II.2 CLOSING. Subject to the satisfaction or waiver (subject to applicable
law) of the conditions set forth in ARTICLE VII, the closing of the Merger and
the transactions contemplated by this Agreement (the "CLOSING") will take place
on the Business Day after all the conditions to Closing (other than conditions
that, by their terms, cannot be satisfied until the Closing Date) set forth in
ARTICLE VII shall have been satisfied or waived, unless this Agreement has been
theretofore terminated pursuant to its terms, unless another time or date is
agreed to in writing by the parties hereto (the actual time and date of the
Closing being referred to herein as the "CLOSING DATE"). The Closing shall be
held at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York, 10017, unless another place is agreed to in writing by the
parties hereto.
II.3 EFFECTIVE TIME. As soon as practicable following the satisfaction of
the conditions set forth in ARTICLE VII, the parties shall (i) file a
certificate of merger (the "CERTIFICATE OF MERGER") executed in accordance with
the relevant provisions of the DGCL and (ii) make all other filings or
recordings
A-1-6
<PAGE>
required under the DGCL. The Merger shall become effective at such time as shall
be specified in the Certificate of Merger (the date and time the Merger becomes
effective being the "EFFECTIVE TIME").
II.4 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
will have the effects set forth in the DGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of Xoom and Xenon 3 shall be vested in
the Surviving Corporation, and all debts, liabilities and duties of Xoom and
Xenon 3 shall become the debts, liabilities and duties of the Surviving
Corporation.
II.5 CERTIFICATES OF INCORPORATION. (a) The certificate of incorporation
of Xoom, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(b) Xoom and Xenon 2 shall cause the certificate of incorporation of Xenon 2
to be amended and restated effective as of the Effective Time so as to provide
for an authorized capitalization as set forth on SCHEDULE 2.5(b) and shall
otherwise be substantially the same as the certificate of incorporation of Xoom
as in effect immediately prior to the Effective Time, with such changes therein
as CNET, Xenon 2 and Xoom may agree upon prior to the Effective Time.
II.6 BY-LAWS. (a) The by-laws of Xoom, as in effect immediately prior to
the Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
(b) Xoom and Xenon 2 shall cause the by-laws of Xenon 2 to be amended and
restated effective as of the Effective Time so as to be substantially the same
as the by-laws of Xoom as in effect immediately prior to the Effective Time,
with such changes therein as CNET, Xenon 2 and Xoom may agree upon prior to the
Effective Time.
II.7 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION AND XENON 2. The
officers of Xoom as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of the Surviving Corporation as
of the Effective Time shall be as provided in SCHEDULE 2.7, which individuals
will serve as directors of the Surviving Corporation until the earlier of their
resignation or removal or otherwise ceasing to be a director or until their
respective successors are duly elected and qualified. Xoom and Xenon 2 shall
cause the officers and directors of Xenon 2 as of the Effective Time to be as
provided in SCHEDULE 2.7.
II.8 EFFECT ON CAPITAL STOCK. (a) At the Effective Time by virtue of the
Merger and without any action on the part of the holder thereof, each share of
Xoom Stock issued and outstanding immediately prior to the Effective Time (other
than shares of Xoom Stock held by Xoom, all of which shall be canceled as
provided in SECTION 2.8(c)) shall be converted into the right to receive one
share of Class A Common Stock (the "MERGER CONSIDERATION").
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Xoom Stock shall be
canceled and shall cease to exist, and each holder of a certificate which
immediately prior to the Effective Time represented any such shares of Xoom
Stock (a "CERTIFICATE") shall thereafter cease to have any rights with respect
to such shares of Xoom Stock, except as provided herein or by law.
(c) Each share of Xoom Stock issued and owned or held by Xoom at the
Effective Time shall, by virtue of the Merger, cease to be outstanding and shall
be canceled and no stock of Xenon 2 or other consideration shall be delivered in
exchange therefor.
(d) Each share of common stock, par value $0.0001 per share, of Xenon 3
issued and outstanding immediately prior to the Effective Time, shall be
converted into one validly issued, fully paid and
A-1-7
<PAGE>
nonassessable share of common stock, par value $0.0001 per share, of the
Surviving Corporation as of the Effective Time.
II.9 EXCHANGE FUND. Prior to the Effective Time, Xenon 2 shall appoint a
commercial bank or trust company (or a subsidiary thereof) reasonably acceptable
to Xenon 2 and Xoom to act as exchange agent hereunder for the purpose of
exchanging Certificates for the Merger Consideration (the "EXCHANGE AGENT"). At
or prior to the Effective Time, Xenon 2 shall deposit with the Exchange Agent,
in trust for the benefit of holders of shares of Xoom Stock, certificates
representing the Class A Common Stock issuable pursuant to SECTION 2.8 in
exchange for outstanding shares of Xoom Stock.
II.10 EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Xenon 2 shall cause the Exchange Agent to mail to each holder of
a Certificate (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent, and which letter
shall be in customary form and have such other provisions as Xenon 2 may
reasonably specify and (ii) instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of a Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor one
or more shares of Class A Common Stock (which shall be in uncertificated
book-entry form unless a physical certificate is requested) representing, in the
aggregate, the number of shares that such holder has the right to receive
pursuant to SECTION 2.8. In the event of a transfer of ownership of Xoom Stock
which is not registered in the transfer records of Xoom the proper number of
shares of Class A Common Stock may be issued with respect to such Xoom Stock to
such a transferee if the Certificate formerly representing such shares of Xoom
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
II.11 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made with respect to shares of Class A Common
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of Class A Common Stock
that such holder would be entitled to receive upon surrender of such Certificate
until such holder shall surrender such Certificate in accordance with SECTION
2.10. Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to such holder of shares of Class A Common
Stock issuable in exchange therefor, without interest, (a) promptly after the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Class A Common Stock, and (b) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to such
surrender payable with respect to such shares of Class A Common Stock.
II.12 NO FURTHER OWNERSHIP RIGHTS IN XOOM STOCK. All shares of Class A
Common Stock issued upon surrender of certificates in accordance with the terms
of this ARTICLE II shall be deemed to have been issued in full satisfaction of
all rights pertaining to the shares of Xoom Stock formerly represented thereby.
II.13 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Time shall be delivered to the Surviving Corporation or otherwise on
the instruction of the Surviving Corporation, and any holders of the
Certificates who have not theretofore complied with this ARTICLE II shall
thereafter look only to Xenon 2 for the Merger Consideration with respect to the
shares of Xoom Stock formerly represented thereby to which such holders are
entitled pursuant to SECTION 2.8 and SECTION 2.10 and any dividends or
distributions with respect to shares of Class A Common Stock to which such
holders are
A-1-8
<PAGE>
entitled pursuant to SECTION 2.11. Any such portion of the Exchange Fund
remaining unclaimed by holders of shares of Xoom Stock five years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental
Entity) shall, to the extent permitted by law, become the property of the
Surviving Corporation free and clear of any claims or interest of any Person
previously entitled thereto.
II.14 NO LIABILITY. None of SNAP, CNET, Xenon 2, Xenon 3, Xoom, the
Surviving Corporation or the Exchange Agent shall be liable to any Person in
respect of any Merger Consideration from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
II.15 LOST CERTIFICATES. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Xenon 2, the posting by such Person of a bond in such reasonable amount as Xenon
2 may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will deliver in exchange for
such lost, stolen or destroyed Certificate the applicable Merger Consideration
with respect to the shares of Xoom Stock formerly represented thereby and unpaid
dividends and distributions on shares of Class A Common Stock deliverable in
respect thereof, pursuant to this Agreement.
II.16 FURTHER ASSURANCES. At and after the Effective Time, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of Xoom or Xenon 3, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of Xoom
or Xenon 3, any other actions and things to vest, perfect or confirm of record
or otherwise in the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger.
II.17 STOCK TRANSFER BOOKS. The stock transfer books of Xoom shall be
closed immediately upon the Effective Time and there shall be no further
registration of transfers of shares of Xoom Stock issued and outstanding
immediately prior to the Effective Time thereafter on the records of Xoom. On or
after the Effective Time, any Certificates presented to the Exchange Agent or
Xenon 2 for any reason shall be canceled and exchanged for certificates
representing the Merger Consideration with respect to the shares of Xoom Stock
formerly represented thereby and any dividends or other distributions to which
the holders thereof are entitled pursuant to SECTION 2.11.
II.18 FEDERAL INCOME TAX CONSEQUENCES. For federal income tax purposes, it
is intended that the Merger qualify as a contribution of Xoom Stock to Xenon 2
qualifying under Section 351 of the Code and as a "reorganization," within the
meaning of Section 368(a) of the Code, and that each of Xenon 2, Xoom and Xenon
3 be a "party to a reorganization," within the meaning of Section 368(b) of the
Code, with respect to the Merger.
ARTICLE III
CONTRIBUTIONS AND ISSUANCES OF CLASS A COMMON STOCK
III.1 CONTRIBUTION AND ISSUANCE OF CLASS A COMMON STOCK TO CNET AND
GBI. (a) Subject to the satisfaction or waiver of the conditions set forth in
this Agreement, at the Closing and immediately after the Effective Time, CNET
shall, shall cause its Subsidiaries to, and shall require GBI to, assign,
transfer and convey to Xenon 2 (or one or more wholly-owned Subsidiaries of
Xenon 2 designated by Xenon 2), and Xenon 2 (or one or more wholly-owned
Subsidiaries of Xenon 2 designated by Xenon 2) shall acquire all of CNET's and
GBI's right, title and interest to the SNAP Units held by CNET and GBI free and
clear of all Liens.
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(b) In connection with the transactions described in SECTION 3.1(a), Xenon
2, CNET and GBI shall execute all purchase, transfer and other agreements which
counsel for Xoom and CNET determine are reasonably necessary to effect the
transactions described therein.
(c) In exchange for the transfer of the SNAP Units set forth in SECTION
3.1(a), at the Closing and immediately following the Effective Time, Xenon 2
shall issue to CNET 7,147,584 shares of Class A Common Stock.
(d) In exchange for the transfer of the SNAP Units set forth in SECTION
3.1(a), at the Closing and immediately following the Effective Time, Xenon 2
shall issue to GBI 97,479 shares of Class A Common Stock.
(e) Upon the original issuance of the shares of Class A Common Stock by
Xenon 2 to CNET hereunder, and until such time as the same is no longer required
hereunder or under the applicable requirements of the Securities Act or
applicable state securities laws, any certificate issued representing any such
Class A Common Stock shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS (A) THEY ARE SO REGISTERED OR (B)
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THE ISSUER
IS FURNISHED WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER TO THAT EFFECT. IN ADDITION, SUCH SHARES MAY ONLY BE
TRANSFERRED PURSUANT TO THE PROVISIONS OF THE STANDSTILL
AGREEMENT, DATED AS OF , 1999, BETWEEN THE ISSUER AND
CNET, INC., AS THE SAME MAY BE AMENDED FROM TIME TO TIME, COPIES
OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER."
(f) Upon the original issuance of the shares of Class A Common Stock by
Xenon 2 to GBI hereunder, and until such time as the same is no longer required
hereunder or under the applicable requirements of the Securities Act or
applicable state securities laws, any certificate issued representing any such
Class A Common Stock shall bear a legend containing the first sentence of the
legend set forth in SECTION 3.1(e) above.
(g) It is intended that the transfers described in SECTION 3.1(a) as part of
the plan for the formation of Xenon 2 will qualify as a non-taxable transfer
pursuant to Section 351 of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
IV.1 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO SNAP. SNAP represents
and warrants to Xoom as follows:
(a) DUE ORGANIZATION, POWER AND GOOD STANDING. SNAP is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has the requisite power and authority to own, lease and
operate its properties and to conduct its business as now conducted by it.
SNAP is qualified to do business and is in good standing in all
jurisdictions in which it conducts its business, except where the failure to
do so would not, individually or in the aggregate, taken as a whole, have a
Material Adverse Effect. SNAP has no Subsidiaries other than SNAP!
International LLC which has not commenced business operations and has no
material assets or liabilities.
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(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance by SNAP of this Agreement, the consummation by SNAP of the
transactions contemplated hereby and the transfer of the SNAP Units pursuant
hereto have been duly authorized by all necessary action on the part of SNAP
and constitutes a valid and legally binding obligation of SNAP, enforceable
against it in accordance with its terms.
(c) GOVERNMENTAL APPROVALS; CONSENTS. Except as described in SCHEDULE
4.1(c), the execution, delivery and performance by SNAP of this Agreement
and the consummation by SNAP of the transactions contemplated hereby will
not (i) conflict with or result in a breach of any provision of the SNAP LLC
Agreement; (ii) require any consent, approval, authorization or permit of,
or filing with, or notification to, any Governmental Authority; (iii)
require the consent or approval of any Person (other than a Governmental
Authority) or violate or conflict with, or result in a breach of any
provision of, constitute a default (or an event which with notice or lapse
of time or both would become a default) or give to any third party any right
of termination, cancellation, amendment or acceleration under, or result in
the creation of a Lien on any of the assets of SNAP under any of the terms,
conditions or provisions of any contract or license to which SNAP is a party
or by which it or its assets or property are bound; or (iv) violate or
conflict with any order, writ, injunction, decree, statute, rule or
regulation applicable to SNAP; other than any consents, approvals,
authorizations and permits the failure of which to obtain and any
violations, conflicts, breaches defaults and other matters set forth
pursuant to clauses (ii), (iii) and (iv) above which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(d) CERTAIN FEES. Neither SNAP nor any of the officers, directors or
employees, thereof has employed any broker or finder or incurred any other
Liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby or by the NMC Merger Agreement
except that SNAP has employed BT Alex. Brown Incorporated whose fees and
expenses will be paid in accordance with SECTION 10.5 if the transactions
contemplated by this Agreement are consummated and otherwise will be paid by
SNAP.
(e) EQUITY INTERESTS. As of the date hereof, the outstanding equity
interests in SNAP and the holders thereof are set forth on SCHEDULE 4.1(e)
hereto. All outstanding SNAP Units are duly authorized, validly issued,
fully paid and non-assessable and are not subject to any preemptive rights
except as set forth in the SNAP LLC Agreement and have been issued in
compliance with federal and state securities laws. There are no declared or
accrued unpaid distributions with respect to any SNAP Units. The limited
liability company interests of SNAP International LLC have been duly
authorized and issued, and are fully paid and non-assessable and are owned
by SNAP free and clear of all Liens. Except for the capital stock of its
Subsidiaries, SNAP does not own, directly or indirectly, more than 10% of
the capital stock or other ownership interest in any Person and to the
extent it owns less than 10% of the capital stock or other ownership
interest in any Person, such interests in the aggregate do not constitute a
material part of SNAP's assets. Except as set forth on SCHEDULE 4.1(e)
hereto or as provided under the terms of this Agreement, no SNAP Units are
reserved for issuance, and there are no contracts, agreements, commitments
or arrangements obligating SNAP to (i) offer, sell, issue or grant any
equity interests in, or any options, warrants or rights of any kind to
acquire any equity interests in, or any other securities that are
convertible into or exchangeable for any equity interests in SNAP or (ii) to
redeem, purchase or acquire, or offer to purchase or acquire, any
outstanding equity interests in or any outstanding options, warrants or
rights of any kind to acquire any equity interests in, or any other
outstanding securities that are convertible into or exchangeable for any
equity interests in SNAP. At the Effective Time, after giving effect to the
transactions contemplated by this Agreement, Xenon 2 will own all of the
outstanding SNAP Units other than SNAP Units owned by NBC and its
Subsidiaries or SNAP Units issued pursuant to the exercise of SNAP Options
free and clear of all Liens.
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(f) FINANCIAL INFORMATION, LIABILITIES. The unaudited balance sheet
for SNAP as at December 31, 1998 (the "SNAP BALANCE SHEET") and the related
unaudited income statement for the six months ending December 31, 1998,
copies of which are attached hereto as SCHEDULE 4.1(f) present fairly in all
material respects the financial condition and results of operations of SNAP
as at December 31, 1998 and for the period then ended, subject to normal
year-end audit adjustments and financial statement footnote disclosure.
Except as set forth on SCHEDULE 4.1(g), except as and to the extent
disclosed in the SNAP Balance Sheet, and except for liabilities incurred in
connection with the transactions contemplated by this Agreement and the
Implementing Agreements, there are no liabilities, whether absolute,
accrued, contingent or otherwise, of SNAP, that would be required to be
reflected on, or reserved against, in such consolidated balance sheet of
SNAP, except for (x) liabilities which, singly or in the aggregate, would
not have a Material Adverse Effect and (y) liabilities incurred subsequent
to the date of such balance sheet by SNAP in the ordinary course of business
consistent with past practice.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
SCHEDULE 4.1(g) since December 31, 1998, SNAP has conducted its business in
all material respects only in the ordinary course consistent with past
practice and there has not been (i) any material adverse change in the
assets, liabilities, business, results of operations or financial condition
of SNAP, or (ii) except in the ordinary course of business consistent with
past practice and except for such matters that would not reasonably be
expected to have a Material Adverse Effect, any damage, destruction, loss,
conversion, condemnation or taking by eminent domain related to any of its
material assets. In addition, except as disclosed on SCHEDULE 4.1(g), from
December 31, 1998 to the date hereof, SNAP has not (A) acquired or disposed
of any material assets or entered into any agreement or other arrangement
for any such acquisition or disposition or (B) relinquished, forgiven or
canceled any material debts or claims.
(h) TITLE TO PROPERTIES; ABSENCE OF LIENS. Except as disclosed on
SCHEDULE 4.1(h), SNAP has good title to (or, in the case of real estate or
equipment leases, a valid lease to) all of its properties, assets and other
rights, free and clear of all Liens except for Permitted Liens and such
assets will enable Xenon 2 to conduct the business of SNAP after the
Effective Time in substantially the same manner as it is currently being
conducted.
(i) PROPERTIES, CONTRACTS, PERMITS AND OTHER DATA. Except as specified
in SCHEDULE 4.1(i) hereto, all rights, licenses, leases, registrations,
applications, contracts, commitments and other agreements of SNAP or by
which SNAP is bound are in full force and effect and are valid and
enforceable in accordance with their respective terms except for such
failures to be in full force and effect and valid and enforceable that would
not, individually or in the aggregate, have a Material Adverse Effect. SNAP
is not in breach or default in the performance of any obligation thereunder
and no event has occurred or has failed to occur whereby any of the other
parties thereto have been or will be released therefrom or will be entitled
to refuse to perform thereunder, the enforcement of which would have, either
individually or in the aggregate, a Material Adverse Effect. SNAP has
provided to Xoom complete and accurate copies of SNAP's current annual
budget and operating plan (the "SNAP BUDGET").
(j) LEGAL PROCEEDINGS. Except as described in SCHEDULE 4.1(j), there
is no litigation, proceeding or governmental investigation to which SNAP is
a party pending or, to the best Knowledge of SNAP, threatened against it or
its assets which, either individually or in the aggregate, would reasonably
be expected to result in a Material Adverse Effect or which, as of May 9,
1999, seeks to restrain or enjoin the consummation of any of the
transactions contemplated hereby. SNAP is not a party to nor are its assets
subject to any judgment, writ, decree, injunction or order entered by any
court or governmental authority (domestic or foreign) that, individually or
in the aggregate, would reasonably be expected to have a Material Adverse
Effect.
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(k) LABOR CONTROVERSIES. Except as set forth on SCHEDULE 4.1(k), (i)
there have been no labor strikes, slow-downs, work stoppages, lock-outs or
other material labor controversies or disputes during the past two years,
nor is any such strike, slow-down, work stoppage or other material labor
controversy or dispute pending or, to the best Knowledge of SNAP, threatened
with respect to the current or former employees of SNAP, (ii) SNAP is not a
party to any labor contract, collective bargaining agreement, contract,
letter of understanding or, to SNAP's Knowledge, any other agreement, formal
or informal with any labor union or organization, nor are any of SNAP's
employees represented by any labor union or organization and (iii) SNAP has
not closed any facility, effectuated any layoffs of employees or implemented
any early retirement, separation or window program within the past two years
nor planned or announced any such action or program for the future.
(l) INTELLECTUAL PROPERTY. SNAP owns or is licensed or otherwise has
the right to use, all Intellectual Property currently used in its business
(the "SNAP INTELLECTUAL PROPERTY"), except as would not, individually or in
the aggregate, have a Material Adverse Effect. SNAP has not infringed upon
or is in conflict with the Intellectual Property of any third party nor has
SNAP received any written notice of any claim that it has infringed upon or
is in conflict with any Intellectual Property of any third party, except as
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth on SCHEDULE 4.1(l), none of the rights of SNAP to the
SNAP Intellectual Property will be impaired in any way by the transactions
provided for herein, and all of the rights of SNAP to the SNAP Intellectual
Property will be fully enforceable by SNAP after the Closing Date to the
same extent as such rights would have been enforceable by SNAP before the
Closing, without the consent or agreement of any other party other than any
consents and agreements the failure of which to obtain, individually or in
the aggregate, would not have a Material Adverse Effect. There have been no
claims (whether private or governmental) against SNAP asserting the
invalidity or unenforceability of its ownership, license or other right to
use any of the registered SNAP Intellectual Property.
(m) GOVERNMENT LICENSES, PERMITS, ETC. Except as set forth on SCHEDULE
4.1(m), SNAP has all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Authorities required for the
conduct of its business as presently conducted, except where failure would
not, individually or in the aggregate, have a Material Adverse Effect.
(n) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND CONTRACTUAL
REQUIREMENTS. SNAP has complied with all applicable laws, ordinances,
regulations or orders or other requirements of any Governmental Authority
including, without limitation, all rules, regulations and administrative
orders relating to anti-competitive practices, discrimination, employment,
health and safety, except where the failure to be in such compliance would
not have, either individually or in the aggregate, a Material Adverse
Effect.
(o) ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 4.1(o) and
except for matters that, individually or in the aggregate, would not have a
Material Adverse Effect, (i) SNAP complies and has complied with all
applicable Environmental Laws, and possesses and complies with and has
possessed and complied with all Environmental Permits; (ii) there are and
have been no Materials of Environmental Concern, or other conditions, at any
property owned or leased by SNAP that could give rise to any liability under
any Environmental Law or result in costs arising out of any Environmental
Law; (iii) no judicial, administrative, or arbitral proceeding (including
any notice of violation or alleged violation) under any Environmental Law to
which SNAP is, or to the Knowledge of SNAP will be, named as a party is
pending or, to the Knowledge of SNAP, threatened, nor is SNAP the subject of
any investigation in connection with any such proceeding or potential
proceeding; (iv) there are no past, present, or anticipated future events,
conditions, circumstances, practices, plans, or legal requirements that
could be expected to prevent, or materially increase the burden on SNAP of
complying with applicable Environmental Laws or of
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obtaining, renewing, or complying with all Environmental Permits required
under such laws; and (v) SNAP has provided to the other parties true and
complete copies of all Environmental Reports relating to it in the
possession or control of such party.
(p) EMPLOYEE BENEFIT MATTERS. (i) SCHEDULE 4.1(p) contains a true and
complete list of each "employee benefit plan" (within the meaning of section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and all stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), whether formal or informal, oral or written, legally binding or
not, under which any employee or former employee of SNAP or its Subsidiaries
has any present or future right to benefits and under which SNAP or its
Subsidiaries has any present or future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively
referred to as the "SNAP PLANS".
(ii) With respect to each SNAP Plan which is maintained solely by SNAP
(the "SNAP LEVEL PLANS"), SNAP has made available to Xoom and Xenon 2 a
current, accurate and complete copy (or, to the extent no such copy exists,
an accurate description) thereof and, to the extent applicable: (A) any
related trust agreement or other funding instrument; (B) the most recent
determination letter, if applicable; (C) any summary plan description and
other written communications (or a description of any oral communications)
by SNAP or its Subsidiaries to their employees concerning the extent of the
benefits provided under a SNAP Plan; and (D) for the most recent two years
(I) the Form 5500 and attached schedules and (II) audited financial
statements.
(iii) (A) Each SNAP Plan has been established and administered in
raccordance with its terms, and in compliance with the applicable provisions
of ERISA, the Code and other applicable laws, rules and regulations; (B)
each SNAP Plan which is intended to be qualified within the meaning of Code
section 401(a) is so qualified and has received a favorable determination
letter as to its qualification (or is established using a prototype plan
form which has received such a letter), and nothing has occurred, whether by
action or failure to act, that could reasonably be expected to cause the
loss of such qualification; (C) for each SNAP Plan with respect to which a
Form 5500 has been filed, no material change has occurred with respect to
the matters covered by the most recent Form since the date thereof; (D) no
non-exempt "prohibited transaction" (as such term is defined in ERISA
section 406 and Code section 4975) with respect to any SNAP Plan; and (E) no
SNAP Plan provides retiree welfare benefits and neither SNAP nor its
Subsidiaries have any obligations to provide any retiree welfare benefits
except as provided under Section 4980B of the Code.
(iv) No SNAP Plan is subject to Title IV of ERISA (including a
multiemployer plan within the meaning of Section 3(37) of ERISA), no SNAP
Plan is a multiple employer plan; and no SNAP Plan is subject to the minimum
funding requirements of ERISA Section 302 or Code Section 412.
(v) Neither SNAP nor any of its Subsidiaries nor any Member of the
Controlled Group of which it is a member has (A) engaged in, or is a
successor or parent corporation to an entity that has engaged in, a
transaction described in Sections 4069 or 4212(c) of ERISA or (B) incurred,
or could reasonably be expected to incur, any liability under (I) Title IV
of ERISA arising in connection with the termination of, or a complete or
partial withdrawal from, any plan covered or previously covered by Title IV
of ERISA or (II) Section 4971 of the Code that in either case could become a
liability of SNAP or any Subsidiary or Xenon 2 after the Closing Date. The
assets of
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SNAP and all of its Subsidiaries are not now, nor will they after the
passage of time be, subject to any lien imposed under Code Section 412(n) by
reason of a failure of any of SNAP or any Subsidiary or any Member of the
Controlled Group of which it is a member to make timely installments or
other payments required under Code Section 412.
(vi) With respect to any SNAP Plan, (A) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending
or, to the Knowledge of SNAP or its Subsidiaries, threatened and (B) no
facts or circumstances exist that could reasonably be expected to give rise
to any such actions, suits or claims.
(vii) Except as provided on SCHEDULE 4.1(p), no SNAP Plan exists that
could result in the payment to any present or former employee of SNAP or its
Subsidiaries of any money or other property or accelerate or provide any
other rights or benefits to any present or former employee of SNAP or its
Subsidiaries as a result of the transaction contemplated by this Agreement,
whether or not such payment would constitute a parachute payment within the
meaning of Code Section 280G.
(q) ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither SNAP, nor any
officer, employee or agent of SNAP, nor any other Person acting on behalf of
SNAP, has, directly or indirectly, within the past five years given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other Person or entity who is or may be in a
position to help or hinder SNAP (or assist SNAP in connection with any
actual or proposed transaction) which (x) subjects any party or any of their
respective Affiliates, to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (y) if not given in the past, could
have had a Material Adverse Effect or (z) if not continued in the future,
could have a Material Adverse Effect or which might subject any party or
Xenon 2 or any of their respective Affiliates to suit or penalty in any
private or governmental litigation or proceeding.
(r) TAX MATTERS. Except as set forth on SCHEDULE 4.1(r), (i) SNAP and
its Subsidiaries have timely filed (or have had timely filed on their
behalf) or will timely file or cause to be timely filed, all Tax Returns
required by applicable law to be filed by SNAP and its Subsidiaries prior to
the Effective Time. All such Tax Returns are or will be true, complete and
correct in all material respects. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any of
such Tax Returns and SNAP and its Subsidiaries have not requested any
extension of time within which to file any material Tax Return, which return
has not yet been filed. There is no pending claim by any Tax Authority of a
jurisdiction where SNAP or any of its Subsidiaries has not filed Tax Returns
that SNAP or any of its Subsidiaries are or may have been subject to
taxation by that jurisdiction. All Taxes required to be withheld by SNAP or
its Affiliates with respect to their activities, properties, employees or
independent contractors have been withheld and paid over to the appropriate
Tax Authority.
(ii) SNAP and its Subsidiaries have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or
will establish or cause to be established on or before the Effective Time,
an adequate accrual for the payment of, all Taxes due with respect to any
period beginning prior to the Effective Time. No deficiency or adjustment
for any Taxes has been threatened, proposed, asserted or assessed against
SNAP or its Subsidiaries. There are no liens for Taxes upon the assets of
SNAP or its Subsidiaries, except for liens for current Taxes not yet due.
(iii) SNAP and its Subsidiaries are not required to include in income any
adjustment pursuant to Section 481(a) of the Code or any similar applicable
provision by reason of a voluntary change in accounting method initiated by
SNAP or its Subsidiaries, and neither the Internal Revenue Service nor any
taxing authority has proposed in writing any such adjustment or change in
accounting method. SNAP and its Subsidiaries have not received a tax ruling
or entered into a
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closing agreement with any taxing authority that would have a Material
Adverse Effect on SNAP or its Subsidiaries.
(iv) SNAP and its Subsidiaries have not made any payments, are not
obligated to make any payments, and are not a party to any agreement that
could obligate it to make any payments that would not be deductible pursuant
to Section 280G of the Code.
(v) SNAP has been and currently is taxable as a partnership for federal
income tax purposes and in all jurisdictions in which it is subject to Taxes
or files Tax Returns. Each of SNAP's Subsidiaries has been and currently is
(A) wholly owned by SNAP and (B) an entity disregarded from its owner
pursuant to Section 301.7701-2 of the Treasury Regulations. Neither SNAP nor
any Subsidiary is a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax
Equity and Fiscal Responsibility Act of 1982. SNAP and its Subsidiaries are
not a party to any joint venture, partnership, or other agreement, contract,
or arrangement (either in writing or verbally, formally or informally) which
could be treated as partnership for federal income tax purposes.
(vi) Neither SNAP nor any of its Subsidiaries has a "permanent
establishment," as defined in any applicable Tax treaty or convention of the
United States of America, or fixed place of business in any foreign country.
SNAP and its Subsidiaries are in compliance with the terms and conditions of
any applicable tax exemptions, agreements or orders of any foreign
government to which it may be subject or which it may have claimed, and the
transactions contemplated by this Agreement will not have any adverse effect
on such compliance.
(vii) Neither SNAP nor any of its Subsidiaries is or has been bound by
any tax sharing or tax allocation agreement, and it has no contractual
obligation to indemnify any other person with respect to Taxes.
(s) YEAR 2000 COMPLIANCE. SNAP has adopted and implemented a
commercially reasonable plan to provide (x) that the change of the year from
1999 to the year 2000 will not have a Material Adverse Effect and (y) that
the impacts of such change on the venders and customers of SNAP will not
have a Material Adverse Effect. In SNAP's reasonable best estimate, no
expenditures materially in excess of currently budgeted items previously
disclosed to Xoom and Xenon 2 will be required in order to cause the
information and business systems of SNAP to operate properly following the
change of the year 1999 to the year 2000. SNAP reasonably expects any
material issues related to such change of the year will be resolved in
accordance with the timetable set forth in such plan (and in any event on a
timely basis in order to be resolved before the year 2000). Between the date
of this Agreement and the Effective Time, SNAP shall continue to use
commercially reasonable efforts to implement such plan.
(t) OPTIONS. Except for the SNAP 1998 LLC Option Plan SNAP has never
adopted or maintained any option plan or other plan providing for equity
compensation of any Person. SNAP has reserved 1,604,938 units for issuance
pursuant to the SNAP 1998 LLC Option Plan ("SNAP OPTIONS"), of which
1,432,970 have been issued as of the date hereof, all of which units remain
subject to SNAP Options unexercised as of the date hereof. Except as set
forth in SCHEDULE 4.1(t), none of the SNAP Options will be accelerated in
any way by the transactions contemplated by this Agreement. SNAP has made
available to Xoom and Xenon 2 accurate and complete copies of all option
plans pursuant to which SNAP has granted options and the applicable vesting
schedule for each such option. All units subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, would be duly authorized, validly
issued, fully paid and non-assessable. Except as set forth in SCHEDULE
4.1(t), there are no commitments or agreements of any character to which
SNAP is bound obligating SNAP to accelerate the vesting of any SNAP Options
as a result of this Agreement. SCHEDULE 4.1(e) lists each outstanding SNAP
Option and identifies with respect to each such SNAP
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Option; its exercise price; its grant date; its vesting schedule; and what
portion of such SNAP Option remains outstanding as of the date hereof. SNAP
shall prepare and deliver to Xenon 2 and Xoom an updated version of SCHEDULE
4.1(e) prior to the Effective Time as of a date no earlier than 5 days prior
to the Effective Time.
(u) ENTIRE BUSINESS. Except as set forth in SCHEDULE 4.1(l), SNAP
owns, is licensed or otherwise has the right to use all the material
properties and assets, and has all other rights, reasonably necessary for
the conduct of the business of SNAP as currently conducted.
IV.2 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO XOOM. Xoom represents
and warrants to CNET and SNAP as follows:
(a) DUE ORGANIZATION, POWER AND GOOD STANDING. Xoom and each of its
Subsidiaries is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and has the requisite power
and authority to own, lease and operate its properties and to conduct its
business as now conducted by it. Xoom and each of its Subsidiaries party to
an Implementing Agreement has all requisite power and authority to enter
into this Agreement, the Voting Agreement, the Option Agreement and the
Implementing Agreements to which it is a party and to perform its
obligations hereunder and thereunder. Xoom and each of its Subsidiaries is
qualified to do business and is in good standing in all jurisdictions in
which it conducts its business, except where the failure to do so would not,
individually or in the aggregate, taken as a whole, have a Material Adverse
Effect.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance by Xoom and each of its Subsidiaries of this Agreement, the
Voting Agreement, the Option Agreement and the Implementing Agreements to
which Xoom or its Subsidiaries is a party and the consummation by Xoom and
each of its Subsidiaries of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Xoom and each of its Subsidiaries, subject to obtaining the affirmative vote
of the holders of a majority of the outstanding shares of Xoom Stock (the
"STOCKHOLDER APPROVAL"). The Stockholder Approval is the only vote of the
holders of any class or series of Xoom's securities necessary to adopt this
Agreement and approve the transactions contemplated hereby. On or before the
date hereof, the Board of Directors of Xoom, at a meeting duly called and
held, by the unanimous vote of the directors present at such meeting and not
abstaining (i) determined that this Agreement, the Option Agreement, the
Voting Agreement, and the Merger and the other transactions contemplated
hereby and thereby, are advisable, (ii) declared the advisability of and
approved this Agreement, the Option Agreement, the Voting Agreement and each
of the Implementing Agreements, and (iii) resolved to recommend that the
holders of shares of Xoom Stock adopt this Agreement and approve the Merger.
Each of this Agreement, the Option Agreement and the Voting Agreement has
been, and each of the Implementing Agreements to which Xoom or any of its
Subsidiaries is a party will on the Closing Date be, duly executed and
delivered by Xoom and each of its Subsidiaries and constitutes or, in the
case of the other Implementing Agreements, upon execution thereof will
constitute, a valid and legally binding obligation of Xoom and its
Subsidiaries, enforceable against each in accordance with their respective
terms.
(c) GOVERNMENTAL APPROVALS; CONSENTS. Except as described in SCHEDULE
4.2(c), the execution, delivery and performance of this Agreement, the
Voting Agreement, the Option Agreement and the Implementing Agreements by
Xoom and its Subsidiaries and the consummation by such party of the
transactions contemplated hereby and thereby will not (i) conflict with or
result in a breach of any provision of the certificate of incorporation or
bylaws or other governing documents of Xoom or any of its Subsidiaries; (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority; (iii) require the consent or
approval of any Person (other than a Governmental Authority) or violate or
conflict with, or result in a breach
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of any provision of, constitute a default (or an event which with notice or
lapse of time or both would become a default) or give to any third party any
right of termination, cancellation, amendment or acceleration under, or
result in the creation of a Lien on any of the assets of Xoom or its
Subsidiaries under, any of the terms, conditions or provisions of any
contract or license to which Xoom or any of its Subsidiaries is a party or
by which it or its assets or property are bound; or (iv) violate or conflict
with any order, writ, injunction, decree, statute, rule or regulation
applicable to Xoom or any of its Subsidiaries; other than any consents,
approvals, authorizations and permits the failure of which to obtain and any
violations, conflicts, breaches defaults and other matters set forth
pursuant to clauses (ii), (iii) and (iv) above which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(d) CERTAIN FEES. Neither Xoom nor any of its Subsidiaries nor the
officers, directors or employees thereof have employed any broker or finder
or incurred any other Liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated hereby;
except that Xoom has employed Bear, Stearns & Co., Inc. and Hambrecht &
Quist, LLC whose fees and expenses will be paid in accordance with SECTION
10.5 if the transactions contemplated by this Agreement are consummated and
otherwise will be paid by Xoom. Xoom has provided NBC a copy of the
engagement letter entered into with Hambrecht & Quist, LLC related to the
transactions contemplated hereby.
(e) OPINION OF FINANCIAL ADVISOR. Xoom has received the opinion of
Bear, Stearns & Co. Inc., as of the date hereof, with respect to the
fairness of the transaction contemplated by this Agreement from a financial
point of view.
(f) CAPITAL STOCK. The authorized capital stock of Xoom consists of
40,000,000 shares of Xoom Stock and 5 million shares of Xoom Preferred
Stock, of which 17,162,056 shares of Xoom Stock and no shares of Xoom
Preferred Stock have been issued and are outstanding as of the date hereof.
All outstanding shares of Xoom Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created
by statute, the certificate of incorporation or bylaws of Xoom or any
agreement to which Xoom is a party or by which it is bound and have been
issued in compliance with federal and state securities laws. There are no
declared or accrued unpaid dividends with respect to any shares of Xoom
Stock. The authorized capital stock of Xenon 2 consists of 100 shares of
common stock, par value $0.0001 per share, of which 100 shares have been
issued and are outstanding and held by Xoom as of the date hereof. The
authorized capital stock of Xenon 3 consists of 100 shares of common stock,
par value $0.0001 per share, of which 100 shares have been issued and are
outstanding and held by Xenon 2 as of the date hereof. All of the shares of
capital stock of each of the Subsidiaries of Xoom and Xenon 2 are duly
authorized and issued, fully paid and nonassessable and are owned by Xoom or
another Subsidiary of Xoom free and clear of all Liens. Except for the
capital stock of its Subsidiaries, Xoom does not own, directly or
indirectly, any capital stock or other ownership interest in any Person.
(g) STOCK OPTIONS. Except for the Xoom ESPP, the Xoom Option Plan
pursuant to which the Xoom Plan Options were issued, and the Xoom Non-Plan
Options (together with the Xoom Plan Options, the "XOOM OPTIONS"), neither
Xoom nor any of its Subsidiaries has ever adopted or maintained any stock
option plan or other plan providing for equity compensation of any person.
Xoom has reserved 3,535,224 shares of Xoom Stock for issuance pursuant to
the Xoom ESPP, Xoom Plan Options and Xoom Non-Plan Options, of which
3,336,157 have been issued as of the date hereof, of which 2,043,556 shares
remain subject to Xoom Plan Options unexercised as of the date hereof and
981,212 shares remain subject to Xoom Non-Plan Options unexercised as of the
date hereof. Except pursuant to SECTION 6.8 and as reflected on SCHEDULE
4.2(g) none of the Xoom Options will be accelerated in any way by the
transactions contemplated by this Agreement. Xoom and its Subsidiaries have
made available to CNET accurate and complete copies of all stock option
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plans pursuant to which Xoom and its Subsidiaries have granted stock options
that are currently outstanding, the form of all stock option agreements
evidencing such options and the applicable vesting schedule for each such
option. All shares of Xoom Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, would be duly authorized, validly issued, fully
paid and non-assessable. Except as set forth in SCHEDULE 4.2(g) or as
contemplated by this Agreement, there are no commitments or agreements of
any character to which Xoom or any of its Subsidiaries are bound obligating
Xoom or any of its Subsidiaries to accelerate the vesting of any Xoom Option
as a result of this Agreement. SCHEDULE 4.2(g) lists each outstanding Xoom
Option and identifies with respect to each such Xoom Option whether it is a
Xoom Plan Option or a Xoom Non-Plan Option; its exercise price; its grant
date; its vesting schedule; and what portion of such Xoom Option remains
outstanding as of the date hereof. Xoom and its Subsidiaries shall prepare
and deliver to CNET an updated version of SCHEDULE 4.2(g) prior to the
Effective Time as of a date no earlier than 5 days prior to the Effective
Time.
(h) OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
SECTION 4.2(f) and SECTION 4.2(g) and on SCHEDULE 4.2(h), there are no
equity securities, partnership interests or similar ownership interests of
any class of any equity security of Xoom or any of its Subsidiaries, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in SCHEDULE 4.2(h)
or as set forth in SECTION 4.2(g) hereof, there are no subscriptions,
options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Xoom or any of its
Subsidiaries is a party or by which Xoom or any of its Subsidiaries is bound
obligating Xoom or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares
of capital stock, partnership interests or similar ownership interests of
Xoom or any of its Subsidiaries or obligating Xoom or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment
or agreement. Except as contemplated by this Agreement, there are no
registration rights and there is no voting trust, proxy, rights plan,
antitakeover plan or other agreement or understanding to which Xoom or any
of its Subsidiaries is a party or by which they are bound with respect to
any equity security, partnership interest or similar ownership interest of
any class of any equity security of Xoom or any of its Subsidiaries.
(i) SEC FILINGS, FINANCIAL INFORMATION, LIABILITIES. Xoom has filed
and made publicly available a true and complete copy of each report,
schedule, registration statement and definitive proxy statement required to
be filed with the SEC since December 9, 1998 (the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, applicable to such SEC Documents. None of the SEC Documents when
filed contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of Xoom included in the
SEC Documents comply as to form in all material respect with the applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with GAAP during
the period involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-Q of the SEC,
or for normal year-end adjustments) and fairly present in all material
respects the consolidated financial position of Xoom and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash for the periods then ended. Except as set forth in the
SEC Documents (including any item accounted for in the financial statements
contained in the SEC Documents or
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set forth in the notes thereto) as of December 31, 1998, neither Xoom nor
any of its Subsidiaries had, and since such date neither Xoom or any of its
Subsidiaries has incurred, any claims, liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) which,
individually or in the aggregate, would have a Material Adverse Effect on
Xoom (other than claims, liabilities or obligations contemplated by this
Agreement or expressly permitted to be incurred pursuant to this Agreement).
In addition, since December 31, 1998, there has not been any declaration,
setting aside or payment of a dividend or other distribution with respect to
Xoom Stock or any material change in accounting methods or practices by Xoom
or any of its Subsidiaries.
(j) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
SCHEDULE 4.2(j) since December 31, 1998, Xoom and each of its Subsidiaries
have conducted their businesses in all material respects only in the
ordinary course, consistent with past practice and there has not been prior
to the date hereof, (x) any material adverse change in the assets,
liabilities, business, results of operations or financial condition of Xoom
or any of its Subsidiaries or (y) except in the ordinary course of business
consistent with past practice and except for such matters that would not
reasonably be expected to have a Material Adverse Effect, any damage,
destruction, loss, conversion, condemnation or taking by eminent domain
related to any material asset of Xoom and any of its Subsidiaries, taken as
a whole. In addition, except as disclosed on SCHEDULE 4.2(j), from December
31, 1998 to the date hereof, neither Xoom nor any of its Subsidiaries has
(A) acquired or disposed of any material assets or entered into any
agreement or other arrangement for any such acquisition or disposition or
(B) relinquished, forgiven or canceled any material debts or claims.
(k) PROPERTIES, CONTRACTS, PERMITS AND OTHER DATA. Except as specified
in SCHEDULE 4.2(k) hereto, all rights, licenses, leases, registrations,
applications, contracts, commitments and other agreements of Xoom and its
Subsidiaries are in full force and effect and are valid and enforceable in
accordance with their respective terms except for such failures to be in
full force and effect and valid and enforceable that would not, individually
or in the aggregate, have a Material Adverse Effect. Neither Xoom nor any of
its Subsidiaries is in breach or default in the performance of any
obligation thereunder and no event has occurred or has failed to occur
whereby any of the other parties thereto have been or will be released
therefrom or will be entitled to refuse to perform thereunder, the
enforcement of which would have, either individually or in the aggregate, a
Material Adverse Effect. Xoom has provided to CNET complete and accurate
copies of its current annual budget and operating plan (the "XOOM BUDGET").
(l) LEGAL PROCEEDINGS. Except as described in SCHEDULE 4.2(l), there
is no litigation, proceeding or governmental investigation to which Xoom or
any of its Subsidiaries is a party pending or, to the best Knowledge of Xoom
or any of its Subsidiaries, threatened against Xoom or any of its
Subsidiaries which, either individually or in the aggregate, would
reasonably be expected to result in a Material Adverse Effect or which, as
of May 9, 1999, seeks to restrain or enjoin the consummation of any of the
transactions contemplated hereby. Neither Xoom nor any of its Subsidiaries
is a party to, nor are any of their respective assets subject to, any
judgment, writ, decree, injunction or order entered by any court or
governmental authority (domestic or foreign) that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
(m) LABOR CONTROVERSIES. Except as set forth on SCHEDULE 4.2(m), (i)
there have been no labor strikes, slow-downs, work stoppages, lock-outs or
other material labor controversies or disputes during the past two years,
nor is any such strike, slow-down, work stoppage or other material labor
controversy or dispute pending or, to the best Knowledge of such party,
threatened with respect to the current or former employees of Xoom and its
Subsidiaries, (ii) neither Xoom nor any of its Subsidiaries is a party to
any labor contract, collective bargaining agreement,
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contract, letter of understanding or, to such party's Knowledge, any other
agreement, formal or informal with any labor union or organization, nor are
any of Xoom's or any of its Subsidiaries' employees represented by any labor
union or organization nor have there been any labor union organizing
activities at any Xoom or any of its Subsidiaries' facilities within the
last three years and (iii) neither Xoom nor any of its Subsidiaries has
closed any facility, effectuated any layoffs of employees or implemented any
early retirement, separation or window program within the past two years nor
has Xoom or any of its Subsidiaries planned or announced any such action or
program for the future.
(n) INTELLECTUAL PROPERTY. Xoom or its Subsidiaries own or are
licensed or otherwise have the right to use, all Intellectual Property
currently used by Xoom and its Subsidiaries (the "XOOM INTELLECTUAL
PROPERTY"), except as would not, individually or in the aggregate, have a
Material Adverse Effect. Neither Xoom nor any of its Subsidiaries has
infringed upon or is in conflict with the Intellectual Property of any third
party nor has Xoom or any of its Subsidiaries received any written notice of
any claim that Xoom or any of its Subsidiaries has infringed upon or is in
conflict with any Intellectual Property of any third party, except as would
not, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth on SCHEDULE 4.2(n), none of the rights of Xoom or any of
its Subsidiaries to the Xoom Intellectual Property will be impaired in any
way by the transactions provided for herein, and all of the rights of Xoom
and its Subsidiaries to the Xoom Intellectual Property will be fully
enforceable by Xenon 2 after the Closing Date to the same extent as such
rights would have been enforceable by Xoom and its Subsidiaries before the
Closing, without the consent or agreement of any other party other than any
consents and agreements the failure of which to obtain, individually or in
the aggregate, would not have a Material Adverse Effect. There have been no
claims (whether private or governmental) against Xoom or its Subsidiaries
asserting the invalidity or unenforceability of its ownership, license or
other right to use to any of the registered Xoom Intellectual Property.
(o) GOVERNMENT LICENSES, PERMITS, ETC. Except as set forth on SCHEDULE
4.2(o), Xoom and its Subsidiaries have all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental
Authorities required for the conduct of its Business as presently conducted,
except where failure would not, individually or in the aggregate, have a
Material Adverse Effect.
(p) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND CONTRACTUAL
REQUIREMENTS. Xoom and its Subsidiaries have complied with all applicable
laws, ordinances, regulations or orders or other requirements of any
Governmental Authority, including, without limitation, all rules,
regulations and administrative orders relating to anti-competitive
practices, discrimination, employment, health and safety, except where the
failure to be in such compliance would not have, either individually or in
the aggregate, a Material Adverse Effect.
(q) EMPLOYEE BENEFIT MATTERS. (i) SCHEDULE 4.2(q)(i) contains a true
and complete list of each "employee benefit plan" (within the meaning of
section 3(3) of ERISA), and all stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject
to ERISA (including any funding mechanism therefor now in effect or required
in the future as a result of the transaction contemplated by this Agreement
or otherwise), whether formal or informal, oral or written, legally binding
or not, under which any employee or former employee of Xoom or its
Subsidiaries has any present or future right to benefits and under which
Xoom or its Subsidiaries has any present or future liability. All such
plans, agreements, programs, policies and arrangements shall be collectively
referred to as the "XOOM PLANS".
(ii) With respect to each Xoom Plan, Xoom and its Subsidiaries have made
available to CNET a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate
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description) thereof and, to the extent applicable: (A) any related trust
agreement or other funding instrument; (B) the most recent determination
letter, if applicable; (C) any summary plan description and other written
communications (or a description of any oral communications) by Xoom or its
Subsidiaries to their employees concerning the extent of the benefits
provided under a Xoom Plan; and (D) for the most recent two years (I) the
Form 5500 and attached schedules and (II) audited financial statements.
(iii) (A) Except as set forth on SCHEDULE 4.2(q)(iii), each Xoom Plan has
been established and administered in accordance with its terms, and in
compliance with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations; (B) each Xoom Plan which is intended
to be qualified within the meaning of Code section 401(a) is so qualified
and has received a favorable determination letter as to its qualification
(or established using a prototype plan form which has received such a
letter), and nothing has occurred, whether by action or failure to act, that
could reasonably be expected to cause the loss of such qualification; (C)
for each Xoom Plan with respect to which a Form 5500 has been filed, no
material change has occurred with respect to the matters covered by the most
recent Form since the date thereof; (D) no nonexempt "prohibited
transaction" (as such term is defined in ERISA section 406 and Code section
4975) with respect to any Xoom Plan; and (E) no Xoom Plan provides retiree
welfare benefits and neither Xoom nor any of its Subsidiaries have any
obligations to provide any retiree welfare benefits except as provided under
Section 4980B of the Code.
(iv) No Xoom Plan is subject to Title IV of ERISA (including a
multiemployer plan within the meaning of Section 3(37) of ERISA), no Xoom
Plan is a multiple employer plan; and no Xoom Plan is subject to the minimum
funding requirements of ERISA Section 302 or Code Section 412.
(v) Neither Xoom nor any of its Subsidiaries nor any Member of the
Controlled Group of which it is a member has (A) engaged in, or is a
successor or parent corporation to an entity that has engaged in, a
transaction described in Sections 4069 or 4212(c) of ERISA or (B) incurred,
or could reasonably be expected to incur, any liability under (I) Title IV
of ERISA arising in connection with the termination of, or a complete or
partial withdrawal from, any plan covered or previously covered by Title IV
of ERISA or (II) Section 4971 of the Code that in either case could become a
liability of Xoom or CNET or any of their respective Subsidiaries after the
Closing Date. The assets of Xoom and all of its Subsidiaries are not now,
nor will they after the passage of time be, subject to any lien imposed
under Code Section 412(n) by reason of a failure of any of any Subsidiary or
any Member of the Controlled Group of which it is a member to make timely
installments or other payments required under Code Section 412.
(vi) With respect to any Xoom Plan, (A) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending
or, to the Knowledge of Xoom and its Subsidiaries, threatened and (B) no
facts or circumstances exist that could reasonably be expected to give rise
to any such actions, suits or claims.
(vii) Except as provided on SCHEDULE 4.2(q)(vii), no Xoom Plan exists
that could result in the payment to any present or former employee of Xoom
or its Subsidiaries of any money or other property or accelerate or provide
any other rights or benefits to any present or former employee of Xoom or
its Subsidiaries as a result of the transaction contemplated by this
Agreement, whether or not such payment would constitute a parachute payment
within the meaning of Code Section 280G.
(r) ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither Xoom nor any of its
Subsidiaries, nor any officer, employee or agent thereof, nor any other
Person acting on behalf of such Persons, has, directly or indirectly, within
the past five years given or agreed to give any gift or similar benefit to
any customer, supplier, governmental employee or other Person or entity who
is or may be in a
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position to help or hinder Xoom or its Subsidiaries (or assist Xoom or its
Subsidiaries in connection with any actual or proposed transaction) which
(x) subjects any party or any of its Subsidiaries, to any damage or penalty
in any civil, criminal or governmental litigation or proceeding, (y) if not
given in the past, could have had a Material Adverse Effect or (z) if not
continued in the future, could have a Material Adverse Effect or which might
subject any party or Xenon 2 or any of their respective Subsidiaries to suit
or penalty in any private or governmental litigation or proceeding.
(s) TAX MATTERS. Except as set forth in SCHEDULE 4.2(s), (i) Xoom and
each of its Subsidiaries have timely filed (or have had timely filed on
their behalf) or will timely file or cause to be timely filed, all Tax
Returns required by applicable law to be filed by any of them prior to the
Effective Time. All such Tax Returns are or will be true, complete and
correct in all material respects. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any of
such Tax Returns and neither Xoom nor any of its Subsidiaries has requested
any extension of time within which to file any material Tax Return, which
return has not yet been filed. There is no pending claim by any tax
authority of a jurisdiction where Xoom or any of its Subsidiaries has not
filed Tax Returns that Xoom or such Subsidiary is or may have been subject
to taxation by that jurisdiction. All Taxes required to be withheld by Xoom
or its Affiliates with respect to their activities, properties, employees or
independent contractors have been withheld and paid over to the appropriate
Tax Authority.
(ii) Xoom and each of its Subsidiaries have paid (or have had paid on
their behalf), or where payment is not yet due, have established (or have
had established on their behalf and for their sole benefit and recourse), or
will establish or cause to be established on or before the Effective Time,
an adequate accrual for the payment of, all Taxes due with respect to any
period beginning prior to the Effective Time. No deficiency or adjustment
for any Taxes has been threatened, proposed, asserted or assessed against
Xoom or any of its Subsidiaries. There are no liens for Taxes upon the
assets of Xoom or any of its Subsidiaries, except for liens for current
Taxes not yet due.
(iii) Neither Xoom nor any of its Subsidiaries is required to include in
income any adjustment pursuant to Section 481(a) of the Code or any similar
applicable provision by reason of a voluntary change in accounting method
initiated by Xoom or any of its Subsidiaries, and neither the Internal
Revenue Service nor any taxing authority has proposed in writing any such
adjustment or change in accounting method. Neither Xoom nor any of its
Subsidiaries has received a tax ruling or entered into a closing agreement
with any taxing authority that would have a continuing Material Adverse
Effect upon Xoom or any of its Subsidiaries.
(iv) Neither Xoom nor any of its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that would not be deductible pursuant to
Section 280G of the Code.
(v) Neither Xoom nor any of its Subsidiaries has a "permanent
establishment," as defined in any applicable Tax treaty or convention of the
United States of America, or fixed place of business in any foreign country.
Xoom and its Affiliates are in compliance with the terms and conditions of
any applicable tax exemptions, agreements or orders of any foreign
government to which it may be subject or which it may have claimed, and the
transactions contemplated by this Agreement will not have any adverse effect
on such compliance.
(vi) Neither Xoom nor any Subsidiary is a party to any safe harbor lease
within the meaning of Section 168(f)(8) of the Code, as in effect prior to
amendment by the Tax Equity and Fiscal Responsibility Act of 1982. Xoom and
its Subsidiaries are not a party to any joint venture, partnership, or other
agreement, contract, or arrangement (either in writing or verbally, formally
or informally) which could be treated as partnership for federal income tax
purposes.
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(vii) Neither Xoom nor any of its Subsidiaries is or has been bound by
any tax sharing or tax allocation agreement, and it has no contractual
obligation to indemnify any other person with respect to Taxes.
(t) SECTION 203. The Board of Directors of Xoom and each of its
Subsidiaries has taken appropriate action so that the provisions of Section
203 of the DGCL restricting "business combinations" with "interested
stockholders" (each as defined in such Section 203) will not, prior to the
termination of this Agreement pursuant to ARTICLE IX hereof, apply to CNET
or SNAP or any of their Affiliates with respect to this Agreement, the NMC
Merger Agreement, the Voting Agreement, the Option Agreement or any of the
Implementing Agreements or any of the transactions contemplated hereby or
thereby.
(u) YEAR 2000 COMPLIANCE. Except as set forth in SCHEDULE 4.2(v),
Xoom, and each of its Subsidiaries has adopted and implemented a
commercially reasonable plan to provide (x) that the change of the year from
1999 to the year 2000 will not have a Material Adverse Effect and (y) that
the impacts of such change on the venders and customers of Xoom and each of
its Subsidiaries will not have a Material Adverse Effect. In the reasonable
best estimate of Xoom and each of its Subsidiaries, no expenditures
materially in excess of currently budgeted items previously disclosed to
CNET will be required in order to cause the information and business systems
of Xoom and each of its Subsidiaries to operate properly following the
change of the year 1999 to the year 2000. Xoom and each of its Subsidiaries
reasonably expects any material issues related to such change of the year
will be resolved in accordance with the timetable set forth in such plan
(and in any event on a timely basis in order to be resolved before the year
2000). Between the date of this Agreement and the Effective Time, Xoom and
each of its Subsidiaries shall continue to use commercially reasonable
efforts to implement such plan.
(v) NO BUSINESS ACTIVITIES. Neither Xenon 2 nor Xenon 3 has conducted
any activities other than in connection with their organization, the
negotiation and execution of this Agreement and the NMC Merger Agreement and
the consummation of the transactions contemplated hereby and thereby.
IV.3 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO CNET. CNET represents
and warrants to Xoom as follows:
(a) DUE ORGANIZATION, POWER AND GOOD STANDING. CNET is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has the requisite power and authority to own, lease and
operate its properties and to conduct its business as now conducted by it.
CNET has all requisite power and authority to enter into this Agreement and
the Implementing Agreements to which it is a party and to perform its
obligations hereunder and thereunder. CNET is qualified to do business and
is in good standing in all jurisdictions in which it conducts its business,
except where the failure to do so would not, individually or in the
aggregate, taken as a whole, have a Material Adverse Effect.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance by CNET of this Agreement and the Implementing Agreements to
which it is a party and the consummation by CNET of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of CNET. No vote of the holders of any class or
series of CNET's securities is necessary to approve this Agreement and the
transactions contemplated hereby. This Agreement has been, and each of the
other Implementing Agreements to which CNET is a party will on the Closing
Date be, duly executed and delivered by CNET and constitutes or, in the case
of the Implementing Agreements, upon execution thereof will constitute, a
valid and legally binding obligation of CNET enforceable against it in
accordance with its terms.
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(c) GOVERNMENTAL APPROVALS; CONSENTS. Except for the consent of NBC
under the SNAP LLC Agreement and except as described in SCHEDULE 4.3(c), the
execution, delivery and performance of this Agreement and the Implementing
Agreements to which it is a party by CNET and the consummation by it of the
transactions contemplated hereby and thereby will not (i) conflict with or
result in a breach of any provision of the certificate of incorporation or
bylaws of CNET; (ii) require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority; (iii)
require the consent or approval of any Person (other than a Governmental
Authority) or violate or conflict with, or result in a breach of any
provision of, constitute a default (or an event which with notice or lapse
of time or both would become a default) or give to any third party any right
of termination, cancellation, amendment or acceleration under, any of the
terms, conditions or provisions of any contract or license to which CNET is
a party or by which it or its assets or property are bound; or (iv) violate
or conflict with any order, writ, injunction, decree, statute, rule or
regulation applicable to CNET; other than any consents, approvals,
authorizations and permits the failure of which to obtain and any
violations, conflicts, breaches defaults and other matters set forth
pursuant to clauses (ii), (iii) and (iv) above which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(d) CERTAIN FEES. Neither CNET or any of its Subsidiaries nor the
officers, directors or employees, thereof have employed any broker or finder
or incurred any other Liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated hereby;
except that CNET has employed and will pay all fees and expenses of Morgan
Stanley & Co. Incorporated incurred on its behalf.
(e) TITLE TO PROPERTIES; ABSENCE OF LIENS. CNET has, and at the
Closing Xenon 2 will acquire, good title to all of the SNAP Units held by
CNET (which represent approximately 81% of the outstanding SNAP Units as of
the date hereof), free and clear of all Liens (other than Liens created,
imposed or granted by Xenon 2 and as set forth in the SNAP LLC Agreement).
(f) ACCREDITED INVESTOR. CNET is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act. CNET (i) is
purchasing the Class A Common Stock for investment for its own account and
not with a view to, or for sale in connection with, any distribution
thereof, in violation of the Securities Act; (ii) has had an opportunity to
ask questions of the officers and directors of, and has had access to
information concerning, Xenon 2 and its Subsidiaries; (iii) has knowledge,
sophistication and experience in business and financial matters and risks of
such investment; (iv) is able to bear the economic risk of such investment;
and (v) is able to afford a complete loss of such investment.
(g) LEGAL PROCEEDINGS. Except as described in CNET's periodic reports
and other filings with the SEC, there is no litigation, proceeding or
governmental investigation to which CNET or its Subsidiaries is a party
pending or, to the best Knowledge of CNET, threatened against it or its
Subsidiaries which, either individually or in the aggregate, would
reasonably be expected to result in a Material Adverse Effect or which, as
of May 9, 1999, seeks to restrain or enjoin the consummation of any of the
transactions contemplated hereby. CNET is not a party to nor are its assets
subject to any judgment, writ, decree, injunction or order entered by any
court or governmental authority (domestic or foreign) that, individually or
in the aggregate, would reasonably be expected to have a Material Adverse
Effect.
IV.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties given by the parties in ARTICLE IV and in the
certificates delivered pursuant to ARTICLE VII shall survive the Closing.
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IV.5 NO OTHER REPRESENTATION OR AND WARRANTIES. Except for the
representations and warranties set forth in this ARTICLE IV, the parties hereto
make no other representations or warranties, express or implied.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME
V.1 CONDUCT OF THE BUSINESS OF XOOM PENDING THE CLOSING. Xoom agrees that
except with the prior written consent of CNET (PROVIDED that if NBC has
consented to any Xoom action under the NMC Merger Agreement, Xoom shall not be
required to get CNET's consent under this Agreement to take the same action) and
except as may be expressly permitted by this Agreement or as set forth on
SCHEDULE 5.1, prior to the Closing, it shall, and shall cause, its Subsidiaries
to operate their businesses only in the usual, regular and ordinary manner, on a
basis consistent with past practice and, to the extent consistent with such
operation, use its reasonable efforts to preserve its present business
organization intact, keep available the services of its present employees,
preserve its present business relationships (consistent with past practice) and
maintain all rights, privileges and franchises in the normal conduct of Xoom's
businesses. Without limitation of the foregoing, from the date hereof until the
Effective Time, except as expressly permitted by this Agreement or as set forth
on SCHEDULE 5.1, Xoom shall not:
(a) amend its certificate of incorporation or bylaws;
(b) issue, purchase or redeem, or authorize or propose the issuance,
purchase or redemption of, or declare or pay any dividend with respect to,
any shares of capital stock of Xoom or any class of securities convertible
into, or rights, warrants or options to acquire, any such shares of other
convertible securities other than (i) issuances of Xoom Stock pursuant to
Xoom Options outstanding on the date hereof, the Option Agreement or the
obligations to issue Xoom Stock set forth on SCHEDULE 4.2(h) and (ii)(x)
Xoom Options with an exercise price of not less than the fair market value
on the date of grant and vesting over not less than 2 years, to be issued to
employees currently holding Xoom Plan Options exercisable in the aggregate
for not more than that number of shares of Xoom Stock that equals 15% of the
shares of Xoom Stock for which Xoom Plan Options will remain unvested and
nonexercisable after giving effect to the acceleration of vesting described
in SECTION 6.8 of the NMC Merger Agreement; and (y) Xoom Options with an
exercise price of not less than 85% of the fair market value on the date of
grant, and vesting over not less than 3 years, to be issued to employees
currently holding Xoom Non-Plan Options exercisable in the aggregate for not
more than the lesser of (i) that number of shares of Xoom that equals two
times the number of shares of Xoom for which Xoom Non-Plan Options will
remain unvested and nonexercisable and terminate after giving effect to the
acceleration of vesting described in SECTION 6.8 of the NMC Merger Agreement
or (ii) 150,000 shares of Xoom.
(c) adopt any stockholders rights plan or take any other action which
would restrict or impede the ability of CNET to acquire any shares of Xoom
Stock to the extent permitted by the terms hereof;
(d) acquire any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the ordinary
course consistent with past practice of such business) or acquire of any
minority investment in any Person, except for any acquisitions for
consideration not in excess of $10,000,000 individually or $25,000,000 in
the aggregate taken together with all such acquisitions.
(e) dispose of any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the ordinary
course consistent with past practice of such business) or dispose of any
minority investment in any Person, except for any dispositions having a
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fair market value not in excess of $10,000,000 individually or $25,000,000
in the aggregate taken together with all such dispositions;
(f) except as otherwise permitted by this SECTION 5.1, make any
expenditures other than in the ordinary course of business and in any event
not in excess of the aggregate budgeted expenditures provided in the Xoom
Budget;
(g) except as otherwise permitted by SECTION 5.1(d), enter into any
transaction involving a cash expenditure other than in the ordinary course
of business consistent with past practice;
(h) except as otherwise permitted by this SECTION 5.1, enter into any
transaction involving the incurrence of indebtedness other than in the
ordinary course of business consistent with past practice;
(i) enter into any transaction involving the merger, consolidation or
sale of all or substantially all of the assets of Xoom;
(j) file any voluntary petition for bankruptcy or receivership of Xoom
or fail to oppose any other person's petition for bankruptcy or action to
appoint a receiver of Xoom;
(k) except as required by applicable law, as contemplated by this
Agreement or the NMC Merger Agreement or to the extent required under
existing employee benefit plans, agreements or arrangements as in effect on
the date of this Agreement, (A) increase the compensation or fringe benefits
of any present or former director, officer or employee of Xoom or its
Subsidiaries, except for increases, in the ordinary course of business, in
salary or wages of employees who are not officers, (B) except in the
ordinary course of business grant any severance or termination pay to any
present or former director, officer or employee of Xoom or its Subsidiaries
or (C) enter into or amend or terminate any collective bargaining, bonus,
profit sharing, thrift, compensation, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any present or former
director, officer or employee of Xoom or its Subsidiaries;
(l) allow any payables or other obligations to become delinquent, except
where the amount or validity of such payables or obligations is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been recorded, or change or
modify the usual, regular and ordinary manner of collecting receivables from
past practice;
(m) except with respect to transactions permitted by this SECTION 5.1(d)
or SECTION 5.1(e), enter
into any contract, agreement, joint venture or other commitment that is not
terminable in Xoom's sole discretion on or prior to one year from the date
hereof without payment of any termination fee or penalty;
(n) settle any claim, action or proceeding involving money damages in
excess of $50,000 in the aggregate or that could result in any injunction or
prohibition on any part of the business of Xoom; or
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
V.2 CONDUCT OF THE BUSINESS OF SNAP PENDING THE CLOSING. SNAP agrees that
except with the prior written consent of Xoom, and except as may be expressly
permitted or contemplated by this Agreement or as set forth on SCHEDULE 5.2,
prior to the Closing it shall, and shall cause its subsidiary to operate their
businesses only in the usual, regular and ordinary manner, on a basis consistent
with past practice and, to the extent consistent with such operation, use its
reasonable efforts to preserve its present business organization intact, keep
available the services of its present employees, preserve its present business
relationships and maintain all rights, privileges and franchises necessary or
desirable in
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the normal conduct of SNAP's businesses. Without limiting the generality of the
foregoing, from the date hereof until the Closing, except as expressly permitted
or contemplated by this Agreement or as set forth on SCHEDULE 5.2, SNAP shall
not:
(a) amend the SNAP LLC Agreement;
(b) issue, purchase or redeem, or authorize or propose the issuance,
purchase or redemption of, or make any distribution with respect to, any
equity interests of SNAP or any class of securities convertible into, or
rights, warrants or options to acquire, any such equity interests or other
convertible securities other than (i) pursuant to employee options
outstanding on the date hereof or (ii) SNAP Options with an exercise price
of not less than the fair market value on the date of grant to be issued to
employees exercisable in the aggregate for not more than 195,132 units of
SNAP;
(c) acquire any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the ordinary
course consistent with past practice of such business) or acquire any
minority investment in any Person, except for any acquisitions for
consideration not in excess of $10,000,000 individually or $25,000,000 in
the aggregate taken together with all such acquisitions;
(d) dispose of any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the ordinary
course consistent with past practice of such business) or dispose of any
minority investment in any Person, except for any dispositions having a fair
market value not in excess of $10,000,000 individually or $25,000,000 in the
aggregate taken together with all such dispositions;
(e) except as otherwise permitted by this SECTION 5.2, make any
expenditures other than in the ordinary course of business and in any event
not in excess of the aggregate budgeted expenditures provided in the SNAP
Budget;
(f) except as otherwise permitted by SECTION 5.2(c), enter into any
transaction involving a cash expenditure by SNAP other than in the ordinary
course of business consistent with past practice;
(g) except as otherwise permitted by this SECTION 5.2, enter into any
transaction involving the incurrence of indebtedness by SNAP other than in
the ordinary course of business consistent with past practice;
(h) file any voluntary petition for bankruptcy or receivership of SNAP
or fail to oppose any other person's petition for bankruptcy or action to
appoint a receiver of SNAP;
(i) except with respect to transactions permitted by this SECTION 5.2(c)
and SECTION 5.2(d), enter into any contract, agreement, joint venture or
other commitment that is not terminable in SNAP's sole discretion on or
prior to one year from the date hereof without payment of any termination
fee or penalty;
(j) except as required by applicable law, as contemplated in this
Agreement or the NMC Merger Agreement or to the extent required under
existing employee benefit plans, agreements or arrangements as in effect on
the date of this Agreement, (A) increase the compensation or fringe benefits
of any employee of SNAP, except for increases, in the ordinary course of
business, in salary or wages of employees who are not officers, (B) except
in the ordinary course of business grant any severance or termination pay to
any employee of SNAP, (C) hire, except in the ordinary course of business,
any new employees or consultants, or (D) enter into or amend or terminate
any collective bargaining, bonus, profit sharing, thrift, compensation,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any employee of SNAP;
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(k) allow any payables or other obligations to become delinquent, except
where the amount or validity of such payables or obligations is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been recorded, or change or
modify the usual, regular and ordinary manner of collecting receivables from
past practice;
(l) except as otherwise permitted by SECTION 5.2(d), dispose of or
abandon outside the ordinary course of business any assets of SNAP that are
material, individually or in the aggregate, to SNAP and not transfer any
rights of material value of SNAP;
(m) permit or allow any of the material assets of SNAP to become subject
to any Liens, except for Permitted Liens or waive any material claims or
rights of SNAP;
(n) except as otherwise permitted by SECTION 5.2(c), acquire or agree to
acquire outside the ordinary course of business any assets that are
material, individually or in the aggregate, to SNAP;
(o) enter into any transaction involving the merger, consolidation or
sale of all or substantially all of the assets of SNAP;
(p) settle any claim, action or proceeding involving money damages in
excess of $50,000 in the aggregate or that could result in any injunction or
prohibition on any part of the business of SNAP; or
(q) authorize any of, or commit or agree to take any of, the foregoing
actions.
V.3 ACCESS TO INFORMATION. From the date hereof to the Closing Date, each
of Xoom and CNET and their respective Subsidiaries shall use reasonable efforts
to afford the officers, employees, auditors and other agents of CNET and Xoom
reasonable access during normal business hours to the officers, employees,
properties, offices, plants and other facilities of (i) SNAP, in the case of
CNET and (ii) Xoom and its Subsidiaries, in the case of Xoom, and to the
contracts, commitments, books, records and Tax Returns relating thereto, and
shall use reasonable efforts to furnish such Persons all such documents and such
financial, operating and other data and information regarding such businesses
and Persons that are in the possession of such Person as CNET or Xoom, as
applicable, through their respective officers, employees or agents may from time
to time reasonably request. All such information, as well as any information
provided prior to the date hereof, shall be used only for the purposes of the
transactions contemplated hereby and, unless required by subpoena or otherwise
required by law, the parties agree not to disclose to any third party (other
than their respective professional advisors) any portion of the information so
provided which constitutes confidential information (i.e., information that is
not otherwise publicly available). The confidential information shall not,
without the other parties' prior written consent, be disclosed to third parties.
The parties will disclose the information internally only to persons who require
knowledge thereof for the purposes of the transactions contemplated hereby.
V.4 NON-SOLICITATION OF EMPLOYEES. The parties hereto agree that beginning
on the date hereof and continuing until one year after the Effective Time, no
party shall, directly or indirectly, solicit for employment any person who is
now employed by any of the other parties in an executive position, technical
position or is otherwise considered a key employee; PROVIDED, HOWEVER, that a
party shall not be precluded from hiring any such employee who (i) initiates
discussions regarding such employment without any direct or indirect
solicitation by such party, (ii) responds to any general public advertisement
placed by such party or (iii) has been terminated by the other party prior to
commencement of employment discussions between such party and the employee.
V.5 AMENDMENTS TO SCHEDULES. If no later than five business days prior to
the Closing Date, Xoom, SNAP or CNET becomes aware of any fact or circumstance
(whether or not it existed prior to the date hereof) which would make any
representation, warranty, covenant or agreement of such party
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untrue, then such party shall be permitted to amend any Schedule to this
Agreement so as to identify such fact or circumstance to the extent necessary to
make such representation, warranty, covenant or agreement true and correct;
PROVIDED that if any such amendment, individually or in the aggregate with all
such other amendments, discloses facts and circumstances that constitute a
Material Adverse Effect, then notwithstanding anything to the contrary in this
Agreement, the other party (which shall be Xoom in the case of amendments by
SNAP or CNET and shall be CNET in the case of amendments by Xoom) shall have the
right to terminate this Agreement. Notwithstanding the foregoing, any change to
a Schedule that refers solely to an item previously disclosed in the SEC
Documents shall not be deemed to have a Material Adverse Effect on Xoom if such
reference is to a specific section of a specific SEC Document.
ARTICLE VI
OTHER AGREEMENTS
VI.1 REGISTRATION STATEMENT; PREPARATION OF PROXY STATEMENT. (a) As soon
as practicable after the execution of this Agreement, Xoom shall prepare and
cause to be filed with the SEC preliminary proxy materials (the "PROXY
STATEMENT") for the solicitation of approval by the stockholders of Xoom of this
Agreement, the Merger and the other transactions contemplated hereby and
pursuant to the Implementing Agreements as may reasonably require approval of
Xoom's stockholders. Xoom shall cause Xenon 2 to prepare and cause to be filed
with the SEC a registration statement on Form S-4 (the "FORM S-4"), in which the
Proxy Statement will be included as a prospectus, with respect to those shares
of Class A Common Stock issuable pursuant to the transactions contemplated
hereby. Xoom shall cause the Form S-4 and the Proxy Statement related thereto to
comply with applicable law and the rules and regulations promulgated by the SEC,
to respond promptly to any comments of the SEC or its staff and to have such
registration statement declared effective under the Securities Act as promptly
as practicable after it is filed with the SEC and Xoom shall use its best
efforts to cause the proxy statement to be mailed to Xoom's stockholders as
promptly as practicable after the registration statement is declared effective
under the Securities Act. Each of the parties hereto shall promptly furnish to
the other party all information concerning itself, its stockholders and its
Affiliates that may be required or reasonably requested in connection with any
action contemplated by this SECTION 6.1. If any event relating to any party
occurs, or if any party becomes aware of any information, that should be
disclosed in an amendment or supplement to the Form S-4 or the Proxy Statement,
then such party shall inform the other thereof and shall cooperate with each
other in filing such amendment or supplement with the SEC and, if appropriate,
in mailing such amendment or supplement to the stockholders of Xoom. The Proxy
Statement shall include the recommendation of the Board of Directors of Xoom in
favor of the adoption of this Agreement and the approval of the transactions
contemplated hereby.
(b) Prior to the Effective Time, Xoom shall cause Xenon 2 to use reasonable
efforts to obtain all regulatory approvals needed to ensure that the Class A
Common Stock to be issued in connection with the transactions contemplated
hereby: (i) will be registered or qualified under the "blue sky" laws of every
jurisdiction of the United States in which any registered holder of the
outstanding Xoom Stock who is receiving registered shares of Class A Common
Stock has an address of record or be exempt from such registration; and (ii)
will be approved for quotation at the Effective Time on Nasdaq.
(c) Each of Xoom, and CNET agrees with respect to the information to be
supplied by such party that: (i) none of the information to be supplied by such
party or its Affiliates for inclusion in the Form S-4 will, at the time the Form
S-4 becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; (ii) none of the
information to be supplied by such party or its Affiliates for inclusion in the
Proxy Statement will, at the time the Proxy Statement is mailed to the
stockholders of
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Xoom or as of the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; and (iii) as to matters respecting
such party, the Proxy Statement and the Form S-4 will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act, as applicable, and the rules and regulations promulgated by the SEC
thereunder.
VI.2 STOCKHOLDER MEETING. Xoom shall promptly after the date hereof take
all action necessary in accordance with applicable law and its certificate of
incorporation and bylaws to duly call, hold and convene a meeting of Xoom's
stockholders (the "STOCKHOLDER MEETING"). Except as required by the SEC or
applicable court order, Xoom shall not postpone or adjourn (other than for the
absence of a quorum) the Stockholder Meeting without the consent of CNET and
SNAP. Neither CNET nor Xoom shall in any way challenge the validity,
enforceability or effectiveness of the voting agreements or proxies entered into
by certain stockholders of Xoom in connection with the Merger and the
transactions contemplated hereby. Xoom shall take all other action necessary or
advisable to secure the Stockholder Approval, subject to its right to terminate
the Agreement under SECTION 9.1(f). Xenon 2 shall, through its Board of
Directors, recommend to its stockholders the approval and adoption of this
Agreement, the Merger and the other transactions contemplated hereby, unless
prior to obtaining the Xoom Stockholder Approval its Board of Directors
determines in good faith based on the advice of outside legal counsel that the
withdrawal or modification, in a manner adverse to CNET, of its approval and
adoption of this Agreement is required in order to comply with its fiduciary
duties under applicable law and Xenon 2 simultaneously terminates this Agreement
pursuant to SECTION 9.1(f).
VI.3 PUBLIC STATEMENTS. Before any party or any Affiliate of such party
shall release any information concerning this Agreement or the matters
contemplated hereby which is intended for or may result in public dissemination
thereof, such party shall cooperate with the other parties, shall furnish drafts
of all documents or proposed oral statements to the other parties, provide the
other parties the opportunity to review and comment upon any such documents or
statements and shall not release or permit release of any such information
without the consent of the other parties, except to the extent required by
applicable law or the rules of any securities exchange or automated quotation
system on which its securities or those of its Affiliate are traded.
VI.4 REASONABLE COMMERCIAL EFFORTS. (a) Subject to the terms and
conditions provided in this Agreement, each party shall use reasonable
commercial efforts to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, including,
without limitation, an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby
(PROVIDED, HOWEVER, in no event shall CNET be responsible or obligated to pay
any filing fees in connection therewith (and all such fees will be paid by
Xoom)), and the filings and consents set forth on SCHEDULE 6.4 hereto (the
"REQUIRED CONSENTS") and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement; PROVIDED that
notwithstanding anything to the contrary in this Agreement, no party nor any of
their Affiliates shall be required to make any disposition, including, without
limitation, any disposition of, or any agreement to hold separate, any
Subsidiary, asset or business, and no party hereto nor any of their Affiliates
shall be required to make any payment of money nor shall any party or its
Affiliates be required to comply with any condition or undertaking or take any
action which, individually or in the aggregate, would materially adversely
affect the economic benefits to such party of the transactions contemplated
hereby and the Implementing Agreements, taken as a whole or adversely affect any
other business of such party or its Affiliates.
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(b) Each of the parties hereto shall execute and cause its Subsidiaries to
execute on or prior to the Closing Date each Implementing Agreement to which it
or they are a party on the terms set forth in the relevant Exhibits hereto.
(c) Each of the parties hereto agrees, from time to time, to execute and
deliver, or use reasonable commercial efforts to cause to be executed and
delivered, such additional instruments, certificates or documents (including
bills of sale and assignment and assumption agreements), and take all such
actions, reasonably necessary to implement or effectuate the transactions
contemplated by this Agreement.
VI.5 NOTIFICATION OF CERTAIN MATTERS. Each party to this Agreement shall
give prompt notice to each other party of (i) the occurrence or non-occurrence
of any event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of any party contained in this Agreement to be untrue
or inaccurate at or prior to the Effective Time and (ii) any failure of any
party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery
of any notice pursuant to this SECTION 6.5 shall not limit or otherwise affect
any remedies available to the parties receiving such notice. No disclosure by
any party pursuant to this SECTION 6.5, however, shall be deemed to amend or
supplement the disclosures set forth on the Schedules to ARTICLE IV or prevent
or cure any misrepresentations, breach of warranty or breach of covenant.
VI.6 XENON 2 DIRECTORS Xenon 2 will cause the Surviving Corporation to
indemnify each person who is now, or has been at any time prior to the date of
this Agreement, or who becomes prior to the Effective Time, a director or
officer of Xoom and any of its Subsidiaries from and after the Effective Time
(individually an "INDEMNIFIED PARTY" and collectively the "INDEMNIFIED
PARTIES"), with respect to acts or omissions occurring prior to the Effective
Time to the full extent provided as of the date hereof under the certificate of
incorporation, bylaws, other similar organizational documents of Xoom or
applicable law. Xenon 2 shall cause the Surviving Corporation to maintain the
current policies of the officers' and directors' liability insurance maintained
by Xoom for at least six years, PROVIDED that the Surviving Corporation shall
not be required to expend in any one year an amount in excess of 200% of the
annual premiums currently paid by Xoom for such insurance. The rights under this
SECTION 6.6 are contingent upon the occurrence of, and will survive consummation
of, the transactions contemplated hereby and are expressly intended to benefit
each Indemnified Party each of whom shall have third party beneficiary rights
hereunder.
VI.7 EMPLOYEE MATTERS.
(a) EMPLOYEE BENEFIT PLANS.
(i) As of the Closing Date, the employees of SNAP (the "SNAP EMPLOYEES")
shall cease to accrue further benefits under the SNAP Plans (other than the
SNAP Level Plans) and shall immediately commence participation in the Xenon
2 Plans (which shall initially be the Xoom Plans) (other than Xoom Plans
comparable to the SNAP Level Plans) on a basis no less favorable than
similarly situated employees of Xenon 2 or Xoom. Xenon 2 or Xoom shall cause
each Xenon 2 Plan to treat the prior service of each SNAP Employee with SNAP
or its affiliates as service rendered to Xenon 2 or Xoom for purposes of
eligibility, vesting and benefit accruals (but not for purposes of benefit
accruals under any defined benefit pension plan) to the same extent such
service was taken into consideration under comparable SNAP Plans.
(ii) CNET shall retain all assets and liabilities and obligations under
SNAP Plans (other than the SNAP Level Plans) with respect to the SNAP
Employees.
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(b) SNAP EMPLOYEE OPTIONS
SNAP and Xenon 2 will take all requisite corporate action such that, as
of the Closing Date, each outstanding option to purchase SNAP units (a "SNAP
OPTION") held by a SNAP Employee, shall be converted into a stock option to
purchase a number of shares of Xenon 2 (a "XENON 2 OPTION") equal to the
number of Xenon 2 shares such SNAP Employees would have received if such
Employee exercised such option in full immediately prior to the Closing Date
and contributed such units with CNET in exchange for shares of Xenon 2. The
per share exercise price of each Xenon 2 Option shall equal the aggregate
exercise price of the corresponding SNAP Option divided by the number of
Xenon 2 shares subject to such Xenon 2 Option.
VI.8 XOOM OPTIONS. (a) Prior to the Effective Time, Xenon 2 shall adopt,
and the stockholders of Xenon 2 shall approve, a stock option plan (the "XENON 2
OPTION PLAN") providing for the issuance of "incentive stock options" (within
the meaning of Section 422 of the Code) and nonqualified options. At the
Effective Time, each outstanding Xoom Option shall be converted into an option
(each a "XENON 2 OPTION") of Xenon 2 to purchase shares of Class A Common Stock
under the Xenon 2 Option Plan or through assumption by Xenon 2 of the Xoom
Option Plan and each Xoom Non-Plan Option Agreement, as provided below.
Following the Effective Time, each such Xenon 2 Option shall be exercisable upon
the same terms and conditions as were applicable to the related Xoom Option as
in effect immediately prior to the Effective Time, except that (i) each such
Xenon 2 Option shall be exercisable for that number of shares of Class A Common
Stock equal to the number of shares of Xoom Stock that were issuable upon
exercise in full of such converted Xoom Option immediately prior to the
Effective Time and (ii) the per share exercise price for the shares of Class A
Common Stock issuable upon exercise of such Xenon 2 Option shall be equal to the
exercise price per share of Xoom Stock at which such Xoom Option was exercisable
immediately prior to the Effective Time. It is the intention of the parties
that, to the extent that any such Xoom Plan Option constituted an "incentive
stock option" (within the meaning of Section 422 of the Code) immediately prior
to the Effective Time, such option shall continue to qualify as an incentive
stock option to the maximum extent permitted by Section 422 of the Code, and
that the conversion of the Xoom Plan Options provided by this SECTION 6.8(a)
satisfy the conditions of Section 424(a) of the Code.
(b) Xoom represents and warrants that as of the date hereof there are no,
and have not previously been any, participants in the Xoom 1998 Employee Stock
Purchase Plan (the "XOOM ESPP"). Xoom agrees that it shall take any necessary
action to prohibit any participation in the Xoom ESPP in the future and to
terminate the Xoom ESSP prior to the Effective Time.
VI.9 RELEASE OF CNET'S GUARANTEE. Xenon 2 shall use its reasonable best
efforts to cause the guarantee by CNET of SNAP's obligations under Office Lease,
dated September 24, 1997, as amended, between No. 1 Beach Street LLC and CNET,
to be released as soon as practicable following the Closing.
VI.10 RESIGNATION OF SNAP'S CEO. CNET will cause the Chief Executive
Officer of SNAP to resign from such position as of the Effective Time.
VI.11 TAX COOPERATION AND CONSISTENT REPORTING.
To the extent CNET has it:
(a) Xoom and CNET agree to furnish or cause to be furnished to each
other, upon request, as promptly as practicable, such information and
assistance relating to the Contributed Assets as is reasonably necessary for
the filing of all Tax Returns, and making of any election related to Taxes,
the preparation for any audit by any Tax Authority, and the prosecution or
defense of any claim, suit or proceeding relating to any Tax Return to the
extent, in the case of CNET, such information is reasonably available to
CNET. Xoom and CNET will cooperate with each other in the conduct of any
audit or other proceeding related to Taxes and all other Tax matters
relating to the
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Contributed Assets, and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of
this SECTION 6.11.
(b) Unless there has been a Final Determination to the contrary, Xoom
and CNET covenant and agree, for all Tax purposes including all Tax Returns
and any Tax controversies to (and to cause any Affiliate or successor to
their assets or business to) take each of the positions set forth below (and
not to take any positions inconsistent therewith):
(i) The transfer of the Contributed Assets pursuant to the Agreement
will qualify under Section 351(a) of the Code, the Merger will constitute
a "reorganization", within the meaning of Section 368(a) of the Code, the
each of Xoom, Xenon 2 and Xenon 3 will be treated as a "party to a
reorganization", within the meaning of Section 368(b) of the Code, with
respect to the Merger.
(ii) None of the consideration received for the Contributed Assets
pursuant to the Agreement will be treated as Other Property or Money.
(iii) None of the Class A Common Stock issued to CNET pursuant to the
terms of the Agreement will be paid or issued for services.
(iv) The tax basis of each Contributed Asset to be received by Xenon
2 will be the same as the tax basis of such asset in the hands of the
transferor increased by the amount of any gain recognized by the
transferor on the transfer of such asset.
(v) The holding period of each Contributed Asset will include the
period during which such asset was held by the transferor.
(vi) Neither Xoom or Xenon 2, any affiliate thereof, nor any
successor to their assets or businesses will be entitled to claim any
deduction in respect of any Assumed Liability to the extent previously
deducted by the transferor.
(c) Xenon 2 represents, covenants and agrees that (A) it has no plan or
intention to (i) cause Xoom to issue additional shares of stock after the
Merger, or take any other action, that would result in Xenon 2 losing
control of Xoom, (ii) liquidate Xoom or merge Xoom with Xenon 2 or into any
other corporation; (iii) cause Xoom to sell or otherwise dispose of any of
its assets (or of any of the assets acquired from Xenon 3), except for
dispositions made in the ordinary course of business, transfers permitted
under Section 368(a)(2)(C) of the Code, or transfers prescribed by Section
1.368-1(d) that will not affect satisfaction of the "continuity of business
enterprise" requirement under Section 368 of the Code for purposes of
qualifying the Merger as a "reorganization" under said section, or (iv)
reacquire any of the shares of its stock issued pursuant to this Agreement,
and (B) the historic business of Xoom will be continued or a significant
portion of Xoom's historic business assets will be used in a business.
(d) (i) Xoom, Xenon 2 and CNET agree to report to each other any
communication from or with the Internal Revenue Service which relates in any
way to the characterization of the transactions contemplated by the
Agreement. Notwithstanding any such communication, Xoom, Xenon 2 and CNET
covenant and agree to (and to cause any Affiliate or successor to their
assets or business to) continue to take each of the positions specified in
SECTION 6.11(b) for all Tax purposes (unless there has been a Final
Determination contrary to such position).
(ii) Without limiting the generality of SECTION 6.11(d)(i), (A) Xoom
will use its best efforts to cause each Xoom stockholder to file, and CNET
will file, with its federal income tax return for the taxable year in which
the Agreement is consummated (which CNET tax return shall be timely filed)
the information required by Treas. Reg Section1.351-3(a) (PROVIDED that, in
the case of Xoom, such best efforts shall only require Xoom to advise its
stockholders of the requirement to comply with said section of the Treasury
Regulations and to provide them with draft language for the Required
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Statement), and CNET will deliver a copy of that statement to Xenon 2 within
ten days thereafter, and (B) Xenon 2 will file with its federal income tax
return for the taxable year in which the Agreement is consummated (which tax
return shall be timely filed) the information required by Treas. Reg
Section1.351-3(b), and will deliver a copy of that statement to CNET within
ten days thereafter. Within ninety days after the Closing Date, CNET will
deliver to Xenon 2 all of the cost and other basis information relating to
the Contributed Assets and assumed Liabilities for federal income tax
purposes reasonably required for Xenon 2 to prepare the statement required
by Treas. Reg. Section1.351-3(b)(2). Such information will be delivered in
the form normally maintained by CNET and will include reasonably complete
data relating to the tax basis, year of acquisition, depreciable life, and
amount and method of depreciation of tangible and intangible property. Xenon
2 and CNET also will maintain such records as are required by Treas. Reg.
Section1.351-3(c).
(iii) Without limiting the generality of SECTION 6.11(d)(i), (A) Xoom and
Xenon 2 will comply with the record-keeping and information filing
requirements of Section 1.368-3 of the Treasury Regulations with respect to
the Merger, and (B) Xenon 2 will file with its federal income tax return for
the taxable year in which the Agreement is consummated (which tax return
shall be timely filed) the information required by Treasury Regulations
Section 1.351-3(b) and maintain such records as are required by Treasury
Regulations Section 1.351-3(c) with respect to the Merger.
VI.12 TAX BENEFIT PAYMENTS.
(a) If a Final Determination is made contrary to any of the positions
described in SECTION 6.11(b)(i), SECTION 6.11(b)(ii), or SECTION 6.11(b)(iii),
then (in addition to any other remedies which may be available to CNET but
without duplication thereof) Xenon 2 will pay to CNET for each Post-Closing Tax
Period an amount equal to the excess of (A) the liability for federal, state and
local Taxes to which Xenon 2, Xoom or any other Affiliates or any successor to
their assets or businesses (collectively, the "TAXPAYER") would have been
subject for all Post-Closing Tax Periods in each relevant jurisdiction had the
positions described in SECTION 6.11(b) been sustained (and had Xenon 2 not been
required to make any payments pursuant to this SECTION 6.12), over (B) the
Taxpayer's actual liability for such Taxes for such periods. Such payment will
be due (subject to a ten business-day grace period) when, as, and to the extent
the Taxpayer derives an actual benefit (in the form of any refund, reduction in
Tax liability, or otherwise) as the result of such excess. If any payment
required under this SECTION 6.12(a) for any Post-Closing Tax Period is not made
on or before the due date (without extensions) of the return of such period,
then such payment will be made together with interest at the rate per annum
determined from time to time under Section 6621(a)(2) of the Code compounded
daily for the period from such due date to the date on which the payment is
actually made.
(b) In addition, Xenon 2 will pay to CNET, no later than ten business days
after each date on which the Taxpayer receives a refund of federal, state or
local Taxes for a Pre-Closing Tax Period, the excess of such refunds over such
refunds to which the Taxpayer would have been entitled had the positions
described in SECTION 6.11(b) been sustained (and had Xenon 2 not been required
to make any payments under this SECTION 6.12). If any payment required under
this SECTION 6.12(b) is not made on or before the date such payment is due, then
such payment will be made together with interest at the rate per annum
determined from time to time under Section 6621(a)(2) of the Code compounded
daily for the period from the date such payment was due to the date on which
such payment is actually made.
(c) In the event of any adjustment to the Taxpayer's liability for federal,
state or local Taxes or entitlement to a refund, as a result of audit,
carryover, or otherwise, the amounts previously payable
under this SECTION 6.12 will be appropriately adjusted and Xenon 2 or CNET, as
the case may be, will pay to the other the amount, required as a result of such
adjustment, together with interest at the rate per annum determined from time to
time under Section 6621(a)(2) of the Code compounded daily for the period from
the original payment date affected by the adjustment to the date on which the
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payment is made. At the time of any payment under this SECTION 6.12 (or at the
request of CNET if Xenon 2 has determined that no payment is due), Xenon 2 will
submit a schedule showing in reasonable detail its calculation of the payment to
be made (or the basis for its determination that no payment is due). Any dispute
concerning the calculation of payments due under this SECTION 6.12 will be
resolved by the Independent Accountants.
(d) Any payment to CNET under this SECTION 6.12 will be allocated between
principal and interest for purposes of Section 483, Section 1273, and any other
relevant provision of the Code by using as a discount rate the rate per annum
determined from time to time under Section 6621(a)(2) of the Code compounded
daily for the period from the date of Closing to the date on which the payment
is made. The portion of any such payment created as principal will be treated as
additional exchange consideration. Any payment to Xenon 2 under this SECTION
6.12 (other than interest) will be treated as a reduction of the exchange
consideration.
(e) CNET will pay (i) any fees or other amounts due to the Independent
Accountants in respect of the resolution of any dispute pursuant to SECTION
6.12(c), and (ii) all reasonable costs (including the reasonable internal costs
of Xenon 2 or any Affiliate or successor thereto) incurred by Xenon 2 (or by
such Affiliate or successor) to comply with the provisions of this SECTION 6.12.
VI.13 AFFILIATES. Not less than 45 days prior to the Effective Time, Xoom
shall deliver to Xenon 2 a letter identifying all persons who, in the opinion of
Xoom, may be deemed at the time this Agreement is submitted for adoption by the
stockholders of Xoom, "affiliates" of Xoom for purposes of Rule 145 under the
Securities Act, and such list shall be updated as necessary to reflect changes
from the date thereof. Xoom shall use its reasonable best efforts to cause each
person identified on such list to enter into and deliver to Xenon 2 not less
than 30 days prior to the Effective Time, a written agreement in connection with
the restrictions on affiliates under Rule 145 of the Securities Act (an
"AFFILIATE AGREEMENT").
ARTICLE VII
CONDITIONS TO CLOSING
VII.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to this Agreement to consummate this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction or waiver
by the appropriate party of each of the following conditions on or prior to the
Closing Date:
(a) NO INJUNCTIONS OR RESTRAINTS. At the Closing Date, there shall be
(i) no injunction, restraining order or other decree of any nature of any
court of competent jurisdiction or other Governmental Authority that is in
effect that restrains or prohibits the consummation of any of the
transactions contemplated hereby, and (ii) no action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the transactions contemplated hereby, which makes the consummation of this
Agreement and the transactions herein illegal; PROVIDED, HOWEVER, that the
parties hereto shall use their reasonable commercial efforts to have such
injunction, order, decree, claim, action, suit, statute, rule or regulation
vacated or declared inapplicable as expeditiously as practicable.
(b) REGULATORY AUTHORIZATIONS. All orders, consents and approvals of
any Governmental Authorities legally required for the consummation of the
transactions contemplated by this Agreement, including the Required
Consents, shall have been obtained, and all waiting periods applicable under
the HSR Act and other applicable antitrust, merger control or competition
laws or regulations shall have expired or been terminated, except those for
which failure to obtain such consents and approvals would not, individually
and in the aggregate, have a Material Adverse Effect. The Form S-4 shall
have become effective in accordance with the provisions of the
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Securities Act, and no stop order shall have been issued by the SEC with
respect to the Form S-4, and no similar proceeding in respect of the Proxy
Statement shall have been initiated or threatened in writing by the SEC.
(c) STOCKHOLDER APPROVAL. This Agreement shall have been adopted by
the Stockholder Approval.
(d) NASDAQ. The shares of Class A Common Stock to be issued in
accordance with the terms and subject to the conditions of this Agreement
shall have been approved for quotation (subject to notice of issuance) on
Nasdaq.
(e) NMC MERGER AGREEMENT. All of the conditions to the closing of the
transactions contemplated by the NMC Merger Agreement shall have been
satisfied or waived on or prior to the Closing Date.
VII.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF CNET. The obligation of CNET
to consummate this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction, of each of the following conditions, or by the
waiver of such condition by CNET on or prior to the Closing Date:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES OF XOOM. The
representations and warranties of Xoom contained in this Agreement shall be
true and correct in all material respects, in each case on and as of the
date of this Agreement and on and as of the Closing Date as though made on
and as of such time, except to the extent such representations and
warranties by their terms speak as of a specified date, in which case they
shall be true and correct in all material respects as of such date; and CNET
shall have received from Xoom a certificate to such effect dated as of the
Closing Date signed by an officer thereof.
(b) COVENANTS OF XOOM. Xoom shall have complied in all material
respects with all covenants contained in this Agreement to be performed by
it on or prior to the Closing; and CNET shall have received from Xoom a
certificate to such effect dated as of the Closing Date signed by an officer
thereof.
(c) IMPLEMENTING AND OTHER AGREEMENTS. Xoom and each of its
Subsidiaries and NBC shall have entered into each of the Implementing
Agreements to which it is a party.
VII.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF XOOM. The obligation of Xoom
to consummate this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction of each of the following conditions, or the waiver
of such condition by Xoom, on or prior to the Closing Date:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES OF SNAP AND CNET. The
representations and warranties of SNAP and CNET contained in this Agreement
shall be true and correct in all material respects, in each case on and as
of the date of this Agreement and on and as of the Closing Date as though
made on and as of such time, except to the extent such representations and
warranties by their terms speak as of a specified date, in which case they
shall be true and correct in all material respects as of such date; and Xoom
shall have received from each of SNAP and CNET a certificate to such effect
with respect to such party dated as of the Closing Date signed by an officer
thereof.
(b) COVENANTS OF SNAP AND CNET. Each of SNAP and CNET shall have
complied in all material respects with all covenants contained in this
Agreement to be performed by it, on or prior to the Closing; and Xoom shall
have received from CNET a certificate to such effect dated as of the Closing
Date signed by an officer thereof.
(c) IMPLEMENTING AND OTHER AGREEMENTS. CNET shall have entered into
each of the Implementing Agreements to which it is a party.
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(d) TAX OPINION. Xoom shall have received an opinion in form and
substance reasonably satisfactory to it from its counsel to the effect that
the Merger will be treated for federal income tax purposes as either or both
of: (i) a contribution of Xoom Stock to Xenon 2 qualifying under Section 351
of the Code or (ii) a "reorganization," within the meaning of Section 368(a)
of the Code, and that each of Xenon 2, Xoom and Xenon 3 will be a "party to
a reorganization," within the meaning of Section 368(b) of the Code, with
respect to the Merger. The parties shall make representations reasonably
requested by counsel related to said opinion, which representations may be
relied upon by the counsel providing such opinion, with such qualifications
as are customary for such opinion.
ARTICLE VIII
RESERVED
ARTICLE IX
TERMINATION
IX.1 TERMINATION EVENTS. Without prejudice to other remedies which may be
available to the parties by law or this Agreement, this Agreement may be
terminated and the transactions contemplated herein may be abandoned at any time
prior to the Effective Time (whether before or after adoption of this Agreement
by Xenon 2 in its capacity as sole stockholder of Xenon 3 or, subject to the
provisions hereof, the Stockholder Approval):
(a) Reserved.
(b) by either CNET or Xoom by written notice to the other parties if the
transactions contemplated by this Agreement have not been consummated by
December 31, 1999, unless extended by written agreement of the parties
hereto, PROVIDED that the party terminating this Agreement shall not be in
material default or breach hereunder and PROVIDED, FURTHER, that the right
to terminate this Agreement under this clause (b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure to consummate the
transactions contemplated by this Agreement on or before such date;
(c) by either CNET or Xoom if (i) any Governmental Authority, the
consent or approval of which is required for the consummation of the
transactions contemplated hereby, shall have determined not to grant its
consent or approval and all appeals of such determination shall have been
taken and have been unsuccessful or (ii) any court of competent jurisdiction
in the United States shall have issued a final and unappealable permanent
injunction, order, judgment or other decree (other than a temporary
restraining order) restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby, PROVIDED that the
party seeking to terminate this Agreement under this clause (c) is not then
in material breach of this Agreement and PROVIDED, FURTHER, that the right
to terminate this Agreement under this clause (c) shall not be available to
any party who shall not have used reasonable commercial efforts to avoid the
issuance of such order, decree or ruling;
(d) by either CNET or Xoom if upon a vote at a duly held Stockholders
Meeting or any adjournment thereof, the Stockholder Approval shall not have
been obtained;
(e) Reserved
(f) by Xoom, prior to the receipt of the Stockholder Approval, on five
business days written notice, if, Xoom receives a bona fide written proposal
from any Person relating to (A) the direct or indirect acquisition or
purchase of 50% or more of the assets (based on the fair market value
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thereof) of Xoom and its Subsidiaries, taken as a whole, or of 50% or more
of any class of equity securities of Xoom or any of its Subsidiaries or any
tender offer or exchange offer (including by Xoom or its Subsidiaries) that
if consummated would result in any person beneficially owning 50% or more of
any class of equity securities of Xoom or any of its Subsidiaries, (B) a
sale of all or substantially all of the assets of Xoom and its Subsidiaries
or (C) a merger or consolidation of Xoom as a result of which the
stockholders of Xoom immediately prior to such transaction would not
beneficially own immediately after such transaction 50% or more of the
resulting or surviving entity (or the parent thereof), in any such case with
respect to which the Board of Directors of Xoom (i) determines in good faith
and after consultation with a financial advisor of nationally recognized
reputation to be on terms more favorable to the Xoom stockholders than the
transactions contemplated by this Agreement and the NMC Merger Agreement and
(ii) concludes in good faith based on the advice of outside legal counsel
that termination of this Agreement is required to comply with its fiduciary
duties under applicable law.
IX.2 EFFECT OF TERMINATION. In the event of any termination of the
Agreement as provided in SECTION 9.1 hereto, this Agreement shall forthwith
become wholly void and of no further force and effect (except SECTION 5.4,
SECTION 6.3, SECTION 9.2 and ARTICLE X hereof) and there shall be no liability
on the part of any parties hereto or their respective officers or directors,
except as provided in such sections and article. Notwithstanding the foregoing,
no party hereto shall be relieved from liability for any willful breach of this
Agreement.
ARTICLE X
MISCELLANEOUS AGREEMENTS OF THE PARTIES
X.1 NOTICES. Any notice in connection with this Agreement shall be in
writing and shall be delivered by air courier or by facsimile at the addresses
or facsimile numbers given below. If notice is given by: (a) air courier, notice
shall be deemed given when recorded on the records of the air courier as
received by the receiving party; or (b) facsimile, notice shall be deemed given
upon transmission, if on a business day and during business hours in the country
of receipt; otherwise, notice shall be deemed to have been given at 9:00 A.M. on
the next Business Day in the country of receipt.
If to CNET or SNAP:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attn: Douglas N. Woodrum
Facsimile: (415) 395-9205
with copies to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: R. Clayton Mulford
Facsimile: (214) 939-5849
SNAP! LLC
One Beach Street
San Francisco, California 94133
Attn.: Edmond Sanctis
Facsimile: (415) 249-2633
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National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10012
Attn: Tom Rogers
Facsimile: (212) 664-3914
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn.: Richard Capelouto
Facsimile: (212) 455-2502
If to Xoom, Xenon 2 or Xenon 3
Xoom.com, Inc.
300 Montgomery Street
Suite 300
San Francisco, California 94104
Attn.: Chris Kitze
Facsimile: (415) 288-2580
with copies to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Attn.: Bruce Alan Mann
Facsimile: (415) 268-7522
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attn.: Allen L. Weingarten
Facsimile: (212) 468-7900
or to such other address as any such party shall designate by written notice to
the other parties hereto.
X.2 INTEGRATION; AMENDMENTS. This Agreement (including the Schedules and
Exhibits hereto) contains the entire agreement and understanding of the parties
with regard to the matters contained herein and supercedes any prior written or
oral agreement with respect to the subject matter hereto. This Agreement may not
be amended or modified except in a writing signed by all parties hereto. This
Agreement may be amended by the parties at any time before or after the
Stockholder Approval or the adoption of this Agreement by Xenon 2 in its
capacity as sole stockholder of Xenon 3; PROVIDED, HOWEVER, that after any such
approval, there shall not be made any amendment that by law requires further
approval by such stockholders without the further approval of such stockholders.
X.3 WAIVER. No waiver by any of the parties hereto of any of the
provisions hereof shall be effective unless explicitly set forth in writing and
executed by the party so waiving. Except as provided in the preceding sentence,
no action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants, or agreements contained herein, and in any documents
delivered or to be delivered pursuant to this Agreement and in connection with
the Closing hereunder. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
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X.4 NO ASSIGNMENT; SUCCESSORS AND ASSIGNS. The parties' respective rights
and obligations hereunder may not be assigned, transferred, pledged, or
encumbered, in any manner, direct or indirect, contingent or otherwise, in whole
or in part, voluntarily or by operation of law, without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding on the parties hereto and their respective successors and
permitted assigns.
X.5 EXPENSES. Except as set forth in this Agreement, if the transactions
contemplated by this Agreement are consummated, all legal and other costs and
expenses (including fees and expenses of any financial advisors, accountants or
other professional advisors) incurred by Xoom and SNAP in connection with this
Agreement and the transactions contemplated hereby shall be paid or reimbursed
by Xenon 2. If the transactions contemplated by this Agreement are not
consummated, all legal and other costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs.
X.6 SEVERABILITY. If any provision of this Agreement shall be declared by
any court of competent jurisdiction to be illegal, void or unenforceable, all
other provisions of this Agreement shall not be affected and shall remain in
full force and effect, and the parties hereto shall negotiate in good faith to
replace such illegal, void or unenforceable provision with a provision that
corresponds as closely as possible to the intentions of the parties as expressed
by such illegal, void or unenforceable provision.
X.7 SECTION HEADINGS; TABLE OF CONTENTS. The section headings contained in
this Agreement and the table of contents to this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
X.8 THIRD PARTIES. This Agreement does not create any rights, claims or
benefits inuring to any person that is not a party hereto nor create or
establish any third party beneficiary hereto, except as set forth in SECTION
6.6.
X.9 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED WITHIN SUCH STATE (EXCEPT TO THE
EXTENT THAT THE DGCL APPLIES TO THE MERGER).
X.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in
addition to any other remedy to which they are entitled at law or in equity.
X.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
CNET, INC.
By: /s/ DOUGLAS N. WOODRUM
--------------------------------------
Name: Douglas N. Woodrum
Title: EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
XOOM.COM, INC.
By: /s/ CHRIS KITZE
--------------------------------------
Name: Chris Kitze
Title: CHAIRMAN
XENON 2, INC.
By: /s/ CHRIS KITZE
--------------------------------------
Name: Chris Kitze
Title: CHAIRMAN
XENON 3, INC.
By: /s/ CHRIS KITZE
--------------------------------------
Name: Chris Kitze
Title: CHAIRMAN
SNAP! LLC
By: /s/ EDMOND SANCTIS
--------------------------------------
Name: Edmond Sanctis
Title: CHIEF OPERATING OFFICER
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SCHEDULES
<TABLE>
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Schedule 1.1(a) Knowledge Definition
Schedule 2.5(b) Capitalization of Xenon 2
Schedule 2.7 Officers and Directors of Xenon 2
Schedule 4.1(c) Governmental Approvals; Consents
Schedule 4.1(e) Equity Interests
Schedule 4.1(f) Financial Information, Liabilities
Schedule 4.1(g) Absence Changes
Schedule 4.1(h) Title to Properties; Liens
Schedule 4.1(i) Properties, Contracts, Permits
Schedule 4.1(j) Legal Proceedings
Schedule 4.1(k) Labor Controversies
Schedule 4.1(l) Intellectual Property and Technology
Schedule 4.1(m) Government Licenses, Permits
Schedule 4.1(o) Environmental Matters
Schedule 4.1(p) Employee Benefit Matters
Schedule 4.1(r) Tax Matters
Schedule 4.1(t) Acceleration of Options
Schedule 4.2(c) Governmental Approvals; Consents
Schedule 4.2(g) Stock Options
Schedule 4.2(h) Obligations with Respect to Capital Stock
Schedule 4.2(j) Absence of Certain Changes or Events
Schedule 4.2(k) Properties, Contracts, Permits and Other Data
Schedule 4.2(l) Legal Proceedings
Schedule 4.2(m) Labor Controversies
Schedule 4.2(n) Intellectual Property
Schedule 4.2(o) Government Licenses, Permits, Etc.
Schedule 4.2(q)(i) Employee Benefits Matters
Schedule Exception to Employee Benefit Plan Compliance
4.2(q)(iii)
Schedule Benefit Payments Required
4.2(q)(vii)
Schedule 4.2(s) Tax Matters
Schedule 4.2(u) Year 2000 Compliance
Schedule 4.3(c) Governmental Approvals; Consents
Schedule 5.1 Conduct of the Business of Xoom Pending the Closing
Schedule 5.2 Conduct of the Business of SNAP Pending the Closing
Schedule 6.4 Required Consents
</TABLE>
<PAGE>
APPENDIX A-2
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF CONTRIBUTION, INVESTMENT AND MERGER
BY AND AMONG
NATIONAL BROADCASTING COMPANY, INC.,
GE INVESTMENTS SUB, INC.,
NEON MEDIA CORPORATION,
XENON 2, INC.,(**)
AND
XOOM.COM, INC.
- ------------------------
(**) On July 8, 1999, Xenon 2, Inc. changed its name to NBC Internet, Inc.
<PAGE>
SECOND AMENDED AND RESTATED AGREEMENT
AND PLAN OF CONTRIBUTION, INVESTMENT AND MERGER
AMONG
NATIONAL BROADCASTING COMPANY, INC.
GE INVESTMENTS SUBSIDIARY, INC.
NEON MEDIA CORPORATION
XENON 2, INC.
AND
XOOM.COM, INC.
DATED AS OF JULY 8, 1999
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS.............................................................................................. 2
1.1 Definitions........................................................................................ 2
ARTICLE II
CONTRIBUTIONS AND ISSUANCES.............................................................................. 9
2.1 Contributions to NBC and NBC Multimedia............................................................ 9
2.2 Contributions to NMC; Issuances of NMC Capital Stock............................................... 10
2.3 Contributions To Xenon 2; Issuances of Convertible Note and Xenon 2 Capital Stock.................. 10
2.4 Note Purchase...................................................................................... 11
2.5 Required Consents.................................................................................. 11
2.6 Tax Refunds........................................................................................ 12
ARTICLE III
THE MERGER............................................................................................... 12
3.1 The Merger......................................................................................... 12
3.2 Closing............................................................................................ 12
3.3 Effective Time..................................................................................... 12
3.4 Effects of the Merger.............................................................................. 13
3.5 Certificates of Incorporation...................................................................... 13
3.6 By-Laws............................................................................................ 13
3.7 Officers and Directors of Surviving Corporation and Xenon 2........................................ 13
3.8 Effect on Capital Stock............................................................................ 13
3.9 Exchange Procedures................................................................................ 14
3.10 No Further Ownership Rights in NMC Common Stock.................................................... 14
3.11 Further Assurances................................................................................. 14
3.12 Federal Income Tax Consequences.................................................................... 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES............................................................ 15
4.1 Representations and Warranties of NBC.............................................................. 15
4.2 Representations and Warranties with respect to SNAP................................................ 22
4.3 Representations and Warranties of Xoom and Xenon 2................................................. 30
4.4 Representations and Warranties with respect to GE Investments Sub.................................. 40
4.5 Survival of Representations and Warranties......................................................... 41
4.6 No Other Representation or and Warranties.......................................................... 41
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME.............................................................. 41
5.1 Conduct of the Business of Xoom Pending the Closing................................................ 41
5.2 Conduct of the Business of SNAP Pending the Closing................................................ 43
5.3 Conduct of the NBC Multimedia Businesses Pending the Closing....................................... 45
5.4 Access to Information.............................................................................. 46
5.5 No Solicitation.................................................................................... 47
5.6 Non-Solicitation of Employees...................................................................... 48
5.7 Amendments to Schedules............................................................................ 49
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ARTICLE VI
OTHER AGREEMENTS......................................................................................... 49
6.1 Registration Statement; Preparation of Proxy Statement............................................. 49
6.2 Stockholder Meeting................................................................................ 50
6.3 Public Statements.................................................................................. 51
6.4 Reasonable Commercial Efforts...................................................................... 51
6.5 Notification of Certain Matters.................................................................... 52
6.6 Xenon 2 Directors.................................................................................. 52
6.7 Employee Matters................................................................................... 53
6.8 Xenon 2 Options.................................................................................... 54
6.9 SNAP Indebtedness.................................................................................. 55
6.10 Organization of CNBC.com........................................................................... 55
6.11 Tax Cooperation and Consistent Reporting........................................................... 55
6.12 Tax Benefit Payments............................................................................... 57
6.13 Xoom Cash.......................................................................................... 58
ARTICLE VII
CONDITIONS TO CLOSING.................................................................................... 59
7.1 Conditions Precedent to Obligations of Each Party.................................................. 59
7.2 Conditions Precedent to Obligation of NBC.......................................................... 60
7.3 Conditions Precedent to Obligations of Xenon 2..................................................... 60
ARTICLE VIII
INDEMNIFICATION.......................................................................................... 61
8.1 Indemnification by Xenon 2......................................................................... 61
8.2 Indemnification by NBC............................................................................. 61
8.3 Claims Procedure................................................................................... 61
8.4 Exclusive Remedy................................................................................... 62
ARTICLE IX
TERMINATION.............................................................................................. 62
9.1 Termination Events................................................................................. 62
9.2 Effect of Termination.............................................................................. 64
ARTICLE X
MISCELLANEOUS AGREEMENTS OF THE PARTIES.................................................................. 64
10.1 Notices........................................................................................... 64
10.2 Integration; Amendments........................................................................... 65
10.3 Waiver............................................................................................ 65
10.4 No Assignment; Successors and Assigns............................................................. 66
10.5 Expenses.......................................................................................... 66
10.6 Severability...................................................................................... 66
10.7 Section Headings; Table of Contents............................................................... 66
10.8 Third Parties..................................................................................... 66
10.9 GOVERNING LAW; SUBMISSION TO JURISDICTION......................................................... 66
10.10 Specific Performance.............................................................................. 67
10.11 Counterparts...................................................................................... 67
10.12 Amendment and Restatement......................................................................... 67
</TABLE>
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<TABLE>
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EXHIBITS
Exhibit A Advertising Agreement Term Sheet
Exhibit B Standstill Agreement
Exhibit C Voting and Right of First Offer Agreement
Exhibit D Governance and Investor Rights Agreement
Exhibit E Brand Integration and License Agreement
Exhibit F Registration Rights Term Sheet
Exhibit G-1 Summary of Principal Terms of Convertible Note # 1
Exhibit G-2 Summary of Principal Terms of Convertible Note # 2
Exhibit H NBC Note--Summary of Principal Terms
Exhibit 3.5 Restated Certificate of Incorporation of Xenon 2, Inc.
Exhibit 3.6 Bylaws of Xenon 2, Inc.
SCHEDULES
Schedule 1.1(a) Knowledge Definition
Schedule 1.1(b) NBC Multimedia Assets
Schedule 1.1(c) NBC Multimedia Liabilities
Schedule 1.1(d) Videoseeker Assets
Schedule 1.1(e) Videoseeker Liabilities
Schedule 2.1 Rights and Obligations of CNBC, Inc. Interests
Schedule 3.7 Officers and Directors
Schedule 4.1(c) Governmental Approvals; Consents
Schedule 4.1(e) Financial Information
Schedule 4.1(f) Absence of Certain Changes or Events
Schedule 4.1(h) Properties, Contracts, Permits and Other Data
Schedule 4.1(i) Legal Proceedings
Schedule 4.1(j) Labor Controversies
Schedule 4.1(k) Intellectual Property and Technology
Schedule 4.1(l) Government Licenses, Permits, Etc.
Schedule 4.1(n) Environmental Matters
Schedule 4.1(o) Employee Benefit Matters
Schedule 4.1(q) Entire Business
Schedule 4.2(c) Governmental Approvals; Consents
Schedule 4.2(e) Equity Interests
Schedule 4.2(f) Financial Information; Liabilities
Schedule 4.2(g) Absence of Certain Changes or Events
Schedule 4.2(h) Title to Properties; Liens
Schedule 4.2(i) Properties, Contracts, Permits
Schedule 4.2(j) Legal Proceedings
Schedule 4.2(k) Labor Controversies
Schedule 4.2(l) Intellectual Property and Technology
Schedule 4.2(m) Government Licenses, Permits
Schedule 4.2(o) Environmental Matters
Schedule 4.2(p) Employee Benefit Matters
Schedule 4.2(r) Tax Matters
Schedule 4.2(t) Acceleration of Options
Schedule 4.3(c) Governmental Approvals; Consents
Schedule 4.3(g) Stock Options
Schedule 4.3(h) Obligations with Respect to Capital Stock
Schedule 4.3(j) Absence of Certain Changes or Events
</TABLE>
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<TABLE>
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Schedule 4.3(k) Properties, Contracts, Permits and Other Data
Schedule 4.3(l) Legal Proceedings
Schedule 4.3(m) Labor Controversies
Schedule 4.3(n) Intellectual Property
Schedule 4.3(o) Government Licenses, Permits, Etc.
Schedule 4.3(q) Employee Benefits Matters
Schedule Exception to Employee Benefit Plan Compliance
4.3(q)(iii)
Schedule Benefit Payments Required
4.3(q)(vii)
Schedule 4.3(s) Tax Matters
Schedule 4.3(u) Year 2000 Compliance
Schedule 5.1 Conduct of the Business of Xoom Pending the Closing
Schedule 5.2 Conduct of the Business of SNAP Pending the Closing
Schedule 6.4 Required Consents
Schedule 6.7(a) Transferred Employees
Schedule 6.9 SNAP Indebtedness
Schedule 6.10 Organization of CNBC
</TABLE>
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<PAGE>
SECOND AMENDED AND RESTATED AGREEMENT
AND PLAN OF CONTRIBUTION, INVESTMENT AND MERGER
This Second Amended and Restated Agreement and Plan of Contribution,
Investment and Merger, dated as of July 8, 1999 (hereinafter, the "Agreement"),
among National Broadcasting Company, Inc., a Delaware corporation ("NBC"), GE
Investments Subsidiary, Inc., a Delaware corporation ("GE Investments Sub"),
Neon Media Corporation, a Delaware corporation ("NMC"), Xenon 2, Inc., a
Delaware corporation ("Xenon 2") and XOOM.com, Inc., a Delaware corporation
("Xoom").
W I T N E S S E T H :
WHEREAS, the parties hereto are party to the Amended and Restated Agreement
and Plan of Contribution, Investment and Merger, dated as of June 11, 1999 (the
"Existing Merger Agreement");
WHEREAS, the parties hereto have agreed to amend and restate the Existing
Merger Agreement as set forth in this Agreement, all on the terms and conditions
hereinafter set forth so that, as amended and restated, the Existing Merger
Agreement reads in its entirety as provided in this Agreement;
WHEREAS, NBC owns all of the outstanding capital stock of NBC Multimedia,
Inc., a Delaware corporation ("NBC Multimedia");
WHEREAS, NBC Multimedia formed NMC for the purpose of effecting the
transactions contemplated by this Agreement and all of its outstanding capital
stock is owned by NBC Multimedia;
WHEREAS, Xoom, Xenon 2, Xenon 3, Inc., a Delaware corporation ("Xenon 3"),
SNAP! LLC, a Delaware limited liability company ("SNAP") and CNET, Inc., a
Delaware corporation ("CNET"), are parties to an Agreement and Plan of
Contribution and Merger dated as of May 9, 1999 (the "Xenon 2 Merger
Agreement"), pursuant to which, among other things, the parties thereto have
agreed that (i) Xenon 3 will merge with and into Xoom, with Xoom as the
surviving corporation, and each outstanding share of common stock of Xoom, par
value $0.0001 per share, will be converted into the right to receive one share
of Class A Common Stock of Xenon 2 and (ii) CNET will contribute to Xenon 2
certain assets in exchange for shares of Class A Common Stock of Xenon 2;
WHEREAS, Xoom owns all of the outstanding capital stock of Xenon 2, and
Xenon 2 owns all of the outstanding stock of Xenon 3;
WHEREAS, the closing of the transactions contemplated by the Xenon 2 Merger
Agreement is a condition to the closing of the transactions contemplated by this
Agreement;
WHEREAS, while the closing under the Xenon 2 Merger Agreement and the
closing under this Agreement are not contingent on each other, it is intended
that both transactions represent a series of steps in the formation of Xenon 2
whereby the rights of all the parties are defined;
WHEREAS, the consummation of the transactions contemplated by the Xenon 2
Merger Agreement and this Agreement would combine certain assets of NBC and CNET
with the existing business of Xoom in a new holding company structure intended
to achieve important business objectives;
WHEREAS, the Board of Directors of each of Xoom, Xenon 2 and Xenon 3 believe
it is advisable for such parties to enter into this Agreement and to consummate
the transactions provided for herein;
WHEREAS, on May 9, 1999, in order to induce NBC to enter into the Agreement
and Plan of Contribution, Investment and Reorganization dated as of May 9, 1999,
NBC, Xoom and certain stockholders of Xoom entered into a voting agreement
providing for certain voting and other restrictions with respect to shares of
Xoom common stock owned by such stockholders, all upon the terms and conditions
specified therein; and
A-2-1
<PAGE>
WHEREAS, NBC, GE Investments Sub, NMC, Xoom and Xenon 2 desire to make
certain representations, warranties, covenants and other agreements in
connection with the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. (a) Capitalized terms used and not defined in this
Agreement shall have the following meanings:
"Advertising Agreement" means the advertising agreement between Xenon 2 and
NBC to be dated as of the Closing Date having the terms set forth in EXHIBIT A
hereto.
"Affiliate" means with respect to a specified Person, any Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person. As used in
this definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, as trustee
or executor, by contract or credit arrangement or otherwise.
"Business Day" means a day, other than Saturday or Sunday, on which
commercial banks in New York City are open for the general transaction of
business.
"Class A Common Stock" means the Class A common stock, $0.0001 par value per
share, of Xenon 2.
"Class B Common Stock" means the Class B common stock, $0.0001 par value per
share, of Xenon 2.
"CNBC.com" means the entity to be formed by NBC or its Subsidiaries pursuant
to SECTION 6.10 to conduct business through the CNBC.com universal resource
locator.
"CNET Standstill Agreement" means a Standstill Agreement between Xenon 2 and
CNET to be dated as of the Closing Date substantially in the form of EXHIBIT B
hereto.
"CNET Voting Agreement" means a Voting and Right of First Offer Agreement
between CNET and NBC to be dated as of the Closing Date substantially in the
form of EXHIBIT C hereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contributed Assets" means the Xoom Stock, the interests in SNAP, the
Videoseeker Assets and the NBC Multimedia Assets.
"Convertible Note # 1" means the $39,477,852 Zero Coupon Convertible
Debenture due 2006 issued by Xenon 2 to NBC Multimedia on the Closing Date
having the terms set forth in EXHIBIT G-1 hereto.
"Convertible Note # 2" means the $447,416,845 Zero Coupon Convertible
Debenture due 2006 issued by Xenon 2 to GE Investments Sub on the Closing Date
having the terms set forth in EXHIBIT G-2 hereto.
"Environmental Laws" means any and all laws, rules, orders, regulations,
statutes, ordinances, guidelines, codes, decrees, or other legally enforceable
requirement (including, without limitation, common law) of any foreign
government, the United States, or any state, local, municipal or other
A-2-2
<PAGE>
governmental authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment or of human
health, or employee health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Determination" means a determination as defined in Section 1313(a) of
the Code or any other event which finally and conclusively establishes the
amount of any liability for Taxes.
"Flying Disc" means Flying Disc Investments Limited Partnership, a Nevada
limited partnership.
"GAAP" means generally accepted accounting principles in the United States.
"Governance Agreement" means the governance agreement between Xenon 2 and
NBC to be dated as of the Closing Date substantially in the form set forth in
EXHIBIT D hereto.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Implementing Agreements" means, the NBC Note, Convertible Note # 1,
Convertible Note # 2, the Governance Agreement, the Registration Rights
Agreement, the License Agreement, the Advertising Agreement, the CNET Voting
Agreement and the CNET Standstill Agreement.
"Independent Accountants" means a nationally recognized firm of independent
certified public accountants selected and retained by the mutual agreement of
NBC and Xenon 2.
"Intellectual Property" shall mean any patents, patent registrations, patent
applications, trademarks, trademark registrations, trademark applications,
tradenames, copyrights, copyright applications, copyright registrations,
franchises, universal resource locators, domain names, permits, licenses,
processes, formulae, proprietary technology, inventions, trade secrets,
know-how, product descriptions and specifications.
"Knowledge of" or "best Knowledge of" a party hereto when modifying any
representation and warranty shall mean that such party has no actual knowledge
that such representation and warranty is not true and correct to the extent
provided therein and that (i) such party has made appropriate investigations and
inquiries of its officers and responsible employees and (ii) nothing has come to
its attention in the course of such investigation and inquiries which would
cause such party, in the exercise of due care, to believe that such
representation and warranty is not true and correct to the extent provided
therein; PROVIDED that each of the parties hereto shall be deemed to have
satisfied the foregoing requirements by making appropriate investigations and
inquiries of its officers and employees listed on SCHEDULE 1.1(A), and no
knowledge of any other director, officer or employee of such party shall be
imputed to the persons listed on the Schedule or to such party.
"Liability" means, as to any Person, all debts, liabilities and obligations,
direct, indirect, absolute or contingent of such Person, whether accrued, vested
or otherwise, whether known or unknown and whether or not actually reflected, or
required to be reflected, in such Person's balance sheets.
"License Agreement" means the license agreement between NBC Multimedia and
NBC to be dated as of May 9, 1999 substantially in the form set forth in EXHIBIT
E hereto.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind.
"Losses and Expenses" means any and all damages, claims, losses, expenses,
costs, obligations and Liabilities, including, without limiting the generality
of the foregoing, Liabilities for all reasonable attorneys' fees and expenses
(including attorney and expert fees and expenses incurred to enforce the
A-2-3
<PAGE>
terms of this Agreement), PROVIDED, HOWEVER, that "Losses and Expenses" shall
not include any lost profits or other incidental, consequential or punitive
damages.
"Material Adverse Effect" means, for any party, a material adverse effect on
(i) the assets, liabilities, business, results of operations or financial
condition of (A) Xoom, Xenon 2 and their respective Subsidiaries, taken as a
whole, in the case of Xoom or (B) the NBC Multimedia Businesses and SNAP, taken
as a whole, in the case of NBC; or (ii) the ability of such party to perform its
obligations hereunder, under the Voting Agreement, the Option Agreement or under
the Implementing Agreements to which it is a party. Notwithstanding the
foregoing, the occurrence of one of the following events, without the occurrence
of any other events, shall not be deemed by itself to constitute a Material
Adverse Effect: (i) a change in the market price or trading volume of the
outstanding equity securities of a party that is publicly traded, (ii) the
failure of a party to meet earnings estimates of equity analysts as reflected in
the First Call consensus estimates for any period (or for which earnings are
released) on or after May 9, 1999 and prior to the Effective Time or (iii)
adverse conditions affecting the U.S. economy as a whole or affecting the
multi-media industry (including internet-related businesses) as a whole
(PROVIDED that in each case such changes do not affect such party in a
disproportionate manner).
"Materials of Environmental Concern" means any gasoline or petroleum
(including, without limitation, crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos,
pollutants, contaminants, radioactivity, and any other substances of any kind,
whether or not any such substance is defined as hazardous or toxic under any
Environmental Law, that is regulated pursuant to or could give rise to liability
under any Environmental Law.
"Member of the Controlled Group" means each trade or business, whether or
not incorporated, which would be treated as a single employer with the named
trade or business under Section 4001 of ERISA or Section 414(b), (c), (m) or (o)
of the Code.
"Nasdaq" means the Nasdaq National Market.
"NBC.com" means the NBC.com universal resource locator and the business
conducted through it.
"NBC-IN" means the NBC-IN.com universal resource locator and the business
conducted through it.
"NBC Multimedia Assets" means the assets, properties and other rights of NBC
and NBC Multimedia listed on SCHEDULE 1.1(B) which are to be contributed to NMC
on the Closing Date.
"NBC Multimedia Businesses" means, collectively, NBC.com, Videoseeker and
NBC-IN.
"NBC Multimedia Liabilities" means the liabilities of NBC Multimedia listed
on SCHEDULE 1.1(C) which are to be assumed by NMC on the Closing Date.
"NBC Note" means the $340,000,000 note issued by NBC to GE Investments Sub
to be transferred to Xenon 2 on the Closing Date.
"Option Agreement" means the Stock Option Agreement, dated as of May 9,1999,
between NBC and Xoom.
"Other Property or Money" means other property or money within the meaning
of SECTION 351(B) of the Code.
"Permitted Liens" means (i) Liens for Taxes that (x) are not yet due or
delinquent or (y) are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP;
(ii) statutory Liens or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business with respect to amounts not yet overdue for a period
of 45 days or amounts being contested in
A-2-4
<PAGE>
good faith by appropriate proceedings if a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in connection with workers' compensation,
unemployment insurance and other types of social security or similar benefits;
(iv) Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of like nature; (v)
easements, rights-of-way, restrictions and other similar charges or encumbrances
on real property interests which, individually or in the aggregate, do not
materially interfere with the ordinary conduct of the relevant entity or
business, taken as a whole or the use of any such real property for its current
uses; (vi) leases or subleases granted to others which do not materially
interfere with the ordinary conduct of the relevant entity or business, taken as
a whole; (vii) with respect to real property, title defects or irregularities
that do not in the aggregate materially impair the use of the property; (viii)
any other Liens imposed by operation of law that do not, individually or in the
aggregate, have a Material Adverse Effect on the relevant entity or business,
taken as a whole; and (ix) as to any real property leases with respect to which
the relevant entity is a lessee, any Lien affecting the interest of the landlord
thereunder.
"Person" means any individual, corporation, partnership, joint venture,
trust, incorporated organization, limited liability company, other form of
business or legal entity or Governmental Authority.
"Post-Closing Tax Period" means any Tax period (or portion thereof) ending
after the Closing Date.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) ending on
or before the Closing Date.
"Registration Rights Agreement" means the registration rights agreement
among Xenon 2, NBC, CNET and Flying Disc to be dated as of the Closing Date
having the terms set forth in EXHIBIT F hereto.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"SNAP" means SNAP! LLC, a Delaware limited liability company.
"SNAP LLC Agreement" means the limited liability agreement of SNAP, as
amended from time to time.
"SNAP Units" means the units representing limited liability company
interests under the SNAP LLC Agreement.
"Subsidiary" or "Subsidiaries" of any Person means any corporation,
partnership, limited liability company, joint venture or other legal entity of
which such Person (either alone or through or together with any other
subsidiary) owns, directly or indirectly, more than 50% of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity and any partnership of which such Person serves as general
partner.
"Tax Authority" shall mean any Governmental Authority having jurisdiction
over Taxes.
"Taxes" shall mean all federal, state, local and foreign taxes, fees,
charges and other assessments of a similar nature, whether imposed directly or
through withholding, including, without limitation, any net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, payroll, employment, excise, severance, stamp,
capital stock, occupation, property, environmental or windfall tax, premium,
custom, duty or other tax, together with any interest, additions to tax, or
penalties applicable thereto.
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"Tax Returns" shall mean all federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amended tax returns relating to Taxes.
"Videoseeker" means the Videoseeker.com universal resource locator and the
business conducted through it.
"Videoseeker Assets" means the assets, properties and other rights of NBC
and NBC Multimedia listed on SCHEDULE 1.1(D).
"Videoseeker Liabilities" means the liabilities of NBC Multimedia listed on
SCHEDULE 1.1(E).
"Voting Agreement" means the Voting Agreement, dated as of May 9, 1999,
among Xoom, NBC, CNET, Chris Kitze and Flying Disc.
"Xoom Preferred Stock" means shares of preferred stock, par value $.0001 per
share, of Xoom.
"Xoom Stock" means shares of common stock, par value $.0001 per share, of
Xoom.
"Xenon 2 Merger Agreement" means the Agreement and Plan of Contribution and
Merger, dated as of May 9, 1999, among Xoom, Xenon 2, Xenon 3, SNAP and CNET.
<TABLE>
<CAPTION>
TERM SECTION
- ---------------------------------------------------------------------------------- ---------------
<S> <C>
Certificate of Merger............................................................. 3.3
Claim Notice...................................................................... 8.3
Class A Common Stock.............................................................. 1.1
Class B Common Stock.............................................................. 1.1
Closing........................................................................... 3.2
Closing Date...................................................................... 3.2
Effective Time.................................................................... 3.3
Financial Information............................................................. 4.1(e)
Form S-4.......................................................................... 6.1
Indemnified Party................................................................. 6.6(d)
Intellectual Property............................................................. 1.1
Material Transaction Proposal..................................................... 5.5(c)
Merger............................................................................ 3.1
Merger Consideration.............................................................. 3.8
NBC Multimedia Business Intellectual Property..................................... 4.1(k)
NBC Plans......................................................................... 6.7(b)(i)
Nominees.......................................................................... 6.6
Non-Plan Option................................................................... 6.8
Notice Period..................................................................... 8.3
Option Plan....................................................................... 6.8
Proxy Statement................................................................... 6.1
Required Consents................................................................. 6.4
SEC Documents..................................................................... 4.3(h)(i)
SNAP Balance Sheet................................................................ 4.2(f)
SNAP Budget....................................................................... 4.2(i)
SNAP Intellectual Property........................................................ 4.2(l)
SNAP Plans........................................................................ 4.2(p)
Stockholder Approvals............................................................. 5.5
Stockholder Meeting............................................................... 6.2
Surviving Corporation............................................................. 3.1
Takeover Proposal................................................................. 5.5(c)
Vacation Policy................................................................... 6.7(b)(v)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
- ---------------------------------------------------------------------------------- ---------------
<S> <C>
Xenon 2 Stockholder Approval...................................................... 4.3(b)
Xoom Budget....................................................................... 4.3(k)
Xoom ESPP......................................................................... 4.3(g)
Xoom Intellectual Property........................................................ 4.3(n)
Xoom Options...................................................................... 6.8
Xoom Stockholder Approval......................................................... 5.5
</TABLE>
ARTICLE II
CONTRIBUTIONS AND ISSUANCES
2.1 CONTRIBUTIONS TO NBC AND NBC MULTIMEDIA. (a) Subject to the
satisfaction or waiver of the conditions set forth in this Agreement, at the
Closing and immediately prior to the Effective Time (as defined in SECTION 3.3),
NBC shall contribute to NBC Multimedia, and NBC Multimedia shall accept, a 10%
equity interest in CNBC.com, which interest shall be subject to the rights and
obligations set forth on SCHEDULE 2.1.
(b) In connection with the transactions described in SECTION 2.1(A), NBC
shall execute, and shall cause NBC Multimedia to execute all contribution,
transfer, assumption and other agreements which are reasonably necessary to
effect the transactions described therein. The CNBC.com interest shall be
transferred free and clear of all Liens, except those set forth on Schedule
2.1(a).
2.2 CONTRIBUTIONS TO NMC; ISSUANCES OF NMC CAPITAL STOCK. (a) Subject to
the satisfaction or waiver of the conditions set forth in this Agreement, at the
Closing and immediately prior to the Effective Time, NBC shall, or shall cause
NBC Multimedia, to assign and contribute to NMC, and NMC shall accept, all of
NBC's and NBC Multimedia's right, title and interest in the NBC Multimedia
Assets, and NBC and NBC Multimedia shall assign and contribute to NMC, and NMC
shall assume, all of the NBC Multimedia Liabilities.
(b) In connection with the transactions described in SECTION 2.2(A),
NBC, NBC Multimedia, and NMC shall execute all contribution, transfer,
assumption and other agreements which counsel for NBC and Xoom determine are
reasonably necessary to effect the transactions described therein. All of
the assets transferred pursuant to SECTION 2.2(A) shall be transferred free
and clear of all Liens (other than any Liens imposed by or on behalf of
Xenon 2).
(c) In exchange for the assignments and contributions set forth in
SECTION 2.2(A), at the Closing and concurrently therewith, NMC shall issue
12,173,111 shares of its common stock, par value $.0001 per share, which
until the Effective Time shall represent all of the outstanding capital
stock of NMC, to NBC Multimedia.
2.3 CONTRIBUTIONS TO XENON 2; ISSUANCES OF CONVERTIBLE NOTE AND XENON 2
CAPITAL STOCK. (a) Subject to the satisfaction or waiver of the conditions set
forth in this Agreement, at the Closing and immediately after the Effective
Time, NBC shall cause NBC Multimedia to transfer and assign to Xenon 2, and
Xenon 2 shall accept and assume, all of the right, title and interest to (i) the
SNAP Units held by NBC Multimedia, including NBC Multimedia's rights pursuant to
SECTION 7.3 and SECTION 7.4 of the SNAP LLC Agreement to increase the number of
SNAP Units held by NBC Multimedia as provided in such agreement and (ii) the
Videoseeker Assets and the Videoseeker Liabilities.
(b) In connection with the transactions described in SECTION 2.3(A),
NBC, NBC Multimedia and Xenon 2 shall execute all contribution, transfer,
assumption, deeds, bills of sale, assignments and purchase, transfer and
other agreements which counsel for NBC and Xoom determine are
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reasonably necessary to effect the transactions described therein. The SNAP
Units, including any associated rights, transferred pursuant to SECTION
2.3(A) shall be transferred free and clear of all Liens (other than any
Liens imposed by or on behalf of Xenon 2). The Videoseeker Assets shall be
transferred free and clear of all Liens, except those set forth on Schedule
1.1(e).
(c) In exchange for the assignment and contribution of the SNAP Units
set forth in SECTION 2.3(A), at the Closing and concurrently therewith,
Xenon 2 shall issue 11,417,569 shares of Class B Common Stock to NBC
Multimedia; PROVIDED, that in no event shall NBC and its Affiliates be
issued shares of Common Stock of Xenon 2 that would result in their
aggregate holding of such shares being equal to or greater than 50% of the
outstanding shares of Common Stock of Xenon 2 after giving effect to all of
the issuances of such Common Stock on the Closing Date. In exchange for the
assignment and contribution of the Videoseeker Assets and the Videoseeker
Liabilities set forth in SECTION 2.3(A)(II), at the Closing and concurrently
therewith, Xenon 2 shall issue Convertible Note # 1 to NBC Multimedia.
(d) Upon the original issuance of the shares of Class B Common Stock by
Xenon 2 to NBC Multimedia pursuant to SECTION 2.2 and SECTION 2.3(C), and
until such time as the same is no longer required hereunder or under the
applicable requirements of the Securities Act or applicable state securities
laws, any certificate issued representing any such Class B Common Stock
shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (A) THEY
ARE SO REGISTERED OR (B) AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THE
ISSUER IS FURNISHED WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER TO THAT EFFECT. IN ADDITION, SUCH SHARES MAY ONLY BE TRANSFERRED
PURSUANT TO THE PROVISIONS OF A GOVERNANCE AND INVESTOR RIGHTS AGREEMENT,
DATED AS OF , 1999, AS AMENDED FROM TIME TO TIME, AMONG NATIONAL
BROADCASTING COMPANY, INC. AND THE ISSUER COPIES OF WHICH ARE ON FILE AT THE
PRINCIPAL OFFICE OF THE ISSUER."
2.4 NOTE PURCHASE. (a) Subject to the satisfaction or waiver of the
conditions set forth in this Agreement, after the Effective Time and the
consummation of all of the transactions contemplated by SECTIONS 2.1, 2.2 and
2.3 of this Agreement, GE Investments Sub shall purchase Convertible Note # 2
from Xenon 2 in exchange for an assignment of the NBC Note from GE Investments
Sub to Xenon 2, free and clear of all Liens.
(b) In connection with the transactions described in SECTION 2.4(A),
NBC, GE Investments Sub and Xenon 2 shall execute all deeds, bills of sale,
assignments and purchase, transfer and other agreements which counsel for
NBC and Xoom determine are reasonably necessary to effect the transactions
described therein. Upon surrender of the NBC Note to NBC, NBC shall issue a
new note payable to Xenon 2 having the terms set forth in EXHIBIT H.
2.5 REQUIRED CONSENTS. Notwithstanding anything to the contrary contained
in this Agreement, to the extent that the sale, conveyance, transfer, assignment
or delivery or attempted sale, conveyance, transfer, assignment or delivery to
NMC or Xenon 2 of any of the assets (including any assumed contract, license or
other agreement) is prohibited by applicable law or would require any
governmental or third-party authorization, approval, consent or waiver and such
authorization, approval, consent or waiver shall not have been obtained prior to
the Closing, this Agreement shall not constitute a sale, conveyance, transfer,
assignment or delivery, or an attempted sale, conveyance, transfer, assignment
or delivery thereof if any of the foregoing would constitute a breach of
applicable law or the rights of any third party. Following the Closing, the
parties shall use their reasonable commercial efforts, and shall
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cooperate with each other, to obtain promptly such authorizations, approvals,
consents or waivers; PROVIDED, HOWEVER, that neither NBC, Xenon 2 nor any of
their respective Affiliates shall be required to pay any consideration therefor,
other than filing, recordation or similar fees payable to any governmental
authority, which fees shall be paid by Xenon 2. Pending or in the absence of
such authorization, approval, consent or waiver, the parties shall use their
reasonable commercial efforts to enter into reasonable and lawful arrangements
designed to provide to Xenon 2 the benefits and liabilities of use of such
assets from and after the Effective Time.
2.6 TAX REFUNDS. Notwithstanding anything herein to the contrary, Xenon 2
shall be entitled to all refunds of Taxes with respect to the activities,
properties or employees of NMC or SNAP attributable to the period after the
Closing Date.
ARTICLE III
THE MERGER
3.1 THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), NMC shall be merged (the "Merger") with and into Xenon 2 at the
Effective Time. Following the Merger, the separate corporate existence of NMC
shall cease and Xenon 2 shall continue as the surviving corporation (the
"Surviving Corporation").
3.2 CLOSING. Subject to the satisfaction or waiver (subject to applicable
law) of the conditions set forth in ARTICLE VII, the closing of the Merger and
the transactions contemplated by this Agreement (the "Closing") will take place
on the second Business Day after all the conditions to Closing (other than
conditions that, by their terms, cannot be satisfied until the Closing Date) set
forth in ARTICLE VII shall have been satisfied or waived, unless this Agreement
has been theretofore terminated pursuant to its terms, unless another time or
date is agreed to in writing by the parties hereto (the actual time and date of
the Closing being referred to herein as the "Closing Date"). The Closing shall
be held at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York, 10017, unless another place is agreed to in writing by the
parties hereto.
3.3 EFFECTIVE TIME. As soon as practicable following the satisfaction of
the conditions set forth in ARTICLE VII, the parties shall (i) file a
certificate of merger (the "Certificate of Merger") executed in accordance with
the relevant provisions of the DGCL and (ii) make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as shall be specified in the Certificate of Merger (the date and time the
Merger becomes effective being the "Effective Time").
3.4 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
will have the effects set forth in the DGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of NMC and Xenon 2 shall be vested in
the Surviving Corporation, and all debts, liabilities and duties of NMC and
Xenon 2 shall become the debts, liabilities and duties of the Surviving
Corporation.
3.5 CERTIFICATES OF INCORPORATION. Xoom shall cause the certificate of
incorporation of Xenon 2 to be amended and restated immediately prior to the
Effective Time to change the name of Xenon 2 to "NBC Internet, Inc." and so as
to otherwise read in its entirety as set forth in EXHIBIT 3.5, with such changes
therein as NBC and Xenon 2 may agree upon prior to the Effective Time, and such
amended and restated certificate of incorporation shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
3.6 BY-LAWS. Xoom shall cause the by-laws of Xenon 2 to be amended and
restated effective prior to the Effective Time so as to read in their entirety
as set forth in EXHIBIT 3.6, with such changes therein as NBC and Xenon 2 may
agree upon prior to the Effective Time, and such amended and
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restated by-laws shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
3.7 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION AND XENON 2. The
officers and directors of the Surviving Corporation shall be as provided in
SCHEDULE 3.7, which individuals will serve as officers and directors of the
Surviving Corporation until the earlier of their resignation or removal or
otherwise ceasing to be an officer or director or until their respective
successors are duly elected and qualified.
3.8 EFFECT ON CAPITAL STOCK. (a) At the Effective Time by virtue of the
Merger and without any action on the part of the holder thereof, each share of
common stock, par value $0.0001, of NMC (the "NMC Common Stock") issued and
outstanding immediately prior to the Effective Time (other than shares of NMC
Common Stock held by NMC, all of which shall be canceled as provided in SECTION
3.8(C)) shall be converted into one share of Class B common stock, par value
$0.0001 per share, of the Surviving Corporation (the "Merger Consideration") and
all shares of common stock of the Surviving Corporation issued and outstanding
at the Effective Time shall remain outstanding after the Merger.
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of NMC Common Stock shall
be canceled and shall cease to exist, and each holder of a certificate which
immediately prior to the Effective Time represented any such shares of NMC
Common Stock (a "Certificate") shall thereafter cease to have any rights
with respect to such shares of NMC Common Stock, except as provided herein
or by law.
(c) Each share of NMC Common Stock held by NMC at the Effective Time
shall, by virtue of the Merger, cease to be outstanding and shall be
canceled and no stock of Xenon 2 or other consideration shall be delivered
in exchange therefor.
(d) Upon the original issuance of the shares of Class B Common Stock by
Xenon 2 in connection with the Merger, and until such time as the same is no
longer required hereunder or under the applicable requirements of the
Securities Act or applicable state securities laws, any certificate issued
representing any such Class B Common Stock shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (A) THEY
ARE SO REGISTERED OR (B) AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THE
ISSUER IS FURNISHED WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER TO THAT EFFECT. IN ADDITION, SUCH SHARES MAY ONLY BE TRANSFERRED
PURSUANT TO THE PROVISIONS OF A GOVERNANCE AND INVESTOR RIGHTS AGREEMENT,
DATED AS OF , 1999, AS AMENDED FROM TIME TO TIME AMONG NATIONAL
BROADCASTING COMPANY, INC. AND THE ISSUER COPIES OF WHICH ARE ON FILE AT THE
PRINCIPAL OFFICE OF THE ISSUER."
3.9 EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, NBC shall cause NBC Multimedia to deliver its Certificate to
Xenon 2 and NBC Multimedia shall be entitled to receive in exchange a
certificate representing, in the aggregate, the number of shares into which the
NMC Common Stock was converted pursuant to SECTION 3.8(A).
3.10 NO FURTHER OWNERSHIP RIGHTS IN NMC COMMON STOCK. All shares of Class
B Common Stock issued upon conversion of NMC Common Stock in accordance with the
terms of this ARTICLE III shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of NMC Common Stock formerly
represented thereby.
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3.11 FURTHER ASSURANCES. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of NMC or Xenon 2, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of NMC
or Xenon 2, any other actions and things to vest, perfect or confirm of record
or otherwise in the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger.
3.12 FEDERAL INCOME TAX CONSEQUENCES. For federal income tax purposes, it
is intended that the transfers described in SECTION 2.2 and SECTION 2.3 and the
Merger qualify as a contribution to Xenon 2 qualifying under Section 351 of the
Code.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
4.1 REPRESENTATIONS AND WARRANTIES OF NBC. NBC represents and warrants to
Xoom and Xenon 2 as follows, PROVIDED that none of the representations or
warranties contained in this SECTION 4.1 are made with respect to SNAP, its
assets, Liabilities or the business conducted thereby except paragraphs (a), (b)
and (c) and the second sentence of paragraph (g) to the extent related to the
ownership or transfer of the SNAP Units:
(a) DUE ORGANIZATION, POWER AND GOOD STANDING. NBC, NMC and each of
Neon's Subsidiaries that is a party to an Implementing Agreement is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the requisite power and authority to
own, lease and operate its properties and to conduct its business as now
conducted by it. NBC, NMC and each of Neon's Subsidiaries that is a party to
an Implementing Agreement has all requisite power and authority to enter
into this Agreement and the Implementing Agreements to which it is a party
and to perform its obligations hereunder and thereunder. NBC, NMC and each
of Neon's Subsidiaries that is a party to an Implementing Agreement is
qualified to do business and is in good standing in all jurisdictions in
which it conducts its business, except where the failure to do so would not,
individually or in the aggregate, taken as a whole, have a Material Adverse
Effect.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENTS. The execution, delivery
and performance by NBC and its Subsidiaries of the Existing Merger
Agreement, this Agreement and the Implementing Agreements to which it or its
Subsidiaries is a party and the consummation by NBC and its Subsidiaries of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate or other governance action (including any
required approval from NBC Parent) on the part of NBC and its Subsidiaries.
Each of the Existing Merger Agreement, this Agreement, the Option Agreement
and the Voting Agreement has been, and each of the Implementing Agreements
to which NBC or any of its Subsidiaries is a party will on the Closing Date
be, duly executed and delivered by NBC and its Subsidiaries and constitutes
or, in the case of the Implementing Agreements, upon execution thereof will
constitute, a valid and legally binding obligation of NBC and its
Subsidiaries, enforceable against each in accordance with its terms.
(c) GOVERNMENTAL APPROVALS; CONSENTS. Except as described in SCHEDULE
4.1(C), the execution, delivery and performance of this Agreement, the
Option Agreement and the Implementing Agreements by NBC and its Subsidiaries
and the consummation by such Persons of the transactions contemplated hereby
and thereby will not (i) conflict with or result in a breach of any
provision of the certificate of incorporation or bylaws or other governing
documents of NBC or its Subsidiaries; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
Governmental Authority; (iii) require the consent or approval of any Person
(other than a Governmental Authority or any approvals required under SECTION
4.1(B)) or violate or conflict with, or result in a breach of any provision
of, constitute a default (or an event which with notice or lapse of time or
both would become a default) or give to any third party any right of
termination, cancellation, amendment or acceleration under, or result in the
creation of a Lien on any of the NBC Multimedia Assets or the Videoseeker
Assets under, any of the terms, conditions or provisions of any contract or
license to which NBC or any of its Subsidiaries is a party or by which it or
its assets or property are bound; or (iv) violate or conflict with any
order, writ, injunction, decree, statute, rule or regulation applicable to
NBC or any of its Subsidiaries; other than any consents, approvals,
authorizations and permits the failure of which to obtain and any
violations, conflicts, breaches defaults and other matters set forth
pursuant to clauses (ii),
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(iii) and (iv) above which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(d) CERTAIN FEES. Neither NBC or any of its Subsidiaries nor the
officers, directors or employees, thereof have employed any broker or finder
or incurred any other Liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated hereby;
except that NBC has employed BT Alex. Brown Incorporated whose fees and
expenses will be paid in accordance with SECTION 10.5 if the transactions
contemplated by this Agreement are consummated and will otherwise be paid by
NBC.
(e) FINANCIAL INFORMATION, LIABILITIES. NBC has provided Xenon 2 with
certain historical financial information relating to the NBC Multimedia
Businesses set forth on SCHEDULE 4.1(E) hereto (the "Financial
Information"). The Financial Information has been prepared in accordance
with the accounting principles and procedures set forth on SCHEDULE 4.1(E)
and is true and correct in all material respects. All of the NBC Multimedia
Liabilities and Videoseeker Liabilities primarily relate to the NBC
Multimedia Businesses.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
SCHEDULE 4.1(F), since December 31, 1998, NBC and its Subsidiaries have
conducted the NBC Multimedia Businesses in all material respects only in the
ordinary course, consistent with past practice and there has not been (i)
any material adverse change in the assets, liabilities, business, results of
operations or financial condition of the NBC Multimedia Businesses or (ii)
except in the ordinary course of business consistent with past practice and
except for such matters that would not reasonably be expected to have a
Material Adverse Effect, any damage, destruction, loss, conversion,
condemnation or taking by eminent domain related to any material NBC
Multimedia Asset. In addition, except as disclosed on SCHEDULE 4.1(F), from
December 31, 1998 to May 9, 1999, neither NBC nor any of its Subsidiaries
has (A) acquired or disposed of any material assets of an NBC Multimedia
Business or entered into any agreement or other arrangement for any such
acquisition or disposition or (B) relinquished, forgiven or canceled any
material debts or claims with respect to an NBC Multimedia Business.
(g) TITLE TO PROPERTIES; ABSENCE OF LIENS. NBC or its Subsidiaries
have, and at the Closing, NMC will acquire, good title to (or, in the case
of real estate or equipment leases, a valid lease to) all properties, assets
and other rights included in the NBC Multimedia Assets, free and clear of
all Liens except for Permitted Liens and Liens described on Schedule 1.1(c).
NBC or its Subsidiaries have, and at the Closing, immediately prior to the
Effective Time, Xenon 2 will acquire, good title to (or in the case of real
estate or equipment leases, a valid lease to) all properties, assets and
other rights included in the Videoseeker Assets, free and clear of all Liens
except for Permitted Liens and Liens described on Schedule 1.1(e). NBC or
its Subsidiaries have, and at the Closing, Xenon 2 will acquire, good title
to all of the SNAP Units held by NBC and its Subsidiaries, free and clear of
all Liens (other than Liens created, imposed or granted by Xenon 2 and as
set forth in the SNAP LLC Agreement). Assuming the consummation of the
transactions contemplated by the Xenon 2 Merger Agreement in accordance with
the terms and conditions thereof, at the Closing, Xenon 2 will acquire good
title to all of the SNAP Units.
(h) PROPERTIES, CONTRACTS, PERMITS AND OTHER DATA. Except as specified
in SCHEDULE 4.1(H) hereto, all rights, licenses, leases, registrations,
applications, contracts, commitments and other agreements of NBC and its
Subsidiaries with respect to the NBC Multimedia Businesses or by which the
NBC Multimedia Assets or Videoseeker Assets are bound are in full force and
effect and are valid and enforceable in accordance with their respective
terms except for such failures to be in full force and effect and valid and
enforceable that would not, individually or in the aggregate, have a
Material Adverse Effect. No NBC Multimedia Business is in breach or default
in the performance of any obligation thereunder and no event has occurred or
has failed to occur
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whereby any of the other parties thereto have been or will be released
therefrom or will be entitled to refuse to perform thereunder, the
enforcement of which would have, either individually or in the aggregate, a
Material Adverse Effect.
(i) LEGAL PROCEEDINGS. Except as described in SCHEDULE 4.1(I), there
is no litigation, proceeding or governmental investigation to which NBC or
its Subsidiaries is a party pending or, to the best Knowledge of NBC,
threatened against it or its Subsidiaries which, either individually or in
the aggregate, would reasonably be expected to result in a Material Adverse
Effect or which, as of May 9, 1999, seeks to restrain or enjoin the
consummation of any of the transactions contemplated hereby. NBC and its
Subsidiaries are not party to, nor are the NBC Multimedia Assets or
Videoseeker Assets subject to, any judgment, writ, decree, injunction or
order entered by any court or governmental authority (domestic or foreign)
that, individually or in the aggregate, would reasonably be expected to have
a Material Adverse Effect.
(j) LABOR CONTROVERSIES. Except as set forth on SCHEDULE 4.1(J), (i)
there have been no labor strikes, slow-downs, work stoppages, lock-outs or
other material labor controversies or disputes during the past two years,
nor is any such strike, slow-down, work stoppage or other material labor
controversy or dispute pending or, to the best Knowledge of NBC, threatened,
in each case with respect to the current or former employees of the NBC
Multimedia Businesses, (ii) none of the NBC Multimedia Businesses are a
party to any labor contract, collective bargaining agreement, contract,
letter of understanding or, to Neon's Knowledge, any other agreement, formal
or informal, with any labor union or organization, nor are any of the NBC
Multimedia Businesses' employees represented by any labor union or
organization, and (iii) no NBC Multimedia Business has closed any facility,
effectuated any layoffs of employees or implemented any early retirement,
separation or window program within the past two years nor has any NBC
Multimedia Business planned or announced any such action or program for the
future.
(k) INTELLECTUAL PROPERTY. NBC or its Subsidiaries own or are licensed
or otherwise have the right to use, all Intellectual Property currently used
in the NBC Multimedia Businesses (the "NBC Multimedia Business Intellectual
Property"), except as would not, individually or in the aggregate, have a
Material Adverse Effect. No NBC Multimedia Business has infringed upon or is
in conflict with the Intellectual Property of any third party nor has any
NBC Multimedia Business received any written notice of any claim that any
NBC Multimedia Business has infringed upon or is in conflict with any
Intellectual Property of any third party, except as would not, individually
or in the aggregate, have a Material Adverse Effect. Except as set forth on
SCHEDULE 4.1(K), none of the rights of NBC or its Subsidiaries to the NBC
Multimedia Business Intellectual Property will be impaired in any way by the
transactions provided for herein, and all of the rights of NBC and its
Subsidiaries to the NBC Multimedia Business Intellectual Property will be
fully enforceable by NMC after the Closing Date to the same extent as such
rights would have been enforceable by NBC or its Subsidiaries before the
Closing, without the consent or agreement of any other party other than any
consents and agreements the failure of which to obtain, individually or in
the aggregate, would not have a Material Adverse Effect. There have been no
claims (whether private or governmental) against NBC or its Subsidiaries
asserting the invalidity or unenforceability of its ownership, license or
other right to use any of the registered NBC Multimedia Business
Intellectual Property.
(l) GOVERNMENT LICENSES, PERMITS, ETC. Except as set forth on SCHEDULE
4.1(L), NBC and its Subsidiaries have all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental
Authorities required for the conduct of each NBC Multimedia Business as
presently conducted, except where failure would not, individually or in the
aggregate, have a Material Adverse Effect.
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(m) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND CONTRACTUAL
REQUIREMENTS. NBC and its Subsidiaries have complied with all applicable
laws, ordinances, regulations or orders or other requirements of any
Governmental Authority applicable to the NBC Multimedia Businesses,
including, without limitation, all rules, regulations and administrative
orders relating to anti-competitive practices, discrimination, employment,
health and safety, except where the failure to be in such compliance would
not have, either individually or in the aggregate, a Material Adverse
Effect.
(n) ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 4.1(N) and
except for matters that, individually or in the aggregate, would not have a
Material Adverse Effect, (i) NBC and its Subsidiaries comply and have
complied with all Environmental Laws applicable to the NBC Multimedia
Businesses, and possess and comply with and have possessed and complied with
all Environmental Permits for each NBC Multimedia Business; (ii) there are
and have been no Materials of Environmental Concern, or other conditions, at
any property owned or leased by NBC or any of its Subsidiaries and included
in the NBC Multimedia Assets or Videoseeker Assets that could give rise to
any liability under any Environmental Law or result in costs arising out of
any Environmental Law; (iii) no judicial, administrative, or arbitral
proceeding (including any notice of violation or alleged violation) under
any Environmental Law to which any NBC or any of its Subsidiaries is, or to
the Knowledge of NBC and its Subsidiaries will be, named as a party is
pending or, to the Knowledge of NBC, threatened, with respect to any NBC
Multimedia Business nor is any NBC Multimedia Business the subject of any
investigation in connection with any such proceeding or potential
proceeding; (iv) there are no past, present, or anticipated future events,
conditions, circumstances, practices, plans, or legal requirements that
could be expected to prevent, or materially increase the burden on any NBC
Multimedia Business of complying with applicable Environmental Laws or of
obtaining, renewing, or complying with all Environmental Permits required
under such laws; and (v) NBC has provided to the other parties true and
complete copies of all Environmental Reports relating to the NBC Multimedia
Businesses in the possession or control of NBC and its Subsidiaries.
(o) EMPLOYEE BENEFIT MATTERS. (i) Neither NBC nor any of its
Subsidiaries nor any Member of the Controlled Group of which it is a member
has (A) engaged in, or is a successor or parent corporation to an entity
that has engaged in, a transaction described in Sections 4069 or 4212(c) of
ERISA or (B) incurred, or could reasonably be expected to incur, any
liability under (I) Title IV
of ERISA arising in connection with the termination of, or a complete or
partial withdrawal from, any plan covered or previously covered by Title IV
of ERISA or (II) Section 4971 of the Code that in either case could become a
liability of Xenon 2 or any Subsidiary after the Closing Date. The assets of
NBC and all of its Subsidiaries are not now, nor will they after the passage
of time be, subject to any lien imposed under Code Section 412(n) by reason
of a failure of any of NBC or any Subsidiary or any Member of the Controlled
Group of which it is a member to make timely installments or other payments
required under Code Section 412. SCHEDULE 6.7(A) sets forth (i) the names
and salaries of each employee to whom Xenon 2 shall offer employment
pursuant to SECTION 6.7 and (ii) any employment agreements between such
employees and NBC or any of its Subsidiaries.
(ii) Except as provided on SCHEDULE 4.1(O), no plan exists with
respect to the Transferred Employees that could result in the payment to
them of any money or other property or accelerate or provide any other
rights or benefits to them as a result of the transaction contemplated by
this Agreement, whether or not such payment would constitute a parachute
payment within the meaning of Code Section 280G.
(p) ABSENCE OF CERTAIN BUSINESS PRACTICES. No officer, employee or
agent of any NBC Multimedia Business, nor any other Person acting on behalf
of any NBC Multimedia Business, has, directly or indirectly, within the past
five years given or agreed to give any gift or similar benefit to
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any customer, supplier, governmental employee or other Person or entity who
is or may be in a position to help or hinder any NBC Multimedia Business (or
assist such NBC Multimedia Business in connection with any actual or
proposed transaction) which (x) subjects any party or any of their
respective Subsidiaries, to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (y) if not given in the past, would
have had a Material Adverse Effect or (z) if not continued in the future,
would have a Material Adverse Effect or which might subject any party or any
of their respective Subsidiaries, to suit or penalty in any private or
governmental litigation or proceeding.
(q) ENTIRE BUSINESS. Except as set forth in SCHEDULE 4.1(Q), the NBC
Multimedia Assets and the Videoseeker Assets, including the License
Agreement, will enable Xenon 2 to conduct the NBC Multimedia Businesses
after the Effective Time in substantially the same manner as they are
currently being conducted.
(r) TAX MATTERS. (i) NBC and each of its Subsidiaries have timely
filed (or have had timely filed on their behalf) or will timely file or
cause to be timely filed, all Tax Returns required by applicable law to be
filed by any of them prior to the Effective Time with respect to the NBC
Multimedia Businesses or the assets, employees or businesses of or to be
contributed by NBC or its Affiliates to CNBC.com. All such Tax Returns are
or will be true, complete and correct in all material respects. There are no
outstanding agreements or waivers extending the statutory period of
limitation applicable to any of such Tax Returns and neither NBC nor any of
its Subsidiaries has requested any extension of time within which to file
any material Tax Return with respect to the NBC Multimedia Businesses or the
assets, employees or businesses of or to be contributed by NBC or its
Affiliates to CNBC.com, which return has not yet been filed. There is no
pending claim by any authority of a jurisdiction where NBC or any of its
Subsidiaries has not filed Tax Returns that NBC or such Subsidiary is or may
have been subject to taxation by that jurisdiction with respect to the NBC
Multimedia Businesses or the assets, employees or businesses of or to be
contributed by NBC or its Affiliates to CNBC.com. All Taxes required to be
withheld by NBC or its Affiliates with respect to the NBC Multimedia
Businesses or CNBC.com or their activities, properties, employees or
independent contractors have been withheld and paid over to the appropriate
Tax Authority.
(ii) NBC and each of its Subsidiaries have paid (or have had paid on
their behalf), or where payment is not yet due, have established (or have
had established on their behalf and for their sole benefit and recourse),
or will establish or cause to be established on or before the Effective
Time, an adequate accrual for the payment of, all Taxes due with respect
to any period beginning prior to the Effective Time with respect to the
NBC Multimedia Businesses or the assets, employees or businesses of or to
be contributed by NBC or its Affiliates to CNBC.com. No deficiency or
adjustment for any Taxes has been threatened, proposed, asserted or
assessed against NBC or any of its Subsidiaries with respect to the NBC
Multimedia Businesses or the assets, employees or businesses of or to be
contributed by NBC or its Affiliates to CNBC.com. There are no liens for
Taxes upon the assets of NBC or any of
its Subsidiaries, except for liens for current Taxes not yet due, with
respect to the NBC Multimedia Businesses or the assets, employees or
businesses of or to be contributed by NBC or its Affiliates to CNBC.com.
(iii) With respect to the NBC Multimedia Businesses or the assets,
employees or businesses of or to be contributed by NBC or its Affiliates
to CNBC, neither NBC nor any of its Subsidiaries is required to include
in income any adjustment pursuant to Section 481(a) of the Code or any
similar applicable provision by reason of a voluntary change in
accounting method initiated by NBC or any of its Subsidiaries, and
neither the Internal Revenue Service nor any taxing authority has
proposed in writing any such adjustment or change in accounting method.
Neither NBC nor any of its Subsidiaries has received a tax ruling or
entered into a
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closing agreement with any taxing authority that would have a Material
Adverse Effect upon the NBC Multimedia Businesses or the assets,
employees or businesses of or to be contributed by NBC or its Affiliates
to CNBC.
(iv) With respect to the NBC Multimedia Business, neither NBC nor
any of its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement, in each case, that could
obligate it to make any payments that would not be deductible pursuant to
Section 280G of the Code.
(v) None of the NBC Multimedia Businesses or the business of
CNBC.com has a "permanent establishment," as defined in any applicable
Tax treaty or convention of the United States of America, or fixed place
of business in any foreign country. NBC and its Affiliates are in
compliance with the terms and conditions of any applicable tax
exemptions, agreements or orders of any foreign government to which it
may be subject or which it may have claimed with respect to the NBC
Multimedia Businesses or the assets, employees or businesses of or to be
contributed by NBC or its Affiliates to CNBC.com, and the transactions
contemplated by this Agreement will not have any adverse effect on such
compliance.
(vi) CNBC.com shall initially be treated as a partnership for
federal income tax purposes.
(s) ACCREDITED INVESTOR. NBC is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act. NBC (i) is
acquiring the Class B Common Stock for investment for its own account and
not with a view to, or for sale in connection with, any distribution
thereof, in violation of the Securities Act; (ii) has had an opportunity to
ask questions of the officers and directors of, and has had access to
information concerning, Xenon 2 and its Subsidiaries; (iii) has knowledge,
sophistication and experience in business and financial matters and risks of
such investment; (iv) is able to bear the economic risk of such investment;
and (v) is able to afford a complete loss of such investment.
(t) YEAR 2000 COMPLIANCE. With respect to the NBC Multimedia
Businesses, NBC has adopted and implemented a commercially reasonable plan
to provide (x) that the change of the year from 1999 to the year 2000 will
not have a Material Adverse Effect and (y) that the impacts of such change
on the venders and customers of the NBC Multimedia Businesses will not have
a Material Adverse Effect. In Neon's reasonable best estimate, no
expenditures materially in excess of currently budgeted items previously
disclosed to Xenon 2 will be required in order to cause the information and
business systems of the NBC Multimedia Businesses to operate properly
following the change of the year 1999 to the year 2000. NBC reasonably
expects any material issues related to such change of the year will be
resolved in accordance with the timetable set forth in such plan (and in any
event on a timely basis in order to be resolved before the year 2000).
Between May 9, 1999 and the Effective Time, NBC shall continue to use
commercially reasonable efforts to implement such plan.
(u) NMC. The authorized capital stock of NMC consists of 100 shares of
common stock, par value $0.0001 per share, of which 100 shares have been
issued and are outstanding and held by NBC Multimedia as of May 9, 1999. NMC
has not conducted any activities other than in connection with its
organization, the negotiation and execution of this Agreement and the
consummation of the transactions contemplated hereby. Prior to the Closing
Date, NMC's certificate of incorporation will be amended to provide for an
authorized capital stock sufficient to permit NMC to issue shares of its
common stock as described in SECTION 2.2(C).
(v) NO OTHER LIABILITIES. Other than the NBC Multimedia Liabilities or
Videoseeker Liabilities or as set forth on Schedule 1.1(e), there are no
Liabilities of NBC or its Subsidiaries or GE Investments Sub that will be
transferred or assigned to, or assumed by, NMC in connection with the
transactions set forth in SECTION 2 or as to which NMC or Xenon 2 could be
liable.
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4.2 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO SNAP. NBC represents
and warrants to Xenon 2 as follows:
(a) DUE ORGANIZATION, POWER AND GOOD STANDING. SNAP is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has the requisite power and authority to own, lease and
operate its properties and to conduct its business as now conducted by it.
SNAP is qualified to do business and is in good standing in all
jurisdictions in which it conducts its business, except where the failure to
do so would not, individually or in the aggregate, taken as a whole, have a
Material Adverse Effect. SNAP has no Subsidiaries other than SNAP
International LLC which has not commenced business operations and has no
material assets or liabilities.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The transfer of the
interests in SNAP pursuant hereto have been duly authorized by all necessary
action on the part of SNAP.
(c) GOVERNMENTAL APPROVALS; CONSENTS. Except as described in SCHEDULE
4.2(C), the execution, delivery and performance by NBC of this Agreement and
the Implementing Agreements to which it is a party and the consummation by
NBC of the transactions contemplated hereby and thereby will not (i)
conflict with or result in a breach of any provision of the SNAP LLC
Agreement; (ii) require any consent, approval, authorization or permit of,
or filing with, or notification to, any Governmental Authority; (iii)
require the consent or approval of any Person (other than a Governmental
Authority) or violate or conflict with, or result in a breach of any
provision of, constitute a default (or an event which with notice or lapse
of time or both would become a default) or give to any third party any right
of termination, cancellation, amendment or acceleration under, or result in
the creation of a Lien on any of the assets of SNAP under any of the terms,
conditions or provisions of any contract or license to which SNAP is a party
or by which it or its assets or property are bound; or (iv) violate or
conflict with any order, writ, injunction, decree, statute, rule or
regulation applicable to SNAP; other than any consents, approvals,
authorizations and permits the failure of which to obtain and any
violations, conflicts, breaches defaults and other matters set forth
pursuant to clauses (ii), (iii) and (iv) above which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(d) CERTAIN FEES. Neither SNAP nor any of the officers, directors or
employees, thereof has employed any broker or finder or incurred any other
Liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby except that SNAP has employed of
BT Alex. Brown Incorporated whose fees and expenses will be paid in
accordance with SECTION 10.5 of the transactions contemplated by this
Agreement are consummated and otherwise will be paid by SNAP.
(e) EQUITY INTERESTS. As of May 9, 1999, the outstanding equity
interests in SNAP and the holders thereof are set forth on SCHEDULE 4.2(E)
hereto. All outstanding SNAP Units are duly authorized, validly issued,
fully paid and non-assessable and are not subject to any preemptive rights
except as set forth in the SNAP LLC Agreement and have been issued in
compliance with federal and state securities laws. There are no declared or
accrued unpaid distributions with respect to any SNAP Units. The limited
liability company interests of SNAP International LLC have been duly
authorized and issued, and are fully paid and non-assessable and are owned
by SNAP free and clear of all Liens. Except for the capital stock of its
Subsidiaries, SNAP does not own, directly or indirectly, more than 10% of
the capital stock or other ownership interest in any Person and to the
extent it owns less than 10% of the capital stock or other ownership
interest in any Person, such interests in the aggregate do not constitute a
material part of SNAP's assets. Except as set forth on SCHEDULE 4.2(E)
hereto or as provided under the terms of this Agreement, no SNAP Units are
reserved for issuance, and there are no contracts, agreements, commitments
or arrangements obligating SNAP to (i) offer, sell, issue or grant any
equity interests in, or any
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<PAGE>
options, warrants or rights of any kind to acquire any equity interests in,
or any other securities that are convertible into or exchangeable for any
equity interests in SNAP or (ii) to redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding equity interests in or any outstanding
options, warrants or rights of any kind to acquire any equity interests in,
or any other outstanding securities that are convertible into or
exchangeable for any equity interests in SNAP. At the Effective Time, after
giving effect to the transactions contemplated by the Xenon 2 Merger
Agreement and this Agreement, Xenon 2 will own all of the outstanding SNAP
Units, other than SNAP Units issued pursuant to the exercise of SNAP
Options, free and clear of all Liens.
(f) FINANCIAL INFORMATION, LIABILITIES. The unaudited balance sheet
for SNAP as at December 31, 1998 (the "SNAP Balance Sheet") and the related
unaudited income statement for the six months ending December 31, 1998,
copies of which are attached hereto as SCHEDULE 4.2(F) present fairly in all
material respects the financial condition and results of operations of SNAP
as at December 31, 1998 and for the period then ended subject to normal
year-end audit adjustments and financial statement footnote disclosure.
Except as set forth on SCHEDULE 4.2(G), except as and to the extent
disclosed in the SNAP Balance Sheet, and except for liabilities incurred in
connection with the transactions contemplated by this Agreement and the
Implementing Agreements, there are no liabilities, whether absolute,
accrued, contingent or otherwise, of SNAP, that would be required to be
reflected on, or reserved against, in such consolidated balance sheet of
SNAP, except for (x) liabilities which, singly or in the aggregate, would
not have a Material Adverse Effect and (y) liabilities incurred subsequent
to the date of such balance sheet by SNAP in the ordinary course of business
consistent with past practice.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
SCHEDULE 4.2(G) since December 31, 1998, SNAP has conducted its business in
all material respects only in the ordinary course consistent with past
practice and there has not been (i) any material adverse change in the
assets, liabilities, business, results of operations or financial condition
of SNAP, or (ii) except in the ordinary course of business consistent with
past practice and except for such matters that would not reasonably be
expected to have a Material Adverse Effect, any damage, destruction, loss,
conversion, condemnation or taking by eminent domain related to any of its
material assets. In addition, except as disclosed on SCHEDULE 4.2(G), from
December 31, 1998 to May 9, 1999, SNAP has not (A) acquired or disposed of
any material assets or entered into any agreement or other arrangement for
any such acquisition or disposition or (B) relinquished, forgiven or
canceled any material debts or claims.
(h) TITLE TO PROPERTIES; ABSENCE OF LIENS. Except as disclosed on
SCHEDULE 4.2(H), SNAP has good title to (or, in the case of real estate or
equipment leases, a valid lease to) all of its properties, assets and other
rights, free and clear of all Liens except for Permitted Liens and such
assets will enable Xenon 2 to conduct the business of SNAP after the
Effective Time in substantially the same manner as it is currently being
conducted.
(i) PROPERTIES, CONTRACTS, PERMITS AND OTHER DATA. Except as specified
in SCHEDULE 4.2(I) hereto, all rights, licenses, leases, registrations,
applications, contracts, commitments and other agreements of SNAP or by
which SNAP is bound are in full force and effect and are valid and
enforceable in accordance with their respective terms except for such
failures to be in full force and effect and valid and enforceable that would
not, individually or in the aggregate, have a Material Adverse Effect. SNAP
is not in breach or default in the performance of any obligation thereunder
and no event has occurred or has failed to occur whereby any of the other
parties thereto have been or will be released therefrom or will be entitled
to refuse to perform thereunder, the enforcement of which would have, either
individually or in the aggregate, a Material Adverse Effect. SNAP has
provided to Xoom complete and accurate copies of SNAP's current annual
budget and operating plan (the "SNAP Budget").
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<PAGE>
(j) LEGAL PROCEEDINGS. Except as described in SCHEDULE 4.2(J), there
is no litigation,
proceeding or governmental investigation to which SNAP is a party pending
or, to the best Knowledge of SNAP, threatened against it or its assets
which, either individually or in the aggregate, would reasonably be expected
to result in a Material Adverse Effect or which, as of May 9, 1999, seeks to
restrain or enjoin the consummation of any of the transactions contemplated
hereby. SNAP is not a party to nor are its assets subject to any judgment,
writ, decree, injunction or order entered by any court or governmental
authority (domestic or foreign) that, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect.
(k) LABOR CONTROVERSIES. Except as set forth on SCHEDULE 4.2(K), (i)
there have been no labor strikes, slow-downs, work stoppages, lock-outs or
other material labor controversies or disputes during the past two years,
nor is any such strike, slow-down, work stoppage or other material labor
controversy or dispute pending or, to the best Knowledge of NBC, threatened
with respect to the current or former employees of SNAP, (ii) SNAP is not a
party to any labor contract, collective bargaining agreement, contract,
letter of understanding or, to Neon's Knowledge, any other agreement, formal
or informal with any labor union or organization, nor are any of SNAP's
employees represented by any labor union or organization and (iii) SNAP has
not closed any facility, effectuated any layoffs of employees or implemented
any early retirement, separation or window program within the past two years
nor planned or announced any such action or program for the future.
(l) INTELLECTUAL PROPERTY. SNAP owns or is licensed or otherwise has
the right to use, all Intellectual Property currently used in its business
(the "SNAP Intellectual Property"), except as would not, individually or in
the aggregate, have a Material Adverse Effect. SNAP has not infringed upon
or is in conflict with the Intellectual Property of any third party nor has
SNAP received any written notice of any claim that it has infringed upon or
is in conflict with any Intellectual Property of any third party, except as
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth on SCHEDULE 4.2(L), none of the rights of SNAP to the
SNAP Intellectual Property will be impaired in any way by the transactions
provided for herein, and all of the rights of SNAP to the SNAP Intellectual
Property will be fully enforceable by SNAP after the Closing Date to the
same extent as such rights would have been enforceable by SNAP before the
Closing, without the consent or agreement of any other party other than any
consents and agreements the failure of which to obtain, individually or in
the aggregate, would not have a Material Adverse Effect. There have been no
claims (whether private or governmental) against SNAP asserting the
invalidity or unenforceability of its ownership, license or other right to
use any of the registered SNAP Intellectual Property.
(m) GOVERNMENT LICENSES, PERMITS, ETC. Except as set forth on SCHEDULE
4.2(M), SNAP has all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Authorities required for the
conduct of its business as presently conducted, except where failure would
not, individually or in the aggregate, have a Material Adverse Effect.
(n) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND CONTRACTUAL
REQUIREMENTS. SNAP has complied with all applicable laws, ordinances,
regulations or orders or other requirements of any Governmental Authority
including, without limitation, all rules, regulations and administrative
orders relating to anti-competitive practices, discrimination, employment,
health and safety, except where the failure to be in such compliance would
not have, either individually or in the aggregate, a Material Adverse
Effect.
(o) ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 4.2(O) and
except for matters that, individually or in the aggregate, would not have a
Material Adverse Effect, (i) SNAP complies and has complied with all
applicable Environmental Laws, and possesses and complies with and has
possessed and complied with all Environmental Permits; (ii) there are and
have been
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<PAGE>
no Materials of Environmental Concern, or other conditions, at any property
owned or leased by SNAP that could give rise to any liability under any
Environmental Law or result in costs arising out of any Environmental Law;
(iii) no judicial, administrative, or arbitral proceeding (including any
notice of violation or alleged violation) under any Environmental Law to
which SNAP is, or to the Knowledge of SNAP will be, named as a party is
pending or, to the Knowledge of SNAP, threatened, nor is SNAP the subject of
any investigation in connection with any such proceeding or potential
proceeding; (iv) there are no past, present, or anticipated future events,
conditions, circumstances, practices, plans, or legal requirements that
could be expected to prevent, or materially increase the burden on SNAP of
complying with applicable Environmental Laws or of obtaining, renewing, or
complying with all Environmental Permits required under such laws; and (v)
SNAP has provided to the other parties true and complete copies of all
Environmental Reports relating to it in the possession or control of such
party.
(p) EMPLOYEE BENEFIT MATTERS. (i) SCHEDULE 4.2(P) contains a true and
complete list of each "employee benefit plan" (within the meaning of section
3(3) of ERISA, and all stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), whether formal or informal, oral or written, legally binding or
not, under which any employee or former employee of SNAP or its Subsidiaries
has any present or future right to benefits and under which SNAP or its
Subsidiaries has any present or future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively
referred to as the "SNAP PLANS".
(ii) With respect to each SNAP Plan which is maintained solely by
SNAP (the "Portal Level Plans"), SNAP has made available to NBC a
current, accurate and complete copy (or, to the extent no such copy
exists, an accurate description) thereof and, to the extent applicable:
(A) any related trust agreement or other funding instrument; (B) the most
recent determination letter, if applicable; (C) any summary plan
description and other written communications (or a description of any
oral communications) by SNAP or its Subsidiaries to their employees
concerning the extent of the benefits provided under a SNAP Plan; and (D)
for the most recent two years (I) the Form 5500 and attached schedules
and (II) audited financial statements.
(iii) (A) Each SNAP Plan has been established and administered in
accordance with its terms, and in compliance with the applicable
provisions of ERISA, the Code and other applicable laws, rules and
regulations; (B) each SNAP Plan which is intended to be qualified within
the meaning of Code section 401(a) is so qualified and has received a
favorable determination letter as to its qualification (or is established
using a prototype plan form which has received such a letter), and
nothing has occurred, whether by action or failure to act, that could
reasonably be expected to cause the loss of such qualification; (C) for
each SNAP Plan with respect to which a Form 5500 has been filed, no
material change has occurred with respect to the matters covered by the
most recent Form since the date thereof; (D) no non-exempt "prohibited
transaction" (as such term is defined in ERISA section 406 and Code
section 4975) with respect to any SNAP Plan; and (E) no SNAP Plan
provides retiree welfare benefits and neither SNAP nor its Subsidiaries
have any obligations to provide any retiree welfare benefits except as
provided under Section 4980B of the Code.
(iv) No SNAP Plan is subject to Title IV of ERISA (including a
multiemployer plan within the meaning of Section 3(37) of ERISA), no SNAP
Plan is a multiple employer plan; and no SNAP Plan is subject to the
minimum funding requirements of ERISA Section 302 or Code Section 412.
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(v) Neither SNAP nor any of its Subsidiaries nor any member of the
Controlled group of which it is a member has (A) engaged in, or is a
successor or parent corporation to an entity that has engaged in, a
transaction described in Sections 4069 or 4212(c) of ERISA or (B)
incurred, or could reasonably be expected to incur, any liability under
(I) Title IV of ERISA arising in connection with the termination of, or a
complete or partial withdrawal from, any plan covered or previously
covered by Title IV of ERISA or (II) Section 4971 of the Code that in
either case could become a liability of the SNAP or any Subsidiary or NMC
after the Closing Date. The assets of SNAP and all of its Subsidiaries
are not now, nor will they after the passage of time be, subject to any
lien imposed under Code Section 412(n) by reason of a failure of any of
the SNAP or any Subsidiary or any member of the Controlled Group of which
it is a member to make timely installments or other payments required
under Code Section 412.
(vi) With respect to any SNAP Plan, (A) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are
pending or, to the Knowledge of SNAP or its Subsidiaries, threatened and
(B) no facts or circumstances exist that could reasonably be expected to
give rise to any such actions, suits or claims.
(vii) Except as provided on SCHEDULE 4.2(P), no SNAP Plan exists that
could result in the payment to any present or former employee of SNAP or
its Subsidiaries of any money or other property or accelerate or provide
any other rights or benefits to any present or former employee of SNAP or
its Subsidiaries as a result of the transaction contemplated by this
Agreement, whether or not such payment would constitute a parachute
payment within the meaning of Code Section 280G.
(q) ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither SNAP, nor any
officer, employee or agent of SNAP, nor any other Person acting on behalf of
SNAP, has, directly or indirectly, within the past five years given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other Person or entity who is or may be in a
position to help or hinder SNAP (or assist SNAP in connection with any
actual or proposed transaction) which (x) subjects any party or NMC or any
of their respective Affiliates, to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (y) if not given in the
past, could have had a Material Adverse Effect or (z) if not continued in
the future, could have a Material Adverse Effect or which might subject any
party or NMC or any of their respective Affiliates to suit or penalty in any
private or governmental litigation or proceeding.
(r) TAX MATTERS. Except as set forth on SCHEDULE 4.2(R),(i) SNAP and
its Subsidiaries have timely filed (or have had timely filed on their
behalf) or will timely file or cause to be timely filed, all Tax Returns
required by applicable law to be filed by SNAP and its Subsidiaries prior to
the Effective Time. All such Tax Returns are or will be true, complete and
correct in all material respects. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any of
such Tax Returns and SNAP and its Subsidiaries has not requested any
extension of time within which to file any material Tax Return, which return
has not yet been filed. There is no pending claim by any Tax Authority of a
jurisdiction where SNAP or any of its Subsidiaries have not filed Tax
Returns that SNAP are any of its Subsidiaries are or may have been subject
to taxation by that jurisdiction. All Taxes required to be withheld by SNAP
or its Affiliates with respect to their activities, properties, employees or
independent contractors have been withheld and paid over to the appropriate
Tax Authority.
(ii) SNAP and its Subsidiaries have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or
will establish or cause to be established on or before the Effective
Time, an adequate accrual for the payment of, all Taxes due with respect
to any
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period beginning prior to the Effective Time. No deficiency or adjustment
for any Taxes has been threatened, proposed, asserted or assessed against
SNAP or its Subsidiaries. There are no liens for Taxes upon the assets of
SNAP or its Subsidiaries, except for liens for current Taxes not yet due.
(iii) SNAP and its Subsidiaries are not required to include in income
any adjustment pursuant to Section 481(a) of the Code or any similar
applicable provision by reason of a voluntary change in accounting method
initiated by SNAP or its Subsidiaries, and neither the Internal Revenue
Service nor any taxing authority has proposed in writing any such
adjustment or change in accounting method. SNAP and its Subsidiaries have
not received a tax ruling or entered into a closing agreement with any
taxing authority that would have a Material Adverse Effect on SNAP or its
Subsidiaries.
(iv) SNAP and its Subsidiaries have not made any payments, are not
obligated to make any payments, and are not a party to any agreement that
could obligate it to make any payments that would not be deductible
pursuant to Section 280G of the Code.
(v) SNAP has been and currently is taxable as a partnership for
federal income tax purposes and in all jurisdictions in which it is
subject to Taxes or files Tax Returns. Each of SNAP's Subsidiaries has
been and currently is (A) wholly owned by SNAP and (B) an entity
disregarded from its owner pursuant to Section 301.7701-2 of the Treasury
Regulations. Neither SNAP nor any Subsidiary is a party to any safe
harbor lease within the meaning of Section 168(f)(8) of the Code, as in
effect prior to amendment by the Tax Equity and Fiscal Responsibility Act
of 1982. SNAP and its Subsidiaries are not a party to any joint venture,
partnership, or other agreement, contract, or arrangement (either in
writing or verbally, formally or informally) which could be treated as
partnership for federal income tax purposes.
(vi) Neither SNAP nor any of its Subsidiaries has a "permanent
establishment," as defined in any applicable Tax treaty or convention of
the United States of America, or fixed place of business in any foreign
country. SNAP and its Subsidiaries are in compliance with the terms and
conditions of any applicable tax exemptions, agreements or orders of any
foreign government to which it may be subject or which it may have
claimed, and the transactions contemplated by this Agreement will not
have any adverse effect on such compliance.
(vii) Neither SNAP nor any of its Subsidiaries is or has been bound
by any tax sharing or tax allocation agreement, and it has no contractual
obligation to indemnify any other person with respect to Taxes.
(s) YEAR 2000 COMPLIANCE. SNAP has adopted and implemented a
commercially reasonable plan to provide (x) that the change of the year from
1999 to the year 2000 will not have a Material Adverse Effect and (y) that
the impacts of such change on the venders and customers of SNAP will not
have a Material Adverse Effect. In SNAP's reasonable best estimate, no
expenditures materially in excess of currently budgeted items previously
disclosed to Xenon 2 will be required in order to cause the information and
business systems of SNAP to operate properly following the change of the
year 1999 to the year 2000. SNAP reasonably expects any material issues
related to such change of the year will be resolved in accordance with the
timetable set forth in such plan (and in any event on a timely basis in
order to be resolved before the year 2000). Between the date of this
Agreement and the Effective Time, SNAP shall continue to use commercially
reasonable efforts to implement such plan.
(t) OPTIONS. Except for the SNAP 1998 LLC Option Plan, SNAP has never
adopted or maintained any option plan or other plan providing for equity
compensation of any Person. As of May 9, 1999, SNAP has reserved 1,604,938
units for issuance pursuant to the SNAP 1998 LLC Option Plan ("SNAP
Options"), of which 1,432,970 have been issued as of May 9, 1999, all of
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which units remain subject to SNAP Options unexercised as of May 9, 1999.
Except as set forth in SCHEDULE 4.2(T), none of the SNAP Options will be
accelerated in any way by the transactions contemplated by this Agreement.
SNAP has made available to NBC accurate and complete copies of all option
plans pursuant to which SNAP has granted options and the applicable vesting
schedule for each such option. All units subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, would be duly authorized, validly
issued, fully paid and non-assessable. Except as set forth in SCHEDULE
4.2(T), there are no commitments or agreements of any character to which
SNAP is bound obligating SNAP to accelerate the vesting of any SNAP Options
as a result of this Agreement. SCHEDULE 4.2(E) lists each outstanding SNAP
Option and identifies with respect to each such SNAP Option; its exercise
price; its grant date; its vesting schedule; and what portion of such SNAP
Option remains outstanding as of May 9, 1999. NBC shall prepare and deliver
to Xenon 2 and Xoom an updated version of SCHEDULE 4.2(E) prior to the
Effective Time as of a date no earlier than 5 days prior to the Effective
Time.
4.3 REPRESENTATIONS AND WARRANTIES OF XOOM AND XENON 2. Xoom and Xenon 2
represent and warrant to NBC and NMC as follows:
(a) DUE ORGANIZATION, POWER AND GOOD STANDING. Xoom, Xenon 2 and each
of their respective Subsidiaries is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, and has
the requisite power and authority to own, lease and operate its properties
and to conduct its business as now conducted by it. Xoom, Xenon 2 and each
of their respective Subsidiaries party to an Implementing Agreement has all
requisite power and authority to enter into this Agreement, the Xenon 2
Merger Agreement, the Voting Agreement, the Option Agreement and the
Implementing Agreements to which it is a party and to perform its
obligations hereunder and thereunder. Xoom, Xenon 2 and each of their
respective Subsidiaries is qualified to do business and is in good standing
in all jurisdictions in which it conducts its business, except where the
failure to do so would not, individually or in the aggregate, taken as a
whole, have a Material Adverse Effect.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance by Xoom, Xenon 2 and each of their respective Subsidiaries
of the Existing Merger Agreement, this Agreement, the Xenon 2 Merger
Agreement, the Voting Agreement, the Option Agreement and the Implementing
Agreements to which Xoom, Xenon 2 or their respective Subsidiaries is a
party and the consummation by Xoom, Xenon 2 and each of their respective
Subsidiaries of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Xoom, Xenon
2 and each of their respective Subsidiaries, subject to obtaining, in the
case of the Xenon 2 Merger Agreement, the Stockholder Approval (as defined
therein), and, in the case of the Existing Merger Agreement and this
Agreement, the affirmative vote of the holders of a majority of the
outstanding shares of common stock of Xenon 2 (the "Xenon 2 Stockholder
Approval"). The Board of Directors of Xoom, by resolutions duly adopted by
unanimous vote with one abstention at a meeting duly called and held and not
subsequently rescinded or modified in any way, has duly determined that each
of the Existing Merger Agreement and this Agreement is advisable for Xoom
and its stockholders, approved each of the Existing Merger Agreement and
this Agreement and the Merger and recommended that the stockholders of Xoom
adopt the Xenon 2 Merger Agreement and approve the transactions contemplated
thereby and vote in favor of Xoom, as sole stockholder of Xenon 2, adopting
the NMC Agreement at the Xenon 2 Stockholder Meeting. Each of the Existing
Merger Agreement, this Agreement, the Xenon 2 Merger Agreement, the Option
Agreement and the Voting Agreement has been, and each of the other
Implementing Agreements to which Xoom, Xenon 2 or any of their respective
Subsidiaries is a party will on the Closing Date be, duly executed and
delivered by Xoom, Xenon 2 and each of their respective Subsidiaries and
constitutes or, in the
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case of the other Implementing Agreements, upon execution thereof will
constitute, a valid and legally binding obligation of Xoom, Xenon 2 and each
of their respective Subsidiaries, enforceable against each in accordance
with their respective terms.
(c) GOVERNMENTAL APPROVALS; CONSENTS. Except as described in SCHEDULE
4.3(C), the execution, delivery and performance of this Agreement, the Xenon
2 Merger Agreement, the Voting Agreement, the Option Agreement and the
Implementing Agreements by Xoom, Xenon 2 and each of their respective
Subsidiaries and the consummation by such party of the transactions
contemplated hereby and thereby will not (i) conflict with or result in a
breach of any provision of the certificate of incorporation or bylaws or
other governing documents of Xoom, Xenon 2 or their respective Subsidiaries;
(ii) require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Authority; (iii) require the
consent or approval of any Person (other than a Governmental Authority) or
violate or conflict with, or result in a breach of any provision of,
constitute a default (or an event which with notice or lapse of time or both
would become a default) or give to any third party any right of termination,
cancellation, amendment or acceleration under, or result in the creation of
a Lien on any of the assets of Xoom, Xenon 2 or any of their respective
Subsidiaries under, any of the terms, conditions or provisions of any
contract or license to which Xoom, Xenon 2 or any of their respective
Subsidiaries is a party or by which it or its assets or property are bound;
or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation applicable to Xoom, Xenon 2 or any of their
respective Subsidiaries; other than any consents, approvals, authorizations
and permits the failure of which to obtain and any violations, conflicts,
breaches defaults and other matters set forth pursuant to clauses (ii),
(iii) and (iv) above which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(d) CERTAIN FEES. None of Xoom, Xenon 2 or any of their respective
Subsidiaries nor the officers, directors or employees thereof have employed
any broker or finder or incurred any other Liability for any brokerage fees,
commissions or finders' fees in connection with the transactions
contemplated hereby; except that Xoom has employed Bear, Stearns & Co., Inc.
and Hambrecht & Quist, LLC whose fees and expenses will be paid in
accordance with SECTION 10.5if the transactions contemplated by this
Agreement are consummated and otherwise will be paid by Xoom. Xoom has
provided NBC a copy of the engagement letter entered into with Hambrecht &
Quist, LLC related to the transactions contemplated hereby.
(e) OPINION OF FINANCIAL ADVISOR. Xoom has received the opinion of
each of Bear, Stearns & Co. Inc. and Hambrecht & Quist, LLC, in each case as
of May 9, 1999, with respect to the fairness of the transactions
contemplated by the Existing Merger Agreement from a financial point of view
which fairness opinion shall remain in effect upon entering into this
Agreement.
(f) CAPITAL STOCK. (i) As of May 9, 1999, the authorized capital stock
of Xoom consists of 40,000,000 shares of Xoom Stock and 5,000,000 shares of
Xoom Preferred Stock, of which 17,162,056 shares of Xoom Stock and no shares
of Xoom Preferred Stock have been issued and are outstanding as of May 9,
1999. All outstanding shares of Xoom Stock are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights
created by statute, the certificate of incorporation or bylaws of Xoom or
any agreement to which Xoom is a party or by which it is bound and have been
issued in compliance with federal and state securities laws. There are no
declared or accrued unpaid dividends with respect to any shares of Xoom
Stock. All of the shares of capital stock of each of the Subsidiaries of
Xoom are duly authorized and issued, fully paid and nonassessable and are
owned by Xoom or another Subsidiary of Xoom free and clear of all Liens.
Except for the capital stock of its Subsidiaries, Xoom does not own,
directly or indirectly, any capital stock or other ownership interest in any
Person.
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(ii) As of May 9, 1999, the authorized capital stock of Xenon 2
consists of 100 shares of common stock, par value $0.0001 per share, of
which 100 shares have been issued and are outstanding as of May 9, 1999.
Prior to the Closing Date, Xenon 2's certificate of incorporation will be
amended to provide for an authorized capital stock sufficient to permit
Xenon 2 to issue all of the Class A Common Stock and Class B Common Stock
to be issued by Xenon 2 pursuant to this Agreement and the Xenon 2 Merger
Agreement. All capital stock issued by Xenon 2 pursuant to the Xenon 2
Merger Agreement and this Agreement will be duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the certificate of incorporation or bylaws of
Xenon 2 or any agreement to which Xenon 2 is a party or by which it is
bound and issued in compliance with federal and state securities laws.
All of the shares of capital stock of each of the Subsidiaries of Xenon 2
are duly authorized and issued, fully paid and nonassessable and are
owned by Xenon 2 free and clear of all Liens. Except for the capital
stock of its Subsidiaries, Xenon 2 does not own, directly or indirectly,
any capital stock or other ownership interest in any Person.
(g) STOCK OPTIONS. Except for the Xoom 1998 Employee Stock Purchase
Plan (the "Xoom ESPP"), the Xoom Option Plan pursuant to which the Xoom Plan
Options were issued, and the Xoom Non-Plan Options (together with the Xoom
Plan Options, the "Xoom Options"), none of Xoom, Xenon 2 or any of their
respective Subsidiaries has ever adopted or maintained any stock option plan
or other plan providing for equity compensation of any person. As of May 9,
1999, Xoom has reserved 3,535,224 shares of Xoom Stock for issuance pursuant
to the Xoom ESPP, Xoom Plan Options and Xoom Non-Plan Options, of which
3,336,157 have been issued as of May 9, 1999, of which 2,043,556 shares
remain subject to Xoom Plan Options unexercised as of May 9, 1999 and
981,212 shares remain subject to Xoom Non-Plan Options unexercised as of May
9, 1999. Except pursuant to SECTION 6.8 and as reflected on SCHEDULE 4.3(G)
none of the Xoom Options will be accelerated in any way by the transactions
contemplated by this Agreement. Xoom, Xenon 2 and their respective
Subsidiaries have made available to NMC accurate and complete copies of all
stock option plans pursuant to which Xoom, Xenon 2 and their respective
Subsidiaries have granted stock options that are currently outstanding, the
form of all stock option agreements evidencing such options and the
applicable vesting schedule for each such option. All shares of Xoom Stock
and Class A Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
non-assessable. Except as set forth in SCHEDULE 4.3(G) or as contemplated by
this Agreement, there are no commitments or agreements of any character to
which Xoom, Xenon 2 or any of their respective Subsidiaries are bound
obligating Xoom, Xenon 2 or any of their respective Subsidiaries to
accelerate the vesting of any Xoom Option as a result of this Agreement.
SCHEDULE 4.3(G) lists each outstanding Xoom Option and identifies with
respect to each such Xoom Option whether it is a Xoom Plan Option or a Xoom
Non-Plan Option; its exercise price; its grant date; its vesting schedule;
and what portion of such Xoom Option remains outstanding as of May 9, 1999.
Xoom, Xenon 2 and their respective Subsidiaries shall prepare and deliver to
NMC an updated version of SCHEDULE 4.3(G) prior to the Effective Time as of
a date no earlier than 5 days prior to the Effective Time.
(h) OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
SECTION 4.3(F) and SECTION 4.3(G) and on SCHEDULE 4.3(H), there are no
equity securities, partnership interests or similar ownership interests of
any class of any equity security of Xoom, Xenon 2 or any of their respective
Subsidiaries, or any securities exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as
set forth in SCHEDULE 4.3(H) or as set forth in SECTION 4.3(G) hereof, there
are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character
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to which Xoom, Xenon 2 or any of their respective Subsidiaries is a party or
by which Xoom, Xenon 2 or any of their respective Subsidiaries is bound
obligating Xoom, Xenon 2 or any of their respective Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or
acquisition of, any shares of capital stock, partnership interests or
similar ownership interests of Xoom, Xenon 2 or any of their respective
Subsidiaries or obligating Xoom, Xenon 2 or any of their respective
Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment
or agreement. Except as contemplated by this Agreement, there are no
registration rights and there is no voting trust, proxy, stockholder rights
plan, antitakeover plan or other agreement or understanding to which Xoom,
Xenon 2 or any of their respective Subsidiaries is a party or by which they
are bound with respect to any equity security, partnership interest or
similar ownership interest of any class of any equity security of Xoom,
Xenon 2 or any of their respective Subsidiaries.
(i) SEC FILINGS, FINANCIAL INFORMATION, LIABILITIES. Xoom has filed
and made publicly available a true and complete copy of each report,
schedule, registration statement and definitive proxy statement required to
be filed with the SEC since December 9, 1998 (the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, applicable to such SEC Documents. None of the SEC Documents when
filed contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of Xoom included in the
SEC Documents comply as to form in all material respect with the applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with GAAP during
the period involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-Q of the SEC,
or for normal year-end adjustments) and fairly present in all material
respects the consolidated financial position of Xoom and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash for the periods then ended. Except as set forth in the
SEC Documents (including any item accounted for in the financial statements
contained in the SEC Documents or set forth in the notes thereto) as of
December 31, 1998, neither Xoom nor any of its Subsidiaries had, and since
such date neither Xoom or any of its Subsidiaries has incurred, any claims,
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, would have
a Material Adverse Effect on Xoom (other than claims, liabilities or
obligations contemplated by this Agreement or expressly permitted to be
incurred pursuant to this Agreement). In addition, since December 31, 1998,
there has not been any declaration, setting aside or payment of a dividend
or other distribution with respect to Xoom Stock or any material change in
accounting methods or practices by Xoom or any of its Subsidiaries.
(j) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
SCHEDULE 4.3(J) since December 31, 1998, Xoom, Xenon 2 and each of their
respective Subsidiaries have conducted their businesses in all material
respects only in the ordinary course, consistent with past practice and
there has not been prior to May 9, 1999, (x) any material adverse change in
the assets, liabilities, business, results of operations or financial
condition of Xoom, Xenon 2, or any of their respective Subsidiaries or (y)
except in the ordinary course of business consistent with past practice and
except for such matters that would not reasonably be expected to have a
Material Adverse Effect, any damage, destruction, loss, conversion,
condemnation or taking by eminent domain related to any material asset of
Xoom, Xenon 2 and any of their respective Subsidiaries, taken as a whole. In
addition, except as disclosed on SCHEDULE 4.3(J), from December 31, 1998 to
May 9, 1999, none of Xoom, Xenon 2 or any of their respective Subsidiaries
has (A) acquired or disposed of any
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material assets or entered into any agreement or other arrangement for any
such acquisition or disposition or (B) relinquished, forgiven or canceled
any material debts or claims.
(k) PROPERTIES, CONTRACTS, PERMITS AND OTHER DATA. Except as specified
in SCHEDULE 4.3(K) hereto, all rights, licenses, leases, registrations,
applications, contracts, commitments and other agreements of Xoom, Xenon 2
and their respective Subsidiaries are in full force and effect and are valid
and enforceable in accordance with their respective terms except for such
failures to be in full force and effect and valid and enforceable that would
not, individually or in the aggregate, have a Material Adverse Effect. None
of Xoom, Xenon 2 or any of their respective Subsidiaries is in breach or
default in the performance of any obligation thereunder and no event has
occurred or has failed to occur whereby any of the other parties thereto
have been or will be released therefrom or will be entitled to refuse to
perform thereunder, the enforcement of which would have, either individually
or in the aggregate, a Material Adverse Effect. Xoom has provided to NBC
complete and accurate copies of its current annual budget and operating plan
(the "Xoom Budget").
(l) LEGAL PROCEEDINGS. Except as described in SCHEDULE 4.3(L), there
is no litigation, proceeding or governmental investigation to which Xoom,
Xenon 2 or their respective Subsidiaries is a party pending or, to the best
Knowledge of Xoom, Xenon 2 and their respective Subsidiaries, threatened
against Xoom, Xenon 2 or any of their respective Subsidiaries which, either
individually or in the aggregate, would reasonably be expected to result in
a Material Adverse Effect or which, as of May 9, 1999, seeks to restrain or
enjoin the consummation of any of the transactions contemplated hereby. None
of Xoom, Xenon 2, or any of their respective Subsidiaries is a party to, nor
are any of their respective assets subject to, any judgment, writ, decree,
injunction or order entered by any court or governmental authority (domestic
or foreign) that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
(m) LABOR CONTROVERSIES. Except as set forth on SCHEDULE 4.3(M), (i)
there have been no labor strikes, slow-downs, work stoppages, lock-outs or
other material labor controversies or disputes during the past two years,
nor is any such strike, slow-down, work stoppage or other material labor
controversy or dispute pending or, to the best Knowledge of such party,
threatened with respect to the current or former employees of Xoom, Xenon 2
and their respective Subsidiaries, (ii) none of Xoom, Xenon 2 or any of
their respective Subsidiaries is a party to any labor contract, collective
bargaining agreement, contract, letter of understanding or, to such party's
Knowledge, any other agreement, formal or informal with any labor union or
organization, nor are any of Xoom's, Xoom 2's or any of their respective
Subsidiaries' employees represented by any labor union or organization nor
have there been any labor union organizing activities at any Xoom, Xenon 2
or any of their respective Subsidiaries' facilities within the last three
years and (iii) none of Xoom, Xenon 2 or any of their respective
Subsidiaries has closed any facility, effectuated any layoffs of employees
or implemented any early retirement, separation or window program within the
past two years nor has Xoom, Xenon 2 or any of their respective Subsidiaries
planned or announced any such action or program for the future.
(n) INTELLECTUAL PROPERTY. Xoom, Xenon 2 and their respective
Subsidiaries own or are licensed or otherwise have the right to use, all
Intellectual Property currently used by Xoom, Xenon 2 and each of their
respective Subsidiaries (the "Xoom Intellectual Property"), except as would
not, individually or in the aggregate, have a Material Adverse Effect. None
of Xoom, Xenon 2 or any of their respective Subsidiaries has infringed upon
or is in conflict with the Intellectual Property of any third party nor has
Xoom, Xenon 2 or any of their respective Subsidiaries received any written
notice of any claim that Xoom, Xenon 2 or any of their respective
Subsidiaries has infringed upon or is in conflict with any Intellectual
Property of any third party, except as would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on SCHEDULE
4.3(N), none of the rights of Xoom, Xenon 2 or their respective Subsidiaries
to the Xoom
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Intellectual Property will be impaired in any way by the transactions
provided for herein, and all of the rights of Xoom, Xenon 2 and their
respective Subsidiaries to the Xoom Intellectual Property will be fully
enforceable by Xenon 2 after the Closing Date to the same extent as such
rights would have been enforceable by Xoom, Xenon 2 and their respective
Subsidiaries before the Closing, without the consent or agreement of any
other party other than any consents and agreements the failure of which to
obtain, individually or in the aggregate, would not have a Material Adverse
Effect. There have been no claims (whether private or governmental) against
Xoom, Xenon 2 or their respective Subsidiaries asserting the invalidity or
unenforceability of its ownership, license or other right to use to any of
the registered Xoom Intellectual Property.
(o) GOVERNMENT LICENSES, PERMITS, ETC. Except as set forth on SCHEDULE
4.3(O), Xoom, Xenon 2 and their respective Subsidiaries have all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
Governmental Authorities required for the conduct of its Business as
presently conducted, except where failure would not, individually or in the
aggregate, have a Material Adverse Effect.
(p) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND CONTRACTUAL
REQUIREMENTS. Xoom, Xenon 2 and their respective Subsidiaries have complied
with all applicable laws, ordinances, regulations or orders or other
requirements of any Governmental Authority, including, without limitation,
all rules, regulations and administrative orders relating to
anti-competitive practices, discrimination, employment, health and safety,
except where the failure to be in such compliance would not have, either
individually or in the aggregate, a Material Adverse Effect.
(q) EMPLOYEE BENEFIT MATTERS. (i) SCHEDULE 4.3(Q)(I) contains a true
and complete list of each "employee benefit plan" (within the meaning of
section 3(3) of ERISA), and all stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject
to ERISA (including any funding mechanism therefor now in effect or required
in the future as a result of the transaction contemplated by this Agreement
or otherwise), whether formal or informal, oral or written, legally binding
or not, under which any employee or former employee of Xoom, Xenon 2 or
their respective Subsidiaries has any present or future right to benefits
and under which Xoom, Xenon 2 or their respective Subsidiaries has any
present or future liability. All such plans, agreements, programs, policies
and arrangements shall be collectively referred to as the "XOOM PLANS".
(ii) With respect to each Xoom Plan, Xoom, Xenon 2 and their
respective Subsidiaries have made available to NBC a current, accurate
and complete copy (or, to the extent no such copy exists, an accurate
description) thereof and, to the extent applicable: (A) any related trust
agreement or other funding instrument; (B) the most recent determination
letter, if applicable; (C) any summary plan description and other written
communications (or a description of any oral communications) by Xoom,
Xenon 2 or their respective Subsidiaries to their employees concerning
the extent of the benefits provided under a Xoom Plan; and (D) for the
most recent two years (I) the Form 5500 and attached schedules and (II)
audited financial statements.
(iii) (A) Except as set forth on SCHEDULE 4.3(Q)(III), each Xoom Plan
has been established and administered in accordance with its terms, and
in compliance with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations; (B) each Xoom Plan which is
intended to be qualified within the meaning of Code section 401(a) is so
qualified and has received a favorable determination letter as to its
qualification (or established using a prototype plan form which has
received such a letter), and nothing has occurred, whether by action or
failure to act, that could reasonably be expected to cause the loss of
such qualification; (C) for each Xoom Plan with respect to which a Form
5500 has
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been filed, no material change has occurred with respect to the matters
covered by the most recent Form since the date thereof; (D) no nonexempt
"prohibited transaction" (as such term is defined in ERISA section 406
and Code section 4975) with respect to Xoom Plans; and (E) no Xoom Plan
provides retiree welfare benefits and none of Xoom, Xenon 2 or any of
their respective Subsidiaries have any obligations to provide any retiree
welfare benefits except as provided under Section 4980B of the Code.
(iv) No Xoom Plan is subject to Title IV of ERISA (including a
multiemployer plan within the meaning of Section 3(37) of ERISA), no Xoom
Plan is a multiple employer plan; and no Xoom Plan is subject to the
minimum funding requirements of ERISA Section 302 or Code Section 412.
(v) None of Xoom, Xenon 2 or any of their respective Subsidiaries
nor any Member of the Controlled Group of which it is a member has (A)
engaged in, or is a successor or parent corporation to an entity that has
engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA
or (B) incurred, or could reasonably be expected to incur, any liability
under (I) Title IV of ERISA arising in connection with the termination
of, or a complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA or (II) Section 4971 of the Code
that in either case could become a liability of Xenon 2, Xoom or NMC or
any of their respective Subsidiaries after the Closing Date. The assets
of Xoom, Xenon 2 and all of their respective Subsidiaries are not now,
nor will they after the passage of time be, subject to any lien imposed
under Code Section 412(n) by reason of a failure of any of any Subsidiary
or any Member of the Controlled Group of which it is a member to make
timely installments or other payments required under Code Section 412.
(vi) With respect to any Xoom Plan, (A) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are
pending or, to the Knowledge of Xoom, Xenon 2 or their respective
Subsidiaries, threatened and (B) no facts or circumstances exist that
could reasonably be expected to give rise to any such actions, suits or
claims.
(vii) Except as provided on SCHEDULE 4.3(Q)(VII), no Xoom Plan exists
that could result in the payment to any present or former employee of
Xoom, Xenon 2 or their respective Subsidiaries of any money or other
property or accelerate or provide any other rights or benefits to any
present or former employee of Xoom, Xenon 2 or their respective
Subsidiaries as a result of the transaction contemplated by this
Agreement, whether or not such payment would constitute a parachute
payment within the meaning of Code Section 280G.
(r) ABSENCE OF CERTAIN BUSINESS PRACTICES. None of Xoom, Xenon 2 or
any of their respective Subsidiaries, nor any officer, employee or agent
thereof, nor any other Person acting on behalf of such Persons, has,
directly or indirectly, within the past five years given or agreed to give
any gift or similar benefit to any customer, supplier, governmental employee
or other Person or entity who is or may be in a position to help or hinder
Xoom, Xenon 2 or their respective Subsidiaries (or assist Xoom, Xenon 2 or
their respective Subsidiaries in connection with any actual or proposed
transaction) which (x) subjects any party or Xenon 2 or any of their
respective Subsidiaries, to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (y) if not given in the past, could
have had a Material Adverse Effect or (z) if not continued in the future,
could have a Material Adverse Effect or which might subject any party or
Xenon 2 or any of their respective Subsidiaries to suit or penalty in any
private or governmental litigation or proceeding.
(s) TAX MATTERS. Except as set forth on SCHEDULE 4.3(S),(i) Xoom,
Xenon 2 and each of their respective Subsidiaries have timely filed (or have
had timely filed on their behalf) or will timely file or cause to be timely
filed, all Tax Returns required by applicable law to be filed by any of them
prior to the Effective Time. All such Tax Returns are or will be true,
complete and correct in all
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material respects. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any of such Tax Returns and
none of Xoom, Xenon 2 nor any of their respective Subsidiaries has requested
any extension of time within which to file any material Tax Return, which
return has not yet been filed. There is no pending claim by any Tax
Authority of a jurisdiction where Xoom, Xenon 2 or any of their respective
Subsidiaries has not filed Tax Returns that Xoom, Xenon 2 or such Subsidiary
is or may have been subject to taxation by that jurisdiction. All Taxes
required to be withheld by Xoom, Xenon 2 or their respective Affiliates with
respect to their activities, properties, employees or independent
contractors have been withheld and paid over to the appropriate Tax
Authority.
(ii) Xoom, Xenon 2 and each of their respective Subsidiaries have
paid (or have had paid on their behalf), or where payment is not yet due,
have established (or have had established on their behalf and for their
sole benefit and recourse), or will establish or cause to be established
on or before the Effective Time, an adequate accrual for the payment of,
all Taxes due with respect to any period beginning prior to the Effective
Time. No deficiency or adjustment for any Taxes has been threatened,
proposed, asserted or assessed against Xoom, Xenon 2 or any of their
respective Subsidiaries. There are no liens for Taxes upon the assets of
Xoom, Xenon 2 or any of their respective Subsidiaries, except for liens
for current Taxes not yet due.
(iii) None of Xoom, Xenon 2 or any of their respective Subsidiaries
is required to include in income any adjustment pursuant to Section
481(a) of the Code or any similar applicable provision by reason of a
voluntary change in accounting method initiated by Xoom, Xenon 2 or any
of their respective Subsidiaries, and neither the Internal Revenue
Service nor any taxing authority has proposed in writing any such
adjustment or change in accounting method. None of Xoom, Xenon 2 or any
of their respective Subsidiaries has received a tax ruling or entered
into a closing agreement with any taxing authority that would have a
continuing Material Adverse Effect upon Xoom, Xenon 2 or any of their
respective Subsidiaries.
(iv) None of Xoom, Xenon 2 or any of their respective Subsidiaries
has made any payments, is obligated to make any payments, or is a party
to any agreement that could obligate it to make any payments that would
not be deductible pursuant to Section 280G of the Code.
(v) None of Xoom, Xenon 2 or any of their respective Subsidiaries
has a permanent establishment, as defined in any applicable Tax treaty or
convention of the United States of America, or fixed place of business in
any foreign country. Xoom, Xenon 2 and their respective Affiliates are in
compliance with the terms and conditions of any applicable tax
exemptions, agreements or orders of any foreign government to which it
may be subject or which it may have claimed, and the transactions
contemplated by this Agreement will not have any adverse effect on such
compliance.
(vi) Neither Xoom nor any Subsidiary is a party to any safe harbor
lease within the meaning of Section 168(f)(8) of the Code, as in effect
prior to amendment by the Tax Equity and Fiscal Responsibility Act of
1982. Xoom and its Subsidiaries are not a party to any joint venture,
partnership, or other agreement, contract, or arrangement (either in
writing or verbally, formally or informally) which could be treated as
partnership for federal income tax purposes.
(vii) Neither Xoom nor any of its Subsidiaries is or has been bound
by any tax sharing or tax allocation agreement, and it has no contractual
obligation to indemnify any other person with respect to Taxes.
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(t) SECTION 203. The Boards of Directors of Xoom, Xenon 2 and each of
their respective Subsidiaries has taken appropriate action so that the
provisions of Section 203 of the DGCL restricting business combinations with
interested stockholders (each as defined in such Section 203) will not,
prior to the termination of this Agreement pursuant to Article IX hereof,
apply to NBC or NMC or any of their Affiliates with respect to this
Agreement, the Xenon 2 Merger Agreement, the Option Agreement, the Voting
Agreement, any of the Implementing Agreements or any of the transactions
contemplated hereby or thereby.
(u) YEAR 2000 COMPLIANCE. Except as set forth on SCHEDULE 4.3(V),
Xoom, Xenon 2 and each of their respective Subsidiaries has adopted and
implemented a commercially reasonable plan to provide (x) that the change of
the year from 1999 to the year 2000 will not have a Material Adverse Effect
and (y) that the impacts of such change on the venders and customers of
Xoom, Xenon 2 and each of their respective Subsidiaries will not have a
Material Adverse Effect. In the reasonable best estimate of Xoom, Xenon 2
and each of their respective Subsidiaries, no expenditures materially in
excess of currently budgeted items previously disclosed to Xenon 2 will be
required in order to cause the information and business systems of Xoom,
Xenon 2 and each of their respective Subsidiaries to operate properly
following the change of the year 1999 to the year 2000. Xoom, Xenon 2 and
each of their respective Subsidiaries reasonably expects any material issues
related to such change of the year will be resolved in accordance with the
timetable set forth in such plan (and in any event on a timely basis in
order to be resolved before the year 2000). Between May 9, 1999 and the
Effective Time, Xoom, Xenon 2 and each of their respective Subsidiaries
shall continue to use commercially reasonable efforts to implement such
plan.
(v) NO BUSINESS ACTIVITIES. Neither Xenon 2 nor Xenon 3 has conducted
any activities other than in connection with their organization, the
negotiation and execution of this Agreement and the NMC Merger Agreement and
the consummation of the transactions contemplated hereby and thereby.
4.4 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO GE INVESTMENTS SUB. GE
Investments Sub represents and warrants to Xoom and Xenon 2 as follows:
(a) DUE ORGANIZATION, POWER AND GOOD STANDING. GE Investments Sub is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the requisite power and authority to
own, lease and operate its properties and to conduct its business as now
conducted by it. GE Investments Sub has all requisite power and authority to
enter into this Agreement and to perform its obligations hereunder and
thereunder. GE Investments Sub is qualified to do business and is in good
standing in all jurisdictions in which it conducts its business, except
where the failure to do so would not, individually or in the aggregate,
taken as a whole, have a Material Adverse Effect.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance by GE Investments Sub of this Agreement and the consummation
by GE Investments Sub of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
GE Investments Sub. This Agreement has been duly executed and delivered by
GE Investments Sub and constitutes a valid and legally binding obligation of
GE Investments Sub, enforceable against GE Investments Sub in accordance
with its terms.
(c) GOVERNMENTAL APPROVALS; CONSENTS. Except as described in SCHEDULE
4.1(C), the execution, delivery and performance of this Agreement and the
consummation by GE Investments Sub of the transactions contemplated hereby
will not (i) conflict with or result in a breach of any provision of the
certificate of incorporation or bylaws or other governing documents of GE
Investments Sub; (ii) require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority; (iii)
require the consent or approval of any Person (other than a Governmental
Authority) or violate or conflict with, or result in a breach of any
provision of,
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constitute a default (or an event which with notice or lapse of time or both
would become a default) or give to any third party any right of termination,
cancellation, amendment or acceleration under, or result in the creation of
a Lien on any of the assets of GE Investments Sub under, any of the terms,
conditions or provisions of any contract or license to which GE Investments
Sub is a party or by which it or its assets or property are bound; or (iv)
violate or conflict with any order, writ, injunction, decree, statute, rule
or regulation applicable to GE Investments Sub; other than any consents,
approvals, authorizations and permits the failure of which to obtain and any
violations, conflicts, breaches defaults and other matters set forth
pursuant to clauses (ii), (iii) and (iv) above which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
4.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties given by the parties in ARTICLE IV and in the
certificates delivered pursuant to ARTICLE VII shall survive the Closing other
than the representations and warranties set forth in SECTION 4.1(C)(III) and
SECTION 4.1(V).
4.6 NO OTHER REPRESENTATION OR AND WARRANTIES. Except for the
representations and warranties set forth in this ARTICLE IV, the parties hereto
make no other representations or warranties, express or implied.
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ARTICLE V
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME
5.1 CONDUCT OF THE BUSINESS OF XOOM PENDING THE CLOSING. Xoom agrees that
except with the prior written consent of NBC and except as may be expressly
permitted by this Agreement or as set forth on SCHEDULE 5.1, prior to the
Closing, it shall, and shall cause, its Subsidiaries to operate their businesses
only in the usual, regular and ordinary manner, on a basis consistent with past
practice and, to the extent consistent with such operation, use its reasonable
efforts to preserve its present business organization intact, keep available the
services of its present employees, preserve its present business relationships
(consistent with past practice) and maintain all rights, privileges and
franchises in the normal conduct of Xoom's businesses. Without limitation of the
foregoing, from May 9, 1999 until the Effective Time, except as expressly
permitted by this Agreement or as set forth on SCHEDULE 5.1, Xoom shall not:
(a) amend its certificate of incorporation or bylaws;
(b) issue, purchase or redeem, or authorize or propose the issuance,
purchase or redemption of, or declare or pay any dividend with respect to,
any shares of capital stock of Xoom or any class of securities convertible
into, or rights, warrants or options to acquire, any such shares of other
convertible securities other than (i) issuances of Xoom Stock pursuant to
Xoom Options outstanding on May 9, 1999, the Option Agreement or the
obligations to issue Xoom Stock set forth on SCHEDULE 4.3(H) and (ii) (x)
Xoom Options with an exercise price of not less than the fair market value
on the date of grant and vesting over not less than 2 years to be issued to
employees currently holding Xoom Plan Options exercisable in the aggregate
for not more than that number of shares of Xoom Plan Stock that equals 15%
of the shares of Xoom stock for which Xoom Plan Options will remain unvested
and nonexercisable after giving effect to the acceleration of vesting
described in SECTION 6.8; and (y) Xoom Options with an exercise price of not
less than 85% of the fair market value on the date of grant, and vesting
over not less than 3 years, to be issued to employees currently holding Xoom
Non-Plan Options exercisable in the aggregate for not more than the lesser
of (i) that number of shares of Xoom that equals two times the number of
shares of Xoom for which Xoom Non-Plan Options will remain unvested and
nonexercisable and terminate after giving effect to the acceleration of
vesting described in SECTION 6.8 or (ii) 150,000 shares of Xoom.
(c) adopt any stockholders rights plan or take any other action which
would restrict or impede the ability of NBC or its Subsidiaries to acquire
any shares of Xoom Stock to the extent permitted by the terms hereof;
(d) acquire any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the ordinary
course consistent with past practice of such business) or acquire any
minority investment in any Person, except for any acquisitions for
consideration not in excess of $10,000,000 individually or $25,000,000 in
the aggregate taken together with all such acquisitions.
(e) dispose of any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the ordinary
course consistent with past practice of such business) or dispose of any
minority investment in any Person, except for any dispositions having a fair
market value not in excess of $10,000,000 individually or $25,000,000 in the
aggregate taken together with all such dispositions;
(f) except as otherwise permitted by this SECTION 5.1, make any
expenditures other than in the ordinary course of business and in any event
not in excess of the aggregate budgeted expenditures provided in the Xoom
Budget;
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(g) except as otherwise permitted by SECTION 5.1(D), enter into any
transaction involving a cash expenditure other than in the ordinary course
of business consistent with past practice;
(h) except as otherwise permitted by this SECTION 5.1, enter into any
transaction involving the incurrence of indebtedness other than in the
ordinary course of business consistent with past practice;
(i) enter into any transaction involving the merger, consolidation or
sale of all or substantially all of the assets of Xoom;
(j) file any voluntary petition for bankruptcy or receivership of Xoom
or fail to oppose any other person's petition for bankruptcy or action to
appoint a receiver of Xoom;
(k) except as required by applicable law, as contemplated in this
Agreement or the Xenon 2 Merger Agreement or to the extent required under
existing employee benefit plans, agreements or arrangements as in effect on
May 9, 1999, (A) increase the compensation or fringe benefits of any present
or former director, officer or employee of Xoom or its Subsidiaries, except
for increases, in the ordinary course of business, in salary or wages of
employees who are not officers, (B) except in the ordinary course of
business grant any severance or termination pay to any present or former
director, officer or employee of Xoom or its Subsidiaries or (C) enter into
or amend or terminate any collective bargaining, bonus, profit sharing,
thrift, compensation, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any present or former director,
officer or employee of Xoom or its Subsidiaries;
(l) allow any payables or other obligations to become delinquent, except
where the amount or validity of such payables or obligations is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been recorded, or change or
modify the usual, regular and ordinary manner of collecting receivables from
past practice;
(m) except with respect to transactions permitted by SECTION 5.1(D)and
SECTION 5.1(E), enter into any contract, agreement, joint venture or other
commitment that is not terminable in Xoom's sole discretion on or prior to
one year from May 9, 1999 without payment of any termination fee or penalty;
(n) settle any claim, action or proceeding involving money damages in
excess of $50,000 in the aggregate or that could result in any injunction or
prohibition on any part of the business of Xoom;
(o) amend, supplement or otherwise modify the Xenon 2 Merger Agreement
or terminate the Xenon 2 Merger Agreement other than in accordance with
Section 9.1(f) thereof; or
(p) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.2 CONDUCT OF THE BUSINESS OF SNAP PENDING THE CLOSING. NBC agrees that
except with the prior written consent of Xoom, and except as may be expressly
permitted or contemplated by this Agreement or as set forth on SCHEDULE 5.2,
prior to the Closing Date, NBC shall use reasonable efforts to cause each of
SNAP and its Subsidiary to be operated only in the usual, regular and ordinary
manner, on a basis consistent with past practice and, to the extent consistent
with such operation, use its reasonable efforts to preserve its present business
organization intact, keep available the services of its present employees,
preserve its present business relationships and maintain all rights, privileges
and franchises necessary or desirable in the normal conduct of SNAP's
businesses. Without limiting the generality of the foregoing, from May 9, 1999
until the Closing, except as expressly permitted or contemplated by
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this Agreement or as set forth on SCHEDULE 5.2, NBC shall use reasonable efforts
not to permit SNAP to:
(a) amend the SNAP LLC Agreement;
(b) issue, purchase or redeem, or authorize or propose the issuance,
purchase or redemption of, or make any distribution with respect to, any
equity interests of SNAP or any class of securities convertible into, or
rights, warrants or options to acquire, any such equity interests or other
convertible securities other than (i) pursuant to employee options
outstanding on May 9, 1999 or (ii) SNAP Options with an exercise price of
not less than the fair market value on the date of grant to be issued to
employees exercisable in the aggregate for not more than 195,132 units of
SNAP;
(c) acquire any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the ordinary
course consistent with past practice of such business) or acquire any
minority investment in any Person, except for any acquisitions for
consideration not in excess of $10,000,000 individually or $25,000,000 in
the aggregate taken together with all such acquisitions;
(d) dispose of any business or any assets (other than inventory and any
other assets acquired solely for use in an existing business in the ordinary
course consistent with past practice of such business) or dispose of any
minority investment in any Person, except for any dispositions having a fair
market value not in excess of $10,000,000 individually or $25,000,000 in the
aggregate taken together with all such dispositions;
(e) except as otherwise permitted by this SECTION 5.2, make any
expenditures other than in the ordinary course of business and in any event
not in excess of the aggregate budgeted expenditures provided in the SNAP
Budget;
(f) except as otherwise permitted by SECTION 5.2(C), enter into any
transaction involving a cash expenditure by SNAP other than in the ordinary
course of business consistent with past practice;
(g) except as otherwise permitted by this SECTION 5.2, enter into any
transaction involving the incurrence of indebtedness by SNAP other than in
the ordinary course of business consistent with past practice;
(h) file any voluntary petition for bankruptcy or receivership of SNAP
or fail to oppose any other person's petition for bankruptcy or action to
appoint a receiver of SNAP;
(i) except with respect to transactions permitted by SECTION 5.2(C)and
SECTION 5.2(D), enter into any contract, agreement, joint venture or other
commitment that is not terminable in SNAP's sole discretion on or prior to
one year from May 9, 1999 without payment of any termination fee or penalty;
(j) except as required by applicable law, as contemplated in this
Agreement or the Xenon 2 Merger Agreement or to the extent required under
existing employee benefit plans, agreements or arrangements as in effect on
May 9, 1999, (A) increase the compensation or fringe benefits of any
employee of SNAP, except for increases, in the ordinary course of business,
in salary or wages of employees who are not officers, (B) except in the
ordinary course of business grant any severance or termination pay to any
employee of SNAP, (C) hire, except in the ordinary course of business, any
new employees or consultants, or (D) enter into or amend or terminate any
collective bargaining, bonus, profit sharing, thrift, compensation, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit of
any employee of SNAP;
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(k) allow any payables or other obligations to become delinquent, except
where the amount or validity of such payables or obligations is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been recorded, or change or
modify the usual, regular and ordinary manner of collecting receivables from
past practice;
(l) except as otherwise permitted by SECTION 5.2(D), dispose of or
abandon outside the ordinary course of business any assets of SNAP that are
material, individually or in the aggregate, to SNAP and not transfer any
rights of material value of SNAP;
(m) permit or allow any of the material assets of SNAP to become subject
to any Liens, except for Permitted Liens or waive any material claims or
rights of SNAP;
(n) except as otherwise permitted by SECTION 5.2(C), acquire or agree to
acquire outside the ordinary course of business any assets that are
material, individually or in the aggregate, to SNAP;
(o) enter into any transaction involving the merger, consolidation or
sale of all or substantially all of the assets of SNAP;
(p) settle any claim, action or proceeding involving money damages in
excess of $50,000 in the aggregate or that could result in any injunction or
prohibition on any part of the business of SNAP; or
(q) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.3 CONDUCT OF THE NBC MULTIMEDIA BUSINESSES PENDING THE CLOSING. NBC
agrees that except with the prior written consent of Xoom and except as may be
expressly permitted or contemplated by this Agreement or as set forth on
SCHEDULE 5.2, prior to the Closing Date, it shall, and shall cause its
Subsidiaries to, operate the NBC Multimedia Businesses only in the usual,
regular and ordinary manner, on a basis consistent with past practice and, to
the extent consistent with such operation, use its reasonable efforts to
preserve the NBC Multimedia Businesses' present business organization intact,
keep available the services of the NBC Multimedia Businesses' present employees,
preserve their present business relationships and maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of the
NBC Multimedia Businesses. NBC shall not cause or permit NMC to conduct any
business or take other actions other than for the purposes of effectuating the
transactions contemplated hereby. Without limiting the generality of the
foregoing, from May 9, 1999 until the Closing, except as expressly permitted or
contemplated by this Agreement or as set forth on SCHEDULE 5.2, NBC shall not:
(a) except as required by applicable law or to the extent required under
existing employee benefit plans, agreements or arrangements as in effect on
May 9, 1999 or as contemplated by this Agreement, (A) increase the
compensation or fringe benefits of any Transferred Employee (including, for
all purposes in this section, persons eligible to become Transferred
Employees upon occurrence of future events such as the acceptance of offers
of employment), except for increases, in the ordinary course of business, in
salary or wages of employees who are not officers, (B) except in the
ordinary course of business grant any severance or termination pay to any
Transferred Employee or (C) enter into or amend or terminate any collective
bargaining, bonus, profit sharing, thrift, compensation, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit of
any Transferred Employee;
(b) transfer, dispose of or abandon any of the material NBC Multimedia
Assets or Videoseeker Assets, other than in the ordinary course of business,
consistent with past practice;
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(c) permit or allow any of the NBC Multimedia Assets or Videoseeker
Assets to become subject to any Liens, except for Permitted Liens or waive
any material claims or rights relating to the NBC Multimedia Assets or the
Videoseeker Assets;
(d) transfer any rights of material value included in the NBC Multimedia
Assets or Videoseeker Assets;
(e) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.4 ACCESS TO INFORMATION. From May 9, 1999 to the Closing Date, each of
Xoom and NBC and their respective Subsidiaries shall afford the officers,
employees, auditors and other agents of NBC and Xoom reasonable access during
normal business hours to the officers, employees, properties, offices, plants
and other facilities of (i) SNAP and the NBC Multimedia Businesses, in the case
of NBC and (ii) Xoom and its Subsidiaries, in the case of Xoom and Xenon 2, and
to the contracts, commitments, books, records and Tax Returns relating thereto,
and shall furnish such Persons all such documents and such financial, operating
and other data and information regarding such businesses and Persons that are in
the possession of such Person as NBC or Xoom, as applicable, through their
respective officers, employees or agents may from time to time reasonably
request. All such information, as well as any information provided prior to the
date hereof, shall be used only for the purposes of the transactions
contemplated hereby and, unless required by subpoena or otherwise required by
law, the parties agree not to disclose to any third party (other than their
respective professional advisors) any portion of the information so provided
which constitutes confidential information (i.e., information that is not
otherwise publicly available). The confidential information shall not, without
the other parties' prior written consent, be disclosed to third parties. The
parties will disclose the information internally only to persons who require
knowledge thereof for the purposes of the transactions contemplated hereby.
5.5 NO SOLICITATION. (a) From and after May 9, 1999 until the earlier of
the Effective Time or the termination of this Agreement in accordance with its
terms, Xoom shall not, nor shall it permit any of its Subsidiaries to, nor shall
it authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, Xoom or any of its
Subsidiaries to, directly or indirectly, (i) take any action to solicit,
initiate, encourage or knowingly facilitate any Material Transaction Proposal
(as defined below) or the submission of a Material Transaction Proposal or (ii)
enter into or participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, a Material Transaction
Proposal; PROVIDED that, prior to obtaining the affirmative vote of the holders
of a majority of the outstanding shares of common stock of Xoom to adopt the
Xenon 2 Merger Agreement (the "Xoom Stockholder Approval" and, together with the
Xenon 2 Stockholder Approval, the "Stockholder Approvals"), in response to an
unsolicited BONA FIDE Takeover Proposal, Xoom may, to the extent that the Board
of Directors of Xoom determines in good faith based on the advice of outside
legal counsel that such action is required to comply with their fiduciary duties
under applicable law, (A) furnish information with respect to Xoom and its
Subsidiaries to the person making such Takeover Proposal and its representatives
and discuss such information with such person and its representatives and (B)
participate in negotiations regarding such Takeover Proposal. Xoom will promptly
notify NBC of receipt of any request for information or any Material Transaction
Proposal, the material terms and conditions of such request or Material
Transaction Proposal and the identity of the person making any such request or
Material Transaction Proposal, and will keep NBC fully informed on a current
basis of the status and details of any such request or Material Transaction
Proposal, PROVIDED that, prior to providing any information to any Person or
participating in negotiations with any Person, Xoom shall have received an
executed confidentiality agreement. Xoom will immediately cease and cause to be
terminated any existing activities, discussions and negotiations conducted
heretofore with respect to any Material Transaction Proposal.
(b) From and after May 9, 1999 until the earlier of the Effective Time
or the termination of this Agreement in accordance with its terms, the Board
of Directors of Xoom shall not (i) approve
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or recommend or propose publicly to approve or recommend any Material
Transaction Proposal, (ii) cause or agree to cause Xoom or any of its
Subsidiaries to enter into any agreement (including, without limitation, any
letter of intent or agreement in principle) related to a Material
Transaction Proposal or (iii) prior to the Xoom Stockholder Approval,
withdraw or modify, in a manner adverse to NBC, the approval or
recommendation of the Board of Directors of Xoom for the adoption of the
Xenon 2 Merger Agreement or vote in favor of Xoom, as sole stockholder of
Xenon 2, adopting the NMC Merger Agreement at the Xenon 2 Stockholder
Meeting. Notwithstanding the foregoing, if the Board of Directors of Xoom
receives a Takeover Proposal without having violated SECTION 5.5(A) hereof,
the Board of Directors of Xoom may, prior to obtaining the Xoom Stockholder
Approval, to the extent it determines in good faith based on the advice of
outside legal counsel that such action is required to comply with their
fiduciary duties under applicable law, take any action specified in clauses
(i), (ii) or (iii) above with respect to such Takeover Proposal, but in each
case only (x) at a time that is at least five (5) business days after
receipt by NBC of written notice from Xoom advising NBC that the Board of
Directors of Xoom has resolved to take such action and (y) if Xoom
simultaneously therewith terminates this Agreement pursuant to SECTION
9.1(G) hereof. Nothing contained in this Agreement shall prohibit Xoom or
its board of directors from complying with Rules 14D-9 and 14e-2 under the
Exchange Act with respect to any Takeover Proposal.
(c) As used herein, MATERIAL TRANSACTION PROPOSAL means any inquiry,
proposal or offer from any Person relating to (i) the direct or indirect
acquisition or purchase of 20% or more of the assets (based on the fair
market value thereof) of Xoom and its Subsidiaries, taken as a whole, or of
20% or more of any class of equity securities of Xoom or any of its
Subsidiaries or any tender offer or exchange offer (including by Xoom or its
Subsidiaries) that if consummated would result in any person beneficially
owning 20% or more of any class of equity securities of Xoom or any of its
Subsidiaries, or (ii) any merger, consolidation, business combination, sale
of all or substantially all assets, recapitalization, liquidation,
dissolution or similar transaction involving Xoom or any of its Subsidiaries
other than the Transactions contemplated by this Agreement; PROVIDED,
HOWEVER, that in no event shall any merger, consolidation, sale or similar
transaction involving only Xoom and one or more of its wholly-owned
subsidiaries or involving only any two or more of such wholly-owned
subsidiaries be deemed to be a Material Transaction Proposal if such
transaction is not entered into in violation of the terms of this
Agreement.. As used herein, TAKEOVER PROPOSAL means any inquiry, proposal or
offer from any Person relating to (A) any of the matters set forth in clause
(i) of the definition of Material Transaction Proposal but replacing 20%
with 50% each place 20% is used in such definition, (B) a sale of all or
substantially all of the assets of Xoom and its Subsidiaries or (C) a merger
or consolidation of Xoom as a result of which the stockholders of Xoom
immediately prior to such transaction would not beneficially own immediately
after such transaction 50% or more of the resulting or surviving entity (or
the parent thereof).
(d) The parties acknowledge that there may be no adequate remedy at law
for a breach of SECTION 5.5 and that money damages may not be an adequate
remedy for breach of such Section. Therefore, the parties agree that NBC and
Xoom each shall have the right, in addition to any other rights it may have,
to injunctive relief and specific performance in the event of any breach of
this SECTION 5.5. The remedy set forth in the preceding two sentences is
cumulative and shall in no way limit any other remedy any party hereto has
at law, in equity or pursuant hereto.
5.6 NON-SOLICITATION OF EMPLOYEES. The parties hereto agree that beginning
on May 9, 1999 and continuing until one year after the Effective Time, no party
shall, directly or indirectly, solicit for employment any person who is now
employed by any of the other parties in an executive position, technical
position or is otherwise considered a key employee; PROVIDED, HOWEVER, that a
party shall not be precluded from hiring any such employee who (i) initiates
discussions regarding such employment without any direct or indirect
solicitation by such party, (ii) responds to any general public
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advertisement placed by such party or (iii) has been terminated by the other
party prior to commencement of employment discussions between such party and the
employee.
5.7 AMENDMENTS TO SCHEDULES. If no later than five business days prior to
the Closing Date, Xoom, Xenon 2, NBC, SNAP or GE Investments Sub becomes aware
of any fact or circumstance (whether or not it existed prior to May 9, 1999)
which would make any representation, warranty, covenant or agreement of such
party untrue, then such party shall be permitted to amend any Schedule to this
Agreement so as to identify such fact or circumstance to the extent necessary to
make such representation, warranty, covenant or agreement true and correct;
PROVIDED that if any such amendment, individually or in the aggregate with all
such other amendments, discloses facts and circumstances that constitute a
Material Adverse Effect, then notwithstanding anything to the contrary in this
Agreement, the other party (which shall be Xoom in the case of amendments by
NBC, SNAP or GE Investments Sub and shall be NBC in the case of amendments by
Xoom or Xenon 2) shall have the right to terminate this Agreement.
Notwithstanding the foregoing, any change to a Schedule that refers solely to an
item previously disclosed in the SEC Documents shall not be deemed to have a
Material Adverse Effect on Xenon if such reference is to a specific section of a
specific SEC Document.
ARTICLE VI
OTHER AGREEMENTS
6.1 REGISTRATION STATEMENT; PREPARATION OF PROXY STATEMENT. (a) As soon as
practicable after the execution of this Agreement, Xoom shall prepare and cause
to be filed with the SEC preliminary proxy materials (the "Proxy Statement") for
the solicitation of approval by the stockholders of Xoom of the Xenon 2 Merger
Agreement and of Xoom, in its capacity as sole stockholder of Xenon 2, approving
this Agreement, the Merger and the other transactions contemplated hereby and
the other Implementing Agreements as may reasonably require approval of Xenon
2's stockholders. Xoom shall cause Xenon 2 to include the Proxy Statement as
part of the prospectus to be included in the registration statement on Form S-4
(the "Form S-4") that Xenon 2 is preparing and filing with respect to the shares
of Class A Common Stock issuable pursuant to the transactions contemplated by
the Xenon 2 Merger Agreement. Each of Xenon 2 and Xoom shall cause the Form S-4
and the Proxy Statement related thereto to comply with applicable law and the
rules and regulations promulgated by the SEC, to respond promptly to any
comments of the SEC or its staff and to have such registration statement
declared effective under the Securities Act as promptly as practicable after it
is filed with the SEC and Xoom shall use its best efforts to cause the proxy
statement to be mailed to Xoom's stockholders as promptly as practicable after
the registration statement is declared effective under the Securities Act. Each
of the parties hereto shall promptly furnish to the other party all information
concerning itself, its stockholders and its Affiliates that may be required or
reasonably requested in connection with any action contemplated by this SECTION
6.1. If any event relating to any party occurs, or if any party becomes aware of
any information, that should be disclosed in an amendment or supplement to the
Form S-4 or the Proxy Statement, then such party shall inform the other thereof
and shall cooperate with each other in filing such amendment or supplement with
the SEC and, if appropriate, in mailing such amendment or supplement to the
stockholders of Xoom. The Proxy Statement shall include the recommendation of
the Board of Directors of Xoom in favor of the adoption of this Agreement and
the Xenon 2 Merger Agreement and the approval of the transactions contemplated
hereby and thereby.
(b) Prior to the Effective Time, Xoom shall cause Xenon 2 to use
reasonable efforts to obtain all regulatory approvals needed to ensure that
the Class A Common Stock to be issued in connection with the transactions
contemplated the Xenon 2 Merger Agreement (i) will be registered or
qualified under the "blue sky" laws of every jurisdiction of the United
States in which any registered holder of the outstanding Xoom common stock
who is receiving registered shares of
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Class A Common Stock has an address of record or be exempt from such
registration; and (ii) will be approved for quotation at the Effective Time
on Nasdaq.
(c) Each of Xoom, Xenon 2 and NBC agrees with respect to the information
to be supplied by such party that:(i) none of the information to be supplied
by such party or its Affiliates for inclusion in the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading;(ii) none of the information to be supplied by such party or its
Affiliates for inclusion in the Proxy Statement will, at the time the Proxy
Statement is mailed to the stockholders of Xoom or as of the Effective Time,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and (iii) as to matters respecting such party, the
Proxy Statement and the Form S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the Exchange Act, as
applicable, and the rules and regulations promulgated by the SEC thereunder.
6.2 STOCKHOLDER MEETING. Xoom shall promptly after May 9, 1999 take all
action necessary in accordance with applicable law and its certificate of
incorporation and bylaws to duly call, hold and convene a meeting of Xoom's
stockholders (the "Xoom Stockholder Meeting") and a meeting of Xoom 2's
stockholder (the "Xenon 2 Stockholder Meeting). Except as required by the SEC or
applicable court order, Xoom shall not postpone or adjourn (other than for the
absence of a quorum) the Xoom Stockholder Meeting or the Xenon 2 Stockholder
Meeting without the consent of NBC. Notwithstanding anything in this Agreement
to the contrary, Xenon 2 shall, and Xoom shall cause Xenon 2, to duly call, hold
and convene the Xenon 2 Stockholder Meeting immediately after Xoom Stockholders
Meeting, and Xoom, in its capacity as sole stockholder of Xenon 2, shall vote
with respect to the adoption of this Agreement at the Xenon 2 Stockholder
Meeting as instructed by the votes of at least a majority of the Xoom
Stockholders at the Xoom Stockholder Meeting. Each of Xenon 2 and Xoom shall not
authorize or permit (i) the Xenon 2 Stockholder Meeting to occur at or after the
effectiveness of the merger contemplated by the Xenon 2 Merger Agreement or (ii)
the adoption of this Agreement by the stockholder of Xenon 2 to be effected by a
written consent to action without a meeting. Neither NBC, Xenon 2 nor Xoom shall
in any way challenge the validity, enforceability or effectiveness of the voting
agreements or proxies entered into by certain stockholders of Xoom in connection
with this Agreement or the Xenon 2 Merger Agreement and the transactions
contemplated hereby and thereby. Xoom shall take all other action necessary or
advisable to secure the Stockholder Approvals subject to the fiduciary duty set
forth in SECTION 5.5. Without limiting the generality of the foregoing but
subject to its rights to terminate the Agreement pursuant to SECTION 9.1(G),
Xoom agrees that its obligations pursuant to this Section 6.2 shall not be
affected by the commencement, public proposal, public disclosure or
communication to Xoom of any Material Transaction Proposal.
6.3 PUBLIC STATEMENTS. Before any party or any Affiliate of such party
shall release any information concerning this Agreement or the matters
contemplated hereby which is intended for or may result in public dissemination
thereof, such party shall cooperate with the other parties, shall furnish drafts
of all documents or proposed oral statements to the other parties, provide the
other parties the opportunity to review and comment upon any such documents or
statements and shall not release or permit release of any such information
without the consent of the other parties, except to the extent required by
applicable law or the rules of any securities exchange or automated quotation
system on which its securities or those of its Affiliate are traded.
6.4 REASONABLE COMMERCIAL EFFORTS. (a) Subject to the terms and conditions
provided in this Agreement, each party shall use reasonable commercial efforts
to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable under
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applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, including,
without limitation, an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby,
and the filings and consents set forth on SCHEDULE 6.4 hereto (the "Required
Consents") and to remove any injunctions or other impediments or delays, legal
or otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties hereto
the benefits contemplated by this Agreement; PROVIDED that notwithstanding
anything to the contrary in this Agreement, no party nor any of their Affiliates
shall be required to make any disposition, including, without limitation, any
disposition of, or any agreement to hold separate, any Subsidiary, asset or
business, and no party hereto nor any of their Affiliates shall be required to
make any payment of money nor shall any party or its Affiliates be required to
comply with any condition or undertaking or take any action which, individually
or in the aggregate, would materially adversely affect the economic benefits to
such party of the transactions contemplated hereby and the Implementing
Agreements, taken as a whole or adversely affect any other business of such
party or its Affiliates.
(b) Each of the parties hereto shall execute and cause its Subsidiaries
to execute on or prior to the Closing Date each Implementing Agreement to
which it or they are a party on the terms set forth in the relevant Exhibits
hereto.
(c) Each of the parties hereto agrees, from time to time, to execute and
deliver, or use reasonable commercial efforts to cause to be executed and
delivered, such additional instruments, certificates or documents (including
bills of sale and assignment and assumption agreements), and take all such
actions, reasonably necessary to implement or effectuate the transactions
contemplated by this Agreement.
6.5 NOTIFICATION OF CERTAIN MATTERS. Each party to this Agreement shall
give prompt notice to each other party of (i) the occurrence or non-occurrence
of any event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of any party contained in this Agreement to be untrue
or inaccurate at or prior to the Effective Time and (ii) any failure of any
party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery
of any notice pursuant to this SECTION 6.5 shall not limit or otherwise affect
any remedies available to the parties receiving such notice. No disclosure by
any party pursuant to this SECTION 6.5, however, shall be deemed to amend or
supplement the disclosures set forth on the Schedules to ARTICLE IV or prevent
or cure any misrepresentations, breach of warranty or breach of covenant.
6.6 XENON 2 DIRECTORS. (a) NBC shall have the right to select six persons
to serve as members of the Board of Directors of Xenon 2 to be elected by the
holders of the Class B Common Stock, voting separately as a class (such persons,
or any replacement persons, the "Nominees"), and Xoom and Xenon 2 shall cause
the Nominees to be appointed to the Board of Directors of Xenon 2 (to the extent
the Nominees so consent) as of the Effective Time.
(b) Xoom and Xenon 2 shall also cause to be appointed to the Board of
Directors of Xenon 2 (to the extent they so consent) as of the Effective
Time the current Chairman of the Board of Xoom, the four current outside
directors of Xoom and an additional person designated by Xoom.
(c) Xoom and Xenon 2 shall also cause to be appointed to the Board of
Directors of Xenon 2 as of the Effective Time one additional person mutually
agreed upon by NBC and Xoom who shall not be affiliated with either party.
(d) Xenon 2 will cause the Surviving Corporation to indemnify each
person who is now, or has been at any time prior to May 9, 1999, or who
becomes prior to the Effective Time, a director or officer of NMC from and
after the Effective Time (individually an "Indemnified Party" and
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collectively the "Indemnified Parties"), with respect to acts or omissions
occurring prior to the Effective Time to the full extent provided as of May
9, 1999 under the certificate of incorporation, bylaws, other similar
organizational documents of NMC or applicable law. The rights under this
SECTION 6.6(D) are contingent upon the occurrence of, and will survive
consummation of, the transactions contemplated hereby and are expressly
intended to benefit each Indemnified Party each of whom shall have third
party beneficiary rights hereunder.
6.7 EMPLOYEE MATTERS.
(a) EMPLOYEES AND OFFERS OF EMPLOYMENT. Between May 9, 1999 and the
Closing Date, Xenon 2 shall offer employment as of the Closing Date to each
individual who is listed on SCHEDULE 6.7(A) and who, on the Closing Date, is
employed by NBC or its Affiliates or who is absent from work by reason of
vacation, sick leave, short-term disability or due to authorized leave of
absence or military service; PROVIDED that for any such employee who, as of
the Closing Date, is absent from work due to sick leave, short-term
disability or due to authorized leave of absence or military service, such
offer of employment shall be effective as of the date such employee is able
to commence active employment with Xenon 2. Each offer of employment shall
include salary, title and level of responsibility which are no less
favorable in the aggregate than those in effect for such employee on May 9,
1999; PROVIDED that nothing shall prohibit Xenon 2 from terminating the
employment of any Transferred Employee at any time. Such employees who
accept and commence employment with Xenon 2 are herein collectively referred
to as TRANSFERRED EMPLOYEES.
(b) EMPLOYEE BENEFIT PLANS
(i) As of the Closing Date, except as otherwise expressly provided
under the applicable employee benefit plan of NBC or its Affiliates (the
"NBC Plans") the Transferred Employees shall cease to accrue further
benefits under NBC Plans and shall immediately commence participation in
the Xenon 2 plans (which, except as otherwise provided in this Agreement,
shall initially be the Xoom Plans) on a basis no less favorable than
similarly situated employees of Xenon 2 or Xoom. Xenon 2 or Xoom shall
cause each Xenon 2 Plan to treat the prior service of each Transferred
Employee with NBC or its affiliates as service rendered to Xenon 2 or
Xoom for purposes of eligibility, vesting and benefit accrual (but not
for purposes of benefit accruals) under any defined benefit plan to the
same extent such service was taken into consideration under comparable
NBC Plans.
(ii) NBC shall retain responsibility for and continue to pay all
medical, life insurance, disability and other welfare plan expenses and
benefits for each Transferred Employee with respect to claims incurred by
such Employees or their covered dependents prior to the Closing Date.
Expenses and benefits with respect to claims incurred by Transferred
Employees or their covered dependents on or after the Closing Date shall
be the responsibility of Xenon 2. For purposes of this paragraph, a claim
is deemed incurred when the services that are the subject of the claim
are performed; in the case of life insurance, when the death occurs, in
the case of long-term disability benefits, when the disability occurs
and, in the case of a hospital stay, when the employee first enters the
hospital.
(iii) With respect to any welfare benefit plans (as defined in
section 3(1) of ERISA) maintained by Xenon 2 or its Subsidiaries for the
benefit of Transferred Employees and SNAP Employees on and after the
Closing Date, Xenon 2 or its Subsidiaries shall use best efforts to (A)
cause there to be waived any pre-existing condition limitations and (B)
give effect, in determining any deductible and maximum out-of-pocket
limitations, to claims incurred and amounts paid by, and amounts
reimbursed to, such employees with respect to similar plans maintained by
NBC for their benefit immediately prior to the Closing Date.
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(iv) NBC shall retain all assets and liabilities and obligations
under NBC Plans with respect to the Transferred Employees.
Notwithstanding the foregoing, Xenon 2 shall be responsible, with respect
to Transferred Employees, for all accrued bonuses for the year of
Closing.
(v) With respect to any accrued but unused vacation time to which
any Transferred Employee is entitled pursuant to the vacation policy
applicable to such Transferred Employee immediately prior to the Closing
Date (the "Vacation Policy"), Xenon 2 shall allow such Transferred
Employee to use such accrued vacation; PROVIDED, HOWEVER, that if Xenon 2
deems it necessary to disallow such Transferred Employee from taking such
accrued vacation, Xenon 2 shall be liable for and pay in cash to each
such Transferred Employee an amount equal to such vacation time in
accordance with terms of the Vacation Policy.
6.8 XENON 2 OPTIONS. (a) Prior to the Effective Time, with respect to each
option to purchase shares of Xenon 2 into which options to purchase shares of
Xoom (a "Xoom Option"), which were granted pursuant to the Xoom 1998 Stock
Incentive Plan (the "Xoom Option Plan") prior to May 9, 1999, were converted
(the "Converted Xoom Plan Options"), Xenon 2 shall cause the Administrator (as
defined in the Xoom Option Plan) to exercise its discretion to provide, and
shall take any other necessary action to provide, that each Converted Xoom Plan
Option shall vest and become exercisable with respect to all shares as to which
such options would otherwise have vested within 12 months following the
Effective Time. With respect to each option to purchase shares of Xenon 2 into
which Xoom Options, which were not granted pursuant to the Xoom Option Plan
prior to May 9, 1999, were converted (the "Converted Xoom Non-Plan Options"),
Xenon 2 shall take any necessary action to provide that such Converted Xoom
Non-Plan Options shall to the extent provided in the award agreement evidencing
such option vest and become exercisable with respect to 75% of the then unvested
portion of such Converted Xoom Non-Plan Option and any portion of a Converted
Xoom Non-Plan Option which remains unexercised upon the occurrence of the
Effective Time shall terminate upon the occurrence of the Effective Time. In
addition, with respect to each option to purchase shares of Xenon 2 into which
Xoom Options, which were granted after May 9, 1999, were converted (the
"Converted New Xoom Options"), Xenon 2 shall cause the Administrator to exercise
its discretion to provide, and shall take any other necessary action to provide,
that each option Converted New Xoom Option shall not immediately vest (but
rather, shall vest in accordance with its stated vesting schedule) with respect
to any of the shares subject thereto. Xenon 2 and Xoom acknowledge that the
transaction contemplated hereby shall constitute a "Corporate Transaction" for
purposes of both the Xoom Option Plan and the Converted Xoom Non-Plan Options
and the Administrator, the Board of Directors of Xoom and the Board of Directors
of Xenon 2 shall take all necessary action to effect the foregoing.
(b) In the event that any Xoom employee incurs an excise tax under
Section 4999 of the Code as a result of the accelerated vesting of the Xoom
Options pursuant to SECTION 6.8(A), Xenon 2 shall make available to such
employee a loan (the "Tax Loan") in an amount sufficient to pay such excise
tax. The determination of whether any such excise tax will be payable and
the amount of such excise tax will be made by Xoom 2's independent auditors.
The Tax Loan will (i) have a term of two years, and (ii) bear interest at
the lowest permissible rate without imputation of income, compounded
annually and (iii) to the extent not previously forgiven become immediately
due and payable upon the termination of such employee's employment with
Xenon 2 and its Affiliates for cause or due to such employee's voluntary
resignation. The Tax Loan, will be forgiven with respect to 1/24 of the
initial principal amount of the Tax Loan (together with accrued interest
thereon) on the last day of each 1 month anniversary of the Effective Time
if the employee has remained continually employed with Xenon 2 and its
Affiliates through such date or if such employee's employment with Xenon 2
and its Affiliates is terminated without cause or due to the employee's
death or disability.
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6.9 SNAP INDEBTEDNESS. Immediately following Closing, Xenon 2 will repay
and terminate the commitments with respect to the indebtedness for money
borrowed (including all interest, fees and other amounts payable in respect
thereof) set forth on SCHEDULE 6.9 and Xenon 2 shall use its best efforts to
cause the guarantee of such indebtedness by General Electric Company to be fully
released. Neither SNAP nor NBC or any of its Subsidiaries shall be required to
repay prior to Closing any indebtedness of SNAP, including any incurred from and
after May 9, 1999 in accordance with the terms of this Agreement.
6.10 ORGANIZATION OF CNBC.COM. NBC shall organize an entity and contribute
the assets, properties and other rights set forth on SCHEDULE 6.10 to such
entity on or before the Closing Date.
6.11 TAX COOPERATION AND CONSISTENT REPORTING.
(a) Xenon 2 and NBC agree to furnish or cause to be furnished to each
other, upon request, as promptly as practicable, such information and
assistance relating to the Contributed Assets as is reasonably necessary for
the filing of all Tax Returns, and making of any election related to Taxes,
the preparation for any audit by any Tax Authority, and the prosecution or
defense of any claim, suit or proceeding relating to any Tax Return. Xenon 2
and NBC will cooperate with each other in the conduct of any audit or other
proceeding related to Taxes and all other Tax matters relating to the
Contributed Assets, and each will execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of
this SECTION 6.11.
(b) Unless there has been a Final Determination to the contrary, NBC,
Xenon 2 and Xoom covenant and agree, for all Tax purposes including all Tax
Returns and any Tax controversies to (and to cause any Affiliate or
successor to their assets or business to) take each of the positions set
forth below (and not to take any positions inconsistent therewith):
(i) The transfer of the Contributed Assets pursuant to the Agreement
will qualify under Section 351(a) of the Code.
(ii) None of the consideration received for the Contributed Assets
pursuant to the Agreement other than Convertible Note #1 will be treated
as Other Property or Money.
(iii) None of the Class A Common Stock or Class B Common Stock issued
to NBC or CNET pursuant to the terms of the Agreement will be paid or
issued for services.
(iv) The tax basis of each Contributed Asset to be received by Xenon
2 will be the same as the tax basis of such asset in the hands of the
transferor increased by the amount of any gain recognized by the
transferor on the transfer of such asset.
(v) The holding period of each Contributed Asset will include the
period during which such asset was held by the transferor.
(vi) Neither Xenon 2, Xoom, any affiliate thereof, nor any successor
to their assets or businesses will be entitled to claim any deduction in
respect of any assumed Liability to the extent previously deducted by the
transferor.
(c) Xenon 2 represents, covenants and agrees that (A) it has no plan or
intention to (i) issue additional shares of stock after the Merger, or take
any other action, that would result in NBC, NBC Multimedia, CNBC, CNET and
the Xoom shareholders losing control of Xenon 2, (ii) liquidate or merge
Xenon 2; (iii) sell or otherwise dispose of any of its assets (or of any of
the assets acquired from NBC Multimedia), except for dispositions made in
the ordinary course of business, transfers permitted under Section
368(a)(2)(C) of the Code, or transfers prescribed by Section 1.368-1(d) that
will not affect Xoom 2's satisfaction of the "continuity of business
enterprise" requirement under Section 368 of the Code for purposes of
qualifying the Merger as a "reorganization" under said section, and (iv)
reacquire any of the shares of its stock issued
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pursuant to this Agreement, and (B) the historic business of NBC Multimedia
will be continued or a significant portion of NBC Multimedia's historic
business assets will be used in a business.
(d) (i) NBC and Xenon 2 agree to report to the other any communication
from or with the Internal Revenue Service which relates in any way to the
characterization of the transactions contemplated by the Agreement.
Notwithstanding any such communication, Xenon 2 and Xoom covenant and agree
to (and to cause any Affiliate or successor to their assets or business to)
continue to take each of the positions specified in SECTION 6.11(B) for all
Tax purposes (unless there has been a Final Determination contrary to such
position).
(ii) Without limiting the generality of SECTION 6.11(D)(I), (A) NBC
will file with its federal income tax return for the taxable year in
which the Agreement is consummated (which tax return shall be timely
filed) the information required by Treas. Reg Section 1.351-3(a), and
will deliver a copy of that statement to Xenon 2 within ten days
thereafter, and (B) Xenon 2 will file with its federal income tax return
for the taxable year in which the Agreement is consummated (which tax
return shall be timely filed) the information required by Treas. Reg
Section 1.351-3(b), and will deliver a copy of that statement to NBC
within ten days thereafter. Within ninety days after the Closing Date,
NBC will deliver to Xenon 2 all of the cost and other basis information
relating to the Contributed Assets and assumed Liabilities for federal
income tax purposes reasonably required for Xenon 2 to prepare the
statement required by Treas. Reg. Section 1.351-3(b)(2). Such information
will be delivered in the form normally maintained by NBC and will include
reasonably complete data relating to the tax basis, year of acquisition,
depreciable life, and amount and method of depreciation of tangible and
intangible property. NBC and Xenon 2 also will maintain such records as
are required by Treas. Reg. Section 1.351-3(c).
(iii) Without limiting the generality of SECTION 6.11(D)(I), (A)
Xenon 2 and NBC Multimedia will comply with the record-keeping and
information filing requirements of Section 1.368-3 of the Treasury
Regulations with respect to the Merger, and (B) Xenon 2 will file with
its federal income tax return for the taxable year in which the Agreement
is consummated (which tax return shall be timely filed) the information
required by Treasury Regulations Section 1.351-3(b) and maintain such
records as are required by Treasury Regulations Section 1.351-3(c) with
respect to the Merger.
(iv) Additional asset basis arising from gain recognized by NBC
Multimedia on the transfers set forth in SECTIONS 2.2 and 2.3 of this
Agreement shall be allocated and reported for all tax purposes by Xenon 2
consistent with and based on an allocation schedule to be provided to
Xenon 2 by NBC.
6.12 TAX BENEFIT PAYMENTS.
(a) If a Final Determination is made contrary to any of the positions
described in 6.11(b)(i), (ii), or (iii), then (in addition to any other
remedies which may be available to NBC but without duplication thereof)
Xenon 2 will pay to NBC for each Post-Closing Tax Period an amount equal to
the excess of (A) the liability for federal, state and local Taxes to which
Xenon 2, Xoom or any other Affiliates or any successor to their assets or
businesses (collectively, the "Taxpayer") would have been subject for all
Post-Closing Tax Periods in each relevant jurisdiction had the positions
described in SECTION 6.11(B)(I), SECTION 6.11(B)(II) and SECTION
6.11(B)(III) been sustained (and had Xenon 2 not been required to make any
payments pursuant to this Section 6.12), over (B) the Taxpayer's actual
liability for such Taxes for such periods. Such payment will be due (subject
to a ten business-day grace period) when, as, and to the extent the Taxpayer
derives an actual benefit (in the form of any refund, reduction in Tax
liability, or otherwise) as the result of such excess. If any payment
required under this SECTION 6.12(A) for any Post-Closing Tax Period is not
made on or before the due date (without extensions) of the return of such
period, then such payment will be made together with interest at the rate
per annum determined from time to time under
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Section 6621(a)(2) of the Code compounded daily for the period from such due
date to the date on which the payment is actually made.
(b) In addition, Xenon 2 will pay to NBC, no later than ten business
days after each date on which the Taxpayer receives a refund of federal,
state or local Taxes for a Pre-Closing Tax Period, the excess of such
refunds over such refunds to which the Taxpayer would have been entitled had
the positions described in SECTION 6.11(B)been sustained (and had Xenon 2
not been required to make any payments under this SECTION 6.12). If any
payment required under this SECTION 6.12(B) is not made on or before the
date such payment is due, then such payment will be made together with
interest at the rate per annum determined from time to time under Section
6621(a)(2) of the Code compounded daily for the period from the date such
payment was due to the date on which such payment is actually made.
(c) In the event of any adjustment to the Taxpayer's liability for
federal, state or local Taxes or entitlement to a refund, as a result of
audit, carryover, or otherwise, the amounts previously payable under this
SECTION 6.12 will be appropriately adjusted and Xenon 2 or NBC, as the case
may be, will pay to the other the amount, required as a result of such
adjustment, together with interest at the rate per annum determined from
time to time under Section 6621(a)(2) of the Code compounded daily for the
period from the original payment date affected by the adjustment to the date
on which the payment is made. At the time of any payment under this SECTION
6.12 (or at the request of NBC if Xenon 2 has determined that no payment is
due), Xenon 2 will submit a schedule showing in reasonable detail its
calculation of the payment to be made (or the basis for its determination
that no payment is due). Any dispute concerning the calculation of payments
due under this SECTION 6.12 will be resolved by the Independent Accountants.
(d) Any payment to NBC under this SECTION 6.12 will be allocated between
principal and interest for purposes of Section 483, Section 1273, and any
other relevant provision of the Code by using as a discount rate the rate
per annum determined from time to time under Section 6621(a)(2) of the Code
compounded daily for the period from the date of Closing to the date on
which the payment is made. The portion of any such payment created as
principal will be treated as additional exchange consideration. Any payment
to Xenon 2 under this SECTION 6.12 (other than interest) will be treated as
a reduction of the exchange consideration.
(e) NBC will pay (i) any fees or other amounts due to the Independent
Accountants in respect of the resolution of any dispute pursuant to SECTION
6.12(C), and (ii) all reasonable costs (including the reasonable internal
costs of Xenon 2 or any Affiliate or successor thereto) incurred by Xenon 2
(or by such Affiliate or successor) to comply with the provisions of this
SECTION 6.12.
6.13 XOOM CASH. As long as the Effective Time occurs on or prior to
September 30, 1999, Xoom covenants and agrees immediately prior to the Effective
Time that it will have cash, net of outstanding indebtedness of Xoom, in an
amount at least equal to the sum of $230 million less any cash used in
connection with acquisitions made in accordance with the terms of SECTION 5.1;
PROVIDED that if the Effective Time occurs after that date, the foregoing amount
shall also be less $7.5 million for each month after September 30, 1999 and
prior to the Effective Time.
6.14 TRANSITION SERVICES. Promptly after May 9, 1999, NBC, Xoom and Xenon
2 shall use their good faith efforts to negotiate a transition services
agreement pursuant to which NBC shall provide certain administrative and support
services and facilities relating to the NBC Multimedia Businesses to Xenon 2 for
a transition period after the Effective Time on terms mutually acceptable to the
parties.
6.15 CONVERSION OF NBC'S CLASS A COMMON STOCK. On the Closing Date, any
Class A Common Stock purchased pursuant to the Stock Purchase Agreement, dated
as of June 11, 1999, between Xoom and NBC held by NBC or its Affiliates will be
automatically converted into Class B Common Stock pursuant to the certificate of
incorporation attached hereto as Exhibit 3.5. As soon as reasonably
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practicable after the Effective Time, NBC or its Affiliates, as the case may be,
shall deliver any certificates representing such Class A Common Stock to Xenon 2
and NBC or its Affiliates, as the case may be, shall be entitled to receive in
exchange a certificate representing the same number of shares of Class B Common
Stock, which certificate shall, until such time as the same is no longer
required hereunder or under the applicable requirements of the Securities Act or
applicable state securities laws, bear the legend set forth in Section 3.8(d).
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ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to this Agreement to consummate this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction or waiver
by the appropriate party of each of the following conditions on or prior to the
Closing Date:
(a) NO INJUNCTIONS OR RESTRAINTS. At the Closing Date, there shall be
(i) no injunction, restraining order or other decree of any nature of any
court of competent jurisdiction or other Governmental Authority that is in
effect that restrains or prohibits the consummation of any of the
transactions contemplated hereby, and (ii) no action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the transactions contemplated hereby, which makes the consummation of this
Agreement and the transactions herein illegal; PROVIDED, HOWEVER, that the
parties hereto shall use their reasonable commercial efforts to have such
injunction, order, decree, claim, action, suit, statute, rule or regulation
vacated or declared inapplicable as expeditiously as practicable.
(b) REGULATORY AUTHORIZATIONS. All orders, consents and approvals of
any Governmental Authorities legally required for the consummation of the
transactions contemplated by this Agreement, including the Required
Consents, shall have been obtained, and all waiting periods applicable under
the HSR Act and other applicable antitrust, merger control or competition
laws or regulations shall have expired or been terminated, except those for
which failure to obtain such consents and approvals would not, individually
and in the aggregate, have a Material Adverse Effect.
(c) STOCKHOLDER APPROVALS. The Stockholder Approvals shall have been
obtained.
(d) XENON 2 MERGER AGREEMENT. The transactions contemplated by the
Xenon 2 Merger Agreement to occur at the closing thereunder shall have been
consummated as set forth therein.
7.2 CONDITIONS PRECEDENT TO OBLIGATION OF NBC. The obligation of NBC to
consummate this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction of each of the following conditions, or by the
waiver of such condition by NBC, on or prior to the Closing Date:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES OF XOOM AND XENON
2. The representations and warranties of Xoom contained in this Agreement
shall be true and correct in all material respects, in each case on and as
of May 9, 1999 and on and as of the Closing Date as though made on and as of
such time, except to the extent such representations and warranties by their
terms speak as of a specified date, in which case they shall be true and
correct in all material respects as of such date; and NBC shall have
received from Xoom a certificate to such effect dated as of the Closing Date
signed by an officer thereof.
(b) COVENANTS OF XOOM. Xoom shall have complied in all material
respects with all covenants contained in this Agreement to be performed by
it on or prior to the Closing; and NBC shall have received from Xoom a
certificate to such effect dated as of the Closing Date signed by an officer
thereof.
(c) IMPLEMENTING AND OTHER AGREEMENTS. Each of CNET, Xenon 2 and Xoom
shall have entered into, or shall have caused their respective Subsidiaries
to have entered into, each of the Implementing Agreements to which such
Person is a party.
(d) DIRECTORS AND OFFICERS OF XENON 2. The officers and directors of
Xenon 2 shall, as of the Effective Time, consist of the Persons set forth on
SCHEDULE 3.7, who shall have been elected or appointed in accordance with
SECTION 6.6 hereof.
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7.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF XENON 2. The obligation of
Xenon 2 to consummate this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction of each of the following conditions, or the
waiver of such condition by NBC, on or prior to the Closing Date:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES OF NBC. The
representations and warranties of NBC contained in this Agreement shall be
true and correct in all material respects, in each case on and as of May 9,
1999 and on and as of the Closing Date as though made on and as of such
time, except to the extent such representations and warranties by their
terms speak as of a specified date, in which case they shall be true and
correct in all material respects as of such date; and Xenon 2 shall have
received from NBC a certificate to such effect with respect to such party
dated as of the Closing Date signed by an officer thereof.
(b) COVENANTS OF NBC. NBC and its Subsidiaries shall have complied in
all material respects with all covenants contained in this Agreement to be
performed on or prior to the Closing; and Xenon 2 shall have received from
NBC a certificate to such effect dated as of the Closing Date signed by an
officer thereof.
(c) IMPLEMENTING AND OTHER AGREEMENTS. NBC shall have entered into, or
shall have caused its Subsidiaries to have entered into, each of the
Implementing Agreements to which such Person is a party.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION BY XENON 2. From and after the Closing, Xenon 2 shall
indemnify and hold harmless NBC and its Affiliates and each of its directors,
officers, employees, agents, heirs, executors, successors and assigns from and
against any and all Losses and Expenses suffered or incurred by any such
indemnified Person arising from, relating to or otherwise in respect of any
breach of the covenant of Xoom contained in SECTION 6.13 of this Agreement.
8.2 INDEMNIFICATION BY NBC. From and after the Closing Date, NBC shall
indemnify and hold harmless Xenon 2 and its Affiliates and each of the
foregoing's respective directors, officers, employees and agents, heirs,
executors, successors and assigns of any of the foregoing from and against any
and all Losses and Expenses suffered or incurred by any such indemnified Person
arising from, relating to or otherwise in respect of any breach of the
representations and warranties set forth in SECTION 4.1(C)(III) and SECTION
4.1(V) of this Agreement.
8.3 CLAIMS PROCEDURE. (a) If a claim by a third party is made against an
indemnified Person hereunder, and if such indemnified Person intends to seek
indemnity with respect thereto under this Article, such indemnified Person shall
promptly notify the indemnifying Person in writing of such claims setting forth
such claims in reasonable detail (the CLAIM NOTICE), provided that failure of
such indemnified Person to give prompt notice as provided herein shall not
relieve the indemnifying Person of any of its obligations hereunder, except to
the extent that the indemnifying Person is materially prejudiced by such
failure. The indemnifying Person shall have twenty (20) days after receipt of
such notice (the NOTICE PERIOD) to undertake, through counsel of its own
choosing, subject to the reasonable approval of such indemnified Person, and at
its own expense, the settlement or defense thereof, and the indemnified Person
shall cooperate with it in connection therewith; PROVIDED, HOWEVER, that the
indemnified Person may participate in such settlement or defense through counsel
chosen by such indemnified Person, PROVIDED that the fees and expenses of such
counsel shall be borne by such indemnified Person. If the indemnifying Person
shall assume the defense of a claim, it shall not settle such claim without the
prior written consent of the indemnified Person, unless (i) such settlement
includes as an unconditional term thereof the giving by the claimant of a
release of the indemnified Person from all Liability with respect to such claim
or (ii) such settlement does not involve the
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imposition of equitable remedies or the imposition of any material obligations
on such indemnified Person other than financial obligations for which such
indemnified party will be indemnified hereunder. If the indemnifying Person
shall assume the defense of a claim, the fees of any separate counsel retained
by the indemnified Person shall be borne by such indemnified Person unless there
exists a material conflict between them as to their respective legal defenses
(other than one that is of a monetary nature), in which case the indemnified
Person shall be entitled to retain one law firm (plus any necessary local
counsel) as its separate counsel, the reasonable fees and expenses of which
shall be reimbursed by the indemnifying Person. If the indemnifying Person does
not notify the indemnified Person within twenty (20) days after the receipt of
the indemnified Person's notice of a claim of indemnity hereunder that it elects
to undertake the defense thereof, the indemnified Person shall have the right to
contest, settle or compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement.
(b) OTHER CLAIMS. In the event the indemnified party should have a
claim against the indemnifying party hereunder which does not involve a
claim or demand being asserted against or sought to be collected from it by
a third party, the indemnified party shall promptly send a Claim Notice with
respect to such claim to the indemnifying party. If the indemnifying party
does not notify the indemnified party within the Notice Period that they
dispute such claim, the amount of such claim shall be conclusively deemed a
liability of the indemnifying party hereunder.
8.4 EXCLUSIVE REMEDY. From and after the Closing, the indemnification
obligations under this ARTICLE VIII and the obligations of NBC in SECTION 9.2
constitute the sole and exclusive remedy of each party for any breach of, or
inaccuracy in, any representation or warranty of another party contained in this
Agreement or in any certificate delivered pursuant hereto or any breach of any
covenant in this Agreement in each case to the extent they survive the Closing.
ARTICLE IX
TERMINATION
9.1 TERMINATION EVENTS. Without prejudice to other remedies which may be
available to the parties by law or this Agreement, this Agreement may be
terminated and the transactions contemplated herein may be abandoned at any time
prior to the Effective Time:
(a) by mutual written consent of NBC and Xenon 2;
(b) by either NBC or Xenon 2 by written notice to the other parties if
the transactions contemplated by this Agreement have not been consummated by
December 31, 1999, unless extended by written agreement of the parties
hereto, PROVIDED that the party terminating this Agreement shall not be in
material default or breach hereunder and PROVIDED, FURTHER, that the right
to terminate this Agreement under this clause (b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure to consummate the
transactions contemplated by this Agreement on or before such date;
(c) by either NBC or Xenon 2 if (i) any Governmental Authority, the
consent or approval of which is required for the consummation of the
transactions contemplated hereby, shall have determined not to grant its
consent or approval and all appeals of such determination shall have been
taken and have been unsuccessful or (ii) any court of competent jurisdiction
in the United States shall have issued a final and unappealable permanent
injunction, order, judgment or other decree (other than a temporary
restraining order) restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby, PROVIDED that the
party seeking to terminate this Agreement under this clause (c) is not then
in material breach of this Agreement and PROVIDED, FURTHER, that the right
to terminate this Agreement under this clause (c) shall not be
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available to any party who shall not have used reasonable commercial efforts
to avoid the issuance of such order, decree or ruling;
(d) by either NBC or Xenon 2 if upon a vote at a duly held Xoom
Stockholders Meeting or any adjournment thereof, the Xoom Stockholder
Approval shall not have been obtained or by NBC if upon a vote at a duly
held Xenon 2 Stockholders Meeting or any adjournment thereof, the Xenon 2
Stockholder Approval shall not have been obtained;
(e) by NBC if the Board of Directors of Xoom or Xenon 2 or any committee
thereof shall have withdrawn or modified in a manner adverse to NBC its
approval or recommendation of this Agreement, the Xenon 2 Merger Agreement
or any of the transactions contemplated hereby or thereby;
(f) by NBC if the Board of Directors of Xoom shall have accepted or
recommended a Takeover Proposal or shall have resolved to do so;
(g) by Xoom or Xenon 2, prior to the receipt of the Xoom Stockholder
Approval, on five business days written notice, if, Xoom receives, without
violating its obligations under SECTION 5.5 hereof, a bona fide Takeover
Proposal from a third party on terms which the Board of Directors of Xoom
(i) determines in good faith and after consultation with a financial advisor
of nationally recognized reputation to be more favorable to the Xoom
stockholders than the transactions contemplated by this Agreement and (ii)
concludes in good faith based on the advice of outside legal counsel that
termination of this Agreement is required to comply with its fiduciary
duties under applicable law; or
(h) by either NBC or Xenon 2 in the event there has been a material
default or breach by (x) NBC, where Xenon 2 is terminating this Agreement,
or (y) Xoom or Xenon 2, where NBC is terminating this Agreement, in each
case which default or breach is not curable, or if curable, is not cured
within 30 days after written notice of such breach is given by the
non-breaching party.
(i) automatically and without any action by the parties upon the
termination of the Xenon 2 Merger Agreement.
9.2 EFFECT OF TERMINATION. In the event of any termination of the
Agreement as provided in SECTION 9.1 hereto, this Agreement shall forthwith
become wholly void and of no further force and effect (except SECTION 5.6,
SECTION 6.3, SECTION 9.2 and ARTICLE X hereof) and there shall be no liability
on the part of any parties hereto or their respective officers or directors,
except as provided in such sections and article. Notwithstanding the foregoing,
no party hereto shall be relieved from liability for any willful breach of this
Agreement; PROVIDED, HOWEVER, that if NBC wilfully fails to close the
transactions contemplated by this Agreement after all of the conditions to
closing set forth in SECTION 7.1 and SECTION 7.2 have been satisfied, within 2
business days of the termination of this Agreement by Xenon 2, NBC shall pay to
Xenon 2 $475 million, which amount shall constitute the sole and exclusive
remedy of Xoom and Xenon 2 for such breach by NBC.
ARTICLE X
MISCELLANEOUS AGREEMENTS OF THE PARTIES
10.1 NOTICES. Any notice in connection with this Agreement shall be in
writing and shall be delivered by air courier or by facsimile at the addresses
or facsimile numbers given below. If notice is given by: (a) air courier, notice
shall be deemed given when recorded on the records of the air courier as
received by the receiving party; or (b) facsimile, notice shall be deemed given
upon transmission, if on a business day and during business hours in the country
of receipt; otherwise, notice shall be deemed to have been given at 9:00 A.M. on
the next Business Day in the country of receipt.
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If to NBC, NMC or GE Investments Sub:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10012
Attn.: Tom Rogers
Facsimile: (212) 664-3914
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn.: Richard Capelouto
Facsimile: (212) 455-2502
If to Xoom or Xenon 2:
Xenon 2, Inc.
300 Montgomery Street
Suite 300
San Francisco, California 94104
Attn.: Chris Kitze
Facsimile: (415) 288-2580
with a copy to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Attn.: Bruce Alan Mann
Facsimile: (415) 268-7522
with a copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attn.: Allen L. Weingarten
Facsimile: (212) 468-7900
or to such other address as any such party shall designate by written notice to
the other parties hereto.
10.2 INTEGRATION; AMENDMENTS. This Agreement (including the Schedules and
Exhibits hereto) contains the entire agreement and understanding of the parties
with regard to the matters contained herein and supercedes any prior written or
oral agreement with respect to the subject matter hereto. This Agreement may not
be amended or modified except in a writing signed by all parties hereto.
10.3. WAIVER. No waiver by any of the parties hereto of any of the
provisions hereof shall be effective unless explicitly set forth in writing and
executed by the party so waiving. Except as provided in the preceding sentence,
no action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants, or agreements contained herein, and in any documents
delivered or to be delivered pursuant to this Agreement and in connection with
the Closing hereunder. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
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10.4. NO ASSIGNMENT; SUCCESSORS AND ASSIGNS. The parties' respective
rights and obligations hereunder may not be assigned, transferred, pledged, or
encumbered, in any manner, direct or indirect, contingent or otherwise, in whole
or in part, voluntarily or by operation of law, without the prior written
consent of the other parties, PROVIDED that NBC may assign, in whole or in part,
any of its rights and obligations hereunder and under the Implementing
Agreements to one or more of its Affiliates without the consent of the other
parties hereto, but NBC will remain liable for its obligations hereunder and
under each of the Implementing Agreements to which it is a party. Subject to the
preceding sentence, this Agreement shall be binding on the parties hereto and
their respective successors and permitted assigns.
10.5. EXPENSES. Except as set forth in this Agreement, if the transactions
contemplated by this Agreement are consummated, all legal and other costs and
expenses (including fees and expenses of any financial advisors, accountants or
other professional advisors) incurred by Xoom, SNAP or NBC in connection with
this Agreement and the transactions contemplated hereby shall be paid or
reimbursed by Xenon 2. If the transactions contemplated by this Agreement are
not consummated, all legal and other costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs.
10.6. SEVERABILITY. If any provision of this Agreement shall be declared
by any court of competent jurisdiction to be illegal, void or unenforceable, all
other provisions of this Agreement shall not be affected and shall remain in
full force and effect, and the parties hereto shall negotiate in good faith to
replace such illegal, void or unenforceable provision with a provision that
corresponds as closely as possible to the intentions of the parties as expressed
by such illegal, void or unenforceable provision.
10.7 SECTION HEADINGS; TABLE OF CONTENTS. The section headings contained
in this Agreement and the table of contents to this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
10.8. THIRD PARTIES. This Agreement does not create any rights, claims or
benefits inuring to any person that is not a party hereto nor create or
establish any third party beneficiary hereto, except as set forth in SECTION
6.6(D).
10.9 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED WITHIN SUCH STATE (EXCEPT TO THE
EXTENT THAT THE DGCL APPLIES TO THE MERGER), AND EACH PARTY HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF ANY STATE OR U.S. FEDERAL COURT SITTING WITHIN THE
COUNTY OF NEW YORK. EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE
STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK,
AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
10.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in
addition to any other remedy to which they are entitled at law or in equity.
10.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
10.12 AMENDMENT AND RESTATEMENT. (a) This Agreement amends certain
provisions of the Existing Merger Agreement and restates the terms of the
Existing Merger Agreement in their entirety
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so as to reflect and give effect to such amendments. Except as provided in
SECTION 10.12(B), all amendments to the Existing Merger Agreement effected by
this Agreement, and all other covenants, agreements, terms and provisions of
this Agreement, shall have effect from the date of the Existing Merger
Agreement.
(b) Each of the representations and warranties made in SECTIONS 4.1, 4.2
and 4.3 shall be deemed (i) to be made on the date of the Existing Merger
Agreement (other than the representations and warranties in respect of this
Agreement that are contained in SECTIONS 4.1(B) and 4.3(B) which are made as
of the date hereof) and as of the Closing Date and (ii) not made on the date
hereof (except as set forth in the parenthetical in clause (i) of this
SECTION 10.12(B)).
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ THOMAS A. ROGERS
Name: Thomas A. Rogers
Title: EXECUTIVE VICE PRESIDENT
GE INVESTMENTS SUBSIDIARY, INC.
By: /s/ J.R. BUNT
Name: J.R. Bunt
Title: PRESIDENT
NEON MEDIA CORPORATION
By: /s/ THOMAS A. ROGERS
Name:Thomas A. Rogers
Title:
XENON 2, INC.
By: /s/ CHRIS KITZE
Name:Chris Kitze
Title:CHAIRMAN
XOOM.COM, INC.
By: /s/ CHRIS KITZE
Name: Chris Kitze
Title: CHAIRMAN
A-2-55
<PAGE>
APPENDIX B-1
STOCK OPTION AGREEMENT
BETWEEN
XOOM.COM, INC.
AND
NATIONAL BROADCASTING COMPANY, INC.
<PAGE>
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT (this "Agreement"), dated as of May 9, 1999, between
Xoom.com, Inc., a Delaware corporation ("ISSUER"), and National Broadcasting
Company, Inc., a Delaware corporation ("GRANTEE").
W I T N E S S E T H:
WHEREAS, Issuer, Xenon 2, Inc., a Delaware corporation ("XENON 2"), Xenon 3,
Inc., a Delaware corporation ("XENON 3"), Snap! LLC, a Delaware limited
liability company, and CNET, Inc., a Delaware corporation ("CNET"), are parties
to an Agreement and Plan of Contribution and Merger, dated as of the date hereof
(the "XENON 2 MERGER AGREEMENT"), pursuant to which, among other things, the
parties thereto have agreed that (i) Xenon 3 will merge with and into Issuer,
with Issuer as the surviving corporation, and each outstanding share of common
stock, par value $0.0001 per share, of Issuer (the "COMMON STOCK") will be
converted into one share of Class A common stock, par value $0.0001 per share,
of Xenon 2 (the "XENON 2 COMMON STOCK") and (ii) CNET will contribute certain of
its assets to Xenon 2 in exchange for shares of Class A Common Stock;
WHEREAS, Issuer, Xenon 2, Grantee, Neon Media Corporation, a Delaware
corporation ("NMC") and GE Investments Subsidiary, Inc., a Delaware corporation
("GE INVESTMENTS SUB") are parties to an Agreement and Plan of Contribution,
Investment and Merger dated as of the date hereof, (the "NMC MERGER AGREEMENT"
and together with the Xenon 2 Merger Agreement, the "MERGER AGREEMENTS")
pursuant to which, among other things, the parties thereto have agreed that (i)
Grantee will contribute or cause its subsidiaries to contribute to NMC certain
assets, (ii) NMC will merge with and into Xenon 2, with Xenon 2 as the surviving
corporation, and the stockholder of NMC will receive shares of Class B Common
Stock (iii) Grantee will contribute certain assets to Xenon 2 in exchange for
shares of Class B Common Stock and (iv) GE Investments Sub will purchase a
convertible note from Xenon 2 in exchange for a combination of cash and the
assignment from GE Investments Sub to Xenon 2 of a note issued by Grantee;
WHEREAS, as a condition to Grantee's entering into the NMC Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
defined below); and
WHEREAS, the Board of Directors of Issuer has determined that the grant of
the Option is advisable and in the best interests of Issuer and its stockholders
and has approved the grant of the Option as described herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the NMC Merger Agreement and intending to
be legally bound, the parties hereto agree as follows:
1. THE OPTION. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "OPTION") to purchase, subject to the terms hereof, up
to 3,415,249 fully paid and nonassessable shares of Issuer's common stock, par
value $0.0001 per share (the "COMMON STOCK"), at a price of $73.50 per share
(such price, as adjusted if applicable, the "OPTION PRICE"); PROVIDED that in no
event shall the number of shares of Common Stock for which this Option is
exercisable exceed 19.9% of the issued and outstanding shares of Common Stock at
the time of exercise without giving effect to any shares subject or issued
pursuant to the Option. The number of shares of Common Stock that may be
received upon the exercise of the Option and the Option Price are subject to
adjustment as herein set forth.
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<PAGE>
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (except for shares
issued pursuant to this Agreement), the number of shares of Common Stock subject
to the Option shall be increased so that, after such issuance, such number
equals 19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer to breach any provision of the Merger Agreements.
2. EXERCISE; TRANSFER OF SHARES; CLOSING. (a) Grantee and/or any person
that shall become a holder of all or part of the Option in accordance with the
terms of this Agreement (each such person being referred to herein as the
"Holder") may exercise the Option, in whole or part, and from time to time, but
only following an Initial Triggering Event (as defined below) that occurs prior
to the occurrence of an Exercise Termination Event (as defined below).
(b) Each of the following shall be an "EXERCISE TERMINATION EVENT":
(i) the Effective Time (as defined in the NMC Merger Agreement);
(ii) termination of the NMC Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event, except a termination by Grantee pursuant to
Section 9.1(h) of the NMC Merger Agreement; and
(iii) the passage of 12 months after termination of the NMC Merger
Agreement (or such later period as provided in Section 10) if such
termination (A) follows or is concurrent with the occurrence of an Initial
Triggering Event or (B) is a termination by Grantee pursuant to Section
9.1(h) of the NMC Merger Agreement.
(c) The term "INITIAL TRIGGERING EVENT" shall mean any of the following
events or transactions (other than the transactions contemplated by Articles II
and III of the Xenon 2 Merger Agreement) occurring after the date hereof:
(i) Issuer, without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition Transaction
(as defined below) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the rules and regulations thereunder) other than Grantee or any
of its subsidiaries or affiliates (each a "Grantee Party") or the Board of
Directors of Issuer shall have recommended that the stockholders of Issuer
approve or accept any Acquisition Transaction (other than the transactions
referred to in the NMC Merger Agreement). For purposes of this Agreement,
"Acquisition Transaction" shall mean any (x) direct or indirect acquisition
or purchase of 20% or more of the assets (based on the fair market value
thereof) of Issuer and its subsidiaries, taken as a whole, or of 20% or more
of any class of equity securities of Issuer or any of its subsidiaries or
any tender offer or exchange offer (including by Issuer or its subsidiaries)
that if consummated would result in any person having beneficial ownership
(the term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act, and the rules
and regulations thereunder) of 20% or more of any class of equity securities
of Issuer or any of its subsidiaries, or (y) any merger, consolidation,
business combination, sale of all or substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving
Issuer or any of its subsidiaries; PROVIDED, HOWEVER, that in no event shall
any merger, consolidation, sale or similar transaction involving only the
Issuer and one or more of its wholly-owned subsidiaries or involving only
any two or more of such wholly-owned subsidiaries, be deemed to be an
Acquisition Transaction if such transaction is not entered into in violation
of the terms of the NMC Merger Agreement;
B-1-2
<PAGE>
(ii) Issuer, without having received Grantee's prior written consent,
shall have authorized, recommended, proposed or publicly announced its
intention to authorize, recommend or propose, to engage in an Acquisition
Transaction with any person other than Grantee or a Grantee Party, or the
Board of Directors of Issuer shall have failed to recommend or shall have
publicly withdrawn or modified, or publicly announced its intention to
withdraw or modify, in any manner adverse to Grantee, its recommendation
that the stockholders of Issuer adopt the Xenon 2 Merger Agreement in
anticipation of engaging in an Acquisition Transaction;
(iii) The stockholders of Issuer shall have voted and failed to adopt the
Xenon 2 Agreement, or shall have voted and failed to instruct Issuer, as
sole stockholder of Xenon 2, to vote to adopt the NMC Merger Agreement, at a
meeting which has been held for that purpose or at any adjournment or
postponement thereof, or such meeting shall not have been held in violation
of the NMC Merger Agreement or shall have been canceled prior to termination
of the NMC Merger Agreement if, prior to such meeting (or if such meeting
shall not have been held or shall have been canceled, prior to such
termination), any person (other than the Grantee or a Grantee Party) shall
have made a bona fide proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(iv) (a) Any person other than Grantee, any Grantee Party or any Issuer
subsidiary acting in a fiduciary capacity in the ordinary course of its
business shall have acquired beneficial ownership or the right to acquire
beneficial ownership of, or shall have commenced (as such term is defined in
Rule 14d-2 under the Exchange Act) or filed a registration statement with
respect to a tender offer or exchange offer to purchase any shares of Common
Stock such that upon consummation of such offer such person would acquire
beneficial ownership of, 20% or more of the then outstanding shares of
Common Stock or (b) any group (the term "group" having the meaning assigned
in Section 13(d)(3) of the Exchange Act), other than a group of which the
Grantee or any Grantee Party is a member, shall have been formed that
beneficially owns 20% or more of the shares of Common Stock then
outstanding; or
(v) After a third party shall have made a bona fide proposal to Issuer
or its stockholders by public announcement or written communication that is
or becomes the subject of public disclosure to engage in an Acquisition
Transaction, Issuer shall have terminated the NMC Merger Agreement pursuant
to Section 9.1(g) thereof or shall have breached any covenant or obligation
contained in the Merger Agreements and such breach (x) would entitle a party
other than Issuer to terminate such Merger Agreement and (y) shall not have
been cured prior to the Notice Date (as defined below).
(d) The term "SUBSEQUENT TRIGGERING EVENT" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person or by a group of beneficial ownership
of 50% or more of the then outstanding Common Stock; or
(ii) The Issuer, without having received Grantee's prior written
consent, shall have entered into an agreement relating to a Takeover
Proposal (as defined in the NMC Merger Agreement) with any person other than
Grantee or any Grantee Party or the Board of Directors of Issuer shall have
accepted or approved or recommended that the stockholders of Issuer accept
or approve a Takeover Proposal or shall have resolved to do any of the
foregoing.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event of which it has notice
(any such event, a "TRIGGERING EVENT"), it being understood that the giving of
such notice by Issuer shall not be a condition to the right of the Holder to
exercise the Option.
B-1-3
<PAGE>
(f) In the event the Holder is entitled to and wishes to exercise the option
(or any portion thereof), it shall send to Issuer a written notice (the date of
which being herein referred to as the "NOTICE DATE") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "CLOSING DATE"); PROVIDED
that if prior notification to or approval of any regulatory agency is required
in connection with such purchase, the Holder shall promptly file the required
notice or application for approval and shall expeditiously process the same and
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained and any requisite waiting
period or periods shall have passed. Any exercise of the option shall be deemed
to occur on the Notice Date relating thereto.
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer; PROVIDED that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(h) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (g) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares of Common Stock purchasable hereunder, and
the Holder shall deliver to Issuer a copy of this Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Agreement.
(i) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy of
such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt
by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 ACT"), in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the Holder shall have delivered to Issuer a copy of a letter
from the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the 1933 Act; (ii) the reference to the provisions of
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares of Common Stock delivered
pursuant hereto have been sold or transferred in compliance with the provisions
of this Agreement under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder.
B-1-4
<PAGE>
3. COVENANTS OF ISSUER. In addition to its other agreements and covenants
herein, Issuer agrees: (i) that it shall at all times maintain, free from
subscriptive or preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by an amendment to its certificate of
incorporation or by-laws or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer; (iii) promptly to
take all action as may from time to time be required (including complying with
all premerger notification, reporting and waiting period requirements specified
in 15 U.S.C. Section 18a and regulations promulgated thereunder) in order to
permit the Holder to exercise the Option and Issuer to duly and effectively
issue shares of Common Stock pursuant hereto; (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution; and (v)
not to enter or agree to enter into any agreement for an Acquisition Transaction
or a Takeover Proposal unless the other party or parties thereto agree to assume
in writing all of Issuer's obligations hereunder; PROVIDED that nothing in this
Section 3 or elsewhere in this Agreement shall be deemed to authorize Issuer to
breach any provision of the Merger Agreements. Notwithstanding any notice of
revocation delivered pursuant to the proviso to Section 7(c), a Holder may
require such other party or parties to perform Issuer's obligations under
Section 7(a) unless such other party or parties are prohibited by law or
regulation from such performance.
4. EXCHANGE; REPLACEMENT. This Agreement and the Option granted hereby are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for options of different denominations entitling the holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "AGREEMENT" and "OPTION" as used herein include
any Agreements and related options for which this Agreement (and the Option
granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. ADJUSTMENTS. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, reclassifications, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares, distributions on
or in respect of the Common Stock, or the like, the type and number of shares of
Common Stock purchasable upon exercise hereof and the Option Price shall be
appropriately adjusted in such manner as shall fully preserve the economic
benefits provided hereunder and proper provision shall be made in any agreement
governing any such transaction to provide for such proper adjustment and the
full satisfaction of the Issuer's obligations hereunder.
6. REGISTRATION. Upon the occurrence of a Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 12 months (or such later period as provided in Section 10) of
such Triggering Event (whether on its own behalf or on behalf of any subsequent
holder of this Option (or part thereof) or any of the shares of Common Stock
issued pursuant hereto), file within 60 days (which period may be tolled by up
to 60 consecutive days if the
B-1-5
<PAGE>
Issuer, in its good faith reasonable judgment after having consulted with
outside counsel, determines that such registration would be materially adverse
to the Issuer) and keep current a shelf registration statement under the 1933
Act covering this Option and any shares issued and issuable pursuant to this
Option and shall use its reasonable best efforts to cause such registration
statement to become effective and remain current in order to permit the sale or
other disposition of this option and any shares of Common Stock issued upon
total or partial exercise of this Option ("OPTION SHARES") in accordance with
any plan of disposition requested by Grantee. Issuer will use its reasonable
best efforts to cause such registration statement promptly to become effective
and then to remain effective for a period not in excess of 180 days from the day
such registration statement first becomes effective or such shorter time as may
be reasonably necessary, in the judgment of the Grantee or the Holder, to effect
such sales or other dispositions. Grantee shall have the right to demand two
such registrations. In connection with such registrations, the Issuer shall bear
its attorneys' fees and any accounting fees, printing and mailing costs and SEC,
NASD, Nasdaq, state blue sky and other filing fees and Grantee shall bear its
discounts or commissions and brokers fees and the fees and disbursements of
Grantee's counsel related thereto. The foregoing notwithstanding, if, at the
time of any request by Grantee for registration of the Option or Option Shares
as provided above, Issuer is in registration with respect to an underwritten
public offering of shares of Common Stock, and if in the good faith judgment of
the managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
PROVIDED, HOWEVER, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and PROVIDED FURTHER, HOWEVER, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance of such shares of Common Stock issuable pursuant to this Option as
promptly as practical following such reduction and no reduction in the number of
shares of Common Stock to be sold by the Holder shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities, opinions of counsel and other agreements customarily
included in secondary offering underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from any Holder, Issuer agrees to
send a copy thereof to any other person known to Issuer to be entitled to
registration rights under this Section 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall Issuer be obligated to effect more than two registrations
pursuant to this Section 6 by reason of the fact that there shall be more than
one Holder as a result of any assignment or division of this Agreement.
7. REPURCHASE OF OPTION AND/OR OPTION SHARES. (a) At any time after the
occurrence of a Repurchase Event (as defined below), (i) following a request of
the Holder, given prior to an Exercise Termination Event (or such later period
as provided in Section 10), Issuer (or any successor thereto) shall repurchase
the Option from the Holder at a price (the "OPTION REPURCHASE PRICE") equal to
the amount by which (A) the Market/Offer Price (as defined below) exceeds (B)
the Option Price, multiplied by the number of shares for which this Option may
then be exercised and (ii) at the request of the owner of Option Shares from
time to time (the "OWNER"), delivered within 90 days of such occurrence (or such
later period as provided in Section 10), Issuer shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"OPTION SHARE REPURCHASE PRICE") equal to the Market/Offer Price multiplied by
the number of Option Shares so designated; PROVIDED, HOWEVER, that the Option
Repurchase Price and the Option Share Repurchase Price, individually and in the
aggregate and as paid from time to time, shall be subject to the limitations on
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<PAGE>
Total Profit set forth in Section 14. The term "MARKET/OFFER PRICE" shall mean
the greatest of (i) the price per share of Common Stock at which a tender offer
or exchange offer therefor has been made, (ii) the price per share of Common
Stock to be paid by any third party pursuant to an agreement with Issuer, (iii)
the highest closing price per share of Common Stock within the six-month period
immediately preceding the date on which the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, and (iv) in the event of a sale of all or
a substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Issuer
as determined by a nationally recognized investment banking firm mutually
selected by the Holder or the Owner, as the case may be, on the one hand, and
the Issuer, on the other, divided by the number of shares of Common Stock of
Issuer outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm mutually selected by the Holder or
Owner, as the case may be, on the one hand, and the Issuer, on the other.
(b) Following a Repurchase Event, the Holder or the Owner, as the case may
be, may exercise its right to require Issuer to repurchase the Option and any
Option Shares pursuant to this Section 7 by surrendering for such purpose to
Issuer, at its principal office, a copy of this Agreement or certificates for
Option Shares, as applicable, accompanied by a written notice or notices stating
that the Holder or the Owner, as the case may be, elects to require Issuer to
repurchase this Option and/or the Option Shares, as the case may be, in
accordance with the provisions of this Section 7. Prior to the later of (x) the
date that is five business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the day on which a Repurchase Event occurs,
Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter shall
deliver or cause to be delivered, from time to time, to the Holder and/or the
Owner, as appropriate, that portion of the Option Repurchase Price and the
Option Share Repurchase Price, respectively, that it is no longer prohibited
from delivering, in each case within five business days after the date on which
Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if Issuer at any time
after delivery of a notice of repurchase delivered by the Holder or the Owner
pursuant to paragraph (b) of this Section 7 is prohibited under applicable law
or regulation from delivering to the Holder and/or the Owner, as the case may
be, the Option Repurchase Price or the Option Share Repurchase Price,
respectively, in full, (and Issuer hereby undertakes to use its best efforts to
obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase), the
Holder or Owner may revoke its notice of repurchase of the Option or the Option
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to the Holder and/or the Owner,
as appropriate, that portion of the Option Repurchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the portion thereof theretofore delivered to the Holder
and the denominator of which is the Option Repurchase Price, or (B) to the
Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall mean and shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving
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<PAGE>
Issuer or any purchase, lease or other acquisition of all or a substantial
portion of the assets of Issuer, other than any such transaction which would not
constitute an Acquisition Transaction pursuant to the proviso to Section 2(c)(i)
hereof or (ii) upon the acquisition by any person of beneficial ownership of
more than 50% of the then outstanding shares of Common Stock; PROVIDED that no
such event shall constitute a Repurchase Event unless a Subsequent Triggering
Event shall have occurred prior to an Exercise Termination Event. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option Shares
under this Section 7 shall not terminate upon the occurrence of an Exercise
Termination Event unless no Subsequent Triggering Event shall have occurred
prior to the occurrence of an Exercise Termination Event.
8. SUBSTITUTE OPTION. (a) In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate with
or merge into any person, other than Grantee or one of its Subsidiaries, and
shall not be the continuing or surviving corporation of such consolidation or
merger, (ii) to permit any person, other than Grantee or one of its
Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "SUBSTITUTE OPTION"), at the election of
the Holder, of either (x) the Acquiring Corporation (as defined below) or (y)
any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "ACQUIRING CORPORATION" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than Issuer),
(ii) Issuer in a merger in which Issuer is the continuing, surviving or
acquiring person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "SUBSTITUTE COMMON STOCK" shall mean the common stock (or similar
equity interest) issued by the issuer of the Substitute Option upon exercise
of the Substitute Option.
(3) "ASSIGNED VALUE" shall mean the Market/Offer Price, as defined in
Section 7.
(4) "AVERAGE PRICE" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation merger or sale in question but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; PROVIDED that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by the person merging into Issuer or by any
company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option; PROVIDED
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible to the terms of
the Option and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder or
Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for
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which the Option is then exercisable, divided by the Average Price. The exercise
price of the Substitute Option per share of Substitute Common Stock shall then
be equal to the Option Price multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "SUBSTITUTE OPTION ISSUER")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. REPURCHASE OF SUBSTITUTE OPTION. (a) At the request of the holder of
the Substitute Option (the "SUBSTITUTE OPTION HOLDER"), the Substitute Option
Issuer shall repurchase the Substitute Option from the Substitute Option Holder
at a price (the "SUBSTITUTE OPTION REPURCHASE PRICE") equal to the sum of the
amount by which (i) the Highest Closing Price (as defined below) exceeds (ii)
the exercise price of the Substitute Option, multiplied by the number of shares
of Substitute Common Stock for which the Substitute Option may then be exercised
(after giving effect to any limitations under the provisions of Section 14
hereof), and at the request of the Owner (the "SUBSTITUTE SHARE OWNER") of
shares of Substitute Common Stock (the "SUBSTITUTE SHARES"), the Substitute
Option Issuer shall repurchase the Substitute Shares at a price (the "Substitute
Share Repurchase Price") equal to the Highest Closing Price multiplied by the
number of Substitute Shares so designated. The term "HIGHEST CLOSING PRICE"
shall mean the highest closing price for shares of Substitute Common Stock
within the six month period immediately preceding the date the Substitute Option
Holder gives notice of the required repurchase of the Substitute Option or the
Substitute Share Owner gives notice of the required repurchase or the Substitute
Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share Owner, as the case
may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option or the Substitute Shares, as the case
may be, pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal executive office, the agreement for
such Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as case may be, elects to require the Substitute Option Issuer to
repurchase the Substitute Option and/or the Substitute Shares, as the case may
be, in accordance with the provisions of this Section 9. As promptly as
practicable, and in any event within five business days after the surrender of
the Substitute Option and/or certificates representing Substitute Shares and the
receipt of such notice or notices delivered pursuant to this subsection (b) of
this Section 9 relating thereto, the Substitute Option Issuer shall deliver or
cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price or, in either case, the portion thereof which the Substitute
Option Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in fully, the
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Substitute Option Issuer, following a request for repurchase pursuant to this
Section 9, shall immediately so notify the Substitute Option Holder and/or the
Substitute Share Owner and shall thereafter deliver or cause to be delivered,
from time to time, to the Substitute Option Holder and/or the Substitute Share
Owner, as appropriate, that portion of the Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering, in each case,
within five business days after the date on which the Substitute Option Issuer
is no longer so prohibited; PROVIDED, HOWEVER, that if the Substitute Option
Issuer at any time after delivery of a notice of repurchase delivered by the
Substitute Share Owner or Substitute Option Holder pursuant to subsection (b) of
this Section 9 is prohibited under applicable law or regulation from delivering
to the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the Substitute Option Repurchase Price and the Substitute Share
Repurchase Price, respectively, in full (and the Substitute Option Issuer shall
use its best efforts to receive all required regulatory and legal approvals as
promptly as practicable in order to accomplish such repurchase), the Substitute
Option Holder or Substitute Share Owner may revoke its notice of repurchase of
the Substitute Option or the Substitute Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. EXTENSION. The period for exercise of certain rights under Sections 2,
6, 7, 9 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; (ii) during any period for which an injunction or
similar legal prohibition on exercise shall be in effect; and (iii) to the
extent necessary to avoid liability under section 16(b) of the Exchange Act by
reason of such exercise.
11. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock
at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued,
fully paid, nonassessable, and will be delivered free and clear of al
claims, liens, encumbrances and security interests and will not be subject
to any preemptive rights.
(c) The execution, delivery and performance of this Agreement does not
or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or
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<PAGE>
result in (i) a breach or violation of or a default under, its articles or
certificate of incorporation or by-laws, or the comparable governing
instruments of any of its subsidiaries, or (ii) a breach or violation of or
a default under, any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation of it or any of its subsidiaries (with or
without the giving of notice, the lapse of time or both) or under any law,
rule, ordinance or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which it or any of its
subsidiaries is subject.
(d) No "fair price", "moratorium", "control share acquisition" or other
similar anti-takeover statute or regulation enacted under state or federal
laws applicable to the Issuer or any of its Subsidiaries is applicable to
this Agreement or any of the transactions contemplated hereby. The action of
the Board of Directors of the Issuer in approving this Agreement and the
transactions contemplated hereby are sufficient to render inapplicable to
this Agreement and the transactions contemplated hereby the restrictions on
"business combinations" (as defined in Section 203 of the General
Corporation Law of the State of Delaware) set forth in the General
Corporation Law of the State of Delaware.
12. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents
and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in conformance with this
Agreement and in a transaction registered or exempt from registration under
the Securities Act.
13. ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the option created hereunder to any other
person, without the express written consent of the other party, except that
Grantee may assign in whole or in part the Option created hereunder and its
rights and obligations under this Agreement to CNET and, except that in any
event a Triggering Event shall have occurred prior to an Exercise Termination
Event, Grantee, subject to the express provisions hereof, may assign in whole or
in part its rights and obligations hereunder within 12 months following such
Triggering Event (or such later period as provided in Section 10).
14. TOTAL PROFIT (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as hereinafter defined)
exceed $56,707,803, and if it otherwise would exceed such amount, the Grantee,
at its sole election, shall either (i) reduce the number of shares of Common
Stock subject to this Option, (ii) deliver to Issuer for cancellation Option
Shares previously purchased by Grantee, (iii) pay cash to Issuer, or (iv) any
combination thereof, so that Grantee's actually realized Total Profit shall not
exceed such amount after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) of more than $56,707,803;
PROVIDED that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date.
(c) As used herein, the term "TOTAL PROFIT" shall mean the aggregate amount
(before taxes) of the following (without duplication): (i) the amount received
by Grantee pursuant to Issuer's repurchase of the Option (or any portion
thereof) pursuant to Section 7, (ii) (x) the amount received by Grantee pursuant
to Issuer's repurchase of Option Shares pursuant to Section 7, less (y) the
Grantee's purchase
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<PAGE>
price for such Option Shares, (iii) (x) the net cash amounts received by Grantee
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares are converted or exchanged) to any unaffiliated party, less (y)
the Grantee's purchase price of such Option Shares, (iv) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party, and (v) any amount equivalent to the foregoing with respect
to the Substitute Option.
(d) As used herein and subject to Section 14(a), the term "NOTIONAL TOTAL
PROFIT" with respect to any number of shares as to which Grantee may propose to
exercise this option shall be the Total Profit determined as of the date of such
proposed exercise assuming that this Option were exercised on such date for such
number of shares and assuming that such shares, together with all other Option
Shares held by Grantee and its affiliates as of such date, were sold for cash at
the closing market price for the Common Stock as of the close of business on the
preceding trading day (less customary brokerage commissions).
15. RIGHT OF FIRST REFUSAL. If, within 12 months immediately following the
first purchase of shares of Common Stock pursuant to the Option, Grantee shall
desire to sell, assign, transfer or otherwise dispose of all or any of the
Option or the shares of Common Stock or other securities acquired by it pursuant
to the Option, it shall give Issuer written notice of its intent to sell (an
"Offeror's Notice") specifying the securities to be sold, the price and the
material terms of any agreement relating thereto. An Offeror's Notice may be
given at any time. An Offeror's Notice shall be deemed an offer by Grantee to
Issuer, which may be accepted within 10 business days of the receipt by Issuer
of such Offeror's Notice, on the same terms and conditions and at the same price
at which Grantee is proposing to transfer the Option or such shares or other
securities. If Issuer (or one of its affiliates) exercises its right of first
refusal, the closing of the purchase of the Option or any such shares or other
securities by Issuer (or one of its affiliates) shall take place within 5
business days after the notice of such exercise and the purchase price shall be
paid to Grantee in immediately available funds; PROVIDED that at any time prior
to the closing of the purchase of the Option or any shares or other securities
hereunder, Grantee may determine not to sell the Option or such shares or other
securities and revoke the Offeror's Notice and, by so doing, cancel Issuer's
right of first refusal with respect thereto. If prior notification to or
approval of any regulatory authority is required in connection with such
purchase, Issuer shall promptly file the required notice or application for
approval and shall expeditiously process the same (and Grantee shall cooperate
with Issuer in the filing of any such notice or application and the obtaining of
any such approval) and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which, as the case may be, (a)
the required notification period has expired or been terminated or (b) such
approval has been obtained and, in either event, any requisite waiting period
shall have passed. In the event of a failure or refusal of Issuer to purchase
all of the Option or all of the shares or other securities covered by an
Offeror's Notice or if any regulatory authority disapproves Issuer's proposed
purchase of any portion of the Option or such shares or other securities,
Grantee may, within 60 days from the date of the Offeror's Notice (subject to
any necessary extension for regulatory notification, approval or waiting
periods), sell or enter into an agreement to sell all, but not less than all, of
such portion of the Option or such shares or other securities at no less than
the price specified in the Offeror's Notice and on terms no more favorable than
those set forth in the Offeror's Notice. The requirements of this Section 16
shall not apply to (a) any disposition under Rule 144 or any other disposition
as a result of which a transferee would beneficially own not more than 4.9% of
the outstanding voting power of Issuer, (b) any disposition of Common Stock or
other securities by a person to whom Grantee has assigned its rights under the
Option with the consent of Issuer, (c) any sale by means of a public offering
registered under the 1933 Act, (d) any transfer to a wholly-owned subsidiary of
Grantee which agrees in writing to be bound by the terms hereof or (e) any
transfer in a tender offer or exchange offer or by operation of law upon
consummation of a merger or consolidation.
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<PAGE>
16. BEST EFFORTS. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation making application
for quotation on the Nasdaq National Market (or, in the case of any Substitute
Shares, for listing or quotation on the principal exchange or quotation system
on which they trade) of the shares issuable hereunder upon official notice of
issuance.
17. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
18. SEVERABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section 1(a) hereof (as adjusted pursuant to Section
1(b) or 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
19. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the NMC Merger Agreement or such other address as shall
be provided in writing.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles thereof.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
22. EXPENSES. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
23. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreements, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
24. CAPTIONS; CAPITALIZED TERMS. The section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreements.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
XOOM.COM, INC.
By: /s/ CHRIS KITZE
-----------------------------------
Name: Chris Kitze
Title: Chairman
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ THOMAS A. ROGERS
-----------------------------------
Name: Thomas A. Rogers
Title: Executive Vice President
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<PAGE>
APPENDIX B-2
VOTING AGREEMENT
BY AND AMONG
XOOM.COM, INC.,
NATIONAL BROADCASTING COMPANY, INC.,
CNET, INC.,
CHRIS KITZE,
AND
FLYING DISC INVESTMENTS LIMITED PARTNERSHIP.
<PAGE>
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 9, 1999 (the "Agreement"), among Xoom.com,
Inc., a Delaware corporation (the "Company"), the undersigned holders (the
"Holders") of shares of the common stock, $.0001 par value (the "Company Common
Stock"), of the Company, National Broadcasting Company, Inc., a Delaware
corporation ("NBC"), and CNET, Inc., a Delaware corporation ("CNET").
WHEREAS, the Company, Xenon 2, Inc., a Delaware corporation ("Xenon 2"),
Xenon 3, Inc., a Delaware corporation ("Xenon 3"), Snap! LLC, a Delaware limited
liability company, and CNET, Inc., a Delaware corporation, are parties to an
Agreement and Plan of Contribution and Merger, dated as of the date hereof (the
"Xenon 2 Merger Agreement"), pursuant to which, among other things, the parties
thereto have agreed that (i) Xenon 3 will merge with and into the Company, with
the Company as the surviving corporation, and each outstanding share of common
stock, par value $0.0001 per share, of the Company (the "Common Stock") will be
converted into one share of Class A common stock, par value $0.0001 per share,
of Xenon 2 ("Class A Common Stock") and (ii) CNET will contribute certain of its
assets to Xenon 2 in exchange for shares of Class A Common Stock;
WHEREAS, the Company, Xenon 2, NBC, Neon Media Corporation, a Delaware
corporation ("NMC"), and GE Investments Subsidiary, Inc., a Delaware corporation
("GE Investments Sub"), are parties to an Agreement and Plan of Contribution,
Investment and Merger dated as of the date hereof (the "NMC Merger Agreement"
and together with the Xenon 2 Merger Agreement, the "Merger Agreements")
pursuant to which, among other things, the parties thereto have agreed that (i)
NBC will contribute or cause its subsidiaries to contribute to NMC certain
assets, (ii) NMC will merge with and into Xenon 2, with Xenon 2 as the surviving
corporation, and (iii) GE Investments Sub will contribute a combination of cash
and the assignment of a Note in exchange for the Xenon 2 convertible note
(capitalized terms not otherwise defined herein being used herein as defined in
the NMC Merger Agreement);
WHEREAS, as a condition to entering into the Merger Agreements, NBC and CNET
have requested the Company and each Holder to agree, and the Company and each
Holder has agreed, to enter into this Agreement;
WHEREAS, prior to the date hereof, NBC, CNET, the Company and the Holders
had no agreement, arrangement or understanding (within the meaning of Section
203 of the General Corporation Law of the State of Delaware (the "DGCL")) for
the purpose of acquiring, holding, voting or disposing of shares of Company
Common Stock; and
WHEREAS, in consideration of the agreements contained herein, prior to the
date hereof, and prior to the time at and date on which NBC and CNET became
"interested stockholders" for purposes of Section 203 of the DGCL, the board of
directors of the Company has approved this Agreement and the transactions
contemplated hereby.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to NBC and CNET as follows:
(a) POWER; BINDING AGREEMENT. The Company has full power and authority
to enter into and perform all of its obligations under this Agreement. The
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly and validly
authorized by all necessary corporate action of the Company. This Agreement
has been duly and validly executed and delivered by the Company and
constitutes a valid and binding
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<PAGE>
agreement of the Company, enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditors generally, by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law) or by an implied covenant of good faith and fair dealing.
(b) NO CONFLICTS. No filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or authority
or any other person or entity is necessary for the execution of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, other than any filing, permit,
authorization, consent or approval the failure of which to obtain would not
reasonably be expected to prevent the Company from performing its respective
obligations under this Agreement, and neither the execution and delivery of
this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby nor compliance by the Company with any of
the provisions hereof will conflict with or result in any breach of any
organizational documents or instruments applicable to the Company, result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third-party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which the Company
is a party or by which the Company's properties or assets may be bound or
violate any order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to the Company as of the date hereof, other than such
violations, breaches or defaults that would not reasonably be expected to
prevent the Company from performing its respective obligations under this
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS. Each Holder represents
and warrants, severally and not jointly, to NBC and CNET as follows:
(a) OWNERSHIP OF SECURITIES. Each Holder is the record and beneficial
owner of, and has good and marketable title to, the number of shares of
Company Common Stock (the "Existing Securities") (together with any shares
of Company Common Stock hereafter acquired by any Holder (including through
the exercise of options or similar instruments) the "Subject Securities")
set forth on Exhibit A to this Agreement, attached hereto and incorporated
herein. Such Holder does not own of record or beneficially any shares of
capital stock of the Company on the date hereof other than the Existing
Securities. Except as set forth on Exhibit A, such Holder has sole voting
power and sole power to issue instructions with respect to the voting of the
Existing Securities and sole power of disposition of the Existing
Securities. On the date of the stockholders meeting of the Company held to
vote on adoption of the Merger Agreement and on the record date for such
meeting, such Holder will have sole voting power and sole power to issue
instructions with respect to the voting of all of such Holder's Subject
Securities and sole power of disposition of such Holder's Subject
Securities.
(b) POWER; BINDING AGREEMENT. Each Holder has full power and authority
to enter into and perform all of its obligations under this Agreement. The
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly and validly
authorized by all necessary corporate action of each of the Holders. This
Agreement has been duly and validly executed and delivered by each Holder
and constitutes a valid and binding agreement of such Holder, enforceable
against such Holder in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally, by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
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<PAGE>
(c) NO CONFLICTS. No filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or authority
or any other person or entity is necessary for the execution of this
Agreement by any Holder and the consummation by such Holder of the
transactions contemplated hereby, other than pursuant to the Exchange Act,
the HSR Act or foreign competition or antitrust laws or any filing, permit,
authorization, consent or approval, the failure of which to obtain would not
reasonably be expected to prevent such Holder from performing its
obligations under this Agreement, and neither the execution and delivery of
this Agreement by such Holder nor the consummation by such Holder of the
transactions contemplated hereby nor compliance by such Holder with any of
the provisions hereof will conflict with or result in any breach of any
applicable organizational documents or instruments applicable to such
Holder, result in a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to any third-party
right of termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such Holder is a party or by which such Holder's Subject Securities
may be bound or violate any order, writ, injunction, decree, judgment,
statute, rule or regulation applicable to such Holder as of the date hereof,
other than such violations, breaches or defaults that would not reasonably
be expected to prevent such Holder from performing its obligations under
this Agreement.
(d) NO LIENS. The Existing Securities are now and, at all times during
the term hereof, the Subject Securities will be held by such Holder, or by a
nominee or custodian for the benefit of such Holder, free and clear of all
liens, claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever, except
for any encumbrances arising hereunder.
3. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of the
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of the Company with respect to any of the following, each Holder irrevocably
agrees that it shall vote (or cause to be voted) all of the Subject Securities
that it beneficially owns on the record date of any such vote or action (a) in
favor of the adoption of the Merger Agreements and the approval of the terms
thereof (with such modifications as the parties thereto may make (except for
modifications that would adversely affect such Holder)) and each of the other
transactions contemplated by the Merger Agreements and (b) against any of the
following (or any agreement to enter into or effect any of the following): (i)
prior to the Effective Time, any Takeover Proposal, Material Transaction
Proposal requiring the vote of the Company's stockholders or transaction or
occurrence which if publicly proposed and offered to the Company and its
stockholders (or any of them) would be the subject of a Takeover Proposal or
Material Transaction Proposal, or (ii) any amendment of the Company's
certificate of incorporation or by-laws or other proposal, action or transaction
involving the Company or any of its Subsidiaries, which amendment or other
action or transaction would reasonably be expected to prevent or materially
impede or delay the consummation of the transactions contemplated by the Merger
Agreements. Such Holder shall not commit or agree to take any action
inconsistent with the foregoing.
4. IRREVOCABLE PROXY. Each Holder hereby, severally and not jointly,
grants to, and appoints NBC and the President and Treasurer of NBC and the
Secretary of NBC, in their respective capacities as officers of NBC, and any
individual who shall hereafter succeed to any such office of NBC, and any other
designee of NBC, each of them individually, such Holder's proxy and
attorney-in-fact (with full power of substitution) to vote or act by written
consent with respect to such Holder's Subject Securities in accordance with
Section 3 hereof. This proxy is coupled with an interest and shall be
irrevocable, and each Holder will take such further action or execute such other
instruments as may be necessary to effectuate the intent of this proxy and
hereby revokes any proxy previously granted by it with respect to
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<PAGE>
the Subject Securities; provided that this proxy shall be automatically revoked
without any further action on the part of the Holder, NBC and CNET upon the
termination of this Agreement pursuant to Section 16 hereof.
5. REPRESENTATIONS AND WARRANTIES OF NBC AND CNET. Each of NBC and CNET
represents and warrants, severally and not jointly (and only as to itself), to
the Company and each Holder as follows:
(a) POWER; BINDING AGREEMENT. Each of NBC and CNET has full power and
authority to enter into and perform all of its obligations under this
Agreement. The execution, delivery and performance of this Agreement, and
the consummation of the transactions contemplated hereby, have been duly and
validly authorized by all necessary corporate action of NBC and CNET. This
Agreement has been duly and validly executed and delivered by each of NBC
and CNET and constitutes a valid and binding agreement of each of NBC and
CNET, enforceable against each of NBC and CNET in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting
creditors generally, by general equity principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law) or by
an implied covenant of good faith and fair dealing.
(b) NO CONFLICTS. No filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or authority
or any other person or entity is necessary for the execution of this
Agreement by NBC or CNET and the consummation by NBC or CNET of the
transactions contemplated hereby, other than pursuant to the Exchange Act,
the HSR Act or foreign competition or antitrust laws or any filing, permit,
authorization, consent or approval, the failure of which to obtain would not
reasonably be expected to prevent NBC or CNET from performing its respective
obligations under this Agreement, and neither the execution and delivery of
this Agreement by NBC or CNET nor the consummation by NBC or CNET of the
transactions contemplated hereby nor compliance by NBC or CNET with any of
the provisions hereof will conflict with or result in any breach of any
organizational documents or instruments applicable to NBC or CNET,
respectively, result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any
third-party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which NBC or CNET is a party or by which NBC or CNET's respective properties
or assets may be bound or violate any order, writ, injunction, decree,
judgment, statute, rule or regulation applicable to NBC or CNET as of the
date hereof, other than such violations, breaches or defaults that would not
reasonably be expected to prevent NBC or CNET from performing its respective
obligations under this Agreement.
6. COVENANT OF THE COMPANY. The Company hereby agrees and covenants that
it shall not, and shall direct its transfer agent not to, transfer any Company
Common Stock except in accordance with the provisions of Section 7(b) hereof.
7. COVENANTS OF THE HOLDERS. Each Holder hereby agrees and covenants that:
(a) NO SOLICITATION. Each Holder shall not, and shall not authorize
and shall use his reasonable best efforts not to permit any of his, her or
its affiliates, partners, investment bankers, attorneys, agents or other
advisors or representatives to, directly or indirectly, solicit, knowingly
encourage (including by way of providing confidential information or data)
or have any discussion or negotiate with any person or entity (other than
NBC, CNET or any affiliate of NBC or CNET) concerning any proposal by such
person or entity with respect to the Company that constitutes or could
reasonably be expected to lead to a Takeover Proposal or Material
Transaction Proposal. Each Holder will immediately cease and cause to be
terminated any existing activities, discussions
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<PAGE>
or negotiations with any parties conducted heretofore by or on its behalf
with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER, PROXIES AND NONINTERFERENCE. Each Holder
shall not, and shall not authorize or permit any of his, her or its
affiliates, partners, investment bankers, attorneys, agents or other
advisors or representatives to, directly or indirectly: (i) offer for sale,
sell, transfer, tender, pledge, encumber, assign or otherwise dispose of
(including by gift), or enter into any contract, option or other arrangement
or understanding with respect to or consent to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of the Subject Securities (or any interest therein), unless the
transferee or pledgee of such Subject Securities agrees in writing in a form
reasonably satisfactory to NBC (with a copy furnished to NBC and CNET) to be
bound by all of the provisions of this Agreement with respect to such
transferred or pledged Subject Securities, as contemplated by the NMC Merger
Agreement; (ii) except as contemplated hereby, grant any proxies or powers
of attorney, deposit any such Subject Securities into a voting trust or
enter into a voting agreement with respect to any of the Subject Securities;
(iii) take any action that would have the effect of preventing or disabling
such Holder from performing his obligations under this Agreement; or (iv)
commit or agree to take any of the foregoing actions.
(c) Each Holder agrees to submit to the Company contemporaneously with
or promptly following execution of this Agreement all certificates
representing the Company Common Stock so that the Company may note thereon a
conspicuous legend referring to the transfer restrictions set forth in this
Agreement.
(d) Each Holder will, from time to time, execute and deliver, or cause
to be executed and delivered, such additional or further consents, documents
and other instruments as NBC may reasonably request for the purpose of
effectuating the matters covered by this Agreement.
8. FIDUCIARY DUTIES. Notwithstanding anything in this Agreement to the
contrary, the covenants and agreements set forth in Section 7(a) shall not
prevent any Holder from taking any action, subject to the applicable provisions
of the NMC Merger Agreement, while acting as a director of the Company. NBC and
CNET acknowledge and agree that each Holder who has signed this Agreement does
so solely in his capacity as a stockholder of the Company, and not in his
capacity as a director, officer or employee of the Company, and that such action
on behalf of such Holder does not limit or restrict his ability to vote, or
otherwise act, in his capacity as a director, officer or employee of the
Company. Notwithstanding the foregoing, except as contemplated by Section 16
hereof, this Agreement shall be and shall remain binding upon such Holder
irrespective of any action taken by any such Holder in his capacity as a
director, officer or employee of the Company.
9. ASSIGNMENT; BENEFITS. This Agreement may not be assigned by any party
hereto without the prior written consent of the other party. Subject to the
preceding sentence, this Agreement shall be binding upon, and shall inure to the
benefit of, each of the Holders, NBC, CNET and their respective successors and
permitted assigns.
10. NOTICES. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
if and when delivered personally or by
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<PAGE>
overnight courier or sent by electronic transmission, with confirmation
received, and delivery within one business day by any other means of delivery in
this Section 10 to the telecopy numbers specified below:
If to the Company:
Xoom.com, Inc.
300 Montgomery Street
Suite 300
San Francisco, California 94104
Attn.: Chris Kitze
Facsimile: (415) 288-2580
with a copy to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Attn.: Bruce Alan Mann
Facsimile: (415) 268-7522
with a copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attn.: Allen L. Weingarten
Facsimile: (212) 468-7900
If to NBC:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10012
Attn.: Tom Rogers
Facsimile: (212) 664-3914
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn.: Richard Capelouto
Facsimile: (212) 455-2502
If to the Holders:
Chris Kitze
300 Montgomery Street
Suite 300
San Francisco, California 94104
Facsimile: (415) 288-2580
With copies to:
Morrison & Foerster (see above)
B-2-6
<PAGE>
If to CNET:
CNET, Inc.
150 Chestnut Street,
San Francisco, California 94111
Attn: Douglas N. Woodrun
Facsimile: (415) 395-9205
With copies to:
Hughes & Luce, L.L.P.
1717 Main Street,
Suite 2800
Dallas, Texas 75201
Attn: R. Clayton Mulford
Facsimile: (214) 939-5849
or to such other address or telecopy number as any party may have furnished to
the other parties in writing in accordance herewith.
11. NOTICE OF LITIGATION. The Company and each Holder shall promptly
notify NBC and CNET of any pending or, to its knowledge, threatened action or
proceeding challenging the validity or enforceability of this Agreement.
12. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
13. AMENDMENT. This Agreement may not be amended or modified, except by an
instrument in writing signed by or on behalf of each of the parties hereto. This
Agreement may not be waived by any party hereto, except by an instrument in
writing signed by or on behalf of the party granting such waiver. The waiver of
any party to this Agreement of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of law.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
16. TERMINATION. This Agreement shall terminate upon the earliest of (i)
the consummation of the Merger contemplated by the NMC Merger Agreement and (ii)
the termination of the NMC Merger Agreement. Upon any termination of this
Agreement, this Agreement shall thereupon become void and of no further force
and effect, and there shall be no liability in respect of this Agreement or of
any transactions contemplated hereby or by the Merger Agreements on the part of
any party hereto or any of its directors, officers, partners, stockholders,
employees, agents, advisors, representatives or affiliates; PROVIDED, HOWEVER,
that nothing herein shall relieve any party from any liability for such party's
wilful breach of any of its material agreements contained in this Agreement; and
PROVIDED FURTHER that nothing herein shall limit, restrict, impair, amend or
otherwise modify the rights, remedies, obligations or liabilities of any person
under any other contract or agreement, including the Merger Agreements.
17. SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or
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<PAGE>
unenforceability and shall not render invalid or unenforceable the remaining
terms and provisions of this Agreement or affect the validity or enforceability
of any of the terms or provisions of this Agreement in any other jurisdiction.
If any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each
of the parties hereto, all as of the date first above written.
XOOM.COM, INC.
By: /s/ CHRIS KITZE
-----------------------------------
Name: Chris Kitze
Title: Chairman
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ THOMAS A. ROGERS
-----------------------------------
Name: Thomas A. Rogers
Title: Executive Vice President
CNET, INC.
By: /s/ DOUGLAS N. WOODRUM
-----------------------------------
Name: Douglas N. Woodrum
Title:Executive Vice President and
Chief Financial Officer
Holders:
FLYING DISC INVESTMENTS LIMITED
PARTNERSHIP
By: /s/ CHRIS KITZE
-----------------------------------
Name: Chris Kitze
Title: General Partner
/s/ CHRIS KITZE
--------------------------------------
Chris Kitze
B-2-8
<PAGE>
EXHIBIT A
SUBJECT SECURITIES
Number of Shares Beneficially Owned by the Holders herein is 3,350,680. This
includes 3,350,680 shares of Company Common Stock held by Flying Disc, of which
Mr. Kitze is a general partner. Mr. Kitze may be deemed to be the beneficial
owner of the shares held by Flying Disc
B-2-9
<PAGE>
APPENDIX C-1
BEAR STEARNS FAIRNESS OPINION
<PAGE>
May 9, 1999
The Board of Directors
Xoom.com, Inc.
300 Montgomery Street, Suite 300
San Francisco, CA 94104
Attention: Christopher A. Kitze
Chairman & Co-Founder
Gentlemen:
We understand that Xoom.com, Inc. ("Xoom") proposes to enter into an
Agreement and Plan of Contribution and Merger (the "Merger Agreement") among
Xoom, National Broadcasting Company, Inc. and certain of its affiliates
(collectively, "NBC"), CNET, Inc. ("CNET") and SNAP! LLC, an Agreement and Plan
of Contribution, Investment and Merger (the "Contribution Agreement") among NBC,
GE Investments Sub, Inc., Neon Media Corporation, Xenon 2, Inc. and Xoom, as
well as a series of other agreements (collectively with the Merger Agreement and
the Contribution Agreement, the "Agreements") relating to the formation of a new
company to be named NBC Internet, Inc. ("NBCi"). NBCi is expected to include the
businesses of Xoom, SNAP! LLC and certain of NBC's internet assets, including
NBC.com, Videoseeker.com, NBC Interactive Neighborhood and a 10% ownership
interest in CNBC.com (collectively, the "NBC Contributed Internet Assets").
The first transaction will be effected by a merger of Xoom with Xenon 3,
Inc., a subsidiary of NBCi, followed by NBCi acquiring CNET's ownership interest
in SNAP! LLC (the "CNET Contributed Assets"). In a subsequent transaction, Neon
Media Corporation ("NMC"), a newly formed entity which will own the NBC
Contributed Internet Assets, is expected to be merged with NBCi, and NBC's
ownership interests in SNAP! LLC are expected to be contributed to NBCi. In
connection with the consummation of all of the transactions contemplated by the
Agreements, the following would occur on successive days:
Initially, (i) each share of Xoom common stock will be converted into the
right to receive one share of NBCi Class A comon stock and (ii) CNET will
receive 7,147,584 shares of Class A common stock of NBCi in exchange for its
ownership interest in SNAP! LLC (collectively with step (i) above, the "CNET
Transaction"). On the succeeding day, (A) each share of NMC common stock will be
exchanged for one share of Class B common stock of NBCi, which will result in
the issuance of 13,764,726 shares of Class B common stock and (B) a subsidiary
of NBC will receive 11,417,569 shares of Class B common stock of NBCi in
exchange for its ownership interests in SNAP! LLC (including its options to
purchase additional equity interests) (collectively with step (A) above, the
"NBC Share Issuance").
Thereafter, an affiliate of NBC will purchase a $486,894,758 zero coupon
convertible debenture due 2006 (the "Convertible Note") of NBCi for a cash
payment of $30 million and the assignment of an NBC promissory note in the
amount of $340 million to NBCi (collectively with the NBC Share Issuance, the
"NBC Transaction"). The CNET Transaction and the NBC Transaction are
collectively referred to as the "Transactions."
Only the Class A common stock of NBCi will be publicly traded. Separate
agreements are being entered into with respect to the transactions set forth in
clauses (i) and (ii) and with respect to the
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The Board of Directors
Xoom.com, Inc.
May 9, 1999
Page 2
transactions set forth in clauses (A) and (B). The closing of the transactions
set forth in clauses (i) and (ii) will occur first and will not be contingent
upon the closing of the NBC Transaction.
We further understand that assuming both transactions were consummated on
the date of this opinion, NBC and its affiliates would own approximately 49.9%
of NBCi voting securities, Xoom's former stockholders and option holders would
own approximately 36% of NBCi voting securities and CNET would own approximately
14% of NBCi voting securities. If NBC chooses to convert the Convertible Note
after one year, NBC, through its affiliates, could own approximately 53% of the
currently expected fully-diluted equity of NBCi.
You have asked us to render our opinion as to whether, after issuance of
NBCi shares to Xoom stockholders in the merger of Xenon 3, Inc. with Xoom (i)
the aggregate issuance of NBCi shares to NBC and CNET in the transactions
contemplated by the Merger Agreement and the Contribution Agreement, taken
together (both before and after conversion of the NBCi convertible notes), in
exchange for the aggregate contribution of SNAP! LLC and the NBC Contributed
Internet Assets and (ii) the issuance of NBCi shares to CNET in the transactions
contemplated by the Merger Agreement, if the transactions contemplated by the
Contribution Agreement are not consummated, in exchange for CNET's contribution
of its equity interests in SNAP! LLC, are fair, from a financial point of view,
to Xoom.
In the course of our analyses for rendering this opinion, we have:
1. reviewed draft forms of the Merger Agreement, the Contribution
Agreement, the other Agreements (each draft dated May 6, 1999) and
certain other documents relating to the proposed Transactions;
2. reviewed Xoom's Annual Report to Shareholders and Annual Report on Form
10-K for the fiscal year ended December 31, 1998;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to Xoom's business
and prospects;
4. met with certain members of Xoom's senior management to discuss its
operations, historical financial statements and future prospects;
5. reviewed the historical prices and trading volume of the common shares
of Xoom;
6. reviewed the trading activity of various Internet companies, including
those which we deemed generally comparable to Xoom;
7. reviewed certain operating and financial information, including
projections, provided to us by management of Xoom relating to NBC's
Internet assets and SNAP! LLC;
8. met with certain members of the senior management of NBC to discuss the
operations, historical financial statements, projections and future
prospects relating to SNAP! LLC and NBC's internet assets;
9. reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which we deemed generally
comparable to Xoom, to the businesses proposed to be acquired in the
Transactions and to the combined company on a pro forma basis giving
effect to the proposed Transactions;
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<PAGE>
The Board of Directors
Xoom.com, Inc.
May 9, 1999
Page 3
10. reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to the proposed Transactions; and
11. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied on and assumed, without
independent verification, the accuracy and completeness of the financial and
other projections provided to us by Xoom and NBC. With respect to the projected
financial results provided to us, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the senior managements of Xoom and NBC as to the expected future
performance of Xoom, the CNET Contributed Assets, the NBC Contributed Internet
Assets and SNAP! LLC. We have not assumed any responsibility for the independent
verification of any such information or of the projections provided to us and we
have further relied upon the assurances of the senior managements of Xoom and
NBC that they are unaware of any facts that would make the information or
projections provided to us incomplete or misleading. In arriving at our opinion,
we have not performed or obtained any independent appraisal of the assets or
liabilities of Xoom, or with respect to the CNET Contributed Assets, the NBC
Contributed Internet Assets and SNAP! LLC, nor have we been furnished with any
such appraisals. Our opinion is necessarily based on economic, market and other
conditions, and the information made available to us, as of the date hereof.
Furthermore, we recognize that the market prices for Internet related companies
such as Xoom have been the subject of significant speculation and movement in
recent months and this opinion is not intended to predict or otherwise guarantee
the trading prices of Xoom or NBCi following the announcement or consummation of
the Transactions, as the case may be.
We have acted as a financial advisor to Xoom in connection with the
Transactions and will receive a fee for such services.
In the ordinary course of business, Bear Stearns may actively trade the
equity securities of Xoom, CNET and General Electric (the publicly-traded parent
of NBC) for its own account and for the account of its customers and,
accordingly, may at any time, hold a long or short position in such securities.
Upon Xoom and NBC entering into a non-solicitation and confidentiality
agreement on April 15, 1999, we were requested to prepare this opinion in
connection with the proposed transactions involving NBC and we were directed not
to, and we did not, seek or pursue alternative transactions to the Transactions,
including the possible sale of Xoom as an entirety. Although upon the
consummation of the Transactions, NBC and its subsidiaries will own only
approximately 48.5% of the common stock of NBCi, in our capacity as financial
advisor to Xoom, we conservatively assumed, consistent with Delaware law, solely
for purposes of rendering this fairness opinion, that this ownership interest
should be viewed as a change of control transaction for purposes of evaluating
whether, after issuance of NBCi shares to Xoom stockholders in the merger of
Xenon 3, Inc. with Xoom (i) the aggregate issuance of NBCi shares to NBC and
CNET in the transactions contemplated by the Merger Agreement and the
Contribution Agreement, taken together (both before and after conversion of the
NBCi convertible notes), in exchange for the aggregate contribution of SNAP! LLC
and the NBC Contributed Internet Assets and (ii) the issuance of NBCi shares to
CNET in the transactions contemplated by the Merger Agreement, if the
transactions contemplated by the Contribution Agreement are not consummated, in
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<PAGE>
The Board of Directors
Xoom.com, Inc.
May 9, 1999
Page 4
exchange for CNET's contribution of its equity interests in SNAP! LLC, are fair,
from a financial point of view, to Xoom. In rendering this opinion, we are not
addressing whether and under what circumstances any third party interest in Xoom
may arise as a result of entering into the agreements related to the
Transactions. In addition, this opinion does not address or make any assumptions
with respect to the accounting treatment applicable to the Transactions or to
each of Xoom, CNET and NBC.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of Xoom and does not constitute a recommendation to the Board
of Directors or shareholders of Xoom. This opinion does not address Xoom's
underlying business decision to pursue the Transaction. This letter is not to be
used for any other purpose, or reproduced, disseminated, quoted to or referred
to at any time, in whole or in part, without our prior written consent.
Based on and subject to the foregoing, it is our opinion that, after
issuance of NBCi shares to Xoom stockholders in the merger of Xenon 3, Inc. with
Xoom (i) the aggregate issuance of NBCi shares to NBC and CNET in the
transactions contemplated by the Merger Agreement and the Contribution
Agreement, taken together (both before and after conversion of the NBCi
convertible notes), in exchange for the aggregate contribution of SNAP! LLC and
the NBC Contributed Internet Assets and (ii) the issuance of NBCi shares to CNET
in the transactions contemplated by the Merger Agreement, if the transactions
contemplated by the Contribution Agreement are not consummated, in exchange for
CNET's contribution of its equity interests in SNAP! LLC, are fair, from a
financial point of view, to Xoom.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ LISA M. PRICE
--------------------------------------
Senior Managing Director
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<PAGE>
APPENDIX C-2
HAMBRECHT & QUIST FAIRNESS OPINION
<PAGE>
May 9, 1999
CONFIDENTIAL
The Board of Directors
XOOM.com, Inc.
300 Montgomery Street, 3(rd) Floor
San Francisco, CA 94104
Gentlemen:
You have requested our opinion to the effect that, after issuance of NBC
Internet, Inc. ("NBCi") shares to XOOM.com, Inc. ("Xoom" or the "Company")
stockholders in the merger of Xenon 3, Inc. with Xoom, the aggregate issuance of
NBCi shares to NBC and CNET in the transactions (the "Proposed Transactions")
contemplated by the Merger Agreement (as defined herein) and the Contribution
Agreement (as defined herein and together with the Merger Agreement, the
"Agreements"), taken together (both before and after conversion of the NBCi
convertible notes), in exchange for the aggregate contribution of Snap! LLC and
the NBC contributed Internet businesses, was fair, from a financial point of
view to Xoom.
We understand that the terms of the Agreements provide, among other things,
that each issued and outstanding share of Common Stock shall be converted into
the right to receive one share of common stock of Xenon 2, Inc., as more fully
set forth in the Agreements. For purposes of this opinion, we have assumed that
the Proposed Transactions will be implemented on a tax-free basis under the
United States Internal Revenue Code and that the Proposed Transactions will be
accounted for as a purchase.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of Xoom in connection with the Proposed Transactions solely for the
purpose of issuing this opinion, and we will receive a fee for our services.
In the past, we have provided investment banking and other financial
advisory services to Xoom and have received fees for rendering these services.
In the ordinary course of business, Hambrecht & Quist acts as a market maker and
broker in the publicly traded securities of Xoom and CNET and receives customary
compensation in connection therewith, and also provides research coverage for
Xoom. In the ordinary course of business, Hambrecht & Quist actively trades in
the equity and derivative securities of Xoom and CNET for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities. Hambrecht & Quist may in the future
provide additional investment banking or other financial advisory services to
Xoom, CNET or NBCi.
In connection with our review of the Proposed Transactions, and in arriving
at our opinion, we have, among other things:
(i) reviewed the financial statements of Snap! LLC and the NBC contributed
businesses NBC.com, NBC-IN, VideoSeeker and CNBC.com (the "Contributed
Businesses") for recent years and interim periods to date and certain
other relevant financial and operating data of
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<PAGE>
The Board of Directors
XOOM.com, Inc.
Page 2
the Contributed Businesses made available to us from the internal records
of the Contributed Businesses;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to the Contributed Businesses
prepared by the management of Xoom.com;
(iii) discussed the business, financial condition and prospects of the
Contributed Businesses with certain members of senior management of
the Contributed Businesses;
(iv) reviewed the publicly available financial statements of Xoom for
recent years and interim periods to date and certain other relevant
financial and operating data of Xoom made available to us from
published sources and from internal records of Xoom;
(v) discussed the business, financial condition and prospects of Xoom with
certain members of Xoom's senior management;
(vi) reviewed the recent reported prices and trading activity for the
common stock of Xoom and compared such information and certain
financial information for Xoom and the Contributed Businesses with
similar information for certain other companies engaged in businesses
we consider generally comparable;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(viii) reviewed the draft Agreement and Plan of Contribution and Merger dated
as of May 6, 1999, among CNET, Inc., XOOM.com, Inc., Xenon 2, Inc.,
Xenon 3, Inc. and Snap! LLC, which agreement Hambrecht & Quist assumed
was the same as the Agreement and Plan of Contribution and Merger
dated May 9, 1999 (the "Merger Agreement"), and the draft Agreement
and Plan of Contribution, Investment and Merger, dated as of May 6,
1999, among National Broadcasting Company, Inc., GE Investments
Subsidiary, Inc., Neon Media Corporation, Xenon 2, Inc., and XOOM.com,
Inc., which agreement Hambrecht & Quist assumed was the same as the
Agreement and Plan of Contribution, Investment and Merger dated May 9,
1999 (the "Contribution Agreement") and certain other documents
relating to the Proposed Transactions; and
(ix) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning the Contributed Businesses and
Xoom considered in connection with our review of the Proposed Transactions, and
we have not assumed any responsibility for independent verification of such
information. We have not prepared any independent valuation or appraisal of any
of the assets or liabilities of the Contributed Businesses or Xoom, nor have we
conducted a physical inspection of the properties and facilities of any of the
businesses. With respect to the financial forecasts and projections made
available to us and used in our analysis, we have assumed that they reflect the
best currently available estimates and judgments of the expected future
financial performance of the Contributed Businesses and Xoom. For purposes of
this opinion, we have assumed that neither the Contributed Businesses nor Xoom
is a party to any pending transactions, including external financings,
recapitalizations or material merger discussions, other than the Proposed
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<PAGE>
The Board of Directors
XOOM.com, Inc.
Page 3
Transactions and those activities undertaken in the ordinary course of
conducting their respective businesses. Our opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of this letter and any change in such conditions would
require a reevaluation of this opinion. We express no opinion as to the price at
which Xenon 2, Inc. common stock will trade subsequent to the Effective Time (as
defined in the Contribution Agreement). In rendering this opinion, we have
assumed that the Proposed Transactions will be consummated substantially on the
terms discussed in the Agreements, without any waiver of any material terms or
conditions by any party thereto. We were not requested to, and did not, solicit
indications of interest from any other parties in connection with a possible
acquisition of, or business combination with, Xoom.
It is understood that this letter is for the information of the Board of
Directors and may not be used for any other purpose without our prior written
consent; provided, however, that this letter may be reproduced in full in the
Registration Statement on Form S-4 filed in connection with the Proposed
Transactions. This letter does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the Proposed Transactions.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof,
after the issuance of NBCi shares to Xoom stockholders in the merger of Xenon 3,
Inc. with Xoom, the aggregate issuance of NBCi shares to NBC and CNET in the
transactions contemplated by the Merger Agreement and the Contribution Agreement
taken together (both before and after conversion of the NBCi convertible notes),
in exchange for the aggregate contribution of Snap! LLC and the NBC contributed
Internet businesses, are fair to Xoom from a financial point of view. We express
no opinion, however, as to the fairness or adequacy of any consideration
received in the Proposed Transactions by CNET, Inc. or National Broadcasting
Company, Inc. or any of their respective affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ DAVID GOLDEN
------------------------------------
David Golden
Managing Director
C-2-3
<PAGE>
APPENDIX D-1
RESTATED
CERTIFICATE OF INCORPORATION
OF
NBC INTERNET, INC.
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
NBC INTERNET, INC.
NBC Internet, Inc., (the "Corporation") a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"General Corporation Law"),
DOES HEREBY CERTIFY THAT:
1. The name of the Corporation is NBC Internet, Inc. and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on May 7, 1999.
2. Pursuant to a unanimous written consent of the Board of Directors of the
Corporation dated , 1999, resolutions were duly adopted setting forth
the proposed amendment and restatement of the Certificate of Incorporation of
the Corporation and declaring said amendment and restatement to be advisable.
3. Thereafter, the stockholders of the Corporation took action by executing
a written consent in lieu of a meeting in accordance with Section 228 of the
General Corporation Law.
4. Said amendment and restatement was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law.
5. Accordingly, the Certificate of Incorporation is restated to read in its
entirety as set forth in Exhibit A hereto.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be signed by its duly authorized officer, this day of
, 1999.
NBC INTERNET, INC.
By:
- --------------------------------------------------------------------------------
Name:
-----------------------------------------------------------------------------
Office:
-----------------------------------------------------------------------------
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
NBC INTERNET, INC.
FIRST: The name of the corporation is NBC Internet, Inc.
SECOND: The registered office of the Corporation is to be located at 1209
Orange Street, City of Wilmington, County of New Castle, State of Delaware
19801. The name of its registered agent is The Corporation Trust Company, whose
address is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law.
FOURTH: The total number of shares of stock the Corporation shall have
authority to issue is 210,000,000 shares, which shall be divided into three
classes: (i) 100,000,000 shares shall be Class A Common Stock, $.0001 par value
per share (the "Class A Common Stock"), (ii) 100,000,000 shares shall be Class B
Common Stock, $.0001 par value per share (the "Class B Common Stock"), and (iii)
10,000,000 shares shall be Preferred Stock, $.0001 par value per share
("Preferred Stock"). The Class A Common Stock and Class B Common Stock are
sometimes referred to herein as the "Common Stock."
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or
restrictions in respect thereof, in respect of each class of capital
stock of the Corporation.
A. PREFERRED STOCK.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized to provide for the issuance of
shares of Preferred Stock in one or more series and, by filing a certificate
pursuant to the applicable law of the State of Delaware (hereinafter referred to
as "Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, determination
of the following:
(a) The designation of the series, which may be by distinguishing
number, letter or title.
(b) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(c) The amounts payable on, and the preferences, if any, of shares of
the series in respect of dividends, and whether such dividends, if any,
shall be cumulative or noncumulative.
(d) Dates at which dividends, if any, shall be payable.
(e) The redemption rights and price or prices, if any, for shares of the
series.
(f) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.
(g) The amounts payable on, and the preferences, if any, of shares of
the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
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<PAGE>
(h) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series, or any other security,
of the Corporation or any other corporation, and, if so, the specification
of such other class or series or such other security, the conversion or
exchange price or prices or rate or rates, any adjustments thereof, the date
or dates at which such shares shall be convertible or exchangeable and all
other terms and conditions upon which such conversion or exchange may be
made.
(i) Restrictions on the issuance of shares of the same series or of any
other class or series.
(j) The voting rights, if any, of the holders of shares of the series.
The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Except as may otherwise be provided in this
Restated Certificate of Incorporation, in a Preferred Stock Designation or by
applicable law, the holders of shares of Common Stock shall have the exclusive
right to vote for the election of directors and for all other purposes, and
holders of Preferred Stock shall not be entitled to vote at or receive notice of
any meeting of stockholders.
B. COMMON STOCK.
The following is a statement of the relative powers, preferences and
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof, of the Class A Common Stock and Class
B Common Stock.
1. GENERAL. Except as otherwise set forth below in this Article
FOURTH, the relative powers, preferences and participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the Class A Common Stock and Class B Common Stock shall be
identical in all respects.
2. VOTING RIGHTS. Except as otherwise required by this Restated
Certificate of Incorporation or by applicable law, at every meeting of the
stockholders of the Corporation every holder of Common Stock shall be
entitled to one vote in person or by proxy for each share of Common Stock
standing in his or her name on the transfer books of the Corporation in
connection with the election of directors and all other matters submitted to
a vote of stockholders. Except as otherwise required by this Restated
Certificate of Incorporation or by applicable law, the holders of Class A
Common Stock and Class B Common Stock shall vote together as a single class
on all matters submitted to a vote of stockholders of the Corporation
subject to any voting rights which may be granted to holders of Preferred
Stock.
3. DIVIDENDS. Subject to the rights of the holders of Preferred Stock,
and subject to any other provisions of this Restated Certificate of
Incorporation, holders of Class A Common Stock and Class B Common Stock
shall be entitled to receive such dividends and other distributions in cash,
stock of any corporation (other than Common Stock) or property of the
Corporation as may be declared thereon by the Board of Directors from time
to time out of assets or funds of the Corporation legally available therefor
and shall share equally on a per share basis in all such dividends and other
distributions. In the case of dividends or other distributions payable in
Common Stock, including distributions pursuant to stock splits or divisions
of Common Stock of the Corporation, only shares of Class A Common Stock
shall be paid or distributed with respect to Class A Common Stock and only
shares of Class B Common Stock shall be paid or distributed with respect to
Class B Common Stock; PROVIDED, HOWEVER, in the event a dividend or
distribution shall be paid or distributed with respect to one class of
Common Stock a simultaneous dividend or distribution shall be paid or
distributed on the other class and in the same proportion.
4. CONSENTS. During such time as the holders of Class B Common Stock
Beneficially Own less than a majority of the outstanding shares of Common
Stock, any action required or permitted to be taken by the stockholders of
the Corporation at a stockholders meeting (other than an action
D-1-2
<PAGE>
pursuant to Section 9(a) of this Article FOURTH or pursuant to Section 2 of
Article FIFTH) must be taken at a stockholders' meeting and may not be taken
by written consent or consents in lieu of a meeting.
5. CHANGES IN CAPITALIZATION. In the event there is an increase or
decrease in the number of issued shares of Common Stock resulting from any
stock split, stock dividend, reverse stock split, combination or
reclassification of the Common Stock, or any other similar event resulting
in an increase or decrease in the number of outstanding shares of Common
Stock, the outstanding shares of Class A Common Stock and the outstanding
shares of Class B Common Stock shall be adjusted in the same manner in all
respects.
6. DISSOLUTION. In the event of any dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, after payment in full of the amounts required to be paid to the
holders of Preferred Stock, the remaining assets and funds of the
Corporation shall be distributed PRO RATA to the holders of Common Stock,
and the holders of Class A Common Stock and the holders of Class B Common
Stock will be entitled to receive the same amount per share in respect
thereof.
7. MERGER. Unless otherwise approved by a majority of the votes
entitled to be cast by the holders of the outstanding shares of Class A
Common Stock and the outstanding shares of Class B Common Stock, each voting
separately as a class, in case of any reorganization or any consolidation of
the Corporation with one or more other corporations or a merger of the
Corporation with another corporation in which shares of Class A Common Stock
or Class B Common Stock are converted into (or entitled to receive with
respect thereto) shares of stock and/ or other securities or property
(including cash), each holder of a share of Class A Common Stock shall be
entitled to receive with respect to such share the same kind and amount of
shares of stock and other securities and property (including cash)
receivable upon such reorganization, consolidation or merger by a holder of
a share of Class B Common Stock, and each holder of a share of Class B
Common Stock shall be entitled to receive with respect to such share the
same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reorganization, consolidation or
merger by a holder of a share of Class A Common Stock. In the event that the
holders of Class A Common Stock or of Class B Common Stock are granted
rights to elect to receive one of two or more alternative forms of
consideration, the foregoing provision shall be deemed satisfied if holders
of Class A Common Stock and holders of Class B Common Stock are granted
substantially identical election rights; PROVIDED that notwithstanding
anything contained in this paragraph 7 to the contrary, the Corporation may
effect any reorganization, consolidation or merger, pursuant to which shares
of Class A Common Stock and Class B Common Stock are converted into shares
of two classes of capital stock having substantially the same relative
rights as the Class A Common Stock and the Class B Common Stock, as set
forth in this Restated Certificate of Incorporation, if it is approved by
the holders of a majority of the outstanding shares of the Class A Common
Stock and the Class B Common Stock voting together as a single class without
any separate class vote.
8. NO ADVERSE EFFECT. With respect to any proposed amendment of this
Restated Certificate of Incorporation which would alter or change the
powers, preferences or special rights of the shares of Class A Common Stock
or Class B Common Stock, so as to affect them adversely, the approval of a
majority of the votes entitled to be cast by the holders of the outstanding
shares of the class affected by the proposed amendment, voting separately as
a class, shall be obtained in addition to the approval of a majority of the
votes entitled to be cast by the holders of the outstanding shares of Class
A Common Stock and the Class B Common Stock voting together as a single
class as provided herein. The affirmative vote of shares representing a
majority of the votes entitled to be cast by the holders of outstanding
shares of each class of Common Stock, voting separately by class, shall be
required to adopt any provision inconsistent with or repeal any
D-1-3
<PAGE>
provision of, or alter or amend this paragraph 8. Subject to the rights of
the holders of any series of Preferred Stock pursuant to the terms of this
Restated Certificate of Incorporation or any resolutions providing for the
issuance of such series of stock adopted by the Board of Directors, the
number of authorized shares of Class A Common Stock, Class B Common Stock or
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority in voting power of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law.
9. CONVERSION OF CLASS B COMMON STOCK.
(a) VOLUNTARY CONVERSION. Upon the affirmative vote or written
request of the holders of a majority of the outstanding shares of Class B
Common Stock for the conversion of the Class B Common Stock into Class A
Common Stock, all, but not less than all, of the outstanding shares of
Class B Common Stock shall automatically convert on a share for share
basis into the same number of shares of Class A Common Stock. In
addition, the Corporation shall permit NBC Parent and its Affiliates, at
such time as any such Person shall become a holder of Common Stock while
shares of Class B Common Stock are outstanding, to convert shares of
Class A Common Stock into shares of Class B Common Stock upon written
request subject to the terms and conditions of the Governance and
Investor Rights Agreement, dated as of , 1999 between the
Corporation and NBC, as amended from time to time (the "Governance
Agreement"), a copy of which is maintained at the Corporation's principal
office.
(b) MANDATORY CONVERSION. Shares of Class B Common Stock shall be
converted into shares of Class A Common Stock at the times and in the
amounts set forth in subparagraphs (i) and (ii) of this subparagraph (b)
(each an "Event of Conversion").
(i) Upon any sale, pledge, conveyance, assignment, transfer or
other disposition of shares of Class B Common Stock, whether or not
for value, by NBC or any of its Affiliates, other than any transfer
by such holder to an Affiliate of such holder, the shares of Class B
Common Stock disposed of as above by NBC or such Affiliate shall
automatically be converted into shares of Class A Common Stock on a
share for share basis without further action by the holders of Common
Stock; PROVIDED that a pledge of shares of Class B Common Stock,
prior to default thereunder, which does not grant to the pledgee the
power to vote or direct the vote of the pledged securities or the
power to vote or direct the disposition of the pledged securities
prior to a default, without any foreclosure or transfer of ownership
shall not trigger the conversion of such Class B Common Stock.
(ii) Subject to Article ELEVENTH, all of the outstanding shares
of Class B Common Stock shall automatically be converted into shares
of Class A Common Stock on a share for share basis without further
action by the holders of the Common Stock at such time when the
holders of the Class B Common Stock Beneficially Own less than 20% of
the outstanding shares of Common Stock immediately prior to the time
of conversion.
(c) CLASS B OR NBC PARENT AND ITS AFFILIATES' CONVERSION
PROCEDURE. Any conversion pursuant to this paragraph 9 shall be deemed
to have been effected at the time (i) the holders of Class B Common Stock
or NBC Parent and its Affiliates vote for or request such conversion in
accordance with subsection (a) of this paragraph 9 or (ii) the Event of
Conversion referred to in subsection (b) of this paragraph 9 occurred, as
the case may be (the "Class B/NBC Parent Conversion Time"). At the Class
B/NBC Parent Conversion Time, the certificate or certificates that
represented immediately prior thereto the shares of Class B
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<PAGE>
Common Stock (or Class A Common Stock, as the case may be) which were so
converted (the "Converted Common Stock") shall, automatically and without
further action, represent on a share for share basis the same number of
shares of Class A Common Stock (or Class B Common Stock, as the case may
be). Holders of Converted Common Stock shall deliver their certificates,
duly endorsed in blank or accompanied by proper instruments of transfer,
to the principal office of the Corporation or the office of any transfer
agent for shares of Class A Common Stock (or Class B Common Stock, as the
case may be), together with a written notice setting out the name or
names (with addresses) and denominations in which the certificate or
certificates representing such shares of Class A Common Stock (or Class B
Common Stock, as the case may be) are to be issued and including
instructions for delivery thereof. Upon such delivery, the Corporation or
its transfer agent shall promptly issue and deliver at such stated
address to such holder of shares of Class A Common Stock (or Class B
Common Stock, as the case may be) a certificate or certificates
representing the number of shares of Class A Common Stock (or Class B
Common Stock, as the case may be) into which the Converted Common Stock
was so converted and shall cause such shares of Class A Common Stock (or
Class B Common Stock, as the case may be) to be registered in the name of
such holder. The Corporation will issue certificates for the balance of
the shares of Class B Common Stock (or Class A Common Stock, as the case
may be) in any case in which fewer than all of the shares of Class B
Common Stock (or Class A Common Stock, as the case may be) represented by
a certificate are converted. The Person entitled to receive the shares of
Class A Common Stock (or Class B Common Stock, as the case may be)
issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Class A Common Stock (or Class B Common
Stock, as the case may be) and will have all the rights of record holders
of shares of Class A Common Stock (or Class B Common Stock, as the case
may be) at and as of the Class B/NBC Parent Conversion Time, and the
rights of such Person as a holder of shares of Class B Common Stock (or
Class A Common Stock, as the case may be) that have been converted shall
cease and terminate at and as of the Class B/NBC Parent Conversion Time,
in each case without regard to any failure by such holder to deliver the
certificates or the notice required by this paragraph 9; PROVIDED,
HOWEVER, that such Person shall be entitled to receive, when paid, any
dividends declared on the Class B Common Stock (or Class A Common Stock,
as the case may be) as of a record date preceding the Class B/ NBC Parent
Conversion Time and unpaid as of the Class B/NBC Parent Conversion Time
so long as such Person was the record holder when such dividends were
declared. For purposes of this Restated Certificate of Incorporation,
"Person" shall mean an individual or a corporation, association,
partnership, limited liability company, joint venture, organization,
business, trust or any other entity or organization, including a
government or any subdivision or agency thereof.
(d) PAYMENT OF TRANSFER TAXES. The Corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect
of the issue or delivery of shares of Class A Common Stock (or Class B
Common Stock, as the case may be) on conversion of Class B Common Stock
(or Class A Common Stock, as the case may be) pursuant hereto; PROVIDED,
HOWEVER, that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue or
delivery of shares of Class A Common Stock (or Class B Common Stock, as
the case may be) in a name other than that of the registered holder of
the Class B Common Stock (or Class A Common Stock, as the case may be) to
be converted and no such issue or delivery shall be made unless and until
the Person requesting such issue or delivery has paid to the Corporation
the amount of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid or is not applicable.
D-1-5
<PAGE>
(e) RESERVATION OF CLASS A COMMON STOCK. The Corporation shall at
all times reserve and keep available, out of its authorized and unissued
shares of Class A Common Stock, for the purposes of effecting
conversions, such number of duly authorized shares of Class A Common
Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Class B Common Stock. All the shares of
Class A Common Stock so issuable shall, when so issued, be duly and
validly issued, fully paid and non-assessable, and free from liens and
charges with respect to such issuance.
10. PURCHASE OF CLASS A COMMON STOCK BY CLASS B HOLDERS.
(a) AUTOMATIC CONVERSION OF CLASS A STOCK. So long as shares of
Class B Common Stock are outstanding, in the event a holder of Class B
Common Stock or its Subsidiary purchases or otherwise acquires or holds
any shares of Class A Common Stock (other than as a result of a
conversion pursuant to paragraph 9 hereof), then such shares of Class A
Common Stock shall automatically convert on a share for share basis into
the same number of shares of Class B Common Stock.
(b) CLASS A CONVERSION PROCEDURE. So long as shares of Class B
Common Stock are outstanding, any conversion pursuant to this paragraph
10 shall be deemed to have been effected at the time any holder of Class
B Common Stock purchases or otherwise acquires any shares of Class A
Common Stock (other than as a result of a conversion pursuant to
paragraph 9 hereof) (the "Class A Conversion Time"). At the Class A
Conversion Time, the certificate or certificates that represented
immediately prior thereto the shares of Class A Common Stock which were
so converted (the "Converted Class A Common Stock") shall, automatically
and without further action, represent on a share for share basis the same
number of shares of Class B Common Stock. Holders of Converted Class A
Common Stock shall deliver their certificates, duly endorsed in blank or
accompanied by proper instruments of transfer, to the principal office of
the Corporation or the office of any transfer agent for shares of Class B
Common Stock, together with a written notice setting out the name or
names (with addresses) and denominations in which the certificate or
certificates representing such shares of Class B Common Stock are to be
issued and including instructions for delivery thereof. Upon such
delivery, the Corporation or its transfer agent shall promptly issue and
deliver at such stated address to such holder of shares of Class B Common
Stock a certificate or certificates representing the number of shares of
Class B Common Stock into which the Converted Class A Common Stock was so
converted and shall cause such shares of Class B Common Stock to be
registered in the name of such holder. The Person entitled to receive the
shares of Class B Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Class B
Common Stock at and will have all the rights of record holders of shares
of Class B Common Stock at and as of the Class A Conversion Time, and the
rights of such Person as a holder of shares of Class A Common Stock that
have been converted shall cease and terminate at and as of the Class A
Conversion Time, in each case without regard to any failure by such
holder to deliver the certificates or the notice required by this
paragraph 10; PROVIDED, HOWEVER, that such Person shall be entitled to
receive when paid any dividends declared on the Class A Common Stock as
of a record date preceding the Class A Conversion Time and unpaid as of
the Class A Conversion Time, so long as such Person was the record holder
when such dividends were declared.
(c) RESERVATION OF CLASS B COMMON STOCK. So long as shares of Class
B Common Stock are outstanding, the Corporation shall at all times
reserve and keep available, out of its authorized and unissued shares of
Class B Common Stock, for the purposes of effecting conversions, such
number of duly authorized shares of Class B Common Stock as shall from
time to time be sufficient to effect all possible conversions of Class A
Common Stock to Class B Common Stock.
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<PAGE>
11. STOCKHOLDER VETO RIGHTS.
(a) In addition to any other vote of stockholders required under this
Restated Certificate of Incorporation, the Corporation's Bylaws or
otherwise, and subject to the rights of the holders of Preferred Stock,
none of the following actions may be taken by the Corporation without the
approval of the holders of a majority of the outstanding shares of the
Class A Common Stock:
(i) any amendment to this Restated Certificate of Incorporation
or Bylaws other than an amendment consisting solely of an increase in
the authorized capital stock of the Corporation (except for
amendments to the Bylaws duly approved by the Board of Directors);
(ii) the issuance of Class B Common Stock to any Person except
to NBC or its affiliates.
(b) In addition to any other vote of stockholders required under this
Restated Certificate of Incorporation, the Corporation's Bylaws or
otherwise during such time, the approval of the holders of a majority of
the outstanding shares of the Class B Common Stock shall be required to
take any of the actions set forth in subparagraphs (i) or (ii) of
subsection (a) of paragraph 11 or to adopt a stockholder rights plan or
take other action which could adversely affect in any material respect
the rights of any holder of Class B Common Stock by virtue of the amount
of shares held by such holder.
FIFTH: Except as otherwise required by law or by this Restated Certificate
of Incorporation, the business of the Corporation shall be managed by or under
the direction of its Board of Directors, which shall have and may exercise all
the powers of the Corporation.
1. COMPOSITION OF THE BOARD OF DIRECTORS. For so long as there are
shares of Class B Common Stock outstanding, the Board of Directors shall
consist of thirteen directors (subject to paragraph (a) below) designated as
follows and subject thereto:
(a) DIRECTORS:
(i) During such time as the holders of Class B Common Stock
Beneficially Own at least 35% of the outstanding shares of Common
Stock, then the Board of Directors will be comprised as follows:
(A) If the Company Convertible Notes have not been converted
in full into shares of Class B Common Stock, then the Board of
Directors will consist of 13 members and (1) the holders of the
Class B Common Stock voting separately as a class shall have the
right to elect six members of the Board of Directors, (2) the
holders of the Class A Common Stock voting separately as a class
shall have the right to elect six members of the Board of
Directors and (3) the holders of the Class A Common Stock voting
separately as a class shall have the right to elect one
Independent Director to the Board of Directors.
(B) If the Company Convertible Notes have been converted in
full into shares of Class B Common Stock, then the Board of
Directors shall consist of 13 members and (1) the holders of the
Class B Common Stock voting separately as a class shall have the
right to elect seven members of the Board of Directors and (2)
the holders of the Class A Common Stock voting separately as a
class shall have the right to elect six members of the Board of
Directors; PROVIDED that if the holders of the Class B Common
Stock have elected to reduce the number of directors they are
entitled to elect from seven to six as provided in paragraph 2 of
this Article FIFTH, the Board of Directors will consist of the
members provided in clause (A) above.
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(ii) During such time as the holders of Class B Common Stock
Beneficially Own at least 20% and less than 35% of the outstanding
shares of Common Stock, then the holders of the Class B Common Stock
shall have the right to elect six members to the Board of Directors
and the holders of the Class A Common Stock shall have the right to
elect seven members to the Board of Directors.
(iii) For so long as the holders of Class B Common Stock have the
right to elect directors to the Board of Directors pursuant to this
paragraph 1, the holders of the Class B Common Stock shall not be
entitled to vote in the election of any Class A Directors.
(iv) At such time as the holders of Class B Common Stock become
entitled to elect seven members to the Board of Directors under
clause (i) of this paragraph (a) the Class B Nominating Committee (as
defined in the Bylaws) shall be entitled to appoint a seventh Class B
Director to the Board of Directors.
(v) Subject to Article ELEVENTH, in the event the holders of
Class B Common Stock Beneficially Own less than 35% (but at least
20%) of the total outstanding shares of Common Stock, the Class A
Nominating Committee shall be entitled to appoint a seventh Class A
Director to the Board of Directors. Subject to Article ELEVENTH, if
at such time there are seven Class B Directors serving on the Board
of Directors, then the holders of Class B Common Stock shall cause
one Class B Director to resign within 30 days after the date the
Class B Common Stock constitutes less than 35% of the total
outstanding shares of Common Stock (the "35% Resignation Date") and
one Class A Director shall be appointed to the Board of Directors on
the earlier of the date the Class B Director resigns or the 35%
Resignation Date. If a Class B Director does not resign by the 35%
Resignation Date, on such date the number of members comprising the
Board of Directors shall automatically be increased to fifteen
(provided that it shall automatically decrease to thirteen at the
time of the election of directors at the next annual or special
meeting of stockholders at which directors are elected) and the Class
A Nominating Committee shall have full power and authority to appoint
two additional Class A Directors to the Board of Directors.
Immediately after the next annual or special meeting of the
stockholders at which directors are elected, the number of directors
constituting the whole Board of Directors shall be reduced to
thirteen, with six directors elected by the holders of Class B Common
Stock and seven directors elected by the holders of Class A Common
Stock.
(vi) From and after such time as there are no shares of Class B
Common Stock outstanding, the number of directors of the Corporation
shall not be less than seven nor more than sixteen as determined from
time to time by the Board of Directors within such limitation.
(b) INDEPENDENT DIRECTOR. During such time as the holders of the
Class A Common Stock and the holders of the Class B Common Stock have the
right to elect an equal number of members to the Board of Directors,
there shall be appointed to the Board of Directors an additional member
(the "Independent Director"). The approval of at least seven of the
members of the Board of Directors will be required for the Corporation to
nominate the Independent Director for election or to appoint an
Independent Director to the Board of Directors. The nomination of the
Independent Director by the Corporation shall be performed by the Board
of Directors and not by the Class A Nominating Committee and/or the Class
B Nominating Committee. The Independent Director's term of office shall
automatically expire at such time as (i) the Class B Nominating Committee
has appointed a seventh Class B Director to the Board of Directors in
accordance with the provisions set forth
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in paragraph 1(a) of this Article Fifth (unless the Class B Nominating
Committee appoints the Independent Director as the seventh Class B
Director) or (ii) other than pursuant to the second sentence of paragraph
1(a)(v) of this Article FIFTH, the Class A Nominating Committee has
appointed a seventh Class A Director to the Board of Directors in
accordance with the provisions set forth in paragraph 1(a) of this
Article Fifth and after giving effect to such appointment there are not
seven Class B Directors (unless the Class A Nominating Committee appoints
the Independent Director as the seventh Class A Director).
(c) VACANCIES. Except as otherwise provided in paragraphs 1(a) or
1(b) of this Article FIFTH, if a vacancy is created on the Board of
Directors by reason of the death, removal or resignation of any of the
Class A Directors or the Class B Directors, such vacancy may only be
filled by a majority of the Class A Directors or the Class B Directors
then in office, as the case may be, or by the vote of the holders of the
Class A Common Stock or Class B Common Stock, as the case may be, and
each such director so elected shall hold office for the unexpired portion
of the term of the director whose place shall be vacant and until his
successor has been duly elected and qualified. If a vacancy is created on
the Board of Directors by reason of the death, removal or resignation of
the Independent Director, such vacancy shall be filled in accordance with
paragraph 1(b) of this Article FIFTH.
(d) REMOVAL OF CLASS A AND CLASS B DIRECTORS. (i) Any of the Class
A Directors may be removed, without cause only by the affirmative vote of
the holders of a majority of the outstanding shares of Class A Common
Stock, voting separately as a class, (ii) any of the Class B Directors
may be removed, without cause, only by the affirmative vote of the
holders of a majority of the outstanding share of Class B Common Stock,
voting separately as a class and (iii) the Independent Director may be
removed, without cause, only by the affirmative vote of the holders
owning at least 70% of the outstanding shares of Common Stock.
(e) RIGHTS FOLLOWING CONVERSION. Concurrently with the conversion
of all of the outstanding shares of the Class B Common Stock into Class A
Common Stock in accordance with paragraph 9 of Article FOURTH, the former
holders of the Class B Common Stock shall cease to have the absolute
right to designate or cause the nomination or election or maintenance of
any directors of the Corporation. From and after such time, the directors
of the Corporation shall be elected by a plurality vote of the holders of
Class A Common Stock. Each Class B Director serving on the Board of
Directors at such time shall be automatically deemed a Class A Director
and shall continue to hold office for the unexpired portion of such
director's term.
(f) EMPOWERMENT OF DIRECTORS. In addition to the powers and
authority hereinbefore or by statute expressly conferred upon them, the
directors are hereby empowered to exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the General Corporation Law,
this Restated Certificate of Incorporation, and the Bylaws; PROVIDED,
HOWEVER, that no Bylaws hereafter adopted shall invalidate any prior act
of the directors which would have been valid if such Bylaws had not been
adopted.
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2. WAIVER OF CLASS B DIRECTOR. Notwithstanding anything in this
Restated Certificate of Incorporation to the contrary, so long as the
holders of the Class B Common Stock Beneficially Own a majority of the
outstanding shares of Common Stock, upon the affirmative vote of the holders
of a majority of the outstanding shares of Class B Common Stock, voting
separately as a class, the holders of the Class B Common Stock may elect to
reduce the number of directors they are entitled to elect from seven to six
as provided in subsection (a) of paragraph 1 of this Article FIFTH, which
election shall be permanent. The holders of Class B Common Stock shall
promptly give notice to the Corporation of such election, and upon receipt
of such notice by the Corporation the provisions of paragraph 4 of this
Article FIFTH shall become effective.
3. CLASS A DIRECTORS VETO AND OTHER RIGHTS. Except as set forth in
paragraph 4 of this Article FIFTH, in addition to any other vote of
directors required under this Restated Certificate of Incorporation, the
Corporation's Bylaws or otherwise, for so long as the holders of the Class B
Common Stock have the right to elect seven directors to the Board of
Directors, none of the following actions may be taken by the Board of
Directors of the Corporation without the approval of a majority of the Class
A Directors:
(i) any amendment to this Restated Certificate of Incorporation
or the Corporation's Bylaws;
(ii) entering into, altering or amending any agreement or
engaging in any transaction or series of transactions with NBC or its
affiliates that (A) is not on an arm's-length basis or entered into
in the ordinary course of business or (B) involves an amount,
individually or in the aggregate, in excess of $50,000,000;
(iii) the voluntary filing of a petition for bankruptcy or
receivership by the Corporation or the failure to oppose any other
Person's petition for bankruptcy or any other Person's action to
appoint a receiver of the Corporation;
(iv) the appointment of a new Chief Executive Officer of the
Corporation;
(v) the adoption of the Corporation's annual or other operating
budgets and strategic plans, it being understood that acquisitions
shall not be part of the operating budget;
(vi) the adoption of a stockholder rights plan or other action
which could adversely affect in any material respect the rights of
any holder of Class A Common Stock by virtue of the amount of shares
held by such holder; and
(vii) the issuance of any equity securities other than Class A
Common Stock or Class B Common Stock.
4. CLASS B DIRECTORS VOTING RIGHTS. During such time as the Class B
Common Stock remains outstanding and the Class B Directors do not constitute
a majority of the Board of Directors, the rights of the Class A Directors
set forth in paragraph 3 of this Article FIFTH shall not exist and otherwise
not be operative, and notwithstanding anything in this Restated Certificate
of Incorporation or the Corporation's Bylaws to the contrary, in addition to
any other vote of directors required under this Restated Certificate of
Incorporation, the Corporation's Bylaws or otherwise, the approval of a
majority of the Class B Directors shall be required to take any of the
actions set forth in subparagraphs (i), (iii), (v), and (vii) of paragraph 3
of this Article FIFTH or to take any of the following actions:
(i) the approval of any action or transaction which would result
in a Change in Control of the Corporation or a Change in Control of
any of its Subsidiaries whose total assets or gross revenues are in
excess of $50,000,000;
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(ii) the sale or other disposition of assets of the Corporation
or any of its Subsidiaries in an amount in excess of $50,000,000 in
any one transaction or series of related transactions;
(iii) the sale or issuance of equity securities of the
Corporation or any of its Subsidiaries (including any issuance
pursuant to any merger or consolidation) for cash or other
consideration in an amount that exceeds $50,000,000 in any one
transaction or series of related transactions;
(iv) engaging in any merger, consolidation or other business
combination transaction involving the Corporation in which the
Corporation is not the surviving entity; and
(v) engaging in any transaction or series of related
transactions that requires the payment in cash by the Corporation or
any of its Subsidiaries or the incurrence of indebtedness by the
Corporation or any of its Subsidiaries in an amount that exceeds
$50,000,000.
For purposes of this Restated Certificate of Incorporation, the terms set
forth below shall have the following meanings:
"Change in Control" shall mean, with respect to any corporation, any of
the following: (i) a merger, consolidation or other business combination or
transaction to which the corporation is a party if the stockholders of the
corporation immediately prior to the effective date of such merger,
consolidation or other business combination or transaction, as a result of
such transaction, have Beneficial Ownership of Voting Stock representing
less than 50% of the Total Current Voting Power of (x) the surviving
corporation following such merger, consolidation or other business
combination or transaction or (y) the surviving corporation's parent
corporation following any such transaction; (ii) an acquisition by any
Person, entity or 13D Group of direct or indirect Beneficial Ownership of
20% or more of the outstanding shares of Class A Common Stock; (iii) a sale
of all or substantially all of the assets of the corporation; or (iv) a
liquidation or dissolution of the corporation.
"Total Current Voting Power" shall mean, with respect to any
corporation, the total number of votes which may be cast by holders of
outstanding shares of common stock of the corporation if all holders of such
securities are present and voted.
"Voting Stock" shall mean, with respect to any corporation, shares of
the corporation's common stock and any other securities of the corporation
having the ordinary power to vote.
"13D Group" means, with respect to any corporation, any group of Persons
formed for the purpose of acquiring, holding, voting or disposing of Voting
Stock of the corporation which would be required under Section 13(d) of the
Exchange Act, and the rules and regulations promulgated thereunder, to file
a statement on Schedule 13D pursuant to Rule 13d-1(a) or Schedule 13G
pursuant to Rule 13d-1(c) with the Securities and Exchange Commission as a
"person" within the meaning of Section 13(d)(3) of the Exchange Act if such
group Beneficially Owned Voting Stock representing more than 5% of any class
of Voting Stock then outstanding.
5. APPOINTMENT OF CHIEF FINANCIAL OFFICER AND GENERAL COUNSEL; REMOVAL
OF CHIEF EXECUTIVE OFFICER. For as long as there are any Class B Directors,
the Class B Directors shall have the exclusive power and authority to (A)
appoint the Chief Financial Officer and General Counsel of the Corporation,
and (B) remove the Chief Executive Officer.
SIXTH: The election of directors need not be by written ballot unless the
Bylaws so provide.
SEVENTH: Subject to Article FIFTEENTH, the Board of Directors of the
Corporation is authorized and empowered from time to time in its discretion to
make, alter, amend or repeal Bylaws
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of the Corporation, except as such power may be restricted or limited by this
Restated Certificate of Incorporation or the General Corporation Law.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provision of Section291 of the General Corporation Law, or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under Section279 of the General Corporation Law, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
NINTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section174 of the General Corporation Law,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law is amended after the date of
incorporation of the Corporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be deemed to be eliminated or limited to
the fullest extent permitted by the General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
TENTH: Subject to the limitations set forth herein, the Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
Restated Certificate of Incorporation, in the manner now or hereafter prescribed
by law, and all rights and powers conferred herein on stockholders, directors
and officers are subject to this reserved power.
ELEVENTH: All calculations of Beneficial Ownership affecting the
determination of any rights under this Restated Certificate of Incorporation or
the conversion of Class B Common Stock into Class A Common Stock shall not be
finally determined and any change in rights or the conversion of Class B Common
Stock into Class A Common Stock dependent thereon shall not take effect until
the holders of Class B Common Stock shall have been afforded the opportunity to
exercise any stock purchase rights such holders may have pursuant to and in
accordance with the terms of Section 3.3 of the Governance Agreement and the
relevant period for exercising such rights shall have terminated in accordance
with the terms of Section 3.3 of the Governance Agreement. In the event that any
of such stock purchase rights are exercised and complied with by the person
exercising the rights, for purposes of calculating Beneficial Ownership
affecting the determination of any rights under this Restated Certificate of
Incorporation or conversion of Class B Common Stock into Class A Common Stock
the securities so purchased shall be deemed to have been issued and Beneficially
Owned by the holder thereof from the time of the securities issuance or sale by
the Corporation that gave rise to such stock purchase rights.
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TWELFTH: Wherever a term shall be used in the singular in this Restated
Certificate of Incorporation, it shall be deemed in all appropriate
circumstances to include also the plural, and wherever a term shall be so used
in the plural, it shall similarly be deemed to include also the singular.
THIRTEENTH: In anticipation that the Corporation and NBC may engage in the
same or similar activities or lines of business and have an interest in the same
or similar areas of corporate opportunities, there will be benefits to be
derived by the Corporation through its contractual, corporate and business
relations with NBC (including possible service of officers and directors of NBC
as officers and directors of the Corporation) and there will be benefits in
providing guidelines for directors and officers of NBC and its affiliates and of
the Corporation with respect to the allocation of corporate opportunities and
other matters; the provisions of this Article THIRTEENTH, are set forth to
regulate, define and guide the conduct of certain affairs of the Corporation as
they may involve NBC and its officers and directors, and the powers, rights,
duties and liabilities of the Corporation and its officers, directors and
stockholders in connection therewith; PROVIDED, HOWEVER, that nothing in this
Article THIRTEENTH will impede the Corporation's ability to enter into
contractual arrangements with a stockholder of the Corporation, which
arrangements restrict the stockholder from engaging in activities otherwise
allowed by this Article THIRTEENTH, and the following provisions shall be
subject to any such contractual obligation of the Corporation.
1. NBC shall have the right to, and shall have no duty hereunder to refrain
from, engaging in the same or similar activities or lines of business as the
Corporation, doing business with any potential or actual customer or supplier of
the Corporation, or employing or otherwise engaging any officer or employee of
the Corporation. To the fullest extent permitted by law, neither NBC nor any
officer or director thereof shall be liable to the Corporation or its
stockholders for breach of any fiduciary duty by reason of any such activities
of NBC, or the participation therein of such person. In the event that NBC
acquires knowledge of a potential transaction or matter which may be a corporate
opportunity for both NBC and the Corporation, NBC shall have no duty to
communicate or present such corporate opportunity to the Corporation, and shall
not be liable to the Corporation or its stockholders for breach of any fiduciary
duty as a stockholder of the Corporation by reason of the fact that NBC pursues
or acquires such corporate opportunity for itself, directs such corporate
opportunity to another person, or does not communicate information regarding
such corporate opportunity to the Corporation.
2. In the event that a director or officer of the Corporation who is also a
director or officer of NBC acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both the Corporation and NBC, to
the fullest extent permitted by law (i) such director or officer of the
Corporation shall be deemed to have fully satisfied and fulfilled the fiduciary
duty of such director or officer to the Corporation and its stockholders with
respect to such corporate opportunity, (ii) shall not be liable to the
Corporation or its stockholders for breach of any fiduciary duty by reason of
the fact that NBC or any of its affiliates pursues or acquires such corporate
opportunity for itself or directs such corporate opportunity to another Person
(including, without limitation, NBC or any of its affiliates) or does not
communicate information regarding such corporate opportunity to the Corporation,
(iii) shall be deemed to have acted in good faith and in a manner such Person
reasonably believes to be in or not opposed to the best interests of the
Corporation, and (iv) shall be deemed not to have breached his or her duty of
loyalty to the Corporation or its stockholders and not to have derived an
improper benefit therefrom, if such director or officer acts in a manner
consistent with the following policy:
(i) A corporate opportunity offered to any person who is an officer
of the Corporation, and who is also a director but not an officer of NBC,
shall belong to the Corporation; (ii) a corporate opportunity offered to
any person who is a director but not an officer of the Corporation, and
who is also a director or officer of NBC shall belong to the Corporation
if such opportunity is expressly offered to such person in writing solely
in his or her capacity as a director of the Corporation, and otherwise
shall belong to NBC; and (iii) a corporate
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opportunity offered to any person who is an officer of both the
Corporation and NBC shall belong to the Corporation if such opportunity
is expressly offered to such person in writing solely in his or her
capacity as an officer of the Corporation, and otherwise shall belong to
NBC.
3. Any corporate opportunity that belongs to NBC or any of its affiliates
or to the Corporation pursuant to the foregoing policy shall not be pursued by
the other, unless and until the party to whom the opportunity belongs determines
not to pursue the opportunity and so informs the other party. Notwithstanding
the preceding sentence, if the party to whom the corporate opportunity belongs
does not within 30 calendar days begin to pursue, or thereafter continue to
pursue, such opportunity diligently and in good faith, the other party may then
pursue such opportunity.
4. To avoid any appearance that the Board of Directors is not acting
independently and in the best interest of the stockholders, the approval of a
majority of the Class A Directors, voting separately as a group, shall be
required to commence any action, suit or proceeding against any Restricted Party
(as defined in the Governance Agreement) or take or approve or enter into any
transaction, action or other arrangement including any Restricted Party
(including resolving any dispute) that would otherwise require the action of the
full Board of Directors.
5. Any person purchasing or otherwise acquiring any interest in shares of
the capital stock of the Corporation shall be deemed to have notice of and to
have consented to the provisions of this Article THIRTEENTH.
6. For purposes of this Article THIRTEENTH only:
(a) A director of the Corporation who is Chairman of the Board of
Directors of the Corporation or of a committee thereof shall not be deemed
to be an officer of the Corporation by reason of holding such position
(without regard to whether such position is deemed an office of the
Corporation under the Bylaws of the Corporation), unless such person is a
full-time employee of the Corporation; and
(b) (A) The term "Corporation" shall mean the Corporation and all
corporations, partnerships, joint ventures, associations and other entities
in which the Corporation Beneficially Owns (directly or indirectly) 50% or
more of the outstanding voting stock, voting power, partnership interests or
similar voting interests, and (B) the term "NBC" shall mean NBC and all
corporations, partnerships, joint ventures, associations and other entities
(other than the Corporation, defined in accordance with clause (A) of this
paragraph 6(b)) in which NBC Beneficially Owns (directly or indirectly) 50%
or more of the outstanding voting stock, voting power, partnership interests
or similar voting interests.
For purposes of this Article THIRTEENTH, "corporate opportunities" shall
consist of business opportunities which (i) the Corporation is financially
able to undertake, (ii) are, from their nature, in the line or lines of the
Corporation's business and are of practical advantage to it, and (iii) are
ones in which the Corporation has an interest or reasonable expectancy.
7. Notwithstanding anything in this Restated Certificate of Incorporation
to the contrary, (i) the foregoing provisions of this Article THIRTEENTH shall
expire on the date that NBC ceases to Beneficially Own Common Stock representing
at least 20% of the voting power of the outstanding shares of Common Stock and
no person who is a director or officer of the Corporation is also a director or
officer of NBC; and (ii) in addition to any vote of the stockholders required by
this Restated Certificate of Incorporation, until the time that NBC ceases to
own beneficially Common Stock representing at least 20% of the voting power of
the outstanding shares of Common Stock, the affirmative vote of the holders of
at least 80% of the voting power of the outstanding shares of Common Stock shall
be required to alter, amend or repeal (by merger or otherwise) in a manner
adverse to the interests of NBC, or adopt any provision adverse to the interests
of NBC and
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inconsistent with, any provision of this Article THIRTEENTH. Neither the
alteration, amendment or repeal of this Article THIRTEENTH nor the adoption of
any provision of this Restated Certificate of Incorporation inconsistent with
this Article THIRTEENTH shall eliminate or reduce the effect of this Article
THIRTEENTH in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article THIRTEENTH, would accrue or arise, prior to
such alteration, amendment, repeal or adoption.
FOURTEENTH: CHANGE IN NAME: Notwithstanding anything contained in this
Restated Certificate of Incorporation to the contrary, as long as there are any
Class B Directors, no change may be made in the name of the Corporation without
the approval of a majority of the Class A Directors and a majority of the Class
B Directors; PROVIDED such vote shall not be required for any change in the name
required to be made in accordance with the terms of the License Agreement.
FIFTEENTH: AMENDMENT TO BYLAWS: Notwithstanding anything contained in this
Restated Certificate of Incorporation to the contrary: (i) any amendment, change
or repeal of Sections 2.3 or 2.5(a) of Article IX of the Bylaws, or any other
amendment to the Bylaws that will have the effect of permitting circumvention of
or modifying Sections 2.3 or 2.5(a) of Article IX or the Bylaws shall require
the affirmative vote of the holders of a majority of the outstanding shares of
Class A Common Stock and Class B Common Stock entitled to vote, each voting as a
separate class; and (ii) any amendment, change or repeal of Sections 3.6(a) or
3.9 of the Bylaws or any other amendment to the Bylaws that will have the effect
of permitting circumvention of or modifying Sections 3.6(a) or 3.9 of the Bylaws
shall require the affirmative vote of a majority of the Class A Directors and
Class B Directors each voting as a separate group.
SIXTEENTH: DEFINITIONS: As used in this Restated Certificate of
Incorporation, the terms set forth below shall have the following meanings:
1. "Affiliate" shall mean (i) with respect to the Corporation, the
Corporation's Subsidiaries, (ii) with respect to NBC, except as provided in
Section 2.2 of the Governance Agreement, NBC's Subsidiaries and the holder
of the Company Convertible Note and (iii) with respect to NBC Parent, NBC
Parent's Subsidiaries other than NBC and its Affiliates; PROVIDED, HOWEVER,
that for purposes of this Restated Certificate of Incorporation, the
Corporation and its Affiliates on the one hand, and either NBC and its
Affiliates or NBC Parent and its Affiliates on the other hand, shall not be
deemed to be "Affiliates" of one another.
2. "Beneficially Own" or "Beneficial Ownership" shall have the meaning
set forth in Rule 13d-3 of the rules and regulations promulgated under the
Exchange Act. Without limiting the foregoing, the holder of the Company
Convertible Note will be deemed to Beneficially Own the shares of Common
Stock issuable upon conversion thereof.
3. "Class A Directors" shall mean those directors elected to the Board
of Directors by the holders of the Class A Common Stock and any directors
appointed to the Board of Directors by the Class A Nominating Committee of
the Board of Directors.
4. "Class B Directors" shall mean those directors elected to the Board
of Directors by the holders of the Class B Common Stock and any directors
appointed to the Board of Directors by the Class B Nominating Committee of
the Board of Directors.
5. "Company Convertible Notes" shall mean the $447,416,845 Zero-Coupon
Convertible Debenture due 2006 to be issued by the Corporation to GE
Investments Subsidiary, Inc., a Delaware corporation, and the $39,477,852
Zero-Coupon Convertible Debenture due 2006 to be issued by the Corporation
to NBC Multimedia, Inc., a Delaware Corporation.
6. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
D-1-15
<PAGE>
7. "License Agreement" means that certain Brand Integration and License
Agreement dated May 8, 1999 between NBC Multimedia, Inc., a Delaware
corporation, and NBC.
8. "NBC" shall mean National Broadcasting Company, Inc., a Delaware
corporation.
9. "NBC Parent" shall mean the ultimate parent corporation of NBC (if
any), which as of today is General Electric Company, a New York corporation.
10. "Subsidiary" shall mean, as to any person, another person of which
outstanding securities having the power to elect a majority of the members
of the board of directors (or comparable body or authority performing
similar functions) of such other person are at the time owned, directly or
indirectly through one or more intermediaries, or both, by such first
person.
D-1-16
<PAGE>
APPENDIX D-2
RESTATED BYLAWS
OF
NBC INTERNET, INC.
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
NBC INTERNET, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I OFFICES................................................................. D-2-1
Section 1.1 Registered Office................................................... D-2-1
Section 1.2 Other Offices....................................................... D-2-1
ARTICLE II STOCKHOLDERS' MEETINGS................................................. D-2-1
Section 2.1 Place of Meetings................................................... D-2-1
Section 2.2 Annual Meetings..................................................... D-2-1
Section 2.3 Special Meetings.................................................... D-2-1
Section 2.4 Notice of Meetings.................................................. D-2-1
Section 2.5 Quorum and Voting................................................... D-2-2
Section 2.6 Voting Rights; Proxies.............................................. D-2-3
Section 2.7 Voting Procedures and Inspectors of Elections....................... D-2-3
Section 2.8 List of Stockholders................................................ D-2-4
Section 2.9 Notice of Stockholder Business and Nominations...................... D-2-4
ARTICLE III DIRECTORS............................................................. D-2-7
Section 3.1 Number and Term of Office........................................... D-2-7
Section 3.2 Powers.............................................................. D-2-7
Section 3.3 Vacancies........................................................... D-2-7
Section 3.4 Resignations and Removals........................................... D-2-7
Section 3.5 Meetings............................................................ D-2-8
Section 3.6 Quorum and Voting................................................... D-2-8
Section 3.7 Action Without Meeting.............................................. D-2-8
Section 3.8 Fees and Compensation............................................... D-2-9
Section 3.9 Committees.......................................................... D-2-9
ARTICLE IV OFFICERS............................................................... D-2-11
Section 4.1 Enumeration, Election and Term...................................... D-2-11
Section 4.2 General Duties...................................................... D-2-11
Section 4.3 Vacancies........................................................... D-2-11
Section 4.4 Compensation........................................................ D-2-11
Section 4.5 Resignation and Removal............................................. D-2-11
Section 4.6 Chairman of the Board............................................... D-2-12
Section 4.7 Chief Executive Officer............................................. D-2-12
Section 4.8 President........................................................... D-2-12
Section 4.9 Chief Financial Officer............................................. D-2-12
Section 4.10 Vice Presidents.................................................... D-2-12
Section 4.11 Secretary.......................................................... D-2-13
Section 4.12 Delegation of Duties............................................... D-2-13
ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY
THE CORPORATION.................................................................. D-2-13
Section 5.1 Execution of Corporate Instruments.................................. D-2-13
Section 5.2 Voting of Securities Owned by Corporation........................... D-2-14
ARTICLE VI SHARES OF STOCK........................................................ D-2-14
Section 6.1 Form and Execution of Certificates.................................. D-2-14
Section 6.2 Lost Certificates................................................... D-2-14
Section 6.3 Transfers........................................................... D-2-14
Section 6.4 Fixing Record Dates................................................. D-2-15
Section 6.5 Registered Stockholders............................................. D-2-15
</TABLE>
D-2-i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII OTHER SECURITIES OF THE CORPORATION................................... D-2-16
ARTICLE VIII CORPORATE SEAL....................................................... D-2-16
ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS........... D-2-16
Section 9.1 Right to Indemnification............................................ D-2-16
Section 9.2 Authority to Advance Expenses....................................... D-2-17
Section 9.3 Right of Claimant to Bring Suit..................................... D-2-17
Section 9.4 Provisions Nonexclusive............................................. D-2-18
Section 9.5 Authority to Insure................................................. D-2-18
Section 9.6 Survival of Rights.................................................. D-2-18
Section 9.7 Effect of Amendment................................................. D-2-18
Section 9.8 Subrogation......................................................... D-2-18
Section 9.9 No Duplication of Payments.......................................... D-2-18
ARTICLE X NOTICES................................................................. D-2-18
ARTICLE XI AMENDMENTS............................................................. D-2-19
ARTICLE XII MISCELLANEOUS......................................................... D-2-20
Section 12.1 Gender............................................................. D-2-20
Section 12.2 Invalid Provision.................................................. D-2-20
Section 12.3 Definitions........................................................ D-2-20
</TABLE>
D-2-ii
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
NBC INTERNET, INC.
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE.
The Corporation shall have and maintain at all times (a) a registered office
in the State of Delaware, which office shall be located at 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801, and (b) a registered agent
located at such address whose name is The Corporation Trust Company, until
changed from time to time as provided by the General Corporation Law of the
State of Delaware (the "Delaware Corporation Law").
SECTION 1.2 OTHER OFFICES.
The principal office of the Corporation may be located within or without the
State of Delaware, as designated by the Board of Directors. The Corporation may
have other offices and places of business at such places within or without the
State of Delaware as shall be determined by the directors or as may be required
by the business of the Corporation.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 PLACE OF MEETINGS.
Meetings of the stockholders of the Corporation shall be held at such place,
either within or without the State of Delaware, as may be designated from time
to time by the Board of Directors, or, if not so designated, then at the
registered office of the Corporation required to be maintained pursuant to
Section 1.1 of Article I hereof.
SECTION 2.2 ANNUAL MEETINGS.
The annual meetings of the stockholders of the Corporation for the purpose
of election of directors and for such other business as may lawfully come before
it, shall be held on such date and at such time as may be designated from time
to time by the Board of Directors.
SECTION 2.3 SPECIAL MEETINGS.
Special Meetings of the stockholders of the Corporation may be called, for
any purpose or purposes, by the Chairman of the Board, Chief Executive Officer
or President, the Board of Directors at any time or by the holders of at least a
majority of the outstanding shares of Class B Common Stock. Special meetings of
the stockholders of the Corporation may not be called by any other person or
persons. No business may be transacted at any special meeting except that
referred to in the notice thereof.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Restated Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour and purpose or purposes of the meeting, shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat, directed to his address as it appears upon
the books of the
D-2-1
<PAGE>
Corporation; except that where the matter to be acted on is a merger or
consolidation of the Corporation or a sale, lease or exchange of all or
substantially all of its assets, such notice shall be given not less than twenty
(20) nor more than sixty (60) days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken, would
entitle stockholders fulfilling the requirements of section 262(d) of the
Delaware Corporation Law to an appraisal of the fair value of their shares, the
notice of such meeting shall contain a statement of that purpose and to that
effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
(d) Notice of the time, place and purpose of any meeting of stockholders may
be waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his attendance thereat,
in person or by proxy. Any stockholder so waiving notice of such meeting shall
be bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 2.5 QUORUM AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided by law,
the Restated Certificate of Incorporation, or these Bylaws, the presence in
person or by proxy, duly authorized, of the holders of shares entitled to cast a
majority of all the votes which could be cast at such meeting by the holders of
all of the outstanding shares of capital stock of the Corporation entitled to
vote on every matter that is to be voted on at such meeting shall constitute a
quorum; PROVIDED, FURTHER, that any action of the Corporation approved or
recommended by the stockholders of the Corporation will be subject to the
appropriate approval of the holders of the Class A Common Stock and Class B
Common Stock pursuant to paragraphs 11(a) and 11(b) of Article Fourth of the
Restated Certificate of Incorporation of the Corporation. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. At such adjourned meeting at which
a quorum is present or represented any business may be transacted which might
have been transacted at the original meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Restated Certificate of
Incorporation or these Bylaws, all action taken by the holders of a majority of
the shares voting "for" or "against" at any meeting at which a quorum is present
shall be valid and binding upon the Corporation.
(c) Except as otherwise provided by law, the Restated Certificate of
Incorporation or these Bylaws, where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes, present
in person or represented by proxy, shall constitute a quorum entitled to take
action with respect to that vote on that matter and the affirmative vote of the
majority of shares of such class or classes present in person or represented by
proxy at the meeting shall be the act of such class.
D-2-2
<PAGE>
SECTION 2.6 VOTING RIGHTS; PROXIES.
(a) Except as otherwise provided by law or in the Restated Certificate of
Incorporation, only persons in whose names shares entitled to vote stand on the
stock records of the Corporation on the record date for determining the
stockholders entitled to vote at said meeting shall be entitled to vote at such
meeting. Shares standing in the names of two or more persons shall be voted or
represented in accordance with the determination of the majority of such
persons, or, if only one of such persons is present in person or represented by
proxy, such person shall have the right to vote such shares and such shares
shall be deemed to be represented for the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the right
to do so either in person or by an agent or agents authorized by a proxy, which
proxy shall be filed with the Secretary of the Corporation at or before the
meeting at which it is to be used. Said proxy so appointed need not be a
stockholder. No proxy shall be voted on after three years from its date unless
the proxy provides for a longer period. Unless and until voted, every proxy
shall be revocable at the pleasure of the person who executed it or of his legal
representatives or assigns, except in those cases where an irrevocable proxy
permitted by statute has been given.
(c) Without limiting the manner in which a stockholder may authorize another
person or persons to act for him as proxy pursuant to subsection (b) of this
section, the following shall constitute a valid means by which a stockholder may
grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing
by any reasonable means including, but not limited to, by facsimile
signature.
(2) A stockholder may authorize another person or persons to act for him
as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be
the holder of the proxy to receive such transmission; PROVIDED, that any
such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. Such authorization can be established by the
signature of the stockholder on the proxy, either in writing or by a
signature stamp or facsimile signature, or by a number or symbol from which
the identity of the stockholder can be determined, or by any other procedure
deemed appropriate by the inspectors or other persons making the
determination as to due authorization. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to subsection (c) of this section
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used; PROVIDED that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The Corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint
D-2-3
<PAGE>
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding and
the voting power of each, (ii) determine the shares represented at a meeting and
the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(c) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the Inspectors after the closing of the polls
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware Corporation Law, ballots and the regular books
and records of the Corporation, except that the inspectors may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent more votes than the holder of a proxy is authorized by the
record owner to cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for the limited purpose permitted
herein, the inspectors at the time they make their certification pursuant to
subsection (b)(v) of this section shall specify the precise information
considered by them including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
SECTION 2.8 LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held and which place shall
be specified in the notice of the meeting, or, if not specified, at the place
where said meeting is to be held, and the list shall be produced and kept at the
time and place of meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
SECTION 2.9 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETING OF STOCKHOLDERS. (i) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders only (A) pursuant to the Corporation's notice of meeting (or any
supplement thereto), (B) by or at the direction of the Board of Directors, (C)
by the holders of a majority of the outstanding shares of Class B Common Stock,
which holders shall not be required to comply with the notice provisions set
forth in this Section 2.9; PROVIDED that this clause (C) will not permit such
holders to nominate Class A Directors or (D) by any stockholder of the
Corporation who was a stockholder of record of the Corporation at the time the
notice provided for in this Section 2.9 is
D-2-4
<PAGE>
delivered to the Secretary of the Corporation, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
2.9.
(ii) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (D) of paragraph (a)(i) of
this Section 2.9, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and any such proposed business other
than the nominations of persons for election to the Board of Directors must
constitute a proper matter for stockholder action. To be timely, such a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth day nor earlier than the close of business on the one hundred
twentieth day prior to the first anniversary of the preceding year's annual
meeting; PROVIDED, HOWEVER, that in the event that the date of the annual
meeting is more than thirty days before or more than seventy days after such
anniversary date, notice by the stockholder must be so delivered not earlier
than the close of business on the one hundred twentieth day prior to such annual
meeting and not later than the close of business on the later of the ninetieth
day prior to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment or
postponement of an annual meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth: (A) as to each person whom the stockholder
proposes to nominate for election as a director all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 41a-11 thereunder (and such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the text of the proposal or business (including the
text of any resolutions proposed for consideration and in the event that such
business includes a proposal to amend the Bylaws of the Corporation, the
language of the proposed amendment), the reasons for conducting such business at
the meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (C) as
to the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of such
stockholder, as they appear in the Corporation's books, and of such beneficial
owner, (2) the class and number of shares of capital stock of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, (3) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to propose such business or
nomination, and (4) a representation whether the stockholder or the beneficial
owner, if any, intends or is part of a group which intends (a) to deliver a
proxy statement or form of proxy to holders of at least the percentage of the
Corporation's outstanding capital stock required to approve or adopt the
proposal or elect the nominee or (b) otherwise to solicit proxies from
stockholders in support of such proposal or information as it may reasonably
require to determine the eligibility of such proposed nominee to serve as a
director of the Corporation.
(iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of
this Section 2.9 to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation at an annual meeting is
increased and there is no public announcement by the Corporation naming the
nominees for the additional directorships at least one hundred days prior to the
first anniversary of the preceding year's annual meeting, a stockholder's notice
required by this Section 2.9 shall also be considered timely, but only with
respect to nominees for the additional directorships, if it shall be delivered
to the Secretary at the principal executive offices of the Corporation not later
than the close of business on the tenth day following the day on which such
public announcement is first made by the Corporation.
D-2-5
<PAGE>
(b) SPECIAL MEETING OF STOCKHOLDERS. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (i) by or at the direction of the Board of Directors, or (ii)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time the notice provided for in this Section 2.9 is
delivered to the Secretary of the Corporation, who is entitled to vote at the
meeting and upon such election and who complies with the notice procedures set
forth in this Section 2.9. In the event the Corporation calls a special meeting
of stockholders for the purpose of electing one or more directors to the Board
of Directors, any such stockholder entitled to vote in such election of
directors may nominate a person or persons (as the case may be) for election to
such position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (a)(ii) of this Section 2.9 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the one hundred twentieth day prior to
such special meeting and not later than the close of business on the later of
the ninetieth day prior to such special meeting or the tenth day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of an adjournment or
postponement of a special meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above.
(c) GENERAL. (i) Only such persons who are nominated in accordance with
the procedures set forth in this Section 2.9 shall be eligible to be elected at
an annual or special meeting of stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.9. Except as otherwise provided by law, the chairman
of the meeting shall have the power and duty (A) to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 2.9 (including whether the stockholder or beneficial owner, if any,
on whose behalf the nomination or proposal is made solicited (or is part of a
group which solicited) or did not so solicit, as the case may be, proxies in
support of such stockholder's nominee or proposal in compliance with such
stockholder's representation as required by clause (a)(ii)(C)(4) of this Section
2.9) and (B) if any proposed nomination or business was not made or proposed in
compliance with this Section 2.9, to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted.
(ii) For purposes of this Section 2.9, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 2.9, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.9. Nothing in this Section 2.9 shall be deemed to affect
any rights (a) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(b) of the holders of any series of Preferred Stock to elect directors pursuant
to any applicable provisions of the Restated Certificate of Incorporation.
D-2-6
<PAGE>
ARTICLE III
DIRECTORS
SECTION 3.1 NUMBER AND TERM OF OFFICE.
So long as there remain shares of Class B Common Stock outstanding, the
directors elected by the holders of the Class A Common Stock shall be designated
the "Class A Directors" and the directors elected by the holders of the Class B
Common Stock shall be designated the "Class B Directors," as provided in the
Restated Certificate of Incorporation.
With the exception of the first Board of Directors, which shall be elected
by the incorporator, and except as provided in Section 3.3 of this Article III
or as otherwise provided in the Restated Certificate of Incorporation, directors
shall be elected by a plurality vote of the shares represented in person or by
proxy, at the stockholders annual meeting in each year and entitled to vote on
the election of such directors. Elected directors shall hold office until the
next annual meeting and until their successors shall be duly elected and
qualified. Directors need not be stockholders. If, for any cause, the Board of
Directors shall not have been elected at an annual meeting, they may be elected
as soon thereafter as convenient at a special meeting of the stockholders called
for that purpose in the manner provided in these Bylaws or the Restated
Certificate of Incorporation.
SECTION 3.2 POWERS.
Unless otherwise provided in the Restated Certificate of Incorporation, the
powers of the Corporation shall be exercised, its business conducted and its
property controlled by or under the direction of the Board of Directors.
SECTION 3.3 VACANCIES.
Unless otherwise provided in the Restated Certificate of Incorporation or
these Bylaws, vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director, and each director so elected shall hold office for the
unexpired portion of the term of the director whose place shall be vacant, and
until his successor shall have been duly elected and qualified.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time or upon receipt by the Secretary. If no such
specification is made it shall be deemed effective upon receipt by the
Secretary. Unless otherwise provided in the Restated Certificate of
Incorporation, when one or more directors shall resign from the Board, effective
at a future date, a majority of the directors then in office of the same class
as the director who resigned, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office for the unexpired portion of the term of the director
whose place shall be vacated and until his successor shall have been duly
elected and qualified.
(b) At a special meeting of stockholders called for the purpose in the
manner hereinabove provided, subject to any limitations imposed by law, the
Restated Certificate of Incorporation, the Board of Directors, or any individual
director, may be removed from office, with or without cause, and a new director
or directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote for the election of such director.
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SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held immediately
after the annual stockholders' meeting and at the place where such meeting is
held or at the place announced by the Chairman at such meeting. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) Regular meetings of the Board of Directors may be held at any place
within or without the State of Delaware which has been designated by resolutions
of the Board of Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time and
place within or without the State of Delaware whenever called by the Chairman of
the Board or, if there is no Chairman of the Board, by the President, or by any
of the directors.
(d) Written notice of the time and place of all regular and special meetings
of the Board of Directors shall be delivered personally to each director or sent
by telegram or facsimile transmission (or other lawfully permitted means) at
least 48 hours before the start of the meeting, or sent by first class mail at
least 120 hours before the start of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived by
any director by attendance thereat, except where a director attends for the
express purpose of objecting at the beginning of a meeting to the transaction of
any business because the meeting is not lawfully called or convened.
SECTION 3.6 QUORUM AND VOTING.
(a) At any meeting of the Board of Directors, the presence of a majority of
the total number of directors shall constitute a quorum for the transaction of
business; PROVIDED, that at any meeting whether a quorum be present or
otherwise, a majority of the directors present may adjourn from time to time
until the time fixed for the next regular meeting of the Board of Directors,
without notice other than by announcement at the meeting; and PROVIDED, FURTHER,
that any action of the Corporation approved or recommended by the Board of
Directors will be subject to appropriate consents and approvals of the Class A
Directors or the Class B Directors voting as a group pursuant to paragraphs 3
and 4 of Article FIFTH of the Restated Certificate of Incorporation of the
Corporation.
(b) At each meeting of the Board at which a quorum is present all questions
and business shall be determined by a vote of a majority of the directors
present, unless a different vote be required by law, the Restated Certificate of
Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may
participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 3.7 ACTION WITHOUT MEETING.
Unless otherwise restricted by the Restated Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee
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thereof may be taken without a meeting, if all members of the Board or of such
committee, as the case may be entitled to vote thereon, consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
SECTION 3.9 COMMITTEES.
So long as there remain shares of Class B Common Stock outstanding, any
committee established pursuant to this Section 3.9 shall be comprised, at all
times, of at least one (1) Class A Director and one (1) Class B Director. In
addition, if there are more than two members of any committee, the composition
of the members serving on such committee shall reflect, to the extent
practicable, the relative representation of Class A Directors and Class B
Directors on the Board of Directors, unless a majority of the Class A Directors
and Class B Directors, voting separately, otherwise agree. The provisions of
this paragraph shall not apply to Sections 3.9(b), (c) and (d) herein.
(a) EXECUTIVE COMMITTEE: The Board of Directors may appoint an Executive
Committee of not less than two (2) members, each of whom shall be a director.
The Executive Committee, to the extent permitted by law, shall have and may
exercise when the Board of Directors is not in session all powers of the Board
in the management of the business and affairs of the Corporation, except such
committee shall not have the power or authority to amend these Bylaws or to
approve or recommend to the stockholders any action which must be submitted to
stockholders for approval under the General Corporation Law.
(b) NOMINATING COMMITTEE: Notwithstanding anything contained in this Section
3.9 to the contrary, so long as there remain shares of Class B Common Stock
outstanding, there shall be a "Class A Nominating Committee" comprised solely of
Class A Directors, and a "Class B Nominating Committee" comprised solely of
Class B Directors. Subject to any rights of stockholders under law to nominate
persons to serve as directors, (i) the Class A Nominating Committee shall
nominate persons to serve as Class A Directors and shall appoint persons to fill
vacancies on, or newly created directorships of, the Board designated for Class
A Directors (as set forth in the Restated Certificate of Incorporation) and (ii)
the Class B Nominating Committee shall nominate persons to serve as Class B
Directors and shall appoint persons to fill vacancies on, or newly created
directorships of, the Board designated for Class B Directors (as set forth in
the Restated Certificate of Incorporation).
(c) CLASS B COMMITTEE: Notwithstanding anything contained in this Section
3.9 to the contrary, so long as there remain shares of Class B Common Stock
outstanding, there shall be a "Class B Committee" comprised solely of one Class
B Director, and one alternate Class B Director to serve in the absence of the
Class B Committee member (both as determined by the Class B Directors). The
Class B Committee shall have the power and authority to consent to or approve
any action required to be approved by the Class B Directors pursuant to
paragraph 4 of Article FIFTH of the Restated Certificate of Incorporation of the
Corporation. If the Class B Committee is presented with any matter for its
approval, within five business days of the request for approval it will either
(i) grant such approval, (ii) deny such approval or (iii) require that such
request for approval be considered by all of the Class B Directors (in which
event such matter shall be submitted to all of the Class B Directors for their
approval or disapproval). If the Class B Committee does not take any action
within such five business day period its approval shall be deemed automatically
to have been granted at the end of such period.
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(d) CLASS A COMMITTEE: Notwithstanding anything contained in this Section
3.9 to the contrary, so long as there remain shares of Class B Common Stock
outstanding, there shall be a "Class A Committee" comprised of one or more Class
A Directors (as determined by the Class A Directors). The Class A Committee
shall have the power and authority to (A) consent to or approve any action
described in clauses (i), (ii), (iii), (iv) or (v) of paragraph 3 of Article
FIFTH of the Restated Certificate of Incorporation of the Corporation and (B)
exercise any other right afforded to the Class A Directors by the Restated
Certificate of Incorporation or by any contract or other agreement to which the
Corporation is a party.
(e) OTHER COMMITTEES: The Board of Directors may, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committee, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(f) TERM: The members of all committees of the Board of Directors shall
serve a term coexistent with that of the Board of Directors which shall have
appointed such committee. The Board, subject to the requirements specifically
set forth in this Section 3.9, may at any time increase or decrease the number
of members of a committee or terminate the existence of a committee; PROVIDED,
that no committee shall consist of less than two (2) members. The membership of
a committee member shall terminate on the date of his death or voluntary
resignation, but the Board may at any time for any reason remove any individual
committee member and the Board may, subject to the requirements specifically set
forth in this Section 3.9, fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may, subject to the requirements specifically set forth in
this Section 3.9, designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may, subject to the requirements specifically set forth in this Section 3.9,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(g) MEETINGS: Unless the Board of Directors shall otherwise provide, regular
meetings of the Executive Committee or any other committee appointed pursuant to
this Section 3.9 shall be held at such times and places as are determined by the
Board of Directors, or by any such committee, and when notice thereof has been
given to each member of such committee, no further notice of such regular
meetings need be given thereafter; special meetings of any such committee may be
held at the principal office of the Corporation required to be maintained
pursuant to Section 1.2 of Article I hereof, or at any place which has been
designated from time to time by resolution of such committee or by written
consent of all members thereof, and may be called by any director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time after the meeting
and will be waived by any director by attendance thereat, except where a
director attends for the express purpose of objecting at the beginning of a
meeting to the transaction of any business because the meeting is not lawfully
called or convened. A majority of the authorized number of members of any such
committee shall constitute a quorum for the transaction of business; PROVIDED
that any action of the Corporation approved or recommended by any committee of
the Board of Directors will be subject to appropriate consents and approvals of
the Class A Directors or the Class B Directors voting as a group pursuant to
paragraphs 3 and 4 of Article FIFTH of the Restated Certificate of Incorporation
of the Corporation.
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The act of a majority of those present at any meeting at which a quorum is
present shall be the act of such committee.
ARTICLE IV
OFFICERS
SECTION 4.1 ENUMERATION, ELECTION AND TERM.
The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer and such other officers with such other titles as may be deemed
necessary or desirable by the Board of Directors, including a Chief Executive
Officer, Chief Financial Officer, one or more Vice Presidents, a Controller,
Assistant Treasurers and Assistant Secretaries and a Chairman of the Board. Any
number of offices may be held by the same person, and no officer need be a
stockholder or a resident of the State of Delaware. Except as otherwise provided
by law, the Restated Certificate of Incorporation or these Bylaws, each officer
shall hold office until his successor is elected and qualified or until his
earlier death, resignation or removal. The officers of the Corporation shall be
elected annually by the Board of Directors at the first meeting of the Board
held after each annual meeting of the stockholders.
SECTION 4.2 GENERAL DUTIES.
All officers and agents of the Corporation, as between themselves and the
Corporation, shall have such authority and shall perform such duties in the
management of the Corporation as may be provided in these Bylaws or as may be
determined by resolution of the Board of Directors not inconsistent with these
Bylaws. In all cases where the duties of any officer, agent or employee are not
prescribed by these Bylaws or by the Board of Directors, such officer, agent or
employee shall follow the orders and instructions of the President.
SECTION 4.3 VACANCIES.
The Board of Directors may fill any vacancy occurring in any office for any
reason and may, in its discretion, leave any vacancy unfilled for such period as
it may determine, other than a vacancy in the office of President or Secretary.
The officer so selected shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal.
SECTION 4.4 COMPENSATION.
The Board of Directors from time to time shall fix the compensation of the
officers of the Corporation. The compensation of other agents and employees of
the Corporation may be fixed by the Board of Directors, by any committee
designated by the Board or by an officer to whom that function has been
delegated by the Board.
SECTION 4.5 RESIGNATION AND REMOVAL.
Any officer may resign by delivering his written resignation to the
Corporation at its principal office, addressed to the President or Secretary.
Such resignation shall be effective upon receipt, unless it is specified to be
effective at some other time or upon the happening of some other event. Any
officer or agent of the Corporation may be removed, with or without cause, by a
vote of the majority of the members of the Board of Directors whenever in its
judgment the best interests of the Corporation may be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or an agent shall not of
itself create contract rights.
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<PAGE>
SECTION 4.6 CHAIRMAN OF THE BOARD.
The Chairman of the Board, if any, shall preside as Chairman at meetings of
the stockholders and the Board of Directors. He shall, in addition, have such
other duties as the Board may prescribe that he perform. At the request of the
President, the Chairman of the Board may, in the case of the President's absence
or inability to act, temporarily act in his place. In the case of death of the
President or in the case of his absence or inability to act without having
designated the Chairman of the Board to act temporarily in his place, the
Chairman of the Board shall perform the duties of the President, unless the
Board of Directors, by resolution, provides otherwise. If the Chairman of the
Board shall be unable to act in place of the President, the Vice Presidents may
exercise such powers and perform such duties as provided below.
SECTION 4.7 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer, if any, shall see that all orders and
resolutions of the Board of Directors are carried into effect and shall oversee
the strategic planning and policy development of the Corporation. The Chief
Executive Officer shall perform other duties commonly incident to this office
and shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
SECTION 4.8 PRESIDENT.
The President shall have general supervision of the business of the
Corporation. In the event the position of Chairman of the Board shall not be
occupied or the Chairman shall be absent or otherwise unable to act, the
President shall preside at meetings of the stockholders and directors and shall
discharge the duties of the presiding officer. At each annual meeting of the
stockholders, the President shall give a report of the business of the
Corporation for the preceding fiscal year and shall perform whatever other
duties the Board of Directors may from time to time prescribe.
SECTION 4.9 CHIEF FINANCIAL OFFICER.
The Chief Financial Officer, or if none the Treasurer, shall have custody of
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements and shall deposit all corporate monies and other
valuable effects in the name and to the credit of the Corporation in the
depository or depositories of the Corporation, and shall render an account his
or her transactions as Chief Financial Officer and of the financial condition of
the Corporation to the President and/or the Board of Directors upon request.
Such power given to the Treasurer to deposit and disburse funds shall not,
however, preclude any other officer or employee of the Corporation from also
depositing and disbursing funds when authorized to do so by the Board of
Directors. The Chief Financial Officer shall, if required by the Board of
Directors, give the Corporation a bond in such amount and with such surety or
sureties as may be ordered by the Board of Directors for the faithful
performance of the duties of his office. The Chief Financial Officer shall have
such other powers and perform such other duties as may be from time to time
prescribed by the Board of Directors or the President. In the absence of the
Chief Financial Officer or his inability to act, the Treasurer (or, in his
absence, the Assistant Treasurers or Controller, if any) shall act with the same
authority and shall be subject to the same restrictions as are applicable to the
Chief Financial Officer.
SECTION 4.10 VICE PRESIDENTS.
Each Vice President shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe or as the President may from
time to time delegate to him. At the request of the President, in the case of
the President's absence or inability to act, any Vice President may temporarily
act in his place. In the case of the death of the President, or in the case of
his absence
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or inability to act without having designated a Vice President or Vice
Presidents to act temporarily in his place, the Board of Directors, by
resolution, may designate a Vice President or Vice Presidents to perform the
duties of the President. If no such designation shall be made, the Chief
Executive Officer, if any, shall exercise such powers and perform such duties,
as provided above, but, if the Corporation has no Chief Executive Officer, or if
the Chief Executive Officer is unable to act in place of the President, all of
the Vice Presidents may exercise such powers and perform such duties.
SECTION 4.11 SECRETARY.
The Secretary shall keep or cause to be kept in books provided for that
purpose, the minutes of the meetings of the stockholders, executive committee,
if any, and any other committees, and of the Board of Directors; shall see that
all notices are duly given in accordance with the provisions of these Bylaws and
as required by law; shall be custodian of the records and of the seal of the
Corporation and see that the seal is affixed to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized and in
accordance with the provisions of these Bylaws; and, in general, shall perform
all duties incident to the office of Secretary and such other duties as may,
from time to time, be assigned to him by the Board of Directors or by the
President. In the absence of the Secretary or his inability to act, the
Assistant Secretaries, if any, shall act with the same powers and shall be
subject to the same restrictions as are applicable to the Secretary.
SECTION 4.12 DELEGATION OF DUTIES.
Whenever an officer is absent, or whenever, for any reason, the Board of
Directors may deem it desirable, the Board may delegate the powers and duties of
an officer to any other officer or officers or to any director or directors.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the method and
designate the signatory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the Corporation.
(b) Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, formal contracts of the Corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
Corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the Corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors.
(c) All checks and drafts drawn on banks or other depositaries on funds to
the credit of the Corporation, or in special accounts of the Corporation, shall
be signed by such person or persons as the Board of Directors shall authorize so
to do.
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SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION.
All stock and other securities of other corporations owned or held by the
Corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person authorized
so to do by resolution of the Board of Directors or, in the absence of such
authorization, by the Chairman of the Board (if there be such an officer
appointed), or by the Chief Executive Officer (if there be such an officer), the
President, or by any Vice-President.
ARTICLE VI
SHARES OF STOCK
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES.
Certificates for the shares of stock of the Corporation shall be in such
form as is consistent with the Restated Certificate of Incorporation and
applicable law. Every holder of stock in the Corporation shall be entitled to
have a certificate signed by, or in the name of the Corporation by, the Chairman
of the Board (if there be such an officer appointed), or by the President or any
Vice-President and by the Treasurer or Assistant Treasurer or the Secretary or
Assistant Secretary, certifying the number of shares owned by him in the
Corporation. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. If the Corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock; PROVIDED
that, except as otherwise provided in Section 202 of the Delaware Corporation
Law, in lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
Corporation in such manner as it shall require and/or to give the Corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost or destroyed.
SECTION 6.3 TRANSFERS.
Transfers of record of shares of stock of the Corporation shall be made only
upon its books by the holders thereof, in person or by attorney duly authorized,
and upon the surrender of a certificate or certificates for a like number of
shares, properly endorsed. So long as the Governance Agreement remains in
effect, any transfer of shares of Common Stock by a Restricted Party (as defined
in the
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Governance Agreement) shall be made in accordance therewith. A copy of the
Governance Agreement is maintained at the Corporation's principal office.
SECTION 6.4 FIXING RECORD DATES.
(a) In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than sixty nor
less than ten days before the date of such meeting. If no record date is fixed
by the Board of Directors, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the date on
which the meeting is held. A determination of stockholders of record entitled
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the Delaware Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
SECTION 6.5 REGISTERED STOCKHOLDERS.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
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ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the Corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President or
such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signature of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the Corporation, or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the Corporation and
issued and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of the
Corporation.
ARTICLE VIII
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
Corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 9.1 RIGHT TO INDEMNIFICATION.
(a) Each person who was or is a party or is threatened to be made a party to
or is involved (as a party, witness or otherwise), in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "Proceeding"), by reason of the fact that he, or a
person of whom he is the legal representative, is or was a director or officer
of the Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust, or other enterprise,
including service with respect to employee benefit plans, whether the basis of
the Proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware Corporation Law, as the same exists or may hereafter
be amended or interpreted, against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts
paid or to be paid in settlement, and any interest, assessments or other charges
imposed thereon, and any federal, state, local or foreign taxes imposed on any
person indemnified hereby as a result of the actual or deemed receipt of any
payments under this Article IX) reasonably incurred or suffered by such person
in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any
D-2-16
<PAGE>
Proceeding (hereinafter "Losses"); PROVIDED, HOWEVER, that except as to actions
to enforce indemnification rights pursuant to Section 9.3 of Article IX, the
Corporation shall indemnify any officer or director seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
the Proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article IX shall be
a contract right.
(b) Each person who was or is a party or is threatened to be made a party to
or is involved (as a party, witness or otherwise), in any threatened, pending or
completed Proceeding, by reason of the fact that he, or a person of whom he is
the legal representative, is or was an employee or agent (other than an officer
or director) of the Corporation or is or was serving at the request of the
Corporation as an employee or agent (other than an officer or director) of
another corporation or of a partnership, joint venture, trust, or other
enterprise, including service with respect to employee benefit plans, whether
the basis of the Proceeding is alleged action in an official capacity as an
employee or agent or in any other capacity while serving as an employee or
agent, may be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware Corporation Law, as the same exists or may
hereafter be amended or interpreted against all Losses.
SECTION 9.2 AUTHORITY TO ADVANCE EXPENSES.
Expenses incurred by an officer or director (acting in his capacity as such)
in defending a Proceeding shall be paid by the Corporation in advance of the
final disposition of such Proceeding; PROVIDED, HOWEVER, that if required by the
Delaware Corporation Law, as amended, such Expenses shall be advanced only upon
delivery to the Corporation of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation as authorized in this Article
or otherwise. Expenses incurred by employees or other agents of the Corporation
(or by the directors or officers not acting in their capacity as such, including
service with respect to employee benefit plans) may be advanced upon such terms
and conditions as the Board of Directors deems appropriate. Any obligation to
reimburse the Corporation for Expense advances shall be unsecured and no
interest shall be charged thereon.
SECTION 9.3 RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under Section 9.1 or 9.2 of this Article is not paid in full by
the Corporation within 30 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
(including attorneys' fees) of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the Corporation) that the claimant has
not met the standards of conduct that make it permissible under the Delaware
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed. The burden of proving such a defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper under the circumstances because he has met the applicable standard of
conduct set forth in the Delaware Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
D-2-17
<PAGE>
SECTION 9.4 PROVISIONS NONEXCLUSIVE.
The rights conferred on any person by this Article shall not be exclusive of
any other rights that such person may have or hereafter acquire under any
statute, provision of the Restated Certificate of Incorporation, agreement, vote
of stockholders or disinterested directors, or otherwise, both as to action in
an official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Restated Certificate of
Incorporation, agreement, or vote of the stockholders or disinterested directors
is inconsistent with these Bylaws, the provision, agreement, or vote shall take
precedence.
SECTION 9.5 AUTHORITY TO INSURE.
The Corporation may purchase and maintain insurance to protect itself and
any director, officer, employee or other agent (collectively, an "Agent")
against any Expense, whether or not the Corporation would have the power to
indemnify the Agent against such Expense under applicable law or the provisions
of this Article.
SECTION 9.6 SURVIVAL OF RIGHTS.
The rights provided by this Article shall continue as to a person who has
ceased to be an Agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.
SECTION 9.7 EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article shall not adversely
affect any right or protection of any Agent existing at the time of such
amendment, repeal, or modification.
SECTION 9.8 SUBROGATION.
In the event of payment under this Article, the Corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Corporation effectively to bring suit to enforce such
rights.
SECTION 9.9 NO DUPLICATION OF PAYMENTS.
The Corporation shall not be liable under this Article to make any payment
in connection with any claim made against the Agent to the extent the Agent has
otherwise actually received payment (under any insurance policy, agreement,
vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE X
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the Corporation or its
transfer agent. Any notice required to be given to any director may be given by
the method hereinabove stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication or other means of electronic transmission) facsimile telephone
number or other relevant transmission instructions as such director shall have
filed in writing with the Secretary of the Corporation, or, in the absence of
such filing, to the last known post office address of such director. If no
address of a stockholder or director be known, such notice may be sent to the
office of the Corporation required to be maintained pursuant to Section 1.1 of
Article I hereof. An affidavit of
D-2-18
<PAGE>
mailing, executed by a duly authorized and competent employee of the Corporation
or its transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder or
stockholders, director or directors, to whom any such notice or notices was or
were given, and the time and method of giving the same, shall be conclusive
evidence of the statements therein contained. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by telegram or other means of electronic transmission shall be
deemed to have been given as at the sending time recorded by the telegraph
company or other electronic transmission equipment operator transmitting the
same. It shall not be necessary that the same method of giving be employed in
respect of all directors, but one permissible method may be employed in respect
of any one or more, and any other permissible method or methods may be employed
in respect of any other or others. The period or limitation of time within which
any stockholder may exercise any option or right, or enjoy any privilege or
benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such a stockholder such director to receive such notice. Whenever any
notice is required to be given under the provisions of the statutes or of the
Restated Certificate of Incorporation, or of these Bylaws, a waiver thereof in
writing signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto. Whenever
notice is required to be given, under any provision of law or of the Restated
Certificate of Incorporation or Bylaws of the Corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given.
ARTICLE XI
AMENDMENTS
Unless otherwise provided in the Restated Certificate of Incorporation,
these Bylaws may be repealed, altered or amended or new Bylaws adopted by
written consent of stockholders in the manner authorized by Section 2.11 of
Article II, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting, unless a larger vote is required by these Bylaws or the Restated
Certificate of Incorporation. Unless otherwise provided in the Restated
Certificate of Incorporation, the Board of Directors shall also have the
authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including,
without limitation, the amendment of any Bylaws setting forth the number of
directors who shall constitute the whole Board of Directors) by unanimous
written consent or at any annual, regular, or special meeting by the affirmative
vote of a majority of the whole number of directors, subject to the power of the
stockholders to change or repeal such Bylaws. Notwithstanding anything contained
in these Bylaws to the contrary: (i) any amendment, change or repeal of Sections
2.3 or 2.5(a) or Article IX herein, or any other amendment to these Bylaws that
will have the effect of permitting circumvention of or modifying Sections 2.3 or
2.5(a) or Article IX shall require the affirmative vote, of the holders of a
majority of the then-outstanding shares of Class A Common Stock and Class B
Common Stock entitled to vote, each voting as a separate class; and (ii) any
amendment, change or repeal of Sections 3.6(a) or 3.9 herein, or any other
amendment to these Bylaws that will have the effect of permitting circumvention
of or modifying Sections 3.6(a) or 3.9 shall require the affirmative vote of a
majority of the Class A Directors and Class B Directors, each voting as a
separate group.
D-2-19
<PAGE>
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 GENDER.
Whenever required by the context, the singular shall include the plural, the
plural the singular, and one gender shall include all genders.
SECTION 12.2 INVALID PROVISION.
The invalidity or unenforceability of any particular provision of these
Bylaws shall not affect the other provisions herein, and these Bylaws shall be
construed in all respects as if such invalid or unenforceable provision were
omitted.
SECTION 12.3 DEFINITIONS.
For purposes of these Bylaws, the terms "Class A Common Stock," "Class B
Common Stock," "Common Stock," "Class A Directors" and "Class B Directors" shall
have the meanings ascribed to such terms in the Restated Certificate of
Incorporation. The term "Governance Agreement" shall mean that certain
Governance and Investor Rights Agreement dated , 1999 between
National Broadcasting Company, Inc. and the Corporation, as the same may be
amended from time to time in accordance with its terms.
D-2-20
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, Secretary of NBC Internet, Inc., a Delaware corporation,
hereby certifies that the foregoing is a full, true and correct copy of the
Amended and Restated Bylaws of said corporation, with all amendments to date of
this Certificate.
WITNESS the signature of the undersigned and the seal of the Corporation
this day of , 19 .
--------------------------------------
Secretary
D-2-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law authorizes corporations to eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
or alleged breach of the directors' "duty of care." While the relevant statute
does not change directors' duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission. The
statute has no effect on directors' duty of loyalty, acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law,
illegal payment of dividends and approval of any transactions from which a
director derives an improper personal benefit.
The Registrant has adopted provisions in its restated certificate of
incorporation which eliminate the personal liability of its directors to the
Registrant and its stockholders for monetary damages for breach or alleged
breach of their duty of care. The bylaws of the Registrant provide for
indemnification of its directors, officers, employees and agents to the full
extent permitted by the General Corporation Law of the State of Delaware, the
Registrant's state of incorporation, including those circumstances in which
indemnification would otherwise be discretionary under Delaware Law. Section 145
of the General Corporation Law of the State of Delaware provides for
indemnification in terms sufficiently broad to indemnify such individuals, under
certain circumstances, for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act of 1933, as amended.
The Registrant intends to enter into agreements with each of its directors
and executive officers to indemnify such persons against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred (including
expenses of a derivative action) in connection with any proceeding, whether
actual or threatened, to which any such person may be made a party by reason of
the fact that such person is or was a director or officer of the Registrant or
any of its affiliated enterprises, provided such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the Registrant and, with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
DESCRIPTION PAGE
------------------------------------------------------------------------------------------------ ---------
<S> <C> <C>
Independent Auditors' Report on Schedule........................................................ S-1
Schedule II--SNAP Valuation and Qualifying Accounts............................................. S-2
</TABLE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed
II-1
<PAGE>
that which was registered) and any deviation from the maximum aggregate
offering price may be reflected in the form of prospectus filed with the
SEC pursuant to Rule 424(b) under the Securities Act, if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) (1)The undersigned Registrant hereby undertakes as follows: That prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 (Section 230.415 of this chapter),
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officer and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the joint proxy
statement/prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the ninth day of July, 1999.
NBC INTERNET, INC.
A DELAWARE CORPORATION
BY /S/ CHRIS KITZE
--------------------
Chris Kitze
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ CHRIS KITZE President and Director
- ------------------------------ (Principal Executive July 9, 1999
Chris Kitze Officer)
/s/ LAURENT MASSA Secretary and Treasurer
- ------------------------------ (Principal Financial and July 9, 1999
Laurent Massa Accounting Officer)
/s/ MARC SZNAJDERMAN Director
- ------------------------------ July 9, 1999
Marc Sznajderman
II-3
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Managers
Snap! LLC:
Under date of June 18, 1999, except as to Note 11(c), which is as of June
25, 1999, we reported on the balance sheets of SNAP! LLC as of December 31, 1997
and 1998, and the related statements of operations, members' deficit, and cash
flows for each of the years in the two-year period ended December 31, 1998,
which are included in the NBC Internet, Inc. proxy statement/prospectus. In
connection with our audits of the aforementioned financial statements, we also
audited the related financial statement schedule in the registration statement.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ KPMG LLP
San Francisco, California
June 18, 1999
S-1
<PAGE>
SNAP! LLC
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF ADDITIONS-- CHARGED DEDUCTIONS-- END OF FISCAL
FISCAL YEAR TO COSTS AND EXPENSES WRITEOFFS YEAR
--------------- --------------------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts................... -- -- -- --
Year ended December 31, 1998
Allowance for doubtful accounts................... -- $ 469 -- $ 469
Year ended March 31, 1999
Allowance for doubtful accounts................... $ 469 $ 214 -- $ 683
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Contribution and Merger dated as of May 9, 1999 by and among the Registrant,
Xoom.com, Inc., CNET, Inc., SNAP LLC and Xenon 3, Inc. (filed as Appendix A-1 to the Proxy
Statement/Prospectus forming a part of this Registration Statement)
2.2 Second Amended and Restated Agreement and Plan of Contribution, Investment and Merger among the
Registrant, National Broadcasting Company, Inc., GE Investments Subsidiary, Inc., Neon Media Corporation
and Xoom.com, Inc., dated July , 1999 (filed as Appendix A-2 to the Proxy Statement/Prospectus forming
a part of this Registration Statement)
3.1 Certificate of Incorporation of the Registrant
3.2 Certificate of Amendment of Certificate of Incorporation of Registrant
3.3 Form of Restated Certificate of Incorporation of the Registrant to become effective upon the closing of
the transactions (filed as Appendix D-1 to the Proxy Statement/Prospectus forming a part of this
Registration Statement)
3.4 Bylaws of the Registrant
3.5 Form of Amended and Restated Bylaws of the Registrant to become effective upon the closing of the
transactions (filed as Appendix D-2 to the Proxy Statement/Prospectus forming a part of this
Registration Statement)
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5
4.2* Specimen Stock Certificate of the Registrant
5.1* Opinion of Morrison & Foerster LLP as to the legality of the Class A common stock
8.1* Opinion of Morrison & Foerster LLP regarding certain federal income tax matters
10.1* Form of Indemnification Agreement between the Registrant and each of its executive officers and
directors
10.2 Agreement of Sublease between Xoom.com, Inc. and Cornerstone Internet Solutions Company d/b/a USWeb
Cornerstone dated August 1, 1998
10.3 Assignment of Lease by Xaos Tools, Inc. and Acceptance of Assignment and Assumption of Lease by
Xoom.com, dated July 31, 1998
10.4 Office Lease for One Beach Street, San Francisco, California between No. 1 Beach Street, LLC and CNET,
Inc. dated September 24, 1997
10.5 Form of Governance and Investor Rights Agreement between the Registrant and National Broadcasting
Company, Inc.
10.6 Form of Standstill Agreement between the Registrant and CNET, Inc.
10.7 Brand Integration and License Agreement between NBC Multimedia, Inc. and National Broadcasting Company,
Inc., dated May 8, 1999
10.8 Stock Option Agreement between Xoom.com, Inc. and National Broadcasting Company, Inc., dated May 9, 1999
(filed as Appendix B-1 to the Proxy Statement/Prospectus forming a part of this Registration Statement)
10.9 Voting Agreement among Xoom.com, Inc., National Broadcasting Company, Inc., CNET, Inc., Chris Kitze and
Flying Disc Investments Limited Partnership, dated May 9, 1999 (filed as Appendix B-2 to the Proxy
Statement/Prospectus forming a part of this Registration Statement)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.10 Form of Voting and Right of First Offer Agreement between National Broadcasting Company, Inc. and CNET,
Inc.
10.11 Loan Agreement between Xoom.com, Inc. and Sand Hill Capital, LLC, dated as of November 3, 1998
10.12 Amended and Restated Letter Agreement between Bank of America National Trust and Savings Association and
SNAP! LLC, dated June 25, 1999
10.13 Agreement of Lease between Eleven Penn Plaza LLC and Xoom.com, Inc., dated March 16, 1999
10.14 Preferred Carriage Agreement by and between CNET, Inc., National Broadcasting Company, Inc., NBC
Multimedia, Inc. and SNAP LLC., dated June 30, 1998
10.15 Addendum to Preferred Carriage Agreement between CNET, Inc. and SNAP LLC, dated June 30, 1998
10.16 Addendum to the SNAP Agreements by and among CNET, Inc., National Broadcasting Company, Inc., NBC
Multimedia, Inc. and SNAP LLC., dated May 9, 1999
10.17* Form of Severance Agreement by and between Xoom.com, Inc. and Laurent Massa
10.18* Form of Carriage Agreement by and between the Registrant and CNBC.com LLC
10.19 Stock Purchase Agreement by and between Xoom.com, Inc. and National Broadcasting Company, Inc., dated
June 11, 1999
10.20 Consulting Agreement by and between Xoom.com, Inc. and James Heffernan, dated May 15, 1998
10.21 Letter Agreement by and between Xoom.com, Inc. and Jeffrey Ballowe, dated July 28, 1998
10.22 Letter Agreement by and between Xoom.com, Inc. and Philip Schlein, dated July 28, 1998
10.23 Letter Agreement by and between Xoom.com, Inc., and Robert Harris, dated July 28, 1998
10.24 Employment Agreement by and between Xoom,com, Inc. and John Harbottle, dated August 4, 1988
10.25* Form of Advertising Agreement between the Registrant and National Broadcasting Company, Inc.
10.26* Form of Registration Rights Agreement by and among the Registrant, CNET, Inc. and National Broadcasting
Company, Inc.
10.27* Form of $39,477,852 Zero Coupon Convertible Debenture due 2006
10.28* Form of $447,416,845 Zero Coupon Convertible Debenture due 2006
10.29* Form of $340,000,000 Term Note
21.1 Subsidiaries of the Registrant
23.1* Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of KPMG LLP, Independent Auditors
23.4 Consent of KPMG LLP, Independent Auditors
27.1 Financial Data Schedule of Xoom.com, Inc.
27.2 Financial Data Schedule of NBC Multimedia, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
27.3 Financial Data Schedule of SNAP! LLC
99.1 Consent of Bear, Stearns & Co. Inc.
99.2 Consent of Hambrecht & Quist LLC
99.3 Form of proxy card for Xoom.com's special meeting
99.4 Consent of Robert Wright to be named as a nominee for director of the Registrant
99.5 Consent of Jeffrey Ballowe to be named as a nominee for director of the Registrant
99.6 Consent of Robert Harris, Jr. to be named as a nominee for director of the Registrant
99.7 Consent of James Heffernan to be named as a nominee for director of the Registrant
99.8 Consent of Philip Schlein to be named as a nominee for director of the Registrant
99.9 Consent of Mark Begor to be named as a nominee for director of the Registrant
99.10 Consent of Thomas Rogers to be named as a nominee for director of the Registrant
99.11 Consent of Martin Yudkovitz to be named as a nominee for director of the Registrant
99.12 Consent of Gary M. Reiner to be named as a nominee for director of the Registrant
99.13 Consent of John F. Welch, Jr. to be named as a nominee for director of the Registrant
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
XENON 2, INC.
The undersigned, for the purpose of organizing a corporation (the
"Corporation") pursuant to the provisions of the General Corporation Law of
the State of Delaware ("General Corporation Law"), does make and file this
Certificate of Incorporation and does hereby certify as follows:
FIRST: NAME: The name of the corporation is Xenon 2, Inc.
SECOND: REGISTERED OFFICE: The registered office of the Corporation is
to be located at 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: PURPOSES: The purpose of the Corporation is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law.
FOURTH: AUTHORIZED SHARES: The total number of shares of all classes
of stock that the Corporation shall have authority to issue is 100 shares of
Common Stock with $.0001 par value per share.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
Allen Weingarten, Esq.
c/o Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
SIXTH: BYLAWS: The board of directors of the Corporation is
authorized and empowered from time to time in its discretion to make, alter,
amend or repeal the Bylaws of the Corporation, except as such power may be
restricted or limited by the General Corporation Law.
SEVENTH: MEETINGS, ELECTIONS: Meetings of the stockholders may be
held within or without the State of Delaware, as the Bylaws may provide.
Subject to the provisions of any law or regulation, the books of the
Corporation may be kept outside the State of Delaware as such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation. The election of directors need not be by written
ballot unless the Bylaws so provide.
EIGHTH: COMPROMISE OF ARRANGEMENT: Whenever a compromise or
arrangement is proposed between the Corporation and its creditors or any
class of them and/or between the Corporation and its stockholders or any
class of them, any court of equitable jurisdiction within
<PAGE>
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof, or on the application
of any receiver or receivers appointed for the Corporation under the
provision of Section 291 of the General Corporation Law, or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under Section 279 of the General Corporation
Law, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
to be summoned in such a manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders of class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of the Corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which said application
has been made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders of the Corporation, as the
case may be, and also on the Corporation.
NINTH: EXCULPATION: No director shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such director as a director. Notwithstanding the foregoing
sentence, a director shall be liable to the extent provided by applicable law
(i) for any breach of the director's Duty of Loyalty (as herein defined) to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of this provision, Duty of Loyalty means, and only means, the duty
not to profit personally at the expense of the Corporation and does not
include conduct, whether deemed violation of fiduciary duty or otherwise,
which does not involve personal monetary profit.
TENTH: RESERVATION OF AMENDMENT POWER: Subject to the limitations
set forth herein, the Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
I, the undersigned, being the sole incorporator herein before named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of the State of Delaware, do make this a certificate, hereby declaring
and certifying that this is my act and deed and the facts herein stated are
true, and, accordingly, have hereunto set my hands this 7th day of May, 1999
INCORPORATOR:
/s/ Allen Weingarten
------------------------
Allen Weingarten
2
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
XENON 2, INC.
Xenon 2, Inc. (hereinafter called the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify:
1. The name of the Corporation is Xenon 2, Inc.
2. The certificate of incorporation of the Corporation is hereby amended
by striking out Article FIRST hereof and by substituting in lieu of said Article
the following new Article:
"FIRST: NAME: The name of the corporation is NBC Internet,
Inc."
3. The amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
Executed on this 30th day of June, 1999.
/s/ Chris Kitze
--------------------------------
Chris Kitze, President
1
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
XENON 2, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I OFFICES........................................................................1
Section 1.1 Registered Office.......................................................1
Section 1.2 Other Offices...........................................................1
ARTICLE II STOCKHOLDERS' MEETINGS........................................................1
Section 2.1 Place of Meetings.......................................................1
Section 2.2 Annual Meetings.........................................................1
Section 2.3 Special Meetings........................................................1
Section 2.4 Notice of Meetings......................................................2
Section 2.5 Quorum and Voting.......................................................2
Section 2.6 Voting Rights...........................................................3
Section 2.7 Voting Procedures and Inspectors of Elections...........................4
Section 2.8 List of Stockholders....................................................5
Section 2.9 Stockholder Proposals at Annual Meetings................................5
Section 2.10 Nominations of Persons for Election to the Board of Directors...........6
Section 2.11 Action Without Meeting..................................................7
ARTICLE III DIRECTORS....................................................................7
Section 3.1 Number and Term of Office...............................................7
Section 3.2 Powers..................................................................8
Section 3.3 Vacancies...............................................................8
Section 3.4 Resignations and Removals...............................................8
Section 3.5 Meetings................................................................9
Section 3.6 Quorum and Voting.......................................................9
Section 3.7 Action Without Meeting.................................................10
Section 3.8 Fees and Compensation..................................................10
Section 3.9 Committees.............................................................10
ARTICLE IV OFFICERS.....................................................................11
Section 4.1 Officers Designated....................................................11
Section 4.2 Tenure and Duties of Officers..........................................11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF
SECURITIES OWNED BY THE CORPORATION......................................................13
Section 5.1 Execution of Corporate Instruments.....................................13
Section 5.2 Voting of Securities Owned by Corporation..............................13
ARTICLE VI SHARES OF STOCK..............................................................13
Section 6.1 Form and Execution of Certificates.....................................13
Section 6.2 Lost Certificates......................................................14
Section 6.3 Transfers..............................................................14
Section 6.4 Fixing Record Dates....................................................14
Section 6.5 Registered Stockholders................................................15
ARTICLE VII OTHER SECURITIES OF THE CORPORATION.........................................16
ARTICLE VIII CORPORATE SEAL.............................................................16
ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.................16
Section 9.1 Right to Indemnification...............................................16
Section 9.2 Authority to Advance Expenses..........................................17
Section 9.3 Right of Claimant to Bring Suit........................................17
Section 9.4 Provisions Nonexclusive................................................18
Section 9.5 Authority to Insure....................................................18
Section 9.6 Survival of Rights.....................................................18
Section 9.7 Settlement of Claims...................................................18
Section 9.8 Effect of Amendment....................................................18
Section 9.9 Subrogation............................................................18
Section 9.10 No Duplication of Payments.............................................19
ARTICLE X NOTICES.......................................................................19
ARTICLE XI AMENDMENTS...................................................................20
</TABLE>
<PAGE>
BYLAWS
OF
XENON 2, INC.
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE.
The Corporation shall have and maintain at all times (a) a registered
office in the State of Delaware, which office shall be located at 1209 Orange
Street, Wilmington, County of New Castle, Delaware 19801, and (b) a registered
agent located at such address whose name is The Corporation Trust Company, until
changed from time to time as provided by the General Corporation Law of the
State of Delaware (the "Delaware Corporation Law").
SECTION 1.2 OTHER OFFICES.
The principal office of the Corporation may be located within or
without the State of Delaware, as designated by the Board of Directors. The
Corporation may have other offices and places of business at such places within
or without the State of Delaware as shall be determined by the directors or as
may be required by the business of the Corporation.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 PLACE OF MEETINGS.
Meetings of the stockholders of the Corporation shall be held at such
place, either within or without the State of Delaware, as may be designated from
time to time by the Board of Directors, or, if not so designated, then at the
office of the Corporation required to be maintained pursuant to Section 1.2 of
Article I hereof.
SECTION 2.2 ANNUAL MEETINGS.
The annual meetings of the stockholders of the Corporation for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
<PAGE>
SECTION 2.3 SPECIAL MEETINGS.
Special Meetings of the stockholders of the Corporation may be called,
for any purpose or purposes, by the Chairman of the Board or the President or
the Board of Directors at any time. Upon written request of any stockholder or
stockholders holding in the aggregate one-fifth of the voting power of all
stockholders delivered in person or sent by registered mail to the Chairman of
the Board, President or Secretary of the Corporation, the Secretary shall call a
special meeting of stockholders to be held at the office of the Corporation
required to be maintained pursuant to Section 1.2 of Article I hereof at such
time as the Secretary may fix, such meeting to be held not less than ten nor
more than sixty days after the receipt of such request, and if the Secretary
shall neglect or refuse to call such meeting, within seven days after the
receipt of such request, the stockholder making such request may do so.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour and purpose or purposes of the meeting, shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat, directed to his address as it appears upon
the books of the Corporation; except that where the matter to be acted on is a
merger or consolidation of the Corporation or a sale, lease or exchange of all
or substantially all of its assets, such notice shall be given not less than
twenty (20) nor more than sixty (60) days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken,
would entitle shareholders fulfilling the requirements of section 262(d) of the
Delaware Corporation Law to an appraisal of the fair value of their shares, the
notice of such meeting shall contain a statement of that purpose and to that
effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken unless the
adjournment is for more than thirty days, or unless after the adjournment a new
record date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
(d) Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, either before or after such meeting, and
to the extent permitted by law, will be waived by any stockholder by his
attendance thereat, in person or by proxy. Any stockholder so waiving notice of
such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the
pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by statute
has been given.
<PAGE>
SECTION 2.5 QUORUM AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided by
law, the Certificate of Incorporation, or these Bylaws, the presence, in person
or by proxy duly authorized, of the holders of a majority of the outstanding
shares of stock entitled to vote shall constitute a quorum for the transaction
of business. Shares, the voting of which at said meeting have been enjoined, or
which for any reason cannot be lawfully voted at such meeting, shall not be
counted to determine a quorum at said meeting. In the absence of a quorum, any
meeting of stockholders may be adjourned, from time to time, by vote of the
holders of a majority of the shares represented thereat, but no other business
shall be transacted at such meeting. At such adjourned meeting at which a quorum
is present or represented any business may be transacted which might have been
transacted at the original meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all action taken by the holders of a majority of
the voting power represented at any meeting at which a quorum is present shall
be valid and binding upon the Corporation.
(c) Where a separate vote by a class or classes is required, a majority
of the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose names
shares entitled to vote stand on the stock records of the Corporation on the
record date for determining the stockholders entitled to vote at said meeting
shall be entitled to vote at such meeting. Shares standing in the names of two
or more persons shall be voted or represented in accordance with the
determination of the majority of such persons, or, if only one of such persons
is present in person or represented by proxy, such person shall have the right
to vote such shares and such shares shall be deemed to be represented for the
purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the
right to do so either in person or by an agent or agents authorized by a written
proxy executed by such person or his duly authorized agent, which proxy shall be
filed with the Secretary of the Corporation at or before the meeting at which it
is to be used. Said proxy so appointed need not be a stockholder. No proxy shall
be voted on after three years from its date unless the proxy provides for a
longer period.
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b) of
this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
<PAGE>
(1) A stockholder may execute a writing authorizing another person
or persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder.
Such authorization can be established by the signature of the stockholder on the
proxy, either in writing or by a signature stamp or facsimile signature, or by a
number or symbol from which the identity of the stockholder can be determined,
or by any other procedure deemed appropriate by the inspectors or other persons
making the determination as to due authorization. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The Corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
<PAGE>
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware Corporation Law, ballots and the regular books
and records of the Corporation, except that the inspectors may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent more votes than the holder of a proxy is authorized by the
record owner to cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for the limited purpose permitted
herein, the inspectors at the time they make their certification pursuant to
subsection (b)(v) of this section shall specify the precise information
considered by them including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
SECTION 2.8 LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held and which place shall
be specified in the notice of the meeting, or, if not specified, at the place
where said meeting is to be held, and the list shall be produced and kept at the
time and place of meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
SECTION 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, otherwise properly brought before the meeting by or at the direction
of the Board of Directors or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation, not less
than 45 days nor more than 75 days prior to the date on which the Corporation
first
<PAGE>
mailed its proxy materials for the previous year's annual meeting of
shareholders (or the date on which the Corporation mails its proxy materials for
the current year if during the prior year the Corporation did not hold an annual
meeting or if the date of the annual meeting was changed more than 30 days from
the prior year). A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class and number of shares of the Corporation which are beneficially owned
by the stockholder, and (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.9, provided, however, that nothing in
this Section 2.9 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with said
procedure.
The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 2.9, and if
he should so determine he shall so declare to the meeting, and any such business
not properly brought before the meeting shall not be transacted.
Nothing in this Section 2.9 shall affect the right of a stockholder to
request inclusion of a proposal in the Corporation's proxy statement to the
extent that such right is provided by an applicable rule of the Securities and
Exchange Commission.
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.10. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than 45 days nor
more than 75 days prior to the date on which the Corporation first mailed its
proxy materials for the previous year's annual meeting of shareholders (or the
date on which the Corporation mails its proxy materials for the current year if
during the prior year the Corporation did not hold an annual meeting or if the
date of the annual meeting was changed more than 30 days from the prior year).
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of the Corporation which are beneficially owned by the
<PAGE>
person, and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors pursuant
to Rule 14a under the Securities Exchange Act of 1934; and (b) as to the
stockholder giving the notice, (i) the name and record address of the
stockholder, and (ii) the class and number of shares of the Corporation which
are beneficially owned by the stockholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as a director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth herein. These provisions shall not apply to nomination of
any persons entitled to be separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 2.11 ACTION WITHOUT MEETING.
Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, are signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. To be effective, a written consent must be delivered to
the Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Every written consent shall bear the
date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered in the manner
required by this Section to the Corporation, written consents signed by a
sufficient number of holders to take action are delivered to the Corporation in
accordance with this Section. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.1 NUMBER AND TERM OF OFFICE.
The number of directors of the Corporation shall not be less than two
(2) nor more than sixteen (16) until changed by amendment of the Certificate of
Incorporation or by a Bylaw
<PAGE>
amending this Section 3.1 duly adopted by the vote or written consent of holders
of a majority of the outstanding shares or by the Board of Directors. The exact
number of directors shall be fixed from time to time, within the limits
specified in the Certificate of Incorporation or in this Section 3.1, by a bylaw
or amendment thereof duly adopted by the vote of a majority of the shares
entitled to vote represented at a duly held meeting at which a quorum is
present, or by the written consent of the holders of a majority of the
outstanding shares entitled to vote, or by the Board of Directors. Subject to
the foregoing provisions for changing the number of directors, the number of
directors of the Corporation has been fixed at two (2).
With the exception of the first Board of Directors, which shall be
elected by the incorporators, and except as provided in Section 3.3 of this
Article III, the directors shall be elected by a plurality vote of the shares
represented in person or by proxy, at the stockholders annual meeting in each
year and entitled to vote on the election of directors. Elected directors shall
hold office until the next annual meeting and until their successors shall be
duly elected and qualified. Directors need not be stockholders. If, for any
cause, the Board of Directors shall not have been elected at an annual meeting,
they may be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
SECTION 3.2 POWERS.
The powers of the Corporation shall be exercised, its business
conducted and its property controlled by or under the direction of the Board of
Directors.
SECTION 3.3 VACANCIES.
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and each director so elected shall hold office for the unexpired
portion of the term of the director whose place shall be vacant, and until his
successor shall have been duly elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this section in the case of the death,
removal or resignation of any director, or if the stockholders fail at any
meeting of stockholders at which directors are to be elected (including any
meeting referred to in Section 3.4 below) to elect the number of directors then
constituting the whole Board.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the pleasure
of the Board of Directors. If no such specification is made it shall be deemed
effective at the pleasure of the Board of Directors. When one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and
<PAGE>
each director so chosen shall hold office for the unexpired portion of the
term of the director whose place shall be vacated and until his successor
shall have been duly elected and qualified.
(b) At a special meeting of stockholders called for the purpose in the
manner hereinabove provided, the Board of Directors, or any individual director,
may be removed from office, with or without cause, and a new director or
directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual stockholders' meeting and at the place where such
meeting is held or at the place announced by the Chairman at such meeting. No
notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the
Board of Directors shall be held in the office of the Corporation required to be
maintained pursuant to Section 1.2 of Article I hereof. Regular meetings of the
Board of Directors may also be held at any place within or without the State of
Delaware which has been designated by resolutions of the Board of Directors or
the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time
and place within or without the State of Delaware whenever called by the
Chairman of the Board or, if there is no Chairman of the Board, by the
President, or by any of the directors.
(d) Written notice of the time and place of all regular and special
meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile transmission at least 48 hours before
the start of the meeting, or sent by first class mail at least 120 hours before
the start of the meeting. Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat.
SECTION 3.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time in accordance with Section
3.1 of Article III of these Bylaws, but not less than one; provided, however, at
any meeting whether a quorum be present or otherwise, a majority of the
directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all
questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Certificate
of Incorporation, or these Bylaws.
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(c) Any member of the Board of Directors, or of any committee thereof,
may participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 3.7 ACTION WITHOUT MEETING.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting,
if all members of the Board or of such committee, as the case may be, consent
thereto in writing, and such writing or writings are filed with the minutes of
proceedings of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
SECTION 3.9 COMMITTEES.
(a) EXECUTIVE COMMITTEE: The Board of Directors may appoint an
Executive Committee of not less than one member, each of whom shall be a
director. The Executive Committee, to the extent permitted by law, shall have
and may exercise when the Board of Directors is not in session all powers of the
Board in the management of the business and affairs of the Corporation, except
such committee shall not have the power or authority to amend these Bylaws or to
approve or recommend to the stockholders any action which must be submitted to
stockholders for approval under the General Corporation Law.
(b) OTHER COMMITTEES: The Board of Directors may, by resolution passed
by a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committee, but in no
event shall any such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) TERM: The members of all committees of the Board of Directors shall
serve a term coexistent with that of the Board of Directors which shall have
appointed such committee. The Board, subject to the provisions of subsections
(a) or (b) of this Section 3.9, may at any time
<PAGE>
increase or decrease the number of members of a committee or terminate the
existence of a committee; provided, that no committee shall consist of less than
one member. The membership of a committee member shall terminate on the date of
his death or voluntary resignation, but the Board may at any time for any reason
remove any individual committee member and the Board may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS: Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 3.9 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter; special meetings of any such
committee may be held at the principal office of the Corporation required to be
maintained pursuant to Section 1.2 of Article I hereof; or at any place which
has been designated from time to time by resolution of such committee or by
written consent of all members thereof, and may be called by any director who is
a member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time after the meeting
and will be waived by any director by attendance thereat. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
OFFICERS
SECTION 4.1 OFFICERS DESIGNATED.
The officers of the Corporation shall be a President, a Secretary, and
a Treasurer. The Board of Directors or the President may also appoint a Chairman
of the Board, one or more Vice-Presidents, assistant secretaries, assistant
treasurers, and such other officers and agents with such powers and duties as it
or he shall deem necessary. The order of the seniority of the Vice- Presidents
shall be in the order of their nomination, unless otherwise determined by the
Board of Directors. The Board of Directors may assign such additional titles to
one or more of the officers as they shall deem appropriate. Any one person may
hold any number of offices of the Corporation at any one time unless
specifically prohibited therefrom by law. The salaries and
<PAGE>
other compensation of the officers of the Corporation shall be fixed by or in
the manner designated by the Board of Directors.
SECTION 4.2 TENURE AND DUTIES OF OFFICERS.
(a) GENERAL: All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. Nothing in these Bylaws shall be construed as creating any
kind of contractual right to employment with the Corporation.
(b) DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman of
the Board of Directors (if there be such an officer appointed) shall be the
chief executive officer of the Corporation and, when present, shall preside at
all meetings of the shareholders and the Board of Directors. The Chairman of the
Board of Directors shall perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(c) DUTIES OF PRESIDENT: The President shall be the chief executive
officer of the Corporation in the absence of the Chairman of the Board and shall
preside at all meetings of the shareholders and at all meetings of the Board of
Directors, unless the Chairman of the Board of Directors has been appointed and
is present. The President shall perform such other duties and have such other
powers as the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE-PRESIDENTS: The Vice-Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of the President
is vacant. The Vice-President shall perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
(e) DUTIES OF SECRETARY: The Secretary shall attend all meetings of the
shareholders and of the Board of Directors and any committee thereof, and shall
record all acts and proceedings thereof in the minute book of the Corporation.
The Secretary shall give notice, in conformity with these Bylaws, of all
meetings of the shareholders, and of all meetings of the Board of Directors and
any Committee thereof requiring notice. The Secretary shall perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time. The President may direct any Assistant Secretary to assume and
perform the duties of the Secretary in the absence or disability of the
Secretary, and each Assistant Secretary shall perform such other duties and have
such other powers as the Board of Directors or the President shall designate
from time to time.
(f) DUTIES OF TREASURER: The Treasurer shall keep or cause to be kept
the books of account of the Corporation in a thorough and proper manner, and
shall render statements of the financial affairs of the Corporation in such form
and as often as required by the Board of Directors or the President. The
Treasurer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the Corporation. The Treasurer shall
perform all
<PAGE>
other duties commonly incident to his office and shall perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct any Assistant Treasurer to
assume and perform the duties of the Treasurer in the absence or disability of
the Treasurer, and each Assistant Treasurer shall perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the method
and designate the signatory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the Corporation.
(b) Unless otherwise specifically determined by the Board of Directors
or otherwise required by law, formal contracts of the Corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
Corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the Corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors.
(c) All checks and drafts drawn on banks or other depositaries on funds
to the credit of the Corporation, or in special accounts of the Corporation,
shall be signed by such person or persons as the Board of Directors shall
authorize so to do.
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION.
All stock and other securities of other Corporations owned or held by
the Corporation for itself, or for other parties in any capacity, shall be
voted, and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors or, in the absence
of such authorization, by the Chairman of the Board (if there be such an officer
appointed), or by the President, or by any Vice-President.
<PAGE>
ARTICLE VI
SHARES OF STOCK
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES.
Certificates for the shares of stock of the Corporation shall be in
such form as is consistent with the Certificate of Incorporation and applicable
law. Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board (if there be such an officer appointed), or by the President or any
Vice-President and by the Treasurer or Assistant Treasurer or the Secretary or
Assistant Secretary, certifying the number of shares owned by him in the
Corporation. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. If the Corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the Delaware Corporation
Law, in lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
Corporation in such manner as it shall require and/or to give the Corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost or destroyed.
<PAGE>
SECTION 6.3 TRANSFERS.
Transfers of record of shares of stock of the Corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed.
SECTION 6.4 FIXING RECORD DATES.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the date on which the meeting is held. A determination of stockholders
of record entitled notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the Delaware Corporation Law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is
<PAGE>
fixed, the record date for determining stockholders for any such purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
SECTION 6.5 REGISTERED STOCKHOLDERS.
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the
corporation, other than stock certificates, may be signed by the Chairman of the
Board (if there be such an officer appointed), or the President or any
Vice-President or such other person as may be authorized by the Board of
Directors and the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that
where any such bond, debenture or other corporate security shall be
authenticated by the manual signature of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signature of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation,
or such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or before the bond,
debenture or other corporate security so signed or attested shall have been
delivered, such bond, debenture or other corporate security nevertheless may be
adopted by the corporation and issued and delivered as though the person who
signed the same or whose facsimile signature shall have been used thereon had
not ceased to be such officer of the corporation.
ARTICLE VIII
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
<PAGE>
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 9.1 RIGHT TO INDEMNIFICATION.
Each person who was or is a party or is threatened to be made a party
to or is involved (as a party, witness, or otherwise), in any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "Proceeding"), by reason of the
fact that he, or a person of whom he is the legal representative, is or was a
director, officer, employee, or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee, or agent of
another corporation or of a partnership, joint venture, trust, or other
enterprise, including service with respect to employee benefit plans, whether
the basis of the Proceeding is alleged action in an official capacity as a
director, officer, employee, or agent or in any other capacity while serving as
a director, officer, employee, or agent (hereafter an "Agent"), shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware Corporation Law, as the same exists or may hereafter
be amended or interpreted (but, in the case of any such amendment or
interpretation, only to the extent that such amendment or interpretation permits
the Corporation to provide broader indemnification rights than were permitted
prior thereto) against all expenses, liability, and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to
be paid in settlement, and any interest, assessments, or other charges imposed
thereon, and any federal, state, local, or foreign taxes imposed on any Agent as
a result of the actual or deemed receipt of any payments under this Article)
reasonably incurred or suffered by such person in connection with investigating,
defending, being a witness in, or participating in (including on appeal), or
preparing for any of the foregoing in, any Proceeding (hereinafter "Expenses")[;
PROVIDED, HOWEVER, that except as to actions to enforce indemnification rights
pursuant to Section 9.3 of this Article, the Corporation shall indemnify any
Agent seeking indemnification in connection with a Proceeding (or part thereof)
initiated by such person only if the Proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation]. The right to indemnification
conferred in this Article shall be a contract right.
SECTION 9.2 AUTHORITY TO ADVANCE EXPENSES.
Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the Corporation in advance of
the final disposition of such Proceeding, PROVIDED, HOWEVER, that if required by
the Delaware Corporation Law, as amended, such Expenses shall be advanced only
upon delivery to the Corporation of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article or otherwise. Expenses incurred by other Agents of the Corporation
(or by the directors or officers not acting in their capacity as such, including
service with respect to employee benefit plans) may be advanced upon such terms
and conditions as the Board of Directors deems appropriate. Any obligation to
reimburse the Corporation for Expense advances shall be unsecured and no
interest shall be charged thereon.
<PAGE>
SECTION 9.3 RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under Section 9.1 or 9.2 of this Article is not paid in full
by the Corporation within thirty (30) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense (including attorneys' fees) of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Corporation) that the
claimant has not met the standards of conduct that make it permissible under the
Delaware Corporation Law for the Corporation to indemnify the claimant for the
amount claimed. The burden of proving such a defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the Delaware Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.
SECTION 9.4 PROVISIONS NONEXCLUSIVE.
The rights conferred on any person by this Article shall not be
exclusive of any other rights that such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, agreement,
vote of stockholders or disinterested directors, or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Certificate, agreement, or vote
of the stockholders or disinterested directors is inconsistent with these
bylaws, the provision, agreement, or vote shall take precedence.
SECTION 9.5 AUTHORITY TO INSURE.
The Corporation may purchase and maintain insurance to protect itself
and any Agent against any Expense, whether or not the Corporation would have the
power to indemnify the Agent against such Expense under applicable law or the
provisions of this Article.
SECTION 9.6 SURVIVAL OF RIGHTS.
The rights provided by this Article shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
SECTION 9.7 SETTLEMENT OF CLAIMS.
The Corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the Corporation's written
<PAGE>
consent, which consent shall not be unreasonably withheld; or (b) for any
judicial award if the Corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action.
SECTION 9.8 EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article shall not
adversely affect any right or protection of any Agent existing at the time of
such amendment, repeal, or modification.
SECTION 9.9 SUBROGATION.
In the event of payment under this Article, the Corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Corporation effectively to bring suit to enforce such
rights.
SECTION 9.10 NO DUPLICATION OF PAYMENTS.
The Corporation shall not be liable under this Article to make any
payment in connection with any claim made against the Agent to the extent the
Agent has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE X
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to
be given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the Corporation or its
transfer agent. Any notice required to be given to any director may be given by
the method hereinabove stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication) facsimile telephone number as such director shall have filed
in writing with the Secretary of the Corporation, or, in the absence of such
filing, to the last known post office address of such director. If no address of
a stockholder or director be known, such notice may be sent to the office of the
Corporation required to be maintained pursuant to Section 1.2 of Article I
hereof. An affidavit of mailing, executed by a duly authorized and competent
employee of the Corporation or its transfer agent appointed with respect to the
class of stock affected, specifying the name and address or the names and
addresses of the stockholder or stockholders, director or directors, to whom any
such notice or notices was or were given, and the time and method of giving the
same, shall be conclusive evidence of the statements therein contained. All
notices given by mail, as above provided, shall be deemed to have been given as
at the time of mailing and all notices given by
<PAGE>
telegram or other means of electronic transmission shall be deemed to have been
given as at the sending time recorded by the telegraph company or other
electronic transmission equipment operator transmitting the same. It shall not
be necessary that the same method of giving be employed in respect of all
directors, but one permissible method may be employed in respect of any one or
more, and any other permissible method or methods may be employed in respect of
any other or others. The period or limitation of time within which any
stockholder may exercise any option or right, or enjoy any privilege or benefit,
or be required to act, or within which any director may exercise any power or
right, or enjoy any privilege, pursuant to any notice sent him in the manner
above provided, shall not be affected or extended in any manner by the failure
of such a stockholder or such director to receive such notice. Whenever any
notice is required to be given under the provisions of the statutes or of the
Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto. Whenever notice is
required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the Corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the Corporation is
such as to require the filing of a certificate under any provision of the
Delaware Corporation Law, the certificate shall state, if such is the fact and
if notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
ARTICLE XI
AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted
by written consent of stockholders in the manner authorized by Section 2.11 of
Article II, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting, unless a larger vote is required by these Bylaws or the Certificate of
Incorporation. The Board of Directors shall also have the authority to repeal,
alter or amend these Bylaws or adopt new Bylaws (including, without limitation,
the amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, Secretary of Xenon 2, Inc., a Delaware
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of said corporation, with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned and the seal of the
Corporation this 7th day of May, 1999
/s/ Laurent Massa
------------------------------------
Laurent Massa, Secretary
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EXHIBIT 10.2
SUBLEASE
AGREEMENT OF SUBLEASE ("SUBLEASE"), made as of the ___ day of August,
1998, by and between Cornerstone Internet Solutions Company formerly known as
Enteractive, Inc., d/b/a US Web Cornerstone, a Delaware corporation (hereinafter
referred to as "SUBLESSOR"), having an office at 584 Broadway, Suite 505, New
York, New York 10012 and Xoom, Inc., a Delaware corporation (hereinafter
referred to as "SUBLESSEE"), having an address at 433 California Street, Suite
910, San Francisco, California 94104.
WITNESSETH:
WHEREAS, pursuant to a certain lease dated as of April 1, 1996, by and
between Harrow Realty, Inc., as landlord ("LANDLORD"), and Utopia, Inc.
Sublessor's assignor pursuant to an assignment dated December 12, 1997, as
tenant, as amended on May 1, 1996 (collectively, the "LEASE") Landlord leased to
Sublessor certain space (the "DEMISED PREMISES") in the building ("BUILDING")
located at 25 West 45th Street, New York, New York 10076; and
WHEREAS, Sublessor desires to sublease to Sublessee and Sublessee
desires to sublet from Sublessor a portion of the Demised Premises which is more
particularly set forth as the area cross-hatched on Exhibit A which is annexed
hereto (the "SUBLEASED PREMISES"), and Sublessee desires to take and hire the
Subleased Premises from Sublessor;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. LEASE. Sublessee hereby acknowledges receipt of a copy of the Lease
with certain portions not material to this Sublease intentionally excluded, a
copy of which is annexed hereto as Exhibit B. The terms and conditions of the
Lease are incorporated by reference into this Sublease and made a part hereof as
if herein set forth at length, Sublessor being substituted for "Landlord" under
the Lease, Sublessee being substituted for "Tenant" under the Lease and the
Subleased Premises being substituted for the "Premises" under the Lease.
Notwithstanding the foregoing, any inconsistencies between the terms of this
Sublease and the Lease which shall result from the foregoing incorporation shall
be resolved in favor of this Sublease; provided however, that if such
construction of terms would cause Sublessor to be in default under the terms of
the Lease, then such inconsistency shall be resolved in favor of the Lease. To
the extent that the definitions of the Lease incorporated by reference herein
differ from or are inconsistent with the definitions contained in this Sublease,
the definitions set forth in this Sublease shall prevail.
2. DEMISE AND TERM. (A) Sublessor hereby leases to Sublessee and
Sublessee hereby takes and hires from Sublessor the Subleased Premises for the
term and upon the terms and conditions set forth herein, subject to the
provisions of Section 41 of the Lease, and contingent upon the written consent
of the Landlord to this Sublease pursuant to Section 41 of the Lease including
the Landlord's consent to the use of the Subleased Premises set forth in
paragraph 7 hereof ("CONSENT TO SUBLEASE").
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(B) The term ("TERM") of this Sublease shall commence on August 15,
1998 ("COMMENCEMENT DATE"), except as otherwise provided herein, and end on May
30, 2001 ("EXPIRATION DATE"), unless sooner terminated pursuant to the
provisions of this Sublease or the Lease. Sublessor warrants and represents that
the term of the Lease extends beyond the Expiration Date. Promptly after
execution and delivery of this Sublease, Sublessor shall request the Consent to
Sublease. In the event that on or before August 10, 1998, Sublessor shall not
have obtained the Consent to Sublease, both Sublessor and Sublessee shall have
the right to cancel this Sublease upon two (2) days written notice to the other,
and thereupon this Sublease shall cease and terminate as if the date of such
cancellation was the Expiration Date as herein defined. Notwithstanding the
foregoing, Sublessee shall not have the right to possession of the Subleased
Premises until (i) Landlord has signed the Consent to Sublease, (ii) Sublessor
has received the Security in the full amount required under Section 25 of this
Sublease and (iii) Sublessor has received the sum of, $3,250.00 representing the
first one and one half installments of monthly Fixed Rent payable pursuant to
paragraph 3(A) of this Sublease.
3. RENT. The rents reserved under this Sublease for the Term, shall be
and consist of:
(A) "FIXED RENT" in the amount of (a) Twenty-Six Thousand Dollars
($26,000.00) per annum, for the period beginning on August 15, 1998, through and
including May 30, 2001 payable in equal monthly installments of Two Thousand One
Hundred Sixty-Six and 67/100 Dollars ($2,166.67) on the first day of each month
Fixed Rent payable for any partial month shall be prorated.
(B) "ADDITIONAL RENT" consisting of all such other sums of money as
shall become due from, and payable by, Sublessee to Sublessor hereunder
including but not limited to 25.83% of sums payable by Sublessor to Landlord
pursuant to the Porter's Wage Escalation Rider and Section 43 ("Real Estate
Taxes") of the Lease utilizing a 1998 Calendar year for the base of Porter's
Wage Escalation and a fiscal 1998/99 year for the base of Real Estate Tax
Escalations (for default in payment of which Sublessor shall have the same
remedies as for default in payment of Fixed Rent); all to be paid to Sublessor
at its address hereunder referred to, or such other place, or to such agent and
at such place, as Sublessor may designate by notice to Sublessee, in lawful
money of the United States of America. The terms "rent", "rents" and "rental,"
as used herein, shall include Fixed Rent and Additional Rent.
4. PAYMENT OF ADDITIONAL RENT.
Sublessee shall make all payments of Additional Rent required to be
made pursuant to this Sublease within ten (10) business days after Sublessor
furnishes Sublessee with a statement of the amount payable by Sublessee to
Sublessor. Sublessee shall have the right to reasonably request from Sublessor
copies of any applicable Landlord's statement received by Sublessor, and
Sublessor shall furnish same upon request, but same shall not affect Sublessee's
obligations to make the required payments hereunder. In the event that any items
payable by Sublessor under the Lease, in respect of which Sublessor shall have
received payments from Sublessee hereunder, are subject to adjustment by
Landlord at the end of a year or other period pursuant to the terms thereof,
then (a) if there has been a corresponding underpayment in the payments made by
Sublessee, Sublessee shall pay to Sublessor, no later than ten (10) days after
Sublessor furnishes
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to Sublessee a copy of the statement received by Sublessor from Landlord, an
amount equal to such underpayment; or (b) if there has been an overpayment in
such payments made by Sublessee, Sublessor shall credit against the next
payment of Additional Rent coming due hereunder an amount equal to such
overpayment, except that if no further payments of Additional Rent shall be
due hereunder, then Sublessor shall refund such amount to Sublessee within ten
(10) days. The obligation to pay any amount payable by Sublessee, or to
Sublessee as provided for in the immediately preceding sentence, shall survive
the end of the term of this Sublease and shall be payable by or to Sublessee,
as the case may be, in the same manner as if the Term of this Sublease had not
expired or terminated.
5. ACCEPTANCE OF SUBLEASED PREMISES. Sublessee has inspected the
Subleased Premises and Sublessee agrees to accept the Subleased Premises on the
Commencement Date in the condition in which the Subleased Premises exists on the
Commencement Date, "as is", and further agrees that neither Sublessor nor
Landlord shall have any obligation to perform any work, supply any materials,
incur any expenses or make any installations, in order to prepare the Subleased
Premises for Sublessee's occupancy.
6. PERFORMANCE OF COVENANTS IN THE LEASE. Except as expressly set forth
herein, during the Term of this Sublease, Sublessee shall observe and perform
all of the terms, covenants, conditions, and agreements contained in the Lease
to be performed and observed on the part of Sublessor, as the tenant thereunder,
insofar as same pertain to the Subleased Premises, and to the extent that the
same are not modified by the Sublease and all of such terms, covenants,
conditions and agreements are imposed upon Sublessee, whether or not
specifically set forth or referred to herein, Sublessor being substituted for
"Landlord" under the Lease, Sublessee being substituted for "Tenant" under the
Lease and the Subleased Premises being substituted for the "Premises" under the
Lease, provided, however, that Sublessor shall not be liable for any defaults by
the Landlord under the Lease and Sublessee shall not be bound by or subject to
the provisions of the Lease that are not incorporated by reference into this
Sublease. Sublessee hereby agrees (i) to refrain from doing or causing to be
done, or suffering or permitting any thing or act to be done (except for any act
or omission of Sublessor, its officers, directors, employees, agents, guests and
invitees), which constitutes a default under the Lease or causes the Lease, to
be canceled, terminated, forfeited or surrendered, or which makes Sublessor, as
tenant under the Lease, liable for any damages, claims or penalty, and (ii) to
indemnify and hold Sublessor harmless against any loss or expense suffered by
Sublessor by reason of Sublessee's failure to perform Sublessee's obligations
under this Sublease. Sublessor hereby agrees (i) that it will not take, or omit
to take, any action which will have the effect of causing a default under the
Lease, or of causing a substantial interruption in any of the services provided
by Landlord to the Subleased Premises under the Lease, and (ii) to indemnify and
hold Sublessee harmless against any loss or expense suffered by Sublessee by
reason of Sublessor's failure to perform its obligations under this Sublease and
under the Lease (except where such loss or expense is due to a default caused by
Sublessee under this Sublease). Provided Sublessee is not in default under this
Sublease beyond the giving of any required notice and the expiration of any
grace period, Sublessor agrees not to cancel or surrender voluntarily the Lease
as it affects the Subleased Premises, without the prior written consent of
Sublessee. If the Lease is terminated for any reason whatsoever, whether by
operation of law or otherwise, except where due to default of Sublessor (other
than a default of Sublessor under the Lease caused by Sublessee under this
Sublease), Sublessor shall not be liable in any manner whatsoever for such
termination.
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Sublessor shall promptly forward to Sublessee any default or termination
notice with respect to the Lease received by Sublessor from Landlord and this
Sublease shall terminate in the event of any such termination of the Lease. A
termination of the Lease to the default of Sublessor, other than Sublessor's
default under the Lease caused by Sublessee under this Sublease, shall be
considered a voluntary cancellation or surrender of the Lease hereunder. This
Sublease is subject and subordinate in all respects to the Lease and to the
matters to which the Lease is subject and subordinate. This Sublease shall
Also be subject to any amendments, modifications and supplements to the Lease
hereafter made between Landlord and Sublessor, provided that any such
amendments, modifications or supplements to the Lease hereafter made between
Landlord and Sublessor will not prevent, limit, restrict or adversely affect
the use by Sublessee of the Subleased Premises or increase any of the
Sublessee's monetary obligations or in any material respect its duties,
obligations, responsibilities and liabilities or decrease Sublessee's rights
under and in accordance with the terms of this Sublease.
7. USE. Sublessee hereby agrees that the Subleased Premises will be
occupied and used only for general and executive office use and for no other
purpose, and in a manner consistent in all respects with the provisions of the
Lease.
8. SERVICES UNDER THE LEASE. Except as otherwise provided either in
this Paragraph 8 or elsewhere in this Sublease, Sublessee shall be entitled,
during the Term hereof, to receive all services, utilities, repairs and
facilities to be provided by Landlord under the Lease insofar as such services,
utilities, repairs and facilities pertain to the Subleased Premises. Sublessor
shall use its reasonable efforts to secure the performance by Landlord of its
obligations under the Lease with respect to the Subleased Premises for the
delivery, provision and/or performance of such services, utilities, repairs and
facilities as are required to be provided by Landlord under the Lease, except
for such services, utilities, repairs and facilities for which Sublessor,
Sublessee or any other tenant is responsible; provided, however, Sublessor shall
in no event be required to commence or maintain litigation to enforce such
obligations of Landlord under the Lease, or to incur any cost or expense
whatsoever to secure such performance. In the event that Sublessor fails or
refuses to commence or maintain any such litigation to enforce obligations of
Landlord under the Lease, then and in that event, Sublessee shall have the right
to do so, at Sublessee's sole cost and expense, as Sublessor's attorney-in-fact
and/or assignee pursuant hereto. Sublessee agrees that Sublessor shall have no
liability of any nature whatsoever to Sublessee as a consequence of Landlord's
failure or delay in performing its obligations under the Lease, including,
without limitation, Landlord's breach of the covenant of quiet enjoyment,
provided that such failure, delay or breach is not the result of any default by
the Sublessor under the Lease, and provided further, that Sublessor shall have
had an opportunity to cure such default. Sublessee's obligations hereunder shall
not be impaired nor shall the performance thereof be excused because of any
failure or delay on Landlord's part in performing it obligations under the Lease
unless such failure or delay results from Sublessor's being in default under the
Lease and Sublessor's default thereunder is not due to a default of Sublessee
hereunder.
9. ALTERATIONS. Except as otherwise herein provided, Sublessee shall
make no alterations, installations, additions or improvements (collectively,
"ALTERATIONS") into or about the Subleased Premises except in accordance with
the applicable provisions of the Lease, including but not limited to Section 3
thereof.
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10. INSURANCE. (A) Sublessee, at Sublessee's own cost and expense,
shall maintain all policies of insurance with respect to the Subleased Premises,
in favor of Sublessor and Sublessee, which Sublessor is required to maintain in
favor of Landlord under the Lease, including but not limited to Sections 44
thereof, and shall comply with all requirements of the Lease with respect to
such insurance policies, including but not limited to types and amounts of
insurance.
(B) In the event that Sublessee shall fail to take out or continuously
maintain in force the insurance policies required hereunder, Sublessor may, at
its option, effect such insurance and charge the cost actually incurred by
Sublessor to Sublessee, who shall pay, as Additional Rent, such sums to
Sublessor.
(C) Each of the above described policies shall contain the following
endorsement, to the extent available, "It is understood and agreed that the
premiums for these policies are due and payable from Sublessee only."
11. FULL FORCE AND EFFECT OF THE LEASE. Sublessor represents that the
copy of the Lease delivered to Sublessee is a true and correct copy thereof,
except for the portions intentionally excluded as set forth above, none of which
excluded portions are relevant in any material respect to Sublessee's
obligations under this Sublease. Sublessor represents further that (a) there
have been no further amendments to nor modifications of the Lease, (b) to the
best of Sublessor's knowledge, neither Landlord nor Sublessor are in default
under the Lease, (c) Sublessor has not received any default notices from
Landlord, and (d) Sublessor has not sent any default notices to Landlord.
12. NO REPRESENTATIONS. Sublessor has made no representations,
agreements or promises with respect to the Building or the Subleased Premises or
the use thereof other than those expressly set forth in this Sublease and no
rights are to be deemed acquired by Sublessee, by implication or otherwise,
except those expressly granted herein. This Sublease contains the entire
agreement between Sublessor and Sublessee with respect to the Subleased Premises
and all prior negotiations and agreements are merged in this Sublease. Any
executory agreement hereafter made between Sublessor and Sublessee shall be
ineffective to change, modify, waive, release, discharge, terminate or effect an
abandonment or surrender of this Sublease, in whole or in part, unless such
agreement is in writing and signed by the party against whom enforcement thereof
is sought.
13. DEFAULT. (A) This Sublease and the term and estate herein granted
are subject to the limitations that:
(i) if, Sublessee shall default in the observance or performance
of any term, covenant or condition of the Lease on Sublessee's part to be
observed or performed, which default results in a notice of default by
Landlord to Sublessor and such default shall continue for a period of five (5)
days after delivery to Sublessee of a true and complete copy of Landlord's
notice of default, or if such default is of a nature that it cannot be
completely remedied within said five (5) day period if Sublessee fails to
commence to cure such default within said five (5) day period and thereafter
diligently prosecute to completion all steps necessary to remedy such default;
or
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(ii) if, Sublessee shall default in the payment when due of
any installment of Fixed Rent or in the payment when due of any Additional Rent,
and such default shall continue for a period of three (3) days after notice by
Sublessor to Sublessee of such default; or
(iii) if, Sublessee shall default in the observance or
performance of any term, covenant or condition of this Sublease on Sublessee's
part to be observed or performed (other than the covenants for the payment of
Fixed Rent and Additional Rent) and Sublessee shall fail to remedy such
default within ten (10) days after notice by Sublessor to Sublessee of such
default, or if such default is of a nature that it cannot be completely
remedied within said ten (10) day period, if Sublessee shall not commence
within said ten (10) day period and thereafter diligently prosecute to
completion all steps necessary to remedy such default; or
(iv) if, the Subleased Premises shall become deserted or
abandoned; or
(v) if, Sublessee's interest in this Sublease shall devolve
upon or pass to any person, whether by operation of law or otherwise, except as
may be expressly permitted under Paragraph 19 hereof; or
(vi) if, Sublessee shall file a voluntary petition in
bankruptcy or insolvency, or shall be adjudicated a bankrupt or insolvent, or
shall file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
the present or any future federal bankruptcy act or any other statute or law,
or shall make an assignment for the benefit of creditors or shall seek or
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Sublessee or of all or any part of Sublessee's property; or
(vii) if, within sixty (60) days after the commencement of any
proceeding against Sublessee, whether by the filing of a petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or future applicable federal,
state or other statute or law, such proceeding shall not have been dismissed, or
if, within sixty (60) days after the appointment of any trustee, receiver or
liquidator of Sublessee, or of all or any part of Sublessee's property, without
the consent or acquiescence of Sublessee, such appointment shall not have been
vacated or otherwise discharged, or if any lien, execution or attachment shall
be filed or issued against Sublessee or all or any part of Sublessee's property
pursuant to which the Subleased Premises shall be taken or occupied or attempted
to be taken or occupied by someone other than Sublessee (except as provided in
Paragraph 19 hereof);
then, upon the occurrence, at any time prior to or during the
Term, of any one or more of such events, Sublessor may, at any time thereafter,
at Sublessor's sole option, give to Sublessee a five (5) days' notice of
cancellation of this Sublease and, in such event, this Sublease and the Term
shall come to an end and expire (whether or not the Term shall have commenced)
upon the expiration of said five (5) day period with the same force and effect
as if the date were the Expiration Date stated herein and Sublessee shall then
quit and surrender the Subleased Premises to Sublessor, but Sublessee shall
remain liable for damages as provided in Paragraph 27 hereof. Sublessor shall
have with respect to any such default any and all of such rights and remedies as
are given to Landlord under the Lease with respect to defaults by the
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tenant thereunder, all with the same force and effect as though the provisions
of the Lease with respect to defaults and the rights and remedies of Landlord
were set forth at length herein. If Sublessee shall default in the performance
of any of Sublessee's obligations hereunder or under the provisions of the
Lease, after the giving of notice and opportunity to cure as provided above,
Sublessor, without thereby waiving such default, may, at Sublessor's option,
perform the same for the account and at the expense of Sublessee. If Sublessor
makes any expenditures or incurs any obligations for the payment of money,
including without limitation, reasonable attorneys' fees and expenses in
instituting, prosecuting or defending any action or proceeding, by reason of
any default of Sublessee hereunder after giving of notice and opportunity to
cure as provided above, such sums paid or obligations incurred, with interest
at the rate of 4% per annum above the then current prime rate charged by
Citibank, N.A. or its successor, shall be deemed to be Additional Rent and
shall be paid by Sublessee to Sublessor on demand.
(B) If Sublessor shall default in the observance or performance of any
term, covenant or condition of this Sublease on Sublessor's part, to be observed
or performed, and Sublessor shall fail to remedy such default within ten (10)
days after notice by Sublessee to Sublessor of such default, or if such default
is of a nature that it cannot be completely remedied within said ten (10) day
period, if Sublessor shall not commence within said ten (10) day period and
thereafter diligently prosecute to completion all steps necessary to remedy such
default, then if Sublessee makes any expenditures or incurs any obligations for
the payment of money, including without limitation, reasonable attorney's fees
and expenses instituting, prosecuting or defending any action or proceeding, by
reason of such default of Sublessor hereunder, after the giving of notice and an
opportunity to cure as provided above, Sublessor shall reimburse to Sublessee on
demand all such sums paid by Sublessee, with interest at the rate of 4% per
annum above the then current prime rate charged by Citibank, N.A. or its
successor.
14. INDEMNITY AND HOLD HARMLESS. (A) Neither Sublessor, nor its agents,
shall be liable to Sublessee, its employees, agents, contractors, licensees,
servants, invitees or visitors and Sublessee shall save Sublessor and its agents
harmless from and against any and all liabilities, obligations, penalties,
fines, suits, claims, demands, actions, costs and expenses of any kind or nature
(including, without limitation, reasonable attorneys' fees and expenses),
incurred in connection with or arising from any injury to Sublessee, its
employees, agents, contractors, licensees, servants, invitees or visitors or to
any other person on the Subleased Premises in or about the Subleased Premises,
or from any injury or damage to or loss (by theft or otherwise) of, any of
Sublessee's property and/or of the property of any other person irrespective of
the cause of such injury, damage or loss, other than injury, damage or loss
caused by Sublessor's willful acts or omissions or negligence. Sublessee agrees
to indemnify and save Sublessor and its agents harmless from and against any and
all liabilities obligations, suits, claims, demands, actions, costs and expenses
of any kind or nature by anyone whomsoever (including, without limitation,
reasonable attorneys' fees and expenses), incurred in connection with or arising
from (i) any default by Sublessee in the observance or performance of any of the
terms, covenants, conditions or agreements of this Sublease on Sublessee's part
to be observed or performed, beyond the expiration of any applicable grace
period, or (ii) the use or occupancy or manner of use or occupancy of the
Subleased Premises by Sublessee or any person claiming through or under
Sublessee, other than as permitted under this Sublease, or (iii) the condition
of the Subleased premises (ordinary wear and tear excepted), except if created
by Sublessor, or (iv) any improper acts, omissions or negligence of Sublessee,
or the employees, agents, contractors, licensees,
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servants, invitees or visitors of Sublessee, in or about the Subleased
Premises or the Building, during the Term. If any action or proceeding shall
be brought against Sublessor by reason of any such claim, Sublessee, upon
notice from Sublessor, agrees to resist or defend such action or proceeding
and to employ counsel therefor reasonably satisfactory to Sublessor. Sublessee
shall pay to Sublessor on demand, as Additional Rent, all sums which may be
owing to Sublessor by reason of the provisions of this Paragraph 14.
Sublessee's obligations under this Paragraph 14 shall survive the Expiration
Date or sooner termination of the Term.
(B) Sublessor agrees to indemnify and save Sublessee and its agents
harmless from and against any and all liabilities, obligations, penalties,
fines, suits, claims, demands, actions, costs and expenses of any kind or nature
by anyone whomsoever (including, without limitation, reasonable attorneys' fees
and expenses), incurred in connection with or arising from (i) any default by
Sublessor in the observance or performance of any of the terms, covenants,
conditions or agreements of this Sublease on Sublessor's part to be observed or
performed, beyond the expiration of any applicable grace period, or (ii) the use
or occupancy or manner of use or occupancy of the portion of the Demised
Premises occupied only by Sublessor other than as permitted in the Lease, or
(iii) any acts, omissions or negligence of Sublessor, or the employees, agents,
contractors, licensees, servants, invitees, or visitors of Sublessor in or about
the Demised Premises or the Building, during the Term.
15. NOTICES. Any notice, demand, request or other document which, under
the terms of this Sublease or under any statute, must of may be given or made by
the parties hereto, must be in writing, and shall be either personally delivered
(provided a written receipt therefor is obtained), or sent by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party for whom intended at its address as set forth on page 1 hereof, and, if to
Sublessor, with a copy to Alter Bartfeld & Mantel LLP, 90 Park Avenue, New York,
New York 10016, Attention: Arnold L. Bartfeld, Esquire or if to Sublessee, with
a copy to: Morrison & Foerster LLP, 425 Market Street, San Francisco, California
94105 Attention: Craig Etlin, Esq. (provided, however, the failure to forward a
copy of any notice to counsel shall not be deemed to make such notice
defective). Either party, however, may designate a new or other address by
written notice given in accordance with this Paragraph 15. Any notice personally
delivered shall be deemed given upon the signing of a receipt therefor, and any
notice so addressed and mailed shall be deemed to be given either when
delivered, or, if delivery is refused, five (5) business days after the date
mailed, as the case may be. Any notice, demand or request given or made by
counsel for a party shall be deemed given or made by such party.
16. COUNTERCLAIM. Sublessee hereby waives the right to interpose a
counterclaim (other than mandatory counterclaims) in any summary proceeding
initiated by Sublessor to remove Sublessee from the Subleased Premises.
17. END OF TERM. On the Expiration Date, or upon any earlier
termination of this Sublease, Sublessee shall quit and surrender the Subleased
Premises to Sublessor broom-clean and in as good order, condition and repair as
the Subleased Premises existed upon the Commencement Date except for ordinary
wear and tear, any restoration of the Subleased Premises not required pursuant
hereto, damage or destruction by fire and other casualty and such other damage
the repair of which is not Sublessee's obligation hereunder (provided no such
damage shall be due to Sublessee's negligence or misconduct), and otherwise in
accordance with
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the applicable provisions of the Lease. Sublessee recognizes that Sublessor
may suffer substantial damage if Sublessee fails to surrender and vacate the
Subleased Premises on the Expiration Date. Sublessee, therefore, agrees that
if Sublessee shall hold-over or remain in possession beyond the Expiration
Date of this Sublease, Sublessee shall in addition to the provisions of
Paragraph 31 below, be liable for all compensatory damages directly related
thereto and arising therefrom, including any damages arising out of any lost
opportunities ( and/or new leases) in connection with such holding over. All
damages to Sublessor by reason of such holding-over by Sublessee may be the
subject of a separate action and need not be asserted by Sublessor in any
summary proceeding against Sublessee. Sublessee further agrees to indemnify
Sublessor against and from any and all losses, liabilities, damages, costs and
expenses (including reasonable attorneys' fees) Sublessor incurs to dispossess
Sublessee, or otherwise, resulting from Sublessee's failure to vacate the
Subleased Premises on the Expiration Date. Sublessee's obligations under this
Paragraph 17 shall survive the termination of this Sublease.
18. QUIET ENJOYMENT. Sublessor covenants with Sublessee that as long as
Sublessee shall pay the Fixed Rent and Additional Rent and shall duly perform
all of the terms, covenants, conditions and agreements of this Sublease on its
part to be performed, Sublessee shall, subject to the terms hereof and of the
Lease, peaceably have, hold and enjoy the Subleased Premises during the Term
provided herein without hindrance or molestation by Sublessor or any party
claiming by, through or under Sublessor.
19. ASSIGNMENT AND SUBLETTING. Sublessee, for itself, and its
successors and assigns, expressly covenants that it shall not assign this
Sublease, nor underlet, nor suffer, nor permit the Subleased Premises or any
part thereof to be used or occupied by others, except upon the prior written
consent of both (i) Sublessor, which consent shall not be unreasonably withheld
or delayed, and (ii) Landlord; and provided further that any such attempted
assignment, subletting, use or occupancy shall be subject to compliance with all
of the terms and conditions contained in Section 41 of the Lease and to the
rights of Landlord thereunder.
20. EFFECT OF TERMINATION OF THE LEASE. Notwithstanding the provisions
of Paragraph 2 hereof, the Term of this Sublease shall end one day prior to the
Term of the Lease if Landlord shall terminate the Lease in accordance with its
terms. Upon receipt of written notice from Landlord terminating the Lease,
Sublessor shall notify Sublessee of Landlord's intention to terminate the Lease
and the date such termination shall be effective. In the event of such early
termination by Landlord ("EARLY TERMINATION"), Sublessor shall return to
Sublessee any prepaid Fixed Rent, any prepaid Additional Rent or Additional Rent
covering any period following Early Termination and the Security provided in
Paragraph 25 hereof, or balance of the Security as the case may be, and
thereafter this Sublease shall terminate as finally and completely as if the
date set forth in the Early Termination notice shall be the Expiration Date set
forth herein for the termination of the Sublease Term.
21. EFFECT OF TERMINATION OF THIS SUBLEASE. References in this Sublease
to "termination" of this Sublease include expiration or earlier termination of
the Term hereof or cancellation of this Sublease pursuant to any of the
provisions of this Sublease, the Lease or pursuant to law. Upon the termination
of this Sublease, the term and estate granted by this Sublease shall end at noon
on the date of termination as if such date were the Expiration Date hereof, and
neither party shall have any further obligation or liability to the other after
such
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termination except as shall be expressly provided in this Sublease, any
liability for a payment which shall have accrued with respect to any period
ending prior to or at the time of termination shall survive the termination of
this Sublease.
22. REMEDIES CUMULATIVE. Each right and remedy of Sublessor and
Sublessee provided for in this Sublease shall be cumulative and shall be in
addition to every other right and remedy provided for in this Sublease now or
hereafter existing at law or in equity or by statute or otherwise.
23. BINDING EFFECT. The terms, covenants, conditions and agreements
contained in this Sublease shall bind and inure to the benefit of Sublessor and
Sublessee and their respective successors and assigns, except that no violation
of the provisions of Paragraph 19 hereof shall operate to vest any rights in any
successor or assignee of Sublessee. It is understood and agreed that the
obligations of Sublessor under this Sublease shall not be binding upon Sublessor
with respect to any period subsequent to the transfer of its interest in the
Lease, and that in the event of such transfer said obligations shall thereafter
be binding upon the transferee of the Sublessor's interest as tenant under the
Lease.
24. [INTENTIONALLY DELETED]
25. SECURITY. A. On or before the date that is three days after
Sublessor notifies Sublessee that Sublessor has received the Consent to
Sublease, Sublessee shall deposit and shall thereafter maintain at all times
with Sublessor until the date that is thirty (30) days after the expiration of
the Term, as a security deposit (the "Security") for the faithful performance
and observance by Sublessee of the covenants, agreements, terms, provisions and
conditions of this Sublease, the sum of Three Thousand Eight Hundred Thirty
Three and 34/100 Dollars ($3,833.34).
B. It is agreed that in the event Sublessee defaults in respect of any
of the covenants, agreements, terms, provisions and conditions of this Sublease
(after notice and the expiration of any applicable grace period), Sublessor may
use, apply or retain such part of the Security as shall be equal to the sum as
to which Sublessee is in default or for any sum which Sublessor may expend or
may be required to expend by reason of Sublessee's default in respect of any of
the covenants, agreements, terms, provisions and conditions of this Sublease,
including, but not limited to, any damages or deficiency in the re-letting of
the Subleased Premises, whether such damages or deficiency occurred before or
after summary proceedings or other re-entry by Sublessor. Sublessor shall not be
required to so use, apply or retain any part of the Security, but if any part
thereof is so used, applied or retained in accordance with the provisions of
this Section, Sublessee shall, upon demand, immediately deposit with Sublessor
an amount equal to the amount so used, applied or retained.
C. In the event that Sublessee shall fully and faithfully comply with
all of the terms, provisions, covenants, agreements and conditions of this
Sublease, any unapplied Security shall be returned to Sublessee within ten (10)
days after the date fixed as the end of this Sublease and after delivery of the
entire possession of the Subleased Premises to Sublessor.
26. Intentionally deleted.
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27. RE-ENTRY BY SUBLESSOR; REMEDIES. (A)(I) If this Sublease and the
Term shall expire and come to an end as provided in Paragraph 13 hereof:
(a) Sublessor and its agents may immediately, or at any time
thereafter, reenter the Subleased Premises or any part thereof, either by
summary proceedings, or by any other applicable court action or judicial
proceeding (without being liable to indictment, prosecution or damages
therefor), and may repossess the Subleased Premises and the Furniture and remove
any and all of their property and effects from the Subleased Premises; and
(b) Sublessor, at its option, may relet the whole or any part or parts
of the Subleased Premises, at any time or from time to time, either in the name
of Sublessor or otherwise, to such subtenant or subtenants, for such term or
terms ending before, on or after the Expiration Date, at such rental or rentals
and upon such other conditions, which may include concessions and free rent
periods, as Sublessor, in its sole discretion, may determine. Sublessor shall
have no obligation to relet the Subleased Premises or any part thereof and shall
in no event be liable for refusal or failure to relet the Subleased Premises or
any part thereof, or, in the event of any such reletting, for refusal or failure
to collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Sublessee of any liability under this Sublease or
otherwise to affect any such liability. Sublessor, at its option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Subleased Premises as Sublessor, in its
sole discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Sublessee of any liability
under this Sublease or otherwise affecting any such liability.
(ii) Sublessee, on its own behalf and on behalf of all persons
claiming through or under Sublessee, including all creditors, does further
hereby waive any and all rights which Sublessee and all such persons might
otherwise have under any present or future law to (a) redeem the Subleased
Premises, or re-enter or repossess the Subleased Premises, or (b) restore the
operation of this Sublease, after (1) Sublessee shall have been dispossessed by
a judgment or by warrant of any court or judge, (2) any re-entry by Sublessor,
or (3) any expiration or termination of this Sublease and the Term, whether such
dispossess, re-entry, expiration or termination shall be by operation of law or
pursuant to the provisions of this Sublease. The words "re-enter", "re-entry"
and "re-entered" as used herein shall not be deemed to be restricted to their
technical legal meanings. The right to invoke the remedies hereinbefore set
forth are cumulative and shall not preclude Sublessor from invoking any other
remedy allowed at law or in equity.
(B) In the event of any breach or threatened breach by Sublessee or any
person claiming through or under Sublessee, of any of the terms of this Sublease
(whether or not the Term shall have commenced), Sublessor shall be entitled to
enjoin such breach or threatened breach and shall have the right to invoke any
other remedy allowed at law or in equity, by statute or otherwise, as if
re-entry, summary proceedings or other specific remedies were not provided for
in this Sublease.
(C) (i) If this Sublease and the Term shall expire and come to an end
as provided in Paragraph 13 hereof, or by or under any summary proceeding or any
other action or proceeding, or if Sublessor shall re-enter the Subleased
Premises as provided in this Paragraph 27 and
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elsewhere in this Sublease, or by or under any summary proceeding or any other
action or proceeding, then, in any of said events:
(a) Sublessee shall Pay to Sublessor all Fixed Rent, Additional Rent
and other charges payable under this Sublease by Sublessee to Sublessor to the
date upon this Sublease and the Term shall have expired and come to an end or to
the date of re-entry upon the Subleased Premises by Sublessor, as the case may
be;
(b) All monies, if any, theretofore paid by Sublessee to Sublessor,
whether as advanced Fixed Rent, Additional Rent, Security, or otherwise, shall
be credited by Sublessor against any damages payable by Sublessee to Sublessor,
and any surplus, if any, shall be refunded to Sublessee;
(c) Sublessee also shall be liable for and shall pay to Sublessor, as
damages, any deficiency (hereafter referred to as "DEFICIENCY") between the
Fixed Rent and Additional Rent reserved in this Sublease for the period which
otherwise would have constituted the unexpired portion of the Term (conclusively
presuming the Additional Rent to be the same as was payable for the year
immediately preceding such termination or re-entry) and the net amount, if any,
of rents collected under any reletting for any part of such period (first
deducting from the rents collected under any such reletting all of Sublessor's
expenses in connection with the termination of this Sublease, and Sublessor's
re-entry upon the Subleased Premises and with such reletting, including, but not
limited to, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees and disbursements, alteration costs and other expenses of
preparing the Subleased Premises for such reletting). Any such Deficiency shall
be paid in monthly installments by Sublessee on the days specified in this
Sublease for payment of installments of Fixed Rent. Sublessor shall be entitled
to recover from Sublessee each monthly Deficiency as the same shall arise, and
no suit to collect the amount of the Deficiency for any month shall prejudice
Sublessor's right to collect the Deficiency for any subsequent month by a
similar proceeding;
(ii) If the Subleased Premises, or any part thereof, shall be
relet together with other space in the Demised Premises, rents collected or
reserved under any such reletting and the expenses of any such reletting shall
be equitably apportioned for the purposes of Section C.(i) hereof. In no event
whatsoever shall Sublessee be entitled to any rents collected or payable under
any reletting, whether or not such rents shall exceed the Fixed Rent and
Additional Rent reserved in this Sublease. Nothing contained in Paragraph 13
hereof or this Paragraph 27 shall be deemed to limit or preclude the recovery by
Sublessor from Sublessee of the maximum amount allowed to be obtained as damages
by any statute or rule of law, or of any sums or damages to which Sublessor may
be entitled in addition to the damages set forth in Section C.(i) hereof.
28. CERTIFICATES. Sublessor and Sublessee shall, without charge, at
reasonable intervals, and from time to time, within ten (10) business days after
requests by the other, deliver a written instrument to any person, firm or
corporation specified by them, duly executed and acknowledged, certifying:
(a) that this Sublease is unmodified and in full force and effect, if
there have been any modifications, that the same are in full force and effect as
modified and stating any such
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modifications and if the Sublease is not then in full force and effect, so
stating and setting forth in reasonable detail the nature of any default,
deficiency or changed circumstance;
(b) whether or not there are then existing set-offs or defenses against
the enforcement of any of the agreements, terms, covenants or conditions of this
Sublease and any modifications thereof on the part of Sublessee to be performed
or complied with, and, if so, specifying the same;
(c) the dates to which the Fixed Rent and Additional Rent, and other
charges hereunder, have been paid; and
(d) whether the term of this Sublease has commenced and rent is payable
thereunder and whether Sublessee has accepted possession of the Subleased
Premises.
29. EXECUTION OF SUBLEASE. Submission by Sublessor of the within
Sublease for execution by Sublessee shall confer no rights nor impose any
obligations on either party unless and until both Sublessor and Sublessee shall
have executed this Sublease, duplicate originals thereof shall have been
delivered to the respective parties and Landlord shall have delivered to
Sublessor the Consent to Sublease and Sublessor shall have promptly notified
Sublessee of its receipt of Landlord's Consent to Sublease.
30. ELECTRICITY. The cost of electric current provided to the Subleased
Premises is included in the Fixed Rent.
31. HOLDING OVER. If Sublessee holds over in possession after the
expiration or sooner termination of the original Term or of any extended term of
this Sublease, such holding over shall not be deemed to extend the Term or renew
the Sublease, but such holding over thereafter shall continue upon the covenants
and conditions herein set forth, except that the charge for use and occupancy of
such holding over for each calendar month or part thereof (even if such part
shall be a small fraction of a calendar month) shall be the sum of:
(a) 1/12 of the annual Fixed Rent set forth in this Sublease, times
2.0, plus
(b) 1/12 of all other items of annual Additional Rent which would have
been payable pursuant to this Sublease had this Sublease not expired, plus
(c) those other items of Additional Rent (not annual Additional Rent)
which would have been payable pursuant to this Sublease, had this Sublease not
expired, which total sum Sublessee agrees to pay to Sublessor promptly upon
demand, in full, without set-off or deduction. Neither the billing nor the
collection of use and occupancy in the above amount shall be deemed a waiver of
any right of Sublessor to collect damages for Sublessee's failure to vacate the
Subleased Premises after the expiration or sooner termination of this Sublease.
The aforesaid provisions of this Section shall survive the expiration or sooner
termination of this Sublease.
32. LATE CHARGES. If Sublessor does not receive payment of any Fixed
Rent or Additional Rent within five (5) days after any such Fixed Rent or
Additional Rent is due, then Sublessee shall pay to Sublessor, as a "late
charge", interest at the lesser of (i) two percent (2%) per annum above the then
current prime rate charged by Citibank, N.A. or its successor, or
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(ii) the maximum rate permitted by applicable law on the amount of Fixed Rent
and/or Additional Rents overdue until such rental payment is made and such
"late charge" shall be collectible as Additional Rent by Sublessor.
33. ATTORNEYS' FEES. In case it shall be necessary for Sublessor to
institute any action or proceeding against Sublessee for the nonpayment of rent
or for the violation of any of the covenants or provisions of this Sublease or
for the recovery of possession of the Subleased Premises or should Sublessor be
compelled to intervene in any action or proceeding wherein Sublessee is a party
in order to enforce Sublessor's interest or rights hereunder, then and in any of
such events, if Sublessor shall obtain a judgment or order in its favor on the
merits, sustained on appeal if one is taken, in such action or proceeding,
Sublessee shall be obligated to pay to Sublessor reasonable attorneys' fees,
costs and disbursements incurred for the institution and prosecution of any such
action, proceeding or intervention.
34. See Rider attached hereto and made a part hereof.
35. See Rider attached hereto and made a part hereof.
36. See Rider attached hereto and made a part hereof.
37. NO BROKER. Sublessor and Sublessee represent and warrant that they
have dealt with no broker or finder in connection with this Sublease other than
Wharton Property Advisors, Inc. Sublessor shall pay a commission to Wharton
Property Advisors, Inc. pursuant to a separate written agreement. Sublessor and
Sublessee each shall indemnify, defend and save harmless the other from and
against all claims arising from any breach by such party of the foregoing
representation, warranty or covenant. The indemnity set forth herein shall
survive the expiration or earlier termination of this Sublease.
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IN WITNESS WHEREOF, Sublessor and Sublessee have duly executed this
Sublease as of the day and year first above written.
SUBLESSOR:
CORNERSTONE INTERNET SOLUTIONS COMPANY
By: /s/ Kenneth Gruber
----------------------------------
Name: Kenneth Gruber
Title: Vice President
SUBLESSEE:
XOOM, INC.
By: /s/ Laurent Massa
-----------------------------------
Name: Laurent Massa
Title: CEO
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RIDER TO SUBLEASE DATED AS OF AUGUST __, 1998, BETWEEN
CORNERSTONE INTERNET SOLUTIONS COMPANY, AS SUBLESSOR, AND
XOOM, INC., AS SUBLESSEE, FOR A PORTION OF THE
THIRD FLOOR AT 25 WEST 45TH STREET
34. If any conflict shall arise between any of the provisions of this Rider and
any of the terms, printed or typewritten, of the printed portion of the Sublease
to which this Rider is attached, all such conflicts shall be resolved in favor
of the provisions of this Rider.
35. Except as otherwise expressly set forth herein, all of the terms, covenants,
conditions and agreements contained in the Lease are incorporated and made a
part of this Sublease as though fully set forth herein and shall apply to the
Subleased Premises to the extent that the same are applicable. Notwithstanding
the foregoing:
(i) the following provisions of the Lease are not incorporated into this
Sublease;
(A) all of the lead-in on page 1 prior to Article 1.
(B) Articles 30, 32, 47, 50, the Work Letter attached to the Lease, and
the Electricity Rider attached to the Lease.
(ii) Article 43 of the Lease, as incorporated into this Sublease is modified by
inserting the phrase "which the demised premises are a part thereof in the (A)
13th line after the word "building", (B) 32nd line after the word "building" and
(C) 34th line after the word "building", respectively.
(iii) The amendment to the Lease dated May 1, 1996, as incorporated into this
Sublease, is modified by deleting the sentence "For and in consideration of such
additional service exclusively, Tenant agrees that its annual (base) rent
payable shall be increased during the term of this lease by an addition amount
of $_______________ per annum or $__________ per month, pro rata, always subject
to future increase or decrease as provided by said lease."
(iv) The Additional Clauses attached to the Lease dated December 12, 1997, as
incorporated into this Sublease, are modified by deleting the provisions therein
captioned "Term", Rental", Electricity", "Work" and "Miscellaneous".
36. Notwithstanding anything contrary contained herein, Sublessor's consent
shaft not be required for assignments, subleases, or other transfer transactions
(i) with a corporation into or with which Sublessee is merged or consolidated or
with a person or entity to which substantially all of Sublessee's assets are
transferred or to which a majority of the issued and outstanding capital stocks
of a corporate tenant or subtenant, or of the total interests in a partnership
tenant or subtenant, or of control in a limited partnership tenant or subtenant
is transferred (provided such merger or transfer is for a legitimate business
purpose and not principally for the purpose of transferring the subleasehold
estate created by this Sublease), and (ii) with an entity that is an affiliate
of Sublessee or is controlled by, under common control with or controls
Sublessee. The reorganization of Sublessee named in this Sublease to a publicly
traded corporation (whether or not a change in control of such Sublessee is
thereby effected) and the transfer of all of the
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partnership interests in, or outstanding stock of, Sublessee named in this
Sublease to a publicly traded corporation shall not require Sublessor's
consent Sublessor, upon Sublessee's request, shall use best efforts to cause
Landlord to promptly deliver Landlord's consent to the foregoing
transaction(s).
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EXHIBITS TO SUBLEASE
--------------------
Subleased Premises Exhibit A
Lease Exhibit B
18
<PAGE>
EXHIBIT A
---------
SUBLEASED PREMISES
19
<PAGE>
(diagram of subleased premises)
Suite 301 - 1000 rsf
25 West 45th Street
20
<PAGE>
EXHIBIT B
---------
LEASE
(This exhibit has not been filed as it has been deemed immaterial to an
investment decision pursuant to the provisions of Item 601(b)(2) of Regulation
S-K. The Registrant agrees to furnish a copy of this exhibit to the Commission
upon request.)
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EXHIBIT 10.3
ASSIGNMENT OF LEASE
-------------------
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, XAOS
TOOLS, INC. ("ASSIGNOR"), as Tenant under that certain Office Space Lease dated
as of August 1, 1997, as amended by the First Amendment to Lease dated as of
August 1, 1997 and the Second Amendment to Lease dated as of August 1, 1998
(said Office Space Lease and First Amendment to Lease and Second Amendment to
Lease hereinafter collectively referred to as the "Lease"), entered into by and
between ASSIGNOR as Tenant and 300 Montgomery Associates ("300 MONTGOMERY") as
Landlord, covering the premises commonly known as Suite 300, 300 Montgomery
Street, San Francisco, California (the "Premises"), hereby assigns and transfers
to Xoom, Inc. ("ASSIGNEE"), all of its right, title and interest in and to the
Lease and gives possession of the Premises to ASSIGNEE in a broom-clean
condition and otherwise ready for use, effective on August 1, 1998 (the
"Effective Date"), provided that Landlord consents thereto as evidenced by its
signature below. ASSIGNOR releases all claims to the security deposit in the
amount of One Hundred Thousand One Hundred Ninety-three and 25/100 Dollars
($100,193.25) which 300 MONTGOMERY now holds as Landlord, and ASSIGNOR agrees
that such security deposit shall be held by 300 MONTGOMERY and applied subject
to the provisions of the Lease and shall be returned to ASSIGNEE after the
expiration of the Term in accordance with the Lease, as such may be amended
and/or modified. ASSIGNOR agrees that 300 MONTGOMERY will in no event be
required to charge or credit or make any other adjustment as between ASSIGNOR
and ASSIGNEE on account of any other sums paid either before or after the
Effective Date under the Lease by ASSIGNOR or ASSIGNEE. ASSIGNOR hereby
represents and warrants to ASSIGNEE and 300 MONTGOMERY that, as of the Effective
Date, (a) the Lease is in full force and effect, and (b) there are no defaults
on the part of 300 MONTGOMERY. ASSIGNOR acknowledges that, notwithstanding this
assignment or any further assignments, ASSIGNOR continues to be bound by the
Lease and liable for the performance of each and every term, covenant,
condition, obligation and agreement of the Lease to be kept, performed and
fulfilled by the Tenant thereunder. ASSIGNOR further agrees to indemnify, defend
(with counsel reasonably acceptable to ASSIGNEE) and hold ASSIGNEE harmless from
and against any and all claims, costs, liabilities, losses, damages or expenses,
including, without limitation, reasonable attorneys's fees, which claims, costs,
liabilities, losses, damages or expenses originate on or prior to the Effective
Date and arise out of ASSIGNOR'S obligations under the Lease. ASSIGNEE agrees to
immediately notify ASSIGNOR of any actual or intended default under the terms of
the Lease. ASSIGNEE further agrees to indemnify, defend (with counsel reasonably
acceptable to ASSIGNOR) and hold ASSIGNOR harmless from and against any and all
claims, costs, liabilities, losses, damages or expenses, including, without
limitation, reasonable attorneys's fees, which claims, costs, liabilities,
losses, damages or expenses originate on or after the Effective Date and arise
out of ASSIGNEE'S obligations under the Lease. ASSIGNOR understands and agrees
that notwithstanding ASSIGNOR's continuing liability under the Lease subsequent
to this assignment, ASSIGNOR retains no right of reversion or re-entry under the
Lease and no right to cure any default of ASSIGNEE thereunder. ASSIGNOR waives
all presentments, demands for payment or performance under the Lease, and all
other notices, including those of nonperformance or
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default, and further waives any right to require 300 MONTGOMERY to enforce its
rights or remedies against ASSIGNEE under the Lease or to proceed against
ASSIGNEE or any other person, to proceed against or exhaust any security held
from ASSIGNEE or any other person, or to pursue any other remedy in 300
MONTGOMERY's power whatsoever. ASSIGNOR represents that its current address is
300 Montgomery Street, Suite 300, California 94104 and promises that it will
immediately notify 300 MONTGOMERY in writing of any change in such address.
DATED: 7/31/98
"ASSIGNOR"
XAOS TOOLS, INC.
By: /s/ Robert L. Batty
--------------------
Name: Robert L. Batty Name:
--------------- ------------------
Title: President Title:
--------- -----------------
2
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ACCEPTANCE OF ASSIGNMENT AND ASSUMPTION OF LEASE
------------------------------------------------
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
ASSIGNEE accepts the foregoing assignment of all of ASSIGNOR's right, title and
interest in and to the Lease and in addition expressly assumes and agrees, as a
direct obligation to 300 MONTGOMERY, from the date the assignment becomes
effective, to keep, perform and fulfill all the terms, covenants, conditions,
obligations and agreements required to be kept, performed, and fulfilled by
ASSIGNOR as Tenant thereunder, including, but not limited to, the timely making
of all payments due to or payable on behalf of 300 MONTGOMERY as Landlord under
the Lease when due and payable. ASSIGNEE acknowledges that it has inspected the
Premises and knows the present condition thereof and of the Office Building of
which the Premises are a part, and accepts the Premises in the condition
disclosed by such inspection. ASSIGNEE agrees that no representations or
agreements of any kind, express or implied, including respecting the Premises,
the Lease or the Office Building, have been made by 300 MONTGOMERY or any agent,
employee or representative of 300 MONTGOMERY, and ASSIGNEE is not accepting the
Premises or the Lease in reliance upon any representations or nondisclosures on
the part of 300 MONTGOMERY or 300 MONTGOMERY'S agents, employees or
representatives. ASSIGNEE acknowledges that a security deposit in the amount of
$100,193.25 is (or, as of the Effective Date, will be) held by 300 MONTGOMERY as
Landlord to be applied subject to the provisions of the Lease, and that no rent
has been prepaid under the Lease except for the current month. ASSIGNEE agrees
that 300 MONTGOMERY will in no event be required to charge or credit or make any
other adjustment as between ASSIGNOR and ASSIGNEE on account of any other sums
paid either before or after the Effective Date under the Lease by ASSIGNOR or
ASSIGNEE. ASSIGNEE further acknowledges that it has read the entire Lease and
fully understands its provisions, including, but not limited to, the provisions
of Article IX of the Lease dealing with assignment and subletting, and the
provisions of Article 14.7 of the Lease waiving right to trial by jury. Attached
hereto as Exhibit "A" and incorporated herein by reference are the most recent
financial statements (the "Financial Statements") of ASSIGNEE, consisting of a
balance sheet and related materials for the period ending June 30, 1998 and
December 31, 1997. ASSIGNEE represents, warrants and covenants to 300 MONTGOMERY
that the Financial Statements are in all material respects true and complete
statements of the financial condition of ASSIGNEE for the period therein
specified, contain and reflect all material adjustments so as to present a full,
accurate and complete statement of ASSIGNEE's current financial condition, and
do not fail to disclose any fact or facts which might materially and adversely
affect ASSIGNEE's financial condition. ASSIGNEE further represents, warrants and
covenants that since the last date covered by the Financial Statements, there
has not been any change in the financial condition of ASSIGNEE or any other
event or condition of any character that has had or might reasonably be expected
to have a materially adverse effect or impact on the financial condition of
ASSIGNEE. ASSIGNEE acknowledges that 300 MONTGOMERY is materially relying on the
truthfulness, accuracy and completeness of the Financial Statements and would
not consent to the within assignment of the Lease if it did not believe that
such Financial Statements were true, accurate and complete. ASSIGNEE
3
<PAGE>
further agrees to immediately give 300 MONTGOMERY written notice of any material
adverse change in its financial condition occurring prior to the Effective Date,
including litigation commenced, tax liens filed, defaults claimed under its
indebtedness for borrowed money, or bankruptcy proceedings commenced by or
against it.
DATED: 7/31/98
"ASSIGNEE"
By: /s/ Laurent Massa By:
----------------- ------------------
Name: Laurent Massa Name:
--------------- ----------------
Title: C.E.O. Title:
-------------- ---------------
4
<PAGE>
LANDLORD'S CONSENT TO ASSIGNMENT
--------------------------------
As Landlord under the Lease, 300 MONTGOMERY hereby consents to the
foregoing assignment and assumption without waiver of the restrictions in the
Lease concerning further assignment and without waiver of any of its rights or
remedies under the Lease as to ASSIGNOR or ASSIGNEE, and this consent shall not
in any respect release, relieve or discharge ASSIGNOR from liability for the
performance of any of the Tenant's responsibilities, obligations, covenants or
agreements under the Lease. This consent of 300 MONTGOMERY is further
conditioned upon its receipt of the payment to 300 MONTGOMERY of the sum of Five
Hundred Dollars ($500.00) pursuant to Article 9.1 (e) of the Lease. To the best
of its knowledge as of the Effective Date, 300 MONTGOMERY (a) is not aware of
any current defaults on the part of ASSIGNOR, (b) believes the Lease to be in
full force and effect, and (c) knows of no events which with the passage of time
or the giving of notice could become defaults on the part of ASSIGNOR.
DATED: 7/31/98
"LANDLORD"
300 MONTGOMERY ASSOCIATES
By: KENNEDY-WILSON MANAGEMENT GROUP, its Managing Agent
By: /s/ Eric M. Bender
------------------
By: Eric M. Bender
Its: Director of Property Management
5
<PAGE>
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT to Lease ("Amendment") is dated as of the first day
of August, 1998, by and between 300 Montgomery Associates, a California
partnership ("Landlord"), and XAOS Tools, Inc., a California corporation
("Tenant").
A. Landlord and Tenant entered into that certain Office Space Lease dated
as of August 1, 1997 and the First Amendment to Lease dated as of August 1, 1997
(herein collectively the "Lease") for certain premises more particularly
described therein as Suite 300 ("Premises") in the building commonly known as
300 Montgomery Street, San Francisco, California ("Building").
B. Landlord and Tenant desire to amend the Lease in accordance with the
terms and conditions set forth in this Amendment.
C. All capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein Landlord and Tenant hereby modify, amend and supplement the Lease
as follows:
1. Paragraph One of the First Amendment to Lease regarding the Security
Deposit is hereby deleted in its entirety.
2. The last sentence of Section 4.3 of the Lease is modified as follows:
"Provided Tenant has not been in default of any provision of this Lease
during the Term, twenty nine thousand nine hundred forty-seven and 51/100
dollars ($29,947.51) of the Security Deposit will be returned to the Tenant
during the twenty-fifth (25th) month of the Term and twenty nine thousand
nine hundred forty-seven and 51/100 dollars ($29,947.51) of the Security
Deposit will be returned to the Tenant during the thirty-seventh (37th)
month of the Term.
1
<PAGE>
All other terms and conditions of the Lease shall remain in full force and
effect.
AGREED AND ACCEPTED BY:
TENANT: LANDLORD:
XAOS TOOLS, INC. 300 MONTGOMERY ASSOCIATES
GROUP,
By: /s/ Robert L. Batty By: KENNEDY-WILSON MANAGEMENT
-------------------
its Managing Agent
Its: President By: /s/ Eric M. Bender
------------------ ------------------
Date: 7/31/98 Its: Dir. Prop. Mgt.
----------------- -----------------
Date: 7/31/98
-----------------
By:
-------------------
Its:
-----------------
Date:
-----------------
2
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT to Lease ("Amendment") is dated as of the first day of
August, 1997, by and between 300 Montgomery Associates, a California partnership
("Landlord"), and XAOS Tools, Inc., a California corporation ("Tenant").
A. Landlord and Tenant entered into that certain Office Space Lease dated
as of August 1, 1997 (herein "Lease") for certain premises more particularly
described therein as Suite 300 ("Premises") in the building commonly known as
300 Montgomery Street, San Francisco, California ("Building").
B. Landlord and Tenant desire to amend the Lease in accordance with the
terms and conditions set forth in this Amendment.
C. All capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein Landlord and Tenant hereby modify, amend and supplement the Lease
as follows:
1. SECURITY DEPOSIT.
The last sentence of Section 4.3 of the Lease is modified as follows:
"Provided Tenant has not been in default of any provision of this Lease
during the Term, Landlord agrees to credit $66,795.50 of the Security
Deposit towards Basic Rent upon Tenant providing acceptable documentation
to Landlord showing satisfaction of one of the following:
(a) Audited financial statements prepared by a CPA firm acceptable to
Landlord showing a net worth of Tenant of at least $6,000,000; or
(b) Completion of an Initial Public Offering of stock on either the
New York Stock Exchange, the American Stock Exchange, or the
NASDAQ market."
2. RIGHT OF FIRST OFFER.
Subject to the conditions set forth hereinbelow and any similar rights
granted any other tenants in the Building, Landlord agrees that in the
event any space in excess of 3,000 square feet in the Building becomes
available, during the initial term of the Lease, for releasing to third
parties after the expiration or other termination of the lease of the then
tenant of such space, and provided that such then-existing tenant elects to
vacate (or has already vacated) such space, Landlord shall notify Tenant of
the availability of such space and (if applicable) the anticipated date on
which such space will be vacated by the then-existing tenant. Landlord
shall further notify Tenant of the then-current scheduled rental rate
(including annual or other periodic escalations thereof) and other basic
terms and conditions for leasing available office space in the Building.
For a period of ten
3
<PAGE>
(10) days following receipt of Landlord's written notice containing such
information, Tenant shall have the one-time only right of first offer to
lease such space at the rental rate and on the other terms and conditions
set forth in Landlord's notice. If Tenant fails to timely exercise the
right of first offer set forth herein, such right of first offer shall
expire and be of no further force or effect. In such an event, Landlord has
the right to lease any third party at such term and conditions as Landlord
deems appropriate. Notwithstanding any provision of this Paragraph 3 to the
contrary, the right granted herein shall be personal to Tenant and may not
be exercised or assigned voluntarily or involuntarily by or to any person
or entity other than the original Tenant, and shall not be assignable
separate and apart from this Lease. The right of first offer granted by
this Paragraph 3 shall be void and of no further force or effect if Tenant
shall at any time default in the performance or observance of any of the
terms, covenants, conditions or provisions of the Lease.
3. BASE BUILDING IMPROVEMENTS.
Notwithstanding anything to the contrary contained in this Amendment or the
Lease, Landlord agrees to complete certain improvements to the Building's
common areas on the third (3rd) floor of the Building. This work is limited
in scope to include certain work necessary to comply with the American With
Disabilities Act (ADA) for one (1) women's and one (1) men's common
restrooms on the third floor, building code requirements in the common
elevator lobby seismically securing the existing ceiling.
All other terms and conditions of the Lease shall remain in full force and
effect.
AGREED AND ACCEPTED BY:
TENANT: LANDLORD:
XAOS TOOLS, INC. 300 MONTGOMERY ASSOCIATES
By: /s/ Robert L. Batty By: /s/ 300 Montgomery Associates
------------------- -----------------------------
Its: President Its:
------------------ -----------------------------
Date: 9/3/97 Date: 9/4/97
----------------- ----------------------------
4
<PAGE>
OFFICE SPACE LEASE
BETWEEN
300 MONTGOMERY ASSOCIATES
A CALIFORNIA PARTNERSHIP
AND
XAOS TOOLS, INC.
A CALIFORNIA CORPORATION
1
<PAGE>
INDEX TO LEASE
<TABLE>
<S> <C> <C>
ARTICLE I. BASIC LEASE PROVISIONS....................................... 1
ARTICLE II. PREMISES..................................................... 4
SECTION 2.1 LEASED PREMISES................................ 4
SECTION 2.2 ACCEPTANCE OF PREMISES......................... 4
SECTION 2.3 RELOCATION RIGHT............................... 4
ARTICLE III. TERM......................................................... 5
SECTION 3.1 GENERAL........................................ 5
SECTION 3.2 DELAY IN POSSESSION............................ 5
SECTION 3.3 OPTION TO RENEW................................ 5
ARTICLE IV. RENT AND OPERATING EXPENSES.................................. 7
SECTION 4.1 BASIC RENT..................................... 7
SECTION 4.2 OPERATING EXPENSE INCREASE..................... 8
SECTION 4.3 SECURITY DEPOSIT............................... 10
ARTICLE V. USES......................................................... 10
SECTION 5.1 USE............................................ 10
SECTION 5.2 SIGNS.......................................... 11
ARTICLE VI. LANDLORD SERVICES ARTICLE.................................... 12
SECTION 6.1 UTILITIES AND SERVICES......................... 12
SECTION 6.2 OPERATION AND MAINTENANCE OF COMMON FACILITIES. 12
SECTION 6.3 USE OF COMMON FACILITIES....................... 12
SECTION 6.4 CHANGES AND ADDITIONS BY LANDLORD.............. 13
ARTICLE VII. MAINTAINING THE PREMISES..................................... 13
SECTION 7.1 TENANT'S MAINTENANCE AND REPAIR................ 13
SECTION 7.2 LANDLORD'S MAINTENANCE AND REPAIR.............. 13
SECTION 7.3 ALTERATIONS.................................... 14
SECTION 7.4 MECHANIC'S LIENS............................... 15
SECTION 7.5 ENTRY AND INSPECTION........................... 15
SECTION 7.6 SPACE PLANNING AND SUBSTITUTION................ 15
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PREMISES................... 16
ARTICLE IX. ASSIGNMENT AND SUBLETTING.................................... 16
SECTION 9.1 RIGHTS OF PARTIES.............................. 16
SECTION 9.2 EFFECT OF TRANSFER............................. 18
SECTION 9.3 SUBLEASE REQUIREMENTS.......................... 18
ARTICLE X. INSURANCE AND INDEMNITY...................................... 19
SECTION 10.1 TENANT'S INSURANCE............................. 19
SECTION 10.2 LANDLORD'S INSURANCE........................... 19
SECTION 10.3 TENANT'S INDEMNITY............................. 20
SECTION 10.4 LANDLORD'S NONLIABILITY........................ 20
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XI. DAMAGE OR DESTRUCTION........................................ 21
SECTION 11.1 RESTORATION.................................... 21
SECTION 11.2 LEASE GOVERNS.................................. 21
ARTICLE XII. EMINENT DOMAIN............................................... 22
SECTION 12.1 TOTAL OR PARTIAL TAKING........................ 22
SECTION 12.2 TEMPORARY TAKING............................... 22
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE.......................... 22
SECTION 13.1 SUBORDINATION SECTION.......................... 22
SECTION 13.2 ESTOPPEL CERTIFICATE........................... 23
ARTICLE XIV. DEFAULTS AND REMEDIES........................................ 23
SECTION 14.1 TENANT'S DEFAULTS.............................. 23
SECTION 14.2 LANDLORD'S REMEDIES............................ 25
SECTION 14.3 LATE PAYMENTS.................................. 27
SECTION 14.4 RIGHT OF LANDLORD TO PERFORM................... 27
SECTION 14.5 DEFAULT BY LANDLORD............................ 28
SECTION 14.6 EXPENSES AND LEGAL FEES........................ 28
SECTION 14.7 WAIVER OF JURY TRIAL........................... 28
ARTICLE XV. END OF TERM.................................................. 29
SECTION 15.1 HOLDING OVER................................... 29
SECTION 15.2 MERGER ON TERMINATION.......................... 29
SECTION 15.3 SURRENDER OF PREMISES; REMOVAL OF PROPERTY..... 29
ARTICLE XVI. PAYMENTS AND NOTICES......................................... 30
ARTICLE XVII. RULES AND REGULATIONS........................................ 30
ARTICLE XVIII. BROKER'S COMMISSION.......................................... 31
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST.............................. 31
ARTICLE XX. INTERPRETATION............................................... 31
SECTION 20.1 GENDER AND NUMBER.............................. 31
SECTION 20.2 HEADINGS....................................... 31
SECTION 20.3 JOINT AND SEVERAL LIABILITY.................... 32
SECTION 20.4 SUCCESSORS..................................... 32
SECTION 20.5 TIME OF ESSENCE................................ 32
SECTION 20.6 CONTROLLING LAW................................ 32
SECTION 20.7 SEVERABILITY................................... 32
SECTION 20.8 WAIVER AND CUMULATIVE REMEDIES................. 32
SECTION 20.9 INABILITY TO PERFORM........................... 33
SECTION 20.10 ENTIRE AGREEMENT............................... 33
SECTION 20.11 QUIET ENJOYMENT................................ 33
SECTION 20.12 SURVIVAL....................................... 33
ARTICLE XXI. EXECUTION AND RECORDING...................................... 33
SECTION 21.1 COUNTERPARTS................................... 33
SECTION 21.2 CORPORATE AND PARTNERSHIP AUTHORITY............ 34
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 21.3 EXECUTION OF LEASE; NO OPTION OR OFFER......... 34
SECTION 21.4 RECORDING SECTION.............................. 34
SECTION 21.5 AMENDMENTS..................................... 34
ARTICLE XXII. MISCELLANEOUS................................................ 34
SECTION 22.1 NONDISCLOSURE OF LEASE TERMS................... 34
SECTION 22.2 REPRESENTATIONS BY TENANT...................... 35
SECTION 22.3 CHANGES REQUESTED BY LENDER.................... 35
SECTION 22.4 MORTGAGEE PROTECTION........................... 35
SECTION 22.5 COVENANTS AND CONDITIONS....................... 35
SECTION 22.6 TENANT SERVICES................................ 35
ARTICLE I. BASIC LEASE PROVISIONS....................................... 1
ARTICLE II. PREMISES..................................................... 4
SECTION 2.1 LEASED PREMISES................................ 4
SECTION 2.2 ACCEPTANCE OF PREMISES......................... 4
SECTION 2.3 RELOCATION RIGHT............................... 4
ARTICLE III. TERM......................................................... 5
SECTION 3.1 GENERAL........................................ 5
SECTION 3.2 DELAY IN POSSESSION............................ 5
SECTION 3.3 OPTION TO RENEW................................ 5
ARTICLE IV. RENT AND OPERATING EXPENSES.................................. 7
SECTION 4.1 BASIC RENT..................................... 7
SECTION 4.2 OPERATING EXPENSE INCREASE..................... 8
SECTION 4.3 SECURITY DEPOSIT............................... 10
ARTICLE V. USES......................................................... 10
SECTION 5.1 USE............................................ 10
SECTION 5.2 SIGNS.......................................... 11
ARTICLE VI. LANDLORD SERVICES ARTICLE.................................... 12
SECTION 6.1 UTILITIES AND SERVICES......................... 12
SECTION 6.2 OPERATION AND MAINTENANCE OF COMMON FACILITIES. 12
SECTION 6.3 USE OF COMMON FACILITIES....................... 12
SECTION 6.4 CHANGES AND ADDITIONS BY LANDLORD.............. 13
ARTICLE VII. MAINTAINING THE PREMISES..................................... 13
SECTION 7.1 TENANT'S MAINTENANCE AND REPAIR................ 13
SECTION 7.2 LANDLORD'S MAINTENANCE AND REPAIR.............. 13
SECTION 7.3 ALTERATIONS.................................... 14
SECTION 7.4 MECHANIC'S LIENS............................... 15
SECTION 7.5 ENTRY AND INSPECTION........................... 15
SECTION 7.6 SPACE PLANNING AND SUBSTITUTION................ 15
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PREMISES................... 16
ARTICLE IX. ASSIGNMENT AND SUBLETTING.................................... 16
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 9.1 RIGHTS OF PARTIES.............................. 16
SECTION 9.2 EFFECT OF TRANSFER............................. 18
SECTION 9.3 SUBLEASE REQUIREMENTS.......................... 18
ARTICLE X. INSURANCE AND INDEMNITY...................................... 19
SECTION 10.1 TENANT'S INSURANCE............................. 19
SECTION 10.2 LANDLORD'S INSURANCE........................... 19
SECTION 10.3 TENANT'S INDEMNITY............................. 20
SECTION 10.4 LANDLORD'S NONLIABILITY........................ 20
ARTICLE XI. DAMAGE OR DESTRUCTION........................................ 21
SECTION 11.1 RESTORATION.................................... 21
SECTION 11.2 LEASE GOVERNS.................................. 21
ARTICLE XII. EMINENT DOMAIN............................................... 22
SECTION 12.1 TOTAL OR PARTIAL TAKING......................... 22
SECTION 12.2 TEMPORARY TAKING................................ 22
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE.......................... 22
SECTION 13.1 SUBORDINATION SECTION.......................... 22
SECTION 13.2 ESTOPPEL CERTIFICATE........................... 23
ARTICLE XIV. DEFAULTS AND REMEDIES........................................ 23
SECTION 14.1 TENANT'S DEFAULTS.............................. 23
SECTION 14.2 LANDLORD'S REMEDIES............................ 25
SECTION 14.3 LATE PAYMENTS.................................. 27
SECTION 14.4 RIGHT OF LANDLORD TO PERFORM................... 27
SECTION 14.5 DEFAULT BY LANDLORD............................ 28
SECTION 14.6 EXPENSES AND LEGAL FEES........................ 28
SECTION 14.7 WAIVER OF JURY TRIAL........................... 28
ARTICLE XV. END OF TERM.................................................. 29
SECTION 15.1 HOLDING OVER................................... 29
SECTION 15.2 MERGER ON TERMINATION.......................... 29
SECTION 15.3 SURRENDER OF PREMISES; REMOVAL OF PROPERTY..... 29
ARTICLE XVI. PAYMENTS AND NOTICES......................................... 30
ARTICLE XVII. RULES AND REGULATIONS........................................ 30
ARTICLE XVIII. BROKER'S COMMISSION.......................................... 31
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST.............................. 31
ARTICLE XX. INTERPRETATION............................................... 31
SECTION 20.1 GENDER AND NUMBER.............................. 31
SECTION 20.2 HEADINGS....................................... 31
SECTION 20.3 JOINT AND SEVERAL LIABILITY.................... 32
SECTION 20.4 SUCCESSORS..................................... 32
SECTION 20.5 TIME OF ESSENCE................................ 32
SECTION 20.6 CONTROLLING LAW................................ 32
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 20.7 SEVERABILITY................................... 32
SECTION 20.8 WAIVER AND CUMULATIVE REMEDIES................. 32
SECTION 20.9 INABILITY TO PERFORM........................... 33
SECTION 20.10 ENTIRE AGREEMENT............................... 33
SECTION 20.11 QUIET ENJOYMENT................................ 33
SECTION 20.12 SURVIVAL....................................... 33
ARTICLE XXI. EXECUTION AND RECORDING...................................... 33
SECTION 21.1 COUNTERPARTS................................... 33
SECTION 21.2 CORPORATE AND PARTNERSHIP AUTHORITY............ 34
SECTION 21.3 EXECUTION OF LEASE; NO OPTION OR OFFER......... 34
SECTION 21.4 RECORDING SECTION.............................. 34
SECTION 21.5 AMENDMENTS..................................... 34
ARTICLE XXII. MISCELLANEOUS................................................ 34
SECTION 22.1 NONDISCLOSURE OF LEASE TERMS................... 34
SECTION 22.2 REPRESENTATIONS BY TENANT...................... 35
SECTION 22.3 CHANGES REQUESTED BY LENDER.................... 35
SECTION 22.4 MORTGAGEE PROTECTION........................... 35
SECTION 22.5 COVENANTS AND CONDITIONS....................... 35
SECTION 22.6 TENANT SERVICES................................ 35
EXHIBIT A 1
EXHIBIT B UTILITIES AND SERVICES FOR THE BUILDING ATTACHED TO AND MADE
A PART OF THIS LEASE............................................ 1
EXHIBIT C TENANT'S INSURANCE.............................................. 1
EXHIBIT D RULES AND REGULATIONS FOR THE BUILDING ATTACHED TO AND MADE
A PART OF THIS LEASE........................................... 1
EXHIBIT E WORK LETTER..................................................... 1
</TABLE>
5
<PAGE>
OFFICE SPACE LEASE
THIS LEASE is made as of the 1st day of August, 1997, by and between 300
Montgomery Associates, a California partnership, hereinafter called "Landlord,"
and Xaos Tools, Inc., a California corporation, herein after called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
<TABLE>
<C> <S> <C> <C> <C> <C>
1 Tenant's Name and Trade Name: Xaos Tools, Inc.
2 Premises: Suite No. 300 (the Premises are more
particularly described in Section 2.1).
Address of Office Building: 300 Montgomery Street
San Francisco, California 94104
3 Use of Premises: General Office Use
4 Estimated Commencement Date: October 1, 1997
5 Lease Term: Ten (10) years
6 Basic Rent per month, full service gross:
Months 1 - 12 $28,006.50 Months 61 - 72 $33,841.19
Months 13 - 24 $28,784.46 Months 73 - 84 $35,397.10
Months 25 - 36 $29,562.42 Months 85 - 96 $36,953.02
Months 37 - 48 $30,729.35 Months 97 - 108 $38,664.53
Months 49 - 60 $31,740.70 Months 109 - 120 $40,298.24
Other Rental Adjustments: Landlord shall abate one-half of the
Basic Rent during each of the first four
7 Operating Expense Base Year: Fiscal year 1997-1998, passthroughs
-----------------------------------
effective January 1, 1999.
-------------------------
Expense Recovery Period: Every 12-month period during the Term
(or portion thereof for the first and last
Lease years) immediately following the
</TABLE>
1
<PAGE>
<TABLE>
<C> <S> <C>
Operating Expense Base Year
commencing January 1 and ending
December 31.
8 Floor Area of Premises: Approximately 18,671 rentable square feet.
9 Security Deposit: $100,193.25
10 Broker(s): Broker Representing Tenant: Whitney
Cressman Limited
Broker Representing Landlord: Whitney
Cressman Limited
11 Plan Approval Date: N/A
12. Address for Payments and Notices:
LANDLORD TENANT
300 Montgomery Associates Prior to the Commencement Date:
c/o Kennedy-Wilson Mgmt. Group Xaos Tools, Inc.
300 Montgomery Street, Suite 788 55 Hawthorne St.
San Francisco, California 94104 San Francisco, CA 94105
Attn: Building Manager Attn: Brian H. Jones
With a copy to: After the Commencement Date:
Kennedy-Wilson Management Group Xaos Tools, Inc.
818 West 7th Street, Suite 980 300 Montgomery Street, Suite 300
Los Angeles, CA 90017 San Francisco, CA 94104
Attention: Director of Property
Management Attn: Brian H. Jones
13. Parking: N/A
14. Tenant's Construction Representative: Brian H. Jones
15. Tenant's Percentage: 8.81% calculated by dividing the Floor Area of Premises
(numerator) by the rentable area of the Office Building
(denominator) and expressing the resulting quotient as a
percentage. Tenant's Percentage shall be increased
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
during the Term in proportion to any increase in the
area of the Premises in accordance with the formula
stated herein.
</TABLE>
3
<PAGE>
ARTICLE II. PREMISES
SECTION 2.1 LEASED PREMISES.
Landlord leases to Tenant and Tenant rents from Landlord the premises shown
in Exhibit A (the Premises) containing the floor area set forth in Item 8 of the
Basic Lease Provisions and known by the suite number identified in Item 2 of the
Basic Lease Provisions. The Premises are located in the office building
identified in Item 2 of the Basic Lease Provisions (which together with the
underlying real property is called the Office Building).
SECTION 2.2 ACCEPTANCE OF PREMISES.
Tenant acknowledges that neither Landlord nor any representative of
Landlord has made any representation or warranty with respect to the Premises or
the Office Building or the suitability or fitness of either for any purpose
except as set forth in this Lease. The taking of possession or use of the
Premises by Tenant for any purpose other than construction shall conclusively
establish that the Premises and the Office Building were in satisfactory
condition and in conformity with the provisions of this Lease in all respects
except for those matters which Tenant shall have brought to Landlord's attention
on a written punch list delivered to Landlord. The list shall be limited to any
items required to be accomplished by Landlord under the Work Letter (if any)
attached as Exhibit H and shall be delivered to Landlord within ten (10) days
after the term (Term) of this Lease commences as provided in Article III below.
If there is no Work Letter, or if no items are required of Landlord under the
Work Letter, by taking possession of the Premises Tenant accepts the
Improvements in their existing condition and waives any right or claim against
Landlord arising out of the condition of the Premises. Nothing contained in this
Section shall affect the commencement of the Term or the obligation of Tenant to
pay rent. Landlord shall diligently complete all punch list items of which it is
notified as provided above for which it is liable. Landlord to be responsible
for code compliance of the building standard drop ceiling and building light
fixtures.
SECTION 2.3 RELOCATION RIGHT.
If Landlord requires the Premises for use in conjunction with another suite
or for other reasons connected with Landlord's planning program for the Office
Building, upon notifying Tenant in writing, Landlord shall have the right to
move Tenant to other space in the Office Building, provided such space is not
more than ten percent (10%) larger or smaller than the Premises. Landlord shall
pay for (a) all direct, out of pocket reasonable expenses of Tenant in moving
from the Premises to the new space and (b) the cost of improving the new space
so that the level of improvements in the new space is comparable to the level of
improvements in the Premises. Landlord will also pay for reasonable costs to
change of stationery, telephones and business cards, but not to exceed
4
<PAGE>
$5,000. All the terms and conditions of the original Lease shall remain in full
force and effect.
ARTICLE III. TERM
SECTION 3.1 GENERAL.
The term of this Lease ("Term") shall be for the period shown in Item 5 of
the Basic Lease Provisions. The Term shall commence (Commencement Date) on the
earlier of (a) subject to the provisions of Section 3.2, the Estimated
Commencement Date as set forth in Item 4 of the Basic Lease Provisions or (b)
the date Tenant acquires possession or commences use of the Premises for any
purpose other than construction. Within ten (10) days after the Commencement
Date, the parties shall memorialize on a form provided by Landlord the actual
Commencement Date and the expiration date (Expiration Date) of this Lease.
Tenant's failure to execute that form shall not affect the validity of
Landlord's determination of those dates.
SECTION 3.2 DELAY IN POSSESSION.
If Landlord, for any reason whatsoever, cannot deliver possession of the
Premises to Tenant on or before the Estimated Commencement Date, this Lease
shall not be void or voidable nor shall Landlord be liable to Tenant for any
resulting loss or damage. However, Tenant shall not be liable for any rent and
the Commencement Date shall not occur until Landlord delivers possession of the
Premises and the Premises are in fact ready for occupancy as defined below,
except that if Landlord's failure to so deliver possession on the Estimated
Commencement Date is attributable to any action or in-action by Tenant
(including without limitation any Tenant Delay described in the Work Letter, if
any, attached to this Lease), then the Commencement Date shall not be advanced
to the date on which possession of the Premises is tendered to Tenant, and
Landlord shall be entitled to full performance by Tenant (including the payment
of rent) from the date Landlord would have been able to deliver the Premises to
Tenant but for Tenant's delay(s).
SECTION 3.3 OPTION TO RENEW.
Tenant shall have one (1) option to renew (the "Option") the Lease for one
five (5) year term, at the Prevailing Market Rent (as hereinafter defined), plus
Tenant's Percentage of all Operating Costs and Taxes, and all other charges
pursuant to the Lease, provided that Tenant: (i) is not in currently in default;
and (ii) has not been in default of any term or provision of the Lease two or
more times during the initial Lease Term, regardless of whether any of the
defaults were cured (timely or otherwise) or remained uncured with or without
the acquiescence of Lessor with the exception of payment of Basic Rent or
Additional Rent which may not be more than five (5) days late twice within a
twelve (12) month period. The Option may be exercised only by Tenant delivering
to
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Landlord written notice of Tenant's unconditional exercise of the Option;
provided, however, that the Option shall be exercised no later than nine (9)
months but not more than twelve (12) months prior to the expiration of the
original term. If Tenant fails to timely exercise the Option in the manner
herein specified, then the Option shall immediately and automatically terminate
and be of no further force or effect. Time is of the essence with respect to the
exercise of the Option. Except as otherwise specifically provided herein, all
provisions of the Lease, this Addendum and all other exhibits to the Lease shall
continue in full force and effect during the Option Period; provided, however,
that the Base Rent for the initial year of the Option Period shall be set at the
Prevailing Market Rent (as such term is defined below).
The Option is personal to Tenant and may not be exercised or assigned,
voluntarily or involuntarily, by, or to, any person or entity other than Tenant.
The Option is not assignable separate and apart from this Lease. In the event
that at the time the Option is exercisable by Tenant, this Lease has been
assigned, or a sublease exists as to twenty percent (20%) or more of the
Premises, the Option shall be deemed null and void and Tenant, any assignee, or
any sublessee, shall not have the right to exercise the Option.
Landlord and Tenant shall have 30 days following the exercise of the Option
in which to agree as to the Prevailing Market Rent for the Premises as of the
first month of the Option Period. In the event Landlord and Tenant are unable to
agree on the Prevailing Market Rent within such thirty (30) day period, the
Prevailing Market Rent shall be determined as follows:
a. Within 15 days following the expiration of such 30 day period for
Landlord and Tenant to agree on the Prevailing Market Rent for the
Premises, Landlord and Tenant shall each give written notice to the
other designating by name, address and telephone number an MAI
appraiser or commercial real estate broker with no less than ten (10)
years of retail leasing experience, collectively "the appraisers"
familiar with retail rentals in commercial high-rise properties in the
downtown San Francisco financial district (the "Comparison Area").
Within 15 days following the selection of the second appraiser to be
designated, the first two appraisers shall select a third MAI
appraiser. The employment of each appraiser shall be conditioned on
such appraiser's agreement to comply with the provisions of this
Section 3.3. Within 30 days after the selection of the third
appraiser, the three appraisers so selected shall determine the
Prevailing Market Rent for the Premises and shall each notify Landlord
and Tenant, in writing, within such 30 day period of the Prevailing
Market Rent for the Premises determined by such appraisal. The
Prevailing Market Rent for the Premises shall be determined by
applying the following criteria:
i. The Prevailing Market Rent shall be based on the gross monthly
rent projected to be paid by tenants which shall take into
consideration rental
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increases, if any, for qualifying five (5) year lease
transactions similar in length to the Option Period, based on
leases executed not earlier than six months prior to the date the
appraisers shall meet, for retail space in commercial high-rise
properties in the downtown San Francisco financial district
comparable to the Building in size, quality, age and amenities,
for premises which are comparable to the Premises in size (plus
or minus 20%), height, location and cosmetic condition, and with
comparable tenant improvements as are in the Premises whether
paid for by Landlord or Tenant, and "free" rent, if any is then
generally being offered in the marketplace (other than free rent
given in substitution of other rent concessions such as, but not
limited to, tenant improvements) [collectively referred to herein
as "PMR Criteria"], for buildings in the Comparison Area.
ii. The two appraisals for the Prevailing Market Rent which
arithmetically are the closest shall be added together and
divided by two. The third appraisal shall be disregarded. The
quotient so derived shall be the initial monthly Base Rent for
the Option Period.
b. In addition to monthly Base Rent, Tenant shall be obligated to pay
Tenant's Share of Operating Expenses pursuant to Paragraph 4.2 of the
Lease.
c. Landlord and Tenant shall each pay the costs and fees of the appraiser
selected by it. Landlord and Tenant shall share equally the costs and
fees of the third appraiser. In the event that either Landlord or
Tenant does not identify an appraiser within the first fifteen day
(15) period set forth in this Section 3.3 above, the appraiser
appropriately and timely identified shall alone render the appraisal
based on the PMR Criteria.
d. The terms and conditions of the extension shall be negotiated directly
between Landlord and Tenant. If Tenant requires the service of an
agent, the payment of such service shall be the responsibility of
Tenant.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1 BASIC RENT.
From and after the Commencement Date, Tenant shall pay to Landlord without
deduction or offset the Basic Rent for the Premises in the total amount shown
(including subsequent adjustments, if any) in Item 6 of the Basic Lease
Provisions. Any rental adjustment shown in Item 6 shall be deemed to occur on
the specified monthly anniversary of the Commencement Date whether or not that
date occurs at the end of a calendar month. The rent shall be due and payable in
advance commencing on the Commencement Date (as prorated for any partial month)
and continuing thereafter on the
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first day of each successive calendar month of the Term. No demand notice or
invoice shall be required. An installment of rent in the amount of six (6)
month's Basic Rent at the initial rate specified in Item 6 of the Basic Lease
Provisions, as such Basic Rent may be abated as described below, shall be
delivered to Landlord concurrently with Tenant's execution of this Lease and
shall be applied against the Basic Rent first due hereunder. Notwithstanding the
foregoing, for each of months 1 - 4, so long as Tenant is not in default
hereunder, Tenant shall pay only 1/2 of the Basic Rent specified in Item 6 of
the Basic Lease Provisions (i.e. one half of the Basic Rent per month shall be
abated for the first four (4) months of the term of this Lease). In all events,
Tenant shall pay one hundred percent (100%) of all additional rent pursuant to
Section 4.2; provided, however, that in the event of a default by Tenant under
this Lease, the portion of the Basic Rent so abated shall be deemed to be not
abated, and shall become immediately due and payable by Tenant.
SECTION 4.2 OPERATING EXPENSE INCREASE.
(a) Tenant shall reimburse Landlord as additional rent for Tenant's
Percentage of Operating Expenses, for each year after the Operating Expense Base
Year, incurred by Landlord in the operation of the Office Building. Tenant
acknowledges Landlord's rights to make changes or additions to the Office
Building from time to time pursuant to Section 6.5 below, in which event the
total rentable square footage within the Office Building may be adjusted.
(b) Commencing prior to the start of the first full Expense Recovery Period
of the Lease (as set forth in Item 7 of the Basic Lease Provisions), and prior
to the start of each full or partial Expense Recovery Period thereafter,
Landlord shall give Tenant a written estimate of the amount of Tenant's
proportionate share of Operating Expenses for the Expense Recovery Period or
portion thereof. Tenant shall pay the estimated amount to Landlord in equal
monthly installments in advance with Basic Rent. If Landlord has not furnished
its written estimate for any Expense Recovery Period by the time set forth
above, Tenant shall continue to pay cost reimbursements at the rates established
for the prior Expense Recovery Period, if any; provided that when the new
estimate is delivered to Tenant, Tenant shall, at the next monthly payment date,
pay any accrued cost reimbursements based upon the new estimate.
(c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall endeavor to furnish to Tenant a statement
showing in reasonable detail the actual or prorated Operating Expenses incurred
by Landlord during the period and the parties shall, within thirty (30) days
thereafter, make any payment or allowance necessary to adjust Tenant's estimated
payments, if any, to Tenant's actual proportionate share as shown by the annual
statement. Any amount due Tenant shall be credited against installments next
coming due under this Section 4.2, and any deficiency shall be paid by Tenant
together with the next installment. If Tenant has not made estimated payments
during the Expense Recovery Period, any amount owing by Tenant
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pursuant to subsection (a) above shall be paid to Landlord in accordance with
Article XVI. Should Tenant fail to object in writing to Landlord's determination
of actual Operating Expenses within thirty (30) days following delivery of
Landlord's expense statement, Landlord's determination of actual Operating
Expenses for the applicable Expense Recovery Period shall be conclusive and
binding on the parties within thirty days following delivery of Landlord's
expense statement.
(d) Even though the Lease has terminated and the Tenant has vacated the
Premises when the final determination is made of Tenant's share of Operating
Expenses for the Expense Recovery Period in which the Lease terminates, Tenant
shall, upon notice, pay the entire increase due over the estimated expenses
paid. Conversely, any overpayment made in the event expenses decrease shall be
rebated by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one or more of
the Operating Expenses are increased to a rate(s) or amount(s) in excess of the
rate(s) or amount(s) used in calculating the estimated expenses for the year,
then Tenant's estimated share of Operating Expenses shall be increased for the
month in which the increase becomes effective and for all succeeding months by
an amount equal to Tenant's proportionate share of the increase. Landlord shall
give Tenant written notice of the amount or estimated amount of the increase,
the month in which the increase will become effective, Tenant's monthly share
thereof, and the months for which the payments are due. Tenant shall pay the
increase to Landlord as a part of Tenant's monthly payments of estimated
expenses, as provided in paragraph (b) above, commencing with the month in which
effective.
(f) The term Operating Expenses shall include all expenses of operation and
maintenance of the Office Building , together with all appurtenant Common
Facilities (as defined in Section 6.2), and shall include the following charges
by way of illustration but not limitation: water and sewer charges; taxes;
insurance premiums or reasonable premium equivalents, should Landlord elect to
self-insure any risk that Landlord is authorized to insure hereunder; license
permit and inspection fees; heat; light; power; janitorial services; air
conditioning; supplies; materials; equipment; tools; programs instituted to
comply with transportation management requirements; tenant services;
amortization of capital investments reasonably intended to produce a reduction
in operating charges or energy conservation; amortization of capital investments
necessary to bring the Office Building into compliance with applicable laws and
building codes enacted subsequent to the completion of construction of the
Office Building; labor; reasonably allocated wages and salaries fringe benefits
and payroll taxes for administrative and other personnel directly applicable to
the Office Building, including both Landlord's personnel and outside personnel
but exclusive of personnel above the level of building manager; any expense
incurred pursuant to Sections 6.1, 6.2, 7.2 and 10.2 and Exhibits B and C
below; and a reasonable overhead/management fee. It is understood that Operating
Expenses shall include competitive charges for direct services
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provided by any subsidiary or division of Landlord. The term "taxes," as used
herein shall include the following: (i) all real estate taxes or personal
property taxes, as such property taxes may be reassessed from time to time; (ii)
other taxes, documentary transfer fees, charges and assessments which are levied
with respect to this Lease or to the Office Building, and any improvements,
fixtures and equipment and other property of Landlord located in the Office
Building except that general net income and franchise taxes imposed against
Landlord shall be excluded; (iii) any tax surcharge or assessment which shall be
levied in addition to or in lieu of real estate or personal property taxes other
than taxes covered by Article VIII; and (iv) costs and expenses incurred in
contesting the amount or validity of any tax by appropriate proceedings. A copy
of Landlord's unaudited statement of expenses shall be made available to Tenant
upon request. The Operating Expenses may be extrapolated by Landlord to reflect
at least ninety-five percent (95%) occupancy of the rentable area of the Office
Building during any Expense Recovery Period.
SECTION 4.3 SECURITY DEPOSIT.
Concurrently with Tenant's delivery of this Lease, Tenant shall deposit
with Landlord the sum, if any, stated in Item 9 of the Basic Lease Provisions to
be held by Landlord as security for the full and faithful performance of
Tenant's obligations under this Lease (the Security Deposit ). Upon any default
by Tenant, including specifically Tenant's failure to pay rent or to abide by
its obligations under Sections 7.1 and 15.3 below, Landlord may apply all or
part of the Security Deposit as full or partial compensation for that default.
If any portion of the Security Deposit is so applied, Tenant shall, within five
(5) days after written demand by Landlord, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep this Security Deposit separate from its
general funds and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the Security
Deposit or any balance thereof shall be returned to Tenant (or at Landlord's
option to the last assignee of Tenant's interest in this Lease) after the
expiration of the Term, provided that Landlord may retain the Security Deposit
until such time as all amounts due from Tenant in accordance with this Lease
have been determined and paid in full. Provided Tenant has not been in default
of any provision of this Lease during the Term, one-third (1/3) of the Security
Deposit will be returned to the Tenant during the twenty-fifth (25th) month of
the Term and one-third (1/3) of the Security Deposit will be returned to the
Tenant during the sixty-first (61st) month of the Term.
ARTICLE V. USES
SECTION 5.1 USE.
Tenant shall use the Premises only for the purposes stated in Item 3 of the
Basic Lease Provisions. The parties agree that any contrary use shall be deemed
to cause material and irreparable harm to Landlord and shall entitle Landlord to
injunctive relief,
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in addition to any other available remedy. Tenant shall not do nor permit
anything to be done in or about the Premises which will in any way interfere
with the rights of other occupants of the Office Building or use, or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant permit any nuisance or commit any waste in the
Premises. Tenant shall not do or permit to be done anything which will
invalidate or increase the cost of any insurance policy(ies) covering the Office
Building, and/or their contents, and shall comply with all applicable insurance
underwriters' rules and the requirements of the Pacific Fire Rating Bureau or
any other organization performing a similar function. Tenant shall comply, at
its expense, with all present and future laws, ordinances, and requirements of
all governmental authorities that pertain to Tenant or its use of the Premises,
including without limitation, all federal and state occupational, health and
safety requirements and all recorded covenants, conditions and restrictions
affecting the Office Building whether or not Tenant's compliance will
necessitate expenditures or interfere with its use and enjoyment of the
Premises. Tenant shall not generate, handle, store or dispose of hazardous or
toxic materials, as such materials may be identified in any federal state or
local law or regulation, in the Premises or the Office Building without the
prior written consent of Landlord, which consent may be refused or conditioned
by Landlord in its discretion. Tenant agrees that it shall promptly complete and
deliver to Landlord any disclosure form regarding hazardous materials that may
be required by any governmental agency. Tenant shall promptly, upon demand,
reimburse Landlord for any additional insurance premium charged by reason of
Tenant's failure to comply with the provisions of this Section and shall
indemnify Landlord from any liability and/or expense resulting from Tenant's
noncompliance. Tenant acknowledges that: (a) the Office Building does not comply
in certain respects with the requirements of the Americans with Disabilities
Act; and (b) certain portions of the Office Building contain asbestos containing
materials. Landlord has been advised that these materials are non-friable and do
not represent a health risk. Tenant is invited to review reports concerning
these matters on file at the office of the Office Building.
SECTION 5.2 SIGNS.
Tenant, upon obtaining the approval of Landlord in writing, may affix a
sign (restricted solely to Tenant's name as set forth in Item 1 of the Basic
Lease Provisions or such other name as Landlord may consent to in writing)
adjacent to the entry door of the Premises and shall maintain the sign in good
condition and repair during the Term. The sign shall conform to the criteria for
signs established by Landlord and shall be ordered through Landlord at Tenant's
expense. Tenant shall not place or allow to be placed any other sign, decoration
or advertising matter of any kind that is visible from the exterior of the
Premises. Any violating sign or decoration may be immediately removed by
Landlord at Tenant's expense without notice and without the removal constituting
a breach of this Lease or entitling Tenant to claim damages.
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ARTICLE VI. LANDLORD SERVICES ARTICLE
SECTION 6.1 UTILITIES AND SERVICES.
Landlord shall furnish to the Premises the utilities and services described
in Exhibit B subject to the conditions and payment obligations and standards set
forth in this Lease. Landlord shall not be liable for any failure to furnish any
services or utilities when the failure is the result of any accident or other
cause beyond Landlord's reasonable control, nor shall Landlord be liable for
damage to Tenant's equipment resulting from power surges. Landlord's failure to
furnish any services or utilities shall not entitle Tenant to any damages,
relieve Tenant of the obligation to pay rent, or constitute a constructive or
other eviction of Tenant, except that Landlord shall diligently attempt to
restore the service or utility promptly. Tenant shall comply with all rules and
regulations which Landlord may reasonably establish for the provision of
services and utilities and shall cooperate with all reasonable conservation
practices established by Landlord. Landlord shall, at all reasonable times, have
free access to all electrical and mechanical installations of Landlord.
SECTION 6.2 OPERATION AND MAINTENANCE OF COMMON FACILITIES.
During the Term, Landlord shall operate all Common Facilities within the
Office Building. The term "Common Facilities" shall mean all areas within the
exterior boundaries of the Office Building which are not held for exclusive use
by persons entitled to occupy space, and all other appurtenant areas and
improvements provided by Landlord for the common use of Landlord and tenants and
their respective employees and invitees, including without limitation, parking
areas and structures, driveways, sidewalks, landscaped and planted areas,
hallways and interior stairwells not located within the premises of any tenant,
common entrances and lobbies, elevators and restrooms not located within the
premises of any tenant.
SECTION 6.3 USE OF COMMON FACILITIES.
The occupancy by Tenant of the Premises shall include the use of the Common
Facilities in common with Landlord and with all others for whose convenience and
use the Common Facilities may be provided by Landlord, subject, however, to
compliance with all rules and regulations as are prescribed from time to time by
Landlord. Landlord shall operate and maintain the Common Facilities in the
manner Landlord may determine to be appropriate. Landlord shall, at all times
during the Term, have exclusive control of the Common Facilities and may
restrain any use or occupancy, except as authorized by Landlord's rules and
regulations. Tenant shall keep the Common Facilities clear of any obstruction or
unauthorized use related to Tenant's operations. Nothing in this Lease shall be
deemed to impose liability upon Landlord for any damage to or loss of the
property of, or for any injury to Tenant, its invitees or employees. Landlord
may
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temporarily close any portion of the Common Facilities for repairs, remodeling
and/or alterations to prevent a public dedication or the accrual of prescriptive
rights or for any other reason deemed sufficient by Landlord.
SECTION 6.4 CHANGES AND ADDITIONS BY LANDLORD.
Landlord reserves the right to make alterations or additions to the Office
Building or to the attendant fixtures, equipment and Common Facilities. Landlord
may, at any time, relocate or remove any of the various buildings, parking areas
and other Common Facilities, and may add buildings and areas from time to time.
No change shall entitle Tenant to any abatement of rent or other claim against
Landlord, provided that the change does not deprive Tenant of reasonable access
to or use of the Premises.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1 TENANT'S MAINTENANCE AND REPAIR.
When and if needed or whenever requested by Landlord, Tenant, at its sole
expense, shall make all repairs and replacements necessary to keep the Premises
in the condition as existed on the Commencement Date (or on any later date that
the improvements may have been installed), excepting ordinary wear and tear. All
repairs and replacements shall be at least equal in quality to the original
work, shall be made only by a licensed bonded contractor approved in writing in
advance by Landlord, and shall be made only at the time or times approved by
Landlord. Any contractor utilized by Tenant shall be subject to Landlord's
standard requirements for contractors, as modified from time to time. Landlord
may impose reasonable restrictions and requirements with respect to repairs, as
provided in Section 7.3, and the provisions of Section 7.4 shall apply to all
repairs. Alternatively, Landlord may elect to make any such repair on behalf of
Tenant and at Tenant's expense, and Tenant shall promptly reimburse Landlord for
all costs incurred upon submission of an invoice.
SECTION 7.2 LANDLORD'S MAINTENANCE AND REPAIR.
(a) Subject to Section 7.1 and Article XI, Landlord shall provide service,
maintenance and repair with respect to any air conditioning, ventilating or
heating equipment which serves the Premises and shall maintain in good repair
the roof, foundations, footings, the exterior surfaces of the exterior walls of
the Office Building, and the structural, electrical and mechanical systems,
except that Tenant, at its expense, shall make all repairs which Landlord deems
reasonably necessary as a result of the act or negligence of Tenant, its agents,
employees, invitees, subtenants or contractors. Landlord shall have the right to
employ or designate any reputable person or firm, including any employee or
agent of Landlord or any of Landlord's affiliates or divisions, to perform any
service, repair or maintenance function. Landlord need not make any other
improvements or repairs, except as specifically required under this Lease, and
nothing
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contained in this Section shall limit Landlord's right to reimbursement from
Tenant for maintenance, repair costs and replacement costs as provided elsewhere
in this Lease. Tenant understands that it shall not make repairs at Landlord's
expense or by rental offset. Unless for an emergency, Landlord will provide
prior written notice to Tenant.
(b) Except as provided in Sections 11.1 and 12.1 below, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements to any portion of the Office Building, including
repairs to the Premises, nor shall any related activity by Landlord constitute
an actual or constructive eviction; provided, however, that in making repairs,
alterations or improvements, Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises.
SECTION 7.3 ALTERATIONS.
Tenant shall make no alterations, additions or improvements to the Premises
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. If any such improvement requires approval by or notice to
the lessor of a superior lease or the holder of a mortgage, no work shall
proceed until such approval has been received or such notice has been given.
Landlord may impose, as a condition to its consent, any requirements that
Landlord, in its discretion, may deem reasonable or desirable, including but not
limited to a requirement that all work be covered by a lien and completion bond
satisfactory to Landlord and requirements as to the manner, time and contractor
for performance of the work. Landlord may require that Tenant enter into an
agreement with Landlord for the work to be performed by Landlord's contractor,
in which event Tenant shall pay to Landlord, the cost of construction as
incurred by Landlord. Should Landlord authorize Tenant to perform the work with
a contractor approved by Landlord, Tenant shall obtain all required permits for
the work and shall perform the work in `compliance with all applicable laws,
regulations and ordinances. of Under no circumstances shall Tenant make any
improvement which incorporates asbestos-containing construction materials into
the Premises. Any request for Landlord's consent shall be made in writing and
shall contain architectural plans describing the work in detail reasonably
satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all
alterations, additions or improvements affixed to the Premises (excluding
moveable trade fixtures and furniture) shall become the property of Landlord and
shall be surrendered with the Premises at the end of the Term, except that
Landlord may, by notice to Tenant given at the time of Landlord's consent to the
alteration or improvement, require Tenant to remove by the Expiration Date or
sooner termination date of this Lease all or any alterations, decorations,
fixtures, additions, improvements and the like installed either by Tenant or by
Landlord at Tenant's request, and to repair any damage to the Premises arising
from that removal. Landlord may require Tenant to remove an improvement provided
its part of the initial build-out pursuant to Exhibit H, if any, if and only if
the improvement is a non-building standard item and Tenant is notified of the
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requirement prior to the build-out. Within thirty (30) days after completion of
Tenant's alterations requiring the submission of plans to Landlord, Tenant shall
furnish to Landlord a complete set of "as-built" plans and specifications.
SECTION 7.4 MECHANIC'S LIENS.
Tenant shall keep the Premises free from any liens arising out of any work
performed, materials furnished, or obligations incurred by or for Tenant. Upon
request by Landlord, Tenant shall promptly cause any such lien to be released by
posting a bond in accordance with California Civil Code Section 3143 or any
successor statute. In the event that Tenant shall not, within thirty (30) days
following the imposition of any lien, cause the lien to be released of record
by payment or posting of a proper bond, Landlord shall have, in addition to all
other available remedies, the right to cause the lien to be released by any
means it deems proper, including payment of or defense against the claim giving
rise to the lien. All expenses so incurred by Landlord, including Landlord's
attorneys' fees, shall be reimbursed by Tenant promptly following Landlord's
demand, together with interest from the date of payment by Landlord at the
maximum rate permitted by law until paid. Tenant shall give Landlord no less
than twenty (20) days prior notice in writing before commencing construction of
any kind on the Premises so that Landlord may post and maintain notices of
nonresponsibility on the Premises.
SECTION 7.5 ENTRY AND INSPECTION.
Landlord shall at all times have the right to enter the Premises to inspect
them, to supply services in accordance with this Lease, to protect the interests
of Landlord in the Premises, and to submit the Premises to prospective or actual
purchasers or encumbrance holders or to prospective tenants, all without being
deemed to have caused an eviction of Tenant and without abatement of rent,
except as provided elsewhere in this Lease. Landlord shall at all times have and
retain a key which unlocks all of the doors in the Premises, excluding Tenant's
vaults and safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open the doors in an emergency in order to
obtain entry to the Premises, and any entry to the Premises obtained by Landlord
shall not, under any circumstances, be deemed to be a forcible or unlawful entry
into or a detainer of the Premises or any eviction of Tenant from the Premises.
SECTION 7.6 SPACE PLANNING AND SUBSTITUTION.
Landlord shall have the right, upon providing Tenant sixty (60) days
written notice, to move Tenant to other comparable space in the Office Building.
The new space shall be the same size as the Premises and provided with
comparable improvements. Landlord shall pay all of Tenant's reasonable moving
expenses following receipt of invoices from Tenant. If Landlord exercises this
right, this Lease shall remain in effect and be deemed applicable to the new
space except that the Lease shall be appropriately amended to reflect the new
space.
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ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PREMISES
Tenant shall be liable for and shall pay all taxes and assessments levied
against all personal property of Tenant located in the Premises. If any taxes on
Tenant's personal property are levied against Landlord or Landlord's property,
and if Landlord pays the same or if the assessed value of Landlord's property is
increased by the inclusion of a value placed upon the personal property of
Tenant, and if Landlord pays the taxes based upon the increased assessment,
Tenant shall pay to Landlord the taxes so levied against Landlord or the
proportion of the taxes resulting from the increase in the assessment. In
calculating what portion of any tax bill which is assessed against Landlord
separately or Landlord and Tenant Jointly is attributable to Tenant's fixtures
and personal property, Landlord's reasonable determination shall be conclusive.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1 RIGHTS OF PARTIES
(a) Notwithstanding any provision of this Lease to the contrary, Tenant
will neither voluntarily nor by operation of law assign, sublet, encumber or
otherwise transfer all or any part of Tenant's interest in this Lease or permit
the Premises to be occupied by anyone other than Tenant without Landlord's prior
written consent, which consent shall not unreasonably be withheld in accordance
with the provisions of Section 9.1.(c). No assignment (whether voluntary,
involuntary or by operation of law) and no subletting shall be valid or
effective without Landlord's prior written consent and at Landlord's election
shall constitute a material default of this Lease. Landlord shall not be deemed
to have given its consent to any assignment or subletting by any other course of
action, including its acceptance of any name for listing in the Office Building
directory. To the extent not prohibited by provisions of the Bankruptcy Code 11
U.S.C. Section 101 et seq. (the Bankruptcy Code), including Section 365(f)(1),
Tenant, on behalf of itself and its creditors, administrators and assigns,
waives the applicability of Section 365(e) of the Bankruptcy Code, unless the
proposed assignee of the Trustee for the estate of the bankrupt meets Landlord's
standard for consent, as set forth in Section 9.1 (c) of this Lease. If this
Lease is assigned to any person or entity pursuant to the provisions of the
Bankruptcy Code, any and all monies or other considerations to be delivered in
connection with the assignment, shall be delivered to Landlord, shall be and
remain the exclusive property of Landlord, and shall not constitute property of
Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code shall be deemed to have assumed all of the obligations
arising under this Lease on and after the date of the assignment and shall, upon
demand, execute and deliver to Landlord an instrument confirming that
assumption.
(b) If Tenant or any guarantor of Tenant ("Tenant's Guarantor") is a
corporation or is an unincorporated association or partnership, the transfer of
any stock or
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interest in the corporation, association or partnership, which results in a
change in the voting control of Tenant or Tenant's Guarantor, if any, shall be
deemed an assignment within the meaning and provisions of this Article. In
addition, any change in the status of the entity, such as but not limited to the
withdrawal of a general partner, shall be deemed an assignment within the
meaning of this Article.
This section 9.1(b) will not apply to (i) any change in ownership as a
result of any financing within sixty (60) days of the signing of this lease,
(ii) the closing of an underwritten public offering of shares of common stock of
the company; and (iii) the merger or consolidation of substantially all of the
company in which the shareholders of the company immediately prior to the merger
or consolidation hold substantially the same percentage of ownership as after
the merger or acquisition.
(c) If Tenant desires to transfer an interest in this Lease, it shall first
notify Landlord of its desire and shall submit in writing to Landlord: (i) the
name and address of the proposed transferee; (ii) the nature of any proposed
subtenant's or assignee's business to be carried on in the Premises; (iii) the
terms and provisions of any proposed sublease or assignment; and (iv) any other
information requested by Landlord and reasonably related to the transfer. Except
as provided in Subsection (d) of this Section, Landlord shall not unreasonably
withhold its consent provided: (1) the use of the Premises will be consistent
with the provisions of this Lease and with Landlord's commitment to other
tenants of the Office Building; (2) fifty percent (50%) of any profit received
by the Tenant from the assignment or subletting, whether during or after the
Term of this Lease, shall be paid to Landlord when received; (3) at Landlord's
election, insurance requirements shall be brought into conformity with
Landlord's then current leasing practice; (4) any proposed subtenant or assignee
demonstrates that it is financially responsible by submission to Landlord of all
reasonable information as Landlord may request concerning the proposed subtenant
or assignee, including but not limited to a balance sheet of the proposed
subtenant or assignee as of a date within ninety (90) days of the request for
Landlord's consent and statements of income or profit and loss of the proposed
subtenant or assignee for the two-year period preceding the request for
Landlord's consent; (5) any proposed subtenant or assignee demonstrates to
Landlord's reasonable satisfaction a record of successful experience in
business; (6) the proposed assignee or subtenant is not an existing tenant of
the Office Building; and (7) the proposed transfer will not impose additional
burdens or adverse tax effects on Landlord. If Landlord consents to the proposed
transfer, Tenant may, within ninety (90) days after the date of the consent,
effect the transfer upon the terms described in the information furnished to
Landlord; provided that any material change in the terms shall be subject to
Landlord's consent as set forth in this Section. Landlord shall approve or
disapprove any requested transfer within thirty (30) days following receipt of
Tenant's written request and the information set forth above.
(d) Notwithstanding the provisions of Subsection (c) above, in lieu of
consenting to a proposed assignment or subletting, Landlord may elect to (i)
sublease the
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Premises (or the portion proposed to be subleased) or take an assignment of
Tenant's interest in this Lease upon the same terms as offered to the proposed
subtenant or assignee (excluding terms relating to the purchase of personal
property the use of Tenant's name or the continuation of Tenant's business); or
(ii) terminate this Lease as to the portion of the Premises proposed to be
subleased or assigned with a proportionate abatement in the rent payable under
this Lease, effective on the date that the proposed sublease or assignment would
have become effective. Landlord may, thereafter, at its option, assign or re-let
any space so recaptured to any third party, including without limitation the
proposed transferee of Tenant. Provision for 9.1(d) shall apply only to any
additional space to the initial premises.
(e) Tenant shall pay to Landlord a transfer fee of Five Hundred Dollars
($500.00) if and when any transfer requested by Tenant is approved. In addition,
should Landlord or its agents procure for Tenant a subtenant, assignee or new
tenant for all or part of the Premises, then Tenant shall pay to Landlord,
concurrently with the execution of the conveyancing documents, a leasing fee in
an amount to be agreed upon by both Landlord and Tenant.
SECTION 9.2 EFFECT OF TRANSFER.
No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its obligation to pay rent and to perform all its other
obligations under this Lease. Each assignee or subtenant of 100% premises, other
than Landlord, shall be deemed to assume all obligations of Tenant under this
Lease and shall be liable, jointly and severally, with Tenant for the payment of
all rent and for the due performance of all of Tenant's obligations under this
Lease. No transfer shall be binding on Landlord unless any document
memorializing the transfer is delivered to Landlord and both the
assignee/subtenant and Tenant deliver to Landlord an executed consent to
transfer instrument prepared by Landlord and consistent with the requirements of
this Article. The acceptance by Landlord of any payment due under this Lease
from any other person shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any transfer. Consent by Landlord
to one or more transfers shall not operate as a waiver or estoppel to the future
enforcement by Landlord of its rights under this Lease.
SECTION 9.3 SUBLEASE REQUIREMENTS.
The following terms and conditions shall apply to any subletting by Tenant
of all or any part of the Premises and shall be included in each sublease:
(a) Tenant hereby irrevocably assigns to Landlord all of Tenant's interest
in all rentals and income arising from any sublease of the Premises and Landlord
may collect such rent and income and apply same toward Tenant's obligations
under this Lease; provided, however, that until a default occurs in the
performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the
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sublease rentals. Landlord shall not, by reason of this assignment or the
collection of sublease rentals, be deemed liable to the subtenant for the
performance of any of Tenant's obligations under the sublease, Tenant hereby
irrevocably authorizes and directs any subtenant, upon receipt of a written
notice from Landlord stating that an uncured default exists in the performance
of Tenant's obligations under this Lease, to pay to Landlord all sums then and
thereafter due under the sublease. Tenant agrees that the subtenant may rely on
that notice without any duty of further inquiry and notwithstanding any notice
or claim by Tenant to the contrary. Tenant shall have no right or claim against
the subtenant or Landlord for any rentals so paid to Landlord.
(b) In the event of the termination of this Lease, Landlord may, at its
sole option, take over Tenant's entire interest in any sublease and, upon notice
from Landlord, the subtenant shall attorn to Landlord. In no event, however,
shall Landlord be liable for any previous act or omission by Tenant under the
sublease or for the return of any advance rental payments or deposits under the
sublease that have not been actually delivered to Landlord, nor shall Landlord
be bound by any sublease modification executed without Landlord's consent or for
any advance rental payment by the subtenant in excess of one month's rent. The
general provisions of this Lease, including without limitation those pertaining
to insurance and indemnification, shall be deemed incorporated by reference into
the sublease despite the termination of this Lease.
(c) Tenant agrees that Landlord may, at its sole option, authorize a
subtenant of the Premises to cure a default by Tenant under this Lease. Should
Landlord accept such cure, the subtenant shall have a right of reimbursement and
offset from and against Tenant under the applicable sublease.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1 TENANT'S INSURANCE.
Tenant, at its sole cost and expense, shall provide and maintain in effect
the insurance described in Exhibit D. Evidence of that insurance must be
delivered to Landlord prior to the Commencement Date.
SECTION 10.2 LANDLORD'S INSURANCE.
Landlord may, at its election, provide any or all of the following types of
insurance with or without deductible and in amounts and coverages as may be
determined by Landlord in its discretion: all risk property insurance subject to
standard exclusions covering the Office Building, and such other risks as
Landlord or its mortgagees may from time to time deem appropriate, including
leasehold improvements made by Landlord and comprehensive public liability
coverage. Landlord shall not be required to carry insurance of any kind on
Tenant's property, including leasehold improvements, trade fixtures,
furnishings, equipment plate glass, signs and all other items of personal
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property, and shall not be obligated to repair or replace that property should
damage occur. All proceeds of insurance maintained by Landlord upon the Office
Building shall be the property of Landlord, whether or not Landlord is obligated
to or elects to make any repairs.
SECTION 10.3 TENANT'S INDEMNITY.
To the fullest extent permitted by law, Tenant shall defend, indemnify and
hold harmless Landlord, its agents and any and all affiliates of Landlord,
including without limitation any corporations or other entities controlling,
controlled by or under common control with Landlord, from and against any and
all claims, liabilities, costs or expenses arising either before or after the
Commencement Date from Tenant's use or occupancy of the Premises, the Office
Building or the Common Facilities, or from the conduct of its business or from
any activity, work or thing done, permitted or suffered by Tenant or its agents,
employees, invitees or licensees in or about the Premises, the office Building
or the Common Facilities, or from any default in the performance of any
obligation on Tenant's part to be performed under this Lease, or from any act or
negligence of Tenant or its agents, employees, visitors, patrons, guests,
invitees or licensees. Landlord may, at its option, require Tenant to assume
Landlord's defense in any action covered by this Section through legal counsel
satisfactory to Landlord in its reasonable discretion.
SECTION 10.4 LANDLORD'S NONLIABILITY.
Landlord shall not be liable to Tenant, its employees, agents and invitees,
and Tenant hereby assumes the risk of and waives all claims against Landlord for
loss of or damage to any property or any injury to any person or loss or
interruption of business or income resulting from, but not limited, to fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak or flow from or into any part of the Premises or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works, heating and
ventilation systems, mechanical equipment , lighting or other fixtures in the
Office Building whether the damage or injury results from conditions arising in
the Premises or in other portions of the Office Building. It is understood that
any such condition may require the temporary evacuation or closure of all or a
portion of the Office Building. Neither Landlord nor its agents shall be liable
for interference with light or other similar intangible interests. The liability
of Landlord to Tenant for any default by Landlord under this Lease or arising in
connection herewith or with Landlord's operation, management, leasing, repair,
renovation, alteration or any other matter relating to the Property or the
Premises shall be limited to the interest of Landlord in the Office Building and
the rental proceeds thereof and Tenant agrees to look solely to Landlord's
interest in the Property for the recovery of judgment against Landlord, and
Landlord shall not be personally liable for any such judgment or deficiency
after execution thereon. Under no circumstances shall Landlord ever be liable
for consequential or punitive damages, including damages for lost profits or for
business interruption.
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ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1 RESTORATION.
(a) If the Office Building of which the Premises are a part is damaged,
Landlord shall repair that damage as soon as reasonably possible at its expense
unless: (i) the damage is not covered by Landlord's fire and extended coverage
insurance; or (ii) Landlord reasonably determines that the cost of repair would
exceed twenty-five percent (25%) of the full replacement cost of the Office
Building (Replacement Cost); or (iii) Landlord reasonably determines that the
cost a repair would exceed ten percent (10%) of the Replacement Cost and the
damage occurs during the final twelve (12) months of the Term. Should Landlord
elect not to repair the damage for one of the preceding reasons, Landlord shall
so notify Tenant in writing within sixty (60) days after the damage occurs, and
this Lease shall terminate as of the date of notice;
(b) Unless Landlord elects to terminate this Lease in accordance with
subsection (a) above, this Lease shall continue in effect for the remainder of
the Term; provided that if the damage is so extensive as to reasonably prevent
Tenant's substantial use and enjoyment of the Premises for more than nine (9)
months, then Tenant may elect to terminate this Lease by written notice to
Landlord within the sixty-(60)-day period stated in subsection (a).
(c) Commencing on the date of any damage to the Office Building and ending
on the sooner of the date the damage is repaired or the date this Lease is
terminated, the rental to be paid under this Lease shall be abated in the same
proportion that the floor area of the Premises that is rendered unusable by the
damage from time to time bears to the total floor area of the Premises.
(d) Notwithstanding the provisions of subsections (a) (b) and (c) of this
Section, the cost of any repairs shall be borne by Tenant and Tenant shall not
be entitled to rental abatement or termination rights if the damage is due to
the fault or neglect of Tenant or its employees, subtenants, invitees or
representatives. In addition, the provisions of this Section shall not be deemed
to require Landlord to repair any improvements or fixtures that Tenant is
obligated to repair or insure pursuant to any other provision of this Lease.
SECTION 11.2 LEASE GOVERNS.
Tenant agrees that the provisions of this Lease, including without
limitation Section 11.1, shall govern any damage or destruction and shall
accordingly supersede any contrary statute or rule of law. Tenant irrevocably
waives and releases Tenant's rights under California Civil Code Sections
1932(2), 1933(4) and 1942 as the same may be modified or replaced hereafter.
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ARTICLE XII. EMINENT DOMAIN
SECTION 12.1 TOTAL OR PARTIAL TAKING.
If all or a material portion of the Premises is taken by any lawful
authority by exercise of the right of eminent domain or sold to prevent a
taking, either Tenant or Landlord may terminate this Lease effective as of the
date possession is required to be surrendered to the authority. In the event
title to a portion of the Office Building, other than the Premises, is taken or
sold in lieu of taking, and if Landlord elects to restore the Office Building in
such a way as to alter the Premises materially, either party may terminate this
Lease by written notice to the other party effective on the date of vesting of
title. In the event neither party has elected to terminate this Lease as
provided above, then Landlord shall promptly, after receipt of a sufficient
condemnation award, proceed to restore the Premises to substantially their
condition prior to the taking and a proportionate allowance shall be made to
Tenant for the rent corresponding to the time during which and to the part of
the Premises of which Tenant is deprived on account of the taking and
restoration. In the event of a taking, Landlord shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest of
Tenant; provided that nothing in this Section shall be deemed to give Landlord
any interest in or prevent Tenant from seeking any award against the taking
authority for the taking of personal property and fixtures belonging to Tenant
or for relocation or business interruption expenses recoverable from the taking
authority.
SECTION 12.2 TEMPORARY TAKING.
No temporary taking of the Premises shall terminate this Lease or give
Tenant any right to abatement of rent, and any award specifically attributable
to a temporary taking of the Premises shall belong entirely to Tenant. A
temporary taking shall be deemed to be a taking of the use or occupancy of the
Premises for a period not to exceed ninety (90) days.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE
SECTION 13.1 SUBORDINATION SECTION
(a) At the option of Landlord this Lease shall be either superior or
subordinate to all ground or underlying leases, mortgages and deeds of trust, if
any, which may hereafter affect the Office Building, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided
that so long as Tenant is not in default under this Lease, this Lease shall not
be terminated or Tenant's quiet enjoyment of the Premises disturbed in the event
of termination of any such ground or underlying lease or the foreclosure of any
such mortgage or deed of trust to which Tenant has subordinated this Lease
pursuant to this Section. In the event of a termination or foreclosure, Tenant
shall become a tenant of and attorn to the successor-in-interest to Landlord
upon the same
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terms and conditions as are contained in this Lease and shall execute any
instrument reasonably required by Landlord's successor for that purpose. Tenant
shall also, upon written request of Landlord, execute and deliver all
instruments as may be required from time to time to subordinate the rights of
Tenant under this Lease to any ground or underlying lease or to the lien of any
mortgage or deed of trust or, if requested by Landlord, to subordinate in whole
or in part any ground or underlying lease or the lien of any mortgage or deed of
trust to this Lease.
(b) Failure of Tenant to execute any statements or instruments necessary or
desirable to effectuate the provisions of this Article within ten (10) days
after written request by Landlord, in any form that Landlord may reasonably
require (including one substantially in the form of Exhibit F hereto), shall
constitute a material default under this Lease. In that event, Landlord, in
addition to any other rights or remedies it might have, shall have the right by
written notice to Tenant to terminate this Lease as of a date not less than
twenty (20) days after the date of Landlord's notice. Landlord's election to
terminate shall not relieve Tenant of any liability for its default.
SECTION 13.2 ESTOPPEL CERTIFICATE
(a) Tenant shall, at any time upon not less than ten (10) days' prior
written notice from Landlord, execute, acknowledge and deliver to Landlord, in
any form that Landlord may reasonably require, a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or if
modified stating the nature of the modification and certifying that this Lease
as modified is in full force and effect), and the dates to which the rental,
additional rent and other charges have been paid in advance, if any; and (ii)
acknowledging that to Tenant's knowledge there are no uncured defaults on the
part of Landlord or specifying each default, if any are claimed; and (iii)
setting forth all further information that Landlord may reasonably require.
Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Office Building.
(b) Tenant's failure to deliver any estoppel statement within the provided
time shall constitute a default under this Lease and shall be conclusive upon
Tenant that (i) this Lease is in full force and effect without modification,
except as may be represented by Landlord; (ii) there are no uncured defaults in
Landlord's performance; and (iii) not more than one month's rental has been paid
in advance.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1 TENANT'S DEFAULTS.
In addition to any other event of default set forth in this Lease. the
occurrence of any one or more of the following events shall constitute a default
by Tenant:
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(a) The failure by Tenant to make any payment of rent or additional rent
required to be made by Tenant, as and when due. For purposes of these default
and remedy provisions, the term additional rent shall be deemed to include all
amounts of any type whatsoever other than Basic Rent to be paid by Tenant
pursuant to the terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the Lease by
Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means without the prior
written consent of Landlord.
(c) The discovery by Landlord that any financial statement provided by
Tenant or by any affiliate, successor or guarantor of Tenant was materially
false.
(d) The failure or inability by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant; provided, however, that any such notice
shall be in lieu of and not in addition to any notice required under California
Code of Civil Procedure Sections 1161 and 1161(a), as amended. However, if the
nature of the failure is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences the cure within thirty (30) days and thereafter diligently
pursues the cure to completion.
(e) (i) The making by Tenant of any general assignment for the benefit of
creditors; (ii) the filing by or against Tenant of a petition to have Tenant
adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty [60] days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
(f) The Tenant's failure to take possession of the Premises or to occupy
same within sixty days after the Commencement Date.
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SECTION 14.2 LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant or in the event of the
abandonment of the Premises by Tenant, then, in addition to any other remedies
available to Landlord, Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover from
Tenant:
(1) The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by which the
unpaid rent and additional rent, which would have been earned after termination
until the time of award, exceeds the amount of such loss that Tenant proves
could have been reasonably avoided;
(3) The worth at the time of award of the amount by which the
unpaid rent and additional rent for the balance of the Term after the time of
award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;
(4) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, would be likely to
result from Tenant's default, including but not limited to the cost of
recovering possession of the Premises, commissions and other expenses of
reletting, including necessary repair, renovation, improvement and alteration of
the Premises for a new tenant, the unamortized portion of any tenant
improvements and brokerage commission funded by Landlord in connection with this
Lease, the value of any free rent or other rental and monetary concessions made
or extended for or on behalf of Tenant (including, without limitation, moving
allowances and lease termination payments), reasonable attorneys' fees and any
other reasonable costs; and
(5) At Landlord's election all other amounts in addition to or in
lieu of the foregoing as may be permitted by law. The term rent, as used in this
Lease, shall be deemed to mean the Basic Rent and all other sums required to be
paid by Tenant to Landlord pursuant to the terms of this Lease. Any sum other
than Basic Rent shall be computed on the basis of the average monthly amount
accruing during the twenty-four (24) month period immediately prior to default,
except that if it becomes necessary to compute such rental before the twenty-
four (24) month period has occurred, then the
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computation shall be on the basis of the average monthly amount during the
shorter period. As used in subparagraphs (1) and (2) above, the worth at the
time of award shall be computed by allowing interest at the rate of ten percent
(10%) per annum. As used in subparagraph (3) above, the worth at the time of
award shall be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
(ii) Landlord may elect not to terminate Tenant's right to possession
of the Premises in which event Landlord may continue to enforce all of its
rights and remedies under this Lease, including the right to collect all rent as
it becomes due. Efforts by the Landlord to maintain, preserve or relet the
Premises, or the appointment of a receiver to protect the Landlord's interests
under this Lease, shall not constitute a termination of the Tenant's right to
possession of the Premises. In the event that Landlord elects to avail itself of
the remedy provided by this subsection (ii), Landlord shall not unreasonably
withhold its consent to an assignment or subletting of the Premises subject to
the reasonable standards for Landlord's consent as are contained in this Lease.
(f) Landlord shall be under no obligation to observe or perform any
covenant of this Lease on its part to be observed or performed which accrues
after the date of any default by Tenant unless and until the default is cured by
Tenant. The various rights and remedies reserved to Landlord in this Lease or
otherwise shall be cumulative and, except as otherwise provided by California
law, Landlord may pursue any or all of its rights and remedies at the same time.
(g) No delay or omission of Landlord to exercise any right or remedy shall
be construed as a waiver of the right or remedy or of any default by Tenant,
except as provided herein. The acceptance by Landlord of rent shall not be a (i)
waiver of any preceding breach or default by Tenant of any provision of this
Lease, other than the failure of Tenant to pay the particular rent accepted
regardless of Landlord's knowledge of the preceding breach or default at the
time of acceptance of rent; or (ii) a waiver of Landlord's right to exercise any
remedy available to Landlord by virtue of the breach or default. The acceptance
of any payment from a debtor-in-possession, a trustee, a receiver or any other
person acting on behalf of Tenant or Tenant's estate, shall not waive or cure a
default under Section 14.1. No payment by Tenant or receipt by Landlord of a
lesser amount than the rent required by this Lease shall be deemed to be other
than a partial payment on account of the earliest due stipulated rent, nor shall
any endorsement or statement on any check or letter be deemed an accord and
satisfaction, and Landlord shall accept the check or payment without prejudice
to Landlord's right to recover the balance of the rent or pursue any other
remedy available to it. No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept a surrender shall be valid unless in writing and
signed by Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys to the Premises prior to the termination of this
Lease and the
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delivery of the keys to any employee shall not operate as a termination of the
Lease or a surrender of the Premises.
SECTION 14.3 LATE PAYMENTS
(a) Any rent due under this Lease that is not paid to Landlord within five
(5) days of the date when due shall bear interest at the maximum rate permitted
by law from the date due until fully paid. The payment of interest shall not
cure any default by Tenant under this Lease. In addition, Tenant acknowledges
that the late payment by Tenant to Landlord of rent will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult and impracticable to ascertain. Those costs may include, but
are not limited to, administrative, processing and accounting charges, and late
charges which may be imposed on Landlord by the terms of any ground lease
mortgage or trust deed covering the Premises. Accordingly, if any rent due from
Tenant shall not be received by Landlord or Landlord's designee within five (5)
days after the date due, then Tenant shall pay to Landlord, in addition to the
interest provided above, a late charge in an amount equal to ten percent (10%)
of each delinquent payment. Acceptance of a late charge by Landlord shall not
constitute a waiver of Tenant's default with respect to the overdue amount nor
shall it prevent Landlord from exercising any of its other rights and remedies.
Should Tenant deliver to Landlord, at any time during the Term, two (2) or
more insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.
SECTION 14.4 RIGHT OF LANDLORD TO PERFORM.
All covenants and agreements to be performed by Tenant under this Lease
shall be performed at Tenant's sole cost and expense and without any abatement
of rent or right of set-off. If Tenant fails to pay any sum of money other than
rent or fails to perform any other act on its part to be performed under this
Lease, and the failure continues beyond any applicable grace period set forth in
Section 14.1, then, in addition to any other available remedies, Landlord may,
at its election, make the payment or perform the other act on Tenant's part.
Landlord's election to make the payment or perform the act on Tenant's part
shall not give rise to any responsibility of Landlord to continue making the
same or similar payments or performing the same or similar acts. Tenant shall
promptly, upon demand by Landlord, reimburse Landlord for all sums paid by
Landlord and all necessary incidental costs together with interest at the
maximum rate permitted by law from the date of the payment by Landlord. Landlord
shall have the same rights and remedies if Tenant fails to pay those amounts as
Landlord would have in the event of a default by Tenant in the payment of rent.
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SECTION 14.5 DEFAULT BY LANDLORD.
Landlord shall not be deemed to be in default in the performance of any
obligation under this Lease unless and until it has failed to perform the
obligation within thirty (30) days after written notice by Tenant to Landlord
specifying in reasonable detail the nature and extent of the failure; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for its performance, then Landlord shall not be
deemed to be in default if it commences performance within the thirty-(30)-day
period and thereafter diligently pursues the cure to completion. The directors,
officers, shareholders and employees of Landlord shall not be personally liable
for any claim or judgment against Landlord under any circumstances. If Landlord
is in default under this Lease, then Tenant shall seek only a money judgment
against Landlord and shall not attempt to seize or attach any asset of Landlord
except as otherwise provided herein. If Tenant recovers a money judgment against
Landlord, then such judgment shall be satisfied only out of the proceeds of the
sale received on execution of the judgment levied against the right, title and
interest of the Landlord in the Building or out of rent or other income from the
Building received or to be received by the Landlord. Tenant shall not attempt to
satisfy any such judgment from any other asset of Landlord under any
circumstances. Tenant acknowledges that this limitation on Landlord's liability
has been separately bargained for and that Landlord would not enter into this
Lease in the absence of this provision.
SECTION 14.6 EXPENSES AND LEGAL FEES.
Should either Landlord or Tenant bring any action in connection with this
Lease, the prevailing party shall be entitled to recover, as a part of the
action, its reasonable attorneys' fees and all other costs. The prevailing
party, for the purpose of this paragraph, shall be determined by the trier of
the facts.
SECTION 14.7 WAIVER OF JURY TRIAL.
LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE
ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY AND
EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER
PARTY HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES
AND/OR ANY CLAIM OF INJURY OR DAMAGE.
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ARTICLE XV. END OF TERM
SECTION 15.1 HOLDING OVER.
This Lease shall terminate without further notice upon the expiration of
the Term, and any holding over by Tenant after the expiration shall not
constitute a renewal or extension of this Lease or give Tenant any rights under
this Lease, except when in writing signed by both parties. If Tenant holds over
for any period after the expiration (or earlier termination) of the Term,
Landlord may, at its option, treat Tenant as a tenant at sufferance only
commencing on the first (1st) day following the termination of this Lease and
subject to all of the terms of this Lease, except that the monthly rental shall
be the greater of (a) one hundred twenty-five percent (125%) of the total
monthly rental for the month immediately preceding the date of termination, or
(b) the then currently scheduled rent for comparable space in the Office
Building. If Tenant fails to surrender the Premises upon the expiration of this
Lease, despite demand to do so by Landlord, Tenant shall indemnify and hold
Landlord harmless from all loss or liability, including without limitation any
claims made by any succeeding tenant relating to such failure to surrender.
Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's right
of re-entry or any other rights of Landlord under this Lease or at law.
SECTION 15.2 MERGER ON TERMINATION.
The voluntary or other surrender of this Lease by Tenant or a mutual
termination of this Lease shall terminate any or all existing subleases unless
Landlord, at its option, elects in writing to treat the surrender or termination
as an assignment to it of any or all subleases affecting the Premises.
SECTION 15.3 SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
Upon the Expiration Date or upon any earlier termination of this Lease,
Tenant shall quit and surrender possession of the Premises to Landlord in as
good order, condition and repair as when received or as hereafter may be
improved by Landlord or Tenant, reasonable wear and tear and repairs which are
Landlord's obligation excepted, and shall, without expense to Landlord, remove
or cause to be removed from the Premises all personal property and debris,
except for any items that Landlord may by written authorization allow to remain.
Tenant shall repair all damage to the Premises resulting from the removal, which
repair shall include the patching and filling of holes and repair of structural
damage, provided that Landlord may instead elect to repair any structural damage
at Tenant's expense. If Tenant shall fail to comply with the provisions of this
Section, Landlord may effect the removal and/or make any repairs, and the cost
to Landlord shall be additional rent payable by Tenant upon demand. If requested
by
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Landlord, Tenant shall execute, acknowledge and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right, title
and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid without deduction or
offset in lawful money of the United States to Landlord at its address set forth
in Item 12 of the Basic Lease Provisions or at any other place as Landlord may
designate in writing. Unless this Lease expressly provides otherwise, as for
example in the payment of rent pursuant to Section 4.1, all payments shall be
due and payable within five (5) days after demand. All payments requiring
proration shall be prorated on the basis of a thirty-(30)-day month and a three
hundred sixty(360)-day year. Any notice, election, demand, consent, approval, or
other communication to be given or other document to be delivered by either
party to the other may be delivered in person or by courier to the other party
or may be deposited in the United States mail, duly registered or certified
postage prepaid return receipt requested, and addressed to the other party at
the address set forth in Item 12 of the Basic Lease Provisions, or if to Tenant
at that address or from and after the Commencement Date at the Premises (whether
or not Tenant has departed from, abandoned or vacated the Premises). Either
party may, by written notice to the other served in the manner provided in this
Article, designate a different address. If any notice or other document is sent
by mail it shall be deemed served or delivered twenty-four (24) hours after
mailing. If more than one person or entity is named as Tenant under this Lease
service of any notice upon any one of them shall be deemed as service upon all
of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit H, and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good order
or cleanliness of the Premises, Office Building, and Common Facilities. Landlord
shall not be liable to Tenant for any violation of the Rules and Regulations or
the breach of any covenant or condition in any lease by any other tenant. One or
more waivers by Landlord of any breach of the Rules and Regulations by Tenant or
by any other tenant(s) shall not be a waiver of any subsequent breach of that
rule or any other. Tenant's failure to keep and observe the Rules and
Regulations shall constitute a default under this Lease. In the case of any
conflict between the Rules and Regulations and this Lease, this Lease shall be
controlling.
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ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s). Tenant warrants that it has had no
dealings with any other real estate broker or agent in connection with the
negotiation of this Lease and Tenant agrees to indemnify and hold Landlord
harmless from any cost expense or liability (including reasonable attorneys'
fees) for any compensation, commissions or charges claimed by any other real
estate broker or agent employed or claiming to represent or to have been
employed by Tenant in connection with the negotiation of this Lease, The
foregoing agreement shall survive the termination of this lease.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's Interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor, in which Tenant has an interest,
shall be turned over, subject to that interest to the transferee, and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this Lease is or may be subordinate, and no landlord under a
so-called sale-leaseback, shall be responsible in connection with the Security
Deposit unless the mortgagee or holder of the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall subject to the
foregoing, be binding on Landlord, its successors and assigns only during and in
respect to their respective successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1 GENDER AND NUMBER.
Whenever the context of this Lease requires, the words "Landlord" and
"Tenant" shall include the plural as well as the singular, and words used in
neuter, masculine or feminine genders shall include the others.
SECTION 20.2 HEADINGS.
The captions and headings of the articles and sections of this Lease are
for convenience only are not a part of this Lease and shall have no effect upon
its construction or interpretation.
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SECTION 20.3 JOINT AND SEVERAL LIABILITY.
If more than one person or entity is named as Tenant, the obligations
imposed upon each shall be joint and several, and the act of or notice from or
notice or refund to or the signature of any one or more of them shall be binding
on all of them with respect to the tenancy of this Lease, including but not
limited to any renewal extension, termination or modification of this Lease.
SECTION 20.4 SUCCESSORS.
Subject to Articles IX and XIX, all rights and liabilities given to or
imposed upon Landlord and Tenant shall extend to and bind their respective
heirs, executors, administrators, successors and assigns. Nothing contained in
this Section is intended or shall be construed to grant to any person other than
Landlord and Tenant and their successors and assigns any rights or remedies
under this Lease.
SECTION 20.5 TIME OF ESSENCE.
Time is of the essence with respect to the performance of every provision
of this Lease in which time of performance is a factor,
SECTION 20.6 CONTROLLING LAW.
This Lease shall be governed by and interpreted in accordance with the laws
of the State of California.
SECTION 20.7 SEVERABILITY.
If any term or provision of this Lease, the deletion of which would not
adversely affect the receipt of any material benefit by either party or the
deletion of which is consented to by the party adversely affected, shall be held
invalid or unenforceable to any extent, the remainder of this Lease shall not
be affected and each term. and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
SECTION 20.8 WAIVER AND CUMULATIVE REMEDIES.
One or more waivers by Landlord or Tenant of any breach of any term,
covenant or condition contained in this Lease shall not be a waiver of any
subsequent breach of the same or any other term, covenant or condition. Consent
to any act by one of the parties shall not be deemed to render unnecessary the
obtaining of that party's consent to any subsequent act. No breach by Tenant of
this Lease shall be deemed to have been waived by Landlord unless the waiver is
in a writing signed by Landlord. The rights and remedies of Landlord under this
Lease shall be cumulative and in addition to any and all other rights and
remedies which Landlord may have.
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SECTION 20.9 INABILITY TO PERFORM.
In the event that either party shall be delayed or hindered in or prevented
from the performance of any work or in performing any act required under this
Lease by reason of any cause beyond the reasonable control of that party, then
the performance of the work or the doing of the act shall be excused for the
period of the delay and the time for performance shall be extended for a period
equivalent to the period of the delay. The provisions of this Section shall not
operate to excuse Tenant from the prompt payment of rent or from the timely
performance of any other obligation under this Lease within Tenant's reasonable
control.
SECTION 20.10 ENTIRE AGREEMENT.
This Lease, and its exhibits and other attachments, cover in full each and
every agreement of every kind between the parties concerning the Premises, the
Office Building,, and all preliminary negotiations, oral agreements,
understandings and/or practices, except those contained in this Lease, are
superseded and of no further effect. Tenant waives its rights to rely on any
representations or promises made by Landlord or others which are not contained
in this Lease. No verbal agreement or implied covenant shall be held to modify
the provisions of this Lease, any statute, law or custom to the contrary
notwithstanding.
SECTION 20.11 QUIET ENJOYMENT.
Upon the observance and performance of all the covenants, terms and
conditions on Tenant's part to be observed and performed and subject to the
other provisions of this Lease, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term without hindrance or interruption by Landlord or
any other person claiming by or through Landlord.
SECTION 20.12 SURVIVAL.
All covenants of Landlord or Tenant which reasonably would be intended to
survive the expiration or sooner termination of this Lease, including without
limitation any warranty or indemnity hereunder, shall so survive and continue to
be binding upon and inure to the benefit of the respective parties and their
successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1 COUNTERPARTS.
This Lease may be executed in one or more counterparts, each of which shall
constitute an original and all of which shall be one and the same agreement.
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SECTION 21.2 CORPORATE AND PARTNERSHIP AUTHORITY.
If Tenant is a corporation or partnership, each individual executing this
Lease on behalf of the corporation or partnership represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of the
corporation or partnership and that this Lease is binding upon the corporation
or partnership in accordance with its terms. Tenant shall at Landlord's request,
deliver a certified copy of its board of directors' resolution or partnership
agreement or certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3 EXECUTION OF LEASE; NO OPTION OR OFFER.
The submission of this Lease to Tenant shall be for examination purposes
only and shall not constitute an offer to or option for Tenant to lease the
Premises. Execution of this Lease by Tenant and its return to Landlord shall not
be binding upon Landlord, notwithstanding any time interval until Landlord has,
in fact, executed and delivered this Lease to Tenant, it being intended that
this Lease shall only become effective upon execution by Landlord and delivery
of a fully executed counterpart to Tenant.
SECTION 21.4 RECORDING SECTION.
Tenant shall not record this Lease without the prior written consent of
Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a
short form memorandum of this Lease for recording purposes.
SECTION 21.5 AMENDMENTS.
No amendment or termination of this Lease shall be effective unless in
writing signed by authorized signatories of Tenant and Landlord, or by their
respective successors-in-interest. No actions, policies, oral or informal
arrangements, business dealings or other course of conduct by or between the
parties shall be deemed to modify this Lease in any respect.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1 NONDISCLOSURE OF LEASE TERMS.
Tenant acknowledges and agrees that the terms of this Lease are
confidential and constitute proprietary information of Landlord. Disclosure of
the terms could adversely affect the ability of Landlord to negotiate other
leases and impair Landlord's relationship with other tenants. Accordingly,
Tenant agrees that it and its partners, officers, directors, employees and
attorneys shall not intentionally and voluntarily disclose the terms and
conditions of this Lease to any other tenant or apparent prospective tenant of
the Office Building, either directly or indirectly, without the prior written
consent of Landlord;
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provided, however, that Tenant may disclose the terms to prospective subtenants
or assignees under this Lease, unless or required by public agency.
SECTION 22.2 REPRESENTATIONS BY TENANT.
The application, financial statements, and tax returns, if any, submitted
and certified to by Tenant as an accurate representation of its financial
condition have been prepared, certified and submitted to Landlord as an
inducement and consideration to Landlord to enter into this Lease. The
application and statements are represented and warranted by Tenant to be correct
and to accurately and fully reflect Tenant's true financial condition as of the
date of execution of this Lease by Tenant. Tenant shall, during the Term,
promptly furnish Landlord with annual financial statements reflecting Tenant's
financial condition upon written request from Landlord.
SECTION 22.3 CHANGES REQUESTED BY LENDER.
If, in connection with obtaining financing for the Office Building, the
lender shall request reasonable modifications in this Lease as a condition to
the financing, Tenant will not unreasonably withhold or delay its consent,
provided that the modifications do not materially increase the obligations of
Tenant or materially and adversely affect the leasehold interest created by this
Lease.
SECTION 22.4 MORTGAGEE PROTECTION.
No act or failure to act on the part of Landlord, which would otherwise
entitle Tenant to be relieved of its obligations hereunder or to terminate this
Lease, shall result in such a release or termination, unless (a) Tenant has
given notice by registered or certified mail to any beneficiary of a deed of
trust or mortgage covering the Office Building whose address has been furnished
to Tenant, and (b) such beneficiary is afforded a reasonable opportunity to cure
the default by Landlord, including, if necessary, to effect the cure time to
obtain possession of the Office Building by power of sale or judicial
foreclosure, provided that such foreclosure remedy is diligently pursued.
SECTION 22.5 COVENANTS AND CONDITIONS.
All of the provisions of this Lease shall be construed to be conditions as
well as covenants as though the words specifically expressing or imparting
covenants and conditions were used in each separate provision.
SECTION 22.6 TENANT SERVICES.
In the event certain tenant services, including without limitation child
care services, health club facilities, valet parking and concierge services are
made available to tenants of the Office Building by a concessionaire under
contract to Landlord or by a tenant under lease with Landlord (collectively,
"Provider"), then Tenant acknowledges
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and agrees that Landlord shall not be deemed to have made any representation
regarding the availability, quality or reliability of such service and Tenant
shall have no recourse or claim against Landlord whether by abatement of rent or
otherwise for any default or liability on the part of the Provider in furnishing
the service.
CONDITIONS TO LANDLORD'S OBLIGATIONS
LANDLORD'S OBLIGATIONS UNDER THIS LEASE ARE EXPRESSLY CONTINGENT UPON THE
COMPLETE EXECUTION OF A LEASE TERMINATION AGREEMENT WITH THE EXISTING TENANT
OCCUPYING THE PREMISES, SANWA BANK, ON TERMS AND CONDITIONS ACCEPTABLE TO
LANDLORD ON OR BEFORE MONDAY, SEPTEMBER 8,1997 AT 5.00 PM PACIFIC TIME. IF SUCH
LEASE TERMINATION AGREEMENT HAS NOT BEEN SO EXECUTED BY SUCH DATE, THEN LANDLORD
SHALL HAVE THE RIGHT TO TERMINATE THIS LEASE AGREEMENT BY WRITTEN NOTICE GIVEN
TO TENANT ON OR BEFORE TUESDAY, SEPTEMBER 9,1997 AT 5:00 PM PACIFIC TIME, IN
WHICH EVENT THIS LEASE AGREEMENT SHALL BE TERMINATED AND OF NO FURTHER FORCE OR
EFFECT.
CONDITIONS TO TENANT'S OBLIGATIONS
TENANT'S OBLIGATIONS UNDER THIS LEASE ARE EXPRESSLY CONTINGENT UPON THE
COMPLETE EXECUTION OF A LEASE TERMINATION AGREEMENT OF TENANT'S PRESENT LEASE ON
TERMS AND CONDITIONS ACCEPTABLE TO TENANT ON OR BEFORE WEDNESDAY, SEPTEMBER 10,
1997 AT 5:00 PM PACIFIC TIME. IF SUCH LEASE TERMINATION AGREEMENT HAS NOT BEEN
SO EXECUTED BY SUCH DATE, THEN TENANT SHALL HAVE THE RIGHT TO TERMINATE THIS
LEASE AGREEMENT BY WRITTEN NOTICE GIVEN TO LANDLORD ON OR BEFORE THURSDAY,
SEPTEMBER 11, 1997 AT 5:00 PM PACIFIC TIME, IN WHICH EVENT THIS LEASE AGREEMENT
SHALL BE TERMINATED AND OF NO FURTHER FORCE OR EFFECT.
LANDLORD: TENANT:
300 Montgomery Associates Xaos Tools, Inc.
a California partnership a California corporation
By: /s/ Goodwin Gaw By: /s/ Robert L. Batty
--------------- -------------------
Its: Goodwin Gaw Its: Robert L. Batty
-------------- -------------------
Date: Date: President
--------------- ----------------
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EXHIBIT A
[diagram of leased space]
EXHIBIT A-1
<PAGE>
EXHIBIT B
UTILITIES AND SERVICES FOR THE BUILDING
ATTACHED TO AND MADE A PART OF
THIS LEASE
The following standards for utilities and services shall be in effect at
the Office Building. Landlord reserves the right to adopt nondiscriminatory
modifications and additions to these standards. In the case of any conflict
between these standards and the Lease, the Lease shall be controlling. Subject
to all of the provisions of the Lease, including but not limited to the
restrictions contained in Section 6.1, the following shall apply:
1. Landlord shall furnish to the Premises during the hours of 8:00 a.m. to
6:00 p.m., Monday through Friday, generally recognized national holidays and
Sundays excepted, reasonable air conditioning, heating and ventilation services.
Subject to the provisions set forth below, Landlord shall also furnish the
Office Building with elevator service (if applicable), reasonable amounts of
electric current for normal lighting by Landlord's standard, overhead
fluorescent and incandescent fixtures and for fractional horsepower office
machines, and water for lavatory and drinking purposes. Tenant will not without
the prior written consent of Landlord, consume electricity in the Premises at a
level in excess of 5 watts per square foot or otherwise increase the amount of
electricity, gas or water usually furnished or supplied for use of the Premises
as general office space; nor shall Tenant connect any apparatus machine or
device with water pipes or electric current (except through existing electrical
outlets in the Premises) for the purpose of using electric current or water.
This paragraph shall, at all times, be subject to applicable governmental
regulations.
2. Upon written request from Tenant delivered to Landlord at least 72
hours prior to the period for which service is requested, but during normal
business hours, Landlord will provide any of the foregoing building services to
Tenant at such times when such services are not otherwise available. Tenant
agrees to pay Landlord for those after-hour services at rates that Landlord may
establish from time to time. In addition, Landlord may impose a reasonable
charge for any excessive use of any utilities or services or for any substantial
recurrent use of the Premises at any time other than generally recognized
business hours of generally recognized business days. If Tenant requires
electric current in excess of that which Landlord is obligated to furnish under
this Exhibit B, Tenant shall first obtain the consent of Landlord and Landlord
may cause an electric current meter to be installed in the Premises to measure
the amount of electric current consumed. The cost of installation, maintenance
and repair of the meter shall be paid for by Tenant and Tenant shall reimburse
Landlord promptly upon demand for all electric current consumed for any special
power use as shown by the meter. The reimbursement shall be at the rates charged
for electrical power by the local public utility furnishing the current plus any
additional expense incurred in keeping account of the electric current consumed.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT B-1
<PAGE>
3. If any lights, machines or equipment (including without limitation
electronic data processing machines) are used by Tenant in the Premises which
materially affect the temperature otherwise maintained by the air conditioning
system or generate substantially more heat in the Premises than would be
generated by the building standard lights and usual fractional horsepower office
equipment Landlord shall have the right, at its election, to install or modify
any machinery and equipment to the extent Landlord reasonably deems necessary to
restore temperature balance. The cost of installation and any additional cost of
operation and maintenance shall be paid by Tenant to Landlord promptly upon
demand.
4. Landlord shall furnish water for personal hygiene, and lavatory
purposes only. If Tenant requires or uses water for any purposes in addition to
ordinary cleaning and lavatory purposes, Landlord may, in its discretion,
install a water meter to measure Tenant's water consumption. Tenant shall pay
Landlord for the cost of the meter and the cost of its installation and for
consumption throughout the duration of Tenant's occupancy. Tenant shall keep the
meter and installed equipment in good working order and repair at Tenant's own
cost and expense, in default of which Landlord may cause the meter to be
replaced or repaired at Tenant's expense. Tenant agrees to pay for water
consumed as shown on the meter and when bills are rendered, and on Tenant's
default in making that payment, Landlord may pay the charges on behalf of
Tenant. Any costs or expenses or payments made by Landlord for any of the
reasons or purposes stated above shall be deemed to be additional rent payable
by Tenant to Landlord upon demand.
5. In the event that any utility service to the Premises is separately
metered or billed to Tenant, Tenant shall pay all charges for that utility
service to the Premises and the cost of furnishing the utility to tenant suites
shall be excluded from the Operating Expenses as to which reimbursement from
Tenant is required in the Lease. If any utility charges are not paid when due
Landlord may pay them, and any amounts paid by Landlord shall immediately become
due to Landlord from Tenant as additional rent. If Landlord elects to furnish
any utility service to the Premises, Tenant shall purchase its requirements of
that utility from Landlord as long as the rates charged by Landlord do not
exceed those which Tenant would be required to pay if the utility service were
furnished it directly by a public utility.
6. Landlord shall provide janitorial services Monday through Friday,
generally recognized national holidays excepted equivalent to that furnished in
comparable office buildings and window washing as reasonably required; provided,
however, that Tenant shall pay for any additional or unusual janitorial services
required by reason of any nonstandard improvements in this.
Premises, including without limitation wall coverings and floor coverings
installed by or for Tenant or by reason of any use of Premises other than
exclusively as offices. The cleaning services provided by Landlord shall also
exclude refrigerators, eating utensils (plates, drinking containers, and
silverware) and interior glass partitions. Tenant shall pay to Landlord the cost
of removal of any of Tenant's refuse and rubbish to the extent that they exceed
the refuse and rubbish usually attendant with general office usage. Landlord
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT B-2
<PAGE>
shall not be responsible for any disposal of Tenant's equipment/furniture of any
condition.
7. Tenant shall have access to the Office Building 24 hours per day 7 days
per week 52 weeks per year; provided that Landlord may install access control
systems as it deems advisable for the Office Building. Such systems may, but
need not, include full or part-time lobby supervision, the use of a sign-
in/sign-out log, a card identification access system, building parking and
access pass system, closing hours procedures, access control stations, fire
stairwell exit door alarm system, electronic guard system, mobile paging system,
elevator control system, or any other access controls, In the event that
Landlord elects to provide any or all of those services, Landlord may
discontinue providing them at any time with or without notice. Landlord may
impose a reasonable charge for access control cards and/or keys issued to
Tenant. Landlord shall have no liability to Tenant for the provision by Landlord
of improper access control services for any breakdown in service or for the
failure by Landlord to provide access control services. Tenant further
acknowledges that Landlord's access systems may be temporarily inoperative
during building emergency and system repair periods. Tenant agrees to assume
responsibility for compliance by its employees with any regulations established
by Landlord with respect to any card key access or any other system of building
access as Landlord may establish. Tenant shall be liable to Landlord for any
loss or damage resulting from its or its employees use/misuse of any access
system.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT B-3
<PAGE>
EXHIBIT C
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at the
Office Building. Landlord reserves the right to adopt reasonable,
nondiscriminatory modifications and additions to those standards. Tenant agrees
to obtain and present evidence to Landlord that it has fully complied with the
insurance requirements.
1. Tenant shall, at its sole cost and expense commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term procure, pay for and keep in full force and effect: (i) comprehensive
general liability insurance with respect to the Premises and the operations of
or on behalf of Tenant in on or about the Premises, including but not limited to
personal injury, non-owned automobile, blanket contractual, independent
contractors, broad form property damage, fire legal liability, products
liability (if a product is sold from the Premises), liquor law liability (if
alcoholic beverages are sold served or consumed within the Premises), and cross
liability and severability of interest clauses, which policy(ies) shall be
written on an occurrence basis and for not less than $1,000,000 combined single
limit (with a $50,000 minimum limit on fire legal liability) per occurrence for
bodily injury, death and property damage liability, or the current limit of
liability carried by Tenant, whichever is greater, and subject to such increases
in amounts as Landlord may determine from time to time; (ii) workers
compensation insurance coverage as required by law, together with employers
liability insurance coverage; (iii) with respect to improvements, alterations
and the like required or permitted to be made by Tenant under this Lease
builder's all-risk insurance in amounts satisfactory to Landlord; (iv) insurance
against fire, vandalism, malicious mischief; and such other additional perils,
as may be included in a standard all risk form in general use in San Francisco,
California, insuring Tenant's leasehold improvements, trade fixtures,
furnishings, equipment and items of personal property of Tenant located in the
Premises in an amount equal to not less than ninety percent (90%) of their
actual replacement cost (with replacement cost endorsement); and (v) business
interruption insurance in amounts satisfactory to Landlord. In no event shall
the limits of any policy be considered as limiting the liability of Tenant under
this Lease.
2. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D shall be written by responsible insurance companies authorized to
do business in the State of California and with a Best's policyholder rating of
not less than "A" subject to final acceptance and approval by Landlord. Any
insurance required of Tenant may be furnished by Tenant under any blanket policy
carried by it or under a separate policy. A true and exact copy of each paid up
policy evidencing the insurance (appropriately authenticated by the insurer), or
a certificate of insurance certifying that the policy has been issued, provides
the coverage required by this Exhibit C, and contains the required provisions
shall be delivered to Landlord prior to the date Tenant is given the right of
possession of the Premises. Proper evidence of the renewal of any insurance
coverage shall also be delivered to Landlord not less than thirty (30) days
prior to the
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT C-1
<PAGE>
expiration of the coverage. Landlord may, at any time, and from time to time,
inspect and/or copy any and all insurance policies required by this Lease.
3. Each policy evidencing insurance required to be carried by Tenant,
pursuant to this Exhibit C, shall contain the following provisions and/or
clauses satisfactory to Landlord: (i) a provision that the policy and the
coverage provided shall be primary and that any coverage carried by Landlord
shall be noncontributory with respect to any policies carried by Tenant; (ii) a
provision including Landlord and any other parties in interest designated by
Landlord as an additional insured, except as to workers compensation insurance;
(iii) a waiver by the insurer of any right to subrogation against Landlord, its
agents, employees, contractors, and representatives which arises or might arise
by reason of any payment under the policy or by reason of any act or omission of
Landlord, its agents, employees, contractors or representatives; and (iv) a
provision that the insurer will not cancel or change the coverage provided by
the policy without first giving Landlord thirty (30) days prior written notice.
4. In the event that Tenant fails to procure, maintain and/or pay for, at
the times and for the durations specified in this Exhibit C, any insurance
required by this Exhibit C or fails to carry insurance required by any
governmental authority, Landlord may at its election procure that insurance and
pay the premiums in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord within ten (10) days following
Landlord's written demand to Tenant.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT C-2
<PAGE>
EXHIBIT D
RULES AND REGULATIONS FOR THE BUILDING
ATTACHED TO AND MADE A PART OF
THIS LEASE
Except as provided or required by Landlord in accordance with Building
standards, no sign, placard, picture, advertisement name or notice shall be
inscribed, displayed, printed, painted or affixed by Tenant on or to any part of
the Building or exterior of the Promises leased to tenants or to the door or
doors thereof without the written consent of Landlord first obtained and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant
2. Except as provided or required by Landlord in accordance with Building
standards, no draperies, curtains, blinds, shades, screens or other devices
shall be hung at or used in connection with any window or exterior door or doors
of the Premises.
3. The bulletin board or directory of the Building shall be used primarily
for display of the name and location of Tenants and Landlord reserves the right
to exclude any other names therefrom, to limit the number of names associated
with tenants to be placed thereon and to charge for names associated with
Tenants to be placed thereon at rates applicable to all Tenants.
4. The sidewalks, halls, passages, exits, enhances, elevators and
stairways of the Building shall not be obstructed by Tenants or used by them for
any purposes other than for ingress to and egress from their respective
Premises. The halls, passages, exits, entrances, elevators, stairways, balconies
and roof of the Building are not for the use of the general public and Landlord
in all cases reserves the right to control the same and prevent access thereto
by all persons whose presence, in the judgment of the Landlord, is or may be
prejudicial to the safety, character, reputation or interests of the Building
and its Tenants; provided however, that Landlord shall not prevent such access
to persons with whom Tenants deal in the ordinary course of business unless such
persons are engaged in illegal activities. No person shall go upon the roof of
the Building unless expressly so authorized by Landlord.
5. Tenants shall not alter any lock nor install any new or additional
locks or any bolts on any interior or exterior door of any Premises leased to
Tenant.
6. The doors, windows, light fixtures and any lights or skylights that
reflect or admit light into halls or other places of the Building shall not be
covered or obstructed. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown or
placed therein. The expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose employees
or invitees, cause such expense.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT D-1
<PAGE>
7. Tenants shall not mark, drive nails, screw or drill into the walls,
woodwork or plaster or in any way deface the Building or any Premises leased to
Tenant. Normal picture hanging excluded.
8. Furniture, freight or equipment of every kind shall be moved into or
out of the Building only at such times and in such manner as Landlord shall
designate. Landlord may prescribe and limit the weight size and position of all
equipment to be used by Tenants, other than standard office desks, chairs, and
tables and portable office machines. Safes and other heavy equipment shall, if
considered necessary by Landlord, stand on wood strips of such thickness as
Landlord deems necessary to distribute properly the weight thereof. Landlord, at
its own discretion may require an elevator technician to attend to the move at
the sole cost of the Tenant. All damage to the Building or Premises occupied by
Tenants caused by moving or maintaining any property of a Tenant shall be
repaired at the expense of such Tenant.
9. No Tenant shall employ any person, other than the janitor provided by
Landlord, for the purpose of cleaning the Premises occupied by such Tenant
unless otherwise agreed to by Landlord. Except with the written consent of
Landlord, no person shall be permitted to enter the Building for the purpose of
cleaning the same. Tenants shall not cause any unnecessary labor by carelessness
or indifference in the preservation of good order and cleanliness. Landlord
shall not be responsible to any Tenant for loss of property on the Premises,
however occurring, or for any damage to the property of my Tenant caused by the
employees or independent contractors of Landlord or by any other person. Janitor
service will not be furnished when rooms are occupied during the regular hours
when janitor service is provided. Window cleaning shall be done only at the
regular and customary times determined by Landlord for such services.
10. No Tenant shall sweep or throw or permit to be swept or thrown any
dirt or other substance into any of the corridors, halls or elevators or out of
the doors or stairways of the Building; use or keep or permit to be used or kept
any foul or noxious gas or substance; permit or suffer the Premises occupied by
such Tenant to be occupied or used in a manner offensive or objectionable to
Landlord or other Tenants by reason of noise, odors or vibrations; interfere in
any way with the other Tenants or persons having business in the Building; or
bring or keep or permit to be brought or kept in the Building any animal life
form, other than human, except seeing-eye dogs when in the company of their
masters.
11. No cooking shall be done or permitted by Tenants in their respective
Premises, nor shall Premises occupied by Tenants be used for storage or
merchandise, washing clothes, lodging or any improper, objectionable or immoral
purposes.
12. No Tenant shall use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of customary office equipment or, without Landlord's prior written approval, use
any method of heating or air-conditioning other than the supplied by Landlord.
No Tenant shall use or keep or
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT D-2
<PAGE>
permit to be used or keep any foul or noxious gas or substance in the Premises,
or permit or suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors, or vibrations, or interfere in any way with other Tenants or those having
business therein. Tenant must comply with any government imposed codes and
regulations concerning the use or storage of any substances on the Premises.
13. No boring or cutting for telephone or electric wires shall be allowed
without the consent of Landlord and any such wires permitted shall be introduced
at the place and in the manner described by Landlord. The location of
telephones, speakers, fire extinguisher and all other office equipment affixed
to Premises occupied by tenants shall be sub subject to the approval of
Landlord. Each Tenant shall pay all expenses incurred in connection with the
installation of its equipment including any telephone and electricity
distribution equipment.
14. Upon termination of occupancy of the Building each Tenant shall
deliver to Landlord all keys furnished by Landlord, end any reproductions
thereof made by or at the direction of such Tenant and in the event of loss of
any keys so furnished shall pay Landlord thereof
15. No tenant shall affix any floor covering in any manner except as
approved by the Landlord. The expense for repairing any damage caused by removal
of any such floor covering shall be borne by the Tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
16. No mail, furniture, packages, supplies, equipment, merchandise or
deliveries of any kind will be received in the Building or carried up or down in
the elevators except between such hours and in such elevators as shall be
designated by Landlord.
17. On Saturdays, Sundays and legal holidays and between the hours of 6:00
p.m. and 8:00 a.m., access to the Building may be refused unless the person
seeking access is known to the person charged with responsibility for the safety
and protection of the Building and has a pass or is properly identified. In no
case shall Landlord be liable for any loss or damage for any error with respect
to the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement or other commotion and at such times as
Landlord deems necessary for the safety and protection of the Building, its
tenants and all property located therein, Landlord may prohibit and prevent
access to the Building by all persons by any means Landlord deems appropriate.
18. Each Tenant shall see that the exterior doors of its Premises are
closed and securely locked on Sundays and legal holidays and not later than 6:00
p.m. of each other day. Each tenant shall exercise extraordinary care and
caution that all water faucets or water apparatus are entirely shut off each day
before its Premises are left unoccupied and that all electricity or gas shall
likewise be carefully shut off so as to prevent waste or damage to Landlord or
to other Tenants of the Building.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT D-3
<PAGE>
19. Landlord may exclude or expel from the Building any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or drugs,
or who shall in any manner do any act in violation of any of the rules and
regulations of the Building.
20. The requirements of Tenants will be attended to only upon application
to Landlord at the office of the Building. Employees of Landlord shall not
perform any work outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord shall be required to
admit any person (Tenant or otherwise) to any premises in the Building.
21. No vending or food or beverage dispensing machine or machines of any
description shall be installed, maintained or operated upon any premises in the
Building without the written permission of the Landlord.
22. Landlord, without notice and without liability to any Tenant, at any
time may change the name or the street address of the Building.
23. The word "Building" as used in these rules and regulations means the
Building of which a part of the Premises are leased pursuant to the Lease to
which these rules and regulations are attached. Each Tenant shall be liable to
Landlord and to each other Tenant of the Building for any loss, cost expense,
damage or liability, including attorneys fees, caused or occasioned by the
failure of such first named Tenant to comply with these rules, but Landlord
shall have no liability for such failure or for failing or being unable to
enforce compliance therewith by any tenant and such failure by Landlord or
noncompliance by any Other Tenant shall not be a ground for termination of the
Lease to which these rules and regulations are attached by the Tenant
thereunder.
24. Carpet protector pads shall be used at all desk stations.
25. Each Tenant shall maintain the portions of its Premises which are
visible from the outside of the Building or from hallways or other public areas
of the Building, in a neat, clean and orderly condition.
26. No Tenant shall temper with or attempt to adjust the temperature
control thermostats in its premises. Landlord shall adjust such thermostats as
required to maintain heat and air-conditioning at the Building standard
temperature.
27. No Tenant shall place any items whatsoever on the roof or balcony
areas of the Building without prior written consent of Landlord.
Landlord's Initials ____
Tenant's Initials ____
EXHIBIT D-4
<PAGE>
EXHIBIT E
WORK LETTER
1. Tenant Improvements; Permits and Licenses; Landlord's Allowance.
Tenant has advised Landlord that Tenant intends to make certain renovations
and improvements to, within and upon the Premises, at Tenant's sole cost and
expense (except as set forth herein). Within twenty (20) days after execution of
the Lease by both parties, Tenant shall deliver to Landlord complete and
detailed plans and specifications for the construction of improvements,
alterations and renovations to the Premises for Tenant's business. Such plans
and specifications shall be subject to the written approval of Landlord prior to
the commencement of any work by Tenant, and Landlord agrees that such approval
shall not be unreasonably withheld. There shall be no material deviations from
or changes in such plans and specifications without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. Tenant understands
and agrees that Landlord's review of plans and specifications as provided herein
is solely to protect the interests of Landlord in the Premises and the Office
Building and that Landlord shall not be deemed the guarantor of, or responsible
for, the correctness or accuracy of any such plans and specifications or the
compliance of such plans and specifications with applicable laws, ordinances, or
regulations. Upon approval of such plans and specifications and delivery of
possession of the Promises to Tenant, Tenant shall commence to construct such
improvements and shall thereafter prosecute such construction to completion in a
diligent, competent, workmanlike and expeditious manner, at Tenant's sole cost
and expense (except as set forth herein). Tenant's failure to complete such
construction and renovation work shall in no way delay the Commencement Date or
affect the rental or other obligations of Tenant under the Lease, but Tenant
shall not be deemed to be in breach of Section 14.1 of the Lease for failure to
operate the Premises if such failure is attributable to the construction and
renovation work described in this paragraph, provided that Tenant prosecutes
such construction to completion in a diligent, competent, workmanlike and
expeditious manner.
Tenant agrees that all such work will be performed and completed in
compliance with all applicable laws, building codes, ordinances, and rules and
regulations of all governmental or public authorities having jurisdiction
thereof (including, but not limited to, the Americans with Disabilities Act and
any applicable environmental protection/ hazardous materials laws). Tenant shall
also, at its sole cost and expense (including, but not limited to, the amount of
any special fees or assessments resulting from the requirements of Tenant's
operations), obtain any and all necessary building, occupancy and business
permits and licenses in connection with Tenant's construction of improvements or
the operation of Tenant's business at the Premises. Tenant shall give Landlord
at least ten (10) days' written notice prior to the commencement of any
construction on or at the Premises, in order to allow Landlord to post and
record an
<PAGE>
appropriate notice of non-responsibility pursuant to Section 3094 of the
California Civil Code.
Landlord agrees to reimburse to Tenant up to Fifty Six Thousand Thirteen
and 00/100 Dollars ($56,013.00) of the cost of such improvements and renovations
to the Premises (the "Tenant Improvements Allowance")', provided that such
Tenant Improvements Allowance shall not be used as reimbursement for the
purchase or installation of furniture, trade fixtures or equipment. (If the cost
of such Premises renovation is a sum less than $56,013.00, then the Tenant
Improvements Allowance shall be such lesser sum.) Landlord's obligation to pay
any portion of the Tenant Improvements Allowance shall be conditioned upon
Tenant's furnishing written evidence satisfactory to Landlord regarding the
amount and appropriateness of the expense for which reimbursement is being
sought, including but not limited to original invoices, receipts, vouchers,
material and labor lien releases and other documents reasonably requested by
Landlord. Payment of such Tenant Improvements Allowance shall be due within
thirty (30) days after Landlord receives an appropriate application for payment,
certified by Tenant's contractor, along with the other documents referred to
hereinabove. The Tenant Improvements Allowance shall in no way render Landlord
responsible to any contractor, suppliers, subcontractor or other third party,
and all materialmen, contractors, subcontractors, artisans, mechanics, laborers
and any other persons contracting with Tenant for the furnishing of any labor,
services, materials, supplies or equipment with respect to any portion of the
Premises and/or the office building shall be notified by Tenant (and are hereby
charged with such notice) that they must look exclusively to Tenant to obtain
payment for same.
All work in the Premises is conditioned upon the compliance by Tenant's
contractors with all requirements imposed by Landlord on third party
contractors, including without limitation the maintenance by Tenant and its
contractors and subcontractors of workers' compensation and public liability and
property damage insurance in amounts and with companies and on forms
satisfactory to Landlord, with certificates of such insurance being furnished to
Landlord prior to proceeding with any such entry. Entry to the Premises shall be
deemed to be under all of the provisions of the Lease except as to the covenants
to pay rent. Landlord shall not be liable in any way for any injury, loss or
damage which may occur to any such work being performed by Tenant, the same
being solely at Tenant's risk. In no event shall the failure of Tenant's
contractors to complete any work in the Premises extend the Commencement Date of
this Lease beyond the date that Landlord has completed its tenant improvement
work and tendered the Premises to Tenant. All materials and finishes utilized in
constructing the tenant improvements shall be Landlord's building standard.
<PAGE>
Exhibit 10.4
OFFICE LEASE
ONE BEACH STREET
SAN FRANCISCO, CALIFORNIA
LANDLORD
NO. I BEACH STREET, LLC a California limited liability company
and
TENANT
CNET, Inc., a Delaware corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S><C>
ARTICLE I - PREMISES AND TENANT'S PROPERTY.......................................1
1.1. THE PREMISES.....................................................1
1.2. RENTABLE AREA OF THE PREMISES....................................1
1.3. TENANT'S PROPERTY................................................1
1.4. IMPROVEMENTS TO THE PREMISES.....................................1
1.5. PARKING..........................................................1
ARTICLE 2 - TERM.................................................................2
2.1. TERM.............................................................2
2.2. RENT COMMENCEMENT................................................2
2.3. HOLDING OVER.....................................................3
2.4. OPTION TO EXTEND THE TERM OF THE LEASE...........................4
ARTICLE 3 - RENT ................................................................4
3.1. MINIMUM RENT.....................................................4
3.2. INTEREST AND LATE CHARGES........................................4
3.3. MANNER OF PAYMENT................................................5
3.4. DEFINITION OF RENT...............................................5
3.5. REDUCTION OF MINIMUM RENT........................................5
3.6. MINIMUM RENT DURING THE OPTION TERM..............................5
3.7. PERCENTAGE RENT..................................................8
ARTICLE 4 - REAL ESTATE TAXES AND OPERATING EXPENSES.............................9
4.1. TENANT SHALL PAY INCREASES IN REAL ESTATE TAXES
AND OPERATING EXPENSES...........................................9
4.2. DEFINITION OF REAL ESTATE TAXES.................................10
4.3. DEFINITION OF OPERATING EXPENSES................................12
4.4. TENANT'S RIGHT TO AUDIT.........................................13
4.5. TENANT SHALL PAY FOR TAXES LEVIED ON ITS PROPERTY...............13
ARTICLE 5 - UTILITIES USED IN THE PREMISES......................................13
5.1. TENANT SHALL PAY FOR ALL UTILITY COSTS..........................13
5.2. NO LIABILITY FOR INTERRUPTION IN UTILITIES......................13
5.3. INTRA-BUILDING NETWORK CABLE....................................14
ARTICLE 6 - SECURITY DEPOSIT....................................................14
6.1. SECURITY DEPOSIT................................................14
6.2. TERMS OF THE LETTER OF CREDIT...................................14
6.3. RELEASE/REDUCTION OF THE LETTER OF CREDIT.......................15
<PAGE>
ARTICLE 7 - USE AND CONDITION OF THE PREMISES...................................15
7.1. USE OF THE PREMISES.............................................15
7.2. OPERATION OF TENANT'S BUSINESS..................................16
7.3. CONDITION OF THE PREMISES.......................................16
7.4. LANDLORD'S OBLIGATION UPON DELIVERY OF THE PREMISES.............17
ARTICLE 8 - MAINTENANCE, REPAIRS, AND ALTERATIONS...............................17
8.1. TENANT'S OBLIGATIONS FOR REPAIRS AND MAINTENANCE................17
8.2. LANDLORD'S OBLIGATIONS FOR REPAIRS AND MAINTENANCE..............18
8.3. LANDLORD'S RIGHT TO MAKE REPAIRS ON BEHALF OF TENANT............18
8.4. ALTERATIONS AND ADDITIONS.......................................18
8.5. TENANT'S CONSTRUCTION AND REPAIR WORK...........................19
8.6. LIENS...........................................................20
8.7. TENANT'S OBLIGATION FOR COMPLIANCE
WITH GOVERNMENT REQUIREMENTS....................................20
8.8. LANDLORD'S OBLIGATION FOR COMPLIANCE
WITH GOVERNMENT REQUIREMENTS....................................21
ARTICLE 9 - LANDLORD'S RIGHT OF ENTRY...........................................21
9.1. RIGHT OF ENTRY..................................................21
9.2. EMERGENCY ENTRANCE INTO THE PREMISES............................21
9.3. DAMAGES SUFFERED BY TENANT AND ABATEMENT OF RENT
AS A CONSEQUENCE OF LANDLORD'S WORK.............................22
ARTICLE 10 - INSURANCE AND INDEMNIFICATION......................................22
10.1. TENANT'S INSURANCE..............................................22
10.2. LANDLORD'S INSURANCE............................................23
10.3. INSURANCE REQUIREMENTS..........................................23
10.4. WAIVER OF CLAIMS AND WAIVER OF SUBROGATION......................24
10.5. CERTIFICATE OF INSURANCE AND POLICY ENDORSEMENTS
AND TENANT'S FAILURE TO PROVIDE EITHER..........................24
10.6. INDEMNIFICATION.................................................24
ARTICLE 11 - DAMAGE OR DESTRUCTION..............................................25
11.1. LANDLORD'S NOTICE TO TENANT.....................................25
11.2. LANDLORD'S OBLIGATION TO REPAIR.................................25
11.3. TERMINATION OF THE LEASE AFTER A CASUALTY LOSS..................25
11.4. TENANT'S RIGHT TO REPAIR........................................26
11.5. LANDLORD'S AND TENANT'S RESPECTIVE RESPONSIBILITIES FOR REPAIR..26
11.6. DAMAGE - END OF TERM............................................26
11.7. TENANT'S WAIVER OF STATUTORY RIGHTS.............................27
11.8. ABATEMENT OF RENT DUE TO A CASUALTY LOSS........................27
<PAGE>
ARTICLE 12 - CONDEMNATION.......................................................27
12.1. TAKING OF THE PREMISES..........................................27
12.2. COMPENSATION....................................................27
12.3. VOLUNTARY SALE..................................................27
12.4. WAIVER..........................................................27
ARTICLE 13 - ASSIGNMENT AND SUBLEASE............................................28
13.1. PROHIBITION AGAINST ASSIGNMENTS OR SUBLEASES WITHOUT
LANDLORD'S CONSENT..............................................28
13.2. NOTICE OF THE PROPOSED ASSIGNMENT OR SUBLEASE...................29
13.3. LANDLORD'S CONSENT..............................................29
13.4. TAKE-BACK SPACE.................................................30
13.5. TENANT SHALL REMAIN LIABLE UNDER THE LEASE......................30
13.6. PROFITS FROM AN ASSIGNMENT OR A SUBLEASE........................30
13.7. OBLIGATIONS OF AN ASSIGNEE OR SUBLESSEE.........................31
13.8. PAYMENT OF LANDLORD'S COSTS.....................................31
13.9. NO RELIANCE ON ORAL STATEMENTS..................................31
ARTICLE 14 - DEFAULT............................................................31
14.1. TENANT'S DEFAULT................................................31
14.2. REMEDIES........................................................32
14.3. WAIVER..........................................................32
14.4. LANDLORD'S DEFAULT..............................................33
ARTICLE 15 - HAZARDOUS MATERIALS................................................33
15.1. COMPLIANCE......................................................33
15.2. PROHIBITED ACTS AND DAMAGES RESULTING THEREFROM.................33
15.3. DEFINITION OF HAZARDOUS MATERIALS...............................34
15.4. DISCLOSURE......................................................34
ARTICLE 16 - GENERAL PROVISIONS.................................................34
16.1. MEDIATION AND ARBITRATION.......................................34
16.2. SALE OF LANDLORD'S INTEREST.....................................35
16.3. ESTOPPEL CERTIFICATE............................................35
16.4. FINANCIAL STATEMENT.............................................36
16.5. SUBORDINATION AND ATTORNMENT....................................36
16.6. TENANT SIGNAGE..................................................36
16.7. MERGER..........................................................37
16.8. RECORDING.......................................................37
16.9. ATTORNEYS' FEES.................................................37
16.10. CUMULATIVE REMEDIES.............................................37
16.11. CHOICE OF LAW...................................................37
<PAGE>
16.12. SUCCESSORS AND ASSIGNS..........................................37
16.13. SEVERABILITY....................................................37
16.14. AUTHORITY.......................................................37
16.15. TIME OF ESSENCE.................................................37
16.16. CAPTIONS........................................................37
16.17. FORCE MAJEURE...................................................38
16.18. NOTICES.........................................................38
16.19. BROKERS.........................................................38
16.20. JOINT AND SEVERAL LIABILITY.....................................39
16.21. QUIET POSSESSION................................................39
16.22. PRIOR AGREEMENTS AND AMENDMENTS.................................39
</TABLE>
EXHIBIT A - LEGAL DESCRIPTION OF THE PREMISES
EXHIBIT B - FLOOR PLANS
EXHIBIT C - WORK LETTER
EXHIBIT D - COMPARABLE SPACE AREA
EXHIBIT E - FORM OF SUBORDINATION AND NON-DISTURBANCE AGREEMENT
<PAGE>
BASIC LEASE INFORMATION
Date of the Lease: September 24 1997
<TABLE>
<CAPTION>
SECTIONS
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<S><C>
LANDLORD: No. I Beach Street, LLC, a
California limited liability company
3.3, 16.18 Landlord's Address: 201 Filbert Street, Suite 700
San Francisco, CA 94133-3298
Landlord's Telephone: (415) 391-1313
Landlord's Facsimile Number: (415) 391-1895
Contact for Landlord: Gerson Bakar & Associates,
Attn: Ms. Jodi Aurely
TENANT: CNET, Inc.,
a Delaware corporation
16.18 Tenant's Address: 150 Chestnut Street
San Francisco, California 94133
Tenant's Telephone: (415) 395-7800
Tenant's Facsimile Number: (415) 395-9205
Contact for Tenant: David Overmyer
1.1 PREMISES: 100% of the building (including
exclusive use of the roof) commonly
known as One Beach Street,
San Francisco, California.
1.2 Rentable Area
of the Premises: Approximately 97,015 sq. ft.
1.5 Parking Spaces Up to 165 spaces, of which no more
than 50 spaces will be on a 24-hour
basis
2.1 TERM:
10 Years from the Rent
Commencement Date
2.2 Rent Commencement Date: The earlier of (1) June 1, 1998, or (ii)
the date of substantial completion of
Tenant Improvements to two floors
of the Premises
LANDLORD INITIALS TENANTS INITIALS
----------------- ----------------
<PAGE>
SECTIONS
- --------
<S><C>
2.1 Scheduled Delivery Date of
Premises to Tenant January 15, 1998
2.5 Option to Extend the Term: Tenant shall have one (1) option to
extend the Term of the Lease for five
(5) years
RENT:
3.1 Minimum Rent (per month): Month 1: Free
Months 2 - 60: $208,582.25,
subject to Section 3.5
Months 61 - 120: $240,920.59,
subject to Section 3.5
3.1 Minimum Rent Payable
on Lease Execution: $208,582.25
3.6 Minimum Rent during
the Option Term: 95% of the Prevailing Market Rate
3.2 Late Charge 3% of the Rent or other amounts
paid after the due date.
4.1 ADDITIONAL LEASE CHARGES: Tenant shall pay 100% of the
Additional Lease Charges over the
Base Year
4.1 Base Year for the
Initial Term: The twelve (12) month period
commencing on the first day of the
month in which the Rent
Commencement Date occurs
3.6, 4.1 Base Year for the
Option Term: The twelve (12) month period
commencing on the first day of the
month in which the Option Term
commences
5.1 UTILITIES: Tenant shall pay for all utilities used
in the Premises
6 SECURITY DEPOSIT: An irrevocable stand-by letter of
credit in the amount of
$3,250,000,00, unless reduced in
accordance with Section 6.3(b)
LANDLORD'S INITIALS TENANT'S INITIALS
----------------- ----------------
<PAGE>
OPERATION OF TENANT'S BUSINESS:
7.1 Permitted Use
of the Premises: General office and, subject to the
terms and conditions of Section 7. 1,
the first floor of the Premises may be
used for interactive and/or multi
media purposes, and for retail
purposes.
7.2 Weight Limitation: 75 lbs. per sq. ft.
10.1, 10.2 GENERAL LIABILITY INSURANCE
(PER OCCURRENCE): $5,000,000.00,
subject to Section 10.3(c)
16.1 MEDIATION AND ARBITRATION Landlord and Tenant are bound
to the Mediation and
Arbitration provisions of the
Lease
16.19 REAL ESTATE BROKERS:
Landlord's Broker: Colliers Damner Pike
Two Embarcadero Center
San Francisco, California 94111
Tenant's Broker: Cushman & Wakefield of
California, Inc.
555 California Street
San Francisco, California 94104
LANDLORD'S INITIALS TENANT'S INITIALS
----------------- ----------------
</TABLE>
<PAGE>
OFFICE LEASE
This Lease ("Lease") between NO. I BEACH STREET, LLC, A CALIFORNIA LIMITED
LIABILITY COMPANY ("Landlord") and CNET, INC., A DELAWARE CORPORATION ("Tenant")
is entered into on, and shall be effective as of, September 24 1997.
ARTICLE 1 - PREMISES AND TENANT'S PROPERTY
1.1. THE PREMISES. Landlord leases to Tenant and Tenant leases from
Landlord, subject to the following terms and conditions, the Premises which
represent the entirety of the office building, including the roof, which is
located at One Beach Street, City and County of San Francisco, State of
California (the "Premises"). Tenant's right of occupancy of the Premises shall
include the exclusive right of signage on the exterior of the Premises, subject
to the terms and requirements of this Lease. The legal description of the
Premises is more particularly set forth on Exhibit, A which is attached hereto
and made a part hereof.
1.2. RENTABLE AREA OF THE PREMISES. The rentable area of the Premises shall
be deemed to be that area stated in the Basic Lease Information and as shown on
Exhibit B hereof. It is understood that the rentable area set forth in the Basic
Lease Information is approximate only. Tenant may at its discretion measure the
Premises to confirm the rentable area. However, after the execution of this
Lease, no Rent or other adjustment shall be made between the parties in the
event that the rentable area of the Premises is subsequently determined to be
greater or less than the area set forth in the Basic Lease Information.
1.3. TENANT'S PROPERTY. All furniture, furnishings, equipment, trade
fixtures, and articles of movable personal property in the Premises which belong
to Tenant and which can be removed without structural or other material damage
to the Premises (all of which are herein referred to as "Tenant's Property")
shall be the property of Tenant. Upon the expiration or earlier termination of
this Lease, Tenant shall remove from the Premises all of Tenant's Property
except those items that the parties shall agree are to remain and become the
property of Landlord. Tenant shall repair or pay the cost of repairing any
damage to the Premises resulting from the removal of Tenant's Property. Tenant's
obligations under this Section 1.3 shall survive the termination of this Lease.
1.4. IMPROVEMENTS TO THE PREMISES. Concurrently with the execution of this
Lease, Landlord and Tenant are executing the Work Letter which is attached
hereto and marked Exhibit C, providing for Landlord's and Tenant's
responsibilities for improvements to the Premises.
1.5. PARKING.
(a) PARKING AVAILABILITY AND COST. Commencing on January 2, 1998 or as
soon thereafter as the existing tenant in the Premises shall vacate its spaces
in the Northpoint Apartment Garage ("Garage") which is located at 2211 Stockton
Street, San Francisco and continuing until the termination of this Lease, Tenant
shall have the right to use no fewer than the number of parking spaces set forth
in the Basic Lease Information (as reduced from time to time as herein provided)
for the parking of automobiles or motor bikes ("Tenant's Parking Spaces"). The
owner of the Garage shall designate which parking spaces in the Garage are
available for Tenant's use. Unless Tenant and the owner of the Garage otherwise
agree in a separate agreement between themselves, Tenant may use up to fifty
(50) parking spaces on a 24-hour per day, 7-day per week basis, but Tenant may
only use the remainder of the parking spaces during the hours of 7:30 AM to 5:30
PM, Monday through Friday. Tenant shall pay the then current fair market rent
for any parking spaces which Tenant may use. As of April 1, 1997, the rent for
parking spaces in the Garage on a 24-hour basis was $135.00 per month, and the
rent for parking spaces during business hours, Monday through Friday, was
$105.00 per month.
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<PAGE>
(b) PARKING AGREEMENT. Tenant acknowledges that while there is an
easement allowing the occupant of the Premises to use up to 165 parking spaces
in the Garage, Landlord neither owns nor manages the Garage. In order to use
Tenant's Parking Spaces, Tenant shall be required to enter into a written
agreement ("Parking Agreement") with the owner of the Garage and to comply with
the terms of that agreement. Tenant further acknowledges that it has received
the form of Parking Agreement which is currently in use. Tenant shall designate
the number and type of Tenant's Parking Spaces that Tenant wishes to utilize
pursuant to the notice procedure in the Parking Agreement. During the term of
this Lease, Tenant may increase or decrease the number of Tenant's Parking
Spaces, up to the maximum number provided in the Basic Lease Information,
provided that Tenant gives the owner of the Garage the written notice required
in the Parking Agreement.
ARTICLE 2 - TERM
2.1. TERM.
(a) INITIAL LEASE TERM. Unless otherwise terminated in accordance with
the provisions hereof, this Lease shall be for the period set forth in the Basic
Lease Information as the "Term." Subject to the provisions of subsections (c)
and (d) hereto, Tenant's occupancy of the Premises pursuant to the terms of this
Lease shall commence on the date that Landlord delivers the Premises to Tenant
upon not less than three (3) days' prior written notice to Tenant (the
"Commencement Date"). Landlord shall deliver the Premises to Tenant free and
clear of any rights of possession or occupancy of any existing tenant thereof,
and in broom clean condition (other than as to floors previously identified by
Tenant to be immediately demolished for construction of Tenant Improvements).
Tenant hereby acknowledges that neither Landlord nor any representative of
Landlord has represented to Tenant that after the expiration of the Term of this
Lease, Tenant shall have any right to remain in the Premises or Landlord will be
willing to negotiate with Tenant for a new lease for the Premises.
(b) TENANT'S INSURANCE CERTIFICATE. Tenant shall provide Landlord with
a certificate of insurance in accordance with the provisions of Section 10.5
hereof prior to its occupancy or use of the Premises and prior to the
construction of any Tenant Improvements. Tenant shall have no right of access to
the Premises unless and until this insurance certificate is delivered to
Landlord.
(c) DELAY IN DELIVERY OF POSSESSION. If Landlord is unable to deliver
possession of the Premises to Tenant by the Scheduled Date of Delivery specified
in the Basic Lease Information (other than due to an intentional refusal to
deliver the space), Landlord shall not be liable to Tenant for damages of any
kind; provided, however, if Landlord has not delivered the Premises to Tenant in
the condition required by this Lease by March 31, 1998, Tenant may terminate
this Lease. Subject to the foregoing, any delay in delivery shall not affect
Tenant's obligations hereunder; however, the date of June 1, 1998, as one of the
alternatives for the Rent Commencement Date, shall be extended by one (1) day
for each day that Landlord delays in delivering possession of the Premises to
Tenant beyond the Scheduled Delivery Date.
(d) DELAYS WHICH MAY EXTEND THE DATE OF JUNE 1, 1998. If the
construction of the Tenant Improvements pursuant to Exhibit C hereof is delayed
by Landlord Delays or Force Majeure Delays (both of which terms are defined in
Exhibit Q, Landlord shall not be liable to Tenant for damages of any kind.
Landlord Delays and Force Majeure Delays shall not affect Tenant's obligations
hereunder; however, in addition to subsection (c), the date of June 1, 1998, as
one of the alternatives for the Rent Commencement Date, shall be extended by one
(1) day for each day of Landlord Delays or Force Majeure Delays, as determined
pursuant to Exhibit C.
2.2. RENT COMMENCEMENT.
(a) RENT COMMENCEMENT DATE. Tenant's obligation to pay Minimum Rent
shall commence on the earlier of (i) June 1, 1998, or (ii) the date of
"substantial completion" of the Tenant Improvements described in Exhibit C (the
"Rent Commencement Date"), as such date may be extended as provided in this
Lease. For the purpose of sub-part (ii) of the preceding sentence, the Tenant
Improvements described in Exhibit C hereof shall be deemed to be
2
<PAGE>
substantially complete at such time as the Tenant Improvements for not less than
two complete floors of the Premises have been sufficiently completed to enable,
and a temporary certificate of occupancy has been issued permitting, occupancy
of such floors by Tenant for the use thereof for their intended purpose.
(b) TENANT'S OCCUPANCY OF IMPROVED AREAS PRIOR TO THE RENT
COMMENCEMENT DATE. If Tenant occupies a portion of the Premises in which the
Tenant Improvements have been substantially completed prior to the Rent
Commencement Date, Tenant until the Rent Commencement Date shall pay Landlord
Minimum Rent in proportion to such occupancy and one hundred percent (100%) of
all costs and expenses incurred by Landlord as a result of such occupancy (which
the parties agree shall not include Real Estate Taxes). The proportionate amount
of Minimum Rent which Tenant shall owe pursuant to this subsection (b) shall be
calculated by multiplying the Minimum Rent by a fraction, the numerator of which
shall be the rentable area occupied by Tenant and the denominator of which shall
be the total rentable area of the Premises.
(c) TENANT'S OCCUPANCY OF UNIMPROVED AREAS PRIOR TO THE RENT
COMMENCEMENT DATE. If Tenant occupies a portion of the Premises in which the
Tenant Improvements have not been commenced prior to the Rent Commencement Date,
Tenant shall not be required to pay Landlord Minimum Rent as a consequence of
such occupancy. However, Tenant shall pay Landlord one hundred percent (100%) OF
ALL costs and expenses incurred by Landlord as a result of such occupancy (which
the parties agree shall not include Real Estate Taxes).
2.3. HOLDING OVER.
(a) HOLDING OVER WITH LANDLORD'S CONSENT. If Tenant, with Landlord's express
written consent, retains possession of the Premises after the expiration of the
Term of this Lease, such possession shall be deemed to be a month-to-month
tenancy terminable upon thirty (30) days written notice by either party.
Landlord shall not be deemed to have consented to Tenant's continued possession
of the Premises by accepting Rent or any other sum or by orally agreeing to
Tenant's continued possession. During any such month-to-month tenancy, Tenant
shall pay one hundred twenty-five percent (125%) of the Minimum Rent which was
payable by Tenant during the last month of the Term and all other amounts which
Tenant is required to pay under the Lease; provided, however, that Landlord may
change the amount of Rent due under this Lease upon thirty (30) days written
notice to Tenant. A month-to-month tenancy shall be subject to all provisions of
this Lease except those pertaining to the Term.
(b) HOLDING OVER WITHOUT LANDLORD'S CONSENT. If Tenant retains possession of the
Premises after the expiration of the Term of this Lease without Landlord's
written consent, Tenant shall pay to Landlord one hundred twenty-five percent
(125%) of the Minimum Rent payable by Tenant immediately prior to the expiration
of the Term as well as the Additional Lease Charges described herein. Imposition
or collection of these sums, however, shall not be construed as granting Tenant
permission to remain in the Premises after the expiration of the Term of the
Lease.
(c) DAMAGES CAUSED BY TENANT'S HOLDING OVER. Tenant acknowledges that if Tenant
remains in possession of the Premises beyond the Term of this Lease without the
written consent of Landlord, Tenant (i) may interfere with Landlord's attempts
to lease the Premises to another tenant, (ii) may prevent a subsequent tenant
from occupying the Premises, (iii) may provide a prospective tenant with the
grounds for declaring its lease for the Premises to be null and void, or (iv)
may subject Landlord to a lawsuit brought by a subsequent tenant who could not
occupy the Premises at the time specified with its lease with the Landlord. As a
result, if Tenant occupies the Premises beyond the Term of this Lease without
Landlord's written consent, Tenant shall indemnify, defend, protect, and hold
harmless Landlord from and against any loss, cost, damage, or expense, including
attorneys' fees and legal costs, incurred by Landlord in connection with
Tenant's failure to vacate the Premises at the end of the Term. In addition,
Tenant shall pay Landlord any rent or other income which Landlord shall lose as
a result of Tenant's continued occupancy of the Premises beyond the end of the
Term.
3
<PAGE>
2.4. OPTION TO EXTEND THE TERM OF THE LEASE. Landlord hereby grants to Tenant an
option to extend the Term (the "Option") with respect to all (but not less than
all) of the Premises for one (1) period of five (5) years (the "Option Term") on
all of the terms and conditions of this Lease. The Option Term shall commence
immediately following the expiration of the Initial Term (the "Option Term
Commencement Date") and shall expire on the day before the fifth annual
anniversary of the Option Term Commencement Date. Tenant shall exercise the
Option, if at all, by serving Landlord with a written notice of its exercise of
the Option not less than twelve (12) months nor more than eighteen (18) months
prior to the expiration of the Initial Term. Tenant's notice of exercise of its
Option hereunder shall be irrevocable by Tenant except as provided to the
contrary in Section 3.6(d)); provided, however, Tenant's notice of exercise
shall not be effective if at the time Tenant exercises the Option, Landlord has
declared a default under this Lease. In addition, if at any time after Tenant
validly exercises the Option and prior to the Option Term Commencement Date
Landlord declares a default because of Tenant's failure to pay Minimum Rent or
any Additional Lease Charges, Landlord shall have the right, in addition to all
of Landlord's other rights and remedies under this Lease, to terminate the
Option and to cancel unilaterally Tenant's exercise of its Option to extend the
Term. In that event, this. Lease shall expire at the conclusion of the initial
Term, and Tenant shall have no further rights under this Lease to extend the
Initial Term.
ARTICLE 3 - RENT
3.1. MINIMUM RENT. Tenant shall pay Landlord, as minimum rent for the Premises,
the amount specified in the Basic Lease Information ("Minimum Rent"). Except as
otherwise expressly provided in the Basic Lease Information, Tenant shall pay
Minimum Rent to Landlord in monthly installments, in advance, on the first day
of each month during the Term of this Lease. Upon execution of this Lease,
Tenant shall deliver to Landlord's attorney a check in the amount stated in the
Basic Lease Information as Minimum Rent for the second full month of Rent after
the Rent Commencement Date. Landlord's attorney shall retain said check,
uncashed, until Landlord obtains the consent of Landlord's lender to this Lease
and delivers to Tenant the nondisturbance agreement to which Section 16.5(b)
refers. Upon the delivery of this nondisturbance agreement, Landlord's attorney
shall deliver Tenant's check to Landlord which may then cash same. If Tenant's
obligation to pay Minimum Rent does not commence on the first day of a calendar
month, the Minimum Rent payable by Tenant for the first fractional month shall
be prorated on a thirty (30) day basis. In addition, Tenant shall pay Landlord
the consideration described in the Supplemental Agreement hereto.
3.2. INTEREST AND LATE CHARGES.
(a) INTEREST AND LATE CHARGES. If Tenant shall fail to pay when due and payable
any Rent or any other amount due under this Lease, such unpaid amounts shall
bear interest at the rate of ten percent (10%) per annum ("Default Interest")
from the date when that amount is due and payable. Tenant acknowledges that the
late payment of Rent or any other amount due under this Lease will cause
Landlord to incur costs and expenses not contemplated under this Lease,
including but not limited to administrative and collection costs and processing
and accounting expenses, the exact amount of which is extremely difficult to
fix. Therefore, subject to subsection (b) hereof, if any payment of Rent is not
received by Landlord within ten (10) days from the date when it is due or if any
other amount due under this Lease is not received by Landlord within thirty (30)
days from the date when it is due, Tenant shall pay Landlord a late charge equal
to three percent (3%) of such amount (the "Late Charge"). Landlord and Tenant
agree that this late charge represents a reasonable estimate of costs and
expenses that will be incurred by Landlord.
(b) NOTICE TO TENANT. The first time in any twelve (12) month period that Tenant
shall fail to pay Rent or any other amount due under this Lease within the time
provided in subsection (a) hereof, Landlord shall serve Tenant with a written
notice of its default before a Late Charge may be assessed against Tenant. In
this instance, a Late Charge shall only be imposed upon Tenant if Tenant does
not pay Rent or the amount due within ten (10) days after Landlord serves its
written notice of default on Tenant. Notwithstanding the foregoing, if Tenant in
any twelve (12) month period is late in the payment of Rent or any other amount
due under
4
<PAGE>
this Lease on more than three (3) occasions, Tenant thereafter shall not be
entitled to receive a written notice pursuant to this subsection throughout the
remainder of the term of the Lease.
3.3. MANNER OF PAYMENT. Tenant shall pay Rent and any other amount due under
this Lease to Landlord at Landlord's address set forth in the Basic Lease
Information or at such other address as Landlord may hereafter specify in
writing to Tenant. Tenant shall pay all amounts due as Rent or any other amount
due under this Lease in lawful money of the United States, without prior demand
(except for that portion of the Rent or any other amounts due under this Lease
which are specifically identified in this Lease as amounts payable after notice
from Landlord), and without deduction or offset.
3.4. DEFINITION OF RENT. The term "Rent" when used herein shall refer to both
Minimum Rent and Additional Lease Charges.
3.5. REDUCTION OF MINIMUM RENT. At any time prior to the issuance of the Letter
of Credit, Tenant shall have the right to reduce the Minimum Rent set forth in
the Basic Lease Information in exchange for a reduction of the Tenant
Improvement Allowance specified in Exhibit C hereof. The amount of the reduction
of Minimum Rent shall be calculated as follows:
(i) the Tenant Improvement Reduction shall be calculated by subtracting the
actual amounts expended by Landlord pursuant to Section 2 of Exhibit C from the
Tenant Improvement Allowance of $3,880,600.00 ("Tenant Improvement Reduction"),
(ii) the Tenant Improvement Reduction shall then be multiplied by .012733 (which
is the amount of the monthly payment required to fully amortize $1.00 at an
annual rate of 9% in 119 equal monthly payments) in order to obtain the amount
of the reduction of the monthly Minimum Rent from the 2nd to the 120th month of
the Lease ("Minimum Rent Reduction"), and
(iii) the Minimum Rent Reduction shall be subtracted from the monthly Minimum
Rent in order to obtain the revised monthly Minimum Rent from the 2nd to the
120th month of the Lease.
For example, if the Tenant Improvement Reduction were $380,600.00, the revised
monthly Minimum Rent would be calculated as follows:
<TABLE>
<S> <C> <C>
Tenant Improvement Allowance $3,880,600.00
Landlord's Actual Expenditures
on Tenant Improvements - 3,500,000.00
Tenant Improvement Reduction $ 380,600.00
Tenant Improvement Reduction $380,600.00
Multiplier x .012733
$ 4,846.18
Months 2 - 60 Months 61 - 120
Minimum Rent
$208,582.25 $240,920.59
Minimum Rent Reduction - 4,846.18 - 4,846.18
Revised Minimum Rent $203,736.07 $236,074.41
</TABLE>
3.6. MINIMUM RENT DURING THE OPTION TERM.
(a) RENT FOR THE OPTION TERM. The Lease for the Option Term shall be upon the
same terms and conditions as during the original Term, except (i) the Base Year
for calculating Additional Lease Charges for the Option Term shall be the period
specified in the Basic Lease Information, and (ii) the Minimum Rent during the
Option Term shall be equal to ninety-five percent (95%) of the Prevailing Market
Rate (as that term is defined in subsection (c) hereof) for Comparable Space (as
that term is defined in subsection (b) hereof).
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<PAGE>
(b) COMPARABLE SPACE. As used herein, the term "Comparable Space" shall
mean leased general office space determined in accordance with Section
3.6(f)(ii).
(c) PREVAILING MARKET RATE. As used herein, the term "Prevailing Market Rate"
shall mean the amount of monthly minimum rent determined from leases, excluding
subleased space, of Comparable Space (1) which have been executed within the
period between six (6) months and eighteen (18) months before the commencement
of the Option Term or (2) where the prevailing market rent in a lease of
Comparable Space has been determined within the period between six (6) months
and eighteen (18) months before the commencement of the Option Term in order to
determine option rent for such lease in connection with the exercise of an
option to extend the term of such lease. The determination of Prevailing Market
Rate shall take into account and adjust, when it is appropriate to do so, for
the following items of comparability:
(i) the effective rent which shall mean the aggregate of all of the minimum rent
paid by each tenant in Comparable Space over the term of that lease and dividing
that aggregate amount of minimum rent by the number of months in the lease term
for each lease of Comparable Space,
(ii) the location and size of the premises covered by leases of Comparable
Space,
(iii) the value (determined on the basis of dollars per rentable square foot) of
tenant improvements to the premises covered by leases of Comparable Space, for
which the landlord paid at the commencement of the new term for which the
effective rate has been calculated, and
(iv) the duration of the term of leases of Comparable Space.
(d) LANDLORD'S NOTICE AND TENANT'S RESPONSE. No later than ten (10) months prior
to the commencement of the Option Term, Landlord shall serve Tenant with a
written notice setting forth Landlord's determination of the Prevailing Market
Rate for the Option Term ("Landlord's Notice") and with a list of leases of
Comparable Space ("Comparable Space List") upon which Landlord's Notice was
based. The Comparable Space List shall include at least the following
information for each lease: (i) the address of the leased space, (ii) the names
of the landlord and tenant, (iii) the rentable square footage, (iv) the lease
term, (v) the minimum monthly rent throughout the lease term, (vi) any periods
of free rent, and (vii) the value of tenant improvements for which the landlord
paid. Within twenty (20) days after service of Landlord's Notice, Tenant shall
serve Landlord with a written notice ("Tenant's Response") stating that Tenant
either (1) elects to terminate the exercise of its Option (in which event the
Option shall lapse and this Lease shall terminate on the expiration of the
Initial Term), or (2) disagrees with Landlord's determination of the Prevailing
Market Rate and elects to resolve the disagreement as provided in subsection (f)
hereof. If Tenant does not serve Landlord with Tenant's Response as provided in
the previous sentence, Landlord's determination of the Prevailing Market Rate
shall be binding upon Tenant.
(e) INFORMAL RESOLUTION. Landlord and Tenant shall use their best efforts meet
at least two (2) times within a twenty (20) day period, at a mutually agreeable
time and place, to attempt to resolve their disagreement concerning the
Prevailing Market Rate. This consultation period (regardless of its actual
length) shall be deemed to have terminated when Landlord or Tenant shall serve
the other with a written notice stating that that party has decided to resolve
the dispute regarding Prevailing Market Rate pursuant to Section 3.6(f) of the
Lease ("Binding Resolution Notice").
(f) BINDING RESOLUTION OF ANY DISAGREEMENT REGARDING PREVAILING MARKET
RATE. Any disagreement regarding the Prevailing Market Rate shall be resolved as
follows:
(1) If Landlord and Tenant cannot agree on the Prevailing Market Rate, Landlord
and Tenant shall each select one real estate broker ("Party Broker") to
determine the Prevailing Market Rate. Each Party Broker chosen by Landlord and
Tenant shall serve his/her written opinion determination of the Prevailing
Market Rate (determined in accordance
6
<PAGE>
with the terms of this Section 3.6) on both Landlord and Tenant within thirty
(30) days after the date when the Binding Resolution Notice was served on
Landlord or Tenant.
(ii) In making their determination of the Prevailing Market Rate, the Party
Brokers shall first attempt to find leases of Comparable Space in excess of
40,000 rentable square feet in the area in yellow on Exhibit D (the "Preferred
Area"). If the Party Brokers are able to find at least five (5) leases of
Comparable Space in excess of 40,000 rentable square feet within the Preferred
Area, the Prevailing Market Rate shall be based solely on leases of Comparable
Space within the Preferred Area. If the Party Brokers are unable to find at
least five (5) leases of Comparable Space in excess of 40,000 rentable square
feet in the Preferred Area, leases of Comparable Space in excess of 20,000
rentable square feet in the entire area on Exhibit D shall also be used to
determine the Prevailing Market Rate.
(iii) At least ten (10) days before the Party Brokers are required to serve
their written opinion of the Prevailing Market Rate on Landlord and Tenant, each
Party Broker shall serve the other, by personal delivery or by facsimile
transmission, with the Comparable Space List which that Party Broker intends to
use in reaching his/her opinion of Prevailing Market Rent. If either Party
Broker fails to serve the other with his/her Comparable Space List as required
by this sub-part (iii), the Neutral Broker shall only use leases on the
Comparable Space List of the Party Broker which did comply with this sub-part
(iii) in reaching his/her determination of Prevailing Market Rent.
(iv) If only one Party Broker serves his/her written determination of the
Prevailing Market Rate on Landlord and Tenant within the time period stated in
sub-part (i) hereof, that opinion shall be deemed to be the Prevailing Market
Rate for the Option Term. If both Party Brokers serve their respective
determinations of Prevailing Market Rate within the time period stated in
sub-part (i) hereof and if the two opinions of Prevailing Market Rate differ by
five percent (5%) or less of the higher of the two, the average of the two
opinions shall be the Prevailing Market Rate. If the two opinions differ by more
than five percent (5%) of the higher of the two, then the two Party Brokers
shall select a third real estate broker (the "Neutral Broker") to determine the
Prevailing Market Rate. If the Party Brokers are unable to agree upon a Neutral
Broker within twenty (20) days, either Landlord or Tenant may request the
American Arbitration Association to appoint the Neutral Broker to determine the
Prevailing Market Rate.
(v) After the selection of the Neutral Broker, each Party Broker shall
serve the Neutral Broker with (1) his/her written determination of the
Prevailing Market Rate for Comparable Space which was served in accordance with
sub-part (i) hereof and (2) if a Party Broker has complied with sub-part (iii)
hereof, his/her Comparable Space List. Each party may also submit to the Neutral
Broker, with a copy simultaneously served on the other party, a written argument
in support of its determination of the Prevailing Market Rate. Neither Party
Broker may change the figure in its determination of the Prevailing Market Rate
after delivering its determination to the other pursuant to sub-part (ii) hereof
or change the leases on its Comparable Space List after delivering same to the
other Party Broker pursuant to sub-part (iii) hereof. Subject to the limitation
set forth in subsection (g) hereof, the Neutral Broker, within thirty ( , 30)
days after his/her selection, shall determine the Prevailing Market Rate by
choosing one of the determinations of the Prevailing Market Rate submitted by
the Party Brokers. If both Party Brokers served their Comparable Space List in
compliance with sub-part (iii) hereof, the Neutral Broker shall base his/her
decision upon the Comparable Space Lists submitted by both Party Brokers and any
research which the Neutral Broker chooses to do on his/her own. If only one
Party Broker served his/her Comparable Space List in compliance with sub-part
(iii) hereof, the Neutral Broker shall base his/her decision only upon the
Comparable Space List submitted by the Party Broker which complied with sub-part
(iii) hereof.
(vi) All real estate brokers chosen to render an opinion of the Prevailing
Market Rate (including the Neutral Broker) shall be real estate brokers licensed
and in good standing with the State of California with not less than ten (10)
years' experience in commercial property leasing in the downtown San Francisco
area; provided, however, the Neutral Broker (but not every broker in the firm
with which the Neutral Broker is employed or associated) shall be a person who
has not represented or acted in any capacity for either party for a period of
ten (10) years before the selection of that person as the Neutral Broker. Each
party
7
<PAGE>
shall pay the cost of the Party Broker selected by such party and one-half of
the cost of the Neutral Broker.
(vii) The provisions of subsection (f) hereof shall be the sole procedure for
the determination of Prevailing Market Rate for the Option Term in the event of
a disagreement between Landlord and Tenant; and Section 16.1 shall be
inapplicable thereto.
(g) LIMITATION ON THE DETERMINATION OF PREVAILING MARKET RATE. Notwithstanding
anything to the contrary set forth in this Section 3.6, in no event shall the
monthly Minimum Rent for the Option Term be less than the Minimum Rent payable
for the one month period immediately preceding the commencement of the Option
Term.
(h) CONFIRMATION OF THE DETERMINATION OF PREVAILING MARKET RATE. The
determination of Prevailing Market Rate pursuant to the procedure set forth in
this Section 3.6 shall be final and binding on the parties and may be confirmed
by the Superior Court of the City and County of San Francisco upon the filing of
a petition therefor by Landlord or Tenant. However, if the Neutral Broker does
not determine the Prevailing Market Rate by choosing one of the determinations
of Prevailing Market Rate submitted by the Party Brokers and, instead, uses a
different figure, the Neutral Broker shall be deemed to have exceeded his/her
powers; and the Neutral Broker's determination of Prevailing Market Rate may be
vacated pursuant to Section 1286.2(d) of the Code of Civil Procedure. Landlord
and Tenant hereby waive all of the provisions of Sections 1280 ET SEQ. of the
CALIFORNIA CODE OF CIVIL PROCEDURE and the Commercial Arbitration Rules of the
American Arbitration Association which are contrary to any of the provisions of
this Section 3.6.
(i) MINIMUM RENT PAYABLE IF THE PREVAILING MARKET RATE IS NOT DETERMINED PRIOR
TO THE OPTION TERM. If for any reason there has not been a determination of the
Prevailing Market Rate by the commencement of the Option Term, Tenant's Minimum
Rent payment at the commencement of the Option Term shall be an amount equal to
the Minimum Rent payable immediately preceding the commencement of the Option
Term. In such event, Tenant shall pay Landlord the difference, if any, between
the Prevailing Market Rate and the Minimum Rent which Tenant had paid during the
Option Term within ten (10) business days after the Prevailing Market Rate is
determined, together with interest thereon at the rate of five percent (5%) per
annum, computed from the beginning of the Option Term until the date of payment.
Notwithstanding any dispute regarding the Prevailing Market Rate, Tenant shall
pay all applicable Additional Lease Charges with respect to the Premises, in the
manner and at the times provided in this Lease, effective upon the commencement
of the Option Term.
3.7. PERCENTAGE RENT.
(a) PERCENTAGE REN In addition to the Minimum Rent, if Tenant's Permitted
Non-Office use involves Tenant's Retail Use (which term shall be defined
hereafter) of the Premises, Tenant shall pay Landlord an amount equal to five
percent (5%) of Gross Sales from Tenant's Retail Use in excess of the Breakpoint
("Percentage Rent").
(b) TENANT'S RETAIL USE AND BREAKPOINT. The term "Tenant's Retail Use" shall
mean any use of the Premises by Tenant in the area allowed for Permitted
Non-Office Use from which Tenant receives income which would require Tenant to
pay sales tax to the State of California. The term "Breakpoint" shall mean that
amount of Gross Sales which when multiplied by the Percentage Rent will equal
the Minimum Rent in any calendar year for the portion of the Premises which
Tenant uses for a Permitted Non-Office Use (except that portion of the Premises
to which Section 7. 1 (v) refers).
(c) GROSS SALES. The term "Gross Sales" shall mean: the actual sales prices or
rentals of all goods, wares and merchandise sold, leased, licensed or delivered
and the actual charges for all services performed by Tenant in, at, from, or
arising out of the use of the portion of the Premises devoted to Tenant's Retail
Use, whether for wholesale, retail, cash, credit, or trade-ins or otherwise.
Gross Sales shall include, without limitation, sales and services for which
Tenant is liable to the State of California for sales taxes and (i) where the
orders therefore originate in, at, from, or arising out of the use of the
Premises, whether delivery or performance is made from the Premises or from some
other place, (ii) made or performed by mail, telephone,
8
<PAGE>
facsimile or computer-generated orders, and (iii) made or performed by means of
mechanical or other vending devices in the Premises. Any sums which a customer
deposits with and forfeits to Tenant shall be included in Gross Sales. Each
installment or credit sale shall be treated as a sale for the full price in the
month during which such sale is made, regardless of whether or when Tenant
receives payment therefor. No franchise or capital stock tax and no income or
similar tax based on income or profits shall be deducted from Gross Sales.
(d) EXCLUSIONS FOR GROSS SALES. Gross Sales shall not include (i) any amounts
collected and paid by Tenant for sales or excise tax imposed by any duly
constituted governmental authority, (ii) any cash or credit refund made upon any
sale in or from the Premises where the merchandise sold is thereafter returned
by the purchaser and accepted by Tenant, or (iii) sales to Tenant's employees.
(e) GROSS SALES REPORTS AND PAYMENT OF PERCENTAGE RENT. Within twenty (20) days
after the close of each calendar year, Tenant will furnish Landlord with a
written statement, certified as true and accurate by Tenant, setting forth by
calendar month the total amount of the Gross Sales from the Premises during the
preceding calendar year. This statement shall be in the form and shall contain
such information and breakdown as Landlord may reasonably require. Concurrently
with the delivery of this written statement, Tenant shall pay Landlord the
amount, if any, by which Percentage Rent for that year exceeds the Breakpoint.
(f) BOOKS AND RECORDS. Tenant shall maintain in San Francisco, in accordance
with generally accepted accounting principles, consistently applied, complete
and accurate books of account and records of all daily receipts from sales made
or services provided in connection with Tenant's Retail Use, whether for cash or
on credit, showing cumulative totals and all transactions. These books and
records shall include, but not be limited to, true copies of all sales and other
excise tax reports that Tenant may be required to furnish to any governmental
agency. These books and records shall be kept for a period of at least three (3)
years after the date of Tenant's annual statement of Percentage Rent as
described in subsection (e) hereof. The receipt by Landlord of any statement of
Gross Sales or Percentage Rent for any period or the payment of any sum as Rent
shall not bind Landlord as to the correctness of that statement.
(g) RIGHT TO AUDIT. Landlord or Landlord's designee shall have the right to
examine, at any time during normal business hours, all books and records of
Tenant which pertain to Tenant's Retail Use of the Premises. Once in each twelve
(12) month period, Landlord shall be entitled to conduct, or have a certified
public accountant conduct, an audit of the records of all business conducted in
connection with Tenant's Retail Use for the purpose of determining Gross Sales.
This audit shall be conducted during normal business hours at the Premises. If
it shall be determined as a result of such audit that there has been a
deficiency in the payment of Percentage Rent, such deficiency shall become
immediately due and payable with interest from the date when the payment should
have been made at the rate of ten percent (10%) per annum.
ARTICLE 4 - REAL ESTATE TAXES AND OPERATING EXPENSES
4.1. TENANT SHALL PAY INCREASES IN REAL ESTATE TAXES AND OPERATING EXPENSES.
(a) INCREASES IN ADDITIONAL LEASE CHARGES. During the period when Tenant
occupies, or has the right to occupy, the Premises, Tenant shall pay any
increase, over the Base Year set forth in the Basic Lease Information, in Real
Estate Taxes (as hereafter defined) levied or assessed against the Premises
during the Base Year, and in Operating Expenses (as hereafter defined) incurred
or payable by Landlord in the Base Year. The amount of any increase in Real
Estate Taxes and in Operating Expenses as hereinabove provided shall together be
defined herein as "Additional Lease Charges."
(b) ESTIMATE OF INCREASES IN ADDITIONAL LEASE CHARGES. Landlord may, at its
option, estimate the Additional Lease Charges to be paid by Tenant during the
current Lease Year (as hereafter defined) by delivering written notice to Tenant
stating the amount Tenant is required to pay each month as the estimated
increase in Additional Lease Charges. Thereafter, Tenant
9
<PAGE>
shall pay, as additional Rent, the estimated increase in Additional Lease
Charges with its monthly payment of Minimum Rent.
(c) RECONCILIATION WITH THE ACTUAL INCREASES IN ADDITIONAL LEASE CHARGES. Within
ninety (90) days following the end of each Lease Year, commencing in the Lease
Year after Tenant first pays estimated Additional Lease Charges, Landlord shall
deliver to Tenant a reconciliation of Tenant's payments of Additional Lease
Charges with the actual increase in Real Estate Taxes and Operating Expenses
over the Base Year. If that reconciliation shows an amount owing by Tenant that
is less than the payments made by Tenant and if Tenant is not in default under
this Lease at the time such reconciliation is delivered, Landlord shall credit
any overpayment to the next payment(s) of Additional Lease Charges. If this
reconciliation shows that Tenant owes more than the estimated payments made by
Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days
after delivery of such statement of reconciliation.
(d) LEASE YEAR. The term "Lease Year" shall mean a twelve (12) month period
commencing on the annual anniversary of first day of the month in which the Rent
Commencement Date occurs.
(e) SURVIVAL OF OBLIGATIONS. The respective obligations of Landlord and Tenant
under this Section 4.1 shall survive the expiration or earlier termination of
this Lease.
4.2. DEFINITION OF REAL ESTATE TAXES.
(a) TAXES AND ASSESSMENTS INCLUDED WITHIN THE DEFINITION OF REAL ESTATE TAXES.
The term "Real Estate Taxes" as used herein shall include all real property
taxes and assessments on the Premises, as well as all personal property taxes
levied on property used in operation of the Premises whether or not now
customary or within the contemplation of the parties to this Lease. Real Estate
Taxes shall include, but not be limited to: (a) general and special assessments,
license fees, commercial rental tax levy, gross receipts tax (other than
inheritance or estate taxes), fees or assessments for transit, housing, police,
fire, or other governmental services imposed by any authority having the direct
or indirect power to tax against any legal or equitable interest of Landlord in
the Premises, against the Landlord's right to rent or other income therefrom or
against the Landlord's business of leasing the Premises; (b) any tax, fee or
charge with regard to the possession, leasing, transfer of interest, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises; (c) any tax imposed in substitution, partially or totally, for any tax
previously included within the definition of Real Estate Taxes herein; or (d)
any additional property tax or assessment, the nature of which may not have been
previously included within the definition of Real Estate Taxes. The term "Real
Estate Taxes" shall also include the cost to Landlord of contesting the amount,
validity or applicability of any taxes or assessments mentioned in this Section
4.2 (except if such tax is excluded under Section 4.2(c) below). If, as a result
of contesting any Real Estate Taxes or for any other reason, Landlord obtains a
reduction in Real Estate Taxes, Tenant shall be entitled to the same reduction
in the increase in Real Estate Taxes as Landlord receives.
(b) ASSESSMENTS PAID IN INSTALLMENTS.. If any general or special assessment
which is payable in installments is levied and assessed against the Premises,
Tenant shall pay such assessments in installments over the longest period
permitted.
(c) TAXES AND ASSESSMENTS EXCLUDED FROM THE DEFINITION OF REAL ESTATE TAXES. The
term "Real Estate Taxes" shall not include (i) any tax which may be levied on or
against the net income or profit of Landlord, (ii) any inheritance, estate
taxes, transfer taxes, franchise taxes and capital stock taxes, (iii) any
environmental assessments, charges, or liens arising in connection with the
remediation of Hazardous Materials from the Premises, (iv) reserves for the
payment of future Real Estate Taxes. In addition, in no event shall Real Estate
Taxes include any penalty or interest due to Landlord's late payment of taxes.
(d) LIMITATION ON INCREASES IN REAL ESTATE TAXES DUE TO A CHANGE IN OWNERSHIP.
Despite any other provision of this Lease, if there is a change in ownership of
the Premises during the initial Term of this Lease and, as a result, the
Premises is reassessed for Real Estate Tax purposes pursuant to Sections 60 ET
SEQ. of the California Revenue and Tax Code
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<PAGE>
("Reassessment"), Tenant's obligation to pay increases in Real Estate Taxes as a
result of a Reassessment shall be limited as follows:
(i) Tenant shall never pay an increase in Real Estate Taxes attributable to
Reassessment(s) in any Lease Year which exceeds Two Hundred Fifty Thousand
Dollars ($250,000.00). For example, if the Real Estate Taxes assessed in the
Base Year were $65,000.00 and if there were a transfer during the third Lease
Year which caused a Reassessment and, solely as a result of the Reassessment, if
Real Estate Taxes beginning on the first day of the fourth Lease Year increased
by $250,000, the increases in Real Estate Taxes which Tenant would pay as a
result of this limitation (before calculating the limitation in sub-part (ii)
hereof) can be illustrated as follows:
<TABLE>
<CAPTION>
Real Estate
Real Estate Taxes Payable Real Estate Real Estate
Lease Taxes w/o by Tenant w/o Taxes due to Total Real Taxes Paid By
Year Reassessment Reassessment Reassessment Estate Taxes Tenant
<S> <C> <C> <C> <C> <C> <C>
1 $65,000.00 0 0 $ 65,000.00 0
2 $66,300.00 $ 1,300.00 0 $ 66,300.00 $
1,300.00
3 $67,626.00 $ 2,626.00 0 $ 67,626.00 $
2,626.00
4 $68,979.00 $ 3,979.00 $250,000.00 $318,979.00 $253,979.00
5 $70,358.00 $ 5,358.00 $255,000.00 $325,358.00 $255,358.00
6 $71,765.00 $ 6,765.00 $260,100.00 $331,865.00 $256,765.00
7 $73,201.00 $ 8,201.00 $265,302.00 $338,503.00 $258,201.00
8 $74,665.00 $ 9,665.00 $270,608.00 $345,273.00 $259,665.00
9 $76,158.00 $11,158.00 $276,020.00 $352,178.00 $261,158.00
10 $77,681.00 $12,681.00 $281,541.00 $359,222.00 $262,681.00
</TABLE>
(ii) Tenant's obligation for increases in Real Estate Taxes attributable to a
Reassessment in each Lease Year shall be determined by multiplying the amount
which represents any increase in Real Estate Taxes due to Reassessment(s) by the
following percentages in the following Lease Years:
<TABLE>
<CAPTION>
Lease Year Percentage
<S> <C>
1 0%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
This limitation, combined with the limitation in sub-part (i) can be
illustrated, by using the assumptions in the example in sub-part (i), as
follows:
<TABLE>
<CAPTION>
Real Estate Real Estate
Taxes Payable Taxes due to Real Estate
Lease by Tenant w/o Reassessment Total Real Taxes Paid by
Year Reassessment Limited by % Estate Taxes Tenant
<S> <C> <C> <C> <C>
1 0 0 0 0
2 $ 1,300.00 0 $ 1,300.00 $ 1,300.00
3 $ 2,626.00 0 $ 2,626.00 $ 2,626.00
4 $ 3,979.00 $100,000.00 $103,979.00 $103,979.00
5 $ 5,358.00 $127,500.00 $132,858.00 $132,858.00
6 $ 6,765.00 $156,060.00 $162,825.00 $162,825.00
7 $ 8,201.00 $185,711.00 $193,912.00 $193,912.00
8 $ 9,665.00 $216,486.00 $226,151.00 $226,151.00
9 $11,158.00 $248,418.00 $259,576.00 $259,576.00
10 $12,681.00 $281,541.00 $294,222.00 $262,681.00
</TABLE>
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<PAGE>
(iii) Tenant shall not pay any increase in Real Estate Taxes due to
Reassessment(s) which have occurred solely because of a change in ownership
interests within the limited liability company entity which is Landlord or any
transfer from Landlord to an entity in which those (or any of their relatives)
who currently hold more than fifty (50%) of the ownership interests in Landlord
own fifty percent (50%) or more of an interest in the succeeding entity.
4.3. DEFINITION OF OPERATING EXPENSES.
(a) DEFINITION OF OPERATING EXPENSES. "Operating Expenses" shall mean the total
cost and expenses paid or incurred by Landlord in connection with the
management, operation, maintenance and repair of the Premises, including,
without limitation, (i) janitorial, maintenance, and other service contracts;
(ii) materials, supplies, equipment, and tools; (iii) the cost of landscape
maintenance and the replacement of plants, trees, and vegetation; (iv) the cost
of maintenance, replacement, and repairs to the Premises; (v) license, permit,
and inspection fees; (vi) all inspections and testing of the Premises (except
voluntary Phase II environmental inspections which are unrelated to Tenant's
occupancy, Phase I environmental inspections which may be required by Landlord's
lender, or repointing of the bricks on the exterior of the Premises); (vii)
wages, salaries, employee benefits and payroll costs of Landlord's employees in
or serving the Premises (excluding such costs of personnel above the rank of
project manager); (viii) the reasonable fees, charges and other costs, of
independent contractors engaged by Landlord to perform work that is otherwise an
Operating Expense; (ix) a management fee equal to four percent (4%) of the
Minimum Rent each Lease Year which shall be paid to Landlord for its services as
a manager; (x) the cost of capital improvements or replacements capitalized for
federal income tax purposes (amortized over the useful life of the improvement,
as determined for federal income tax purposes, together with interest on the
unamortized balance at the rate paid by Landlord on funds borrowed for the
purpose of constructing such capital improvements) made to the Premises in
response to Tenant's requests for additional services or improvements (so long
as Tenant shall have given its prior written approval to such capital
improvement, which approval shall not be unreasonably withheld) or occasioned by
newly enacted Government Requirements as set forth in subsections (b) and (c) of
Section 8.8, (xi) the cost of contesting the validity or applicability of any
Government Requirements described in Section 8.7 or 8.8(b), and (xii) insurance
premiums and the deductible portion on any claim for all insurance obtained by
Landlord for the Premises pursuant to, and calculated in accordance with,
Section 10.2.
(b) EXCLUSIONS FROM OPERATING EXPENSES. Notwithstanding the foregoing, the term
"Operating Expenses" shall not include (1) Real Estate Taxes, (ii) depreciation
on the Premises, (iii) capital improvements (except as provided in clause (x)
above), (iv) real estate brokers' commissions, executive salaries (exclusive of
fees paid for management activities), (v) attorneys' fees and court costs
(except as provided in clause (xiii) above), (vi) voluntary exterior window
replacements, (vii) principal and interest payments on loans and ground lease
payments and other similar finance charges, (viii) repairs or other work
occasioned by the exercise of the power of eminent domain, (ix) costs incurred
due to Landlord's violation of the terms and conditions of this Lease or of any
law, statute, ordinance, (x) expenses for which Landlord is fully compensated or
reimbursed by insurance or by any other party, (xi) cost of repairs or other
work occasioned by a Casualty Loss (as that term is defined in Section 11.1
hereof), (xii) Landlord's general overhead and/or administrative expenses,
(xiii) except as otherwise expressly provided in this Lease, any cost or other
expense incurred with respect to the investigation, removal, remediation,
containment, clean-up, or other response associated with or pertaining to the
actual or alleged presence of Hazardous Materials at, on, beneath, or in the
vicinity of the Premises or to the actual or threatened release of Hazardous
Materials at, on, beneath, or in the vicinity of the Premises, (xiv) any costs
paid to any affiliate of Landlord which is in excess of the amount which would
be paid absent such relationship, and (xv) costs incurred in connection with any
financing or refinancing of the Premises by Landlord.
(c) CONSULTATION REGARDING OPERATING EXPENSES. Each year Landlord agrees to
consult with Tenant regarding the Operating Expenses which it anticipates
incurring over the next twelve (12) months. Tenant may offer any suggestions
which it believes may improve services to the Premises or reduce Operating
Expenses; and Landlord shall give Tenant's suggestions due consideration in
planning for the Operating Expenses for the Premises.
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<PAGE>
(d) CHANGE OF A POLICY OR PROCEDURE WHICH INCREASES OR DECREASES OPERATING
EXPENSES. If Operating Expenses at any time increase or decrease as a result of
a change in a policy or procedure in the operation of the Premises (e.g., the
addition of earthquake insurance or other insurance coverages if such insurance
or coverages were not included in Operating Expenses in the Base Year or any
change in the management fee) ["Expense Change"], the Operating Expenses for the
Base Year shall be adjusted for the twelve (12) month period in which the
Expense Change occurs (and for all subsequent years during which that Expense
Change remains in effect). The Operating Expenses for the Base Year shall be
increased or decreased, as appropriate, by the estimated amount that (i) would
have been included in the Operating Expenses for the Base Year if the Expense
Change had been in effect during the Base Year or (ii) would not have been
included in Operating Expenses for the Base Year if the Expense Change were not
in effect during the Base Year. The Operating Expenses for the twelve (12) month
period in which the Expense Change occurs, and thereafter so long as it remains
in effect, shall be based upon the revised Operating Expenses for the Base Year.
(e) LIMITATION ON OPERATING EXPENSES. For any twelve (12) month period in which
increases in Operating Expenses are determined, Landlord shall not collect in
excess of one hundred percent (100%) of the amount by which all Operating
Expenses in the Premises for that period exceed the aggregate of all Operating
Expenses for the Base Year. Landlord shall not recover, through Operating
Expenses, any item of cost more than once.
4.4. TENANT'S RIGHT TO AUDIT. Landlord shall keep in San Francisco complete and
detailed books and records of account relating to Operating Expenses and Real
Estate Taxes for a period of three (3) years after Landlord delivers to Tenant
its annual statement of reconciliation of Additional Lease Charges. During that
same period of three (3) years, Tenant shall have the right to inspect the books
and any other pertinent records of Landlord, on reasonable notice and during
normal business hours, for the purpose of verifying such statement. Tenant may
contest Landlord's computation of Additional Lease Charges for the Premises,
either in whole or in part, by giving Landlord written notice stating its
objections; provided that such notice is received by Landlord, not later than
two (2) months after the expiration of the aforesaid three (3) year period. If
Landlord agrees, or it is determined through arbitration pursuant to Section
16.1 hereof, that there has been an over-charge of Additional Lease Charges to
Tenant, Landlord shall reimburse Tenant for such over-charges within ten (10)
days of such determination, but Tenant shall not have the right to terminate
this Lease as a consequence of such over-charges.
4.5. TENANT SHALL PAY FOR TAXES LEVIED ON ITS PROPERTY. Tenant shall be liable
for, and pay prior to delinquency, all taxes levied against Tenant's Property.
If any taxes on the above-described property are levied against Landlord or
Landlord's property and if Landlord pays the same believing them to be due, or
if the assessed value of Landlord's property is increased by the inclusion of
the value placed on the above-described property and if Landlord pays the taxes
based on such increased assessment believing same to be due, Tenant shall pay
Landlord the taxes so levied against Landlord or the portion of such taxes
resulting from the increase in the assessments due to the above-described
property.
ARTICLE 5 - UTILITIES USED IN THE PREMISES
5.1. TENANT SHALL PAY FOR ALL UTILITY COSTS. Within ten (10) days after
receiving a bill therefor from Landlord or directly from the utility, Tenant
shall directly pay to the appropriate utilities for all Utility Costs, including
taxes thereon, incurred in connection with the Premises and/or Tenant's
occupancy thereof during the entire Term of this Lease. The term "Utility Costs"
shall mean the total cost for all water, heat, air-conditioning, gas,
electricity, telephone/telecommuni cations, garbage, and other utilities
provided to or for the Premises (collectively "Utilities").
5.2. NO LIABILITY FOR INTERRUPTION IN UTILITIES. Landlord shall not be liable in
damages or otherwise, and Tenant shall not be entitled to a reduction in Rent or
to terminate this Lease, as a consequence of any failure or interruption of any
utility or service provided to the Premises, unless caused by the gross
negligence or willful misconduct of Landlord.
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<PAGE>
5.3. INTRA-BUILDING NETWORK CABLE. Tenant shall be solely responsible, and
Landlord shall not be responsible, for providing any telephone equipment,
including wiring, within the Premises or for providing telephone service or
connections from the utility to the Premises.
ARTICLE 6 - SECURITY DEPOSIT
6.1. SECURITY DEPOSIT.
(a) LETTER OF CREDIT OR PROCEEDS FROM THE LETTER OF CREDIT AS A SECURITY
DEPOSIT. On the later of January 2, 1998 or five (5) days prior to the
commencement of construction of the Tenant Improvements in the Premises pursuant
to Exhibit C hereof, Tenant at its sole cost and expense shall deliver to
Landlord an irrevocable stand-by letter of credit in the amount set forth in the
Basic Lease Information and on the terms described in Section 6.2 ("Letter of
Credit"). The Letter of Credit and any amount of the Letter of Credit that is
drawn on by Landlord but not applied by Landlord to a default of Tenant shall be
held by Landlord as security for Tenant's faithful performance of its
obligations under this Lease. If the security deposit is in the form of cash
because Landlord has drawn on the Letter of Credit, the security deposit may be
commingled with funds of Landlord, and Landlord shall have no obligation or
liability for payment of interest on the security deposit.
(b) USE OF THE SECURITY DEPOSIT. If Tenant fails to pay any amount when due and
payable hereunder or fails to perform any of the terms hereof and Landlord
declares a default under this Lease as a result thereof, Landlord may apply and
use all or any portion of the security deposit for Rent, for payment of any
amount for which Landlord has become obligated as a result of Tenant's default,
or for any loss, expense, or damage sustained by Landlord as a result of
Tenant's default.
(c) RESTORATION OF THE SECURITY DEPOSIT. If Landlord uses any of the security
deposit, Tenant shall, within ten (10) days after written demand therefor,
restore the security deposit, either in the form of cash or the issuance of a
new irrevocable stand-by letter of credit on the terms set forth in Section 6.2,
to the full amount required by the Lease. Tenant's failure to do so shall
constitute a default hereunder; and Landlord shall have the same remedies set
forth in Article 14 for a default in the payment of Rent.
6.2. TERMS OF THE LETTER OF CREDIT. The irrevocable stand-by Letter of Credit
which Tenant shall deliver to Landlord as its security deposit:
(a) shall be in compliance with the terms of this Article 6 and
otherwise shall be in a form reasonably satisfactory to Landlord,
(b) shall be issued by a mutually agreeable financial
institution ("Bank"),
(c) shall name Landlord as beneficiary,
(d) shall be for a term of no less than one (1) year and shall provide that it
is automatically renewable unless the issuer serves Landlord with a written
notice of non-renewal ("Notice of Non-Renewal") at least thirty (30) days before
the then applicable expiration date of the Letter of Credit,
(e) shall provide that in the event that Landlord transfers ownership of the
Premises to another person/entity, Landlord, subject to compliance with the
requirements of the Bank for the transfer of the Letter of Credit, may transfer
the Letter of Credit to the new owner upon Landlord's presentation to the issuer
of a written notice of transfer together with the original Letter of Credit and
that in such event the issuer shall reissue the Letter of Credit in the name of
the transferee stated in the notice of transfer, and
(f) shall provide that Landlord may draw upon the Letter of Credit by presenting
the following to the issuer: (i) a sight draft in an amount which does not
exceed the amount of the Letter of Credit executed by the person executing the
"Certificate" as described in
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sub-part (ii) hereof, and (ii) a certificate (the "Certificate") executed under
penalty of perjury under the laws of the State of California, stating that the
person executing the Certificate is the duly appointed representative of
Landlord and further stating (1) that the Account Party is in default under the
Lease, following written notice and the passage of any applicable cure period,
and that the amount of the sight draft presented concurrently with the
Certificate is due, owing, and unpaid under the Lease, or (2) that the "Notice
of Non-Renewal" has been given and that the Account Party has not provided
Landlord with a satisfactory substitute letter of credit.
6.3. RELEASE/REDUCTION OF THE LETTER OF CREDIT.
(a) RELEASE OF THE LETTER OF CREDIT. So long as Tenant has never been in
material default under this Lease beyond any applicable cure periods, the Letter
of Credit shall be released by Landlord on the later of (i) January 1, 2000 or
(ii) the date when Tenant has established, to Landlord's reasonable
satisfaction, that it has achieved either of the following financial goals:
(i) after-tax net income (as reported on its Form 10-Q filings) in excess of $0
for eight (8) consecutive quarters prior to the date of the release of the
Letter of Credit, or
(ii) after-tax net income, excluding the after-tax effect of extraordinary items
(as reported on its Form 10-K filings) exceeded One Million Dollars
($1,000,000.00) for each of the two (2) consecutive fiscal years ending prior to
the date of the release of the Letter of Credit.
(b) REDUCTION OF THE LETTER OF CREDIT. At any time prior to the Commencement
Date, Tenant shall have the right to reduce the Letter of Credit in exchange for
a reduction of the Tenant Improvement Allowance specified in Exhibit C hereof.
The amount of the reduction of the Letter of Credit shall be equal to two-thirds
(2/3rds) of the amount by which the Tenant Improvement Allowance is reduced. For
example, if the Tenant Improvement Allowance were reduced by Nine Hundred
Thousand Dollars ($900,000.00), the Letter of Credit would be reduced by Six
Hundred Thousand Dollars ($600,000.00).
ARTICLE 7 - USE AND CONDITION OF THE PREMISES
7.1. USE OF THE PREMISES. Tenant shall only use or permit the Premises to be
used for those purposes explicitly set forth in the Basic Lease Information, and
no use of the Premises for any other purpose or in any manner in violation of
the terms of this Lease shall be permitted. In addition, any interactive or
multi-media use or any retail use (collectively "Permitted NonOffice Uses") of
the Premises shall also be limited by all of the following restrictions:
(i) all Permitted Non-Office Uses shall be limited to the first floor of
the Premises;
(ii) Tenant at its sole cost and expense shall be responsible for obtaining
any and all governmental permits and all required approvals necessary for all
Permitted Non-Office Uses (the availability of which is not warranted by
Landlord);
(iii) except as provided in sub-part (v) hereof, only the named Tenant under
this Lease shall be entitled to use the Premises for Permitted Non-Office
Uses;
(iv) except as provided in sub-parts (v) and (vi) hereof, no Permitted
NonOffice Use shall involve any retail use or the sale of any products of
CNET, Inc.;
(v) Tenant may sublease no more than 2,000 rentable square feet of the
first floor of the Premises to one or two sublessees for the use of the area
as a juice bar, coffee shop, pastry shop, or the sale of gourmet sandwiches,
so long as Tenant obtains Landlord's prior written consent to the particular
use (in addition to obtaining Landlord's consent pursuant to Sections 8.4 and
13. 1), which consent shall not be unreasonably withheld; and
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(vi) if CNET, Inc. engages in any activity on the first floor of the
Premises within the definition of Tenant's Retail Use, the total square
footage which shall be devoted to such use shall not exceed two hundred and
fifty (250) square feet.
7.2. OPERATION OF TENANT'S BUSINESS.
(a) LIMITATIONS ON USE OF THE PREMISES. Tenant shall not exceed the floor weight
limitations of the Premises as set forth in the Basic Lease Information without
Landlord's prior written consent. Tenant acknowledges that the limitations
stated in the Basic Lease Information are for the protection of Tenant's
employees as well as the Premises, and serious harm may occur to Tenant's
employees and damage may occur to the Premises if Tenant fails to adhere to the
limitations in the Basic Lease Information.
(b) CAPACITY OF BUILDING SYSTEMS. Tenant acknowledges that the heating, air
conditioning and ventilating ("HVAC") system of the Premises is designed to
operate efficiently assuming an electrical load less than 3.5 watts per square
foot of rentable area of the Premises and that, subject to the foregoing
limitation, the Premises has a total connected electric power capability (at the
main transformer serving the Premises) of 10 watts per rentable square foot.
Tenant shall not connect or use any electrical equipment that exceeds the
capacity of the HVAC system of the Premises without first providing Landlord
with plans and specifications (either under Article 8 hereof or pursuant to
Exhibit C in connection with the construction of the Tenant Improvements)
evidencing, to the reasonable satisfaction of Landlord, the installation and
operation of supplemental HVAC facilities that will provide cooling to
efficiently operate any equipment with an aggregate electrical load in excess of
the design capacity of the existing HVAC system in the Premises. In no event
shall Tenant connect or use any equipment in the Premises that shall exceed the
total electrical load capacity of the Premises.
(c) NO UNLAWFUL OR INJURIOUS USE OF THE PREMISES. Tenant shall not use nor
permit the Premises to be used in any manner which may result in waste or the
creation of a nuisance. Tenant shall not use or permit the use of the Premises
for any purpose or in any manner which may constitute a violation of the laws,
ordinances, regulations or requirements of any governmental entity having
authority over the Premises or any recorded covenants, conditions, or
restrictions.
(d) EFFECT OF TENANT'S USE OF THE PREMISES ON LANDLORD'S INSURANCE. Tenant shall
not use or permit the Premises to be used in any manner which will increase the
existing rate of insurance upon the Premises or cause the cancellation of any
insurance policy covering the Premises or any part thereof. Tenant shall not
sell, or permit to be kept, used or sold, in or about the Premises, any article
which shall now or hereafter be prohibited by Landlord's fire insurance policy.
Tenant shall comply with any and all rules, orders, regulations, or requirements
of the Pacific Fire Rating Bureau or any other organization performing a similar
function of which it has prior written notice. If Tenant breaches any of the
provisions of this subsection and fails to cure such breach within fifteen (15)
days after written notice thereof and, as a consequence, there is an increase in
Landlord's fire insurance premiums, Tenant shall pay the entire cost of any
additional premiums changed.
7.3. CONDITION OF THE PREMISES. Tenant hereby acknowledges that Tenant has had a
reasonable opportunity to inspect the Premises. Except for those improvements to
the Premises which Landlord in this Lease has expressly agreed to make and
except as otherwise provided in Section 7.4, Tenant hereby accepts the Premises
"as is" on the date Tenant takes possession hereunder subject to all laws,
ordinances, and regulations applicable to the Premises and their use and any
restrictions of record. Tenant acknowledges that, except as otherwise provided
in Section 7.4, Tenant shall be solely responsible for its investigation into
the condition of the Premises and whether or not the Premises is in compliance
with any applicable building codes and shall not be entitled to rely upon the
representations, if any, of any person concerning the condition of the Premises
or its compliance with codes. Tenant shall promptly comply with all laws,
ordinances, and regulations applicable to the Premises or their use during the
Term of this Lease or any extensions thereof. However, Tenant shall not be
responsible for any capital or structural improvements to the Premises required
by any governmental entity, except as provided in Section 8.7 hereof.
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7.4. LANDLORD'S OBLIGATION UPON DELIVERY OF THE PREMISES.
(a) COMPLIANCE WITH BUILDING CODES AND THE STRUCTURAL SYSTEM OF THE PREMISES.
Landlord hereby warrants to Tenant (i) that the Premises existing as of the
Commencement Date shall be in compliance with all applicable building codes
applicable to the Premises in its "as-is" condition as of the Commencement Date
and (ii) that the structural elements of the Premises (including the roof, the
roof membrane and other structural elements) existing as of the Commencement
Date shall be in good condition and repair and in compliance with all applicable
building regulations, laws, statutes, ordinances, codes, and covenants and
restrictions of record applicable to the Premises in its "as-is" condition as of
the Commencement Date. If Tenant does not give Landlord written notice of
non-compliance with this warranty within the earlier of (1) ten (10) business
days after the discovery of the breach of this warranty or (2) one-hundred
eighty (180) days after the Rent Commencement Date, this warranty shall expire
and thereafter shall be of no further force or effect.
(b) BUILDING SYSTEMS. Landlord warrants that as of the Commencement Date the
electrical, plumbing, lighting and mechanical systems of the Premises in their
"as-is" condition as of the Commencement Date shall be in working order. If
Tenant does not give Landlord written notice of non-compliance with this
warranty within five (5) days after the Commencement Date, this warranty shall
expire and thereafter shall be of no further force or effect.
(c) TENANT'S REMEDIES. If the Premises do not comply with any of the warranties
set forth in this Section 7.4 as of the Commencement Date, Landlord, after
receipt of written notice from Tenant setting forth with specificity the nature
and extent of such noncompliance and after confirming the accuracy of Tenant's
notice, shall promptly rectify the same at Landlord's sole cost and expense
(which shall not be charged to Tenant). Such repair and correction shall be
Tenant's sole and exclusive remedy against Landlord for breach of these
warranties. Notwithstanding the foregoing, Landlord shall not be required to
remedy any portion of the Premises that does not comply with the above-stated
warranty to the extent that Tenant intends to alter or remove that portion of
the Premises during the construction of its Tenant Improvements pursuant to
Exhibit C.
ARTICLE 8 - MAINTENANCE, REPAIRS, AND ALTERATIONS
8.1. TENANT'S OBLIGATIONS FOR REPAIRS AND MAINTENANCE.
(a) REPAIRS AND MAINTENANCE. At all times during its occupancy of the Premises,
Tenant shall repair and maintain in good condition, at its sole cost and
expense, Tenant's Property, any portion of the Premises which have been damaged
as a consequence of any act or omission of Tenant or any employee or independent
contractor of Tenant, and all telecommunications equipment installed in the
Premises by or for the benefit of Tenant. All repairs to the Premises made by
Tenant shall be at least equal in quality, value, and utility to the
improvements to the Premises before repairs were required.
(b) RETURN OF THE PREMISES. Upon the expiration or earlier termination of this
Lease, Tenant shall return the Premises to Landlord clean and otherwise in the
same condition as existed on the Rent Commencement Date, except for (i) normal
wear and tear, (ii) the Tenant Improvements (other than Tenant's cabling system)
constructed in accordance with Exhibit C hereto, and (iii) Alterations which
Landlord does not require Tenant to remove pursuant to Section 8.4(c) [which
Tenant shall not be required to remove]. Any damage to the Premises, including
any structural damage, resulting from Tenant's use or from the removal of
Tenant's Property shall be repaired by Tenant.
(c) ROOF/EXTERIOR/STRUCTURAL SYSTEM OF THE PREMISES. Notwithstanding any other
provision of this Lease, in the event that Tenant shall construct a deck on the
roof of the Premises, install any equipment on the roof of the Premises, install
any Exterior Tenant Signage (as that term shall be defined hereafter) on any
portion of the Premises, or modify any of the structural members of the Premises
in any manner, Tenant shall thereafter be solely responsible
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for the maintenance and repair of the roof and structural system of the Premises
to the extent the roof or structural system was directly or indirectly affected
by such additions or modifications.
8.2. LANDLORD'S OBLIGATIONS FOR REPAIRS AND MAINTENANCE.
(a) REPAIRS AND MAINTENANCE. Except for Tenant's obligations for repair and
maintenance set forth in Section 8.1, Landlord shall repair and maintain in good
condition the Premises including the foundation, roof and exterior walls and all
mechanical, electrical, and plumbing systems (but not the telecommunications
systems). However, unless Landlord has itself determined that repairs are
required, Landlord's obligation to make repairs shall not arise until receipt of
written notice from Tenant describing the repairs that are required. After
receipt of this notice, Landlord shall have a reasonable period of time to
commence and complete such repairs as are required.
(b) WAIVER. Tenant hereby waives all rights to make repairs at the expense of
Landlord or in lieu of such repairs to vacate the Premises as provided by
California Civil Code Sections 1941 and 1942 or any other law or ordinance now
or hereafter in effect.
8.3. LANDLORD'S RIGHT TO MAKE REPAIRS ON BEHALF OF TENANT. If Tenant refuses or
neglects to make repairs to the Premises which Tenant is required to make, in a
manner reasonably satisfactory to Landlord, Landlord shall have the right upon
giving Tenant ten (10) days prior written notice to enter the Premises and make
the repairs which were Tenant's responsibility hereunder. In such event, within
ten (10) days after receiving an invoice therefor, Tenant shall pay all costs
and expenses incurred by Landlord with interest thereon.
8.4. ALTERATIONS AND ADDITIONS. Except as provided in subsection (d) hereof,
Tenant shall not make any additions, alterations, repairs, or improvements to
the Premises, including the addition of a deck to the roof of the Premises
(collectively "Alterations"), without the prior written consent of Landlord,
which shall not be unreasonably withheld. (Notwithstanding anything in the
foregoing to the contrary, the Tenant Improvements constructed by Tenant in
accordance with Exhibit C shall not be deemed Alterations for purposes of this
Section 8.4; provided, however, the terms of Section 8.4(e) shall apply to any
such improvements constructed by Tenant whether or not the same are installed as
part of the Tenant Improvements.) Regardless of subsection (d) hereof, all
Alterations shall be subject to the following terms and conditions:
(a) DOCUMENTATION OF ALTERATIONS TO BE PERFORMED. Except in case of an emergency
requiring immediate repairs, Tenant shall deliver to Landlord the documents
described in Section 8.5(a) at least thirty (30) days before the date when
Tenant commences work on Alterations of the Premises.
(b) REQUIREMENT OF PAYMENT AND PERFORMANCE BONDS. Landlord may require, at
Landlord's sole option, that Tenant obtain payment and performance bonds, naming
Landlord as obligee, in an amount equal to the total estimated cost of the
Alterations if (i) Tenant is then in default under this Lease, (ii) Tenant has
failed to make any Rent payment when due more than twice during the preceding
twelve (12) months, or (iii) Government Requirements (as hereinafter defined)
impose an obligation to make alterations, improvements, or repairs to the
Premises, as a result of the Alterations proposed by Tenant in an amount in
excess of One Hundred Thousand Dollars ($ 100,000.00).
(c) TITLE TO AND REMOVAL OF ALTERATIONS. All Alterations shall become the
property of Landlord upon installation and, unless Landlord otherwise directs,
shall be surrendered with the Premises when Tenant vacates the Premises. Upon
the expiration or earlier termination of this Lease, Landlord shall have the
right to require Tenant, at Tenant's cost, to remove any Alterations (i) which
Tenant installed without Landlord's consent either in breach of this Lease or
pursuant to subsection (d) hereof, (ii) which were made in accordance with
subsection (e) hereof, or (iii) which Landlord informed Tenant should be removed
when Landlord granted its consent to the Alterations. Notwithstanding the
foregoing, Tenant shall have no obligation to remove any structural Alterations
required to be installed or constructed by Tenant pursuant to Section 8.7. If
Tenant is required to remove Alterations, Tenant shall restore the Premises to
its condition on the Commencement Date of this Lease, except as modified by
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Alterations which Landlord has approved and not informed Tenant should be
removed at the expiration of the Lease.
(d) ALTERATIONS WHICH DO NOT REQUIRE LANDLORD'S CONSENT. TENANT SHALL have the
right to perform Alterations to THE PREMISES WITHOUT LANDLORD'S CONSENT SO long
as (i) the aggregate cost of the Alterations in any twelve (12) month period is
less than Fifty Thousand Dollars ($50,000.00) and (ii) the Alterations are
non-structural, are not made to the roof or the exterior of the Premises, and do
not affect any of the Utilities serving the Premises.
(e) TELECOMMUNICATIONS EQUIPMENT. At any time during the term of the Lease,
Tenant shall have the right to place upon the roof of the Premises one or more
so-called "satellite dishes" or other similar device (or to replace any such
existing device), such as antenna, for the purpose of receiving and sending
radio, television, computer, telephone, or other communication signals. Any such
installation shall be in accordance with all applicable provisions of Sections
8.4 and 8.5 of the Lease. Tenant shall be responsible for any damage to the
Premises, including but not limited to repairs to the roof of the Premises,
caused by the installation, removal, operation, or maintenance of any such
device. Tenant shall be solely responsible for obtaining any government
approvals which may be required in connection with the installation of any
equipment or structures on the roof. Landlord, by virtue of this subsection (e),
shall not be deemed to have represented to Tenant that any governmental
authorities will approve the installation of any equipment or the erection of
any structure on the roof of the Premises.
8.5. TENANT'S CONSTRUCTION AND REPAIR WORK.
(a) INFORMATION TO BE PROVIDED TO LANDLORD. Tenant shall provide Landlord with
the following: (i) a written description of the work to be performed and
reasonably detailed plans and specifications for the proposed Alterations, which
are reasonably satisfactory to Landlord, prepared at Tenant's sole expense by a
licensed architect, (ii) the name and address of the contractor who will be
performing the Alterations to the Premises, and (iii) a written statement
jointly signed by an architect, licensed to practice in the State of California,
and by Tenant which describes the Alterations, if any, that Government
Requirements will require be performed as a result of Tenant's proposed
Alterations.
(b) PROSECUTION OF THE WORK. Tenant shall perform all Alterations in the
Premises with contractors who are duly licensed in the State of California and
who are approved in advance by Landlord. Tenant shall cause its contractors to
perform their work in a good and workmanlike manner and shall further cause them
to diligently prosecute all work to completion.
(c) CONTRACTOR'S INSURANCE. Before performing any construction or repair work in
the Premises, Tenant shall obtain an insurance certificate and a policy
endorsement, naming Landlord and its agents, employees, and any ground lessors
and mortgagees whose names shall have been furnished to Tenant as additional
insureds, from the general contractor or, if there is no general contractor,
from each specialty contractor whom it employs to perform such work. Each
insurance certificate and policy endorsement shall (i) list all of the named
insureds under the policy, (ii) be issued by an insurer admitted to transact
insurance in the State of California with a financial rating of at least an
A:VII as rated in the most recent edition of Best's Insurance Reports, (iii)
provide at a minimum that the contractor has in full force and effect a
Commercial General Liability policy in amounts not less than $2,000,000.00 per
occurrence for personal injury, bodily injury and property damage with coverage
for premises and operations liability, contractual liability, completed
operations coverage, products liability, and broad form property damage
liability, (iv) contain an endorsement requiring at least thirty (30) days
written notice from the insurance company to all of the named additional
insureds before any cancellation or material change in coverage, scope, or
amount of the insurance policy, and (v) either contain an endorsement (1) which
states that no additional insured will be excluded from coverage in the event
that the additional insured is alleged or found to be negligent in connection
with any claim made under the policy or otherwise or (2) in the form of ISO Form
# CG 20 10 10 93 (or any amendments to this form which are substantially similar
and do not result in a reduction of coverage for the additional insureds). If
Tenant causes any work to be performed in the Premises without first obtaining
such an insurance certificate and policy endorsement, Tenant
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shall indemnify, defend, protect, and hold harmless Landlord from and against
any loss, cost, claim, or damage for which Landlord would have been covered by
such insurance policy.
(d) WORK SHALL CONFORM TO APPLICABLE LAWS AND REGULATIONS. Any construction or
repair work performed by Tenant shall be in accordance with all applicable
government laws, ordinances, codes, and regulations, including but not limited
to all applicable building codes, the Americans with Disabilities Act, and Title
24 of the California Code of Regulations. If any governmental agency or body
requires work to be performed to the Premises as a result of work performed by
Tenant or of Tenant's use of the Premises, Tenant shall be solely responsible
for performing such work. Tenant shall also be solely responsible for obtaining
all required government permits for any work performed by Tenant.
(e) TENANT'S RESPONSIBILITY FOR COSTS. Tenant shall pay all costs and expenses
associated with any Alterations, including any out-of-pocket costs and expenses
reasonably incurred by Landlord in reviewing the proposed Alterations or
inspecting or testing the work performed in the Premises.
8.6. LIENS.
(a) NOTICE TO LANDLORD. At least ten (10) days before the commencement of any
work for which a claim of lien may be recorded, Tenant shall give Landlord
written notice of its intention to commence work to enable Landlord to post
notices of non-responsibility or any other notices which Landlord deems
necessary for the proper protection of Landlord's interest in the Premises.
Landlord shall have the right to enter the Premises and post such notices at any
reasonable time.
(b) REMOVAL OF LIENS. Tenant shall keep the Premises free from any liens arising
out of any work performed by Tenant. If, within thirty (30) days after the
recordation of a mechanic's lien, Tenant fails to obtain a release of the lien
or fails to post a mechanic's lien release bond in the required amount, Landlord
shall have the right, but not the obligation, to cause same to be released by
any means including the payment of the claim giving rise to the lien. Tenant
shall pay to Landlord all costs and expenses incurred by Landlord (including
attorney's fees) in releasing the lien within ten (10) days after Landlord's
demand therefor.
8.7. TENANT'S OBLIGATION FOR COMPLIANCE WITH GOVERNMENT REQUIREMENTS.
(a) TENANT'S OBLIGATION., Except for the obligations of Landlord, as provided in
Sections 7.4 and 8.8 and Landlord's obligations under Exhibit C, Tenant, at
Tenant's sole cost and expense, shall comply with all Government Requirements
(as hereafter defined). It is the intent of the parties that the foregoing
covenant shall impose upon Tenant, and shall relieve Landlord from, the
obligation to make all Alterations to the Premises compelled by Government
Requirements that are (i) non-structural in nature, whether or not of a
substantial and/or permanent nature, (ii) structural or non-structural
Alterations as a consequence of Tenant's use of the Premises described in
Section 8.1(c), and (iii) structural or non-structural Alterations which are
required as a result of (1) Tenant's particular use of the Premises (for other
than general office use), including but not limited to all Permitted Non-Office
Uses, (2) any Alterations to the Premises made by Tenant, or (3) Tenant's breach
of any provision of this Lease. The phrase "non-structural" when used in Article
8 shall mean all such work within the four walls of the Premises, to the doors,
door frames, and entrances to the Premises, that do not require replacement,
alteration or improvement to any of the structural elements of the Premises
(including the roof or roof membrane). It is further the intent of the parties
that the allocation of responsibility for compliance with Government
Requirements as set forth in this Article 8 shall be binding upon the parties
regardless of whether or not this Lease be deemed to be a "net" lease.
(b) DEFINITION OF GOVERNMENT REQUIREMENTS. The term "Government Requirements" as
used in this Lease shall mean all laws, orders, codes, regulations, and
requirements of federal, state, county and municipal authorities which are now
or at any time hereafter may be in effect relating to the condition, use, or
occupancy of the Premises (whether or not any condition or occupancy is related
to Tenant's particular use of the Premises), including but not limited to all
applicable building codes, the Americans with Disabilities Act, and Title 24 of
the California Code of Regulations (collectively "Government Requirements"). By
way of
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example and not limitation, these improvements, alterations, and repairs shall
include those imposed by handicapped accessibility, fire, and life-safety
requirements.
8.8 LANDLORD'S OBLIGATION for COMPLIANCE WITH GOVERNMENT REQUIREMENTS.
(a) LANDLORD'S OBLIGATION. Except as provided to the contrary in Sections 8.1(c)
and 8.7 of this Lease, Landlord, at Landlord's sole cost and expense, shall be
solely responsible for complying with any Government Requirements relating to
the structural portions of the Premises (including the floor slab and the
structural columns), the roof, the exterior walls, and the foundation.
Landlord's obligation hereunder shall include compliance with Government
Requirements as a result of a condition existing in the Premises as of the
Commencement Date which is not in compliance with Government Requirements as of
that date.
(b) LANDLORD'S OBLIGATIONS FOR NEWLY ENACTED GOVERNMENT REQUIREMENTS. If newly
enacted Government Requirements which were not applicable to the Premises as of
the date of this Lease require capital improvements which are not the obligation
of Tenant under Section 8.7, Landlord shall make such Alterations to the
Premises and the cost thereof following completion of the work (other than any
cost required to correct defects in construction or conditions not in
conformance with code requirements existing as of the date of this Lease) shall
be included in Operating Expenses as set forth in subsection (c) hereof.
(c) COST ALLOCATION. Landlord shall amortize the cost of the capital
improvements made pursuant to subsection (b) hereof on a straight line basis
over the useful life (as reasonably determined by Landlord) of such capital
improvements. The term "useful life" shall mean (i) except as provided in
sub-part (ii) hereof, the period of time defined in accordance with generally
accepted accounting principles or (ii) in the case of capital improvements which
would otherwise have a useful life beyond the remaining term of this Lease but
which Landlord reasonably anticipates would not be utilized by another tenant
after the expiration of the term of this Lease, the remaining term of the Lease
after the construction of the capital improvements. Tenant's obligation to pay
its share of such capital improvements shall be limited to the portion of the
cost thereof that is to be amortized as hereinabove provided during the period
of the remainder of the Term of this Lease.
ARTICLE 9 - LANDLORD'S RIGHT OF ENTRY
9.1. RIGHT OF ENTRY. Landlord (and any designated agent, representative,
employee, or contractor) shall have the right to enter the Premises at all
reasonable times (which, as a general matter, shall mean normal business hours)
and, except in cases of emergency, after giving Tenant not less than twenty-four
(24) hours' verbal notice, to make repairs required of Landlord hereunder, to
inspect the Premises, to supply any service to be provided by Landlord
hereunder, to show the Premises to prospective purchasers, mortgagees or, during
the last year of the Term of this Lease, tenants, and to post notices of
non-responsibility. Except in the case of an emergency, Landlord employees
(including, without limitation, Landlord's agents and contractors) who enter the
Premises shall be prepared to provide proper identification and shall enter only
in the presence of and accompanied by a representative of Tenant; and any entry
shall be limited to work areas in which non-sensitive and non-proprietary work
is on-going. Landlord may for that purpose erect and use structures in and
through the Premises where reasonably required by the character of the work to
be performed, provided that when work is performed during Business Hours, the
work shall be performed in a manner that minimizes interference with Tenant's
business. Landlord may also place "For Lease" signs on the outside of the
Premises during the last three (3) months of this Lease.
9.2. EMERGENCY ENTRANCE INTO THE PREMISES. Landlord shall have the right to use
any and all means that Landlord may deem necessary or proper to open the doors
of the Premise or otherwise obtain entry to any portion of the Premises during
an emergency, Landlord shall give Tenant immediate verbal notice of any such
entry and the need therefor. Any emergency entry to the Premises shall not under
any circumstances be deemed to be a forcible or unlawful entry into, or a
detainer of, the Premises or an eviction, actual or constructive, of Tenant from
the Premises.
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9.3. DAMAGES SUFFERED BY TENANT AND ABATEMENT OF RENT AS A CONSEQUENCE OF
LANDLORD'S WORK.
(a) LANDLORD'S RESPONSIBILITY FOR DAMAGES. Except as otherwise provided in
Section 10.3, Landlord shall be liable to Tenant for any personal injury or
damage to Tenant's Property caused by Landlord's negligence or willful
misconduct when making repairs or performing maintenance.
(b) ABATEMENT OF MINIMUM RENT. During the period when Landlord is performing
work in the Premises, Tenant shall be entitled to an abatement of Minimum Rent
if Landlord's work substantially interferes with Tenant's business in the
Premises. Tenant's Minimum Rent shall be abated for the period and in proportion
to Landlord's interference with Tenant's business.
(c) WAIVER. Landlord shall not be liable, and Tenant hereby waives any claim
against Landlord, for lost profits, for loss of occupancy or quiet enjoyment of
the Premises, for constructive eviction, and for any other loss occasioned by
Landlord in connection with its work in the Premises.
ARTICLE 10 - INSURANCE AND INDEMNIFICATION
10.1. TENANT'S INSURANCE. Tenant shall carry and keep in force during the Term
and any extension thereof and at all times while in occupancy of the Premises
the following types of insurance:
(a) GENERAL LIABILITY. Commercial General Liability Insurance policy (including
Personal Injury Liability and Medical Payments coverage), which shall include
broad form contractual liability, with a total limit which is not less than the
amount per occurrence specified in the Basic Lease Information [except as same
may be adjusted in accordance with Section 10.3(c)], bodily injury and property
damage combined, insuring against any and all liability for libel, slander,
false arrest, wrongful eviction, personal injury, property damage and for
injuries to or death of persons occurring in, on, or about the Premises or
arising out of the maintenance, use, or occupancy of the Premises and all areas
adjacent thereto. All liability insurance shall specifically insure the
performance by Tenant of its indemnity obligations under Section 10.6. The
policy shall contain a severability of interest clause. Such insurance shall
name Landlord, its agents, employees, and any ground lessors and mortgagees
whose names shall have been furnished to Tenant as additional insureds. Unless
Landlord shall have given its prior written consent, the foregoing liability and
property damage policy shall cover all insured claims which arose during the
term of the policy, regardless of when Landlord or Tenant is first notified of
that claim.
(b) WORKER'S COMPENSATION AND EMPLOYERS' LIABILITY. Worker's Compensation and
Employers' Liability insurance covering Tenant's employees for California
Worker's Compensation benefits, including employers' liability with limits for
each accident as required by law.
(c) TENANT'S PROPERTY. Fire and perils covered under a Standard Special Causes
of Loss Coverage Form (with no exclusions pertaining to sewer or drain back-ups,
continuous seepage, or any limitation of loss caused by water without prior wind
damage to the Premises), sprinkler leakage and plate glass damage covering, in a
form reasonably satisfactory to Landlord, Tenant's Property, and all furniture,
fittings, installations, partitions and trade fixtures for one hundred percent
(100%) of the full replacement cost thereof (regardless of Tenant's use value in
such property) as shall from time to time be determined by the Tenant. Provided
this Lease is not terminated as of a result of the casualty triggering the loss,
the proceeds from such insurance shall be used exclusively to replace Tenant's
Property in the Premises.
(d) BUSINESS INTERRUPTION. Business interruption and extra expense
insurance in such amounts as will reimburse Tenant for direct or indirect loss
of earnings and
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costs incurred attributable to the perils commonly covered by the Standard
Special Causes of Loss Coverage Form described above. Business interruption
insurance shall be issued by the same insurer which issues, and shall include
the same grounds for coverage as, the Standard Special Causes of Loss Form
described herein.
10.2. LANDLORD'S INSURANCE.
(a) LANDLORD'S INSURANCE POLICIES. Landlord shall obtain (i) replacement
coverage property insurance for the Premises, leasehold improvements and
betterments to the Premises, and Alterations for one hundred percent of the full
replacement cost thereof, with an agreed value endorsement at a value reasonably
acceptable to Tenant, and (ii) liability insurance insuring Landlord, its
agents, contractors and employees in connection with the Premises with a total
limit which is not less than the amount per occurrence specified in the Basic
Lease Information (except as same may be adjusted in accordance with Section
10.3(c)). All liability insurance shall specifically insure the performance by
Landlord of its obligations under this Lease as a covered contract. Landlord's
insurance may include, but not limited to insurance and endorsements covering
any and all casualty risks, earthquake, flood, malicious mischief, Rent loss,
vandalism, sprinkler damage, public liability, civil disorder, hazardous
materials, plate glass, sign, worker's compensation, and such other forms of
insurance and endorsements thereon as Landlord may, from time to time, require
in connection with the Premises. Tenant shall be named as an additional loss
payee on Landlord's replacement coverage insurance policy.
(b) BLANKET INSURANCE PGLICY. Landlord may carry any insurance described in this
Section 10.2 as part of a blanket policy. In such case, a proportionate share of
the cost of such insurance, reflecting exposure to loss, shall be allocated to
the Premises and shall be included in Operating Expenses.
10.3. INSURANCE REQUIREMENTS.
(a) REQUIREMENTS OF ALL INSURANCE. All insurance which Landlord or Tenant
are required to maintain under the terms of this Lease shall:
(i) be issued by insurance companies approved to transact insurance business in
the State of California with a financial rating of at least an A:VI as rated in
the most recent edition of Best's Insurance Reports; and
(ii) contain an endorsement requiring at least thirty (30) days written notice
from the insurance company to Landlord, Tenant, and any ground lessors and
mortgagees whose names shall have been furnished to Tenant before any
cancellation or material change in coverage, scope, or amount of the insurance
policy.
(b) REQUIREMENTS OF TENANT'S LIABILITY INSURANCE. All liability insurance
which Tenant is required to maintain under the terms of this Lease shall:
(i) be written as primary policies, not contributing with and not in
excess of coverage which Landlord or any Indemnitee may carry;
(ii) contain an endorsement listing the names of all Indemnitees as
additional insureds;
(iii) contain an endorsement which states that no Indemnitee will be excluded
from coverage in the event that the Indemnitee is alleged or found to be
negligent in connection with any claim made under the policy or otherwise; and
(iv) not include a cross liability exclusion.
(c) ADJUSTMENTS TO TENANT'S LIABILITY INSURANCE COVERAGE. At the commencement of
the Option Period (if Tenant exercises its option pursuant to Section 2.5) the
amount of liability insurance carried by Landlord and Tenant, as set forth in
the Basic Lease Information, may be reviewed by Landlord's insurance advisor;
and if in his judgment, the amount of such insurance should be increased,
Landlord or Tenant, as the case may be, shall
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immediately increase the amount of its liability insurance in accordance with
the determination of Landlord's insurance advisor and shall thereafter maintain
such coverage.
10.4. WAIVER OF CLAIMS AND WAIVER OF SUBROGATION.
(a) WAIVER OF CLAIMS. To the extent that each party has a right to receive or
has received insurance proceeds therefor, Landlord and Tenant each hereby waive
any claim or right of recovery against the other party for any loss or damage to
their respective property or any loss to their respective businesses or incomes,
any loss or damage to the contents of the Premises, or any operation in the
Premises, or the restoration of the Premises, whether or not such loss or damage
is caused by the fault or negligence of the other party.
(b) WAIVER OF SUBROGATION. Landlord and Tenant shall use their best efforts,
respectively, to cause each insurance policy obtained by either of them to
provide that the insurance company waives all right of recovery by way of
subrogation against Landlord and Tenant in connection with any damage or loss
covered by such policy; provided, however, that the waiver of subrogation in
Landlord's liability insurance policy shall be dependent upon Tenant's liability
insurer providing the insurance coverage to the Indemnitees required by this
Lease. If an insurance policy cannot be obtained with a waiver of subrogation or
is obtainable only by the payment of an additional premium, the party attempting
to obtain the insurance shall notify the other party of this fact in writing
within ten (10) days after being so notified by the insurance company.
Thereafter, the other party shall have a period of fifteen (15) days after
receipt of this notice (i) to find an insurance company which is admitted to
transact insurance business in the State of California and is willing to issue
an insurance policy with a waiver of subrogation at no additional cost or (ii)
to pay the additional premium demanded by the insurance company for the waiver
of subrogation. If an insurance policy cannot be obtained with a waiver of
subrogation or if the party for whose benefit a waiver of subrogation was to be
obtained fails to pay the additional premium charged for the waiver of
subrogation within the aforesaid ten (10) day period, the other party shall be
relieved from its obligation to obtain a waiver of subrogation with respect to
that policy of insurance.
10.5. CERTIFICATE OF INSURANCE AND POLICY ENDORSEMENTS AND TENANT'S FAILURE TO
PROVIDE EITHER. Tenant shall provide Landlord with Policy Endorsements and
Certificate(s) of Insurance evidencing that each of the policies and the
specified provisions required by Sections 10.1, 10.3, and 10.4(b) are in full
force and effect. If Tenant intends to fulfill its obligation to obtain
insurance in accordance with the foregoing sections through a blanket policy
which covers Tenant in the Premises as well as in other business locations,
Tenant shall fulfill its obligation hereunder by providing Landlord with a copy
of the endorsement to the blanket policy. If Tenant fails to provide the
aforesaid Policy Endorsements and Certificate(s) of Insurance prior to the date
when Tenant takes possession of the Premises and thereafter before the
expiration or cancellation of these insurance policies, Landlord shall have the
right, but not the obligation, to procure such insurance in the amounts and
according to the terms stated in Sections 10.1, 10.3 and 10.4(b). All costs and
expenses incurred by Landlord in obtaining such insurance shall be paid by
Tenant within three (3) days after receiving a bill therefor from Landlord.
10.6. INDEMNIFICATION.
(a) TENANT'S INDEMNITY OBLIGATION. Tenant shall indemnify, protect, defend, and
hold harmless Landlord (and its partners, agents, and employees) and any ground
lessors and/or mortgagees whose names shall have been furnished to Tenant
("Indemnitees") against and from any and all claims, losses, costs, damage,
injury, death, and expenses including, without limitation, penalties, fines and
reasonable attorneys' fees (including the fees of independent counsel)
("Indemnified Claims") arising from (i) any failure by Tenant to observe or
perform any of the provisions of this Lease, (ii) the use or occupancy of the
Premises by Tenant or any person claiming through or under Tenant, (iii) the
condition of the Premises so long as same is within Tenant's supervision and
control, or (iv) any acts, omissions or negligence of Tenant or any person
claiming through or under Tenant or of the contractors, agents, servants,
employees or licensees of Tenant in, on, or about the Premises. However,
Tenant's indemnity obligation shall not include Indemnified Claims arising from
the gross negligence or willful misconduct of Landlord, its agents, contractors
or employees. If any action or proceeding is brought against Landlord by reason
of any of the foregoing matters, Tenant shall upon notice defend the same at
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Tenant's expense by counsel reasonably satisfactory to Landlord, and Landlord
shall cooperate with Tenant in such defense. Landlord shall not be required to
have first paid any claim in order to be defended or indemnified. Tenant shall
not be required to indemnify Landlord for losses to the extent, if any, that
Landlord has received insurance proceeds therefor or Landlord's insurer has
made payments on behalf of Landlord.
(b) SURVIVAL OF OBLIGATION. Landlord and Tenant's obligations under
this Section 10.6 shall survive termination of the Lease.
ARTICLE 11 - DAMAGE OR DESTRUCTION
11.1. LANDLORD'S NOTICE TO TENANT. If the Premises are damaged by fire,
earthquake, act of God, the elements, or other casualty ("Casualty Loss") and as
a consequence thereof Tenant vacates at least 1/3 of the Premises within thirty
(30) days after the Casualty Loss, Landlord shall send a written notice to
Tenant stating whether it is reasonable to anticipate that the Casualty Loss can
be repaired within two hundred and seventy (270) days after the Casualty Loss.
If the Premises are damaged by a Casualty Loss and Tenant does not vacate at
least 1/3 of the Premises within thirty (30) days after the Casualty Loss,
Landlord shall send a written notice to Tenant stating whether it is reasonable
to anticipate that the Casualty Loss can be repaired within two hundred and
seventy (270) days after repairs are commenced. Both of these notices shall be
referred to herein as "Landlord's Casualty Notice." In addition, within ten (10)
days after receipt by Landlord of written notice from Landlord's insurer stating
whether the Casualty Loss is a covered loss under the policy and of a written
estimate from a licensed architect, engineer, or contractor estimating the cost
of repairs for the Casualty Loss, Landlord shall provide a written notice to
Tenant ("Insured/Self-Insured Notice"), stating (i) whether the Casualty Loss is
an Insured Loss (as hereafter defined) or (ii) whether the Casualty Loss is a
SelfInsured Loss (as hereafter defined).
11.2. LANDLORD'S OBLIGATION TO REPAIR.
(a) INSURED LOSS. If the Casualty Loss, not including Tenant's Property, is
fully covered by Landlord's insurance, without regard to any deductible under
Landlord's insurance policy, ("Insured Loss") and it is reasonable to anticipate
that the Casualty Loss can be repaired within the time period stated in
Landlord's Casualty Notice, Landlord shall promptly repair the Casualty Loss.
While the repairs are being made, this Lease (subject to Section 11.8 hereof)
shall remain in full force and effect.
(b) SELF-INSURED LOSS. If the Casualty Loss is not an Insured Loss, so long as
(i) the cost to repair the damage to the Premises, not including Tenant's
Property, caused by a Casualty Loss is less than an amount equal to ten percent
(10%) of the lesser of (1) the full replacement cost of the improvements on the
Premises, determined as of the date of the Casualty Loss, or (2) the fair market
value of the Premises, determined as of the date of the Casualty Loss, (ii) it
is reasonable to anticipate that the Casualty Loss can be repaired within the
time period stated in Landlord's Casualty Notice, and (iii) the Casualty Loss
was not caused, directly or indirectly, by any act or omission of Tenant or any
of its employees, agents, contractors, clients, or invitees, Landlord shall
promptly repair the Casualty Loss ("Self-Insured Loss"). While the repairs are
being made, this Lease (subject to Section 11.8 hereof) shall remain in full
force and effect.
11.3. TERMINATION OF THE LEASE AFTER A CASUALTY LOSS.
(a) MUTUAL RIGHT TO TERMINATE THE LEASE. If the Casualty Loss cannot be repaired
within the time period stated in Landlord's Casualty Notice, Landlord or Tenant,
respectively, shall have the right, within thirty (30) days after delivery of
Landlord's Casualty Notice, to give notice to the other terminating this Lease
as of a date specified therein, which date shall not be less than thirty (30)
nor more than sixty (60) days after the date of the notice.
(b) TENANT'S RIGHT TO TERMINATE THE LEASE. If Landlord does not provide Tenant
with Landlord's Casualty Notice within sixty (60) days after the date of the
Casualty Loss, Tenant shall thereafter have the right, which may be exercised at
any time before Tenant
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receives Landlord's Casualty Notice, to give notice to Landlord terminating this
Lease as of a date specified therein, which date shall not be less than thirty
(30) nor more than sixty (60) days after the date of the notice from Tenant.
(c) LANDLORD'S RIGHTS IF A CASUALTY LOSS IS NOT AN INSURED LOSS. Except as
otherwise provided in subsections (a) and (b) hereof, if the Premises is damaged
by a Casualty Loss which is not an Insured Loss or a Self-Insured Loss, Landlord
shall have the right (i) to commence reconstruction of the Premises and
prosecute the same diligently to completion, in which event this Lease shall
continue in full force and effect or (ii) to terminate this Lease. Landlord
shall notify Tenant of its election in writing within thirty (30) days after the
delivery of the Insured/Self-Insured Notice. If Landlord decides to terminate
this Lease, the termination shall be effective immediately upon delivery of
Landlord's notice to Tenant of its election.
(d) TENANT'S OBLIGATION FOR RENT. If either party terminates this Lease pursuant
to Sections 11.3 or 11.6, this Lease and all interest of Tenant in the Premises
shall terminate on the date specified in the notice of termination. Subject to
Section 11.8 hereof, Tenant shall pay the Rent and any other amounts due under
this Lease until the later of (i) the date specified in the notice of
termination or (ii) the date when Tenant vacates the Premises, Landlord shall
refund to Tenant any Rent previously paid for any period after the date when
Tenant vacates the Premises. If neither Landlord nor Tenant deliver to the other
a notice terminating this Lease within the time specified in this Section,
Landlord shall repair the Casualty Loss to the Premises with all reasonable
diligence; and subject to the provisions of Section 11.8 hereof, this Lease
shall remain in full force and effect.
11.4. TENANT'S RIGHT TO REPAIR. Notwithstanding Section 11.3(c), if Landlord
elects to terminate this Lease rather than restore the Premises, Tenant shall
have the right to pay for the restoration of the Premises at Tenant's sole
expense by (i) serving written notice of this election upon Landlord within ten
(10) days after receipt of Landlord's Casualty Notice terminating this Lease
pursuant to Section 11.3(c) and (ii) providing Landlord with proof (which is
reasonably satisfactory to Landlord) of its ability to pay for the restoration.
If Tenant so elects, this Lease shall remain in full force and effect; and
Landlord at Tenant's expense shall commence reconstruction and repair of the
Premises within sixty (60) days after the date of Tenant's notice.
11.5. LANDLORD'S AND TENANT'S RESPECTIVE RESPONSIBILITIES FOR REPAIR.
(a) RESPONSIBILITIES FOR REPAIR. If Landlord elects or is required to repair the
Premises under this Article 11, Landlord shall repair at its cost any damage to
the Premises except Tenant's Property, and Tenant shall repair and/or replace
Tenant's Property.
(b) TENANT'S RIGHT TO OBTAIN INSURANCE PROCEEDS. Landlord shall make available
to Tenant for repairs to Tenant's Property that portion of the proceeds, if any,
of the insurance carried by Landlord which Landlord's insurance carrier
determines to be attributable to the Casualty Loss to Tenant's Property (which
determination shall be binding upon Landlord and Tenant), subject to the
following conditions: (i) that Tenant shall not then be in default under this
Lease, (ii) that Landlord shall first be given satisfactory proof that such work
has been or will be fully performed by Tenant, and (iii) that in the event
Tenant shall fail to commence the work to be performed by Tenant and carry it to
completion with due diligence, Landlord shall have the right, but not the
obligation, to perform the work on behalf of Tenant and any amount expended by
Landlord in doing so shall be repayable by Tenant to Landlord within ten (10)
days after the receipt by Tenant of a bill setting forth the amount thereof.
11.6. DAMAGE - END OF TERM.
(a) MUTUAL RIGHT TO TERMINATE AT THE END OF THE TERM. Notwithstanding anything
to the contrary in Section 11.3 hereof, if the Premises are destroyed or damaged
(in an amount in excess of two (2) months of Minimum Rent) during the last
eighteen (18) months of the Term (whether or not the Casualty Loss is an Insured
Loss or a Self-Insured Loss), Landlord or Tenant may elect to terminate this
Lease, with no liability to either party, by serving written notice of such
election to terminate ("Early Termination Notice") on the other party within
thirty (30) days after the date when the destruction or damage occurred.
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(b) TENANT'S EXERCISE OF ITS OPTION TO EXTEND THE TERM. If a Casualty Loss
should occur during the last eighteen (18) months of the initial Term of the
Lease in an amount which would justify the termination of this Lease pursuant to
subsection (a) hereof and if Tenant's option to extend the Term pursuant to
Section 2.4 has not expired, Tenant shall have the right to void Landlord's
Early Termination Notice pursuant to subsection (a) hereof by serving Landlord,
within ten (10) days after Tenant's receipt o the Early Termination Notice, with
a written exercise of its option to extend the Term pursuant to Section 2.4.
11.7. TENANT'S WAIVER OF STATUTORY RIGHTS. Tenant waives any statutory rights of
termination, including but not limited to those under Sections 1932(2), 1933(4)
and 1942 of the California Civil Code, which may arise by reason of the partial
or total destruction of the Premises.
11.8. ABATEMENT OF RENT DUE TO A CASUALTY LOSS. In the event of a Casualty Loss,
Tenant shall be entitled to an abatement of Rent to the extent that the Casualty
Loss materially interferes with Tenant's business in the Premises. If Rent is
abated, it shall be abated based in proportion to (i) the rentable area of the
Premises which cannot be occupied by Tenant for the operation of its business
either because of damage to the Premises caused by the Casualty Loss or repairs
which are undertaken to repair th damage caused by the Casualty Loss and (ii)
the total rentable area of the Premises. Except for the abatement of Rent, if
any, Tenant shall have no claim against Landlord for any damage suffered by
reason of any Casualty Loss.
ARTICLE 12 - CONDEMNATION
12.1. TAKING OF THE PREMISES.
(a) TENANT'S RIGHT TO TERMINATE THE LEASE. If more than ten percent (10%) of the
Premises is taken under the power of eminent domain, Tenant shall have the right
to terminate this Lease as of the date when Tenant is required to vacate the
Premises, by serving written notice of such election within thirty (30) days
after receipt by Tenant of written notice from Landlord that the Premises have
been so taken. Landlord shall promptly notify Tenant in writing of any taking
pursuant to an eminent domain action or deed in lieu thereof. If this Lease is
so terminated, each party shall thereafter be released from any further
liability hereunder after Tenant vacates the Premises, except for those
provisions which this Lease states are to survive the termination of this Lease.
(b) EFFECT IF THE LEASE IS NOT TERMINATED. If Tenant does not terminates this
Lease within the time specified herein, Tenant shall remain in that portion of
the Premises which was not taken; and, in that event, Landlord, at its cost and
expense, shall restore the remaining portion of the Premises as soon as possible
and, to the extent economically reasonable, construct tenant improvements of
like quality and character as those that existed prior to such taking.
Thereafter, the Rent shall be equitably reduced, taking into account the
relative value of the portion of the Premises taken as compared to the portion
remaining; and this Lease shall terminate as to the part taken as of the date
when the condemning authority takes title or possession, whichever occurs first.
12.2. COMPENSATION. In the event of any taking (regardless of whether it results
in termination of this Lease), Landlord shall be entitled to the entire award or
compensation in such proceeding; provided, however, Tenant shall have the right
to apply for compensation or damages for Tenant's Property and Tenant's trade
fixtures affected thereby, moving expenses, and losses sustained by Tenant
arising from its business, but not for any value attributed to the Premises.
12.3. VOLUNTARY SALE. For purposes of this Article 12, a voluntary sale or
conveyance in lieu of condemnation, under threat of condemnation, shall be
deemed a taking under the power of eminent domain.
12.4. WAIVER. Tenant hereby waives any statutory rights of termination which
Tenant may have by reason of any partial taking of the Premises under the power
of eminent domain.
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ARTICLE 13 - ASSIGNMENT AND SUBLEASE
13.1. PROHIBITION AGAINST ASSIGNMENTS OR SUBLEASES WITHOUT LANDLORD'S CONSENT.
(a) LANDLORD'S CONSENT REQUIRED. Except as set forth in subsection (b) hereof,
without Landlord's prior written consent in each instance, Tenant shall not
directly or indirectly, voluntarily or by operation of law, (i) (1) sell,
assign, encumber, pledge or otherwise transfer or hypothecate, any of its
interest in or rights with respect to the Premises or Tenant's leasehold estate
hereunder, (2) sell or transfer more than forty percent (40%) of its outstanding
shares if Tenant is a corporation, (3) add, delete, or transfer more than forty
percent (40%) of its partnership interests or any general partnership interest
if Tenant is a partnership, or (4) add, delete, or transfer more than forty
percent (40%) of its membership interests or the interests of any manager/member
if Tenant is a limited liability company (collectively "Assignment"), or (ii)
permit all or any portion of the Premises to be occupied by anyone other than
Tenant, sublet all or any portion of the Premises, or transfer a portion of its
interest in or rights with respect to Tenant's leasehold estate hereunder
(collectively "Sublease").
(b) PERMITTED TRANSFERS. Notwithstanding subsection (a) hereof, if Tenant is a
corporation whose stock is traded on any commonly recognized national or
regional stock exchange or if Tenant is a corporation, a limited partnership, or
a limited liability company with a net worth at the time of Assignment in excess
of Ten Million Dollars ($10,000,000.00),
(i) the sale and transfer of the stock or other ownership interests in Tenant in
transactions effected on a nationally recognized public stock exchange and
(whether or not a change in control results) the transfer of stock pursuant to
tender offers to shareholders, whether or not solicited, shall not be deemed an
Assignment under Section 13. 1 (a);
(ii) Tenant shall have the right, without the prior consent of Landlord, to
assign this Lease in connection with a merger, consolidation, or sale of
substantially all of its assets so long as the successor is also a corporation
whose stock is traded on any commonly recognized national or regional stock
exchange ("Qualified Successor"); and
(iii) Tenant shall have the right, without the prior consent of Landlord, to
assign this Lease or to Sublease all or any portion of the Premises to (1) any
parent or subsidiary of Tenant or of such parent or (2) provided Sublease(s) of
space either do not exceed an aggregate of 15,000 rentable square feet of the
Premises or do not equal or exceed one full floor in the Premises, any joint
venture or alliance partner with, or consultant to, Tenant (whether or not
affiliated with Tenant) during the course of any collaboration or contract with
such party (individually and collectively, a "Permitted Transferee").
However, even if Landlord's consent is not required hereunder, Tenant and any
assignee or sublessee of Tenant, as applicable, must still comply with Sections
13.2, 13.5, and 13.7.
(c) AN ASSIGNMENT OR SUBLEASE WITHOUT LANDLORD'S CONSENT. Any Assignment or
Sublease that fails to comply with Section 13. 1 (a) or (b) shall be void and,
at the option of Landlord, shall constitute a non-curable default by Tenant
under this Lease. The acceptance of Rent or any other amounts by Landlord from a
proposed assignee or subtenant when Tenant has breached this Section 13.1 shall
not be deemed to be a waiver of Landlord's right to declare Tenant in default
and shall not constitute a consent to an Assignment or Sublease by Landlord.
(d) LIENS ON TENANT'S PROPERTY. Tenant shall have the right to hypothecate
Tenant's Property without Landlord's prior written consent. Landlord shall
execute and deliver customary lien waivers in a form reasonably acceptable to
Tenant's equipment lender.
(e) LIMITATION ON USE IN THE EVENT OF AN ASSIGNMENT/SUBLEASE. If there is an
Assignment of this Lease or if there is a Sublease of any portion of the first
floor of the Premises, the assignee or sublessee shall not have the right to use
the Premises for any Permitted NonOffice use, with the sole exception of the use
described in Section 7. 1 (v).
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13.2. NOTICE OF THE PRO OSED ASSIGNMENT OR SUBLEASE. If Tenant desires at any
time to enter into an Assignment of this Lease or a Sublease of all or any
portion of the Premises, Tenant shall first give notice to Landlord of its
desire to do so, which notice ("Tenant's Notice") shall contain (i) the name and
address of the proposed assignee or sublessee and whether the proposed assignee
or sublessee is a Qualified Successor or a Permitted Transferee, (ii) the nature
of the proposed assignee's or sublessee' business to be carried on in the
Premises, (iii) the general terms and provisions of the proposed Assignment or
Sublease, (iv) a current financial statement of the proposed assignee or
sublessee, (v) when Landlord's consent is required for an Assignment or
Sublease, such other financial and business information as Landlord may
reasonably request concerning the proposed assignee or sublessee, and (vi) when
the Assignment or Sublease is to a Qualified Successor or to a Permitted
Transferee, such other information as Landlord may reasonably request to confirm
that the entity in question is a Qualified Successor or a Permitted Transferee.
If Landlord requests further information pursuant to sub-parts (v) or (vi)
hereof, Landlord shall make its request upon Tenant within five (5) business
days after receipt of Tenant's Notice. Tenant shall deliver Tenant's Notice to
Landlord, together with all of the documents which Landlord has requested
pursuant to sub-parts (v) or (vi) hereof, at least thirty (30) days prior to the
effective date of the Assignment or Sublease.
13.3. LANDLORD'S CONSENT.
(a) LANDLORD'S OPTIONS AFTER RECEIPT OF TENANT'S NOTICE. If Landlord's consent
is required to an Assignment or Sublease, at any time within fifteen (15)
business days after Landlord's receipt of Tenant's Notice (including but not
limited to all of the documents which Landlord may request pursuant to sub-part
(v) of Section 13.2), Landlord may by written notice to Tenant elect to (i)
sublease the portion of the Premises specified in Tenant's Notice (except as
otherwise provided in subsection (b) of Section 13.4) or, if Tenant's Notice
proposes an Assignment, take an assignment of the Lease on the terms set forth
in Tenant's Notice (except as otherwise provided in Section 13.4), (ii) consent
to the Sublease or Assignment, or (ill) disapprove the Sublease or Assignment;
provided, however, Landlord shall not unreasonably withhold its consent to the
Assignment or Sublease. Landlord's failure to elect any of the alternatives
provided in this Section 13.3(a) within the period of fifteen (15) business days
hereinabove provided shall be deemed consent to the proposed Assignment or
Sublease, subject to Section 13.3(e) below.
(b) SOME OF THE CRITERIA FOR LANDLORD'S CONSENT. By way of example, the parties
hereby agree that it shall be reasonable for Landlord to withhold its consent to
a proposed Sublease or Assignment based on any of the following factors,
provided that this list shall not be exclusive:
(i) the use of the Premises by the proposed assignee or sublessee will
not comply with the use of the Premises as described in the Basic Lease
Information;
(ii) the present financial condition of the proposed assignee or
sublessee is insufficient, in Landlord's reasonable judgment, to meet Landlord's
credit standards;
(iii) the proposed assignee's or sublessee's anticipated use of the Premises
involves the generation, storage, use, treatment, or disposal of any Hazardous
Materials; or
(iv) the proposed use of the first floor of the Premises would include
any retail activity.
(c) TIME LIMIT ON AN ASSIGNMENT OR SUBLEASE., If Landlord consents in writing to
the Sublease or Assignment, Tenant may within, but not later than, one hundred
and twenty (120) days after Landlord's consent, enter into an Assignment or
Sublease upon the terms and conditions set forth in Tenant's Notice.
(d) LANDLORD'S CONSENT TO EACH ASSIGNMENT OR SUBLEASE IS REQUIRED. The consent
by Landlord to any Assignment or Sublease shall not relieve Tenant or the
assignee or sublessee from the obligation to obtain Landlord's express written
consent to any other Assignment or Sublease.
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(e) DELIVERY OF TRANSFER DOCUMENT. Prior to the date when any sublessee or
assignee occupies any portion of the Premises, Tenant shall deliver to Landlord
the fully executed Sublease or Assignment, as appropriate. Landlord shall have
five (5) business days after receipt of the fully executed Sublease or
Assignment within which to confirm whether or not the fully executed Sublease or
Assignment is consistent with the terms of the Sublease or Assignment in
Tenant's Notice. If the Sublease or Assignment is consistent with Tenant's
Notice, Landlord shall be deemed (if Landlord's consent was required) to have
consented to the Sublease or Assignment. If the Sublease or Assignment shall
differ in any material respect from the contents of Tenant's Notice, Landlord
shall have the same rights of approval of the Sublease or Assignment that
Landlord had concerning Tenant's Notice. Until Landlord shall have confirmed
that the fully executed Sublease or Assignment is consistent with Tenant's
Notice, the assignee's or sublessee's occupancy of the Premises, if such
occupancy has commenced, shall be on a month-to-month basis.
13.4. TAKE-BACK SPACE.
(a) LANDLORD'S RIGHTS CONCERNING TAKE-BACK SPACE. If Landlord elects to Sublease
or take an Assignment from Tenant as described in Section 13.3(a)(i), (i)
Landlord shall have the right to use the portion of the Premises covered by
Tenant's Notice ("Take-Back Space") for the use permitted under this Lease
(provided that Landlord shall not be permitted to lease the Take-Back Space to
any competitor of Tenant), (ii) the rent payable by Landlord to Tenant shall be
the lesser of that set forth in Tenant's Notice or the Minimum Rent, calculated
on a per rentable square foot basis for the Take-Back Space, payable by Tenant
under this Lease at the time of the Sublease or Assignment, (iii) Landlord may
make such Alterations to the Take-Back Space as it shall elect, (iv) Landlord
shall have the right to further sublease or assign the TakeBack Space to any
party, without the consent of Tenant, (v) the amount payable by Tenant for
increases in Additional Lease Charges as set forth in Article 4 shall be reduced
to reflect the proportion of the building in which the Premises are located that
the Premises shall thereafter occupy in comparison to the Take-Back Space, and
(vi) Landlord shall pay the entire cost incurred in physically separating the
Take-Back Space (if less than the entire Premises) from the balance of the
Premises and in complying with any applicable Government Requirements relating
to such separation.
(b) LIMITATION ON LANDLORD'S RIGHT TO OBTAIN TAKE-BACK SPACE. Landlord shall not
have the right to elect to Sublease the portion of the Premises set forth in
Tenant's Notice, so long as the space which Tenant proposes to Sublease in
Tenant's Notice, when combined with all other space in the Premises which Tenant
has previously subleased does not exceed 33,000 rentable square feet of the
Premises or does not equal or exceed one (1) full floor of the Premises.
13.5. TENANT SHALL REMAIN LIABLE UNDER THE LEASE. No Assignment or Sublease,
other than an assignment to Landlord pursuant to Section 13.4, shall relieve
Tenant of any obligation to be performed by Tenant under this Lease, whether
arising before or after the Assignment or Sublease. In the event of an
Assignment, Tenant shall not be relieved from its liability under the Lease,
regardless of whether Landlord and the assignee subsequently agree to amend or
modify any of the terms of the Lease; provided, however, if the Lease is amended
or modified, Tenant shall not be responsible or liable to the extent Tenant's
obligations under this Lease are increased from that in effect prior to such
amendment or modification. Notwithstanding the foregoing, Tenant shall be
relieved from any and all liability in connection with that portion of the
Premises so long as it is Take-Back Space.
13.6. PROFITS FROM AN ASSIGNMENT OR A SUBLEASE.
(a) PROFITS FROM AN ASSIGNMENT OR A SUBLEASE. Except as otherwise provided in
the next sentence, in the event of an Assignment or a Sublease by Tenant,
Landlord and Tenant shall equally share all of the Profits. If there is an
Assignment to a Qualified Successor or a Sublease to a Permitted Transferee(s)
for space which does not exceed that specified in Section 13. 1 (b)(iii)(2),
Landlord shall not share in any Profits. The term "Profits" shall mean all
amounts received by Tenant upon the execution of the Assignment or Sublease and
each month thereafter as a consequence of the Assignment or Sublease, less (i)
in the case of a Sublease, the Minimum
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Rent paid by Tenant to Landlord, prorated over the portion of the Premises
occupied by the sublessee, (ii) the unamortized value (which shall be calculated
on a straight-line basis over the remaining Term of the Lease without regard to
option periods, if any) of all tenant improvements which Tenant paid for to that
portion of the Premises occupied by the assignee or sublessee, (iii) real estate
brokerage commissions and marketing expenses paid by Tenant in connection with
the Assignment or Sublease, and (iv) the cost paid by Tenant for labor,
materials, and equipment used in the construction of new improvements to the
Premises for the benefit of the assignee or sublessee.
(b) TENANT'S PAYMENTS FOR TENANT IMPROVEMENTS. In order to calculate Profits,
Tenant shall deliver to Landlord within forty-five (45) days after the
completion of any tenant improvements to the Premises (i) copies of all invoices
for labor, materials, and equipment used in the construction of the tenant
improvements (which invoices must show that the work was performed at the
Premises) and (ii) copies of all checks which Tenant used to pay for the tenant
improvements. Only documentation provided to Landlord within the time and in the
form described in this subsection (b) shall be used to calculate the cost of
tenant improvements in accordance with subsection (a) of this Section 13.6.
13.7. OBLIGATIONS OF AN ASSIGNEE OR SUBLESSEE. Each assignee or sublessee shall
assume all obligations of Tenant under this Lease and, other than an assignment
or sublease to Landlord pursuant to Section 13.4, shall be and remain liable
jointly and severally with Tenant for the payment of Rent and for the
performance of all the provisions of this Lease; provided, however, that the
assignee or sublessee shall be liable to Landlord for Rent only in the amount
set forth in the Assignment or Sublease. No assignment shall be binding on
Landlord unless the Assignment agreement shall be satisfactory in substance and
form to Landlord and shall be executed by Landlord.
13.8. PAYMENT OF LANDLORD'S COSTS. In the event that Landlord's approval is
required in connection with a proposed Assignment or a Sublease, Tenant shall
pay Landlord's reasonable attorneys' and consultants' fees and costs incurred in
connection therewith.
13.9. NO RELIANCE ON ORAL STATEMENTS. Tenant acknowledges and agrees to inform
any proposed assignee or sublessee that neither Tenant nor any proposed assignee
or sublessee shall be entitled to rely upon any oral statement or representation
from any person concerning whether or not Landlord will consent to the proposed
Assignment or Sublease. Tenant and any proposed assignee or sublessee may only
reply upon a statement in writing signed by Landlord.
ARTICLE 14 - DEFAULT
14.1. TENANT'S DEFAULT. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
(a) abandoning the Premises for more than two (2) days;
(b) the failure to pay any installment of Minimum Rent or Additional Lease
Charges when due and payable under the Lease and within three (3) days after
receiving a written notice from Landlord or its representatives stating or
estimating the amounts due;
(c) permitting Tenant's interest in the Premises or any of Tenant's Property to
be placed in the hands of a receiver for a period in excess of thirty (30) days,
making an assignment for the benefit of creditors, instituting voluntary
proceedings under any bankruptcy act, failing to have dismissed within thirty
(30) days any involuntary proceeding filed against Tenant under any bankruptcy
act, or failing to have dismissed within thirty (30) days any proceedings
seeking to execute or levy against or attach Tenant's interest in the Premises
or any of Tenant's Property;
(d) any breach of Sections 13. 1, and 16.3; or
(e) failing to promptly and fully perform any covenant, condition or
agreement contained in this Lease (other than breaches of the provisions set
forth in subsections
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(a) through (d) of this Section) if this failure continues for twenty (20) days
after written notice thereof from Landlord to Tenant; provided, however, if
Tenant's default cannot reasonably be cured within twenty (20) days, Tenant
shall not be in default hereunder if Tenant commences to cure its default within
twenty (20) days and diligently prosecutes such cure to completion.
14.2. REMEDIES.
(a) LANDLORD'S REMEDIES. In the event of Tenant's default hereunder, in addition
to any other rights or remedies which Landlord may have, Landlord shall have the
right, at Landlord's option, to do any of the following:
(i) obtain the rights and remedies provided by California Civil Code Section
1951.2, including, but not limited to, the right to terminate Tenant's right to
possession of the Premises and to recover the worth at the time of award of the
amount by which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of rental loss for the same period that the Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
Section 1951.2 of the Civil Code;
(ii) obtain the rights and remedies described in California Civil Code Section
1951.4 (Landlord may continue the Lease in effect after Tenant's breach and
abandonment and recover Rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations);
(iii) obtain from Tenant, as damages, all of the costs and expenses, including
unamortized construction costs, architect and engineering fees, incurred by
Landlord (a) in constructing the Tenant Improvements in connection with this
Lease or (b) in making repairs or constructing any new improvements to the
Premises for the benefit of any replacement tenant to whom Landlord may lease
the Premises after Tenant's default. (Notwithstanding the foregoing, if at the
time of trial in any action brought by Landlor against Tenant to obtain such
damages, Landlord has leased the Premises to another tenant, the aforesaid
damages shall be reduced to the extent that the improvements constructed by
Landlord are used by a subsequent tenant.);
(iv) obtain from Tenant, as damages, any real estate brokerage fees and costs
incurred by Landlord in leasing the Premises to a replacement tenant after
Tenant's default; and/or
(v) obtain full Rent from Tenant for that period(s), if any, during
which this Lease permitted Tenant to occupy the Premises without the payment of
full Rent.
(b) NO TERMINATION OF THIS LEASE. Acts of maintenance and preservation, efforts
to sublease the Premises or the appointment of a receiver to protect Landlord's
interest under this Lease shall not be deemed to be a termination of this Lease
or of Tenant's obligation to pay Rent thereafter accruing, unless Landlord
notifies Tenant in writing of Landlord's election to terminate this Lease.
(c) WORTH AT THE TIME OF AWARD. For purposes of Section 1951.2(a)(1) and (2) of
the California Civil Code, "worth at the time of award" shall be computed by
allowing interest at the rate of ten percent (10%) per annum. The worth at the
time of award for purposes of Section 1951.2(a)(3) of the Civil Code shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%). For the
purposes of Section 1951 of the Civil Code "rent" shall be calculated for each
month by adding (i) the monthly Minimum Rent, plus (ii) one twelfth (1/12th) of
the increases in Additional Lease Charges payable by Tenant hereunder during the
twelve (12) consecutive month period prior to the month in which Tenant's
default occurred.
14.3. WAIVER., THE waiver by Landlord of the breach of any term, covenant, or
condition of this Lease shall not be deemed a waiver of any subsequent breach of
the same or any other term, covenant, or condition. Landlord's acceptance of
Rent or any other amounts subsequent to any breach hereof shall not be deemed a
waiver of any preceding breach other than the failure to pay the particular
amounts accepted, regardless of Landlord's knowledge of any
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breach at the time it accepts that amount. Landlord shall not be deemed to have
waived any term, covenant, or condition unless Landlord gives Tenant written
notice of such waiver.
14.4. LANDLORD'S DEFAULT.
(a) LANDLORD'S OPPORTUNITY TO CURE ANY DEFAULT. If Landlord fails to
perform any covenant, condition or agreement contained in the Lease within
thirty (30) days after receipt of written notice from Tenant specifying such
default or if (when a default cannot reasonably be cured within thirty (30)
days) Landlord fails to commence to cure the default within thirty (30) days,
Landlord shall be liable to Tenant for any damages sustained by Tenant as a
result of Landlord's breach. Tenant shall not have the right to terminate this
Lease or to withhold, reduce, or offset any amount against Rent except as
otherwise specifically provided herein.
(b) TENANT'S RIGHT TO CURE LANDLORD DEFAULTS. In the event Landlord
fails to cure said default within thirty (30) days after receipt of said written
notice, or if having commenced said cure it does not diligently pursue it to
completion, Tenant may elect to cure said breach at Tenant's expense, so long as
Tenant only uses contractors from a list of approved contractors which Landlord
shall provide to Tenant from time to time. Within ten (10) days after it has
completed its cure, Tenan shall deliver to Landlord such documentation of the
costs incurred by Tenant in curing said default as Landlord may reasonably
request. Tenant shall have the right to offset from Rent the amount which Tenant
is able to establish, to Landlord's reasonable satisfaction, that it incurred to
cure said default pursuant to the provisions of this Section 14.4.
Notwithstanding the foregoing, in the event of a Casualty Loss, the provisions
of Article 11, rather than this Section 14.4, shall govern.
(c) LIMITATION OF LIABILITY. If Tenant obtains a money judgment
against Landlord resulting from any default or other claim arising under this
Lease, this judgment shall only be satisfied from the Property and the rents,
issues, profits, and other income received therefrom, and no other real,
personal or mixed property of Landlord (or of any persons, or entities which
comprise Landlord) shall be subject to levy to satisfy any such judgment.
ARTICLE 15 - HAZARDOUS MATERIALS
15.1. COMPLIANCE.
(a) LANDLORD'S COMPLIANCE. Landlord hereby represents that, to the
best of Landlord's knowledge, as of the date of the execution of this Lease, the
Premises comply with all applicable laws, rules, orders, ordinances, directions,
regulations and requirements of federal, state, county and municipal authorities
pertaining to air and water quality, Hazardous Materials, waste disposal, air
emissions and other environmental matters ("Hazardous Materials Laws") with
respect to the Premises. Landlord shall be solely liable for violations of any
Hazardous Materials Laws regarding the Premises (i) attributable to Hazardous
Materials used in the course of the original construction of the Premises or any
refurbishing thereof prior to the date of this Lease, (ii) as a result of
Hazardous Materials in the soil or groundwater on or before the date of this
Lease, or (iii) as a result of Landlord's use of Hazardous Materials in
violation of applicable law.
(b) TENANT'S COMPLIANCE. Tenant shall comply with all Hazardous
Materials Laws with respect to the Premises at all times when Tenant is in
possession of the Premises.
15.2. PROHIBITED ACTS AND DAMAGES RESULTING THEREFROM.
(a) HAZARDOUS MATERIALS PROHIBITED. Tenant shall not cause or permit
any Hazardous Materials to be brought upon, kept, or used in or about the
Premises without the prior written consent of the Landlord, which shall not be
unreasonably withheld as long as Tenant demonstrates to Landlord's reasonable
satisfaction that such Hazardous Materials are necessary to Tenant's business
and will be used, kept, and stored in a manner that complies with all laws
regulating any Hazardous Materials.
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(b) TENANT'S OBLIGATIONS IN THE EVENT OF A BREACH. If Tenant breaches its
obligations stated herein or if the Premises are contaminated by Hazardous
Materials as a consequence of Tenant's acts or omissions, Tenant shall be in
default under this Lease. In addition to all other sums Tenant is required to
pay as a consequence of its default, Tenant shall pay the diminution in value of
the Premises, damages for the loss of or restrictions on rentable or usable
space or any amenity of the Premises, damages arising from any adverse impact on
marketing of space in the Premises, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision as a consequence of its default hereunder, Without
limiting the foregoing, if the presence of any Hazardous Materials on the
Premises caused or permitted by Tenant results in contamination, Tenant shall
promptly take all actions as are necessary to return the Premises to the
condition existing prior to the introduction of Hazardous Materials. Tenant
shall obtain Landlord's written approval of its remediation efforts before
beginning remediation of the Premises. The foregoing obligation shall survive
the expiration or earlier termination of this lease.
15.3. DEFINITION OF HAZARDOUS MATERIALS. The term "Hazardous Materials" shall
mean any hazardous or toxic substance, material, or waste, including, but not
limited to, those substances, materials and wastes listed in the United States
Department of Transportation Hazardous Materials Table (49 CFR 172.101) or by
the Environmental Protection Agency as hazardous substances (40 CFR 302) and
amendments thereto, or such substances, materials and wastes that are or become
regulated under any applicable federal, state or local law or regulation.
15.4. DISCLOSURE. On the Commencement Date and on January I of each year
thereafter, Tenant shall disclose in writing to Landlord the names and amounts
of all Hazardous Materials which were stored, used or disposed of on the
Premises or which Tenant intends to store, use or dispose of on the Premises.
ARTICLE 16 - GENERAL PROVISIONS
16.1. MEDIATION AND ARBITRATION.
(a) MEDIATION. LANDLORD AND TENANT HAVE AGREED TO HAVE ANY DISPUTE BETWEEN THEM,
WHERE THE AMOUNT IN DISPUTE IS LESS THAN $100,000, ARISING OUT OF TENANT'S
OCCUPANCY OF THE PREMISES OR CONCERNING THIS LEASE -- OTHER THAN AN UNLAWFUL
DETAINER ACTION OR A CLAIM FOR CONSTRUCTIVE EVICTION -DECIDED BY THIRD PARTY
MEDIATION BEFORE, AND AS A CONDITION PRECEDENT TO, THE INITIATION OF ANY
ADJUDICATIVE ACTION OR PROCEEDING, INCLUDING ARBITRATION. IN THE EVENT THAT THE
PARTIES HERETO DO NOT RESOLVE ANY DISPUTE AFTER ONE DAY OF MEDIATION, THE
DISPUTE SHALL BE DECIDED BY ARBITRATION PURSUANT TO SECTION 16.1(d) HEREOF. IT
IS FURTHER AGREED THAT BY SIGNING IN THE SPACE BELOW, THE PARTIES HERETO HAVE
AGREED TO GIVE UP THEIR RIGHT TO HAVE THE DISPUTES SUBJECT TO THIS SECTION
LITIGATED IN A COURT AS WELL AS EACH PARTY'S RIGHTS TO DISCOVERY AND APPEAL
EXCEPT TO THE EXTENT THAT SUCH RIGHTS ARE SPECIFICALLY ENUMERATED IN THIS
SECTION 16. 1. IF EITHER PARTY REFUSES TO MEDIATE OR ARBITRATE THE DISPUTES
SUBJECT TO THIS SECTION, THE OTHER PARTY MAY COMPEL THE MEDIATION OR ARBITRATION
OF THAT DISPUTE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.
IT IS UNDERSTOOD THAT THIS AGREEMENT TO MEDIATE AND ARBITRATE DISPUTES IS
VOLUNTARY AND THAT IT IS ONLY BINDING UPON THOSE PARTIES WHOSE SIGNATURES APPEAR
BELOW.
(b) COMMENCEMENT OF MEDIATION. The mediation shall commence when one party to a
dispute (the "Offering Party") makes a written offer of compromise ("Offer") to
the other party(s). If the Offer is not accepted by the other party(s) (the
"Refusing Party") within five (5) days after receipt of the Offer by the
Refusing Party, any party may refer the dispute to mediation before any mutually
agreeable organization regularly offering services as a mediator. tor
If the parties are unable to agree upon a mediation within five (5) days after
the Offer is received
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by the Refusing Party, the dispute shall be mediated by the Judicial Arbitration
& Mediation Service, 2 Embarcadero Center, San Francisco, CALIFORNIA ("JAMS").
The parties shall have three (3) business days after the matter is submitted to
mediation to agree upon the mediator from the available panel. If the parties
are unable to agree within that three (3) day period, any party may request that
mediation organization appoint the mediator. The mediator chosen by the parties
or appointed by JAMS shall be a attorney at law licensed to practice in the
State of California with at least two (2) years experience as a mediator and at
least ten (10) years experience in the practice of real estate law.
(c) COSTS OF MEDIATION AND ARBITRATION. Each party shall advance in equal shares
the fees charged by the mediator and the costs of the mediation until it is
determined whether the dispute is resolved without further proceedings. If the
mediation succeeds in resolving the dispute, each party to the mediation will
equally share the fees of the mediator and the costs of the mediation, and each
shall bear its own attorneys' fees and costs in connection with the mediation.
On the other hand, if the mediation does not resolve the dispute, the prevailing
party at the arbitration or in any subsequent court proceeding for the purposes
of applying Section 16.8 shall be (i) the Offering Party if the Refusing
Party(s) does not obtain a more favorable judgment or award than was set forth
in the Offer or (ii) the Refusing Party(s) if the Refusing Party(s) does obtain
a more favorable judgment or award than was set forth in the Offer.
(d) ARBITRATION. After the parties have complied with subsection (b) of this
Section 16.1, any claim, controversy or dispute between or among the parties to
this mediation and arbitration agreement shall be submitted to arbitration.
(e) ARBITRATION PROCEDURES. Any matter subject to arbitration shall be submitted
to JAMS OR, IF JAMS NO longer exists, to any similar organization mutually
acceptable to the parties. The arbitration shall be conducted pursuant to the
procedures set forth in Sections 1280 ET SEQ. of the California Code of Civil
Procedure. The arbitration shall be decided by one neutral arbitrator. The
arbitrator shall follow the provisions of Sections 1282.2(a)(2) and 1283.05 of
the California Code of Civil Procedure, shal set a date for an arbitration
hearing no longer than one (1) month after the selection of the arbitrator, and
shall make an award no later than five (5) days after the conclusion of the
arbitration hearing. Any of the time deadlines set forth in this Lease or in
Sections 1280 ET SEQ. of the Code of Civil Procedure or set by the arbitrator
may be changed or modified at any time by the written stipulation of all of the
parties to the arbitration. The decision of the arbitrator shall be final and
binding upo the parties; and any court of competent jurisdiction may thereafter
enter judgment in accordance with the arbitrator's decision.
(f) SELECTION OF THE ARBITRATOR. The parties shall have three (3) business days
after the matter is submitted to arbitration to agree upon the neutral
arbitrator from the available panel. If the parties are unable to agree within
that three (3) day period, any party may request the appropriate official at
JAMS to appoint the arbitrator from its panel and that appointment shall be
binding upon the parties to the arbitration. The arbitrator chosen by the
parties or appointed by JAMS shall be a retired Federal District Court,
California Superior Court, or federal or state appellate court judge with at
least ten (10) years experience on the bench.
16.2. SALE OF LANDLORD'S INTEREST. In the event of any sale or transfer of the
Premises or the Property and assignment of this Lease by Landlord, Landlord
shall be relieved of any and all liability and obligations contained in or
derived from this Lease or relating to the Premises occurring after the
consummation of such sale or transfer. If any security deposit or prepaid rent
has been paid by Tenant, Landlord shall transfer the security deposit or prepaid
rent to Landlord's successor and upon such transfer, Landlord shall be relieved
of any and all further liability with respect thereto.
16.3. ESTOPPEL CERTIFICATE. Each party ("Certifying Party") shall, at any time
and from time to time, but not more frequently than twice in any twelve (12)
month period, upon not less than ten (10) business days' prior notice by the
other party ("Requesting Party") execute, acknowledge and deliver to the
Requesting Party a statement in writing, certifying (a) that this Lease is
unmodified and in full force and effect (or, if modified, stating the
modifications); (b) the amount of monthly Minimum Rent and the increases in
Additional Lease Charges payable
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monthly by Tenant and the date to which these components of Rent have been paid
in advance; (c) the amount of any security deposited with Landlord; (d) the
Commencement Date and the last date of the Term and the number and duration of
option periods, if any; (e) whether or not there are then existing any defenses
against the enforcement of any of the obligations of Tenant under this Lease
(and, if so, specifying same); (f) whether or not Landlord is in default
hereunder (and, if so, specifying same); and (g) such other matters as may be
reasonably requested by the Requesting Party. Any prospective purchaser, ground
lessor, lender, or other interested party shall be entitled to rely on the truth
of all of the matters contained in such statement; however, the Certifying Party
may provide in any such certificate that it shall have no liability for any
misstatement contained therein. Failure to comply with this Section shall be a
material breach of this Lease by the Certifying Party and in addition to all of
the other rights and remedies hereunder, the Requesting Party shall have the
right to collect from the Certifying Party all damages caused by the loss of a
loan, sale, or other transaction which may result from said party's failure to
comply with this Section 16.3.
16.4. FINANCIAL STATEMENT. Upon Landlord's written request, Tenant shall deliver
to Landlord within ten (10) days its most recent publicly available financial
statement certified by Tenant to be accurate. Landlord agrees that such
information, if requested by Tenant, shall be held in confidence and disclosed
only for purposes related to the sale, exchange, ground leasing, or financing of
the Property.
16.5. SUBORDINATION AND ATTORNMENT.
(a) SUBORDINATION/NON-DISTURBANCE AGREEMENT. Upon Landlord's written request,
Tenant shall execute a subordination and non-disturbance agreement which is
substantially in the form of Exhibit E hereto ("Subordination/Non-Disturbance
Agreement"), wherein Tenant shall subordinate its rights to the lien of any
future mortgage, future deed of trust, or the interest of any future lease in
which Landlord is tenant and to all advances made or hereafter to be made upon
the security therefor. In the event of any foreclosure sale, transfer in lieu of
foreclosure, or termination of a lease in which Landlord is tenant, Tenant shall
attorn to the purchaser, transferee or lessor of Landlord, at their option, and
recognize such party as landlord under this Lease. Within ten (10) days after
Landlord's request therefor, Tenant shall execute and deliver to Landlord the
Subordination/Non-Disturbance Agreement to effectuate the purposes of this
Section 16.5. Tenant acknowledges that if Tenant does not promptly comply with
this Section 16.5, Tenant may cause Landlord to lose a potential loan or ground
lease or to suffer the imposition of penalties or an increased rate of interest
in connection with such future loan,
(b) NON-DISTURBANCE AGREEMENT FROM THE EXISTING LENDER. Landlord agrees to use
all reasonable efforts (without the requirement to expend out-of-pocket funds,
other than reasonable fees of Landlord's and Landlord's mortgagee's legal
counsel) to obtain with reasonable promptness from the existing lender on the
Premises a non-disturbance agreement which is reasonably satisfactory to Tenant.
16.6. TENANT SIGNAGE.
Subject to the terms and conditions of this Section 16.6, Tenant shall have the
exclusive right of tenant identification ("External Tenant Signage") on the
exterior of the Premises (including the roof). tenant's right of External Tenant
Signage shall be subject to the following conditions:
(i) The color, materials, lighting and other design features shall be developed
by Tenant and its architect and approved by landlord and Tenant. Landlord shall
have the right to withhold its consent to the External Tenant Signage in
Landlord's sole discretion. However, if Landlord does not consent to the
External Tenant Signage, Landlord shall state, in writing and in reasonable
detail, the basis for its disapproval and propose changes to the External Tenant
Signage that would be acceptable to Landlord. Tenant shall be solely responsible
for any Alterations required as a result of the Exterior Signage and shall be
solely responsible for compliance with all local, state and federal laws
(including obtaining any and all permits) associated with the Exterior Tenant
Signage.
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(ii) The right to External Signage granted hereunder is personal to the named
Tenant under this Lease and any Qualified Successor. Such right shall be revoked
and shall become null and void, without any abatement of or reduction in rent to
Tenant, for any period in which the named Tenant under this Lease and/or any
Qualified Successor does not occupy at least fifty percent of the rentable area
of the Premises.
(iii) Tenant, at its sole cost and expense, shall repair and maintain the
External Tenant Signage and any portion of the Premises to which the External
Tenant Signage is attached. Tenant shall promptly repair any vandalism,
breakage, or damage to the External Tenant Signage.
(iv) The cost of design, fabrication and installation of the External Tenant
Signage shall be chargeable against the Allowance under the work Letter attached
as Exhibit C, and shall otherwise be at the sole cost and expense of Tenant.
16.7. MERGER. ' The voluntary or other surrender of this Lease by Tenant or
termination hereof shall not cause a merger but shall, at Landlord's option,
terminate any existing subtenancies or operate as an assignment to Landlord of
any subtenancies.
16.8. RECORDING. This Lease shall not be recorded by either Landlord or Tenant;
provided, however, upon obtaining the prior written consent of the other party,
either party may record a memorandum of this Lease.
16.9. ATTORNEYS' FEES. In the event there is a mediation, arbitration, lawsuit,
action, or proceeding between or among Landlord and Tenant (except for a dispute
regarding Prevailing Market Rate which is resolved pursuant to the provisions of
Section 3.6 without the necessity of litigation) which arises from or concerns
this Lease or the Premises, whether that mediation, arbitration, lawsuit,
action, or proceeding involves causes of action in contract or in tort, at law
or in equity, the prevailing party shall be entitled to recover all costs and
expenses, including its attorneys' fees, in such lawsuit, action or proceeding.
Subject to the requirements of Section 16.1(c) [for those actions which are
subject to the mediation and arbitration process], the prevailing party shall be
determined by the court or an arbitrator based upon an assessment of which
party's major arguments made or positions taken in the proceeding could fairly
be said to have prevailed over the other party's major arguments or positions.
16.10. CUMULATIVE REMEDIES. No remedy or election exercised hereunder shall be
deemed exclusive but shall be cumulative with all other remedies at law or in
equity.
16.11. CHOICE OF LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of California.
16.12. SUCCESSORS AND ASSIGNS. Subject to the provisions regarding assignment
contained herein, this Lease shall bind and inure to the benefit of the heirs,
personal representatives, successors and assigns of the parties hereto.
16.13. SEVERABILITY. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid, void, or unenforceable shall not
affect the validity of any other provision of this Lease, and all other
provisions and this Lease shall remain in full force and effect.
16.14. AUTHORITY., Each individual executing this Lease on behalf of Landlord or
Tenant, as the case may be, hereby warrants and represents that he/she is duly
authorized to execute and deliver this Lease on behalf of said party and that
this Lease is binding on the party on behalf of which the individual executed
this Lease.
16.15. TIME OF ESSENCE. Time is of the essence in the performance of each and
every term, covenant and condition of this Lease.
16.16. CAPTIONS., The article, section, and subsection captions contained herein
are for reference purposes only and are not a part of this Lease.
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16.17. FORCE MAJEURE. Except for the payment of Rent (which shall not be excused
unless specifically permitted hereunder), strikes, labor disputes, an inability
to obtain labor, materials, equipment or reasonable substitutes therefor, acts
of God, governmental restrictions or regulations, judicial orders, government
action, civil commotion, Casualty Loss, or other causes beyond the reasonable
control of the party obligated to perform hereunder shall excuse performance by
such party for a period equal to the time during which that party was prevented,
delayed, or stopped from its obligations hereunder.
16.18. NOTICES.
(a) SERVICE OF NOTICES. All bills, statements, notices, demands, requests or
other communications given or required to be given under this Lease shall only
be effective if in writing and (i) sent by express, registered or certified
mail, (ii) sent by private carrier, i.e., Federal Express, (iii) sent by
facsimile transmission, or (iv) delivered personally:
(1) to Tenant (A) at Tenant's address or facsimile number, set forth in the
Basic Lease Information, (B) at Tenant's address or facsimile in the Premises,
if sent subsequent to Tenant's taking possession of the Premises, or (C) at any
place where Tenant may be found or at the Premises if sent subsequent to
Tenant's vacating, deserting, abandoning, or surrendering the Premises;
(2) to Landlord at Landlord's address or facsimile number set forth in
the Basic Lease Information; or
(3) to such other address or facsimile number as either Landlord or Tenant may
designate as its new address or facsimile number by written notice given to the
other in accordance with the provisions of this Section 16.18.
Any bill, statement, notice, demand, request or other communication shall be
deemed to have been given two (2) days after the date when it shall have been
mailed as provided in this Section 16.18 if sent by registered or certified
mail, upon the date of delivery to the above-referenced address if personally
delivered or sent by express mail or by private carrier, or upon the date of
receipt if sent by facsimile transmission.
(b) COMPLIANCE WITH STATUTORY REQUIREMENTS. Notwithstanding the foregoing, to
the extent that a three or thirty day notice to Tenant complies with the
requirements of the California Civil Code or Code of Civil Procedure, service of
such notice shall be deemed to comply with the requirements of this Lease.
16.19. BROKERS.
(a) TENANT'S BROKER. Tenant warrants that it has had no dealings with any real
estate broker or agent in connection with the negotiation of this Lease other
than the broker(s) designated in the Basic Lease Information, and Tenant knows
of no other real estate broker or agent who is entitled to a commission in
connection with this Lease.
(b) REPRESENTATION BY BROKERS. Tenant acknowledges that the real estate broker
designated in the Basic Lease Information as Landlord's broker only represented
Landlord and did not represent Tenant in connection with the leasing of the
Premises and the negotiation and drafting of this Lease. If a broker is
identified in the Basic Lease Information as the Tenant's broker, that is the
only person who represented Tenant in connection with the Premises and this
Lease.
(c) COMMISSION. Landlord shall pay the commission due in connection with the
Lease pursuant to the terms of the separate agreement between Landlord and
Landlord's Broker. Landlord and Tenant shall each indemnify, defend and hold the
other harmless from and against any and all claims and damages and for any and
all costs and expenses (including reasonable attorneys' fees and costs)
resulting from claims that may be asserted against the other party by any
broker, agent or finder not disclosed herein.
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16.20. JOINT AND SEVERAL LIABILITY. If there is more than one person or entity
identified as Tenant in this Lease, each person or entity shall be jointly and
severally liable for all of Tenant's obligations under this Lease.
16.21. QUIET POSSESSION. Upon Tenant's paying rent, additional rent and other
sums provided hereunder and observing and performing all of the covenants,
conditions and provisions on Tenant's part to be observed and performed
hereunder, Tenant shall have quiet possession of the Premises for the entire
term hereof, subject to all of the provisions of this Lease.
16.22. PRIOR AGREEMENTS AND AMENDMENTS. This Lease represents the entire
agreement between the parties pertaining to the Premises and this Lease and
supersedes all previous negotiations, representations, agreements and
communications between the parties whether written or oral, including but not
limited to any letters of intent executed by the parties to this Lease or their
real estate brokers. Tenant acknowledges that in executing this Lease Tenant has
not relied on any verbal or written understanding, promise, or representation
which does not appear on this document. This Lease shall only be amended or
modified by a written instrument executed by both Landlord and Tenant.
LANDLORD TENANT
NO. I BEACH STREET, LLC, CNET, Inc.
a California limited liability company a Delaware corporation
GERSON BAKAR, DZAI~f~VERMYER,
Vi t c
its Managing Member Vice-President. Finance an
Dated: September -, 1997 Administration
Dated: September -, 1997
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EXHIBIT "A"
All that certain real property situated in the City and County of San
Francisco, State of California, described as follows:
COMMENCING at the point of intersection of the southerly line of Beach
Street and the westerly line of Grant Avenue; running thence westerly and along
said line of Beach Street 275 feet; thence at a right angle southerly 137 feet
and 6 inches; thence at a right angle easterly 275 feet to the westerly line of
Grant Avenue; thence at a right angle northerly along said line of Grant Avenue
137 feet and 6 inches to the point of commencement.
BEING part of 50 VARA BLOCK NO. 99.
<PAGE>
EXHIBIT B
[MAP]
Diagrams of floor plans of First, Second and Third Floors
<PAGE>
EXHIBIT C
WORK LETTER
THIS WORK LETTER ("WORK Letter") supplements the Lease (the "Lease") dated
September 24, 1997, executed concurrently herewith, by and between NO. I BEACH
STREET, LLC as Landlord, and CNET, INC., as Tenant, covering certain premises
described in the Lease (the "Premises").
1. PLANS/SPECIFICATIONS, BUDGET, AND DEMOLITION
1.1 Prior to commencing work on the leasehold improvements to the
Premises as hereinafter provided ("Tenant Improvements"), Tenant shall submit to
Landlord complete and detailed plans and specifications for the Tenant
Improvements ("Tenant's Plans") and a schedule of values for such work (the
"Budget"). Tenant's Plans shall be prepared by the architectural firm of Tanner
Leddy Maytum Stacy Architects, Inc. ("Architect") and by the engineering firm of
Mazzetti & Associates ("Engineer"), both licensed to practice in the State of
California. If Tenant hereafter shall desire to change the Architect or
Engineer, that change shall be satisfactory to Landlord, in Landlord's
reasonable discretion. The Budget shall be prepared by Tenant and shall evidence
a cost of design, purchase, and construction of Tenant Improvements that
constitute permanent improvements to the Premises, as described in Section 3.2
of this Work Letter, in an amount which is not less than Three Million Five
Hundred Thousand Dollars ($3,500,000.00).
1.2 The Architect shall coordinate with Landlord's designated
representative to assure that Tenant's Plans are consistent with the existing
design and construction of the Premises. Tenant acknowledges that Landlord has
provided Tenant with a set of base building drawings for the Premises ("Building
Drawings"). However, Landlord does not warrant, and Tenant should not rely upon,
the accuracy of the Building Drawings since the existing tenant in the Premises
may have made a variety of changes to the Premises over time that are not
reflected in the Building Drawings. Tenant, therefore, should undertake its own
investigation of the Premises to confirm existing conditions, rather than
relying on the Building Drawings.
1.3 Tenant shall deliver to Landlord the schematic drawings
("Schematic Drawings") upon which Tenant's Plans shall be based not later than
October 1, 1997. Landlord shall have ten (10) working days after receipt thereof
to review and approve/disapprove the Schematic Drawings. Once Landlord has
approved the Schematic Drawings, Tenant shall cause the Architect to prepare
Tenant's Plans which must be consistent with the approved Schematic Drawings.
Tenant shall deliver Tenant's Plans to Landlord for its approval, in one or more
stages, during the period between November 1, 1997 and January 1, 1998. Landlord
shall not unreasonably withhold its approval of Tenant's Plans so long as
Tenant's Plans are consistent with the Schematic Drawings. In scheduling the
preparation of the Schematic Drawings and Tenant's Plans, Tenant shall allow
sufficient time for review and approval by Landlord and by the appropriate
government agencies in order to prevent delays in the construction of the Tenant
Improvements
1.4 If Landlord disapproves of the Schematic Drawings or Tenant's
Plans or any portion of either, Landlord shall promptly notify Tenant thereof in
writing and of the revisions which Landlord requires in order for Tenant to
obtain Landlord's approval. As promptly as reasonably possible, but in no event
longer than fifteen (15) days thereafter, Tenant shall submit to Landlord a
revised set of Schematic Drawings or Tenant's Plans incorporating the changes
required by Landlord. Said revisions shall also be subject to Landlord's
approval. Landlord shall have five (5) working days after receipt of the revised
Schematic Drawings or Tenant's Plans to notify Tenant in writing of Landlord's
approval or disapproval of same. If Landlord again disapproves of or requests
revisions to the Schematic Drawings or Tenant's Plans, Tenant shall submit to
Landlord, within ten (10) business days after receiving Landlord's written
disapproval or request for revisions, a further revised set of Schematic
Drawings or
<PAGE>
Tenant's Plans incorporating the changes required by Landlord. This process
shall continue until Landlord has approved the Schematic Drawings and Tenant's
Plans.
1.5 The final Tenant Plans, approved by Landlord, shall be
referred to as the "Final Plans." The Final Plans shall be signed by Landlord
and Tenant. After approval of the Final Plans, Tenant shall not make any changes
thereto without Landlord's prior written approval in accordance with the
provisions of this Work Letter Agreement.
1.6 Prior to commencing work on the Tenant Improvements in the
Premises as hereinafter provided, Tenant shall demolish and remove any existing
improvement in the Premises as are necessary to prepare the Premises for the
Tenant Improvements.
1.7 Tenant shall be solely responsibility for obtaining all
necessary governmental approvals and permits (including but not limited to the
approval of the San Francisco City Planning Department) required to commence and
complete the Tenant Improvements; and immediately upon receipt thereof, Tenant
shall deliver copies of all such approvals and permits to Landlord.
1.8 Except as expressly set forth in Section 5 hereof, it shall
be Tenant's sole responsibility to satisfy all applicable building code
requirements and governmental rules and regulations concerning the design and
construction of the Tenant Improvements. Landlord's approval of the Final Plans
is not intended, and should not be understood by Tenant, as an affirmation that
the Final Plans comply with applicable building codes or other governmental
rules and regulations or that the Final Plans are in conformance with standards
of good workmanship as practiced by architects/engineers in the San Francisco
Bay Area. Landlord's review of the Final Plans is solely for Landlord's benefit,
and Tenant shall not rely upon that review for any purpose whatsoever in
connection with the work on or the design of the Tenant Improvements.
1.9 Tenant acknowledges that Landlord intends to obtain the
rehabilitation credit described in Section 47 of the Internal Revenue Code in
connection with the construction of the Tenant Improvements and that pursuant to
Section 47 of the Internal Revenue Code, the qualified rehabilitation
expenditures must not be less than the amount of the Budget in Section 1. 1 of
this Work Letter Agreement and must have been made within a twenty-four (24)
month period. Tenant, therefore, shall use its best efforts in order to complete
all work on the Tenant Improvements within a period of twenty-four (24) months.
1.10 Tenant shall select a general contractor to perform the work
on the Tenant Improvements ("Contractor"), duly licensed in the State of
California and familiar with all applicable building code requirements.
Contractor shall be subject to Landlord's prior written approval which shall not
be unreasonably withheld.
2. SCHEDULING AND TENANT'S PRIOR ACCESS TO THE PREMISES
2.1 At least five (5) days prior to the start of construction on
the Tenant Improvements, Tenant shall deliver to Landlord the "as-planned"
schedule of the work to be performed ("TI Schedule"). The TI Schedule shall be
prepared by the Contractor, and it shall show the schedule for the submission of
all SHOP DRAWINGS/SUBMITTALS AND FOR THE PERFORMANCE of each portion of the work
on the Tenant Improvements. Tenant and the Architect shall either consult with
the Contractor or the Architect shall perform the necessary investigation to
determine the availability of the equipment and materials to be incorporated
into the Tenant Improvements and which portions of the Tenant Improvements will
require long lead time for ordering and/or manufacturing. The TI Schedule shall
include sufficient time for ordering all equipment and materials in order to
permit work on the Tenant Improvements for at least two (2) full floors to be
completed by June 1, 1998. The TI Schedule shall set forth when Landlord's Work
(as described hereafter) is to be performed in order that such work shall be
coordinated with Contractor's work on the Tenant Improvements. The TI Schedule
shall be in the form of a Critical Path Method schedule. Except for demolition
work, Tenant shall not commence work on the Tenant Improvements until Tenant has
delivered the TI Schedule to Landlord.
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2.2 Unless Landlord has informed Tenant that Landlord will not be
able to deliver possession of the Premises to Tenant by the Scheduled Delivery
Date set forth in the Basic Lease Information, the TI Schedule shall either show
(i) that the Tenant Improvements for not less than two complete floors of the
Premises shall be sufficiently complete to enable occupancy of such floors by
Tenant for the use thereof for their intended purpose ("Occupancy Completion")
by June 1, 1998 or (ii) the TI Schedule shall be accompanied by a written
statement, signed by Tenant and the Contractor, explaining each reason why
Occupancy Completion cannot be achieved by June 1, 1998. The date of substantial
completion of all of the Tenant Improvements shall be referred to herein and in
the Construction Contract as "Completion Date."
2.3 Landlord acknowledges that Tenant needs reasonable access to
the Premises before the Commencement Date in order to obtain measurements of the
Premises, confirm existing conditions in the Premises, and for space planning
preparation purposes (collectively "Pre-Delivery Functions"). Upon request by
Tenant, Landlord shall make arrangements with the existing tenant in the
Premises to permit Tenant to perform its PreDelivery Functions. Landlord shall
endeavor to grant Tenant access to the portion of the Premises needed by Tenant
to perform Pre-Delivery Functions within the time period reasonably requested by
Tenant. Tenant, however, acknowledges that it must accommodate the Pre-Deliver
Functions which it wishes to perform to the business operations of the existing
tenant in the Premises and, accordingly, that it may have to alter the
Pre-Delivery Functions which it wishes to perform or the time when it wishes to
perform Pre-Delivery Functions. Therefore, Tenant shall schedule its
Pre-Delivery Functions sufficiently in advance in order to allow for the
possibility that Pre-Delivery Functions may need to be delayed to accommodate
the existing tenant in the Premises. Tenant shall complete all of its
Pre-Delivery Functions prior to December 1, 1997 or any delay associated with
the performance of Pre-Delivery Functions shall not be a Landlord Delay.
2.4 Tenant shall be solely responsible for all costs and expenses
incurred in connection with the Pre-Delivery Functions.
2.5 Tenant hereby agrees to indemnify, defend, and hold harmless
Landlord and the existing tenant from and against any loss, cost, expense,
liability, damage, or injury in connection with any of the Pre-Delivery
Functions.
3. PUMENT FOR WORK ON THE TENANT IMPROVEMENTS AND THE CONSTRUCTION
CONTRACT
3.1 It is acknowledged that Landlord has heretofore contributed
the amount of Nine Thousand Seven Hundred One and 501100 Dollars ($9,701.50),
for purposes of establishing Tenant's configuration within the Premises. Such
payment is in addition to the Tenant Improvement Allowance as described in
section 3.2 hereof.
3.2 Tenant shall receive from Landlord a Tenant Improvement
Allowance equal to Three Million Eight Hundred Eighty Thousand Six Hundred
Dollars and 00/100 ($3,880,600.00), plus the amount, if any, determined in
accordance with Section 3.7 hereof. The Tenant Improvement Allowance shall be
used for the design and construction of the Tenant Improvements, which
constitute permanent improvements to the Premises, including without limitation,
architectural, engineering, telecommunication installation and cabling, the roof
top deck, the cost of Pre-Delivery Functions, partitions of any kind, fire doors
and fire walls and a rapid response sprinkler system. To the extent that the
Tenant Improvement Allowance has not been fully used in the design and
construction of Tenant Improvements, Tenant may use the Allowance for furniture
that will be utilized in the Premises and other occupancy related costs,
provided that Tenant shall first deliver to Landlord a detailed description of
how this portion of the Tenant Improvement Allowance shall be used. No portion
of the Tenant Improvement Allowance shall be used for the removal or remediation
of Hazardous Materials in the Premises.
3.3 In order to construct the Tenant Improvements, Tenant shall
enter into a fixed price or a guaranteed maximum price construction contract,
which shall be approved in advance by Landlord (the "Construction Contract").
The Construction Contract for the Tenant Improvements shall at least include all
of the provisions which are attached hereto and identified as "Construction
Contract Terms;" provided, however, that the Construction Contract Terms may
3
<PAGE>
be revised with Landlord's approval, which approval shall not be unreasonably
withheld, in a manner which does not expose Landlord to additional liability.
3.4 Tenant each month shall submit to Landlord (a) the
Contractor's Progress Payment Application and, at the end of the project, the
Final Payment Application and all supporting documentation required by the
Construction Contract and (b) the Architect's Certificate for Progress Payments
or Final Payment, as applicable. If the payment applications, when aggregated
with all prior payments by Landlord for Tenant Improvements, do not exceed the
Tenant Improvement Allowance, Landlord shall pay the amount set forth in the
Architect's Certificate for Progress Payment, less retainages, or the
Architect's Certificate for Final Payment. Tenant shall be solely responsible
for the payment of any amounts in excess of the Tenant Improvement Allowance, in
the event work on the Tenant Improvements is not completed within the Tenant
Improvement Allowance.
3.5 In the event Tenant does not use any or all of the Tenant
Improvement Allowance, the payment of the Minimum Rent shall be reduced in
accordance with Section 3.5 of the Lease.
3.6 Landlord shall be a party to the Construction Contract for
the limited purpose of making payments to the Contractor in accordance with this
Work Letter Agreement. Landlord's liability for the cost of the construction of
the Tenant Improvements shall in no event exceed the Tenant Improvement
Allowance, except (i) for payment for Landlord's Work (if Contractor is to
perform Landlord's Work), (ii) for the removal or remediation of Hazardous
Materials in the Premises (if there are any Hazardous Materials), and (iii) to
the extent that Landlord has failed to deliver joint checks to Tenant to enable
Tenant to make progress or final payments to the Contractor within the time
period established by the Construction Contract. In addition, Landlord shall not
be obligated to make payments to the Contractor except in accordance with the
provisions of the Construction Contract. All payments which Landlord shall make
to the Contractor shall be in the form of a joint check which shall be payable
to both Tenant and the Contractor.
3.7 If on or before the date when Tenant delivers Schematic
Drawings to Landlord, Tenant notifies Landlord that it has chosen to repair or
replace the windows on the third floor of the Premises, the Tenant Improvement
Allowance shall be increased by an amount equal to the lesser of (i) the
construction costs incurred by Tenant in the performance of such work or (ii)
the sum of $109,656.00.
4. CHANGES, ADDITIONS, AND ALTERATIONS
4.1 From time to time Tenant may make changes in the Final Plans
prior to final completion and request that Landlord approve such changes.
However, Tenant shall not make any material changes to the Final Plans (which
shall mean a change that is in excess of $ 10,000.00, is visible from the
exterior of the Premises, or affects the structure, roof, or exterior walls of
the Premises), without securing the prior written approval of Landlord, which
approval shall not be unreasonably withheld. In seeking Landlord's approval for
changes to the Final Plans, Tenant shall deliver to Landlord such documentation
as the Construction Contract shall require for changes in the Contract Price or
an extension of the Completion Date.
4.2 No such changes in the Final Plans shall delay the Rent
Commencement Date set forth in the Lease. Landlord shall approve or disapprove
any such changes that do not impact or affect any central building system in the
Premises within ten (10) working days after the receipt of a request from
Tenant. Upon approval by Landlord, such change shall be included within the
phrase "Final Plans".
5. CONSTRUCTION AND DELAYS
5.1 The performance of the work on the Tenant Improvements shall
be subject to the following terms and conditions:
(a) except to the extent of a conflict between Article 8 of
the Lease and this Work Letter Agreement (in which case this agreement shall
govern) compliance by
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Tenant and the Contractor and its subcontractors, material suppliers, and
equipment renters of whatever tier ("Tenant's Contractors") with the applicable
provisions of Article 8 of the Lease,
(b) all of the work on the Tenant Improvements, which are
performed by Tenant's Contractors, shall be scheduled through Tenant,
(c) all work on the Tenant Improvements shall be performed
in accordance with the reasonable rules and regulations which Landlord may issue
from time to time,
(d) Tenant shall reimburse Landlord for any and all expenses
incurred by Landlord by reason of work performed by Tenant's Contractors which
is defective or not in accordance with the Final Plans, by reason of delays in
Landlord's Work caused by delays in the work on the Tenant Improvements
performed by Tenant, or as a result of inadequate clean-up, and
(e) Landlord shall have no responsibility whatsoever for the
supervision or coordination of Tenant's Contractors, the Architect, or the
Engineer, the quality of their work or any other matter with respect to Tenant's
Contractors, the Architect, or the Engineer; however, Landlord and Tenant shall
coordinate the work on Tenant Improvements with Landlord's Work as described
herein and as set forth in the TI Schedule.
5.2 Landlord shall not receive a fee, profit, overhead, or
general conditions in connection with the construction of the Tenant
Improvements.
5.3 Tenant shall not be responsible for delays to work on the
Tenant Improvements that is caused by a Landlord Delay (which is defined in
Section 5.4 hereof) or a Force Majeure Delay (which is defined in Section 5.5
hereof).
(a) As a pre-condition to the determination that any delay
in work on the Tenant Improvements is a Landlord Delay or a Force Majeure Delay,
Tenant must delivery the following documents to Landlord at the following times:
(i) the TI Schedule at the time and in the form
described in Sections 2.1 and 2.2 of this Work Letter Agreement;
(ii) the monthly revised TI Schedules, the monthly TI
Schedule Narrative, and the superintendent daily reports, as required by the
Construction Contract for the preceding calendar month, by fifteenth (15th) day
of each month,;
(iii) the Contractor's claims for an extension of the
Completion Date, as required by the Construction Contract, within ten (10) days
after Architect receives same from the Contractor; and
(iv) the Architect's and/or Engineer's written
evaluation of, and recommendation concerning, the Contractor's requests for
extensions of the Completion Date, which the Tenant shall require its
Architect/Engineer to deliver to Landlord within fifteen (15) days after the
Contractor submits its request for an extension of the Completion Date.
(b) The delays on the project which are attributable to a
Landlord Delay and a Force Majeure Delay shall be limited to those delays which
affect work on the critical path and which are not concurrently caused by
Tenant, Tenant's Contractors, the Architect, or the Engineer.
5.4 Except as otherwise provided in Section 5.6 hereof, the term
"Landlord Delay" when used in this Work Letter Agreement or in the Lease shall
mean a delay to work on the Tenant Improvements which was caused by any of the
following: (i) Landlord's failure to approve or disapprove the Schematic
Drawings and/or Tenant's Plans or any change order under the Construction
Contract within the time-frames set forth in this Work Letter Agreement, (ii)
delay in delivering possession of the Premises to Tenant beyond the Scheduled
Delivery Date in the Basic Lease Information, (iii) delay in obtaining the
necessary governmental permits or
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approvals for Landlord's Work, (iv) performance of Landlord's Work at a time
which is not in accordance with the TI Schedule (unless ordered by the
Contractor or Architect or caused by act or omission of Tenant, the Architect,
the Engineer, or Tenant's Contractors), (v) refusal to permit Tenant's
Contractors to enter the Premises, use of the Premises, or any facilities in the
Premises after the date when Landlord delivers possession of the Premises to
Tenant, (vi) any misinformation about any physical condition of THE PREMISES
WHICH LANDLORD SHALL GIVE TO TENANT, the falsity of which Architect, Engineer,
or Tenant's Contractors would not have been able to discover with the use of
reasonable diligence, (vii) any unknown conditions in the Premises which
Architect, Engineer, or Tenant's Contractors would not have been able to
discover with the use of reasonable diligence, (viii) failure of the Premises,
or any portion thereof, to comply with applicable building codes or law, the
application of which was not triggered by work on the Tenant Improvements, and
(ix) the presence of Hazardous Materials in the Premises. Landlord shall be
responsible for Landlord Delays regardless of whether such delays were caused by
Landlord or by Landlord's agents or contractors; provided that the Architect,
Engineer, and any consultant employed by them or by Tenant shall not be deemed
to be Landlord's agents or contractors.
5.5 Except as otherwise provided in Section 5.6 hereof, the term
"Force Majeure Delay" when used in this Work Letter Agreement or in the Lease
shall mean a delay to work on the Tenant Improvements which was caused by any of
the following: strikes, lockouts, or other labor or industrial disturbance,
civil disturbance, judicial orders, act of a public enemy, war, riot, blockage,
embargo, inability to secure customary materials, supplies, or labor though
ordinary sources by reason of the order of any government body or, a Casualty
Loss (as defined in Section 11. 1 of the Lease).
5.6 Notwithstanding the foregoing, the terms "Landlord Delay" or
"Force Majeure Delay" when used in this Work Letter Agreement or the Lease shall
not include any delays to work on the Tenant Improvements which were directly or
indirectly caused by any of the following:
(a) any acts or omissions of Tenant which are not in
accordance with the requirements of this Work Letter Agreement, including
without limitation (i) failure to deliver or to revise the Schematic Drawings
and/or Tenant's Plans as required, (ii) failure to provide the TI Schedule to
Landlord as required, or (iii) requesting that materials, equipment, or supplies
be included in the Tenant Improvements when such materials, equipment, or
supplies cannot be delivered to the project site in time to achieve Occupancy
Completion by June 1, 1998;
(b) any acts or omissions of the Architect and/or Engineer,
including without limitation (i) design errors, conflicts, or omissions in the
Final Plans, (ii) failure to review and return shop drawings and/or submittals
in a timely manner, (iii) failure to review Contractor's requests for change
orders or extras in a timely manner, (iv) failure to review and approve
Contractor's progress payment applications in a timely manner, (v) failure to
promptly respond to the Contractor's requests for information or requests for
interpretation of the Final Plans, (vi) specification of materials, equipment,
or supplies which are either not readily available or which require long lead
times to order and/or manufacture, without ensuring that the materials,
equipment, or supplies can be ordered and/or manufactured without delaying the
construction of the Tenant Improvements, and (vii) issuing change orders or
clarifications of the Final Plans, either of which change the Contractor's scope
or sequence of work;
(c) any acts or omissions of Tenant's Contractors, including
without limitation (i) performing defective construction work, (ii) performing
work which is not in accordance with the Final Plans, (iii) proposing
substitutions for any materials, equipment, or supplies specified in the Final
Plans, (iv) failing to coordinate its own work with other contractors or failing
to coordinate and properly sequence the work of contractors of any lower tier,
(v) failing to make progress payments, when due, to contractors of any lower
tier, (vi) failing to investigate the Premises prior to the start of
construction in order to determine the field conditions which might be expected
to affect work on the Tenant Improvements, (vii) failing to review the Final
Plans with sufficient care prior to the start of construction in order to
discover any conflicts or omissions in the Final Plans, (viii) failing to
provide contractors of any lower tier with regular up-dates of the TI Schedule,
(ix) failing to order materials, equipment, or supplies which are either not
readily available or which require long lead times to order and/or
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manufacture, in sufficient time to ensure the construction of the Tenant
Improvements will not be delayed, and (x) any breach of the Construction
Contract;
(d) any conflicts between or among the Architect, Engineer,
and Tenant's Contractors regarding the scope or sequence of work on the Tenant
Improvements; and
(e) any changes to the Final Plans, unless specifically
requested by Landlord.
6. LANDLORD'S WORK
6.1 Prior to the Commencement Date, Landlord shall be responsible
for and shall pay for costs incurred in performing the following work
("Landlord's Work"): (i) making changes to the restrooms and paths of travel
(including, if required, but not limited to elevator cabs) as required by local
or state law implementing the American Disabilities Act (ADA), and (ii) pressure
grouting the floor slab of the Premises. In addition, if on or before the date
when Tenant delivers Schematic Drawings to Landlord, Tenant does not choose to
repair or replace the windows on the third floor of the Premises, Landlord shall
perform such work. Landlord shall use its best efforts to obtain in a timely
fashion all permits necessary for Landlord's Work.
6.2 Contractor shall be responsible for coordinating and
sequencing Landlord's Work in order to ensure that there is no interference with
the work of the other contractors on the project.
6.3 If any Hazardous Materials are discovered in the Premises,
Landlord shall also be responsible for remediating, disposing, and complying
with all laws relating to any Hazardous Materials discovered to be present in
the Premises (unless introduced by Tenant or Tenant's Contractors) during the
construction of the Tenant Improvements.
7. INTENT OF THE PARTIES
7.1 It is the intent of the parties in entering into this Work
Letter Agreement that Tenant shall take the responsibility for the design and
construction of the Tenant Improvement work but that the Tenant Improvements
shall be the property of Landlord and shall be added to Landlord's capital
account for the Premises. It is further the intent of the parties that
Landlord's financial responsibility for the design and construction of the
Tenant Improvements shall be limited to the lesser of the Final Budget or the
Tenant Improvement Allowance.
7.2 It is further the intent of the parties in entering into this
Lease that to the fullest extent permitted under the Internal Revenue Code,
Landlord will be entitled to receive the applicable rehabilitation tax credit
for the Tenant Improvement work pursuant to this Work Letter Agreement. If any
provisions of this Work Letter Agreement are determined to be contrary to the
intent expressed in this Section 7.2, such provisions shall be deemed to have
been void ab initio so as to preserve Landlord's right to the rehabilitation tax
credit.
7.3 In the event of a dispute between Landlord and Tenant
regarding the terms of this Work Letter Agreement or any issue regarding the
construction of the Tenant Improvements, such disputes shall be resolved in
accordance with the provisions of Section 16.1 of the Lease.
LANDLORD TENANT
NO. I BEACH STREET, LLC CNET, INC.
GERSON BAKAR, DAVID OVERMYER,
Its Managing Member Vice-President, Finance and Administration
Dated: September _, 1997 Dated:September -, 1997
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CONSTRUCTION CONTRACT TERMS
SECTION_______ SCHEDULING OF THE WORK.
(a) At least thirty (30) days prior to the start of construction on
the Work, Contractor shall deliver to Landlord and Tenant the "as-planned"
schedule of the work to be performed ("TI Schedule"). The TI Schedule shall show
the schedule for the submission of all shop drawings/submittals and for the
performance of each portion of the Work. The TI Schedule shall take into
consideration the availability of the equipment and materials to be incorporated
into the Work and which portions of the Work will require long lead-time for
ordering and/or manufacturing. The TI Schedule shall include sufficient time for
ordering all equipment and materials in order that the Tenant Improvements for
not less than two complete floors of the Premises shall be sufficiently complete
to enable occupancy of such floors by Tenant for the use thereof for their
intended purpose ("Occupancy Completion") by June 1, 1998. The TI Schedule shall
set forth when the work to be performed by Landlord is to be scheduled in order
that such work shall be coordinated with the remainder of the Work. The TI
Schedule shall be in the form of a Critical Path Method schedule. Contractor
shall not commence work on the project until Contractor has delivered the TI
Schedule to Landlord and Tenant.
(b) Unless Contractor has been informed that it will not be able to
commence its Work by the Scheduled Delivery Date, the TI Schedule shall either
show (i) that Occupancy Completion shall be achieved prior to June 1, 1998 or
(ii) the TI Schedule shall be accompanied by a written statement, signed by
Contractor, explaining each reason why Occupancy Completion cannot be achieved
by June 1, 1998.
(c) Within fifteen (15) days after the expiration of each calendar
month during Contractor's performance of the Work, Contractor shall deliver to
Landlord and Tenant an updated TI Schedule which shall show both the "as-built"
schedule of the Work through the end of the preceding calendar month, any
changes to the critical path of the Work, and revisions, if any, to the
"as-planned" schedule for the remainder of the Work. Simultaneously with its
delivery of the up-dated TI Schedule, Contractor shall send Landlord and Tenant
a narrative ("TI Schedule Narrative") in which Contractor shall explain the
reason for each delay in the TI Schedule and each revision that was necessary to
the critical path.
(d) In order to allow Landlord, Tenant, and Contractor to be informed
about the progress of the Work, Contractor each day shall have prepared
Contractor's superintendent daily reports which shall describe the
subcontractors which were working on the project, the number of men who were
working, a brief description of the work performed, any defects or deficiencies
in the work performed, and the causes of any delay to the Work. Within fifteen
(15) days after the expiration of each calendar month during Contractor's
performance of the Work, Contractor shall deliver to Landlord and Tenant copies
of its superintendent daily reports for the preceding calendar month.
(e) Contractor shall not be entitled to request an extension of the
Contract Time for any reason unless Contractor has provided the documents
described in this section to the entities and within the time periods specified.
SECTION _______ CHANGES IN THE WORK.
(a) In the event that a change in the Work is to be ordered, Architect
shall issue to Contractor a written proposal request, with Tenant's approval,
that describes the change in the Work. Contractor shall not change or deviate
from the Contract Documents without Tenant's prior written approval.
(b) Within five (5) business days following the receipt of a proposal
request, Contractor shall submit a change proposal to Architect, with a copy to
Landlord, that sets forth any requested adjustment in the Contract Price or the
Completion Date and includes, in such detail as is required by Architect, an
itemization of all costs of material and labor with extensions listing
quantities and total costs and a substantiation of any claim for an extension of
the Completion Date. If no written change proposal is submitted by Contractor
within such period, it
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shall be conclusively presumed that the change described in the proposal request
does not call for any Work that will result in an increase in the Contract Price
or an extension of the Completion Date, and such change shall be performed by
the Contractor without any such increase or extension.
(c) Within ten (10) business days after receipt of Contractor's change
proposal, Architect shall send a written evaluation and recommendation
concerning that proposal request to Landlord and Tenant. If Tenant accepts the
change proposal submitted by Contractor, Contractor shall prepare a change order
incorporating that proposal which will be signed by Tenant.
(d) If the change in Work results, in Architect's opinion, in a
decrease in Contractor's scope of Work, Architect shall estimate the decrease in
the Contract Price. Thereafter, Contractor shall proceed with its Work in
accordance with the adjusted Contract Price contained in the change order unless
Contractor submits written protest to Architect within ten (10) days from the
receipt of such proposal request. In that event, Contractor shall proceed with
the Work but shall retain the right to dispute Architect's determination.
SECTION - APPLICATIONS FOR PROGRESS PAYMENTS.
(a) Contractor shall prepare and submit to Architect an Application
for Progress Payment on the current AIA form by the twentiAi (20th) day of each
month. Contractor's Application shall be based upon all the Work performed by
Contractor to date as a percentage of Contractor's total scope of Work and as a
percentage of each category in the Schedule of Values. This Application for
Progress Payment shall be in the form required by Architect and shall be
supported by such documentation required by Architect, which must at least
include a statement of the quantities included in the Project by Contractor
which forms the basis for Contractor's contention that it has completed a
certain percentage of the Work, copies of payment applications from Contractor's
subcontractors, copies of certified payroll reports from Contractor and each of
the subcontractors of any tier for the period for which a progress payment is
requested, a Conditional Waiver and Release Upon Progress Payment, in the form
specified by Section 3262(d)(1) of the California Civil Code, executed by
Contractor and each of Contractor's subcontractors, equipment suppliers, and
materialmen.
(b) Whenever Landlord or Architect requests Contractor to do so (but
not more frequently than once per month), Contractor, in addition to providing
the documentation set forth in subsection (a) hereof, shall submit to Landlord
and to Architect: (1) a written declaration signed under penalty of perjury by
Contractor which shall state (i) the fixed price under the Construction Contract
and the total of all approved change orders and all claims for extras by
Contractor to which Tenant has agreed, (ii) the total amount which Contractor or
any of its subcontractors, materialmen, or equipment suppliers have claimed for
extras that are disputed, (iii) the total amount paid to Contractor to date, and
(iv) that Contractor has paid its subcontractors, materialmen, and equipment
suppliers for all progress payment applications and bills submitted to date; and
(2) Unconditional Waivers and Releases Upon Progress Payment, in the form
specified by Section 3262(d)(2) of the California Civil Code, executed by
Contractor and each of its subcontractors, equipment suppliers, and materialmen,
which shows the total amount paid to each.
SECTION - PROGRESS PAYMENTS.
(a) The Architect will, within five (5) business days after receipt of
Contractor's Application for Progress Payment (which shall be prepared by
Contractor), either issue a Certificate for Progress Payment to Landlord and
Tenant, with a copy to Contractor, for such amount as the Architect determines
is properly due, or notify Contractor in writing of his reasons for withholding
the Certificate. If Architect issues a Certificate for Payment, that Certificate
shall specify the aggregate value of Contractor's Work on the Project to date
from which sum there shall be deducted a reserve of ten percent (10%), all
previous payments made under prior Progress Payment Applications, the aggregate
amount of all payments made by Landlord or Tenant to others on behalf of
Contractor, and all other amounts which Landlord or Tenant is entitled to retain
in accordance with the provisions of the Contract Documents.
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(b) As soon as reasonably possible after Architect has issued his
Certificate for Progress Payment, but in any event no later than seven (7)
business days after Contractor submits its Application for Progress Payment,
Contractor shall be paid the sum indicated in the Certificate for Progress
Payment.
SECTION ______ FINAL PAYMENT.
(a) Upon receipt of a written notice from Contractor that the Work is
ready for final inspection and acceptance and upon receipt of an Application for
Final Payment (supported by such documentation as Architect may require,
including copies of the final certified payroll reports from Contractor and each
of the subcontractors of any tier and a Conditional Waiver and Release Upon
Final Payment in the form specified in Section 3262(d)(3) of the California
Civil Code executed by Contractor and each of Contractor's subcontractors,
equipment suppliers, and materialmen), the Architect will promptly make an
inspection of the Work; and, if he finds the Work is in accordance with the
Contract Documents and that the Contract is fully performed, he will promptly
issue a Certificate for Final Payment to Landlord and Tenant.
(b) The retainages allowed by this Contract shall be retained until:
(1) Landlord and Tenant have received a Certificate for Final Payment from
Architect; and (2) thirty-five (35) days have elapsed following recordation of a
Notice of Completion in the official records of the City and County of San
Francisco, State of California. Thereafter, the retained percentage and all
other amounts due to Contractor shall be paid, provided (i) that Contractor
executes and delivers to Architect, simultaneously with the final payment, an
Unconditional Waiver and Release Upon Final Payment, in the form specified by
Section 3262(d)(4) of the California Civil Code, executed by Contractor and each
of Contractor's subcontractors, equipment suppliers, and materialmen, (ii) that
Contractor submits to Landlord and Tenant an affidavit signed under penalty of
perjury by the Contractor which states that all those providing labor,
materials, equipment, tools, facilities, services, and insurance used and
contracted to be used in or in connection with the construction of the Project
by and through Contractor have been fully paid, and (iii) that Contractor
delivers to Landlord all warranties required by this Construction Contract.
SECTION ______ LANDLORD/TENANT'S OBLIGATION TO MAKE PAYMENTS TO CONTRACTOR.
(a) In the Work Letter Agreement between Landlord and Tenant, Landlord
agreed to provide Tenant with a Tenant Improvement Allowance in the amount of
Three Million Eight Hundred Eighty Thousand Six Hundred Dollars and 00/100
($3,880,600.00) which was to be used for the design and construction of the
Tenant Improvements. Except as provided in subsection (b) hereof, Landlord shall
be obligated to make payments to Contractor in accordance with the terms of this
Construction Contract only to the extent of the amount of the aforesaid Tenant
Improvement Allowance, less any portion of the Tenant Improvement Allowance
which Landlord has paid for the costs of design or other costs and expenses
associated with the construction of the Tenant Improvements. Landlord shall make
all payments of the Tenant Improvement Allowance to Contractor in the form of
joint checks, on which Tenant and Contractor shall be named as joint payees.
Except as provided in subsection (b) hereof, Tenant shall be solely responsible
for all payments to the Contractor in excess of the Tenant Improvement
Allowance.
(b) Landlord's liability to the Contractor for the construction of the
Tenant Improvements shall in no event exceed the Tenant Improvement Allowance,
except (i) for the work, if any, described in the Contract Documents as
"Landlord's Work," and (ii) for any work performed by Contractor, after prior
written notice to Landlord, in removing and remediating Hazardous Materials.
(c) In order to inform Contractor which party will be responsible for
paying each Progress Payment and the Final Payment, Landlord shall deliver to
Contractor, together with each Progress Payment which it makes, an itemization
showing all payments made by Landlord to date for the design and construction of
the Tenant Improvements and the total amount remaining of the Tenant Improvement
Allowance.
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(d) Except for its obligation to make payments to the Contractor as
described in this section, Landlord shall have no obligation or responsibility
for any aspect of the construction of the Tenant Improvements.
SECTION ______ WITHHOLDING PAYMENTS TO CONTRACTOR. Landlord and/or Tenant
shall have the right to withhold all or a portion of any progress or the final
payment due Contractor (i) if Contractor does not supply the documentation in
support of its progress payment or final payment application required by this
Construction Contract, (ii) if Contractor, by any act or omission, is
responsible for any damage to its own or any other work in the construction of
the Project or to any real or personal property of Landlord, Tenant, or others,
(iii) if Contractor's Work on the Project is defective or deficient in any
manner and Contractor has not remedied such defect or deficiency as instructed
by Architect, (iv) if Contractor shall fail to remove and have released any
mechanic's lien or stop notice on the real property on which Contractor
performed its Work which is asserted by one of Contractor's subcontractors,
equipment suppliers, and materialmen, or (v) if Contractor owes an indemnity
obligation pursuant to this Construction Contract, unless the Contractor's
insurance carrier has agreed to provide insurance coverage therefor without a
reservation of rights.
SECTION ______ CONTRACTOR SHALL PQY FOR LABOR AND MATERIALS. Contractor
shall pay for all materials and labor used in or in connection with its
performance of the Work through the period covered by previous payments received
from Landlord or Tenant and shall furnish satisfactory evidence, whenever
requested by Landlord or Tenant, to verify any and all such payments. All sums
received by Contractor under this Contract shall be received in trust for the
express purpose of paying in full for all labor and materials for the
performance of this Contract. No title to any payment, or part thereof, shall
vest in Contractor or be used for any other purpose until Contractor has first
paid in full for all labor and materials supplied to Contractor and incorporated
in this project.
SECTION ______ CLAIMS FOR EXTRAS.
(a) If Contractor wishes to make a claim for an increase in the
Contract Price or an extension of the Completion Date, he shall give Architect
written notice thereof within five (5) business days after the occurrence of the
event giving rise to such claim. No claim by Contractor shall be valid unless
approved in writing by Architect and Tenant. Contractor shall substantiate both
its right to an increase or extension and the amount of the increase or
extension by providing such information and documentation as Architect may
reasonably request.
(b) Within five (5) business days after receipt of Contractor's claim,
Architect shall send a written evaluation and recommendation concerning that
claim to Landlord and Tenant. Architect and Tenant must approve any written
claim from Contractor prior to Contractor performing the work which forms the
basis of its claim, except Contractor shall proceed in an emergency endangering
life or property. If Contractor fails to obtain Architect's and Tenant's written
approval for its claim prior to the time it performs the work which forms the
basis of the claim (unless the above exception applies), Contractor shall waive
any claims it might have had involving such work.
SECTION ______ INDEMNIFICATION BY CONTRACTOR. Contractor shall defend,
protect, indemnify, and hold harmless C/NET, Inc. and No. I Beach Street, LLC
and their respective, directors, officers, shareholders, members, managers,
agents and employees (collectively referred to as "Indemnitees") from and
against all liability, liens, injuries, claims, damages, fines, penalties,
costs, and expenses, including attorneys' fees and litigation or arbitration
costs, arising out of or resulting from the performance of the Work and/or
breach of the Contract Documents, provided that any such liability, lien,
injury, claim, damage, cost, or expense is caused, in whole or in part, by any
act or omission of Contractor, its subcontractors of any lower tier, anyone
directly or indirectly employed by any of them, or anyone for whose acts any of
them may be liable. Contractor's indemnity obligation shall be binding upon
Contractor regardless of whether any of the Indemnitees is negligent, actively,
passively, or not at all. However, Contractor shall not be required to indemnify
any Indemnitee whose sole negligence or willful misconduct is responsible for
the liability, lien, injury, claim, damage, cost, or expense. Contractor shall,
upon demand by any of its Indemnitees, defend any action or proceeding brought
against any of its
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Indemnitees with respect to the matters set forth in this Construction Contract;
but any of the Indemnitees shall have the right to conduct its own defense if it
chooses to do so.
SECTION ______ INSURANCE REQUIRED TO BE CARRIED BY CONTRACTOR. Contractor
shall at all times carry with companies acceptable to Tenant all necessary
Worker's Compensation and other insurance required by law and a Commercial
General Liability Insurance policy in amounts not less than $5,000,000.00 per
occurrence for bodily injury and property damage. Such policy or policies shall
include coverage for premises and operations liability, contractual liability
(including, but not limited to, Contractor's indemnity obligation to the
Indemnitees), completed operations coverage, products liability, broad form
property damage liability, liability which Contractor may incur as a result of
the operations, acts, or omissions of its subcontractors, suppliers, or
materialmen, and their agents or employees, automobile liability, including
owned, non-owned, and hired vehicles. Such policy or policies shall be endorsed
to include all Indemnitees as additional insureds and to stipulate that such
insurance shall be primary insurance and that any insurance carried by any
Indemnitees shall be excess and not contributory insurance.
SECTION ______ INSURANCE REQUIREMENTS. All insurance coverage procured by
the Contractor shall (i) list all of the named insureds under the policy, (ii)
be issued by an insurer admitted to transact insurance in the State of
California with a financial rating of at least an A:Vl1I as rated in the most
recent edition of Best's Insurance Reports, (iii) contain an endorsement
requiring at least thirty (30) days written notice from the insurance company to
all of the named additional insureds before any cancellation or material change
in coverage, scope, or amount of the insurance policy, and (Iv) contain an
endorsement stating that no additional insured will be excluded from coverage in
the event that the additional insured is alleged or found to be negligent in
connection with any claim made under the policy or otherwise.
SECTION ______ DELIVERY OF CERTIFICATES OF INSURANCE AND POLICY
ENDORSEMENTS TO LANDLORD AND TENANT. If Contractor fails to deliver to Landlord
and Tenant insurance certificates and policy endorsements which reflect the
requirements specified in this Construction Contract within forty-eight (48)
hours after demand, and in any event prior to commencement of Contractor's Work
on the Project, Landlord may, but shall not be obligated to, obtain such
insurance for Contractor and pay the premiums thereon, and Contractor shall
repay Landlord, on demand, any sum or sums paid therefor, or Landlord may deduct
such premiums from any money due or to become due to Contractor under this
Agreement. In the alternative, Landlord may declare Contractor in default under
this Construction Contract.
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EXHIBIT D
[MAP]
Diagram of Comparable Space Area
<PAGE>
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the date: set forth below by
and between , hereinafter called "Tenant"; ,
hereinafter called "Landlord"; and Midland Loan Services, L. P., Master Servicer
for LaSalle National Bank, Trustee for SASCO SERIES 1996 CFL (collectively
referred to herein as "Lender"), as follows:
W I T N E S S E T H:
WHEREAS, Under is now the holder of a Mortgage or Deed of Trust, which
secures or will secure a Note in the original principal amount of $ in
favor of Lender as executed by Landlord and which encumbers the real property,
together with the buildings and improvements thereon, described in Exhibit "A"
attached hereto and made a part hereof; and,
WHEREAS, Tenant is the holder of a lease (the "Lease") dated
from Landlord and, as further amended by instrument(s) dated (such
lease, together with the amendments set forth herein are collectively referred
to as "the Lease") covering certain premises more particularly described in the
Lease (hereafter the "Leased Premises"); and,
WHEREAS, Tenant., Landlord and Lender desire to confirm their understanding
with respect to the Lease and the Mortgage or Deed of Trust;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Tenant, Landlord and Lender hereby agree and covenant as
follows:
1. The Lease and the rights of Tenant thereunder are now and at all times
hereafter shall be subject and subordinate to the above Deed of Trust or
Mortgage and to all renewals, modifications or extensions thereof, but such
renewals modifications and extensions shall nevertheless be subject and entitled
to the benefits of the terms of this Agreement.
2. So long as Tenant is not in default (beyond any period given Tenant to
cure such default) in the payment of rent or in. the performance of any of the
terms, covenants or conditions of the Lease on Tenant's part to be performed,
Tenant's possession of the Leased 'Premises and Tenant's rights and privileges
under the Lease, or any renewals, modifications. or extensions thereof which may
be affected in accordance with any option granted in the Lease, shall not be
diminished or interfered with by Under, and Tenant's occupancy of the Leased
Premises shall not be disturbed by Lender during the term of the Lease or any
such renewals, modifications, or extensions thereof.
3. So long as Tenant is not in default (beyond any period given Tenant to
cure such default) in the payment of rent or in the performance of any of the
terms, covenants or conditions of the Lease on Tenant's part to be performed,
Lender will not join Tenant, or any leasehold mortgagee of Tenant ("Tenant's
Mortgagee"), as a party defendant for the purpose of
<PAGE>
SNDA - SASCO SERIES 1996 CFI
Page 2
terminating or otherwise affecting Tenant's or Tenant's Mortgagee's interest.
and estate under the Lease in any action or proceeding brought by Lender for the
purpose of enforcing any of its rights in the event of any default under the
Note and Mortgage or Deed of Trust; provided, however, Lender may join Tenant or
Tenant's Mortgagee as a party in any such action or proceeding IF such joinder
is necessary under any statute or law for the purpose of effecting the remedies
available to the Lender under the Note and Mortgage or Deed of Trust, BUT ONLY
for such purpose and NOT for the purpose of terminating the Lease.
4. If the interests of Landlord shall be transferred to and owned by Lender
by reason of foreclosure or other proceedings brought by it, or by any other
manner, and Lender succeeds to the interests of the Landlord under the Lease,
Tenant shall be bound to Lender under all of the terms, covenants and conditions
of the Lease for the balance of the term thereof remaining and any extensions or
renewals thereof which may be effected in accordance with. any option granted in
the Lease, with the same force and effect as if Lender were the Landlord under
the Lease, and Tenant does hereby attorn to Lender as its Landlord, such
attornment to be effective and self-operative without the execution of any
further instruments on the part of any of the parties hereto immediately upon
Under succeeding to the interest of the Landlord under the Lease. The respective
rights and obligations of Tenant and Lender upon such attornment, to the extent
of the then remaining balance of the term of the Lease and any such extensions
and renewals, shall be and are the same as now set forth therein; it being the
intention of the parties hereto for this purpose to incorporate the Lease in
this Agreement by reference with the same force and effect as if set forth at
length herein.
5. If Lender shall succeed to Landlord's interest in the Lease, then during
the period of Lender's ownership of such interest, but not thereafter, Lender
shall be bound to Tenant and Tenant's Mortgagee under all the terms, covenants
and conditions of the Lease, and during the period of Lender's ownership of
Landlord's interest in the Lease, Tenant and Tenant's Mortgagee shall have the
same remedies against Lender for the breach of an agreement contained in the
Lease that Tenant and Tenant's Mortgagee would have had against the Landlord if
Under had not succeeded to Landlord's interest therein; provided, however, that
notwithstanding any provisions in the Lease to the contrary, Lender shall not
be:
(a) liable for any act or omission of any prior landlord arising under
the Lease (including the Landlord) or subject to any offsets, defenses or
counterclaims which Tenant may have against any prior landlord arising under the
Lease (including the Landlord), or,
(b) bound by any rents or additional rent which Tenant might have PAID
FOR more than the current month to any prior landlord (including the Landlord);
or
(c) bound by any amendment or modification of the I-ease made without
its consent; or,
(d) LIABLE FOR any security deposited under the Lease unless such
security has been physically delivered to Lender.
<PAGE>
SNDA - SASCO SFRIFS 1996 CFL
Page 3
Provided, however, that the Under shall not be relieved from responsibility
for failure to perform any obligation under the Lease which, although such
failure may have begun prior to Lender succeeding to Landlord's interest,
thereafter continues. In such event, Lender's responsibility shall be determined
as if the failure had first arisen upon the day Landlord's title to the Subject
Property succeeds to Lender.
6. Tenant shall promptly notify Lender of any default , act OR OMISSION OF
Landlord which would give Tenant the right, immediately or after the lapse of a
period of time, to cancel or terminate the Lease or to claim a partial or total
eviction ("a Landlord Default"). In the event of a Landlord Default, the Tenant
shall not exercise any rights available to it: i) until it has given written
notice of such Landlord Default to Lender; and ii) unless Lender has failed
within thirty (30) days after Lender receives such notice, to cure or remedy the
Landlord Default or, if the same can. not be reasonably remedied with such
period, until a reasonable period for remedying such Landlord Default has
elapsed, but in any event, not less than the period of time the Landlord would
be entitled to cure such default pursuant to the terms of the Lease. Lender
shall have no obligation under this paragraph to remedy any Landlord Default.
7. The terms "holder of a mortgage" and "Lender" or any similar term herein
or in the LEASE shall be deemed to include Lender and any of its successors or
assigns, including anyone who shall have succeeded to Landlord's interests by,
through or under foreclosure of the Mortgage or Deed of Trust, or by deed in
lieu of such foreclosure or otherwise.
8. The Landlord has assigned or will assign to Lender all of Landlord's
right, title and interest in the Lease by an Assignment of Rents and Leases
("Rent Assignment"). If in the future there is a default by the Landlord in the
performance and observance of the terms of the Note or Mortgage or Deed of
Trust, the Lender may at its option under the Rent Assignment require that all
rents and all other payments due under the Lease be paid directly to Lender.
Upon notification to that effect by the Lender to the Landlord and the Tenant,
the Landlord HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS the Tenant and the Tenant
agrees to pay any payments due under the terms of the Lease to the Lender. Such
payments shall constitute payments under the terms of the Lease and Landlord
shall have no claim against Tenant by reason of such payments made to Lender.
Such payments shall be made by Tenant to Lender regardless of any right of
setoff, counterclaim or other defense which Tenant may have against Landlord.
Neither the Rent Assignment or its implementation shall diminish any OBLIGATION
OF THE LANDLORD under the Lease or IMPOSE ANY such obligations on the Lender.
9. Any notice, or request or other communication required by this Agreement
to be given shall be in writing and shall be: (a) personally delivered; or, (c)
transmitted by postage prepaid registered or certified mail, return receipt
requested. All such notices, requests or other communications shall be addressed
to Tenant, Landlord or Under at the addresses set forth below or such other
address as the parties shall in like manner designate. All such notices and
requests shall be deemed to have been given on the first to occur of- (i) the
actual date received, or (ii) the date of delivery if personally delivered; or
(iii) five (5) days following posting it transmitted by mail.
<PAGE>
SNDA -SMSCO SERIES 1996 CFL
Page 4
If to Tenant:
If to Landlord:
If to Lender: Midland Loan Services, L.P.
210 West 10th
Kansas City, Missouri 64105
Attention: ________________,
Asset Manager
10. This Agreement may NOT be modified except by a written agreement signed
by the parties hereto or their respective successors in interest. This Agreement
Shall inure to the benefit of and be binding upon the parties hereto, their
successors and assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals by
and through their duly authorized officers on the ________ day of ____________,
19____.
"Lender" LaSalle National Bank as Trustee for
SASCO SERIES 1996 CFL, by and through its
Master Servicer, Midland Loan Services, L. P.
By
-------------------------------------------
C. J. Sipple
Its Servicing Officer
"TENANT"
(print)
---------------------------------------------
By
-------------------------------------------
Its
------------------------------------------
"LANDLORD"
(print)
---------------------------------------------
By
-------------------------------------------
Its
------------------------------------------
<PAGE>
SNDA - SASCO SERIES 1996 CH,
Pap 5
STATE OF MISSOURI
)
COUNTY OF JACKSON
On this day of 199__, before me, a Notary Public in and for
the State of Missouri, personally appeared C. 3. Sipple, personally known to me
(or proved to me ON the basis of satisfactory evidence) to be the person who
executed this instrument, ON OATH stated the he was authorized to execute the
instrument, and acknowledged that he is the Servicing Officer of Midland Loan
Services, L.P., to be the free and voluntary act and deed of said company for
the uses and purposes mentioned in the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and
year first above written,
(seal)
-----------------------------------------------
(Print Name)
NOTARY PUBLIC in and for the State of Missouri.
My appointment expires
-------------------
STATE OF
COUNTY OF
On this day of before me, a Notary Public in
and for the State of personally appeared personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person who executed this instrument, tin oath stated the he/she was authorized
to execute the instrument, and acknowledged that lie/she is the
of to be the free and voluntary act and deed of
said for the uses and purposes mentioned in the
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and
year first above written.
(seal)
-----------------------------------------------
(Print Name)
NOTARY PUBLIC in and for the State of
My appointment expires
-------------------
<PAGE>
SNDA - SASCO SERIES 1996 CFL Page 6
STATE OF
ss.
COUNTY OF
On this day of 199_, before me, a Notary Public in
and for the State of personally appeared
personally known to me (or proved to me on the basis of satisfactory evidence)
to he the person who executed this instrument, on oath stated the he/she was
authorized to execute the instrument, and acknowledged that he/she is the
- of
to be the free and voluntary act and deed or said for the uses aid purposes
mentioned in the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seat the day and
year first above written.
(seal)
-----------------------------------------------
(Print Name)
NOTARY PUBLIC in and for the State of
My appointment expires
-------------------
<PAGE>
Exhibit 10.5
---------------------------
XENON 2, INC.*
GOVERNANCE AND INVESTOR RIGHTS AGREEMENT
between
XENON 2, INC.
and
NATIONAL BROADCASTING COMPANY, INC.
---------------------------
Dated as of _________ __, 1999
* Changed its name to NBC Internet, Inc. on July __, 1999
- --------------------------------------------------------------------------------
<PAGE>
GOVERNANCE AND INVESTOR RIGHTS AGREEMENT
THIS GOVERNANCE AND INVESTOR RIGHTS AGREEMENT (this "Agreement"), dated
as of _______________ __, 1999, is made and entered into by and between Xenon 2,
Inc., a Delaware corporation (the "Company"), and National Broadcasting Company,
Inc., a Delaware corporation ("NBC").
W I T N E S S E T H:
WHEREAS, the Company and NBC have entered into that certain Agreement
and Plan of Contribution, Investment and Merger (the "Merger Agreement"), dated
May 9, 1999, and into certain other agreements referred to in, or transactions
contemplated by, the Merger Agreement (the "Transactions");
WHEREAS, the Company and NBC desire, in connection with the
Transactions, to make certain covenants and agreements with one another pursuant
to this Agreement;
WHEREAS, it is a condition to the consummation of the Transactions that
the parties enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Affiliate" shall mean (i) with respect to the Company, the Company's
Subsidiaries, (ii) with respect to NBC, except as provided in Section 2.2 below,
NBC's Subsidiaries and the holder of the Company Convertible Note and (iii) with
respect to NBC Parent, NBC Parent's Subsidiaries other than NBC and its
Affiliates; PROVIDED, HOWEVER, that for purposes of this Agreement, the Company
and its Affiliates on the one hand, and either NBC and its Affiliates or NBC
Parent and its Affiliates on the other hand, shall not be deemed to be
"Affiliates" of one another.
"Beneficially Own" or "Beneficial Ownership" shall have the meaning set
forth in Rule 13d-3 of the rules and regulations promulgated under the Exchange
Act. Without limiting the foregoing, the holder of the Company Convertible Note
will be deemed to Beneficially Own the shares of Common Stock issuable upon
conversion thereof; PROVIDED that for all purposes under this Agreement, NBC and
its Affiliates shall not be deemed to beneficially own any Voting Securities
beneficially owned by NBC Parent or
<PAGE>
its Affiliates and NBC Parent and its Affiliates shall not be deemed to
beneficially own any Voting Securities beneficially owned by NBC and its
Affiliates, in each such case unless and until NBC Parent or its Affiliates
shall have become Restricted Parties.
"Board of Directors" shall mean the Board of Directors of the Company
as from time to time hereafter constituted.
"Certificate of Incorporation" shall mean the Amended and Restated
Certificate of Incorporation of the Company as in effect on the date hereof,
substantially in the form of Exhibit A hereto, and as hereafter from time to
time amended, modified, supplemented or restated in accordance with the terms
hereof and pursuant to applicable law.
"Change in Control of the Company" shall mean any of the following: (i)
a merger, consolidation or other business combination or transaction to which
the Company is a party if the stockholders of the Company immediately prior to
the effective date of such merger, consolidation or other business combination
or transaction, as a result of such merger, consolidation or other business
combination or transaction, do not have Beneficial Ownership of Voting
Securities representing 50% or more of the Total Current Voting Power of the
surviving corporation (or its parent) following such merger, consolidation or
other business combination or transaction; (ii) any Person or 13D Group, shall
have Beneficial Ownership of 20% or more of the outstanding shares of Class A
Common Stock at a time when the holders of the Class B Common Stock do not elect
a majority of the Board of Directors; (iii) a sale of all or substantially all
the consolidated assets of the Company to any Person or Persons (other than a
Restricted Party or any 13D Group to which any Restricted Party is a member); or
(iv) a liquidation or dissolution of the Company.
"Class A Directors" shall have the meaning set forth in the Company's
Certificate of Incorporation.
"Class A Common Stock" shall have the meaning set forth in the
Company's Certificate of Incorporation.
"Class B Directors" shall have the meaning set forth in the Company's
Certificate of Incorporation.
"Class B Common Stock" shall have the meaning set forth in the
Company's Certificate of Incorporation.
"Commission" shall mean the Securities and Exchange Commission and any
successor commission or agency having similar powers.
"Company Competitor" shall have the meaning ascribed to the term "Newco
Competitor" in that certain License Agreement (as defined in the Merger
Agreement).
2
<PAGE>
"Common Stock" shall mean the Company's Class A Common Stock and the
Class B Common Stock.
"Eligible Purchaser" shall mean any Person (other than the Company or
any Person that is or becomes a Restricted Party) that is not a Company
Competitor.
"Effective Time" shall have the meaning set forth in the Merger
Agreement.
"Exchange Act" shall mean, as of any date, the Securities Exchange Act
of 1934, as amended, or any similar federal statute then in effect and
superseding such act, and any reference to a particular section thereof shall
include a reference to the comparable section, if any, of such similar federal
statute, and the rules and regulations thereunder.
"NBC Parent" shall mean the ultimate parent corporation of NBC (if
any), which as of today is General Electric Company, a New York corporation.
"NBC Tender Offer" shall mean a bona fide public tender offer subject
to the provisions of Regulation 14d under the Exchange Act by a Restricted Party
(or any 13D Group that includes a Restricted Party) to purchase or exchange for
cash or other consideration any Voting Securities.
"Newco Convertible Note" shall have the meaning set forth in the Merger
Agreement.
"Note Conversion Time" shall mean any time following the Effective Time
at which there shall be any conversion into shares of Class B Common Stock
pursuant to the Newco Convertible Note, which shares of Class B Common Stock are
Beneficially Owned by a Restricted Party.
"Person" shall mean an individual or a corporation, association,
partnership, limited liability company, joint venture, organization, business,
trust or any other entity or organization, including a government or any
subdivision or agency thereof.
"Restricted Parties" shall mean (i) NBC, (ii) NBC's Affiliates and
(iii) from and after the time NBC Parent or any of its Affiliates shall convert
any shares of Class A Common Stock into shares of Class B Common Stock pursuant
to Section 2.2 of this Agreement, NBC Parent and its Affiliates.
"Securities Act" shall mean, as of any date, the Securities Act of
1933, as amended, or any similar federal statute then in effect and superseding
such act, and any reference to a particular section thereof shall include a
reference to the comparable section, if any, of any such similar federal
statute, and the rules and regulations thereunder.
"Shares" shall mean any shares of Voting Securities that are
Beneficially Owned by any Restricted Party or any 13D Group of which any
Restricted Party is a member.
3
<PAGE>
"Standstill Limit" shall mean the percentage of the Total Current
Voting Power of the Company that would be held by NBC and its Affiliates on June
11, 1999 if the transactions contemplated by the Merger Agreement had been
consummated on such date, assuming that the Company Convertible Note had been
converted at such time into shares of Class B Common Stock.
"Standstill Period" shall mean the period beginning on the Closing Date
(as defined in the Merger Agreement) and ending on the occurrence of a
Standstill Termination Event; PROVIDED that the Standstill Period shall
recommence immediately upon the occurrence of a Standstill Reinstatement Event .
"Standstill Reinstatement Event" shall mean that the Standstill Period
has terminated pursuant to clause (iii) of the definition of "Standstill
Termination Event" and such Third Party Tender Offer is withdrawn or terminated
(without having been consummated). Notwithstanding the foregoing, a Standstill
Reinstatement Event will not occur if prior to the occurrence of the event
specified in the preceding sentence that would otherwise result in a Standstill
Reinstatement Event, another Standstill Termination Event occurs for which there
has not been a related Standstill Reinstatement Event.
"Standstill Revised Limit" shall mean the percentage of the Total
Current Voting Power represented by all shares of Voting Securities Beneficially
Owned by the Restricted Parties as of the occurrence of a Standstill
Reinstatement Event.
"Standstill Termination Event" shall mean the earliest to occur of (i)
the third anniversary of the date of this Agreement, (ii) the first anniversary
of the date on which the Restricted Parties or any 13D Group of which they are a
member no longer Beneficially Own any shares of Class B Common Stock (including
as a result of their automatic conversion to Class A Common Stock in accordance
with the Company's Certificate of Incorporation), (iii) a Third Party Tender
Offer, (iv) the date the Company enters into an agreement relating to a
transaction that if consummated will result in a Change in Control of the
Company or (v) any Change in Control of the Company occurs; PROVIDED, that the
Standstill Period will be immediately reinstated upon the occurrence of a
Standstill Reinstatement Event; PROVIDED FURTHER that, upon a Standstill
Reinstatement Event, if the Standstill Revised Limit is greater than the
Standstill Limit, then the Standstill Revised Limit and not the Standstill Limit
shall thereafter be deemed the Standstill Limit for all purposes hereunder.
"Subsidiary" shall mean, as to any Person, another Person of which
outstanding securities having the power to elect a majority of the members of
the board of directors (or comparable body or authority performing similar
functions) of such other Person are at the time owned, directly or indirectly
through one or more intermediaries, or both, by such first Person.
"Takeover Transaction" means (i) the direct or indirect acquisition or
purchase of 50% or more of the assets (based on the fair market value thereof)
of the Company and
4
<PAGE>
its Affiliates, taken as a whole, or of 50% or more of any class of equity
securities of the Company or any of its Affiliates or any tender offer or
exchange offer (including by the Company or its Affiliates) that if consummated
would result in any person Beneficially Owning 50% or more of any class of
equity securities of the Company or any of its Affiliates, (ii) a sale of all or
substantially all of the assets of the Company and its Affiliates or (iii) a
merger or consolidation of the Company as a result of which the stockholders of
the Company immediately prior to such transaction would not Beneficially Own
immediately after such transaction 50% or more of the resulting or surviving
entity (or the parent thereof).
"Third Party Tender Offer" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14D under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), when first commenced within the meaning
of Rule 14d-2 of the rules and regulations under the Exchange Act by a Person or
13D Group (which is not made by and does not include any of the Company or any
Affiliate or a Restricted Party or any 13D Group that includes the Company or an
Affiliate or a Restricted Party) to purchase or exchange for cash or other
consideration any Voting Securities and which consists of an offer to acquire
20% or more of the then Total Current Voting Power of the Company.
"Total Current Voting Power" shall mean, with respect to any
corporation, the total number of votes which may be cast in the election of
members of the Board of Directors of such corporation if all securities entitled
to vote in the election of such directors are present and voted; PROVIDED that,
for purposes of this definition, the Class A Common Stock and the Class B Common
Stock shall be considered as a single class.
"Voting Securities" shall mean shares of Common Stock and any other
securities of the Company entitled to vote generally in the election of members
of the Board of Directors or any other securities (including, without
limitation, rights and options) convertible into, exchangeable for or
exercisable for, any of the foregoing (whether or not presently convertible,
exchangeable or exercisable).
"13D Group" shall mean any group of persons formed for the purpose of
acquiring, holding, voting or disposing of Voting Securities of a corporation
which would be required under Section 13(d) of the Exchange Act, and the rules
and regulations promulgated thereunder, to file a statement on Schedule 13D
pursuant to Rule 13d-1(a) or Schedule 13G pursuant to rule 13d-1(c) with the
Commission as a "person" within the meaning of Section 13(d)(3) of the Exchange
Act if such group Beneficially Owned Voting Securities representing more than 5%
of any class of Voting Securities then outstanding; PROVIDED, HOWEVER, that for
all purposes under this Agreement, NBC and its Affiliates shall not be deemed to
have formed, joined, participated in or be a member of any 13D Group which
includes NBC Parent and its Affiliates unless and until NBC Parent or its
Affiliates shall have become Restricted Parties.
5
<PAGE>
ARTICLE II
STANDSTILL PROVISIONS
Section 2.1 RESTRICTIONS ON NBC'S ACTIVITIES REGARDING THE COMPANY AND
ITS STOCK. NBC agrees that during the Standstill Period, without first obtaining
the prior approval of the Class A Directors of the Company, specifically
expressed in a resolution adopted by a majority of the Class A Directors of the
Company, NBC will not, and NBC will cause each Restricted Party, each 13D Group
of which a Restricted Party is a member, and shall use its best efforts to cause
each of their respective agents, representatives, employees, directors, and
officers (in such capacity) not to, directly or indirectly (nor to solicit,
initiate, assist or encourage NBC Parent or its Affiliates to, directly or
indirectly):
(a) acquire, offer or propose to acquire, or agree to acquire, directly
or indirectly, whether by purchase, tender or exchange offer, through the
acquisition of control of another Person, by joining a partnership, limited
partnership, syndicate or other "group" (within the meaning of Section 13(d)(3)
of the Exchange Act) or otherwise, any Voting Securities, if after giving effect
to such acquisition the Total Current Voting Power represented by the Voting
Securities Beneficially Owned by the Restricted Parties exceeds the Standstill
Limit; PROVIDED, HOWEVER, that if at any time during the Standstill Period, (x)
any Person other than any Restricted Party or any 13D Group of which a
Restricted Party is a member has made any written proposal or offer relating to
a Takeover Transaction or Change in Control of the Company which has not been
rejected within 10 business days by the Board of Directors, (y) the Board of
Directors has determined to pursue a Takeover Transaction or Change in Control
of the Company and the Board of Directors has not resolved to stop pursuing such
Takeover Transaction or Change in Control of the Company, or (z) the Board of
Directors or the Company has engaged in any discussions or negotiations with, or
provided any information to, any Person other than any Restricted Party, or any
13D Group of which any Restricted Party is a member, with respect to a Takeover
Transaction or Change in Control of the Company and the Board of Directors has
not resolved to terminate all such discussions, negotiations and provision of
information, then, for so long as such condition continues to apply, the
limitation on the actions described above in this clause (a) shall not be
applicable to any Restricted Party;
(b) make, or in any way participate, directly or indirectly, in any
"solicitation" (as such term is used in the proxy rules of the Commission as in
effect on the date hereof) of proxies or consents in connection with an
amendment to the Certificate of Incorporation that requires a separate class
vote of the Class A Common Stock pursuant to the Certificate of Incorporation or
the election of Class A Directors, in each case at a time when any Restricted
Party is the Beneficial Owner of Class B Common Stock; PROVIDED, HOWEVER, that
the limitation contained in this clause (b) shall not apply to any Takeover
Transaction to be voted on by the Company's shareholders that is not instituted
or proposed by any Restricted Party or any 13D Group of which any Restricted
Party is a member; or
6
<PAGE>
(c) act, whether alone or in concert with others, to seek to propose to
the holders of the Class A Common Stock any merger, business combination or
similar transaction with any Restricted Party or any 13D Group of which any
Restricted Party is a member; PROVIDED, HOWEVER, that if at any time during the
Standstill Period, (x) any Person other than any Restricted Party or any 13D
Group of which a Restricted Party is a member has made any written proposal or
offer relating to a Takeover Transaction or Change in Control of the Company
which has not been rejected within 10 business days by the Board of Directors,
(y) the Board of Directors has determined to pursue a Takeover Transaction or
Change in Control of the Company and the Board of Directors has not resolved to
stop pursuing such Takeover Transaction or Change in Control of the Company, or
(z) the Board of Directors or the Company has engaged in any discussions or
negotiations with, or provided any information to, any Person other than any
Restricted Party, or any 13D Group of which any Restricted Party is a member,
with respect to a Takeover Transaction or Change in Control of the Company and
the Board of Directors has not resolved to terminate all such discussions,
negotiations and provision of information, then, for so long as such condition
continues to apply, the limitation on the actions described above in this clause
(c) shall not be applicable to any Restricted Party;
Section 2.2 PURCHASES BY NBC PARENT. So long as the Beneficial
Ownership of the Restricted Parties would not thereafter exceed the Standstill
Limit, if such purchaser or any of its Subsidiaries shall purchase any of the
Class A Common Stock, the Company shall permit NBC Parent and its Affiliates,
upon request, to convert any or all of their shares of Class A Common Stock into
shares of Class B Common Stock, subject to such purchaser's agreeing to be bound
by the terms and conditions of this Agreement to the same extent and as if it
were NBC.
Section 2.3 DISAPPLICATION OF STANDSTILL LIMIT.
Notwithstanding anything in this Agreement to the contrary,
(a) this Article II shall not prohibit or restrict any of the
following: (i) any action specifically permitted or required to be taken by any
Restricted Party pursuant to the Certificate of Incorporation, (ii) actions
taken by any Class B Director or, after there is no longer any Class B Director,
any member of the Board of Directors or any officer of the Company, in each case
who was nominated or designated by any Restricted Party acting in such capacity
and (iii) the exercise by the Restricted Parties of their voting rights with
respect to any shares of Voting Securities they Beneficially Own.
(b) no Restricted Party shall be deemed to have violated any provision
of this Article II by virtue of any increase in the aggregate percentage of the
Total Current Voting Power of the Company represented by Shares if such increase
is the result of a recapitalization of the Company, a repurchase of securities
by the Company or other actions taken by the Company or any of its Affiliates
that have the effect of reducing the Total Current Voting Power.
(c) nothing in this Agreement shall prohibit (i) the acquisition or
holding of securities or rights in the ordinary course of business by any
employee benefit plan whose
7
<PAGE>
trustees, investment managers or similar advisors are not Restricted Parties,
(ii) the consummation of any transaction expressly provided for in the Merger
Agreement or the Implementing Agreements, (iii) directors, officers and
employees of the Restricted Parties from communicating with directors, officers
and employees of the Company or its Affiliates on matters related to or governed
by the Merger Agreement, the Implementing Agreements or other operational
matters, (iv) the Restricted Parties from communicating with any member of the
Board of Directors or any officer of the Company who was nominated or designated
by any Restricted Party or (v) the Restricted Parties from communicating with
the other members of the Board of Directors, the Chairman of the Board of
Directors or the Chief Executive Officer of the Company, so long as such
communication is conveyed in confidence and does not require public disclosure
by the Restricted Parties or, in the reasonable belief of the Restricted Party
making such communication, by the Company.
ARTICLE III
TRANSFERS BY NBC
Section 3.1 RESTRICTIONS ON TRANSFER. Unless NBC and its Affiliates
Beneficially Own in the aggregate less than 5% of the Total Current Voting Power
of the Company, or until the Restricted Parties Beneficially Own in the
aggregate at least 90% of the Total Current Voting Power, NBC agrees that from
the date of this Agreement until the earlier of (x) the fifth anniversary of the
date of this Agreement, or (y) the occurrence of a Standstill Termination Event
specified in clause (iv) or (v) of the definition thereof, without first
obtaining the prior approval of the Class A Directors of the Company,
specifically expressed in a resolution adopted by a majority of the Class A
Directors of the Company, NBC will not, and NBC will cause each Person that is
or becomes a Restricted Party and each 13D Group of which any Restricted Party
is a member not to, directly or indirectly, sell, transfer, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise dispose of (or
make any exchange, gift, assignment or pledge of) (collectively, a "transfer")
any of its Shares, except as and to the extent permitted under the Securities
Act and other applicable securities laws to: (i) the Company, (ii) another
Person that is or becomes a Restricted Party so long as such transferee shall
execute an agreement in form and substance reasonably satisfactory to the
Company providing that such transferee shall be bound by and shall fully comply
with the terms of this Agreement in the same manner and to the same extent as
applicable to NBC, and agrees to transfer such Shares to another Restricted
Party if it ceases to be a Restricted Party, (iii) pursuant to a Third Party
Tender Offer, (iv) pursuant to a merger, consolidation or reorganization to
which the Company is a party, (v) in a BONA FIDE public distribution or bona
fide underwritten public offering, (vi) pursuant to Rule 144 of the Securities
Act to any one or more Persons that, to the best knowledge of the Restricted
Parties after due and careful inquiry, are not Company Competitors or (vii) to
an Eligible Purchaser in a private sale or pursuant to Rule 144A of the
Securities Act; PROVIDED, HOWEVER, that, in the case of any transfer pursuant to
clause (vii), such transfer does not result in, to the best knowledge of the
Restricted Parties after due and careful inquiry, any Person other than an
Eligible Purchaser acquiring, after giving effect to such transfer,
8
<PAGE>
Beneficial Ownership, individually or in the aggregate with any of its
Affiliates or any 13D Group of which the Eligible Purchaser or any of its
Affiliates is a member, 19.9% or more of the Total Current Voting Power of the
Company. For as long as the transfer restrictions in the immediately preceding
sentence remain in effect, of the 29,833,788 shares of Common Stock Beneficially
Owned by the Restricted Parties on the date hereof (the "Restricted Shares"),
the Restricted Parties will not transfer pursuant to clauses (v), (vi) and (vii)
more than an aggregate of (1) 2,500,000 Restricted Shares on or prior to the one
year anniversary of the date hereof, (2) 5,000,000 Restricted Shares on or prior
to the two year anniversary of the date hereof, or (3) 7,200,000 Restricted
Shares on or prior to the three year anniversary of the date hereof (it being
understood that the restrictions contained in this sentence will not apply to
any shares of Common Stock first acquired by the Restricted Parties after the
date hereof). Any transfer or attempted transfer which is not in compliance with
this Agreement shall be null and void AB INITIO and neither the Company nor any
transfer agent of such securities shall give any effect thereto in its stock
records.
Section 3.2 ENDORSEMENT OF CERTIFICATES. Upon the execution of this
Agreement, in addition to any other legend that is required pursuant to the
Merger Agreement and the transactions contemplated thereby or that the Company
may deem advisable under the Securities Act and certain state securities laws,
all certificates representing Shares shall be endorsed at all times as follows:
"SUCH SHARES MAY ONLY BE TRANSFERRED PURSUANT TO THE
PROVISIONS OF THE GOVERNANCE AND INVESTOR RIGHTS
AGREEMENT DATED AS OF __________ __, 1999 BETWEEN
NATIONAL BROADCASTING COMPANY, INC. AND THE COMPANY,
COPIES OF WHICH AGREEMENT ARE ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY."
Section 3.3 STOCK PURCHASE RIGHTS.
(a) NEW ISSUANCES. If at any time after the date hereof the Company
shall issue any New Securities (as defined below in this subsection (a)), at the
time of any such issuance, for so long as there shall be outstanding shares of
Class B Common Stock of the Company, NBC shall have the option (the "Option") to
purchase that number of New Securities (the "Option Securities") in an amount
sufficient for NBC and its Affiliates to maintain in the aggregate their then
Proportionate Percentage (as defined below in this subsection (a)) at that time.
The Option may be exercised by NBC or, at NBC's discretion, may be transferred
to or exercised by any Person that is or becomes a Restricted Party, so long as
such transferee or such Person exercising shall execute an agreement in form and
substance reasonably satisfactory to the Company providing that such transferee
or such Person exercising shall be bound by and shall fully comply with the
terms of this Agreement in the same manner and to the same extent as applicable
to NBC, and agrees to transfer the rights hereunder to another Restricted Party
if it ceases to be a Restricted Party, but the Option may not be transferred to
or exercised by any other Person. If the New Securities are additional shares of
Class A Common Stock, then the Option Securities shall be additional shares of
Class B Common Stock. The purchase
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price for the Option Securities shall be paid in immediately available United
States funds and shall be equal to (i) the per share price at which the Company
is selling the New Securities, if the consideration for such sale is cash, or
(ii) the Fair Market Value of the New Securities, if the consideration for such
sale is not cash.
For purposes of this Agreement, the terms set forth below shall have
the following meanings:
"Fair Market Value" shall mean, with respect to the Class A Common
Stock or other New Securities, the following: where there exists a public market
for the Class A Common Stock or other New Securities, the Fair Market Value
shall be (A) the closing price for a share of Class A Common Stock or other New
Securities, as the case may be, for the last market trading day prior to the
time of the determination (or, if no closing price was reported on that date, on
the last trading date on which a closing price was reported) on the stock
exchange determined by the Board of Directors to be the primary market for the
Class A Common Stock or other New Securities, as the case may be, or the Nasdaq
National Market, whichever is applicable, or (B) if the Class A Common Stock or
other New Securities, as the case may be, is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
share of Class A Common Stock or other New Securities, as the case may be, on
the Nasdaq Small Cap Market for the day prior to the time of the issuance (or,
if no such prices were reported on that date, on the last date on which such
prices were reported), in each case, as reported in THE WALL STREET JOURNAL or
such other source as the Board of Directors deems reliable. In the absence of an
established market of the type described in the preceding sentence for the Class
A Common Stock or in the absence of an established market of similar type for
any other New Securities, the Fair Market Value thereof shall be determined in
good faith by the Board of Directors. For purposes of this Section 3.3, the Fair
Market Value of Class B Common Stock shall be equivalent to the Fair Market
Value of Class A Common Stock.
"New Securities" shall mean any authorized but unissued shares and any
treasury shares of Common Stock, any new class of common stock or preferred
stock (if and only if such preferred stock either votes generally with the
common stock for the election of directors or does not have dividends that are
limited to a specific dividend vote) and all rights, options, or warrants to
purchase Common Stock or any new class of common stock or such preferred stock
and securities of any type whatsoever that are, or may become, exercisable for
or convertible into Common Stock or any new class of common stock or such
preferred stock; PROVIDED, HOWEVER, that the term "New Securities" does not
include: (i) the grant or issue now or hereafter of any options to purchase
shares of Common Stock or securities convertible into shares of Common Stock
pursuant to any employee option plan or other employee benefit but does include
any shares of Common Stock or securities convertible into shares of Common Stock
issued upon exercise of any such options; (ii) securities outstanding as of the
date hereof; or (iii) shares of Common Stock issued pursuant to any
reclassification, stock split or stock dividend.
10
<PAGE>
"Proportionate Percentage" shall mean a percentage equal to a fraction,
the numerator of which is the aggregate number of shares of Common Stock
Beneficially Owned by NBC and its Affiliates and the denominator of which is the
total number of outstanding shares of Common Stock of the Company immediately
prior to the issuance of New Securities.
(b) FRACTIONAL SHARES. No fractional shares of Option Securities shall
be issued upon exercise of the Option. In lieu of fractional shares, the Company
shall round the number of Option Securities to be purchased to the nearest whole
number and adjust the purchase price for the Option Securities accordingly.
(c) EXERCISE OF OPTION. The Company shall use reasonable effort to give
notice (the "Option Notice") to NBC as soon as reasonably practicable either
before or after the issuance of the New Securities, specifying the amount and
type of securities to be issued and the price per share and all other material
terms of the issuance; PROVIDED, HOWEVER, that any Option Notice given by the
Company, with respect to securities issued pursuant to the exercise of options
to purchase shares of Common Stock or securities convertible into shares of
Common Stock, shall be given only on an annual basis within 90 days after the
end of the fiscal year in which such securities were issued and as to the
aggregate number of securities issued during such period in respect of such
options. If NBC desires to exercise the Option, then it shall give written
notice (the "Exercise Notice") to the Company within 30 days after delivery of
the Option Notice by the Company specifying the amount of securities that it
desires and is entitled to purchase. The closing for the purchase and sale of
the Option Securities shall occur at a place and on a date mutually agreed upon
by the Company and NBC, which date shall be within fifteen days following the
date of delivery of the Exercise Notice. If NBC does not deliver the Exercise
Notice in accordance with the 30 day period specified in this subsection (c) of
Section 3.3, then the rights of NBC to exercise the Option with respect to that
issuance of New Securities shall terminate.
ARTICLE IV
OTHER COVENANTS
Section 4.1 FCC MATTERS. The Company agrees that, except with the prior
written consent of NBC, the Company and its Affiliates shall not, directly or
indirectly, take any action that would cause any ownership interest in any of
the following to be attributable to NBC or its Affiliates for purposes of FCC
regulations: (i) a U.S. broadcast radio or television station, (ii) a U.S. cable
television system, (iii) a U.S. "daily newspaper" (as such term is defined in
Section 73.3555 of the rules and regulations of the Federal Communications
Commission, as the same may be amended from time to time), (iv) any U.S.
communications facility operated pursuant to a license granted by the Federal
Communications Commission ("FCC") and subject to the provisions of Section
310(b) of the Communications Act of 1934, as amended, or (v) any other business
which is subject to FCC regulations under which the ownership of a Person may be
subject to limitation or restriction as a result of the interest in such
business being attributed to such Person.
11
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Section 4.2 CORPORATE INTEGRITY POLICY. The Company shall adopt the
Corporate Integrity Policy of NBC.
Section 4.3 LISTING ON NASDAQ OR SECURITIES EXCHANGE. The Company shall
list any shares of Class A Common Stock issuable upon conversion of the Class B
Common Stock or the Company Convertible Note on Nasdaq or on such other national
securities exchange on which shares of Common Stock are then listed. The Company
will at its expense cause all shares of Class A Common Stock issued upon
conversion of the Class B Common Stock or the Company Convertible Note to be
listed at the time of such issuance on Nasdaq and/or such other securities
exchange shares of Class A Common Stock are then listed on and shall maintain
such listing.
ARTICLE V
BOARD ACTION
Section 5.1 BOARD REPRESENTATION RIGHTS. If all of the Class B Common
Stock has been converted into Class A Common Stock, so long as NBC or its
Affiliates Beneficially Own in the aggregate at least 5% of the Total Current
Voting Power of the Company, NBC shall have the right to designate as nominees
for election to the Board of Directors, commencing with the first meeting of
stockholders following the conversion of the shares of Class B Common Stock of
the Company into shares of Class A Common Stock of the Company pursuant to the
Certificate of Incorporation, that number of persons equal to the greater of (i)
one, or (ii) that number determined by multiplying the then current number of
directors of the Company by the percentage of Total Current Voting Power then
owned by NBC and its Affiliates, but which number shall at all times be less
than a majority of the total number of members of the Board of Directors of the
Company unless NBC and its Affiliates Beneficially Own a majority of the Total
Current Voting Power of the Company. If the calculation set forth in clause (ii)
of the preceding sentence results in other than a whole number, NBC shall be
permitted to designate the nearest whole number of person(s) as designee(s). The
Company shall, subject to the fiduciary duties of the directors of the Company,
include in the slate of nominees recommended by the Company's management to
stockholders for election as directors of the Company such designee(s) of NBC.
The Company shall use its best efforts to cause its directors and management to
vote pursuant to this Section 5.2 hereof all shares for which the Company's
directors and management hold proxies or are otherwise entitled to vote in favor
of the election of such designee(s) of NBC. The Company shall give the same
scope and degree of support and use the same efforts to encourage the
stockholders to vote in favor of such designee(s) of NBC as it gives and uses
with respect to the designees of management.
ARTICLE VI
MISCELLANEOUS
Section 6.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, shall inure to the benefit of and shall be enforceable by the respective
successors and assigns of the parties hereto. Except as set forth herein, NBC
may not assign any of its
12
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rights hereunder to any Person other than by operation of law, in which case the
assignee shall be subject to all of the provisions of this Agreement. The
Company may not assign any of its rights hereunder to any other Person, other
than by operation of law, in which case the assignee shall be subject to all of
the provisions of this Agreement.
Section 6.2 AMENDMENT; WAIVER OF COMPLIANCES; CONFLICTS.
(a) This Agreement may be amended only by a written instrument duly
executed by NBC and the Company, having first obtained the prior approval of the
Class A Directors of the Company, specifically expressed in a resolution adopted
by a majority of the Class A Directors of the Company.
(b) Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
(c) In the event of any conflict between the provisions of this
Agreement and the provisions of any other agreement, the provisions of this
Agreement shall govern and prevail.
Section 6.3 NOTICES. All notices and other communications provided for
hereunder shall be in writing and delivered by hand or sent by first class mail
or sent by telecopy (with such telecopy to be confirmed promptly in writing sent
by first class mail), sent as follows:
(i) If to NBC, addressed to:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10012
Attention: Thomas Rogers
Telecopy: (212) 664-3915
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attention: Richard Capelouto, Esq.
Telecopy: (212) 455-2502
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<PAGE>
(ii) If to the Company, addressed to:
Xenon 2, Inc.
300 Montgomery Street, Suite 300
San Francisco, California 94104
Attention: Chris Kitze
Telecopy: (415) 288-2578
with a copy to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105-2482
Attention: Bruce Alan Mann, Esq.
Telecopy: (415) 268-7522
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Allen L. Weingarten, Esq.
Telecopy: (212) 468-7900
or to such other address or addresses or telecopy number or numbers as any of
the parties hereto may most recently have designated in writing to the other
parties hereto by such notice. All such communications shall be deemed to have
been given or made when so delivered by hand or sent by telecopy, or three
business days after being so mailed.
Section 6.4 ENTIRE AGREEMENT: GOVERNING LAW.
(a) This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire agreement
among the parties hereto with respect to the subject transactions contemplated
hereby and supersede all prior oral and written agreements and memoranda and
undertakings among the parties hereto with regard to this subject matter.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PRINCIPLES THEREOF).
Section 6.5 INJUNCTIVE RELIEF. The parties acknowledge that a violation
of any of the terms of this Agreement will cause the other irreparable injury
for which an adequate remedy at law is not available. Therefore, the parties
agree that each party shall be entitled to an injunction, restraining order or
other equitable relief from any court of competent jurisdiction, restraining the
other from committing any violations of the provisions of this Agreement.
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<PAGE>
Section 6.6 EXPENSES. The Company and NBC shall bear their own expenses
incurred with respect to this Agreement and the transactions contemplated
hereby.
Section 6.7 HEADINGS. The Section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 6.8 SEVERABILITY. In the event that any of the provisions of
this Agreement are held to be unenforceable or invalid by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions will
not be affected thereby.
Section 6.9 RECAPITALIZATIONS, EXCHANGES, ETC. AFFECTING THE SHARES.
The provisions of this Agreement shall apply, to the full extent set forth
herein with respect to the Shares and to any and all securities of the Company
or any successor or assignee of the Company (whether by merger, consolidation,
sale of assets, or otherwise) which may be issued in respect of, in exchange
for, or in substitution of, such securities and shall be appropriately adjusted
for any stock dividends, splits, reverse splits, combinations,
reclassifications, recapitalizations, reorganizations and the like occurring
after the date hereof.
Section 6.10 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
XENON 2, INC.
By:
---------------------------------
Name:
Title:
NATIONAL BROADCASTING COMPANY, INC.
By:
---------------------------------
Name:
Title:
16
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
ARTICLE I CERTAIN DEFINITIONS.....................................................................1
ARTICLE II STANDSTILL PROVISIONS..................................................................6
Section 2.1 Restrictions on NBC's Activities Regarding the Company and its Stock............6
Section 2.2 Purchases by NBC Parent.........................................................7
Section 2.3 Disapplication of Standstill Limit..............................................7
ARTICLE III TRANSFERS BY NBC......................................................................8
Section 3.1 Restrictions on Transfer........................................................8
Section 3.2 Endorsement of Certificates.....................................................9
Section 3.3 Stock Purchase Rights...........................................................9
ARTICLE IV OTHER COVENANTS.......................................................................11
Section 4.1 FCC Matters....................................................................11
Section 4.2 Corporate Integrity Policy.....................................................12
Section 4.3 Listing on Nasdaq or Securities Exchange.......................................12
ARTICLE V BOARD ACTION...........................................................................12
Section 5.1 Board Representation Rights....................................................12
ARTICLE VI MISCELLANEOUS.........................................................................12
Section 6.1 Successors and Assigns.........................................................12
Section 6.2 Amendment; Waiver of Compliances; Conflicts....................................13
Section 6.3 Notices........................................................................13
Section 6.4 Entire Agreement: Governing Law................................................14
Section 6.5 Injunctive Relief..............................................................14
Section 6.6 Expenses.......................................................................15
Section 6.7 Headings.......................................................................15
Section 6.8 Severability...................................................................15
Section 6.9 Recapitalizations, Exchanges, Etc. Affecting the Shares........................15
Section 6.10 Counterparts...................................................................15
</TABLE>
<PAGE>
EXHIBIT 10.6
STANDSTILL AGREEMENT
STANDSTILL AGREEMENT, dated as of ______ ___, 1999, between Xenon 2,
Inc., a Delaware corporation (together with its successors, the "COMPANY"), and
CNET, Inc., a Delaware corporation (together with its successors, "CNET").
W I T N E S S E T H :
WHEREAS, CNET, Xoom.com, Inc., a Delaware corporation ("XOOM"), the
Company and Xenon 3, a Delaware corporation, have entered into that certain
Agreement and Plan of Contribution and Merger, dated as of the date hereof (the
"MERGER AGREEMENT"), pursuant to which CNET will become a holder of shares of
the Class A common stock, $.0001 par value, of the Company (the "COMMON STOCK");
capitalized terms not otherwise defined herein shall bear the meaning given to
them in the Merger Agreement;
WHEREAS, the Company and CNET desire, in connection with CNET's
investment in the Company pursuant to the Merger Agreement, to make certain
covenants and agreements with one another pursuant to this Agreement; and
WHEREAS, it is a condition to the execution of the Merger Agreement
and the closing of the transactions contemplated thereby that the parties enter
into this Agreement.
NOW THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
"AFFILIATE" shall mean, with respect to any Person, any other
Person that directly or indirectly controls, is controlled by, or is
under common control with, such Person. As used in this definition,
"control" (including its correlative meanings, "controlled by" and
"under common control with") shall mean the possession, directly or
indirectly, of power to direct or cause the direction of
<PAGE>
management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"AGREEMENT" shall mean this Agreement as in effect on the date hereof
and as hereafter from time to time amended, modified or supplemented in
accordance with the terms hereof.
"BENEFICIALLY OWN" shall have the meaning set forth in Rule 13d-3
under the Exchange Act, except that a Person shall be deemed to
"Beneficially Own" all securities that such Person has a right to acquire,
whether such right is exercisable immediately or only after the passage of
time.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Company
as from time to time hereafter constituted.
"CNET" shall have the meaning set forth in the preamble hereto
"COMMON STOCK" shall mean the Class A common stock, par value $0.0001
per share, of the Company and any securities of the Company into which such
Common Stock may be reclassified, exchanged or converted.
"COMPANY" shall have the meaning set forth in the preamble hereto.
"DISINTERESTED STOCKHOLDERS" shall mean any stockholder of the Company
who is not a Restricted Party.
"EXCHANGE ACT" shall mean, as of any date, the Securities Exchange Act
of 1934, as amended, or any similar federal statute then in effect and
superseding such act, and any reference to a particular section thereof
shall include a reference to the comparable section, if any, of such
similar federal statute, and the rules and regulations thereunder.
"NBC" shall mean National Broadcasting Company, a Delaware
corporation, together with its successors.
"NBC VOTING AGREEMENT" shall mean the Voting Agreement, dated as of
the date hereof, between CNET and NBC, as the same may be amended,
supplemented or otherwise modified form time to time.
"PERSON" shall mean an individual or a corporation, association,
partnership, limited liability company, joint venture, organization,
business, trust or any other entity or organization, including a
government or any subdivision or agency thereof.
"REPRESENTATIVES" shall mean, with respect to any Person, such
Person's directors, officers, employees, agents and other representatives
acting in such capacity.
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<PAGE>
"RESTRICTED PARTIES" shall mean each of CNET and its Subsidiaries.
"SEC" shall mean the United States Securities and Exchange
Commission.
"SECURITIES ACT" shall mean, as of any date, the Securities Act of
1933, as amended, or any similar federal statute then in effect and
superseding such act, and any reference to a particular section thereof
shall include a reference to the comparable section, if any, of any such
similar federal statute, and the rules and regulations thereunder.
"STANDSTILL PERIOD" shall mean the period beginning on the date hereof
and ending on the earlier of (i) the fifth anniversary of the date hereof
and (ii) the first date after the date hereof on which the Restricted
Parties do not Beneficially Own in the aggregate 5% or more of the
outstanding Common Stock.
"SUBSIDIARY" shall mean, as to any Person, another Person of which
outstanding securities having the power to elect a majority of the members
of the board of directors (or comparable body or authority performing
similar functions) of such other Person are at the time owned, directly or
indirectly through one or more intermediaries, or both, by such first
Person.
"THIRD PARTY TENDER OFFER" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14D under the Exchange Act, when
first commenced within the meaning of Rule 14d-2 of the Exchange Act by a
Person 13D Group (which is not made by and does not include any of the
Company or any Affiliate or a Restricted Party or any 13D Group that
includes the Company or an Affiliate or a Restricted Party) to purchase or
exchange for cash or other consideration any Voting Stock and which
consists of an offer to acquire 50% or more of the then outstanding Voting
Stock of the Company.
"13D GROUP" means any "group" (within the meaning of Section 13(d) of
the Exchange Act) formed for the purpose of acquiring, holding, voting or
disposing of Voting Stock.
"TRANSFER" shall have the meaning set forth in Section 2.2.
"VOTING STOCK" shall mean shares of the Common Stock and any other
securities of the Company or its Subsidiaries having the ordinary power to
vote in the election of members of the Board of Directors or the board of
directors of any Subsidiary of the Company.
ARTICLE II
STANDSTILL AGREEMENTS
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<PAGE>
Section 2.1 STANDSTILL AGREEMENT.
CNET covenants and agrees as follows:
(a) During the Standstill Period no Restricted Party will, directly or
indirectly, nor will it authorize or direct any of its Representatives to (and
will take appropriate action against such Representatives to discourage), in
each case unless specifically requested to do so in writing in advance by the
Board of Directors:
(i) acquire or agree, offer, seek or propose to acquire, or
cause to be acquired, ownership of any assets or businesses of the Company
or any of its Subsidiaries having a fair market value in excess of 5% of
the fair market value of all of the Company's and its Subsidiaries' assets,
or any rights or options to acquire any such ownership (including from a
third party);
(ii) acquire or agree, offer, seek or propose to acquire, or
cause to be acquired, Beneficial Ownership of any Voting Stock of the
Company or any of its Subsidiaries, or any options, warrants or other
rights (including, without limitation, any convertible or exchangeable
securities) to acquire any such Voting Stock, in any case other than the
Common Stock Beneficially Owned by the Restricted Parties on the date
hereof.
(iii) make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the SEC) with
respect to the voting of any securities of the Company or any of its
Subsidiaries, except pursuant to the NBC Voting Agreement;
(iv) deposit any securities of the Company or any of its
Subsidiaries in a voting trust or subject any such securities to any
arrangement or agreement with any Person (other than one or more Restricted
Parties and/or NBC and/or any Affiliate of NBC);
(v) form, join, or in any way become a member of a 13D Group
with respect to any voting securities of the Company or any of its
Subsidiaries (other than a "group" consisting solely of Restricted Parties
and/or NBC and/or any Affiliate of NBC);
(vi) arrange any financing for, or provide any financing
commitment for, the purchase of any voting securities or securities
convertible or exchangeable into or exercisable for any voting securities
or assets of the Company or any of its Subsidiaries, except for such assets
as are then being offered for sale by the Company or such Subsidiary;
(vii) except pursuant to the NBC Voting Agreement, otherwise act,
whether alone or in concert with others, to seek to propose to the Company
any tender or exchange offer, merger, business combination, restructuring,
liquidation, recapitalization or similar transaction involving the Company
or any of its Subsidiaries, or nominate any
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<PAGE>
person as a director of the Company, or propose any matter to be voted
upon by the stockholders of the Company; PROVIDED that the provisions of
this clause (vii) will not prohibit or restrict any Restricted Party
from entering into any agreement, arrangement or understanding relating
to the Transfer of any securities in accordance with Section 2.2 or
engaging in any discussion or negotiations relating to any potential
Transfer of any securities in accordance with Section 2.2;
(viii) nominate any person for election as director of the Company;
or
(viii) publicly announce or disclose any intention, plan or
arrangement inconsistent with the foregoing.
(b) In addition, during the Standstill Period no Restricted Party
will, nor will they authorize or direct any of their respective Representatives
to, take any action that would require the Company to make a public announcement
regarding any of the matters set forth in Section 2.1(a).
Section 2.2 TRANSFER RESTRICTIONS.
CNET covenants and agrees as follows:
(a) During the Standstill Period, the Restricted Parties shall not,
directly or indirectly, sell, transfer or otherwise dispose of (collectively,
"TRANSFER") any shares of Common Stock Beneficially Owned by such Persons,
except for Transfers: (i) to Restricted Parties or to Affiliates who agree to be
Restricted Parties bound by the provisions of this Agreement, (ii) which have
been consented to by the Company, (iii) pursuant to a Third Party Tender Offer,
(iv) pursuant to a merger, consolidation or reorganization to which the Company
is a party, (v) in a BONA FIDE public distribution, bona fide underwritten
public offering or open market sales through a resale or otherwise, (vi)
pursuant to Rule 144 of the Securities Act, (vii) in a private sale or pursuant
to Rule 144A of the Securities Act or (viii) to NBC or any Affiliate of NBC.
Notwithstanding anything herein to the contrary, nothing herein shall prohibit
or restrict the Restricted Parties in any way from (i) pledging or hypothecating
any shares of Common Stock Beneficially Owned by the Restricted Parties to a
financial institution in a bona fide financing transaction so long as the
Restricted Parties control the voting of such Common Stock prior to the
occurrence of a default or (ii) entering into hedging strategies or transactions
such as, for example, the purchase and sale of puts, calls, options, straddles
and other hedging mechanisms with respect to such shares so long as the
aggregate hedging transactions of any time outstanding with any Person and its
Affiliates do not relate to an aggregate number of shares of Common Stock and
Class B Common Stock of the Company in excess of 5% of the outstanding shares of
Common Stock at the time such transactions were entered into (or an equivalent
position).
(b) Subject to the provisions of Section 2.2(a), if any Restricted
Party decides to dispose of any of the Common Stock, each Restricted Party
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption from
registration under the Securities Act. Each Restricted Party agrees to the
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<PAGE>
imprinting, so long as appropriate, of substantially the following legends on
certificates representing any of the securities referenced in the preceding
sentence:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION FROM REGISTRATION
IS AVAILABLE AND THE COMPANY IS FURNISHED WITH AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THAT EFFECT. IN ADDITION,
SUCH SHARES MAY ONLY BE TRANSFERRED PURSUANT TO THE PROVISIONS OF THE
STANDSTILL AGREEMENT, DATED AS OF ______ ___, 1999, BETWEEN THE
COMPANY AND CNET, INC. AS THE SAME MAY BE AMENDED FROM TIME TO TIME,
COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
The legend set forth above shall be removed if and when (i) the
securities represented by such certificate are disposed of pursuant to an
effective registration statement under the Securities Act or (ii) CNET delivers
to the Company an opinion of counsel reasonably acceptable to the Company to the
effect that such legends are no longer necessary.
ARTICLE III
MISCELLANEOUS
Section 3.1 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered
personally, by telecopier or sent by overnight courier as follows:
(a) If to CNET, to:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attn: Douglas N. Woodrum
Facsimile: (415) 395-9205
with copies to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: R. Clayton Mulford
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Facsimile: (214) 939-5849 CNET, Inc.
(b) If to the Company, to:
Xoom.com, Inc.
300 Montgomery Street
Suite 300
San Francisco, California 94104
Attn.: General Counsel
Facsimile: (415) 288-2580
with copies to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Attn.: Bruce Alan Mann
Facsimile: (415) 268-7522
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attn.: Allen L. Weingarten
Facsimile: (212) 468-7900
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
Section 3.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth
the entire agreement between the parties hereto with respect to the transactions
contemplated by this Agreement. Any provision of this Agreement may be amended
or modified in whole or in part at any time by an agreement in writing between
the parties hereto executed in the same manner as this Agreement. No failure on
the part of any party to exercise, and no delay in exercising, any right shall
operate as a waiver thereof nor shall any single or partial exercise by any
party of any right preclude any other or future exercise thereof or the exercise
of any other right.
Section 3.3 SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
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Section 3.4 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original, but
all of which together shall constitute one and the same document.
Section 3.5 GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. This
Agreement shall be governed and construed in accordance with the laws of the
State of Delaware applicable to contracts executed and performed within such
state.
Section 3.6 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
Neither party to this Agreement may assign any of its rights or delegate any of
its duties under this Agreement to any other Person without the prior written
consent of the other party to this Agreement. Any purported assignment in
violation of this Section shall be void. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any Person other than CNET
and the Company and their respective successors, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of CNET and the Company and their
respective successors, and for the benefit of no other Person.
Section 3.7 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in
addition to any other remedy to which they are entitled at law or in equity.
Section 3.8 HEADINGS, CAPTIONS AND TABLE OF CONTENTS. The section
headings, captions and table of contents contained in this Agreement are for
reference purposes only, are not part of this Agreement and shall not affect the
meaning or interpretation of this Agreement.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
or by their respective duly authorized representatives, all as of the date first
above written.
XENON 2, INC.
By:
-------------------------------
Name:
Title:
CNET, INC.
By:
-------------------------------
Name:
Title:
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Exhibit 10.7
BRAND INTEGRATION AND LICENSE AGREEMENT
This Brand Integration and License Agreement ("AGREEMENT") is entered
into as of May 8, 1999, between NBC Multimedia, Inc., a Delaware corporation
(together with its successors and assigns, "LICENSEE"), and National
Broadcasting Company, Inc., a Delaware corporation (together with its successors
and assigns, "NBC" or "LICENSOR").
WHEREAS, NBC, GE Investments Subsidiary, Inc., Neon Media
Corporation ("NMC"), Xoom.com, Inc. and Xenon 2, Inc. intend to enter into an
Agreement and Plan of Contribution, Investment and Merger (the "Investment
Agreement") relating to the establishment of NMC, as a wholly-owned
subsidiary of NBC Multimedia, Inc. the contribution of the Internet online
destination sites, NBC.com and NBC-IN.com (and, together with
Videoseeker.com, the "CONTRIBUTED SITES") to NMC, and the merger of NMC with
and into Xenon 2, Inc., a wholly-owned subsidiary of Xoom.com, Inc. (together
with its successors and assigns, "NEWCO");
WHEREAS, the Licensor is the owner of all rights in and to the trademark
"NBC" (the "MARK"), the NBC multicolor logo (the "LOGO") and the NBC
soundmark (the "CHIME");
WHEREAS, during the term of this Agreement, Licensor and Licensee intend
for Licensee to operate the Contributed Sites under the names "NBC.com",
"NBC-IN.com" and Videoseeker.com with the Logo appearing on the Contributed
Sites, and the parties desire to set forth in this Agreement the terms and
conditions pursuant to which the pertinent rights are to be granted to
Licensee;
WHEREAS, during the term of this Agreement, Licensor and Licensee intend
for Licensee to use the Mark, the Logo and the Chime on certain of Licensee's
other Internet online destination sites;
WHEREAS, it is the intention of the parties, for the mutual benefit of
Newco and NBC, that Newco and NBC will integrate each other's programming,
products and services and create a consistent cross-platform, cross-business
and cross-product marketing and promotional approach for the benefit of
Newco, NBC and their respective affiliates and brands;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
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SECTION 1 DEFINITIONS
For purposes of this Agreement, in addition to the capitalized terms
defined elsewhere in this Agreement, the following terms shall have the
following respective meanings:
1.1 "AFFILIATE" means with respect to a specified Person, any
Person that directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, the specified
Person.
1.2 "CHANGE OF CONTROL" means any of the following: (i) a
merger, consolidation or other business combination or transaction to which a
Person is a party if the shareholders of such Person immediately prior to the
effective date of such merger, consolidation or other business combination or
transaction, do not have beneficial ownership of voting securities representing
50% or more of the total voting power of the surviving corporation or its parent
immediately following such merger, consolidation or other business combination
or transaction; (ii) any Person shall have beneficial ownership of 50% or more
of the total voting power of another Person, and in the case of Newco, any
Person shall have beneficial ownership of 20% or more of the outstanding shares
of Class A Stock (as such term is defined in Newco's Certificate of
Incorporation) at a time when the holders of Class B Stock do not elect a
majority of the Board of Directors of Newco; (iii) a sale of all or
substantially all of the consolidated assets of a Person to another Person; or
(iv) a liquidation or dissolution of a Person.
1.3 "CLASS A DIRECTORS" shall have the meaning set forth in
Newco's Certificate of Incorporation.
1.4 "CLASS B DIRECTORS" shall have the meaning set forth in
Newco's Certificate of Incorporation.
1.5 "CLASS B STOCK" shall have the meaning set forth in Newco's
Certificate of Incorporation.
1.6 "CO-BRAND" means an arrangement pursuant to which one party
to the arrangement authorizes another party to use the brands or trademarks of
the first party in connection with the other party's property, products or
services.
1.7 "CONTENT" means headlines, summaries, features, stories,
commodity information, links to databases of information, and other information.
1.8 "CONTROL (OR CONTROLLED OR CONTROLLING)" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, as trustee or executor, by contract or credit arrangement
or otherwise.
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1.9 "CONTROLLING INTEREST" means the acquisition of (a) all of
the equity of a Person or all of a business, division or operation, (b) less
than all of the equity of a Person, business, division or operation together
with the contractual or other right to dispose of such Person, business,
division or operation in accordance with Section 4 of this Agreement without the
NBC Indemnified Group incurring any liability or obligation to such Person or
such Person's equity holders with respect to claims for breach of fiduciary or
similar duties, for which Newco does not agree to fully pay, indemnify and hold
harmless the NBC Indemnified Group which indemnity must be binding and
enforceable against Newco.
1.10 "DEFAULT" means Content that appears in all versions of the
Newco Sites (as defined below), including but not limited to all Co-Branded
versions.
1.11 "EFFECTIVE DATE" shall mean the Closing Date, as such term is
defined in the Investment Agreement.
1.12 "INAPPROPRIATE CONTENT" means any material, including text,
graphics, audio or video material, which (a) is pornographic or which contains
nudity, explicit sexual material or depictions of sexual acts of a nature, type
or degree that NBC Television Network would not normally include in an on-air
broadcast, as determined by NBC in its sole and absolute discretion or (b) would
otherwise not be normally broadcast on NBC Television Network, in accordance
with NBC's Broadcast Standards and Practices as in effect from time to time and
as determined by NBC in its sole and absolute discretion, in each case as NBC
would apply to any material broadcast on NBC Television Network or delivered
over the Internet, as the case may be.
1.13 "INTERACTIVE OR ENHANCED TV" means (a) television or
television-like programs (i.e., full motion video no less than two minutes in
length, including, without limitation, everything broadcast on the NBC
Television, all current and future television stations owned and operated by NBC
or any cable or digital network owned or controlled by NBC ("TELEVISION
PROGRAMS")) which are delivered via any transmission method and which
incorporate interactivity with the end user (via any back channel) such as
choice of camera feeds, click-to-order, polling, game playing and VCR-type
functionality (e.g., time shifting, cue and review, indexing, slow motion,
etc.), (b) all interactive content and/or applications that are related to, and
delivered simultaneously with, such Television Programs and/or (c) any other
content and/or applications which are intended to be viewed using a device, a
primary purpose of which is the viewing of Television Programs.
1.14 "INTERACTIVE DELIVERY" means the delivery of content for use
by an end user to a monitor or viewing screen, whereby such delivery occurs by
means of telephone lines, cable television systems, optical fiber connections,
cellular phones, satellites, wireless broadcast or other means of transmission
now known or hereafter devised, provided that the end user has the ability to
selectively manipulate the presentation to effect substantive content changes
during its use (E.G., a user can select the Internet page which such user will
view). For purposes of clarity, it is understood that Interactive Delivery will
NOT include transmission of any kind, now or hereafter devised, which makes
programs and other audio and/or visual recordings of any length, available for
viewing in a linear predetermined presentation (E.G., broadcast television,
cable
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television, pay-per-view, video-on-demand) with selective manipulation
available to the viewer, for example, time delay viewing of a program, color
adjustment, volume control, choice of camera feeds, or textual and/or visual
and/or audio material which enhances or provides additional information
supplementary to and related to the subject matter of the linear
predetermined presentation or presentations, such as (i) a separate stream of
material with no return path, (ii) a separate stream of material with a
return path that is not integrated or connected with the device delivering
the linear presentation, or (iii) a separate stream of material with a return
path that permits responses (E.G., polling) that do not effect sufficient
content change to or manipulation of the linear presentation so as to
constitute Interactive Delivery (as an example of an insufficient change,
acknowledging poll results); PROVIDED, HOWEVER, that Interactive Delivery
shall not include the delivery of Interactive or Enhanced TV or the delivery
(whether by Interactive Delivery or otherwise) of audio and/or visual
recordings of two minutes or more in length. In addition, Interactive
Delivery shall not include the delivery of content to the end user which
occurs principally by transporting a physical object incorporating the
content, such as magnetic disks or optical disks (for example, CD-ROM).
1.15 "LICENSED MARKS" means the Mark, the Logo (including any
derivatives of, replacements for, or successors to such trademark and logo
approved or created by Licensor), the URLs for "NBC.com", "NBC-IN.com" and
"Videoseeker.com", the Chime and, to the extent that it can be obtained in a
commercially reasonable manner, the URL for "NBCInternet.com".
1.16 "NBC BUSINESS" means the business of delivering Licensed
Content (as defined below) on the Contributed Sites.
1.17 "NBC BUSINESS MARKS" means any trademarks owned, controlled
or licensable by NBC (other than the Licensed Marks) that are contained in or
identify the Licensed Content.
1.18 "NBC STUDIOS" means NBC Studios, Inc., any other Subsidiary
of NBC, or NBC itself that owns or produces a television entertainment program
that is broadcast on the NBC Television Network.
1.19 "NBC STUDIOS CONTENT" means any content from, or directly
related to, television entertainment programs that are (a) broadcast on the
NBC Television Network and (b) either (i) entirely owned by NBC Studios or
(ii) produced pursuant to a joint production or joint venture arrangement or
agreement between NBC Studios and a third party that provides NBC Studios
with all rights necessary for NBC Studios to provide the Interactive Delivery
rights in such programs to Licensee, including, without limitation, content
from or directly related to the "Access Hollywood" television program for so
long as NBC Studios has all rights to provide the Interactive Delivery rights
in such program to Licensee.
1.20 "NBC COMPETING BUSINESS" means a business, division or
operation that distributes broad-based audio and/or visual content of two
minutes or more in length for viewing through a monitor or viewing device
(whether the distribution is through broadcast or cable, optical fiber
connections, satellite, wireless broadcast or any other means of transmission
now known or hereafter devised, other than on the Internet, and whether on one
or more channels),
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across several types of content, such as: comedies, dramas, talk shows, news,
sports, movies and children's programming.
1.21 "NBC COMPETITOR" means a Person, division or operation whose
Primary Business (as defined below) is a NBC Competing Business and all direct
and indirect Subsidiaries of such Person, division or operations. The NBC
Competitors include, without limitation, as of the date hereof, Disney/ABC, CBS,
News Corporation/Fox, Viacom (UPN), Time Warner (WB), Liberty Media, Paxson and
USA Network.
1.22 "NEWCO BUSINESS" means (a) an information, navigation and
content aggregation service distributed, all or substantially all, through the
Internet that provides, across more than six topics of general interest that do
not relate to each other or to a common topic, a combination of all or
substantially all of the following: Internet searching, content aggregation,
topical interest categories and web directories (a "PORTAL SERVICE"), (b) a
broad-based community service distributed, all or substantially all, through the
Internet that offers its members homepages, e-mail and chat rooms and may offer,
in some cases, message boards, clip art, software libraries and/or online
greeting cards (a "COMMUNITY SERVICE"); or (c) a service of direct marketing a
broad range of third party products and services through Internet e-mail to
registered members of such service (an "E-COMMERCE SERVICE"). For the avoidance
of doubt, the term "Newco Business " does not include any Vertical Internet
Business or any service that is not conducted, all or substantially all, on the
Internet. Portal Services include, as of the date hereof, Microsoft Start,
Netscape Netcenter, AOL, Yahoo, Excite, Lycos, Infoseek, Go Network, LookSmart
and Alta Vista. Community Services include, as of the date hereof, Tripod,
WhoWhere, Angelfire, GeoCities and theglobe.com. e-Commerce Services include,
as of the date hereof, Buy.com and Onsale.com.
1.23 "NEWCO COMPETITOR" means a Person, division or operation
whose Primary Business is a Newco Business and all direct and indirect
Subsidiaries of such Person, division or operation.
1.24 "NEWCO SITES" means all of the Internet sites for which
Newco owns or controlled by Newco.
1.25 "NON-PRIMARY COMPETITOR" means a Person that is not a Newco
Competitor, but directly or indirectly engages in a Newco Business or has a
Controlling Interest in a Person who engages in a Newco Business.
1.26 "PERSON" shall mean an individual or a corporation,
partnership, limited liability company, joint venture, trust or any other entity
or organization.
1.27 "PREFERRED" means (i) when a link to or display of Content
appears in a list, the link or Content is in the Default, top-most, and
left-most position, but is in any event above the fold in any standard screen
resolution; or (ii) when a link to or display of Content appears in a format
other than a list, the link or Content is visually more prominent than links
to or Content displayed from competitive services, but is in any event above
the fold in any standard screen resolution.
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1.28 "PRIMARY BUSINESS" of a Person means a business that (a)
generates at least one third of that Person's revenues and more revenues than
any Subsidiary, other business, division or operation of such Person or (b)
accounts for at least one third of that Person's value and more value than any
other Subsidiary, business, division or operation of such Person; PROVIDED,
HOWEVER, that a Person may not have two Primary Businesses and in the event that
the application of subparagraphs (a) and (b) above result in two Primary
Business, subparagraph (a) shall govern.
1.29 "PROMINENT" means (i) when a link to or display of Content
appears in a list, the link or Content is within two (2) places of the Default,
top-most, and left-most position, but is in any event above the fold in any
standard screen resolution; or (ii) when a link to or display of Content appears
in a format other than a list, the link or Content is visually more prominent
than links to or Content displayed from all but two (2) competitive services,
but is in any event above the fold in any standard screen resolution.
1.30 "STRATEGIC INTERNET BUSINESS" means (a) a Vertical Internet
Business or an Internet technology that is owned (or announced that it is
being purchased, pursuant to a binding agreement) and integral to the Portal
Service, Community Service and/or e-Commerce Service of at least one of the
four largest Newco Competitors or (b) a Vertical Internet Business or an
Internet technology that is of equal importance to a Vertical Internet
Business or an Internet technology that is owned (or announced that it is
being purchased, pursuant to a binding agreement) and integral to the Portal
Service, Community Service and/or e-Commerce Service of at least one of the
four largest Newco Competitors; PROVIDED, HOWEVER, that a technology that is
equally important to Internet businesses other than Portal Service, Community
Services or e-Commerce Services (for example, an Internet browser (eg,
Microsoft Explorer) or an operating system (eg, Microsoft Windows)) shall not
be considered to be a Strategic Internet Business. The largest Newco
Competitors shall be determined by the aggregate reach of the combined sites
of a Newco Competitor and calculated by the then-leading Internet rating
service, which service shall be agreed to by the parties (or in the event the
parties cannot agree, shall be Media Metrix). As of the date hereof, the
parties agree that the leading Internet rating service is Media Metrix. For
example, the four largest Newco Competitors, as determined by the March 1999
Media Metrix ratings were AOL, Microsoft, Lycos and Yahoo.
1.31 "SUBSIDIARY" means, as to any Person, another Person of which
outstanding securities having the power to elect a majority of the members of
the board of directors (or comparable body or authority performing similar
functions) of such other Person are at the time owned, directly or indirectly
through one or more intermediaries, or both, by such first Person.
1.32 "TOPIC" means a sub-section of the Newco Sites that
organizes information about a particular area of interest. Topics are organized
in a hierarchy, with the top-most level of the hierarchy being referred to as
the "Main Topic Page" and pages within the Topic but below the Main Topic Page
being referred to as "Sup-Topic Pages."
1.33 "URL" means a Universal Resource Locator.
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1.34 "VERTICAL INTERNET BUSINESS" means any information,
navigation and content aggregation service, community service or e-commerce
service that is designed to organize a specific type of content that is limited
in scope or by topic -- for example, an Internet service that provides content
aggregation for money, business and financial services (eg, CBS Marketwatch), an
Internet service that provides community services limited to certain topics (eg,
Launch Media, a music community) or that is limited to certain groups (eg,
iVillage, a women's community) or an Internet service that markets and sells a
limited type or category of product or service (eg, consumer electronics --
Egghead.com or mail - Mail.com) or that is limited to marketing and selling
primarily NBC Merchandise. For the avoidance of doubt, "Vertical Internet
Business" does not include any portion of any business or any other activity
that is not conducted, all or substantially all, on the Internet.
SECTION 2 LICENSE GRANT
2.1 GRANT OF EXCLUSIVE LICENSE. NBC hereby grants to Licensee
and its wholly-owned Subsidiaries an exclusive, royalty-free, non-transferable
(except in connection with a transaction described in Section 13.2), worldwide,
fully paid up license, subject to compliance with the terms and conditions of
this Agreement:
2.1.1 to use, reproduce and display the Licensed Marks solely for
the Interactive Delivery on the Contributed Sites of NBC
Studio's television entertainment programs as to which NBC
or its Subsidiaries has the right to license Licensee (and,
following the Effective Date, Newco) for Interactive
Delivery;
2.1.2 to reproduce, transmit and display the NBC Studio Content
for Interactive Delivery and to create interactive
programming solely for Interactive Delivery from such
content on the Contributed Sites (collectively, the
"LICENSED CONTENT"), including, for example, the right to
create member clubs and chat rooms on the Contributed Sites
for NBC Studios Content that NBC Studios owns;
2.1.3 to use the Licensed Content in advertising, marketing and
promotion of the Licensed Content and the Contributed Sites,
in accordance with the terms and conditions hereof; and
2.1.4 to use, reproduce and display the Mark in the form of "NBC
Internet, Inc." and "NBCi" and to use, reproduce and display
the Mark in such form as the corporate name of Licensee and
for all purposes reasonably incident thereto;
PROVIDED, HOWEVER, that Licensee may not use any of the Licensed Content to
sell, market, merchandise or otherwise promote products or services in any
manner whatsoever or to engage in an e-Commerce Service and; PROVIDED, FURTHER,
that none of the Licensed Marks or the Licensed Content may appear on any page
displaying, directly linking or referring to a site containing Inappropriate
Content.
2.2 GRANT OF NON-EXCLUSIVE LICENSE. From and after the
Effective Date, NBC hereby grants to Licensee and its wholly-owned Subsidiaries
a non-exclusive, royalty-free, non-
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transferable (except in connection with a transaction described in Section
13.2), worldwide, fully paid up license, subject to compliance with the terms
and conditions of this Agreement:
2.2.1 to use, reproduce and display the Licensed Marks for the
Portal Service, the Community Service and the e-Commerce
Service of Newco;
2.2.2 to use, reproduce and display the Licensed Marks and the NBC
Business Marks solely for the NBC Business on the
Contributed Sites;
2.2.3 to use, reproduce and display the Licensed Marks and the NBC
Business Marks in advertising, marketing and promotion of
the Contributed Sites; and
2.2.4 to use, reproduce and display the Licensed Marks in
advertising, marketing and promotion of Newco's Portal
Service, Community Service and e-Commerce Service, including
but not limited to Newco's press releases, letterhead and
business cards, in accordance with the terms and conditions
hereof;
PROVIDED, HOWEVER, that Licensee may not use any of the NBC Business Marks to
sell, market, merchandise or otherwise promote products or services in any
manner whatsoever or to engage in an e-Commerce Service and; PROVIDED, FURTHER,
that none of the Licensed Marks or the NBC Business Marks may appear on any page
displaying, directly linking or referring to a site containing Inappropriate
Content.
2.3 PROPERTY OF LICENSOR. Licensee agrees that the Licensed
Marks, the NBC Business Marks and the Licensed Content, used alone or with other
elements, together with the goodwill of the business symbolized thereby, are and
at all times shall remain the property of Licensor. Licensee agrees and
acknowledges that this Agreement constitutes a license, and that no ownership
interest in and to the Licensed Marks, the NBC Business Marks or the Licensed
Content is intended to be transferred by this Agreement. Licensee recognizes
the value of the goodwill associated with the Licensed Marks, the NBC Business
Marks and the Licensed Content, and that the Licensed Marks, the NBC Business
Marks and the Licensed Content have acquired secondary meaning in the mind of
the public. Licensee agrees (i) to do nothing inconsistent with such ownership
and that all use of the Licensed Marks, the NBC Business Marks and the Licensed
Content by Licensee, including all goodwill generated by Licensee's use and by
permitted licensees of the Licensed Marks, the NBC Business Marks and the
Licensed Content, shall accrue and inure to the benefit of and be on behalf of
Licensor; (ii) not to register or apply for registration of any element of the
Licensed Marks, the NBC Business Marks or the Licensed Content; (iii) not to
assert any adverse claim against Licensor based upon its use of the Licensed
Marks, the NBC Business Marks or the Licensed Content; (iv) not to challenge or
contest Licensor's ownership of the Mark, the Logo, the Chime or any element of
the Licensed Marks, the NBC Business Marks or the Licensed Content, the validity
of the Mark, the Logo, the Chime or any element of the Licensed Marks, the NBC
Business Marks or the Licensed Content, or the validity of the license granted
herein; and (v) to assist Licensor in recording this Agreement with appropriate
government authorities and in procuring any desired registration for the
Licensed Marks, the NBC Business Marks or the Licensed Content in the name of
Licensor, as may be requested by Licensor (at Licensor's sole expense).
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2.4 CONFUSINGLY SIMILAR MARKS. Licensee shall not adopt or use
any trademark, service mark, tradename, trading style, fictitious business name,
logo or design which may be confusingly similar to the Mark, the Logo, the Chime
or any element of the Licensed Marks, the NE Business Marks or the Licensed
Content.
2.5 REGISTRATION OF THE LICENSED MARKS, THE NBC BUSINESS MARKS,
AND THE LICENSED CONTENT. Licensee acknowledges that Licensor has applied or
may apply for trademark registrations for the Mark, the Logo and the Chime in
the United States of America and throughout the world. Licensee shall assist
Licensor, at Licensor's request and sole expense, in the procurement and
maintenance of the registrations for the Mark, the Logo and the Chime, and in
the procurement and maintenance of Licensor's rights in the Mark, the Logo, the
Chime, the Licensed Marks, the NBC Business Marks and the Licensed Content
(including all intellectual property rights therein whether recognized now or in
the future). In connection therewith, Licensee shall, without limitation, at
Licensor's request and at Licensor's expense, execute and deliver to Licensor in
such form as it may reasonably request, all instruments necessary to (i)
effectuate copyright and trademark protection; (ii) record Licensee as a
registered user of any trademarks pursuant to this Agreement, and (iii) cancel
any such registration. Such registration shall be handled by attorneys selected
or approved and paid for by Licensor unless agreed to in writing by Licensor.
Licensor alone shall have the right to make all filings necessary for trademark
clearance and risk analysis concerning use of, and shall in its own name have
the right to make all filings necessary to register, the Mark, the Logo, the
Chime, the NBC Business Marks and the Licensed Content in those jurisdictions in
which such registrations may be required in order for Licensee to conduct its
business. Licensor agrees to consider in good faith Licensee's request for
additional registrations or extension of the goods and services covered by the
registrations of the Licensed Marks, the NBC Business Marks or the Licensed
Content; PROVIDED, HOWEVER, that Licensor shall determine in its sole and
absolute discretion whether to apply for any such additional registrations or
extensions using the same standard that Licensor applies to additional
registrations or extensions of its owns marks and content and; PROVIDED,
FURTHER, that if Licensor decides to apply for any such additional registration
or extension, they shall be handled by Licensor and its attorneys at Licensee's
sole expense. Licensee shall not apply for or register any of the Licensed
Marks, the NBC Business Marks or the Licensed Content in the United States of
America or anywhere else in the world without the prior written consent of
Licensor. Licensor makes no warranty or representation that trademark or
copyright protection shall be secured in the Mark, the Logo, the Chime or any
element of the Licensed Marks, the NBC Business Marks or the Licensed Content.
2.6 REFERENTIAL USE. Licensor also hereby grants to Licensee
the right to license or permit (without the right to sublicense) the referential
use of the Licensed Marks, the NBC Business Marks and the Licensed Content by
authorized third parties for advertising, marketing or promotion in accordance
with the terms of Sections 2.1 and 2.2 above. Such licenses shall be in writing
and approved by appropriate legal counsel acting for Licensor in advance of such
use, and shall be substantially as protective of the Licensed Marks, the NBC
Business Marks and the Licensed Content as this Agreement. Licensee shall
notify NBC's Law Department sufficiently in advance of the granting of any such
license (or any generic type thereof) to provide Licensor a full opportunity to
exercise its rights of approval in a deliberate manner. Licensee shall not
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purport to grant any licenses to use the Licensed Marks, the NBC Business Marks
or the Licensed Content without the prior written consent of NBC's Law
Department, and any such purported grant made without such consent shall have no
effect and shall be null and void from its inception. Licensor may specify the
person to whom Licensee shall send such requests for approval. Licensor shall
be deemed to have approved a request for a license or referential use if
Licensee complies with Section 3.7 hereof and Licensor does not object in
writing within the time period specified therein.
2.7 RESERVATION OF RIGHTS. All rights in the Licensed Marks,
the NBC Business Marks and the Licensed Content not expressly granted hereunder
to Licensee (except to the extent the rights are exclusively licensed to
Licensee pursuant to Section 2.1 hereunder) are reserved by Licensor and may be
exercised by Licensor or any of its affiliates concurrently herewith. Licensor
shall make no use of the Licensed Marks, the NBC Business Marks or the Licensed
Content other than as expressly permitted hereunder, including, without
limitation, the right to create and register URLs for the marketing, licensing
and selling of NBC Merchandise (as defined below). All rights in and to all
other trademarks, service marks, trade names, trading styles, business names and
fictitious business names, regardless of whether the Mark, the Logo or the Chime
are a part thereof, are reserved to Licensor, its affiliates and its other
licensees. Licensee shall not use any of the Licensed Marks, the NBC Business
Marks or the Licensed Content together or in combination with any other
trademark, service mark, tradename, trading style, fictitious name, logo, name,
character, symbol, design, likeness or literary or artistic material in such a
manner that might tend to create a composite mark, unless otherwise approved in
advance by Licensor (subject to Section 3.7 hereof). Other than the use of the
Licensed Marks, the NBC Business Marks and the Licensed Content as expressly
permitted pursuant to Sections 2.1 and 2.2, Licensor specifically reserves all
rights to the Licensed Marks, the NBC Business Marks and the Licensed Content
(except to the extent the rights are exclusively licensed to Licensee pursuant
to Section 2.1 hereunder) for digital television exhibition, digital and analog
broadcast, terrestrial, cable or satellite television and on any other
television channel or service, including, without limitation, the NBC Television
Network, all NBC TV affiliates, the CNBC and MSNBC cable and Internet networks
and Interactive or Enhanced TV.
2.8 MANDATORY USE OF LICENSED MARKS. During the term of this
Agreement, (i) Licensee shall at all times brand all or substantially all of the
pages of the Contributed Sites, and all or substantially all of the pages
containing any Licensed Content, using the Mark, as well as the Logo (where
appropriate) with the Logo conforming to the sample provided by Licensor, from
time to time, with "branded" or "branding" as used herein meaning that the Mark
and the Logo shall appear, at a minimum, on all or substantially all of the
pages on the Contributed Sites, as well as all or substantially all of the pages
of the Newco Sites containing Licensed Content; and (ii) the Mark, as well as
the Logo shall be prominently featured in any advertising, marketing or
promotion for the Contributed Sites.
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2.9 THIRD PARTY RIGHTS. Licensee acknowledges that the licenses
granted pursuant to Sections 2.1 and 2.2 hereof and the use of the Licensed
Marks, the NBC Business Marks and the Licensed Content by Licensee may be
subject to third party rights, terms, conditions, obligations, limitations
and restrictions (collectively, "THIRD PARTY RIGHTS"), including, without
limitation, the rights of, and royalty payments to, (a) entertainment and
creative talent, personalities and personnel, (b) third party packagers,
producers and studios and (c) various unions (including, for example, the
Screen Actors Guild and the Writers Guild). Licensor shall notify and
apprise Licensee of such Third Party Rights and shall use its good faith
efforts, as determined by Licensor in its sole and absolute discretion using
the same standard that Licensor applies to its own works and content that are
subject to Third Party Rights, to work with Licensee to develop methodologies
for creating interactive programming for the Contributed Sites that has the
minimum applicability of Third Party Rights. Licensee, in turn, shall comply
with all such Third Party Rights, as determined and interpreted by Licensor,
in good faith and in its sole and absolute discretion using the same standard
that Licensor applies to its own marks and content, including making payments
to all holders of Third Party Rights.
2.10 NO OTHER USES OF THE CONTRIBUTED SITES. Licensor
acknowledges that Licensee shall have the exclusive right to use the
Contributed Sites, subject to the terms and conditions of this Agreement, and
agrees not to grant, license, sublicense, assign, transfer or otherwise
encumber the URLs to any of the Contributed Sites without the prior written
consent of Licensee. Licensee also agrees not to conduct any business,
division or operation on the Contributed Sites (except as permitted herein)
without the prior written consent of Licensor, subject to Sections 3.6 and
3.7 hereof.
SECTION 3. QUALITY AND CREATIVE CONTROL
3.1 CREATIVE CONTROL. Licensor shall direct the creative and
editorial aspects of NBC.com to the degree deemed necessary by NBC to ensure
that NBC.com will serve as NBC Television's primary promotional vehicle on the
Internet and will do so in a manner consistent with NBC's reputation and
standard of quality. As such, Licensee shall continue performing all
obligations concerning NBC.com and NBC-IN pursuant to contracts, agreements or
understandings entered into prior to the date of the Investment Agreement or,
following such date, if entered into in accordance with the terms and conditions
of the Investment Agreement.
3.2 BUDGET. Newco shall establish an annual budget for NBC.com
at a level intended to provide Newco with as much NBC Television Network
content and at least as substantive a promotional impact for NBC TV Network
as currently provided by NBC.com. If NBC requires or desires additional
promotion or content on NBC.com other than that provided in accordance with
such budget, such additional promotion or content will be provided on NBC.com
as directed by NBC, provided that NBC shall reimburse Newco for its actual
and reasonable out-of-pocket costs (net of any incremental revenue to
Licensee) for providing such additional promotion or content.
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3.3 USE OF THE MARK. The use of the Mark shall be limited to
the Mark as it appears in the Mark, the use of the Logo shall be limited to the
Logo, and the use of the Chime shall be limited to the sounds of the Chime.
3.4 FIRST-CLASS SERVICES. Each of the Portal Service, the
Community Service and the e-Commerce Service of Newco, to the extent any of them
uses any of the Licensed Marks, the NBC Business Marks or the Licensed Content,
shall meet or exceed industry standards for first class Internet services in
each such type or category and each such service shall be of high quality
consistent with Licensee being a commercially viable business; it being
understood that the services provided as of the date hereof by Snap.com and
Xoom.com are considered to meet the standards set forth herein as determined as
of the date hereof.
3.5 LICENSEE COVENANTS. Licensee shall (i) maintain the quality
of the Contributed Sites and the Portal Service, Community Service and
e-Commerce Service of Newco in accordance with Section 3 of this Agreement,
(ii) cooperate with Licensor to facilitate Licensor's control of the nature
and quality of the Contributed Sites and the use of the Licensed Marks, the
NBC Business Marks and the Licensed Content, (iii) permit reasonable
inspection of the Contributed Sites and the Portal Service and Community
Service of Newco to ensure such quality, (iv) limit its use of the Licensed
Marks, the NBC Business Marks and the Licensed Content to those provided or
approved by Licensor and (v) supply Licensor with specimens of all uses of
the Mark, the Logo, the Chime, the Licensed Marks, the NBC Business Marks and
the Licensed Content upon request. Licensee shall promptly correct all
deficiencies in the use of the Licensed Marks, the NBC Business Marks and the
Licensed Content, shall take measures reasonably designed to correct
objective defects in the use of the Licensed Marks, the NBC Business Marks or
the Licensed Content and shall promptly take all reasonable measures that are
reasonably available to Licensee to cure any breach of the substantive
quality control provisions in Sections 2 and 3 as to which Licensee has
actual knowledge, whether or not Licensee is notified of such breach by
Licensor and whether or not such breach would give rise to Licensor's right
to terminate this Agreement pursuant to Section 12 hereof.
3.6 APPROVAL FOR USES OF THE LICENSED MARKS AND LICENSED CONTENT.
Licensee shall submit for approval to Licensor and Licensor shall have sole
right of approval over any uses of the Licensed Marks, the NBC Business Marks
or the Licensed Content, including (i) all new services of Licensee that will
contain the Licensed Marks, the NBC Business Marks or the Licensed Content
and (ii) all advertising, marketing and promotional materials created,
produced, commissioned or licensed for use in connection with the Portal
Service, Community Service or the e-Commerce Service of Newco, whether
produced, commissioned or licensed by Licensee or by any third party;
PROVIDED, HOWEVER, that, with respect to the Licensed Marks, Licensor shall
apply the same
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standard for approval as it applies to any proposed use by NBC, its
Subsidiaries or any other third party. Licensee shall submit, upon
Licensor's reasonable request and for Licensor's approval or rejection,
proofs or other representations of any use, advertising or other promotional
materials, including, as applicable, screen shots, television and radio
commercials, print advertisements, promotional materials and other materials,
specifications or information containing any of the Licensed Marks, the NBC
Business Marks or the Licensed Content; PROVIDED, HOWEVER, that, with respect
to the Licensed Marks, Licensor shall apply the same standard for approval as
it applies to any proposed use by NBC, its Subsidiaries or any other third
party. Licensor shall designate individual representatives with authority to
approve or disapprove of any use of the Licensed Marks, the NBC Business
Marks or the Licensed Content by Licensee; it being understood that
individuals from NBC's Law Department will review potential uses of the
Licensed Marks and individuals from NBC's Entertainment Division will review
potential uses of the NBC Business Marks or the Licensed Content. Licensee
shall have no right to use the Licensed Marks, the NBC Business Marks or the
Licensed Content in a manner or form not approved by Licensee in accordance
with the terms and conditions of this Agreement.
3.7 DEEMED APPROVALS. Provided that Licensee has provided true
and complete copies, in final form, along with materials and other information
requested by Licensor with respect to any such proposed use or advertisement
including any of the Licensed Marks, the NBC Business Marks or the Licensed
Content, any such use that is submitted and described in final form and not
rejected within 7 days of the receipt by Licensor of the proposed use, and any
such advertisement that is submitted in final form and not rejected within 7
days, shall be deemed to be approved. Prior approval by Licensor of a format
and purpose of use of any of the Licensed Marks, the NBC Business Marks or the
Licensed Content by Licensee, or use by Licensor of a Licensed Mark, an NBC
Business Mark, or Licensed Content on the Contributed Sites during the two years
prior to the date hereof, shall constitute permission to use such Licensed Mark,
such NBC Business Mark or such Licensed Content on the Contributed Sites in the
specific manner and for the format and purpose of use so approved without the
necessity of seeking separate approvals for each additional specific use.
3.8 COMPLIANCE WITH LAW. Licensee agrees to perform this
Agreement in accordance with all laws, statutes, ordinances, rules, regulations
and requirements of all governmental agencies or authorities having jurisdiction
with respect to the Contributed Sites and Newco's Portal Service, Community
Service and e-Commerce Service, including any rules or requirements promulgated
by any body established by multilateral consent to govern any aspect of the
Internet.
3.9 LICENSOR'S GUIDELINES. Licensor will provide Licensee with
reasonable written guidelines regarding use of the Licensed Marks , and which
from time to time may be amended by Licensor, including if required by such
guidelines use of trademark symbols where appropriate (for example, -TM- or
- -Registered Trademark-), and inclusion of Licensor's standard trademark
attribution legends in all such materials, and the grant of the License herein
to Licensee is also contingent upon Licensee's conformance with these
guidelines. Licensee shall not alter, mutilate, dilute, create derivative forms
of, or otherwise change the format of the Mark, the Logo, the Chime or any
element of the Licensed Marks, the NBC Business Marks or the Licensed Content in
any way or for any purpose without Licensor's prior written approval; PROVIDED,
HOWEVER, that, with respect to the Licensed Marks, Licensor shall apply the same
standard for approval as it applies to any proposed use by NBC, its Subsidiaries
or any other third party.
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3.10 NO SUBLICENSING OR ENCUMBRANCES. Licensee shall not
sublicense (except as permitted herein), pledge, offer as security or
otherwise encumber any element of the Licensed Marks in any way or its rights
hereunder without the prior written consent of Licensor.
SECTION 4 RESTRICTIONS ON NBC.
4.1 RESTRICTIONS ON RELATIONSHIPS WITH NEWCO COMPETITORS. NBC
and its direct and indirect Subsidiaries (other than Newco and its direct and
indirect Subsidiaries) will not (i) authorize or permit a Newco Competitor
(other than Newco and its direct and indirect Subsidiaries) to Co-Brand any of
its properties, products or services with any of the Licensed Marks, (ii)
operate a Portal Service or a Community Service, (iii) operate an e-Commerce
Service that competes in scope and range with Newco's e-Commerce Service as of
the Effective Date or as expanded hereafter, (iv) invest in, purchase or loan
money to a Newco Competitor (v) grant a license to a third party, in each case,
to use the Licensed Marks or provide any of the Licensed Content to any third
party for Interactive Delivery on any Internet site, or (vi) use the Licensed
Marks for Interactive Delivery of NBC Studio's television entertainment programs
on any Internet site.
4.2 FIRST LOOK RIGHT FOR NON-PRIMARY COMPETITORS. In the event
that NBC or its direct or indirect Subsidiaries acquires a Controlling Interest
in a Non-Primary Competitor, then, following such acquisition, NBC and the Class
A Directors of Newco shall enter into good faith discussions concerning the
purchase by Newco of such Non-Primary Competitor at the fair market value
thereof, as determined by the parties or pursuant to a third party valuation
procedure set forth in Section 8 below. NBC shall give written notice to Newco
of such acquisition within 15 days after the effective date of such acquisition.
In the event that the Class A Directors determine that Newco shall not purchase
such Non-Primary Competitor on terms to which NBC is willing to agree (or make
no decision within the later of (a) 3 months following the commencement of such
good faith discussions or (b) 30 days following completion of the valuation
procedure), then, notwithstanding anything to the contrary in this Agreement,
NBC may continue to own, control and operate such Non-Primary Competitor or any
interest therein but may not permit such Non-Primary Competitor to use the
Licensed Marks to brand or Co-Brand its products or services until the 24 month
anniversary following the acquisition of such Non-Primary Competitor by NBC
(after which time the Licensed Marks may be used to brand or Co-Brand such
products and services).
4.3 FIRST LOOK RIGHTS FOR STRATEGIC INTERNET BUSINESS. In the
event that NBC or its direct and indirect Subsidiaries acquires a Controlling
Interest in a Person whose Primary Business is a Strategic Internet Business,
then, following such acquisition, NBC and the Class A Directors of Newco shall
enter into good faith discussions concerning the purchase by Newco of such
Strategic Internet Business at the fair market value thereof, as determined by
the parties or pursuant to the third party valuation procedure set forth in
Section 8 below. NBC shall give written notice to Newco of such acquisition
within 15 days after the effective date of such acquisition. In the event that
the Class A Directors determine that Newco shall not purchase such Strategic
Internet Business on terms to which NBC is willing to agree (or make no decision
within the later of (a) 3 months following the commencement of such good faith
discussions or
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(b) 30 days following completion of the valuation procedure), then,
notwithstanding anything to the contrary in this Agreement, NBC may continue
to own, control and operate such Strategic Internet Business or any interest
therein but may not permit such Strategic Internet Business to use the
Licensed Marks to brand or Co-Brand its products or services until the 24
month anniversary following the acquisition of such Strategic Internet
Business by NBC (after which time the Licensed Marks may be used to brand or
Co-Brand such products and services). In the event that the Class A
Directors determine that Newco shall not purchase such Strategic Internet
Business and for so long as NBC or its direct or indirect Subsidiaries hold a
beneficial ownership exceeding 5% in such Strategic Internet Business, the
only Board approval required for the acquisition by Newco of any Person or
asset that directly competes in the same product or category with such
Strategic Internet Business shall be the approval of a Board of Directors
committee consisting solely of Class A Directors; PROVIDED that such
acquisitions do not exceed, in the aggregate, a comparable value to such
Strategic Internet Business (as determined based on the value of the
Strategic Internet Business at the time of the Class A Director vote). For
example, a $50 million acquisition is comparable to a $200 million
acquisition, but a $500 million acquisition is not comparable to a $2 billion
acquisition.
4.4 FIRST LOOK RIGHTS FOR A NON-PRIMARY STRATEGIC INTERNET
BUSINESS. (a) In the event that NBC acquires a Controlling Interest in a
Person whose Primary Business is not a Strategic Internet Business, but is the
direct or indirect owner of a Controlling Interest in a Person, or in a division
or operation of a Person, engaged in a Strategic Internet Business, then,
following such acquisition, NBC, in its sole and absolute discretion, may decide
to enter into good faith discussions with the Class A Directors of Newco
concerning the purchase by Newco of such Strategic Internet Business at the fair
market value thereof, as determined by the parties or pursuant to the third
party valuation procedure set forth in Section 8 below. NBC shall give written
notice to Newco of such acquisition within 15 days after the effective date of
such acquisition. In the event that NBC offers to enter into such good faith
discussions and the Class A Directors determine that Newco shall not purchase
such Strategic Internet Business on terms to which NBC is willing to agree (or
make no decision within the later of (a) 3 months following the commencement of
such good faith discussions or (b) 30 days following completion of the valuation
procedure), then, notwithstanding anything to the contrary in this Agreement,
NBC may continue to own, control and operate such Strategic Internet Business or
any interest therein but may not permit such Strategic Internet Business to use
the Licensed Marks to brand or Co-Brand its products or services until the 24
month anniversary following the acquisition of such Strategic Internet Business
by NBC (after which time the Licensed Marks may be used to brand or Co-Brand
such products and services). In the event that the Class A Directors determine
that Newco shall not purchase such Strategic Internet Business and for so long
as NBC or its direct or indirect Subsidiaries hold a beneficial ownership
exceeding 5% in such Strategic Internet Business, the only Board approval
required for the acquisition by Newco of any acquisition by Newco of any Person
or asset that directly competes in the same product or category with such
Strategic Internet Business shall be the approval of a Board of Directors
committee consisting solely of Class A Directors; PROVIDED that such
acquisitions do not exceed, in the aggregate, a comparable value to such
Strategic Internet Business (as determined based on the value of the Strategic
Internet Business at the time of the Class A Director vote). For example, a $50
million acquisition is comparable to a $200 million acquisition, but a $500
million acquisition is not
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comparable to a $2 billion acquisition. However, in the event that NBC
determines not to enter into such good faith discussions with the Class A
Directors, then NBC may continue to own, control and operate such Strategic
Internet Business or any interest therein but may not permit such Strategic
Internet Business to use the Licensed Marks nor Co-Brand or rebrand such
Strategic Internet Business with the Licensed Marks during the term of this
Agreement.
(b) In the event that NBC or its direct or indirect Subsidiaries
acquires a beneficial ownership interest that is less than a Controlling
Interest in a Person whose Primary Business is a Strategic Internet Business or
in a Person whose Primary Business is not a Strategic Internet Business, but is
the beneficial owner of less than a Controlling Interest in a Person, or in a
division or operation of a Person, engaged in a Strategic Internet Business,
then NBC shall negotiate in good faith to obtain strategic carriage and
investment rights for Newco on terms advantageous to Newco and at Newco's cost.
4.5 DISAPPROVED ASSET. For so long as the Class B Stock
constitutes at least 20% of the outstanding capital stock of Newco, if (a) the
Board of Directors of Newco votes not to approve Newco's acquisition of an asset
that Newco management in good faith seeks to acquire and has a reasonable
opportunity to acquire (a "DISAPPROVED ASSET"), (b) a majority of the Class A
Directors voted to approve such acquisition and (c) NBC or any of its
Subsidiaries acquires a Controlling Interest in such Disapproved Asset during
the one year period following such Board vote, then in such event any
acquisition by Newco of an asset that directly competes in the same product or
category with the Disapproved Asset shall be subject only to the approval of a
Board of Directors committee consisting solely of Class A Directors; PROVIDED
that such acquisitions do not exceed, in the aggregate, a comparable value to
such Disapproved Asset (as determined based on the value of the Strategic
Internet Business at the time of the Class A Director vote). For example, a $50
million acquisition is comparable to a $200 million acquisition, but a $500
million acquisition is not comparable to a $2 billion acquisition.
SECTION 5 RESTRICTIONS ON NEWCO.
5.1 RESTRICTIONS ON RELATIONSHIPS WITH NBC COMPETITORS. (a)
Newco and its direct or indirect Subsidiaries will not (i) authorize or permit a
NBC Competitor to Co-Brand any of its properties, products or services with any
of Newco's brands or trademarks (including the Snap brand), (ii) invest in,
purchase or loan money to a NBC Competitor, (iii) sell or issue to a NBC
Competitor or any of its Affiliates any stock or other securities of Newco or
any of its Subsidiaries, (iv) share data collected with respect to end users of
NBC.com or NE-IN with, or act as a service bureau with respect to such data on
behalf of, any NBC Competitor or a NBC Competing Business or (v) engage in a NBC
Competing Business.
(b) For as long as Newco is utilizing the Mark as licensed in Section
2.1.4, neither Newco nor any of its Subsidiaries will directly or indirectly
engage in any business or operation other than the Newco Business, the
Interactive Delivery of Content, Strategic Internet Businesses, and any other
business or operation conducted all or substantially all over the Internet and
activities reasonably necessary to support such businesses.
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5.2 RESTRICTIONS ON THE INTERACTIVE DELIVERY OF NEWS. (a)
Without NBC's prior written consent, neither Newco nor any of its Subsidiaries
shall, directly or indirectly, acquire any Person or asset or operate any
business, division or operation that, directly or indirectly, creates or engages
in the Interactive Delivery of (i) general local, national and international
news or (ii) news related to (A) business, finance, personal finance or money
management, (B) news history/archives, (C) political commentary, (D) consumer
news, (E) health news, (F) sports news, (G) weather, (H) basic science news or
(I) entertainment (including performing arts), in each case of the type
typically included in general circulation daily newspapers such as the NEW YORK
TIMES and the WALL STREET JOURNAL, broadcast news programming or general
interest magazines such as TIME, NEWSWEEK, FORBES and MONEY and niche business
magazines not of a technical nature such as BROADCAST & CABLE MAGAZINE
(collectively, "RESTRICTED NEWS"); PROVIDED, HOWEVER, that Newco and such
controlled Affiliates may create or engage in the Interactive Delivery of such
level and amount of Restricted News as provided by NE Portal as of the date of
the Investment Agreement, as set forth in Exhibit 5.2 attached hereto. Other
than the restrictions contained in the preceding sentence, none of Newco nor any
of its controlled Affiliates shall be restricted from the Interactive Delivery
of news or sports.
(b) Notwithstanding anything to the contrary contained in this
Agreement, NBC shall not be entitled to terminate this Agreement for any breach
by Newco or its Subsidiaries of this Section 5.2 and, in addition, NBC's sole
and exclusive remedy for any such breach shall be specific performance by Newco
or such Subsidiary of this Section 5.2; PROVIDED, HOWEVER, that if specific
performance is unavailable or rejected by any court of competent jurisdiction
(on grounds other than the merits of such claim of breach), NBC may seek damages
for breach of contract, but not indemnification under Section 11.
SECTION 6 GENERAL EXCEPTIONS
Nothing in this Agreement shall be interpreted as limiting in any way the
ability of any party or its Affiliates from (i) promoting, advertising or
undertaking market research concerning any aspect of such party or its
Affiliates or any of their respective businesses, operations, programs, products
or services at any time in any media (including, for example, displaying the
Licensed Marks on third party Internet sites to promote Television Programs
broadcast on NBC Television Network, any current and future broadcast television
station owned or controlled by NBC or any cable or digital network owned or
controlled by NBC), (ii) selling advertisements, sponsorships or promotions to
any Newco Competitor, Newco Business, Non-Primary Competitor, NBC Competitor or
NBC Competing Business for cash or, subject to the minority investment
limitations described below, for equity, other securities or any other property,
(iii) distributing content (whether distributed via the Internet, television or
any other media) at any time and in any media, regardless of whether such
content is distributed or syndicated on or through or created or provided by a
Newco Competitor, a Non-Primary Competitor, a Newco Business, a NBC Competitor
or a NBC Competing Business, (iv) entering into a relationship with a Newco
Competitor, a Newco Business, a Non-Primary Competitor, a Newco Business, a NBC
Competitor or a NBC Competing Business for customary, non-strategic Internet
traffic arrangements in the ordinary course of business of such party or its
Affiliates, (v) entering into a relationship with another entity, whether or not
a Newco Competitor, a Non-Primary Competitor,
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a Newco Business, NBC Competitor or a NBC Competing Business, with respect to
Interactive or Enhanced TV or otherwise providing Interactive or Enhanced TV,
(vi) acquiring investments in Newco Competitors, Non-Primary Competitors,
Newco Businesses, NBC Competitors or NBC Competing Businesses of not more
than 20% of the voting securities or value (as determined by market
capitalization at the time such investment is made) and that do not entitle
the acquiror to appoint a majority of the Board of Directors (or similar
governing body) of, or grant the acquiror majority voting control (by voting
trust, stockholder agreement or similar arrangement) over, such entity or
business, (vii) acquiring investments in companies that develop independently
into Newco Competitors, Non-Primary Competitors, Newco Businesses, NBC
Competitors or NBC Competing Businesses of not more than 20% of the voting
securities or value (as determined by market capitalization at the time such
investment is made) and that do not entitle the acquiror to appoint a
majority of the Board of Directors (or similar governing body) of, or grant
the acquiror majority voting control (by voting trust, stockholder agreement
or similar arrangement) over, such entity or business, (viii) the broadcast
or streaming, whether over the Internet or otherwise, of Television Programs,
including, without limitation, any program broadcast on the NBC Television
Network, all current and future broadcast television stations owned or
controlled by NBC or Newco and any cable or digital network owned or
controlled by NBC or Newco, (ix) owning, controlling or operating CNBC.com,
MSNBC.com or their respective Subsidiaries, or any interest therein,
permitting CNBC.com, MSNBC.com or their respective Subsidiares to use the
Licensed Marks or the NBC Business Marks, entering into relationships with
Newco Competitors, Non-Primary Competitors, Newco Businesses or NBC
Competitors with respect to CNBC.com, MSNBC.com or their respective
Subsidiaries, as well as any activities, operations or investments of
CNBC.com and MSNBC.com and their respective Subsidiaries in the Interactive
Delivery of news, financial services or sports and/or products or services
related thereto, (x) owning or continuing relations (whether contractual or
otherwise) with ValueVision, so long as neither NBC or Newco acquires
beneficial ownership of 50% or more of the total voting power of such entity,
(xi) merchandising, licensing and sale of NBC and Newco products, Television
Programs or television properties and (xii) marketing, licensing and sale,
through an e-Commerce Service or any other wholesale, retail or Internet
service or sales channel (whether now known or hereafter devised), of
products or services branded or Co-Branded with the Licensed Marks, the NBC
Business Marks or the Licensed Content or of products or services based on,
related to, or appearing on any Television Program broadcast on the NBC
Television Network, any current and future broadcast television station owned
or controlled by NBC or any cable or digital network owned or controlled by
NBC (collectively, "NBC MERCHANDISE").
SECTION 7 PREFERRED CARRIAGE AND OTHER ARRANGEMENTS
7.1 CARRIAGE OF NBC SERVICES. Newco agrees, for no additional
consideration, that certain of NBC's Content shall be displayed on the Newco
Sites and shall receive placement as follows, as soon as practicable but not
exceeding six (6) months from the Effective Date and subject to any third party
agreements in effect as of the date hereof (it being understood that Licensee
(and/or Newco, as the case may be) shall use its reasonable commercial efforts
to terminate such third party agreements):
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7.1.1 ENTERTAINMENT AND TELEVISION. In the entertainment Topic
(and its successors including any new Topics into which such Topic may be
converted or merged) and the Sub-Topic Pages for such Topics (and their
successors including any new Topics into which such Sub-Topics may be moved or
merged), the Newco Sites will display and link to NBC.com and NBC.com Content as
a Prominent but non-exclusive Content provider. In the television Topic (and its
successors including any new Topics into which such Topic may be converted or
merged) and the Sub-Topic Pages for such Topics that reasonably relate to
NBC.com Content (and their successors including any new Topics into which such
Sub-Topics may be moved or merged), the Newco Sites will display and link to
NBC.com and NBC.com Content as a the Preferred and Default but non-exclusive
Content provider.
7.1.2 MONEY, FINANCE AND BUSINESS. In the Money, Finance and
Business Topics (and their successors including any new Topics into which such
Topics may be converted or merged) and the Sub-Topic Pages for such Topics for
which CNBC.com provides Content on CNBC.com (and their successors including any
new Topics into which such Sub-Topics may be moved or merged), the Newco Sites
will display and link to CNBC.com and CNBC.com Content as a the Preferred and
Default but non-exclusive Content provider; PROVIDED, HOWEVER, that Newco's
search engine is the Preferred Internet search engine on CNBC.com.
7.1.3 LOCAL. In the Local Topic (and its successor including any
new Topics into which such Topic may be converted or merged) and the Sub-Topic
Pages for such Topics that reasonably relate to NBC-IN Content (and their
successors including any new Topics into which such Sub-Topics may be moved or
merged), the Newco Sites will display and link to NBC-IN and NBC-IN Content as a
the Preferred and Default but non-exclusive Content provider; provided, that
NBC-IN's Content, taken as a whole, remains reasonably competitive with that of
its principal competitors. In addition, the Newco Sites will provide a fixed
position branded link to the appropriate NBC-IN affiliated television station
site positioned in a Prominent location on each Sub-Topic page relating to such
NBC-IN affiliate's city.
7.1.4 NEWS. In the News Topics (and their successors including
any new Topics into which such Topics may be converted or merged) and the
Sub-Topic Pages for such Topics for which MSNBC.com provides Content on
MSNBC.com (and their successors including any new Topics into which such
Sub-Topics may be moved or merged), the Newco Sites will display and link to
MSNBC.com and MSNBC.com Content as a the Preferred and Default but
non-exclusive Content provider; PROVIDED, HOWEVER, that MSNBC's Content,
taken as a whole, remains reasonably competitive with that of its principal
competitors.
7.1.5 MAINTENANCE OF POSITIONING. Newco shall not re-design,
reorganize or otherwise modify the pages upon which NBC Content appears in any
manner that would diminish, or otherwise reduce the value of, the positioning
and other advantages guaranteed to NBC pursuant to this Section 7.
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7.2 MERCHANDISING AND LICENSING. NBC and Newco shall use their
good faith efforts to negotiate terms and conditions for the non-exclusive
marketing, licensing and selling of NBC Merchandise on NBC.com and Newco's
e-Commerce Service on a mutually-beneficial basis.
7.3 DATA SHARING. Newco shall provide NBC, its direct and
indirect Subsidiaries and its broadcast television affiliates with the
maximum amount of access to the registration database of (a) each of the
Newco Sites that is permissible in accordance with the privacy policy of each
such Newco Site for the purpose of assisting NBC in the market research,
demographics and/or promotion of the NBC Television Network, any current and
future broadcast television station owned or controlled by NBC, any cable or
digital network owned or controlled by NBC and any programming appearing
thereon and (b) each of the Contributed Sites that is permissable in
accordance with the privacy policy of each such Contributed Site for the
purpose of assisting NBC in the marketing, licensing and selling of NBC
Merchandise, and in each case shall use all reasonable efforts to coordinate
with NBC and such Persons regarding the use of such registration databases
for such purposes in accordance with such privacy policies. In addition,
Newco shall provide NBC with a comprehensive set of statistics and data with
respect to the activities of the end users of the Contributed Sites, and with
all information provided by such end users, in response polls and
questionnaires regarding the NBC Television Network, all current and future
broadcast television stations owned or controlled by NBC and any cable or
digital network owned or controlled by NBC, the programming appearing thereon
and NBC Merchandise. Such statistics, data and information shall be made
available at such times, in such formats and via such methods as are
reasonably specified by NBC. NBC shall reimburse Newco for its out-of-pocket
expenses necessary to provide NBC with the requested statistics and data, to
the extent that such expenses are not included in the budget of NBC.com
established in accordance with Section 3.2 hereof; PROVIDED, HOWEVER, that
NBC shall have the right to agree to any amount exceeding $1,000 to be paid
hereunder before NBC agrees to be bound to any such payments or, if no amount
is agreed upon, NBC shall be deemed to have approved payment of such amount
if NBC does not object in writing within seven (7) days of receiving written
notification from Newco of such out-of-pocket expenses; it being understood
that Newco shall not be required to provide such statistics and data if NBC
does not reimburse Newco for its expenses in accordance with this sentence.
7.4 NBC ENTERTAINMENT PERSONALITIES. NBC shall make good faith
efforts to obtain the necessary rights for Newco (at Newco's cost) to use the
names, likenesses and voices of NBC's entertainment or creative talent,
personalities and personnel solely for the Interactive Delivery of such names,
likenesses and voices on the Contributed Sites, Newco's Portal Service and
Newco's Community Service and the marketing and promotion thereof, and Newco
agrees that all contacts and relationships (contractual or otherwise) with NBC's
entertainment or creative talent, personalities and personnel shall be
exclusively handled by NBC in its sole and absolute discretion and in good faith
on behalf of Newco; it being understood that NBC shall not be obligated to
obtain any such rights or even enter into any discussion with any such
personality if NBC believes, in good faith, that such discussion or request for
rights would disadvantage or jeopardize, in any manner, its contacts or
relationships with its entertainment or creative talent and personalities or any
third party packager, producer or studio. In performance of its
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obligations under this Section 7.4, NBC shall consult with Newco as to which
rights Newco desires to obtain and, if any rights are obtained on behalf of
Newco, Newco shall reimburse NBC for any out-of-pocket costs for obtaining
such rights, including, without limitation, any amount agreed by NBC to be
paid to such entertainment or creative talent, personality or personnel;
PROVIDED, HOWEVER, that Newco shall have the right to agree to any amount
exceeding $1,000 to be paid hereunder before Newco agrees to be bound to any
such payments or, if no amount is agreed upon, Newco shall be deemed to have
approved payment of such amount if Newco does not object in writing within
seven (7) days of receiving written notification from NBC of such
out-of-pocket costs.
7.5 INTERACTIVE RIGHTS TO NBC ENTERTAINMENT PROPERTIES. (a)
NBC shall make good faith efforts, on a case-by-case basis as requested by
Newco, to obtain the rights for Newco (at Newco's cost) for entertainment
television programs and entertainment television content broadcast on the NBC
Television Network as to which NBC does not have the right to provide for
Interactive Delivery solely for Interactive Delivery on the Contributed Sites,
Newco's Portal Service and Newco's Community Service and the marketing and
promotion thereof, and Newco agrees that all contacts and relationships
(contractual or otherwise) with concerning such rights shall be exclusively
handled by NBC in its sole and absolute discretion and in good faith on behalf
of Newco; it being understood that NBC shall not be obligated to obtain any such
rights or even enter into any discussion with any third party if NBC believes,
in good faith, that such discussion or request for rights would disadvantage or
jeopardize, in any manner, its contacts or relationships with such third party,
any entertainment or creative talent, personality or personnel or any third
party packager, producer or studio. In performance of its obligations under
this Section 7.5, NBC shall consult with Newco as to which rights Newco desires
to obtain and, if any rights are obtained on behalf of Newco, Newco shall
reimburse NBC for any out-of-pocket costs for obtaining such rights, including,
without limitation, any amount agreed by NBC to be paid to such third party;
PROVIDED, HOWEVER, that Newco shall have the right to agree to any amount
exceeding $1,000 to be paid hereunder before NBC agrees to be bound to any such
payments or, if no amount is agreed upon, Newco shall be deemed to have approved
payment of such amount if Newco does not object in writing within seven (7) days
of receiving written notification from NBC of such out-of-pocket costs.
(b) Notwithstanding the foregoing, if Newco has requested
Interactive Delivery rights pursuant to Section 7.5 hereof and such rights are
obtained for Newco in connection, or as part of a package, with Television
Program rights for such entertainment television program or entertainment
television content, Newco shall pay NBC the fair market value for such
Interactive Delivery rights, as mutually agreed by NBC and Newco or as
determined in accordance with the third party valuation procedure set forth in
Section 8 below.
7.6 EMAIL ADDRESSES. Newco shall provide NBC and its direct and
indirect Subsidiaries, without charge, with email addresses on NBC.com for all
directors, officers, employees and agents of NBC and such Subsidiaries, and
shall allow such Persons to access their email without opening or displaying any
page on any of the Newco Sites.
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SECTION 8 THIRD PARTY VALUATION PROCEDURE
Where this Agreement requires that fair market value be determined by
third party valuation procedure, the following procedure shall be used. First,
the parties shall enter into (or shall have conducted) good faith discussions
for a 15 day period. Second, in the event that the parties fail to agree upon a
fair market value, then either party may commence the independent appraiser
process by notifying the other party and, promptly thereafter, each party shall
select an independent appraiser from among the nationally recognized investment
banking firms which shall not have been retained by either of the parties within
the prior twelve (12) months. The parties' independent appraisers shall
calculate the fair market value, such fair market value to be determined as if
all of the relevant business or all of the equity of such Person were being sold
in a single transaction on arm's length terms between a willing buyer and a
willing seller. If the valuation determined by the independent appraisers is
reflected in the form of a range, then the median of the highest and lowest
numbers in such range shall be used. If the independent appraisers are not able
to agree on such valuation or methodology, then the fair market value shall be
the average of the determinations by the independent appraisers. If the
difference between such valuations exceeds twenty percent (20%) of the amount of
the lower of the two valuations, then the parties shall agree upon an additional
independent appraiser, which shall be selected from among the nationally
recognized investment banking firms and which shall not have been retained by
either of the parties within the prior twelve (12) months ("FINAL EVALUATOR").
The final evaluator shall determine the fair market value of the asset in
question. In the event that the final evaluator's valuation exceeds the higher
valuation of the prior two valuations or is less than the lower of such prior
valuations, then in such case the fair market value shall be set by averaging
the two valuations that are the closest in amount. In the event that the final
evaluator's valuation is less than the higher valuation of the prior two
valuations and is higher than the lower valuation of the prior two valuations,
then the fair market value shall be the final evaluator's valuation. The
parties shall attempt to complete the valuations as soon as reasonably practical
and shall instruct the independent appraisers to complete their valuations
within 30 days.
SECTION 9 REPRESENTATIONS AND WARRANTIES OF NBC
NBC represents and warrants as follows:
9.1 NBC has taken all corporate actions necessary to authorize
NBC's execution and delivery of this Agreement and performance of the
transactions or obligations contemplated hereby. This Agreement has been duly
executed and delivered by NBC and constitutes the legal, valid and binding
obligation of NBC, enforceable against NBC in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally or by general principles of equity.
9.2 NBC has all rights necessary to grant the rights granted to
Newco under Sections 2.1 and 2.2 hereof without the need for any consents,
approvals, licenses, or other authorizations.
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SECTION 10 REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants as follows:
10.1 Newco has taken all corporate actions necessary to authorize
Newco's execution and delivery of this Agreement and performance of the
transactions or obligations contemplated hereby. This Agreement has been duly
executed and delivered by Newco and constitutes the legal, valid and binding
obligation of Newco, enforceable against Newco in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally or by general principles of equity.
SECTION 11 INDEMNITY
11.1 NBC INDEMNIFICATION OBLIGATION. As of and after the
Effective Date and subject to Newco's compliance with the terms and conditions
of this Agreement, NBC shall indemnify, defend, and hold harmless Newco and its
respective successors and assigns and the directors, officers, employees, and
agents of each ("NEWCO INDEMNIFIED GROUP") from and against any claims, actions,
assessments, losses, damages, liabilities, costs, expenses of litigation
(including reasonable attorneys' fees), and settlement amounts, together with
interest and penalties (collectively, a "LOSS" or "LOSSES"), asserted against,
resulting to, imposed upon, or incurred by a member of the Newco Indemnified
Group, to the extent arising from any of the following: (i) any claim by a
third party that Newco's use or exercise of the rights licensed or assigned
herein infringes any third party's rights; (ii) any claim by a third party
arising from NBC's use, prior to the Effective Date, of the URLs licensed
pursuant to Section 2 infringes any third party's rights; and (iii) any breach
of NBC's representations, warranties, covenants or agreements contained in this
Agreement.
11.2 NEWCO INDEMNIFICATION OBLIGATION. As of and after the
Effective Date and subject to NBC's compliance with the terms and conditions of
this Agreement, Newco shall indemnify, defend, and hold harmless NBC, its
Affiliates and their respective successors and assigns and the directors,
officers, employees, and any agents of each ("NBC Indemnified Group") from and
against any Losses, asserted against, resulting to, imposed upon, or incurred by
a member of the NBC Indemnified Group, to the extent arising from any of the
following: (i) any breach of Newco's representations, warranties, covenants or
agreements contained in this Agreement and (ii) Licensee's marketing, sale or
use of any of the Licensed Marks, the NE Business Marks or the Licensed Content
except as to those matters for which Licensor is obligated to indemnify Newco
pursuant to Section 11.1 hereof.
11.3 NOTICE OF CLAIM. The party entitled to indemnification
hereunder (the "CLAIMANT") shall promptly deliver to the party liable for such
indemnification hereunder (the "OBLIGOR") notice in writing (the "REQUIRED
NOTICE") of any claim for recovery under Section 11.1 or 11.2, specifying in
reasonable detail the nature of the Loss (the "CLAIM"); PROVIDED, HOWEVER, that
the failure to provide such notice shall not limit the Claimant's right to
indemnification hereunder except to the extent that the Obligor is materially
prejudiced hereunder. The Claimant shall provide to the Obligor as promptly as
practicable thereafter information and documentation in its possession and
reasonably requested by the Obligor to
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support and verify the claim asserted, provided that, in so doing, it may
restrict or condition any disclosure in the interest of preserving privileges
that it may assert in any foreseeable litigation.
11.4 DEFENSE. The Claimant shall permit the Obligor to assume
the defense of such Claim and any litigation resulting therefrom (and to
prosecute by way of counterclaim or third party complaint any claim against such
third party arising out of or relating to the Claim in question) upon receipt by
the Claimant of the Obligor's written acknowledgment of its obligation to
indemnify the Claimant with respect to the Claim and its agreement to assume the
defense of such Claim. After giving such notice of assumption, the Obligor
shall not be liable under this Agreement for any legal or other expenses
subsequently incurred by the Claimant in connection with such defense but the
Obligor shall be responsible for all such expenses incurred by the Claimant in
connection with the Claim prior to such assumption. Notwithstanding the
foregoing, any Claimant shall be entitled to conduct its own defense at the cost
and expense of the Obligor if the Claimant can establish, by reasonable
evidence, that the conduct of its defense by the Obligor would reasonably be
likely to prejudice the Claimant due to the nature of any claims or
counterclaims presented or by virtue of a conflict between the interest of the
Claimant and the Obligor, and provided further that in any event the Claimant
may participate in such defense at its own expense. Counsel selected by the
Obligor or by the Claimant to defend any Claim shall be subject to the
reasonable approval of the other party. If the Obligor fails to assume the
defense of any such Claim as provided above within a reasonable time (which
shall be such period of time as will not, in the reasonable judgment of the
Claimant, result in prejudice to the rights of the Claimant) after due notice
has been given of a Claim, then until such time as the Obligor shall make such
assumption, the Claimant shall have the right to prosecute and conduct its own
defense by counsel of its choice, and in connection therewith shall have full
right to conduct the defense thereof and to enter into any compromise or
settlement thereof without the consent of the Obligor. Such defense shall be at
the cost and expense of the Obligor if the Obligor subsequently assumes such
defense as provided above, or if it is subsequently determined that the Obligor
is or was obligated to defend or indemnify the Claimant with respect to such
Claim. Wether or not the Obligor chooses to so defend or prosecute such claim,
all the parties hereto shall provide reasonable cooperation in the defense or
prosecution thereof.
11.5 SETTLEMENT. The Claimant shall have the right to determine
and adopt (or, in the case of a proposal by Obligor, to approve) a settlement of
such matter in its reasonable discretion, except that Claimant need not consent
to any settlement that (a) imposes any nonmonetary obligation or (b) Obligor
does not agree to pay in full. The Obligor shall not be liable for any
settlement of any such claim effected without its prior written consent, which
shall not be unreasonably delayed or withheld.
SECTION 12 TERM AND TERMINATION
12.1 TERM. Unless sooner terminated as provided herein, this
Agreement and the rights and licenses granted and obligations herein shall
continue in perpetuity.
12.2 GROUNDS FOR TERMINATION. The provisions of this Agreement
may be terminated as follows:
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12.2.1 by either NBC or Newco, in the event that NBC and its direct
and indirect Subsidiaries no longer own at least 5% of
Newco's Common Stock;
12.2.2 by either NBC or Newco, in the event that (i) the other
party files any petition for bankruptcy or is adjudicated a
bankrupt or insolvent under the bankruptcy laws of any
jurisdiction; (ii) a petition in bankruptcy is filed against
the other party and such petition is not dismissed within 60
days; (iii) the other party becomes insolvent or makes an
assignment for the benefit of its creditors or an
arrangement for its creditors pursuant to any bankruptcy
law; (iv) the other party discontinues its business; or (v)
a receiver or trustee is appointed for the other party,
which appointment is not contested by that party within 60
days;
12.2.3 by NBC, in the event of a Change of Control of Newco; or
12.2.4 by NBC, in the event of any material breach by Newco of this
Agreement or any breach by Newco of any material
representation, warranty, covenant or agreement contained in
this Agreement (it being understood that the substantive
quality controls contained in Sections 2 or 3 hereof are
material covenants and agreements of this Agreement);
PROVIDED, HOWEVER, that if such breach is of such a nature
that it can reasonably be cured within 30 days following
written notice from Licensor to Licensee of such breach,
then such right of termination may not be exercised unless
such breach shall not have been cured within such 30-day
period;
12.2.5 by NBC, in the event (x) of any breach by Newco of any of
the substantive quality controls contained in Sections 2 or
3 hereof, (y) (i) if such breach is of such a nature than
it cannot reasonably be cured or (ii) if such breach is
cured within the time period specified in subsection 12.2.4
above, and (z) Licensee repeatedly breaches the substantive
quality controls contained in Sections 2 or 3 hereof
following written notice from Licensor to Licensee of such
breach, provided that NBC shall give written notice of each
instance of claimed breach on which NBC bases its claim of
termination under this subparagraph.
12.3 EFFECT OF TERMINATION.
12.3.1 TERMINATION OF RIGHTS AND OBLIGATIONS. Subject to Section
12.3.2 below, upon termination of this Agreement for any
reason, all rights and obligations of both parties under
this Agreement shall terminate, Licensee shall return to NBC
all master files, samples and exemplars received from NBC
or, at NBC's request, arrange to have such materials
destroyed.
12.3.2 SURVIVAL OF NON-EXCLUSIVE RIGHTS. Notwithstanding anything
to the contrary in Section 12.3.1 above, upon termination of
this Agreement pursuant to Sections 12.2.1 or 12.2.3 and, in
the case of Section 12.2.3, where a NBC Competitor does not
acquire the power to appoint a majority of the Board of
Directors of Newco or majority voting control (by voting
trust, stockholder agreement or similar
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arrangement), the license rights granted under Sections
2.1 and 2.2 to Newco shall continue for one year after
the effective date of termination, provided that the
license set forth in Section 2.1 shall become
non-exclusive for such one year period, and Newco shall
continue to operate the Contributed Assets for such one
year period.
12.3.3 EFFECTS OF TERMINATION. Upon termination of this Agreement
for any reason, Newco shall take all reasonably necessary
actions to cause its corporate name to be changed to
eliminate the use of the Mark as promptly as reasonably
practical (but in no event later than one year after the
termination of this Agreement). Upon expiration of the one
year period set forth in Section 12.3.2 above, NBC shall pay
Newco the fair market value (as determined by the parties or
in accordance with the third party valuation procedure set
forth in Section 8 above) for NBC.com, NBC-IN.com and, to
the extent such URLs are owned by Newco, NBCInternet.com and
NBCi.com at the effective time of termination, and such
purchase price may be paid, in the sole discretion of NBC,
in cash or Newco stock.
12.3.4 In the event that Newco's non-exclusive license survives
pursuant to Section 12.3.2 above, the following Sections
of this Agreement shall survive during that one year
period: Sections 1, 2.1 (but only on a non-exclusive
basis), 2.2-2.9, Section 3, Section 6, Sections 7.3-7.6,
Sections 11-13. Thereafter, the following Sections of
this Agreement shall survive termination: Sections 13.1,
13.4, and 13.8 (with respect to confidential information
provided pursuant to the Agreement). In the event that
the agreement terminates or expires and Newco's
non-exclusive license does not survive under Section
12.3.2 above, the following Sections of this Agreement
shall survive termination: Sections 13.1, 13.4, and 13.8
(with respect to confidential information provided
pursuant to the Agreement).
SECTION 13 MISCELLANEOUS
13.1 LIMITATION ON LIABILITY. To the extent allowed by
applicable law, in no event shall either party be liable for any special,
consequential, incidental, indirect, or punitive damages of any kind, or any
lost profits, lost revenues, or lost business arising from or relating to this
Agreement, even if a party has been advised of the possibility of such damages,
however caused.
13.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, shall inure to the benefit of and shall be enforceable by the respective
successors and assigns of the parties hereto. Neither party may assign or
otherwise transfer this Agreement, except in connection with a merger,
reorganization, or transfer of all or substantially all of the assets of such
party to which this Agreement relates, provided that the assignee or transferee
shall agree in writing to be bound by this Agreement; PROVIDED, HOWEVER, that
NBC Multimedia, Inc. may assign this Agreement to Newco in connection with the
transactions contemplated by the Investment Agreement if Newco
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signs a counterpart to this Agreement and agrees to be bound by it. If NBC
transfers any of the Licensed Marks, the NBC Business Marks or the Licensed
Content licensed hereunder to a third party, NBC will require the transferee
to agree in writing to assume NBC's obligations hereunder with respect to the
property being transferred. Any purported assignment made in contravention
of this Section 13.2 shall be null and void from its inception.
13.3 AMENDMENT. This Agreement may be amended only by a written
instrument duly executed by Newco and NBC, which must be approved in the case of
Newco by a majority of the Class A Directors.
13.4 WAIVER OF BREACH. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver (which, in the case of Newco, must be approved by a majority of the
Class A Directors), but such waiver or failure to insist upon strict compliance
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
13.5 NOTICES. All notices and other communications provided for
hereunder shall be in writing and delivered by hand or sent by first class mail
or sent by facsimile (with such facsimile to be confirmed promptly in writing
sent by first class mail), sent as follows:
(i) If to NBC, addressed to:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, NY 10112
Attention: Tom Rogers; Facsimile: (212) 664-3914
(ii) If to Licensee, addressed to:
NBC Multimedia, Inc.
30 Rockefeller Plaza
New York, NY 10112
Attention: President, NBC Multimedia
Facsimile: (212) 664-5561
with a copy to: Xoom.com, Inc
300 Montgomery Street, Suite 300
San Francisco, CA 94104
Attention: General Counsel
Facsimile: (415) 288-2578
or to such other address or addresses or facsimile number or numbers as any of
the parties hereto may most recently have designated in writing to the other
parties hereto by such notice. All such
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communications shall be deemed to have been given or made when so delivered
by hand or sent by facsimile, or three business days after being so mailed.
13.6 ENTIRE AGREEMENT. This Agreement, the Investment Agreement
and the exhibits and schedules hereto and thereto contain the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral and written agreements and understandings between the
parties hereto with regard to such subject matter.
13.7 INFRINGEMENT OF THE LICENSED MARKS, THE NBC BUSINESS MARKS
OR THE LICENSED CONTENT. Each party shall promptly notify the other party of
any acts, claims, demands or causes of action of which it learns, based upon,
relating to, or arising from any attempt by any other Person to use any element
of the Licensed Marks, the NBC Business Marks or the Licensed Content or any
colorable imitation thereof of which such party becomes aware, in each case that
would result in a material diminution or impairment of the other party's rights
in such marks or content; it being understood that any infringement of the
Licensed Marks, the NE Business Marks or the Licensed Content would result in a
material diminution or impairment of NBC's rights in such marks or content.
Licensee also shall notify the other party promptly of any litigation or
arbitration instituted or threatened by any Person against such Party involving
the Licensed Marks, the NBC Business Marks or the Licensed Content. Licensor
shall have the sole right to decide whether or not proceedings alleging
infringement of the Licensed Marks, the NBC Business Marks or the Licensed
Content shall be brought against third parties and to control any litigation or
arbitration involving the Licensed Marks, the NBC Business Marks or the Licensed
Content. Licensor shall have the sole right to defend the Licensed Marks, the
NBC Business Marks and the Licensed Content, at its expense, against imitation,
infringement or any claim of prior use.
13.8. CONFIDENTIALITY. Neither Licensor nor Licensee shall
disclose to any third party (other than its respective employees,
consultants, contractors or financial and legal advisers, in their capacity
as such), any confidential information provided to such party under the terms
of this Agreement, and the parties shall enter into a long-form
Non-Disclosure and Confidentiality Agreement to memorialize their obligations
under this Section 13.8, except that confidential information may be
disclosed: (i) to the extent necessary to comply with law or the valid order
of a court of competent jurisdiction, in which event the party making such
disclosure shall so notify the other as promptly as practicable (and, if
possible, prior to making such disclosure) and shall seek confidential
treatment of such information; (ii) as part of its reporting or review
procedure to its affiliates, its auditors, its attorneys and potential
investors provided, however, that such affiliates, auditors, attorneys and
potential investors agree to be bound by the provisions of this Section 13.8;
(iii) in order to enforce its rights pursuant to this Agreement where that
information is already in the public domain and was released into the public
domain other than by breach of this Section 13.8; or (iv) if mutually agreed
by Licensor and Licensee in writing (and in the case of Licensee, must be
approved by a majority of the Class A Directors).
13.9 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage that cannot adequately be addressed by monetary relief will
occur in the event any provision of this Agreement is not performed in
accordance with the terms hereof and that the parties shall be
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entitled to specific performance of the terms hereof and interlocutory
injunctions preventing misuse of the Licensed Marks and the Licensed Content,
in addition to any other remedy at law or in equity.
13.10 CUMULATIVE REMEDIES. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to seek any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
13.11 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, applicable to
contracts executed and to be performed entirely in such state. Each party
irrevocably and unconditionally submits, for to the exclusive jurisdiction of
any state or federal court sitting in the County of New York in any suit, action
or proceeding arising out of or relating to this Agreement and for recognition
or enforcement of any judgment relating thereto. Each party irrevocably and
unconditionally (i) waives any objection which it may now or hereafter have to
the laying of venue of any such suit, action or proceeding and (ii) accepts,
with regard to any such action or proceeding, the personal jurisdiction of such
courts and waives any defense or objection that it might otherwise have to such
courts' exercise of personal jurisdiction with respect to it. Any and all
service of process shall be effective against any party if given by registered
or certified mail, return receipt requested, or by any other means of mail which
requires a signed receipt, postage prepaid.
13.12 SEVERABILITY. In the event that any of the provisions of
this Agreement are held to be unenforceable or invalid by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions will
not be affected thereby.
13.13 HEADINGS. The Section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
13.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
NBC MULTIMEDIA, INC.
By: /s/ Thomas A. Rogers
--------------------------------
Name: Thomas A. Rogers
Title: President, NBC Cable and
Business Development
BROADCASTING COMPANY, INC.
By: /s/ Thomas A. Rogers
--------------------------------
Name: Thomas A. Rogers
Title: President, NBC Cable and
Business Development
30
<PAGE>
EXHIBIT 10.10
VOTING AND RIGHT OF FIRST OFFER AGREEMENT
VOTING AND RIGHT OF FIRST OFFER AGREEMENT, dated as of ___________,
1999 (the "AGREEMENT"), between National Broadcasting Company, a Delaware
corporation ("NBC"), and CNET, Inc., a Delaware corporation (together with its
successors and permitted assigns, "CNET").
WHEREAS, CNET, Xoom.com, Inc., a Delaware corporation ("XOOM"), Xenon
2, Inc., a Delaware corporation ("XENON 2"), and Xenon 3, Inc., a Delaware
corporation, have entered into an Agreement and Plan of Contribution, Investment
and Merger, dated as of the date hereof (the "XENON 2 MERGER AGREEMENT",
capitalized terms not otherwise defined herein shall have the meaning given to
them in the Xenon 2 Merger Agreement; and pursuant to which CNET will become a
holder of shares of the Class A common stock, $.0001 par value, of Xenon 2 (the
"COMPANY COMMON STOCK");
WHEREAS, NBC, Neon Media Corporation, a Delaware corporation
("NMC"), Xenon 2 and Xoom have entered into an Agreement and Plan of
Contribution, Investment and Merger, dated as of the date hereof (the "NMC
MERGER AGREEMENT"), pursuant to which NMC will merge with and into Xenon 2;
and
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Xenon 2 Merger Agreement and the NMC Merger Agreement that
NBC and CNET enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein and intending to be legally bound hereby, the parties
agree as follows:
AGREEMENT
1. REPRESENTATIONS AND WARRANTIES OF CNET. CNET represents and
warrants to NBC as follows:
(a) OWNERSHIP OF SECURITIES. Upon consummation of the transactions
contemplated by the Xenon 2 Merger Agreement and the NMC Merger Agreement at the
Effective Time, CNET will be the record and beneficial owner of, and have good
and marketable title to, the number of shares of Company Common Stock (the
"CLOSING DATE SECURITIES") (together with any shares of Company Common Stock
hereafter acquired by CNET (including through the exercise of options or similar
instruments), the "SUBJECT SECURITIES") set forth on the signature page to this
Agreement. CNET does not own of record or beneficially any shares of capital
stock of the Company on the date hereof other than the Closing Date Securities.
CNET has sole voting power and sole power to issue instructions with respect to
the voting of the Closing Date Securities and sole power of disposition of the
Closing Date Securities.
(b) POWER; BINDING AGREEMENT. CNET has full power and authority to
enter into and perform all of its obligations under this Agreement. This
Agreement has been duly and validly executed and delivered by CNET and
constitutes a valid and binding agreement of
<PAGE>
2
CNET, enforceable against CNET in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally, by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
(c) NO CONFLICTS. No filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or authority or
any other person or entity is necessary for the execution of this Agreement by
CNET and the consummation by CNET of the transactions contemplated hereby, other
than pursuant to the HSR Act or any filing, permit, authorization, consent or
approval, the failure of which to obtain would not reasonably be expected to
prevent CNET from performing its obligations under this Agreement, and neither
the execution and delivery of this Agreement by CNET nor the consummation by
CNET of the transactions contemplated hereby nor compliance by CNET with any of
the provisions hereof will conflict with or result in any breach of any
applicable organizational documents or instruments applicable to CNET, result in
a violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third-party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which CNET is a party or by which the Subject
Securities may be bound or violate any order, writ, injunction, decree,
judgment, statute, rule or regulation applicable to CNET as of the date hereof,
other than such violations, breaches or defaults that would not reasonably be
expected to prevent CNET from performing its obligations under this Agreement.
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of
the Company called with respect to any Takeover Proposal, Material Transaction
Proposal or transaction or occurrence which if publicly proposed and offered to
the Company and its stockholders (or any of them) would be the subject of a
Takeover Proposal or Material Transaction Proposal (collectively, a "SUBJECT
PROPOSAL"), and at every adjournment of any such meeting, and on every action or
approval by written consent of the stockholders of the Company with respect to
any Subject Proposal, CNET irrevocably agrees that it shall vote (or cause to be
voted) all the Subject Securities that it beneficially owns on the record date
of any such vote or action to ratify, approve and adopt any and all actions
adopted or approved by NBC, and against any and all actions voted against by
NBC. CNET shall not commit or agree to take any action inconsistent with the
foregoing. As used herein, "MATERIAL TRANSACTION PROPOSAL" means any inquiry,
proposal or offer from any Person relating to (i) the direct or indirect
acquisition or purchase of 5% or more of the assets (based on the fair market
value thereof) of Xenon 2 and its Subsidiaries, taken as a whole, or of 5% or
more of any class of equity securities of Xenon 2 or any of its Subsidiaries or
any tender offer or exchange offer (including by Xenon 2 or its Subsidiaries)
that if consummated would result in any person beneficially owning 5% or more of
any class of equity securities of Xenon 2 or any of its Subsidiaries, or (ii)
any merger, consolidation, business combination, sale of all or substantially
all assets, recapitalization, liquidation, dissolution or similar transaction
involving Xenon 2 or any of its Subsidiaries. As used herein, "TAKEOVER
PROPOSAL" means any inquiry, proposal or offer from any Person relating to (A)
any of the matters set forth in clause (i) of the definition of Material
Transaction Proposal
<PAGE>
3
but replacing "5%" with "50%" each place "5%" is used in such definition, (B)
a sale of all or substantially all of the assets of Xenon 2 and its
Subsidiaries or (C) a merger or consolidation of Xenon 2 as a result of which
the stockholders of Xenon 2 immediately prior to such transaction would not
beneficially own immediately after such transaction 50% or more of the
resulting or surviving entity (or the parent thereof)
3. IRREVOCABLE PROXY. CNET hereby grants to, and appoints NBC and
the President and Treasurer of NBC and the Secretary of NBC, in their
respective capacities as officers of NBC, and any individual who shall
hereafter succeed to any such office of NBC, and any other designee of NBC,
each of them individually, CNET's proxy and attorney-in-fact (with full power
of substitution) to vote or act by written consent with respect to the
Subject Securities in accordance with Section 2 hereof. This proxy is
coupled with an interest and shall be irrevocable, and CNET will take such
further action or execute such other instruments as may be necessary to
effectuate the intent of this proxy and hereby revokes any proxy previously
granted by it with respect to the Subject Securities; provided that this
proxy shall be automatically revoked without any further action on the part
of NBC and CNET upon the termination of this Agreement pursuant to Section 14
hereof.
4. REPRESENTATIONS AND WARRANTIES OF NBC. NBC represents and
warrants, to CNET as follows:
(a) POWER; BINDING AGREEMENT. NBC has full power and authority to
enter into and perform all of its obligations under this Agreement. This
Agreement has been duly and validly executed and delivered by NBC and
constitutes a valid and binding agreement of NBC, enforceable against NBC in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors generally, by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing.
(b) NO CONFLICTS. No filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or authority or
any other person or entity is necessary for the execution of this Agreement by
NBC and the consummation by NBC of the transactions contemplated hereby, other
than pursuant to the HSR Act or any filing, permit, authorization, consent or
approval, the failure of which to obtain would not reasonably be expected to
prevent NBC from performing its obligations under this Agreement, and neither
the execution and delivery of this Agreement by NBC nor the consummation by NBC
of the transactions contemplated hereby nor compliance by NBC with any of the
provisions hereof will conflict with or result in any breach of any
organizational documents or instruments applicable to NBC, result in a violation
or breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third-party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which NBC is a party or by which NBC's respective
properties or assets may be bound or violate any order, writ, injunction,
decree, judgment, statute, rule or regulation applicable to NBC as of the date
hereof, other than such
<PAGE>
4
violations, breaches or defaults that would not reasonably be expected to
prevent NBC from performing its respective obligations under this Agreement.
5. COVENANTS OF CNET. CNET hereby agrees and covenants that:
(a) NO SOLICITATION. CNET shall not, and shall not authorize its
affiliates, partners, investment bankers, attorneys, agents or other advisors or
representatives to, directly or indirectly, solicit, knowingly encourage
(including by way of providing confidential information or data) or have any
discussion or negotiate with any person or entity (other than NBC or any
affiliate of NBC) concerning any proposal by such person or entity with respect
to the Company that constitutes or could reasonably be expected to lead to a
Subject Proposal. CNET will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore by or on its behalf with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER, PROXIES AND NONINTERFERENCE. CNET
shall not, and shall not authorize any of its affiliates, partners, investment
bankers, attorneys, agents or other advisors or representatives to, directly or
indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber, assign
or otherwise dispose of (including by gift), or enter into any contract, option
or other arrangement or understanding with respect to or consent to the offer
for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Subject Securities (or any interest therein),
other than in accordance with the provisions of this Agreement and the
Standstill Agreement, dated as of the date hereof, between CNET and Xenon 2;
(ii) except as contemplated hereby, grant any proxies or powers of attorney,
deposit any such Subject Securities into a voting trust or enter into a voting
agreement with respect to any of the Subject Securities; (iii) take any action
that would have the effect of preventing or disabling CNET from performing its
obligations under this Agreement; or (iv) commit or agree to take any of the
foregoing actions. CNET will not sell, transfer or otherwise dispose of any of
the Subject Securities to any affiliate of CNET unless such agrees to be bound
by the terms of this Agreement with respect to such Subject Securities as if it
were CNET and delivers a written agreement to NBC to such effect.
(c) FURTHER ASSURANCES. CNET will, from time to time, execute and
deliver, or cause to be executed and delivered, without further consideration,
such additional or further consents, documents and other instruments and take
all such further actions as NBC may reasonably request for the purpose of
effectuating the matters covered by this Agreement in the most expeditious
manner practicable.
6. RIGHTS OF FIRST OFFER AND REOFFER.
(a) If CNET at any time intends to transfer, sell, assign,
exchange, mortgage, pledge, hypothecate or otherwise dispose of any Company
Common Stock or any interest therein (other than pursuant to a merger,
consolidation or reorganization to which the Company is a party or a tender
offer approved by the Board of Directors of the Company) ("TRANSFER") to any
Person other than NBC and its affiliates (a "THIRD PARTY"), CNET shall first
give written notice (a "SELLER'S NOTICE") to NBC, stating CNET's intention to
make such Transfer, the name of the proposed Third Party transferee (if the
Transfer is to occur in a privately negotiated transaction),
<PAGE>
5
the number of shares of Company Common Stock to be transferred (the "OFFERED
SHARES"), the price or other consideration per share which CNET proposes to
be paid for the Offered Shares by the Third Party (the "FIRST OFFER PRICE")
and the other material terms upon which such Transfer is proposed. It being
expressly understood that, with respect to proposed open market sales and
sales pursuant to bona fide underwritten public offerings, CNET may indicate
as the price in the Seller's Notice as the "then current market price" and
such indication shall be sufficient for such notice. If the Seller's notice
specifies the "then current market price" or that the sale will be made for
non-cash consideration, then the First Offer Price will be the closing price
for shares of Company Common Stock on the NASDAQ Stock Market on the day
immediately preceding NBC's acceptance of CNET's offer. CNET will not include
in any Seller's Notice more shares of Company Common Stock than the number of
shares it anticipates it will sell during the next 60 days.
(b) Upon receipt of the Seller's Notice (the "FIRST OFFER"), NBC
shall have an irrevocable, non-transferable (other than to Affiliates) option to
purchase all or any number of the Offered Shares at the First Offer Price. The
option of NBC under this Section 6(b) shall be exercisable by written notice to
CNET given within 7 days from receipt of the Seller's Notice. NBC may assign its
rights under this Section 6 in whole or in part to the Company.
(c) If NBC determines not to exercise its option to purchase the
Offered Shares at the First Offer Price or determines to exercise its option to
purchase less than all the Offered Shares, then CNET shall be free, for a period
of 60 days from the earlier of (i) the expiration of the option period with
respect to such First Offer pursuant to Section 6(b) and (ii) the date CNET
shall have received written notice from NBC stating that NBC intends not to
exercise the option granted to it under the foregoing provisions of this Section
6 with respect to all the Offered Shares, to sell the Offered Shares as to which
such options are not exercised to the Third Party transferee at a price equal to
or greater than the First Offer Price and on substantially similar material
terms as were contained in the First Offer, PROVIDED that the Transfer complies
with the provisions of Section 5(b).
(d) In the event the proposed purchase price of a Third Party
transferee for the Offered Shares is less than the First Offer Price (other than
a reduction in the purchase price due to decreases in the market value of the
Company Common Stock if the Offered Shares are proposed to be sold in the open
market or pursuant to an underwritten offering) or is otherwise on terms that
are different in any material respect from those set forth in the Seller's
Notice, CNET shall not sell or otherwise transfer any of the Offered Shares
unless CNET shall first reoffer the Offered Shares at such lesser price to NBC
(the "REOFFER") by giving written notice (the "REOFFER NOTICE") to NBC, stating
the items required to be included in the Seller's Notice, including CNET's
intention to make such transfer at such lower price or on such different terms
(the "REOFFER PRICE"). NBC shall then have an irrevocable, non-transferable
(other than to Affiliates) option to purchase all or part of the Offered Shares
at the Reoffer Price, exercisable in the same manner as provided in Section
6(b). In the event that NBC does not then elect to purchase all the remaining
Offered Shares, or NBC elects to purchase less than all the remaining Offered
Shares, the Offered Shares not so purchased may be sold by CNET within 60 days
following the earlier of (i) the expiration of the option period with respect to
the Reoffer pursuant to Section 6(b) or (ii) the date on which CNET shall have
received written notice from NBC
<PAGE>
6
stating that NBC intends not to exercise the option granted to it in this
Section 6(d) with respect to all of the remaining Offered Shares, at a price
equal to or greater than the Reoffer Price, PROVIDED that the Transfer
complies with the provisions of Section 5(b).
(e) In the event that NBC does not exercise its option to purchase
any or all of the Offered Shares at the First Offer Price or at the Reoffer
Price, and CNET shall not have sold the remaining Offered Shares to a Third
Party transferee for any reason before the expiration of the 30-day period
described in Section 6(d) in the event of a Reoffer, or, if no Reoffer Notice is
given, the 60-day period described in Section 6(c), then all of the provisions
of this Section 6 shall again become applicable to any sales or transfers of
Company Common Stock by CNET.
(f) If NBC exercises its rights of first offer or reoffer
hereunder, the closing of the purchase of the Offered Shares with respect to
which such right has been exercised shall take place on the tenth day after the
later of (i) the date NBC gives notice of such exercise and (ii) the expiration
of such time as NBC may reasonably require in order to comply with applicable
United States federal and state laws and regulations, which in no event shall be
more than 30 days after the date specified in clause (i). Upon exercise by NBC
of its rights of first offer and reoffer under this Section 6, NBC and CNET
shall be legally obligated to consummate the purchase contemplated thereby and
shall use their best efforts to secure any approvals required, and to comply as
soon as practicable with all applicable United States federal and state laws and
regulations in connection therewith.
(g) Notwithstanding anything herein to the contrary, (i) nothing
herein shall prohibit or restrict CNET in any way from (A) pledging or
hypothecating any Subject Securities to a financial institution in a bona fide
financing transaction so long as CNET controls the voting of such Subject
Securities prior to the occurrence of a default or (B) entering into hedging
strategies or transactions such as, for example, the purchase and sale of puts,
calls, options, straddles and other hedging mechanisms with respect to Subject
Securities so long as the aggregate hedging transaction at any time outstanding
with any Person and its affiliates do not relate to an aggregate number of
shares of Common Stock in excess of 5% of the outstanding shares of Common Stock
and Class B Common Stock of the Company at the time such transactions were
entered into (or an equivalent position) and (ii) the transactions described in
clause (i) shall not be a Transfer and shall not be subject to the Right of
First Offer set forth in this Section 6.
7. ENTIRE AGREEMENT; ASSIGNMENT; BENEFITS. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supercedes all other prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof. Except as provided in the last sentence of Section
5(b), this Agreement may not be assigned by any party hereto without the
prior written consent of the other party. This Agreement shall be binding
upon, and shall inure to the benefit of, each of NBC and CNET and their
respective successors and permitted assigns.
<PAGE>
7
8. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if and when delivered personally or by overnight courier or
sent by electronic transmission, with confirmation received, to the telecopy
numbers specified below:
If to NBC:
National Broadcasting Company
30 Rockefeller Plaza
New York, New York 10012
Attention: Marty Yudkovitz
Telecopy: (212) 661-5561
With copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard Capelouto
Telecopy: (212) 455-2502
If to CNET:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attention: Douglas N. Woodrum
Telecopy: (415) 395-9205
with copies to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: R. Clayton Mulford
Telecopy: (214) 939-5849
or to such other address or telecopy number as any party may have furnished to
the other parties in writing in accordance herewith.
<PAGE>
8
9. NOTICE OF LITIGATION. CNET shall promptly notify NBC of any
pending or, to its knowledge, threatened action or proceeding challenging the
validity or enforceability of this Agreement or the ability of CNET to
perform its obligations hereunder.
10. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
harm would occur in the event that any of the provisions of this Agreement were
not performed in accordance with its specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
11. AMENDMENT. This Agreement may not be amended or modified, except
by an instrument in writing signed by or on behalf of each of the parties
hereto. This Agreement may not be waived by any party hereto, except by an
instrument in writing signed by or on behalf of the party granting such waiver.
12. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law.
13. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
14. TERMINATION. This Agreement shall terminate upon the date on
which CNET and its affiliates do not beneficially own (as determined pursuant to
Rule 13d-3 under the Exchange Act) in the aggregate at least 5% of the Company
Common Stock outstanding. Upon any termination of this Agreement, this
Agreement shall thereupon become void and of no further force and effect, and
there shall be no liability in respect of this Agreement or of any transactions
contemplated hereby on the part of any party hereto or any of its directors,
officers, partners, stockholders, employees, agents, advisors, representatives
or affiliates; PROVIDED, HOWEVER, that nothing herein shall relieve any party
from any liability for such party's wilful breach of any of its material
agreements contained in this Agreement; and PROVIDED FURTHER that nothing herein
shall limit, restrict, impair, amend or otherwise modify the rights, remedies,
obligations or liabilities of any person under any other contract or agreement.
15. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability and shall not
render invalid or unenforceable the remaining terms and provisions of this
Agreement or affect the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
<PAGE>
9
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf
of each of the parties hereto, all as of the date first above written.
NATIONAL BROADCASTING COMPANY
By:
-----------------------------------
Name:
Title:
CNET, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.11
[SAND HILL CAPITAL LOGO HERE]
LOAN AGREEMENT
Dated as of November 3, 1998
by and between
SAND HILL CAPITAL, LLC
as lender
and
XOOM.COM, INC.
as borrower
TOTAL CREDIT AMOUNT: $2,750,000
Maturity: April 30, 1999
Formula: None
Loan Fee: $55,000
Interest: 12%
Warrants/Success Fee: See Agreement
The terms and information set forth on this cover page are a part of the
attached Loan Agreement, dated as of the date first written above (this
"Agreement"), entered into by and among Sand Hill Capital, LLC ("Sand Hill") and
XOOM.com, Inc. ("Borrower") set forth above. The terms and conditions of the
Agreement agreed to between Sand Hill and Borrower are as follows:
<PAGE>
1. ADVANCES. Borrower may request one or more advances (each, an
"Advance" and collectively, the "Advances") under Tranche 1 from time to time
upon one Business Day's notice in an aggregate outstanding amount not to exceed
$1,250,000. Borrower may request Advances under Tranche 2 in an aggregate
outstanding amount not to exceed $2,750,000 after Sand Hill receives
satisfactory evidence that Borrower has achieved not less than 4,750,000 members
(as calculated in accordance with Borrower's usual and customary methods),
provided that the proceeds of the initial Advance under Tranche 2 shall be used
to repay in full all Advances outstanding under Tranche 1.
Borrower shall pay interest on the outstanding Advances at the fixed rate
specified on the cover page. Interest shall be payable in arrears on the first
day of each month. Subject to the next paragraph, on the Maturity Date specified
on the cover page, the entire outstanding principal balance of the Advances and
all accrued and unpaid interest thereon shall be immediately due and payable.
All payments on this Agreement shall be applied first to fees and expenses,
then to interest and then to principal. If any payment is not made within ten
(10) days of the due date, Borrower shall pay a late payment fee equal to the
lesser of 5% of the amount of such late payment or the maximum amount permitted
by law. Any principal or interest payments on this Agreement outstanding after
the occurrence and during the continuance of a default under this Agreement
shall bear interest at a rate equal to 5% above the rate otherwise applicable
under this Agreement. In addition to the foregoing amounts, on the Maturity
Date, Borrower shall pay Sand Hill an extension fee of $25,000 if Borrower
wishes to postpone the date on which all amounts are due hereunder by forty-five
(45) days, or if any amount remains outstanding under this Agreement after the
Maturity Date. In addition, the number of Shares that Sand Hill may purchase
under the Warrant issued as of the date hereof shall automatically increase by
2,000 Shares per day for each day after April 30, 1999 that any amount remains
outstanding under this Agreement. The provision in this paragraph for any
extension or postponement, late fees and default interest shall not be construed
as Sand Hill's consent to Borrower's failure to pay any amounts in strict
accordance with this Agreement, and Sand Hill's acceptance of any such payments
shall not restrict Sand Hill's exercise of any remedies arising out of any such
failure.
2. SECURED AGREEMENT. To secure repayment of all obligations evidenced by
this Agreement and performance of all of Borrower's obligations hereunder
(including interest accruing after an Insolvency Event), Borrower grants Sand
Hill a security interest in the property described in EXHIBIT A attached hereto
(the "Collateral"). Borrower shall take such actions as Sand Hill requests from
time to time to perfect or continue the security interest granted hereunder.
Borrower shall not dispose of or encumber or permit to be encumbered or attached
any part of the Collateral without Sand Hill's prior written consent except for
dispositions of inventory made in the ordinary course of Borrower's business.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents to Sand Hill that,
as of the date of this Agreement: (a) Borrower is not in default under any
agreement under which Borrower owes any money, or any agreement, the violation
or termination of which could have a material adverse effect on Borrower; (b)
Borrower has taken all action necessary to authorize the execution, delivery and
performance of this Agreement; (c) except as set forth in Schedule 1 attached
hereto, and except for purchase money security interests on particular items of
equipment, there are no liens, security interests or other encumbrances on the
Collateral; (d) the execution and performance of this Agreement do not conflict
with, or constitute a default under, any agreement to which Borrower is party or
by which Borrower is bound; (e) the information provided to Sand Hill on or
prior to the date of this Agreement is true and correct in all material
respects; (f) all financial statements and other information provided to Sand
Hill fairly present Borrower's financial condition, and there has not been a
material adverse change in the financial condition of Borrower since the date of
the most recent of the financial statements submitted to Sand Hill; (g) Borrower
is in compliance with all laws and orders applicable to it; (h) except as set
forth in Schedule 2 attached hereto, Borrower is not party to any litigation and
is not the subject of any government investigation, and Borrower has no
knowledge of any pending litigation or investigation or the existence of
circumstances that reasonably could be expected to give rise to such litigation
or investigation; and (i) no representation or other statement made by Borrower
to Sand Hill contains any untrue statement of a material fact or omits to state
a material fact necessary to make any statements made to Sand Hill not
misleading.
1
<PAGE>
4. COVENANTS.
(a) Borrower will provide Sand Hill (i) within 25 days after the last
day of each month, monthly company-prepared financial statements in form and
substance satisfactory to Sand Hill, prepared in accordance with GAAP, and (ii)
promptly upon Sand Hill's request, such other information relating to Borrower's
operations and condition, including information on equity and funding status, as
Sand Hill may reasonably request from time to time. Sand Hill shall have a right
to review and copy Borrower's books and records from time to time upon
reasonable notice to Borrower. Borrower will pay Sand Hill for the reasonable
costs it may incur from time to time in auditing the Collateral.
(b) Borrower will maintain insurance on the Collateral that includes a
lender's loss payable endorsement in favor of Sand Hill as an additional loss
payee. Borrower will maintain insurance in a form acceptable to Sand Hill
relating to the Collateral and Borrower's business in amounts and of a type that
are customary to businesses similar to Borrower's.
(c) Borrower will maintain its corporate existence and good standing
and will maintain in force all licenses and agreements, the loss of which could
have a material adverse effect on Borrower's business. Borrower will pay all
taxes on or before the date such taxes are due, and will comply with all laws
and orders applicable to it.
(d) Borrower will not (i) make any investments in, or loans or advances
to, any person other than in the ordinary course of business as currently
conducted, (ii) acquire any assets other than in the ordinary course of business
as currently conducted, (iii) make any distributions or pay any dividends to any
person on account of Borrower's shares, (iv) borrow any money except under
equipment lease agreements, or (v) dispose of or encumber any portion of its
assets, except for dispositions of inventory in the ordinary course of
Borrower's business. Lender acknowledges that an acquisition of the assets or
stock of an entity in which the total consideration paid is less than $5,000,000
is in Borrower's ordinary course of business.
(e) Borrower will register on an expedited basis with the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable, those intellectual property rights listed on Exhibits A, B and C to
the Intellectual Property Security Agreement delivered to Sand Hill by Borrower.
Borrower will register such additional intellectual property rights developed or
acquired by Borrower from time to time in connection with any product prior to
the sale or licensing of such product to any third party. Borrower will execute
such documents and take such other actions as Sand Hill may reasonably request
to perfect the security interest granted in such rights.
(f) If Borrower merges or consolidates with any person or entity such
that Borrower is not the surviving entity, Sand Hill shall have the right to
terminate this Agreement and require Borrower to pay all unpaid principal,
interest and other amounts owing hereunder on the effective date of such merger
or consolidation.
5. FEES AND EXPENSES. On the date of this Agreement, Borrower shall pay
Sand Hill the Loan Fee specified on the cover page, plus all legal expenses that
Sand Hill incurs in connection with this Agreement. Borrower shall also deliver
a warrant to purchase stock to Sand Hill in a form acceptable to Sand Hill.
Borrower shall pay all costs that Sand Hill incurs in enforcing this Agreement
or exercising any rights with respect to the Collateral (including all costs
incurred after the occurrence of an Insolvency Event), including without
limitation reasonable attorneys fees and expenses.
6. EVENTS OF DEFAULT; REMEDIES. Any one or more of the following shall
constitute an Event of Default under this Agreement:
(a) Borrower's failure (i) to pay all or any part of the principal or
interest hereunder on the date due and payable, or (ii) to comply with any
agreement or covenant set forth in this Agreement, or (iii) to comply with the
terms of any material contract to which Borrower is a party and any agreement
pursuant to which Borrower has incurred indebtedness, or (iv) to comply with any
law to which Borrower is subject; or
2
<PAGE>
(b) Borrower becomes insolvent, or becomes the subject of any case or
proceeding under the United States Bankruptcy Code or any other law relating to
the reorganization or restructuring of debt (an "Insolvency Event"); or
(c) any representation made to Sand Hill in this Agreement, the Warrant
issued of even date herewith, or any information given to Sand Hill by or on
behalf of Borrower shall be incorrect in any material respect when made; or
(d) the occurrence of a material adverse change in the financial or
other condition of Borrower.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of Sand
Hill, be immediately collectible by or on behalf of Sand Hill, and Sand Hill may
exercise all of the rights of a secured party under the California Uniform
Commercial Code. In each case, Sand Hill shall have a right to dispose of the
Collateral in any commercially reasonable manner, and shall have a royalty-free
license to use any name, trademark, advertising matter or any property of a
similar nature to complete production of, advertisement for, and disposition of
any Collateral and Sand Hill shall have a license to enter into, occupy and use
Borrower's premises and the Collateral without charge to exercise any of Sand
Hill's rights or remedies under this Agreement. Effective upon the occurrence of
an Event of Default, Borrower irrevocably appoints Sand Hill (and any of Sand
Hill's designated employees or agents) as Borrower's true and lawful attorney in
fact to: endorse Borrower's name on any checks or other forms of payment; make,
settle and adjust all claims under and decisions with respect to Borrower's
policies of insurance; settle and adjust disputes and claims respecting accounts
receivable with account debtors; execute and deliver all notices, instruments
and agreements in connection with the perfection of the security interest
granted in this Agreement; and sell, lease or otherwise dispose of all or any
part of the Collateral. The appointment of Sand Hill as Borrower's attorney in
fact, and each of Sand Hill's rights and powers, being coupled with an interest,
is irrevocable until all amount owing to Sand Hill have been repaid in full.
7. WAIVERS; INDEMNITY. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Agreement, and shall
pay all costs of collection when incurred, including reasonable attorneys' fees,
costs and expenses incurred before, after or in connection with an Insolvency
Event. Borrower shall indemnify and hold Sand Hill harmless from any claim,
obligation or liability (including without limitation reasonable attorneys fees
and expenses) arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties and covenants or other
obligations of Borrower in this Agreement or the transactions contemplated
hereby, including any such claim, obligation or liability arising before, after
or in connection with an Insolvency Event.
8. MISCELLANEOUS. Sand Hill may assign all or any part of its interest in
this Agreement and the Advances to any person or entity, or grant a
participation of any interest in this Agreement, without notice to, or the
consent of, Borrower, provided that such assignment or grant complies with the
Securities Act of 1933, as amended, and any applicable state securities laws,
and does not put Borrower in violation of such statutes. This Agreement can be
amended only by an instrument signed by Sand Hill and Borrower. All prior
agreements are superseded by this Agreement. Borrower may not assign any
obligation hereunder without Sand Hill's consent. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which shall constitute one instrument. This Agreement shall be governed by
the internal laws of the State of California, without regard to conflicts of
laws rules. Borrower and Sand Hill consent to the exclusive jurisdiction of the
United States District Court of the Northern District of California and the
state courts for San Mateo County, California.
3
<PAGE>
9. JURY WAIVER. SAND HILL AND BORROWER EACH WAIVES ANY RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREIN.
XOOM.COM, INC.
By: /s/ John Harbottle
------------------
Title: VP Finance and CFO
----------------------
SAND HILL CAPITAL, LLC
By: /s/ Sand Hill Capital LLC
--------------------------
Title:
----------------------
4
<PAGE>
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, financial
assets, securities entitlements, letters of credit, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower's
books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
5
<PAGE>
Exhibit 10.12
AMENDED AND RESTATED LETTER AGREEMENT
June 25, 1999
Snap! LLC
1 Beach St.
San Francisco, CA 94133
Attn: Chief Operating Officer
Dear Sir or Madam:
Bank of America National Trust and Savings Association (the "Bank") is
pleased to make available to Snap! LLC (the "Borrower") the following facilities
subject to the following terms and conditions:
I. Definitions.
BUSINESS DAY: means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City, San Francisco or Los
Angeles are authorized or required by law to close and, if the applicable
such Business Day relates to (a) any Offshore Rate Loan, also means such a
day on which dealings are carried on in the applicable offshore dollar
interbank market, (b) a foreign domestic currency advance, also means such
a day on which dealings are carried on at the office(s) of the Bank in the
country of such currency, and (c) an SBLC, also means such a day on which
dealings are carried on at the office of the Bank where such SBLC is to be
issued.
BASE RATE: A floating rate equal to the higher of (a) the rate as
publicly announced from time to time by Bank of America NT&SA as its
"Reference Rate" or (b) the Federal Funds Rate plus 0.5%.
REFERENCE RATE: means the higher of: (a) the rate of interest
publicly announced from time to time by Bank in San Francisco, California,
as its "reference rate." It is a rate set by Bank based upon various
factors including Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing
some loans, which may be priced at, above, or below such announced rate;
and (b) one-half percent per annum above the latest 3-week moving average
of secondary market morning offering rates in the United States for 3-month
certificates of deposit of major U.S. money market banks, determined by
Bank weekly and adjusted to the nearest basis point. Any change in the
reference rate announced by Bank shall take effect at the opening of
business on the day specified in the public announcement of such change.
LIBOR: The London Interbank Offered Rate for 1-, 3-, 6-month (each,
an "Interest Period") dollar deposits for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on
Page 3750 of the Dow Jones Market screen as of 11:00 a.m. London time two
Business Days prior to the first day of the Interest Period, adjusted for
reserve requirements.
II. FACILITIES:
<PAGE>
A. The aggregate principal amount of all advances PLUS the undrawn and
the drawn and unreimbursed amount of all standby letters of credit
(each, a "SBLC" and any extensions of credit outstanding under the
Guidance Lines (as described and defined below)), outstanding under
this revolving facility of credit may not exceed at any one time
$45,000,000 (the "Commitment").
B. In addition, the Bank may agree from time to time, in its sole
discretion, to extend credit to the Borrower in support of (i) the
Borrower's payroll activities and (ii) the Borrower's business credit
cards with the Bank (the "Guidance Lines"). Outstandings under the
Guidance Lines shall in no event exceed $275,000 and $100,000,
respectively, and shall reduce availability under the Commitment in
the amount of such outstandings. Outstandings under the Guidance
Lines shall bear interest and be repaid in accordance with the terms
to be agreed upon by the Bank and the Borrower.
III. AVAILABILITY:
A. LIBOR advances with interest periods of one, three or six months and
Base Rate advances.
B. SBLCs with up to two-year expiration dates or, at Bank's sole
discretion, longer maturities.
C. Extensions of credit shall be available hereunder until June 15, 2001
(the "Termination Date"). Advances made under this facility shall
mature no later than July 15, 2001. SBLCs issued under this facility
with fixed expiration dates shall expire no later than July 15, 2000
or, at Bank's sole discretion, a later expiration date.
D. Each LIBOR advance shall be repaid in full on the last day of its
respective interest period. Base Rate advances shall be payable
monthly. All drawings on SBLCs shall be reimbursed immediately on
demand.
E. Principal, interest and all other sums due Bank hereunder shall be
evidenced by entries in records maintained by Bank. In addition, Bank
may at any time, in its discretion, require the Borrower to sign one
or more promissory notes in the form annexed hereto as Attachment 1 as
further evidence of such indebtedness. The Borrower's Obligations
with respect to SBLCs issued hereunder shall be set forth in
Attachment 2.
F. Bank shall apply partial payments and credits first to accrued
interest, next to any charges and fees due, and then to outstanding
principal balances.
G. The exact duration of interest periods shall be subject to the customs
and practices of the LIBOR interbank funding markets.
H. Advances (other than under the Guidance Lines) shall be in minimum
amounts of $500,000 and increments of $100,000.
I. Advances under the Guidance Lines shall be available at the discretion
of the Bank and subject to interest, maturity and other terms and
conditions to be agreed upon between the Bank and the Borrower at the
time of each request for an extension of credit.
2
<PAGE>
III. PRICING:
A. with respect to Base Rate Advances, the Base Rate, payable on the date
payment of such Advance is due;
B. with respect to LIBOR Advances, LIBOR plus 0.25% per annum, payable
on the last day of the Interest Period for such Advance.
C. Fees on Standby Letters of Credit shall accrue 25 basis points per
annum ($450 minimum).
Fees on Standby Letters of Credit shall be payable quarterly in
advance. Minimum fees shall be payable in full in advance.
D. The Borrower shall pay a commitment fee of 10 basis points per annum
on the daily average unutilized portion of the Commitment for the
period commencing on the date this letter is executed by the Borrower
and ending on the Termination Date, payable quarterly in arrears and
on the Termination Date.
E. All LIBOR interest and commissions shall be calculated on the basis of
a year of 360 days and actual days elapsed which results in greater
interest and higher commissions than if a 365 day were used. All Base
Rate interest shall be calculated on the basis of a year of 365/366
days and actual days elapsed.
F. Any amount not paid when due, including reimbursement obligations
under any Letter of Credit, shall bear interest at a rate per annum
equal to the sum of the Base Rate plus two (2) percentage points.
G. Advances under the Guidance Lines shall be available at the discretion
of the Bank and subject to interest, maturity and other terms and
conditions to be agreed upon between the Bank and the Borrower at the
time of each request for an extension of credit.
IV. Conditions for use of Facility:
A. INITIAL EXTENSION OF CREDIT. As a condition precedent to the first
use of this facility, the Bank must have received:
1. A corporate resolution to borrow and an incumbency certificate
(or equivalent) of the Borrower in form and substance
satisfactory to Bank.
2. A Continuing Guaranty in form and substance satisfactory to Bank,
duly executed by General Electric Company ("General Electric");
3. A corporate resolution or other appropriate evidence of the
authority of the officer(s) executing the Continuing Guaranty on
behalf of General Electric, together with an incumbency
certificate with respect to the officers signing; and
4. The Borrower shall have duly executed and delivered this
Agreement.
5. The Borrower shall have paid an upfront fee to the Bank in the
amount of $30,000.
3
<PAGE>
B. AVAILABILITY OF EACH EXTENSION OF CREDIT. As a condition precedent to
the each extension of credit, the following conditions precedent must
be satisfied:
1. Advances other than extensions of credit under the Guidance Lines
shall be available on any day the Bank is open in San Francisco,
California and New York, New York (except Saturdays) upon giving
notice before 10:00 a.m. San Francisco time three Business Days
prior to requested borrowing date for LIBOR advances and on the
same Business Day for Base Rate advances, specifying the amount
and length of interest period for such advance;
2. SBLCs shall be available on any Business Day upon delivering a
fully-executed application for standby letter of credit before
10:00 local time one Business Day prior to requested issuance
date.
3. No Event of Default or event which, with the giving of notice or
lapse of time would become an Event of Default, shall have
occurred and be continuing, and the Borrower's request for an
extension of credit hereunder shall be deemed a representation
and warranty by the Borrower to such effect as of the date of
such extension of credit.
V. INCREASED COSTS. In the event that by reason of any change in applicable
law or regulation or in the interpretation thereof by any governmental
authority charged with the administration, application or interpretation
thereof, or by reason of any requirement or directive (whether or not
having the force of law) of any governmental authority:
A. The Bank should, with respect to this Agreement, be subject to any
tax, levy impost, charge, fee, duty, deduction or withholding of any
kind whatsoever; or
B. any change should occur in the taxation of the Bank with respect to
the principal or interest payable under this Agreement (other than any
change which affects solely the taxation of the total income of the
Bank); or
C. any reserve requirements should be imposed on either the commitments
to lend or the foregoing claims or dollar deposits of the Bank; or
D. the amount of capital required to be maintained by the Bank or any
corporation controlling the Bank is increased as a result of the
Bank's obligations under this Note;
and if any of the above-mentioned measures should result in an increase in
the cost to the Bank of making or maintaining its loans or commitments to
lend hereunder or a reduction in the amount of principal or interest
received or receivable by the Bank in respect thereof, then upon prompt
written notification and demand being made by the Bank for such additional
cost or reduction, the Borrower shall pay to the Bank, upon demand being
made by the Bank, such additional cost or reduction; provided, however,
that the Borrower shall not be responsible for any such cost or reduction
that may accrue to the Bank with respect to the period between the
occurrence of the event which gave rise to such cost or reduction and the
date on which notification if given by the Bank to the applicable Borrower.
Upon receipt of such notification, the Borrower will pay such additional
costs as may be applicable to the period subsequent to notification or
prepay in full all loans outstanding under this Agreement so affected by
such additional costs, together with interest and fees accrued thereon to
the date of prepayment in full.
VI. DEFAULT. If any of the following events ("Events of Default") shall
occur:
A. The Borrower fails to pay (1) any principal to Bank when due and
payable or (2) any interest, fee or other sum to Bank within 3
Business Days when due and payable; or
4
<PAGE>
B. The representation or warranty made by the Borrower to Bank in any
documents or agreements relating to this facility proves to be in any
material sense false or misleading; or
C. The Borrower fails to comply with any other condition, covenant or
obligation contained herein or in any agreements or instruments
related hereto; or
D. Any default occurs under any agreement involving the extension of
credit to which the Borrower may be obligated as borrower or guarantor
(if such default gives the holder of the obligation the right to
accelerate the indebtedness); or
E. Neither General Electric Company nor NBC Inc. owns either directly or
indirectly at least 12% of the Borrower; or
F. Any guaranty or other agreement or instrument required hereunder is
terminated, breached or ceases to be effective; or
G. Any bankruptcy, reorganization, arrangement, insolvency, dissolution
or similar proceeding is instituted by or against the Borrower under
the laws of any jurisdiction;
THEN, the Bank may (i) declare any Commitment by the Bank to extend additional
credit hereunder to be terminated, whereupon any such Commitment shall be
terminated, (ii) declare all sums outstanding hereunder or under any instrument
executed in connection herewith to be immediately due and payable together with
all interest thereon, and/or (iii) require the Borrower to deposit with the Bank
as cash collateral for application against drawings under outstanding SBLCs, an
amount equal to the face amount of all such undrawn SBLCs (and the Borrower
hereby grants a security interest to the Bank in any such account(s) established
by the Bank for such purpose to secure reimbursement obligations hereunder), all
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or character,
all of which are hereby expressly waived; PROVIDED, HOWEVER, that upon the
occurrence of any event specified in paragraph G above, any Commitment by the
Bank to extend additional credit hereunder shall automatically terminate, all
sums outstanding hereunder or under any instrument executed in connection
herewith shall become immediately due and payable together with all interest
thereon, and the Borrower shall be obligated to deposit with the Bank as cash
collateral for application against drawings under outstanding SBLCs, an amount
equal to the face amount of all such undrawn SBLCs, all without notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor, or other notices or demands of any kind or character, all of which are
hereby expressly waived.
VII. Miscellaneous.
A. The Borrower shall pay Bank, on demand, all reasonable out-of-pocket
expenses and legal fees (including the allocated cost of internal
legal services and all disbursements of internal counsel) incurred by
Bank in connection with the enforcement of this agreement and any
instruments or agreements executed in connection with this agreement.
The Borrower shall also pay legal fees associated with the preparation
of this document (not to exceed $5,000).
B. This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York, to the jurisdiction of whose
courts, both state and federal all signatories hereto submit.
C. Except as may be specifically provided herein, this letter supersedes
all prior agreements and oral negotiations with respect to the subject
matter of this letter. This agreement is not assignable by the
Borrower or the Bank, except in the latter case, with the consent of
the Borrower, which shall not be unreasonably withheld.
5
<PAGE>
D. All payments to Bank shall be made at its Global Payments Operations,
1850 Gateway Ave., Concord, California 94520 in same day funds to ABA
#121000358.
E. No delay or omission by Bank to exercise any right under this letter
or under any document related hereto shall impair such right, nor
shall it be construed as a waiver thereof. No waiver of any breach or
default shall be deemed a waiver of any subsequent breach or default.
Any waiver, consent or approval under this letter must be in writing
to be effective.
F. Section headings in this letter are for reference only and shall not
affect the interpretation of any provision of this letter.
This Amended and Restated Letter Agreement replaces that certain Letter
Agreement dated as of August 18, 1998 between SNAP! LLC and Bank of America
National Trust and Savings Association and acknowledged and agreed by General
Electric Company, as amended and restated on April 27, 1999, and further amended
and restated on May 11, 1999.
6
<PAGE>
Please indicate your acceptance of the foregoing terms and conditions by
signing and returning a copy of this letter to my attention no later than June
25, 1999.
Sincerely yours,
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ Lisa Choi
----------------------------------
Lisa B. Choi
Vice President
Agreed and Accepted: Acknowledged and Agreed:
SNAP! LLC GENERAL ELECTRIC COMPANY
By: /s/ James Emerich By: /s/ J.R. Bunt
-------------------------------- ---------------------------------
Title: Controller, Assistant Treasurer Title: Vice President & Treasurer
-------------------------------- ---------------------------------
Date: June 24, 1999 Date: June 24, 1999
-------------------------------- ---------------------------------
7
<PAGE>
SNAP! LLC
PROMISSORY NOTE
U.S.$ 45,000,000 DATE: June 25, 1999
For value received SNAP! LLC (the "Borrower") hereby promises to pay to the
order of Bank of America National Trust and Savings Association (the "Bank") at
North America Division Corporate Services (1233), 1850 Gateway Boulevard,
Concord, California 94520, or such other place as the Bank may from time to
time designate, in lawful money of the United States of America, the total
unpaid principal amount advanced by the Bank from time to time to or for the
benefit of or at the request of the Borrower from and after the date of this
Note through July 15, 2001, together with any interest thereon at the times and
at the rates specified in the Amended and Restated Letter Agreement between the
Bank and the Borrower dated June 25, 1999. No advance shall be made under this
Note if, as a result of such advance, the total principal amount outstanding
under this Note plus the total principal amount of any standby letter(s) of
credit issued pursuant to the Letter Agreement would exceed Forty-Five Million
Dollars (U.S.$45,000,000).
The undersigned waives presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
This Note evidences a borrowing under and is subject to the terms (including,
but not limited to, provisions for prepayment and acceleration) of a Letter
Agreement dated August 25, 1998 as amended and restated as of April 27, 1999
between SNAP! LLC and Bank of America National Trust and Savings Association, as
amended and restated on May 11, 1999 and further amended and restated as of June
25, 1999.
SNAP! LLC
By: /s/ James Emerich
--------------------------------
Title: Controller, Assistant Treasurer
--------------------------------
By:
--------------------------------
Title:
--------------------------------
<PAGE>
GUARANTY
General Electric Company, a New York corporation, located at 3135 Easton
Turnpike, Fairfield, Connecticut (the "Guarantor"), in consideration of the
U.S. Dollars Forty-Five Million (U.S. $45,000,000) loan, with a term of three
years, made or extended, or to be made or extended by Bank of America, with
its principal offices at 555 California Street, San Francisco, California
(the "Bank"), to SNAP!LLC, with its principal offices at 1 Beach Street, San
Francisco, California (the "Borrower"), a Delaware Limited Liability Company,
and for other good and valuable consideration, hereby unconditionally
guarantees to the Bank and its successors and assigns, the full and prompt
payment of all obligations and indebtedness of the Borrower when due (whether
at maturity, by acceleration or otherwise), under the Promissory Note dated
as of June 25, 1999 executed by the Borrower and in favor of the Bank (the
"Obligations").
The liability of the Guarantor hereunder shall be absolute and
unconditional, irrespective of (a) any lack of validity or enforceability of
the instruments evidencing the obligations; (b) any change in the time,
manner or place of payment of, amount of credit available to the Borrower
under, or in any other term of, or any other amendment or waiver of or any
consent to or departure from any instrument evidencing the Obligations; (c)
any change in the name, capital stock or Certificate of Incorporation or
bylaws of the Borrower; or (d) any other circumstance which might otherwise
constitute a defense available to, or a discharge of the Guarantor in respect
of this Guaranty.
This Guaranty is a guaranty of payment and not of collection.
The Guarantor hereby waives presentment, demand, protest, and all
notices in connection herewith, except as otherwise expressly provided
herein. It shall not be necessary for the Bank to exercise any remedy against
the Borrower before seeking payment under this Guaranty. This Guaranty shall
continue to be effective or be reinstated as the case may be, if at any time
any payment of any Obligation is rescinded or otherwise must be returned to
the Borrower or the Guarantor due to the bankruptcy or insolvency of the
Borrower.
The Bank shall give the Guarantor prompt written notice of the
Borrower's failure to pay all or part of the Obligations, and forthwith upon
receipt of such notice, the Guarantor will pay to the Bank the amount due and
unpaid by the Borrower, provided however, that the failure of the Bank to
give such notice shall not relieve the Guarantor of its obligations hereunder.
The Guarantor agrees to pay to the Bank all reasonable out-of-pocket
costs and expenses paid by the Bank in enforcing this Guaranty.
This Guaranty shall be governed and construed under the laws of the
State of New York. The Guarantor hereby waives its right to jury trial with
respect to any matter arising out of or related to this Guaranty.
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly
executed as of the 25th day of June, 1999.
GENERAL ELECTRIC COMPANY
By: /s/ J.R. Bunt
--------------------------
J.R. Bunt
Vice President & Treasurer
<PAGE>
EXHIBIT 10.13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT OF LEASE
between
ELEVEN PENN PLAZA LLC
Landlord
and
XOOM.COM, INC.
Tenant
Portion of the 4th Floor
11 Penn Plaza
New York, New York
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSKAUER ROSE LLP
1585 Broadway
New York, New York 10036-8299
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS............................................................... 1
ARTICLE 1 - DEMISE, PREMISES, TERM, RENT................................. 8
ARTICLE 2 - USE AND OCCUPANCY............................................ 8
ARTICLE 3 - ALTERATIONS.................................................. 9
ARTICLE 4 - REPAIRS-FLOOR LOAD........................................... 12
ARTICLE 5 - WINDOW CLEANING.............................................. 14
ARTICLE 6 - REQUIREMENTS OF LAW.......................................... 14
ARTICLE 7 - SUBORDINATION................................................ 16
ARTICLE 8 - RULES AND REGULATIONS........................................ 19
ARTICLE 9 - INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT............ 19
ARTICLE 10 - DESTRUCTION-FIRE OR OTHER CAUSE.............................. 21
ARTICLE 11 - EMINENT DOMAIN............................................... 25
ARTICLE 12 - ASSIGNMENT, SUBLETTING, MORTGAGE, ETC........................ 26
ARTICLE 13 - ELECTRICITY ................................................ 39
ARTICLE 14 - ACCESS TO PREMISES........................................... 44
ARTICLE 15 - CERTIFICATE OF OCCUPANCY..................................... 45
ARTICLE 16 - DEFAULT...................................................... 46
ARTICLE 17 - REMEDIES AND DAMAGES......................................... 49
ARTICLE 18 - LANDLORD FEES AND EXPENSES................................... 51
ARTICLE 19 - NO REPRESENTATIONS BY LANDLORD............................... 52
ARTICLE 20 - END OF TERM.................................................. 52
ARTICLE 21 - QUIET ENJOYMENT.............................................. 53
ARTICLE 22 - FAILURE TO GIVE POSSESSION................................... 53
ARTICLE 23 - NO WAIVER.................................................... 53
ARTICLE 24 - WAIVER OF TRIAL BY JURY...................................... 54
ARTICLE 25 - INABILITY TO PERFORM......................................... 55
ARTICLE 26 - BILLS AND NOTICES............................................ 55
ARTICLE 27 - ESCALATION................................................... 56
ARTICLE 28 - SERVICES..................................................... 61
ARTICLE 29 - PARTNERSHIP TENANT........................................... 64
ARTICLE 30 - VAULT SPACE.................................................. 65
ARTICLE 31 - INTENTIONALLY OMITTED PRIOR TO EXECUTION..................... 65
ARTICLE 32 - CAPTIONS..................................................... 65
ARTICLE 33 - PARTIES BOUND................................................ 65
ARTICLE 34 - BROKER....................................................... 65
ARTICLE 35 - INDEMNITY.................................................... 66
ARTICLE 36 - ADJACENT EXCAVATION-SHORING.................................. 67
ARTICLE 37 - MISCELLANEOUS................................................ 68
ARTICLE 38 - RENT CONTROL................................................. 71
</TABLE>
Schedule A - Rules and Regulations
Schedule B - Cleaning Specifications
EXHIBIT "A" - Floor Plan
<PAGE>
AGREEMENT OF LEASE, made as of the 16th day of March, 1999, between
Landlord and Tenant.
W I T N E S S E T H :
The parties hereto, for themselves, their legal representatives, successors
and assigns, hereby covenant as follows.
DEFINITIONS
"AFFILIATE" shall mean a Person which shall (1) Control, (2) be under the
Control of, or (3) be under common Control with the Person in question.
"ALTERATION FEE" shall have the meaning set forth in Section 3.2 hereof.
"ALTERATIONS" shall mean alterations, installations, improvements,
additions or other physical changes (other than decorations) in or about the
Premises.
"APPLICABLE RATE" shall mean the lesser of (x) two (2) percentage points
above the then current Base Rate, and (y) the maximum rate permitted by
applicable law.
"ASSESSED VALUATION" shall have the meaning set forth in Section 27.1
hereof.
"ASSIGNMENT PROCEEDS" shall have the meaning set forth in Section 12.8
hereof.
"ASSIGNMENT STATEMENT" shall have the meaning set forth in Section 12.8
hereof.
"BANKRUPTCY CODE" shall mean 11 U.S.C. Section 101 et seq., or any statute
of similar nature and purpose.
"BASE RATE" shall mean the rate of interest publicly announced from time to
time by The Chase Manhattan Bank, N.A., or its successor, as its "prime lending
rate" (or such other term as may be used by The Chase Manhattan Bank, N.A., from
time to time, for the rate presently referred to as its "prime lending rate"),
which rate was 7.75% on February 16, 1999.
"BASE TAXES" shall have the meaning set forth in Section 27.1 hereof.
"BROKER" shall have the meaning set forth in Article 34 hereof.
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"BUILDING" shall mean all the buildings, equipment and other improvements
and appurtenances of every kind and description now located or hereafter
erected, constructed or placed upon the land and any and all alterations, and
replacements thereof, additions thereto and substitutions therefor, known by the
address of 11 Penn Plaza, New York, New York.
"BUILDING SYSTEMS" shall mean the mechanical, gas, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service systems of the Building.
"BUSINESS DAYS" shall mean all days, excluding Saturdays, Sundays and all
days observed by either the State of New York or the Federal Government and by
the labor unions servicing the Building as legal holidays.
"COMMENCEMENT DATE" shall have the meaning set forth in Section 1.1 hereof.
"COMPARISON YEAR" shall have the meaning set forth in Section 27.1 hereof.
"CONSUMER PRICE INDEX" shall mean the Consumer Price Index for All Urban
Consumers published by the Bureau of Labor Statistics of the United States
Department of Labor, New York, N.Y. - Northeastern N.J. Area, All Items (1982-84
= 100), or any successor index thereto, appropriately adjusted. In the event
that the Consumer Price Index is converted to a different standard reference
base or otherwise revised, the determination of adjustments provided for herein
shall be made with the use of such conversion factor, formula or table for
converting the Consumer Price Index as may be published by the Bureau of Labor
Statistics or, if said Bureau shall not publish the same, then with the use of
such conversion factor, formula or table as may be published by Prentice-Hall,
Inc., or any other nationally recognized publisher of similar statistical
information. If the Consumer Price Index ceases to be published, and there is no
successor thereto, such other index as Landlord and Tenant shall agree upon in
writing shall be substituted for the Consumer Price Index. If Landlord and
Tenant are unable to agree as to such substituted index, such matter shall be
submitted to the American Arbitration Association or any successor organization
for determination in accordance with the regulations and procedures thereof then
obtaining for commercial arbitration.
"CONTROL" or "CONTROL" shall mean ownership of more than fifty percent
(50%) of the outstanding voting stock of a corporation or other majority equity
and control interest if not a corporation and the possession of power to direct
or cause the direction of the management and policy of such corporation or other
entity, whether through the ownership of voting securities, by statute or
according to the provisions of a contract.
"DEFICIENCY" shall have the meaning set forth in Section 17.2 hereof.
"ELECTRICITY ADDITIONAL RENT" shall have the meaning set forth in Section
13.3 hereof.
"ELECTRICITY INCLUSION FACTOR" shall have the meaning set forth in Section
13.2 hereof.
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<PAGE>
"ELECTRICITY STATEMENT" shall have the meaning set forth in Section 13.2
hereof.
"ESCALATION RENT" shall mean, individually or collectively, the Tax Payment
and the Porter's Wage Payment.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 16.1 hereof.
"EXPIRATION DATE" shall mean the Fixed Expiration Date or such earlier date
on which the Term shall sooner end pursuant to any of the terms, conditions or
covenants of this Lease or pursuant to law.
"FIXED EXPIRATION DATE" shall have the meaning set forth in Section 1.1
hereof.
"FIXED RENT" shall have the meaning set forth in Section 1.1 hereof.
"FULL VALUE" shall have the meaning set forth in Section 13.2 hereof.
"GOVERNMENTAL AUTHORITY (AUTHORITIES)" shall mean the United States of
America, the State of New York, the City of New York, any political subdivision
thereof and any agency, department, commission, board, bureau or instrumentality
of any of the foregoing, or any quasi-governmental authority, now existing or
hereafter created, having jurisdiction over the Real Property or any portion
thereof.
"HVAC" shall mean heat, ventilation and air conditioning.
"HVAC Systems" shall mean the Building Systems providing HVAC.
"INCREASE" shall have the meaning set forth in Section 27.4 hereof.
"INDEMNITEES" shall mean Landlord, the members and partners comprising
Landlord and its and their members, partners, shareholders, officers, directors,
employees, agents and contractors, Lessors and Mortgagees.
"INITIAL ALTERATIONS" shall mean the Alterations to be made by Tenant to
initially prepare the Premises for Tenant's occupancy.
"LANDLORD", on the date as of which this Lease is made, shall mean Eleven
Penn Plaza LLC, a New York limited liability company, having an office c/o MRC
Management LLC, 330 Madison Avenue, New York, New York 10017, but thereafter,
"Landlord" shall mean only the fee owner of the Real Property or if there shall
exist a Superior Lease, the tenant thereunder.
"LANDLORD'S ENGINEER" shall have the meaning set forth in Section 13.2
hereof.
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<PAGE>
"LANDLORD'S WORK" shall have the meaning set forth in Section 19.1 hereof.
"LESSOR(S)" shall mean a lessor under a Superior Lease.
"LETTER OF CREDIt" shall have the meaning set forth in Article 31 hereof.
"LOCAL 32B" shall have the meaning set forth in Section 27.1 hereof.
"LONG LEAD WORk" shall mean any item which is not a stock item and must be
specially manufactured, fabricated or installed or is of such an unusual,
delicate or fragile nature that there is a substantial risk that
(i) there will be a delay in its manufacture, fabrication, delivery
or installation, or
(ii) after delivery, such item will need to be reshipped or
redelivered or repaired
so that in Landlord's reasonable judgment the item in question cannot be
completed when the standard items are completed even though the item of Long
Lead Work in question is (1) ordered together with the other items required and
(2) installed or performed (after the manufacture or fabrication thereof) in the
order and sequence that such Long Lead Work and other items are normally
installed or performed in accordance with good construction practice. In
addition, "Long Lead Work" shall include any standard item which in accordance
with good construction practice should be completed after the completion of any
item of work in the nature of the items described in the immediately preceding
sentence.
"MORTGAGE(S)" shall mean any trust indenture or mortgage which may now or
hereafter affect the Real Property, the Building or any Superior Lease and the
leasehold interest created thereby, and all renewals, extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder.
"MORTGAGEE(S)" shall mean any trustee, mortgagee or holder of a Mortgage.
"OVERTIME PERIODS" shall have the meaning set forth in Section 28.3 hereof.
"PARTIES" shall have the meaning set forth in Section 37.2 hereof.
"PARTNER" or "PARTNER" shall mean any partner of Tenant, any employee of a
professional corporation which is a partner comprising Tenant, and any
shareholder of Tenant if Tenant shall become a professional corporation.
"PARTNERSHIP TENANT" shall have the meaning set forth in Article 29 hereof.
"PERSON(S) or PERSON(S)" shall mean any natural person or persons, a
partnership, a corporation and any other form of business or legal association
or entity.
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<PAGE>
"PORTERS" shall have the meaning set forth in Section 27.1 hereof.
"PORTER'S WAGE FACTOR" shall have the meaning set forth in Section 27.1
hereof.
"PORTERS' WAGE PAYMENT" shall have the meaning set forth in Section 27.1
hereof.
"PREMISES" shall mean, subject to the provisions of Section 14.4 hereof,
the portion of the fourth (4th) floor of the Building as set forth on the floor
plans attached hereto and made a part hereof as EXHIBIT "A".
"PREVAILING RATE" shall have the meaning set forth in Section 12.6 hereof.
"RAB" shall have the meaning set forth in Section 27.1 hereof.
"REAL PROPERTY" shall mean the Building, together with the plot of land
upon which it stands.
"RECAPTURE SPACE" shall have the meaning set forth in Section 12.6 hereof.
"RECAPTURE SUBLEASE" shall have the meaning set forth in Section 12.6
hereof.
"RELATED ENTITY" shall have the meaning set forth in Section 12.4 hereof.
"RENTAL" shall mean and be deemed to include Fixed Rent, Escalation Rent,
all additional rent and any other sums payable by Tenant hereunder.
"RENT COMMENCEMENT DATE" shall mean the date which is four (4) months after
the Commencement Date.
"RENT PER SQUARE FOOT" shall have the meaning set forth in Section 12.7
hereof.
"REPLACED PREMISES" shall have the meaning set forth in Section 37.12
hereof.
"REQUIREMENT PERIOD" shall have the meaning set forth in Section 27.4
hereof.
"REQUIREMENTS" shall mean all present and future laws, rules, orders,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, of all Governmental Authorities now existing
or hereafter created, and of any and all of their departments and bureaus, and
of any applicable fire rating bureau, or other body exercising similar
functions, affecting the Real Property or any portion thereof, or any street,
avenue or sidewalk comprising a part of or in front thereof or any vault in or
under the same, or requiring removal of any encroachment, or affecting the
maintenance, use or occupation of the Real Property or any portion thereof.
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<PAGE>
"RULES AND REGULATIONS" shall mean the rules and regulations annexed hereto
and made a part hereof as SCHEDULE A, and such other and further rules and
regulations which are non-discriminatory as to Tenant with respect to tenants
who are similarly situated to Tenant (i.e., rules or regulations with respect to
tenants on specific floors of the Building where such rules or regulations
affect specific floors of the Building or rules or regulations with respect to
tenants with a specific type of occupancy where such rules or regulations affect
specific types of occupancy) as Landlord or Landlord's agents may from time to
time adopt on such notice to be given as Landlord may elect, subject to Tenant's
right to dispute the reasonableness thereof as provided in Article 8 hereof.
"SPACE FACTOR" shall mean Six Thousand Five Hundred Thirty-One (6,531) as
the same may be increased or decreased pursuant to the terms hereof.
"SPECIALTY ALTERATIONS" shall mean Alterations consisting of kitchens,
executive bathrooms, raised computer floors, computer installations, vaults,
libraries, internal staircases, dumbwaiters, pneumatic tubes, vertical and
horizontal transportation systems, and other Alterations of a similar character.
"SUBLEASE EXPENSES" shall have the meaning set forth in Section 12.7
hereof.
"SUBLEASE PROFIT" shall have the meaning set forth in Section 12.7 hereof.
"SUBLEASE RENT" shall have the meaning set forth in Section 12.7 hereof.
"SUBLEASE RENT PER SQUARE FOOT" shall have the meaning set forth in Section
12.7 hereof.
"SUBSTITUTE PREMISES" shall have the meaning set forth in Section 37.12
hereof.
"SUBSTITUTION DATE" shall have the meaning set forth in Section 37.8
hereof.
"SUPERIOR LEASE(S)" shall mean all ground or underlying leases of the Real
Property or the Building and all renewals, extensions, supplements, amendments
and modifications thereof.
"TAXES" shall have the meaning set forth in Section 27.1 hereof.
"TAX PAYMENT" shall have the meaning set forth in Section 27.2 hereof.
"TAX STATEMENT" shall have the meaning set forth in Section 27.1 hereof.
"TAX YEAR" shall have the meaning set forth in Section 27.1 hereof.
"TENANT" on the date as of which this Lease is made, shall mean XOOM.com,
Inc. a Delaware corporation, having an office at 25 West 45th Street, New York,
New York 10017, but thereafter "Tenant" shall mean only the tenant under this
Lease at the time in question; provided,
6
<PAGE>
however, that the originally named tenant and any assignee of this Lease shall
not be released from liability hereunder in the event of any assignment of this
Lease.
"TENANT STATEMENT" shall have the meaning set forth in Section 12.6 hereof.
"TENANT'S ENGINEER" shall have the meaning set forth in Section 13.2
hereof.
"TENANT'S PROPERTY" shall mean Tenant's movable fixtures and movable
partitions, telephone and other equipment, furniture, furnishings, decorations
and other items of personal property.
"TENANT'S TAX SHARE" shall mean Six Thousand Six Hundred Eighty ten
thousandths percent (0.6680%) as the same may be increased or decreased pursuant
to the terms hereof.
"TERM" shall mean a term which shall commence on the Commencement Date and
shall expire on the Expiration Date.
"THIRD ENGINEER" shall have the meaning set forth in Section 13.2 hereof.
"UNAVOIDABLE DELAYS" shall have the meaning set forth in Article 25 hereof.
"WAGE RATE" shall have the meaning set forth in Section 27.1 hereof.
7
<PAGE>
ARTICLE 1
DEMISE, PREMISES, TERM, RENT
SECTION 1.1. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the Premises for the Term to commence as of the date hereof (the
"COMMENCEMENT DATE") and to end on the date (the "FIXED EXPIRATION DATE") that
shall be the last day of the month in which the date immediately preceding the
fifth (5th) anniversary of the Rent Commencement Date occurs, at an annual rent
(the "FIXED RENT") of Two Hundred Fifteen Thousand Five Hundred Twenty-Three
Dollars ($215, 523) PER ANNUM for the period commencing on the Rent Commencement
Date and ending on the Fixed Expiration Date payable in equal monthly
installments in advance in the amount of Seventeen Thousand Nine Hundred Sixty
and 25/100 Dollars ($17,960.25) per month, which Tenant agrees to pay in lawful
money of the United States which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment, on the first (1st) day of
each calendar month during the Term commencing on the Rent Commencement Date, at
the office of Landlord or such other place as Landlord may designate, without
any set-off, offset, abatement or deduction whatsoever, except that Tenant shall
pay the first full monthly installment on the execution hereof. At the request
of Landlord, Fixed Rent shall be payable when due by wire transfer of funds to
an account designated from time to time by Landlord.
SECTION 1.2. Tenant shall pay to Landlord, as additional rent, on account
of electricity consumed at the Premises the sum of One Thousand Six Hundred
Thirty-Two and 75/100 Dollars ($1632.75) per month during the period commencing
on the Commencement Date and ending on the day immediately preceding the Rent
Commencement Date. If such period shall commence or end on a date other than the
first (1st) day of a calendar month, such monthly amount on account of
electricity shall be appropriately adjusted.
ARTICLE 2
USE AND OCCUPANCY
SECTION 2.1. Tenant shall use and occupy the Premises as general,
administrative and executive offices, uses incidental thereto and for no other
purpose.
SECTION 2.2. (A) Tenant shall not use the Premises or any part thereof,
or permit the Premises or any part thereof to be used, (1) for the business of
photographic, multilith or multigraph reproductions or offset printing, except
in connection with, either directly or indirectly, Tenant's own business and/or
activities, (2) for a banking, trust company, depository, guarantee or safe
deposit business, (3) as a savings bank, a savings and loan association, or as a
loan company, (4) for the sale of travelers checks, money orders, drafts,
foreign exchange or letters of credit or for the receipt of money for
transmission, (5) as a stockbroker's or dealer's office or for the underwriting
or sale of securities, (6) by the United States government, the City
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or State of New York, any foreign government, the United Nations or any agency
or department of any of the foregoing or any other Person having sovereign or
diplomatic immunity, (7) as a restaurant or bar or for the sale of
confectionery, soda or other beverages, sandwiches, ice cream or baked goods or
for the preparation, dispensing or consumption of food or beverages in any
manner whatsoever, except for consumption by Tenant's officers, employees and
business guests, (8) as an employment agency, executive search firm or similar
enterprise, labor union, school, or vocational training center (except for the
training of employees of Tenant intended to be employed at the Premises), or (9)
as a barber shop or beauty salon.
(B) In connection with, and incidental to, Tenant's use of the
Premises for general, administrative and executive offices as provided in this
Article 2, Tenant, at its sole cost and expense and upon compliance with all
applicable Requirements, may install a "dwyer" or similar unit in the Premises
for the purpose of warming food for the officers, employees and business guests
of Tenant (but not for use as a public restaurant), provided that Tenant shall
obtain all permits required by any Governmental Authorities for the operation
thereof and such installation shall comply with the provisions of this Lease,
including, without limitation, Article 3 hereof. Tenant may also install, at its
sole cost and expense and subject to and in compliance with the provisions of
Articles 3 and 4 hereof, microwave ovens, vending machines for the exclusive use
of the officers, employees and business guests of Tenant, each of which vending
machines (if it dispenses any beverages or other liquids or refrigerates) shall
have a waterproof pan located thereunder, connected to a drain.
ARTICLE 3
ALTERATIONS
SECTION 3.1. (A) Tenant shall not make any Alterations without Landlord's
prior consent. Landlord shall not unreasonably withhold or delay its consent to
any proposed nonstructural Alterations, provided that such Alterations (i) are
not visible from the outside of the Building, (ii) do not affect (to more than a
DE MINIMIS extent) any part of the Building other than the Premises or require
any alterations, installations, improvements, additions or other physical
changes to be performed in or made to any portion of the Building or the Real
Property other than the Premises, (iii) do not affect (to more than a DE MINIMIS
extent) any service required to be furnished by Landlord to Tenant or to any
other tenant or occupant of the Building, (iv) do not affect the proper
functioning of any Building System, (v) do not reduce the value or utility of
the Building, and (vi) do not affect the certificate of occupancy for the
Building or the Premises. Landlord shall not be deemed to be unreasonable with
respect to withholding its consent to any proposed nonstructural Alteration
which meets the criteria set forth in this Section 3.1(A) if the Lessor or
Mortgagee, as the case may be, shall withhold its consent.
(B) (1) Prior to making any Alterations, including, without
limitation, the Initial Alterations, Tenant shall (i) submit to Landlord
detailed plans and specifications (including layout, architectural, mechanical
and structural drawings) for each proposed Alteration
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<PAGE>
and shall not commence any such Alteration without first obtaining Landlord's
approval of such plans and specifications, which, in the case of nonstructural
Alterations which meet the criteria set forth in Section 3.1(A) above, shall not
be unreasonably withheld or delayed, (ii) at Tenant's expense, obtain all
permits, approvals and certificates required by any Governmental Authorities, it
being agreed that all filings with Governmental Authorities to obtain such
permits, approvals and certificates shall be made, at Tenant's expense, by a
Person designated by Landlord, and (iii) furnish to Landlord duplicate original
policies or certificates thereof of worker's compensation (covering all persons
to be employed by Tenant, and Tenant's contractors and subcontractors in
connection with such Alteration) and comprehensive public liability (including
property damage coverage) insurance in such form, with such companies, for such
periods and in such amounts as Landlord may reasonably approve, naming Landlord
and its agents, any Lessor and any Mortgagee, as additional insureds. Upon
completion of such Alteration, Tenant, at Tenant's expense, shall obtain
certificates of final approval of such Alteration required by any Governmental
Authority and shall furnish Landlord with copies thereof, together with the
"as-built" plans and specifications for such Alterations, it being agreed that
all filings with Governmental Authorities to obtain such permits, approvals and
certificates shall be made, at Tenant's expense, by a Person designated by
Landlord. All Alterations shall be made and performed substantially in
accordance with the plans and specifications therefor as approved by Landlord,
all Requirements, the Rules and Regulations, and all rules and regulations
relating to Alterations promulgated by Landlord in its reasonable judgment;
provided further, such rules and regulations shall be consistent with those
imposed by Landlord on other office tenants of the Building under similar
circumstances. All materials and equipment to be incorporated in the Premises as
a result of any Alterations or a part thereof shall be first quality and no such
materials or equipment (other than Tenant's Property) shall be subject to any
lien, encumbrance, chattel mortgage or title retention or security agreement. In
addition, no Alteration shall be undertaken prior to Tenant's delivering to
Landlord either (i) a performance bond and labor and materials payment bond
(issued by a surety company and in form reasonably satisfactory to Landlord),
each in an amount equal to one hundred ten percent (110%) of the cost of such
Alteration (as reasonably estimated by Landlord's architect, engineer, or
contractor) or (ii) such other security as shall be reasonably satisfactory to
Landlord or required by any Mortgagee or Lessor. If, as a result of any
Alterations performed by Tenant, including, without limitation, the Initial
Alterations, any alterations, installations, improvements, additions or other
physical changes are required to be performed or made to any portion of the
Building or the Real Property other than the Premises in order to comply with
any Requirement(s), which alterations, installations, improvements, additions or
other physical changes would not otherwise have had to be performed or made
pursuant to applicable Requirement(s) at such time, Landlord, at Tenant's sole
cost and expense, may perform or make such alterations, installations,
improvements, additions or other physical changes and take such actions as
Landlord shall deem reasonably necessary and Tenant, within five (5) days after
demand therefor by Landlord, shall provide Landlord with such security as
Landlord shall reasonably require, in an amount equal to one hundred ten percent
(110%) of the cost of such alterations, installations, improvements, additions
or other physical changes, as reasonably estimated by Landlord's architect,
engineer or contractor. All Alteration(s) requiring the consent of Landlord
shall be performed only under the
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supervision of an independent licensed architect approved by Landlord, which
approval shall not be unreasonably withheld.
(2) Landlord reserves the right to disapprove any plans and
specifications in part, to reserve approval of items shown thereon pending its
review and approval of other plans and specifications, and to condition its
approval upon Tenant making revisions to the plans and specifications or
supplying additional information. Any review or approval by Landlord of any
plans and/or specifications or any preparation or design of any plans by
Landlord's architect or engineer (or any architect or engineer designated by
Landlord) with respect to any Alteration is solely for Landlord's benefit, and
without any representation or warranty whatsoever to Tenant or any other Person
with respect to the compliance thereof with any Requirements, the adequacy,
correctness or efficiency thereof or otherwise.
(C) Tenant shall be permitted to perform Alterations during the hours
of 8:00 A.M. to 6:00 P.M. on Business Days, provided that such work shall not
interfere with or interrupt the operation and maintenance of the Building or
unreasonably interfere with or interrupt the use and occupancy of the Building
by other tenants in the Building. Otherwise, Alterations shall be performed at
such times and in such manner as Landlord may from time to time reasonably
designate. All Tenant's Property installed by Tenant and all Alterations in and
to the Premises which may be made by Tenant at its own cost and expense prior to
and during the Term, shall remain the property of Tenant. Upon the Expiration
Date, Tenant shall remove Tenant's Property from the Premises and, at Tenant's
option, Tenant also may remove, at Tenant's cost and expense, all Alterations
made by Tenant to the Premises, provided, however, in any case, that Tenant
shall repair and restore in a good and workerlike manner to good condition any
damage to the Premises or the Building caused by such removal. Notwithstanding
the foregoing, however, Landlord, upon notice given at least thirty (30) days
prior to the Fixed Expiration Date or upon such shorter notice as is reasonable
under the circumstances upon the earlier expiration of the Term, may require
Tenant to remove any Specialty Alterations, and to repair and restore in a good
and workerlike manner to good condition any damage to the Premises or the
Building caused by such removal.
(D) (1) All Alterations shall be performed, at Tenant's sole cost and
expense, by Landlord's contractor(s) or by contractors, subcontractors or
mechanics approved by Landlord. Prior to making an Alteration, at Tenant's
request, Landlord shall furnish Tenant with a list of contractors who may
perform Alterations to the Premises on behalf of Tenant. If Tenant engages any
contractor set forth on the list, Tenant shall not be required to obtain
Landlord's consent for such contractor unless, prior to the earlier of (a)
entering into a contract with such contractor, and (b) the commencement of work
by such contractor, Landlord shall notify Tenant that such contractor has been
removed from the list.
(2) Notwithstanding the foregoing, with respect to any Alteration
affecting any Building System, (i) Tenant shall select a contractor from a list
of approved contractors furnished by Landlord to Tenant (containing at least
three (3) contractors) and (ii) the
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Alteration shall, at Tenant's cost and expense, be designed by Landlord's
engineer for the relevant Building System.
(E) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant within thirty (30) days
after Tenant shall have received notice thereof (or such shorter period if
required by the terms of any Superior Lease or Mortgage), at Tenant's expense,
by payment or filing the bond required by law. Tenant shall not, at any time
prior to or during the Term, directly or indirectly employ, or permit the
employment of, any contractor, mechanic or laborer in the Premises, whether in
connection with any Alteration or otherwise, if such employment would interfere
or cause any conflict with other contractors, mechanics or laborers engaged in
the construction, maintenance or operation of the Building by Landlord, Tenant
or others, or of any adjacent property owned by Landlord. In the event of any
such interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately.
SECTION 3.2. Tenant shall pay to Landlord or to Landlord's agent, as
additional rent, all out-of-pocket costs and expenses incurred by Landlord or
Landlord's agent in connection with any Alterations, including, without
limitation, the Initial Alterations, (the "ALTERATION FEE"). The Alteration Fee
shall be paid by Tenant within ten (10) Business Days after demand therefor.
Tenant shall also pay any fee charged by any Lessor or Mortgagee in reviewing
the plans and specifications for such Alterations or inspecting the progress of
completing the same.
SECTION 3.3. Upon the request of Tenant, Landlord, at Tenant's cost and
expense, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (provided that the provisions of the applicable Requirement shall
require that Landlord join in such application) and shall otherwise cooperate
with Tenant in connection therewith, provided that Landlord shall not be
obligated to incur any cost or expense, including, without limitation,
attorneys' fees and disbursements, or suffer any liability in connection
therewith.
ARTICLE 4
REPAIRS-FLOOR LOAD
SECTION 4.1. Landlord shall operate, maintain and make all necessary
repairs (both structural and nonstructural) to the part of Building Systems
which provide service to the Premises (but not to the distribution portions of
such Building Systems located within the Premises) and the public portions of
the Building, both exterior and interior, in conformance with standards
applicable to non-institutional first class office buildings in Manhattan.
Tenant, at Tenant's sole cost and expense, shall take good care of the Premises
and the fixtures, equipment and appurtenances therein and the distribution
systems and shall make all nonstructural repairs thereto as and when needed to
preserve them in good working order and condition, except for reasonable wear
and tear, obsolescence and damage for which Tenant is not responsible pursuant
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to the provisions of Article 10 hereof. Notwithstanding the foregoing, all
damage or injury to the Premises or to any other part of the Building and
Building Systems, or to its fixtures, equipment and appurtenances, whether
requiring structural or nonstructural repairs, caused by or resulting from
carelessness, omission, neglect or improper conduct of, or Alterations made by,
Tenant, Tenant's agents, employees, invitees or licensees, shall be repaired at
Tenant's sole cost and expense, by Tenant to the reasonable satisfaction of
Landlord (if the required repairs are nonstructural in nature and do not affect
any Building System), or by Landlord (if the required repairs are structural in
nature or affect any Building System). All of the aforesaid repairs shall be of
first quality and of a class consistent with non-institutional first class
office building work or construction and shall be made in accordance with the
provisions of Article 3 hereof. If Tenant fails after ten (10) days' notice (or
such shorter period as Landlord may be permitted pursuant to any Superior Lease
or Mortgage or such shorter period as may be required due to an emergency) to
commence and to proceed with due diligence to make repairs required to be made
by Tenant, the same may be made by Landlord at the expense of Tenant, and the
expenses thereof incurred by Landlord, with interest thereon at the Applicable
Rate, shall be forthwith paid to Landlord as additional rent after rendition of
a bill or statement therefor. Tenant shall give Landlord prompt notice of any
defective condition in the Building or in any Building System, located in,
servicing or passing through the Premises.
SECTION 4.2. Tenant shall not place a load upon any floor of the Premises
exceeding one hundred twenty (120) pounds per square foot "live load". Tenant
shall not move any safe, heavy machinery, heavy equipment, business machines,
freight, bulky matter or fixtures into or out of the Building without Landlord's
prior consent as to the time and manner of such move, which consent shall not be
unreasonably withheld, and shall make payment to Landlord of Landlord's costs in
connection therewith. If such safe, machinery, equipment, freight, bulky matter
or fixtures requires special handling, Tenant shall employ only persons holding
a Master Rigger's license to do said work. All work in connection therewith
shall comply with all Requirements and the Rules and Regulations, and shall be
done during such hours as Landlord may reasonably designate. Business machines
and mechanical equipment shall be placed and maintained by Tenant at Tenant's
expense in settings sufficient in Landlord's reasonable judgment to absorb and
prevent vibration, noise and annoyance. Except as expressly provided in this
Lease, there shall be no allowance to Tenant for a diminution of rental value
and no liability on the part of Landlord by reason of inconvenience, annoyance
or injury to business arising from Landlord, Tenant or others making, or failing
to make, any repairs, alterations, additions or improvements in or to any
portion of the Building or the Premises, or in or to fixtures, appurtenances or
equipment thereof.
SECTION 4.3. Landlord shall use its reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises in making any
repairs, alterations, additions or improvements; provided, however, that
Landlord shall have no obligation to employ contractors or labor at so-called
overtime or other premium pay rates or to incur any other overtime costs or
expenses whatsoever, except that Landlord, at its expense but subject to
recoupment pursuant to Article 27 hereof, shall employ contractors or labor at
so-called overtime or other premium pay rates if necessary to make any repair
required to be made by it hereunder to remedy any condition
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that either (i) results in a denial of access to the Premises, (ii) threatens
the health or safety of any occupant of the Premises, or (iii) except in the
case of a fire or other casualty, materially interferes with Tenant's ability to
conduct its business in the Premises. In all other cases, at Tenant's request,
Landlord shall employ contractors or labor at so-called overtime or other
premium pay rates and incur any other overtime costs or expenses in making any
repairs, alterations, additions or improvements, and Tenant shall pay to
Landlord, as additional rent, within ten (10) Business Days after demand, an
amount equal to the difference between the overtime or other premium pay rates
and the regular pay rates for such labor and any other overtime costs or
expenses so incurred.
ARTICLE 5
WINDOW CLEANING
Tenant shall not clean, nor require, permit, suffer or allow any window in
the Premises to be cleaned from the outside in violation of Section 202 of the
Labor Law, or any other Requirement, or of the rules of the Board of Standards
and Appeals, or of any other board or body having or asserting jurisdiction.
ARTICLE 6
REQUIREMENTS OF LAW
SECTION 6.1. Tenant, at its sole cost and expense shall comply with all
Requirements applicable to the Premises, including, without limitation, those
applicable to the making of any Alterations therein or the result of the making
thereof and those applicable by reason of the nature or type of business
operated by Tenant in the Premises. Tenant shall not do or permit to be done any
act or thing upon the Premises which will invalidate or be in conflict with a
standard "all-risk" insurance policy; and shall not do, or permit anything to be
done in or upon the Premises, or bring or keep anything therein, except as now
or hereafter permitted by the New York City Fire Department, New York Board of
Fire Underwriters, the Insurance Services Office or other authority having
jurisdiction and then only in such quantity and manner of storage as not to
increase the rate for fire insurance applicable to the Building, or use the
Premises in a manner (as opposed to mere use as general "offices") which shall
increase the rate of fire insurance on the Building or on property located
therein, over that in similar type buildings or in effect on the Commencement
Date. If by reason of Tenant's failure to comply with the provisions of this
Article, the fire insurance rate shall be higher than it otherwise would be,
then Tenant shall desist from doing or permitting to be done any such act or
thing and shall reimburse Landlord, as additional rent hereunder, for that part
of all fire insurance premiums thereafter paid by Landlord which shall have been
charged because of such failure by Tenant, and shall make such reimbursement
upon demand by Landlord. In any action or proceeding wherein Landlord and Tenant
are parties, a schedule or "make up" of rates for the Building or the Premises
issued by the Insurance Services Office, or other body fixing such fire
insurance rates, shall be conclusive
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evidence of the facts therein stated and of the several items and charges in the
fire insurance rates then applicable to the Building.
SECTION 6.2. Tenant, at its sole cost and expense and after notice to
Landlord, may contest by appropriate proceedings prosecuted diligently and in
good faith, the legality or applicability of any Requirement affecting the
Premises, provided that (a) Landlord (or any Indemnitee) shall not be subject to
imprisonment or to prosecution for a crime, nor shall the Real Property or any
part thereof be subject to being condemned or vacated, nor shall the certificate
of occupancy for the Premises or the Building be suspended or threatened to be
suspended by reason of non-compliance or by reason of such contest; (b) before
the commencement of such contest, if Landlord or any Indemnitee may be subject
to any civil fines or penalties or other criminal penalties or if Landlord may
be liable to any independent third party as a result of such noncompliance,
Tenant shall furnish to Landlord either (i) a bond of a surety company
satisfactory to Landlord, in form and substance reasonably satisfactory to
Landlord, and in an amount equal to one hundred twenty percent (120%) of the sum
of (A) the cost of such compliance, (B) the criminal or civil penalties or fines
that may accrue by reason of such non-compliance (as reasonably estimated by
Landlord), and (C) the amount of such liability to independent third parties (as
reasonably estimated by Landlord), and shall indemnify Landlord (and any
Indemnitee) against the cost of such compliance and liability resulting from or
incurred in connection with such contest or non-compliance (except that Tenant
shall not be required to furnish such bond to Landlord if it has otherwise
furnished any similar bond required by law to the appropriate Governmental
Authority and has named Landlord as a beneficiary thereunder) or (ii) other
security reasonably satisfactory in all respects to Landlord; (c) such
non-compliance or contest shall not constitute or result in a violation (either
with the giving of notice or the passage of time or both) of the terms of any
Mortgage or Superior Lease, or if such Superior Lease or Mortgage shall
condition such non-compliance or contest upon the taking of action or furnishing
of security by Landlord, such action shall be taken or such security shall be
furnished at the expense of Tenant; and (d) Tenant shall keep Landlord regularly
advised as to the status of such proceedings. Without limiting the applicability
of the foregoing, Landlord (or any Indemnitee) shall be deemed subject to
prosecution for a crime if Landlord (or any Indemnitee), a Lessor, a Mortgagee
or any of their officers, directors, partners, shareholders, agents or employees
is charged with a crime of any kind whatsoever, unless such charges are
withdrawn ten (10) days before Landlord (or any Indemnitee), such Lessor or such
Mortgagee or such officer, director, partner, shareholder, agent or employee, as
the case may be, is required to plead or answer thereto.
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ARTICLE 7
SUBORDINATION
SECTION 7.1. This Lease shall be subject and subordinate to each and every
Superior Lease and to each and every Mortgage. This clause shall be
self-operative and no further instrument of subordination shall be required from
Tenant to make the interest of any Lessor or Mortgagee superior to the interest
of Tenant hereunder; however, Tenant shall execute and deliver promptly any
instrument, in recordable form, that Landlord, any Mortgagee or Lessor may
reasonably request to evidence and confirm such subordination. If the date of
expiration of any Superior Lease shall be the same day as the Expiration Date,
the Term shall end and expire twelve (12) hours prior to the expiration of the
Superior Lease. If, in connection with the financing of the Real Property, the
Building or the interest of the lessee under any Superior Lease, or if in
connection with the entering into of a Superior Lease, any lending institution
or Lessor shall request reasonable modifications of this Lease that do not
increase Tenant's monetary obligations under this Lease, or materially adversely
affect or diminish the rights, or materially increase the other obligations of
Tenant under this Lease, Tenant shall make such modifications.
SECTION 7.2. If at any time prior to the expiration of the Term, any
Superior Lease shall terminate or be terminated for any reason or any Mortgagee
comes into possession of the Real Property or the Building or the estate created
by any Superior Lease by receiver or otherwise, Tenant agrees, at the election
and upon demand of any owner of the Real Property or the Building, or of the
Lessor, or of any Mortgagee in possession of the Real Property or the Building,
to attorn, from time to time, to any such owner, Lessor or Mortgagee or any
person acquiring the interest of Landlord as a result of any such termination,
or as a result of a foreclosure of the Mortgage or the granting of a deed in
lieu of foreclosure, upon the then executory terms and conditions of this Lease,
subject to the provisions of Section 7.1 hereof and this Section 7.2, for the
remainder of the Term, provided that such owner, Lessor or Mortgagee, or
receiver caused to be appointed by any of the foregoing, as the case may be,
shall then be entitled to possession of the Premises and provided further that
such owner, Lessor or Mortgagee, as the case may be, or anyone claiming by,
through or under such owner, Lessor or Mortgagee, as the case may be, including
a purchaser at a foreclosure sale, shall not be:
(1) liable for any act or omission of any prior landlord
(including, without limitation, the then defaulting landlord), or
(2) subject to any defense or offsets which Tenant may have
against any prior landlord (including, without limitation, the then defaulting
landlord), or
(3) bound by any payment of Rental which Tenant may have made to
any prior landlord (including, without limitation, the then defaulting landlord)
more than thirty (30) days in advance of the date upon which such payment was
due, or
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(4) bound by any obligation to make any payment to or on behalf
of Tenant, or
(5) bound by any obligation to perform any work or to make
improvements to the Premises, except for (i) repairs and maintenance pursuant to
the provisions of Article 4, the need for which repairs and maintenance first
arises after the date upon which such owner, Lessor, or Mortgagee shall be
entitled to possession of the Premises, (ii) repairs to the Premises or any part
thereof as a result of damage by fire or other casualty pursuant to Article 10
hereof, but only to the extent that such repairs can be reasonably made from the
net proceeds of any insurance actually made available to such owner, Lessor or
Mortgagee, and (iii) repairs to the Premises as a result of a partial
condemnation pursuant to Article 11 hereof, but only to the extent that such
repairs can be reasonably made from the net proceeds of any award made available
to such owner, Lessor or Mortgagee, or
(6) bound by any amendment or modification of this Lease made
without its consent, or
(7) bound to return Tenant's security deposit, if any, until such
deposit has come into its actual possession and Tenant would be entitled to such
security deposit pursuant to the terms of this Lease.
The provisions of this Section 7.2 shall enure to the benefit of any such owner,
Lessor or Mortgagee, shall apply notwithstanding that, as a matter of law, this
Lease may terminate upon the termination of any Superior Lease, shall be
self-operative upon any such demand, and no further instrument shall be required
to give effect to said provisions. Tenant, however, upon demand of any such
owner, Lessor or Mortgagee, shall execute, at Tenant's expense, from time to
time, instruments, in recordable form, in confirmation of the foregoing
provisions of this Section 7.2, satisfactory to any such owner, Lessor or
Mortgagee, acknowledging such attornment and setting forth the terms and
conditions of its tenancy. Nothing contained in this Section 7.2 shall be
construed to impair any right otherwise exercisable by any such owner, Lessor or
Mortgagee. Notwithstanding the provisions of this Section 7.2, this Lease shall
not terminate by reason of the termination of any Superior Lease without the
prior written consent of the Mortgagee of the Mortgage which is a first mortgage
on Landlord's interest in the Real Property or the leasehold estate created by
such Superior Lease.
SECTION 7.3. From time to time, within ten (10) days next following
request by Landlord, any Mortgagee or any Lessor, Tenant shall deliver to
Landlord, such Mortgagee or such Lessor a written statement executed by Tenant,
in form reasonably satisfactory to Landlord, such Mortgagee or such Lessor, (1)
stating that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth all modifications), (2) setting forth
the date to which the Fixed Rent, Escalation Rent and other items of Rental have
been paid, (3) stating whether or not, to the best knowledge of Tenant (but
without having made any investigation), Landlord is in default under this Lease,
and, if Landlord is in default, setting forth the specific nature of all such
defaults, and (4) as to any other matters reasonably requested by Landlord, such
Mortgagee or
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such Lessor. Tenant acknowledges that any statement delivered pursuant to this
Section 7.3 may be relied upon by any purchaser or owner of the Real Property or
the Building, or Landlord's interest in the Real Property or the Building or any
Superior Lease, or by any Mortgagee, or by an assignee of any Mortgagee, or by
any Lessor.
SECTION 7.4. From time to time, within ten (10) days next following
request by Tenant but not more frequently than twice in any twelve (12) month
period, Landlord shall deliver to Tenant a written statement executed by
Landlord (i) stating that this Lease is then in full force and effect and has
not been modified (or if modified, setting forth all modifications), (ii)
setting forth the date to which the Fixed Rent, Escalation Rent and any other
items of Rental have been paid, (iii) stating whether or not, to the best
knowledge of Landlord (but without having made any investigation), Tenant is in
default under this Lease, and, if Tenant is in default, setting forth the
specific nature of all such defaults, and (iv) as to any other matters
reasonably requested by Tenant and related to this Lease.
SECTION 7.5. As long as any Superior Lease or Mortgage shall exist, Tenant
shall not seek to terminate this Lease by reason of any act or omission of
Landlord until Tenant shall have given written notice of such act or omission to
all Lessors and Mortgagees at such addresses as shall have been furnished to
Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as
the case may be, shall have notified Tenant within ten (10) Business Days
following receipt of such notice of its intention to remedy such act or
omission, until a reasonable period of time shall have elapsed following the
giving of such notice, during which period such Lessors and Mortgagees shall
have the right, but not the obligation, to remedy such act or omission.
SECTION 7.6. Tenant hereby irrevocably waives any and all right(s) it may
have in connection with any zoning lot merger or transfer of development rights
with respect to the Real Property including, without limitation, any rights it
may have to be a party to, to contest, or to execute, any Declaration of
Restrictions (as such term is defined in Section 12-10 of the Zoning Resolution
of The City of New York effective December 15, 1961, as amended) with respect to
the Real Property, which would cause the Premises to be merged with or unmerged
from any other zoning lot pursuant to such Zoning Resolution or to any document
of a similar nature and purpose, and Tenant agrees that this Lease shall be
subject and subordinate to any Declaration of Restrictions or any other document
of similar nature and purpose now or hereafter affecting the Real Property. In
confirmation of such subordination and waiver, Tenant shall execute and deliver
promptly any certificate or instrument that Landlord reasonably may request.
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ARTICLE 8
RULES AND REGULATIONS
Tenant and Tenant's contractors, employees, agents, visitors, invitees and
licensees shall comply with the Rules and Regulations. Tenant shall have the
right to dispute the reasonableness of any additional Rule or Regulation
hereafter reasonably adopted by Landlord. If Tenant disputes the reasonableness
of any additional Rule or Regulation hereafter adopted by Landlord, the dispute
shall be determined by arbitration in the City of New York in accordance with
the rules and regulations then obtaining of the American Arbitration Association
or its successor. Any such determination shall be final and conclusive upon the
parties hereto. The right to dispute the reasonableness of any additional Rule
or Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice upon Landlord within thirty (30) days after
receipt by Tenant of notice of the adoption of any such additional Rule or
Regulation. Nothing in this Lease contained shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease against any other tenant, and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its employees, agents, visitors or licensees, except that Landlord shall
not enforce any Rule or Regulation against Tenant which Landlord shall not then
be enforcing against all other office tenants in the Building (other than
Landlord or its Affiliates). In the event of a conflict between the provisions
of this Lease and any such Rules and Regulations, the provisions of this Lease
shall control.
ARTICLE 9
INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
SECTION 9.1. (A) Any Building employee to whom any property shall be
entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Landlord nor its agents shall be
liable for any damage to property of Tenant or of others entrusted to employees
of the Building, nor for the loss of or damage to any property of Tenant by
theft or otherwise. Neither Landlord nor its agents shall be liable for any
injury (or death) to persons or damage to property, or interruption of Tenant's
business, resulting from fire or other casualty; nor shall Landlord or its
agents be liable for any such injury (or death) to persons or damage caused by
other tenants or persons in the Building or caused by construction of any
private, public or quasi-public work; nor shall Landlord be liable for any
injury (or death) to persons or damage to property or improvements, or
interruption of Tenant's business, resulting from any latent defect in the
Premises or in the Building (provided that the foregoing shall not relieve
Landlord from its obligations, if any, to repair such latent defect pursuant to
the provisions of Article 4 hereof).
(B) If at any time any windows of the Premises are temporarily closed,
darkened or bricked-up due to any Requirement or by reason of repairs,
maintenance, alterations, or improvements to the Building, or any of such
windows are permanently closed, darkened or bricked-up due to any Requirement,
Landlord shall not be liable for any damage Tenant may
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sustain thereby and Tenant shall not be entitled to any compensation therefor,
nor abatement or diminution of Fixed Rent or any other item of Rental, nor shall
the same release Tenant from its obligations hereunder, nor constitute an actual
or constructive eviction, in whole or in part, by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant's business, or
otherwise, nor impose any liability upon Landlord or its agents. If at any time
the windows of the Premises are temporarily closed, darkened or bricked-up, as
aforesaid, then, unless Tenant is required pursuant to the Lease to perform the
repairs, maintenance, alterations, or improvements, or to comply with the
Requirements, which resulted in such windows being closed, darkened or
bricked-up, Landlord shall perform such repairs, maintenance, alterations or
improvements and comply with the applicable Requirements with reasonable
diligence and otherwise take such action as may be reasonably necessary to
minimize the period during which such windows are temporarily closed, darkened,
or bricked-up.
(C) Tenant shall immediately notify Landlord of any fire or accident
in the Premises.
SECTION 9.2. Tenant shall obtain and keep in full force and effect (i) an
"all risk" insurance policy for Tenant's Specialty Alterations and Tenant's
Property at the Premises in an amount equal to one hundred percent (100%) of the
replacement value thereof, and (ii) a policy of commercial general liability and
property damage insurance on an occurrence basis, with a broad form contractual
liability endorsement. Such policies shall provide that Tenant is named as the
insured. Landlord, Landlord's managing agent, Landlord's agents and any Lessors
and any Mortgagees (whose names shall have been furnished to Tenant) shall be
added as additional insureds, as their respective interests may appear, with
respect to the insurance required to be carried pursuant to clauses (i) and (ii)
above. Such policy with respect to clause (ii) above shall include a provision
under which the insurer agrees to indemnify, defend and hold Landlord,
Landlord's managing agent, Landlord's agents and such Lessors and Mortgagees
harmless from and against, subject to the limits of liability set forth in this
Section 9.2, all cost, expense and liability arising out of, or based upon, any
and all claims, accidents, injuries and damages mentioned in Article 35. In
addition, the policy required to be carried pursuant to clause (ii) above shall
contain a provision that (a) no act or omission of Tenant shall affect or limit
the obligation of the insurer to pay the amount of any loss sustained and (b)
the policy shall be non-cancellable with respect to Landlord, Landlord's
managing agent, Landlord's agents and such Lessors and Mortgagees (whose names
and addresses shall have been furnished to Tenant) unless thirty (30) days'
prior written notice shall have been given to Landlord pursuant to the
provisions of Article 26 hereof, which notice shall contain the policy number
and the names of the insured and additional insureds. In addition, upon receipt
by Tenant of any notice of cancellation or any other notice from the insurance
carrier which may adversely affect the coverage of the insureds under such
policy of insurance, Tenant shall immediately deliver to Landlord and any other
additional insured hereunder a copy of such notice. The minimum amounts of
liability under the policy of insurance required to be carried pursuant to
clause (ii) above shall be a combined single limit with respect to each
occurrence in an amount of $5,000,000 for injury (or death) to persons and
damage to property, which amount shall be increased from time to time to that
amount of insurance which in Landlord's reasonable judgment is then being
customarily required by prudent
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landlords of non-institutional first class buildings in New York City. All
insurance required to be carried by Tenant pursuant to the terms of this Lease
shall be effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a general policyholder
rating of "A" and a financial rating of at least "XIII".
SECTION 9.3. On or prior to the Commencement Date, Tenant shall deliver to
Landlord appropriate certificates of insurance, including evidence of waivers of
subrogation required pursuant to Section 10.5 hereof, required to be carried by
Tenant pursuant to this Article 9. Evidence of each renewal or replacement of a
policy shall be delivered by Tenant to Landlord at least twenty (20) days prior
to the expiration of such policy.
SECTION 9.4. Tenant acknowledges that Landlord shall not carry insurance
on, and shall not be responsible for damage to, Tenant's Property or Specialty
Alterations, and that Landlord shall not carry insurance against, or be
responsible for any loss suffered by Tenant due to, interruption of Tenant's
business.
SECTION 9.5. If notwithstanding the recovery of insurance proceeds by
Tenant for loss, damage or destruction of its property (or rental value or
business interruptions) Landlord is liable to Tenant with respect thereto or is
obligated under this Lease to make replacement, repair or restoration, then, at
Landlord's option, either (i) the amount of the net proceeds of Tenant's
insurance against such loss, damage or destruction shall be offset against
Landlord's liability to Tenant therefor, or (ii) shall be made available to
Landlord to pay for replacement, repair or restoration.
ARTICLE 10
DESTRUCTION-FIRE OR OTHER CAUSE
SECTION 10.1. (A) If the Premises (including Alterations other than
Specialty Alterations) shall be damaged by fire or other casualty, and if Tenant
shall give prompt notice thereof to Landlord, the damage, with such
modifications as shall be required in order to comply with Requirements shall be
diligently repaired by and at the expense of Landlord to substantially the
condition prior to the damage, and until such repairs which are required to be
performed by Landlord (excluding Long Lead Work) shall be substantially
completed (of which substantial completion Landlord shall promptly notify
Tenant) the Fixed Rent, Escalation Rent, all additional rental and Space Factor
shall be reduced in the proportion which the area of the part of the Premises
which is not usable by Tenant, as determined by Landlord in its reasonable
discretion, bears to the total area of the Premises immediately prior to such
casualty. Upon the substantial completion of such repairs (excluding Long Lead
Work), Landlord shall diligently prosecute to completion any items of Long Lead
Work remaining to be completed. Landlord shall have no obligation to repair any
damage to, or to replace, any Specialty Alterations or Tenant's Property, which
Tenant shall complete promptly after substantial completion of
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Landlord's repair obligations under this Article 10. In addition, Landlord shall
not be obligated to repair any damage to, or to replace, any Alterations unless
Tenant shall have notified Landlord of the completion of such Alterations and
the cost thereof, and shall have maintained adequate records with respect to
such Alterations. Tenant shall make all necessary repairs to the Specialty
Alterations and same shall be completed promptly after substantial completion of
Landlord's repair obligations under this Article 10. Landlord shall use its
reasonable efforts to minimize interference with Tenant's use and occupancy in
making any repairs pursuant to this Section. Anything contained herein to the
contrary notwithstanding, if the Premises (including any Alterations) are
damaged by fire or other casualty at any time prior to the completion of the
Initial Alterations, Landlord's obligation to repair the Premises (and any
Alterations) shall be limited to repair of the part of the Building Systems
serving the Premises on the Commencement Date, but not the distribution portions
of such Building Systems located within the Premises, the floor and ceiling
slabs of the Premises and the exterior walls of the Premises, all to
substantially the same condition which existed on the Commencement Date, with
such modifications as shall be required in order to comply with Requirements.
(B) Prior to the substantial completion of Landlord's repair
obligations set forth in Section 10.1 (A) hereof, Landlord shall provide Tenant
and Tenant's contractor, subcontractors and materialmen access to the Premises
to perform Specialty Alterations (or Alterations, if Landlord is not obligated
to repair same pursuant to the provisions hereof), on the following terms and
conditions (but not to occupy the same for the conduct of business):
(1) Tenant shall not commence work in any portion of the Premises
until the date specified in a notice from Landlord to Tenant stating that the
repairs required to be made by Landlord have been or will be completed to the
extent reasonably necessary, in Landlord's discretion, to permit the
commencement of the Specialty Alterations (or Alterations, if Landlord is not
obligated to repair same pursuant to the provisions hereof) then prudent to be
performed in accordance with good construction practice in the portion of the
Premises in question without interference with, and consistent with the
performance of, the repairs remaining to be performed.
(2) Such access by Tenant shall be deemed to be subject to all of
the applicable provisions of this Lease, including, without limitation, Tenant's
obligation to pay to Landlord, the Electricity Inclusion Factor or, if
applicable, the Electricity Additional Rent except that there shall be no
obligation on the part of Tenant solely because of such access to pay any Fixed
Rent or Escalation Rent with respect to the affected portion of the Premises for
any period prior to substantial completion of the repairs.
(3) It is expressly understood that if Landlord shall be delayed
from substantially completing the repairs due to any acts of Tenant, its agents,
servants, employees or contractors, including, without limitation, by reason of
the performance of any Specialty Alteration (or Alteration, if Landlord is not
obligated to repair same pursuant to the provisions hereof), by reason of
Tenant's failure or refusal to comply or to cause its architects, engineers,
designers and contractors to comply with any of Tenant's obligations described
or referred to in
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this Lease, or if such repairs are not completed because under good construction
scheduling practice such repairs should be performed after completion of any
Specialty Alteration (or Alteration, if Landlord is not obligated to repair same
pursuant to the provisions hereof), then such repairs shall be deemed
substantially complete on the date when the repairs would have been
substantially complete but for such delay and the expiration of the abatement of
the Tenant's obligations hereunder shall not be postponed by reason of such
delay. Any additional costs to Landlord to complete any repairs occasioned by
such delay shall be paid by Tenant to Landlord within ten (10) days after
demand, as additional rent.
SECTION 10.2. Anything contained in Section 10.1 hereof to the contrary
notwithstanding, if the Building shall be so damaged by fire or other casualty
that, in Landlord's opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable), then Landlord, at Landlord's
option, may, not later than ninety (90) days following the damage, give Tenant a
notice in writing terminating this Lease, provided that if the Premises are not
substantially damaged or rendered substantially untenantable, Landlord may not
terminate this Lease unless it shall elect to terminate leases (including this
Lease), affecting at least fifty percent (50%) of the rentable area of the
Building (excluding any rentable area occupied by Landlord or its Affiliates).
If Landlord elects to terminate this Lease, the Term shall expire upon a date
set by Landlord, but not sooner than the thirtieth (30th) day after such notice
is given, and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the provisions of Article 20 hereof. Upon the
termination of this Lease under the conditions provided for in this Section
10.2, the Fixed Rent and Escalation Rent and additional rent shall be
apportioned and any prepaid portion of Fixed Rent and Escalation Rent for any
period after such date shall be refunded by Landlord to Tenant.
SECTION 10.3. (A) Within forty-five (45) days after notice to Landlord of
any damage described in Section 10.1 hereof, Landlord shall deliver to Tenant a
statement prepared by a reputable contractor setting forth such contractor's
estimate as to the time required to repair such damage, exclusive of time
required to repair any Specialty Alterations (which are Tenant's obligation to
repair) or to perform Long Lead Work. If the estimated time period exceeds
eighteen (18) months from the date of such statement, Tenant may elect to
terminate this Lease by notice to Landlord not later than thirty (30) days
following receipt of such statement. If Tenant makes such election, the Term
shall expire upon the thirtieth (30th) day after notice of such election is
given by Tenant, and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the provisions of Article 20 hereof. If Tenant shall
not have elected to terminate this Lease pursuant to this Article 10 (or is not
entitled to terminate this Lease pursuant to this Article 10), the damages shall
be diligently repaired by and at the expense of Landlord as set forth in Section
10.1 hereof.
(B) Notwithstanding the foregoing, if the Premises shall be
substantially damaged during the last year of the Term, Landlord may elect by
notice, given within thirty (30) days after the occurrence of such damage, to
terminate this Lease and if Landlord makes such election, the Term shall expire
upon the thirtieth (30th) day after notice of such election is given
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by Landlord and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the provisions of Article 20 hereof.
(C) Except as expressly set forth in this Section 10.3, Tenant shall
have no other options to cancel this Lease under this Article 10.
SECTION 10.4. This Article 10 constitutes an express agreement governing
any case of damage or destruction of the Premises or the Building by fire or
other casualty, and Section 227 of the Real Property Law of the State of New
York, which provides for such contingency in the absence of an express
agreement, and any other law of like nature and purpose now or hereafter in
force shall have no application in any such case.
SECTION 10.5. The parties hereto shall procure an appropriate clause in,
or endorsement on, any fire or extended coverage insurance covering the
Premises, the Building and personal property, fixtures and equipment located
thereon or therein, pursuant to which the insurance companies waive subrogation
or consent to a waiver of right of recovery and having obtained such clauses or
endorsements of waiver of subrogation or consent to a waiver of right of
recovery, will not make any claim against or seek to recover from the other for
any loss or damage to its property or the property of others resulting from fire
or other hazards covered by such fire and extended coverage insurance, provided,
however, that the release, discharge, exoneration and covenant not to sue herein
contained shall be limited by and be coextensive with the terms and provisions
of the waiver of subrogation clause or endorsements or clauses or endorsements
consenting to a waiver of right of recovery. If the payment of an additional
premium is required for the inclusion of such waiver of subrogation provision,
each party shall advise the other of the amount of any such additional premiums
and the other party at its own election may, but shall not be obligated to, pay
the same. If such other party shall not elect to pay such additional premium,
the first party shall not be required to obtain such waiver of subrogation
provision. If either party shall be unable to obtain the inclusion of such
clause even with the payment of an additional premium, then such party shall
attempt to name the other party as an additional insured (but not a loss payee)
under the policy. If the payment of an additional premium is required for naming
the other party as an additional insured (but not a loss payee), each party
shall advise the other of the amount of any such additional premium and the
other party at its own election may, but shall not be obligated to, pay the
same. If such other party shall not elect to pay such additional premium or if
it shall not be possible to have the other party named as an additional insured
(but not loss payee), even with the payment of an additional premium, then (in
either event) such party shall so notify the first party and the first party
shall not have the obligation to name the other party as an additional insured.
Tenant acknowledges that Landlord shall not carry insurance on and shall not be
responsible for damage to, Tenant's Property or Specialty Alterations or any
other Alteration prior to the completion of the Initial Alterations, and that
Landlord shall not carry insurance against, or be responsible for any loss
suffered by Tenant due to, interruption of Tenant's business.
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ARTICLE 11
EMINENT DOMAIN
SECTION 11.1. If the whole of the Real Property, the Building or the
Premises shall be acquired or condemned for any public or quasi-public use or
purpose, this Lease and the Term shall end as of the date of the vesting of
title with the same effect as if said date were the Expiration Date. If only a
part of the Real Property and not the entire Premises shall be so acquired or
condemned then, (1) except as hereinafter provided in this Section 11.1, this
Lease and the Term shall continue in force and effect, but, if a part of the
Premises is included in the part of the Real Property so acquired or condemned,
from and after the date of the vesting of title, the Fixed Rent and the Space
Factor shall be reduced in the proportion which the area of the part of the
Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation and Tenant's Tax Share
shall be redetermined based upon the proportion in which the ratio between the
rentable area of the Premises remaining after such acquisition or condemnation
bears to the rentable area of the Building remaining after such acquisition or
condemnation; (2) whether or not the Premises shall be affected thereby,
Landlord, at Landlord's option, may give to Tenant, within sixty (60) days next
following the date upon which Landlord shall have received notice of vesting of
title, a thirty (30) days' notice of termination of this Lease if Landlord shall
elect to terminate leases (including this Lease), affecting at least fifty
percent (50%) of the rentable area of the Building (excluding any rentable area
leased by Landlord or its Affiliates); and (3) if the part of the Real Property
so acquired or condemned shall contain more than fifteen percent (15%) of the
total area of the Premises immediately prior to such acquisition or
condemnation, or if, by reason of such acquisition or condemnation, Tenant no
longer has reasonable means of access to the Premises, Tenant, at Tenant's
option, may give to Landlord, within sixty (60) days next following the date
upon which Tenant shall have received notice of vesting of title, a thirty (30)
days' notice of termination of this Lease. If any such thirty (30) days' notice
of termination is given by Landlord or Tenant, this Lease and the Term shall
come to an end and expire upon the expiration of said thirty (30) days with the
same effect as if the date of expiration of said thirty (30) days were the
Expiration Date. If a part of the Premises shall be so acquired or condemned and
this Lease and the Term shall not be terminated pursuant to the foregoing
provisions of this Section 11.1, Landlord, at Landlord's expense, shall restore
that part of the Premises not so acquired or condemned to a self-contained
rental unit inclusive of Tenant's Alterations (other than Specialty
Alterations), except that if such acquisition or condemnation occurs prior to
completion of the Initial Alterations, Landlord shall only be required to
restore that part of the Premises not so acquired or condemned to a
self-contained rental unit exclusive of Tenant's Alterations. Upon the
termination of this Lease and the Term pursuant to the provisions of this
Section 11.1, the Fixed Rent and Escalation Rent shall be apportioned and any
prepaid portion of Fixed Rent and Escalation Rent for any period after such date
shall be refunded by Landlord to Tenant.
SECTION 11.2. In the event of any such acquisition or condemnation of all
or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing contained in this Section
11.2 shall be deemed
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to prevent Tenant from making a separate claim in any condemnation proceedings
for the then value of any Tenant's Property included in such taking, and for any
moving expenses.
SECTION 11.3. If the whole or any part of the Premises shall be acquired
or condemned temporarily during the Term for any public or quasi-public use or
purpose, Tenant shall give prompt notice thereof to Landlord and the Term shall
not be reduced or affected in any way and Tenant shall continue to pay in full
all items of Rental payable by Tenant hereunder without reduction or abatement,
and Tenant shall be entitled to receive for itself any award or payments for
such use, provided, however, that:
(i) if the acquisition or condemnation is for a period not
extending beyond the Term and if such award or payment is made less
frequently than in monthly installments, the same shall be paid to and
held by Landlord as a fund which Landlord shall apply from time to
time to the Rental payable by Tenant hereunder, except that, if by
reason of such acquisition or condemnation changes or alterations are
required to be made to the Premises which would necessitate an
expenditure to restore the Premises, then a portion of such award or
payment considered by Landlord as appropriate to cover the expenses of
the restoration shall be retained by Landlord, without application as
aforesaid, and applied toward the restoration of the Premises as
provided in Section 11.1 hereof; or
(ii) if the acquisition or condemnation is for a period
extending beyond the Term, such award or payment shall be apportioned
between Landlord and Tenant as of the Expiration Date; Tenant's share
thereof, if paid less frequently than in monthly installments, shall
be paid to Landlord and applied in accordance with the provisions of
clause (i) above, provided, however, that the amount of any award or
payment allowed or retained for restoration of the Premises shall
remain the property of Landlord if this Lease shall expire prior to
the restoration of the Premises.
ARTICLE 12
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC.
SECTION 12.1. (A) Except as expressly permitted herein, Tenant, without
the prior consent of Landlord in each instance, shall not (a) assign its rights
or delegate its duties under this Lease (whether by operation of law, transfers
of interests in Tenant or otherwise), mortgage or encumber its interest in this
Lease, in whole or in part, (b) sublet, or permit the subletting of, the
Premises or any part thereof, or (c) permit the Premises or any part thereof to
be occupied or used for desk space, mailing privileges or otherwise, by any
Person other than Tenant.
(B) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other consideration
payable or otherwise to be
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delivered in connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord and shall not
constitute property of Tenant or of the estate of Tenant within the meaning of
the Bankruptcy Code. Any and all monies or other consideration constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and shall be
promptly paid to or turned over to Landlord.
SECTION 12.2. (A) If Tenant's interest in this Lease is assigned in
violation of the provisions of this Article 12, such assignment shall be void
and of no force and effect against Landlord; provided, however, that Landlord
may collect an amount equal to the then Fixed Rent plus any other item of Rental
from the assignee as a fee for its use and occupancy, and shall apply the net
amount collected to the Fixed Rent and other items of Rental reserved in this
Lease. If the Premises or any part thereof are sublet to, or occupied by, or
used by, any Person other than Tenant, whether or not in violation of this
Article 12, Landlord, after default by Tenant under this Lease, including,
without limitation, a subletting or occupancy in violation of this Article 12,
may collect any item of Rental or other sums paid by the subtenant, user or
occupant as a fee for its use and occupancy, and shall apply the net amount
collected to the Fixed Rent and other items of Rental reserved in this Lease. No
such assignment, subletting, occupancy or use, whether with or without
Landlord's prior consent, nor any such collection or application of Rental or
fee for use and occupancy, shall be deemed a waiver by Landlord of any term,
covenant or condition of this Lease or the acceptance by Landlord of such
assignee, subtenant, occupant or user as tenant hereunder. The consent by
Landlord to any assignment, subletting, occupancy or use shall not relieve
Tenant from its obligation to obtain the express prior consent of Landlord to
any further assignment, subletting, occupancy or use.
(B) Tenant shall reimburse Landlord on demand for any costs that may
be reasonably incurred by Landlord in connection with any proposed assignment of
Tenant's interest in this Lease or any proposed subletting of the Premises or
any part thereof, including, without limitation, any reasonable processing fee,
reasonable attorneys' fees and disbursements and the reasonable costs of making
investigations as to the acceptability of the proposed subtenant or the proposed
assignee.
(C) Neither any assignment of Tenant's interest in this Lease nor any
subletting, occupancy or use of the Premises or any part thereof by any Person
other than Tenant, nor any collection of Rental by Landlord from any Person
other than Tenant as provided in this Section 12.2, nor any application of any
such Rental as provided in this Section 12.2 shall, in any circumstances,
relieve Tenant of its obligations under this Lease on Tenant's part to be
observed and performed.
(D) Any Person to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall execute and deliver to Landlord
upon demand an instrument confirming such assumption. No assignment of this
Lease shall relieve Tenant of its obligations hereunder and, subsequent to
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any assignment, Tenant's liability hereunder shall continue notwithstanding any
subsequent modification or amendment hereof or the release of any subsequent
tenant hereunder from any liability, to all of which Tenant hereby consents in
advance.
SECTION 12.3. (A) If Tenant assumes this Lease and proposes to assign
the same pursuant to the provisions of the Bankruptcy Code to any Person who
shall have made a BONA FIDE offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment shall be given to
Landlord by Tenant no later than twenty (20) days after receipt by Tenant, but
in any event no later than ten (10) days prior to the date that Tenant shall
make application to a court of competent jurisdiction for authority and approval
to enter into such assignment and assumption. Such notice shall set forth (a)
the name and address of such Person, (b) all of the terms and conditions of such
offer, and (c) adequate assurance of future performance by such Person under the
Lease as set forth in Paragraph (B) below, including, without limitation, the
assurance referred to in Section 365(b)(3) of the Bankruptcy Code. Landlord
shall have the prior right and option, to be exercised by notice to Tenant given
at any time prior to the effective date of such proposed assignment, to accept
an assignment of this Lease upon the same terms and conditions and for the same
consideration, if any, as the BONA FIDE offer made by such Person, less any
brokerage commissions which would otherwise be payable by Tenant out of the
consideration to be paid by such Person in connection with the assignment of
this Lease.
(B) The term "adequate assurance of future performance" as used in
this Lease shall mean that any proposed assignee shall, among other things, (a)
deposit with Landlord on the assumption of this Lease the sum of the then Fixed
Rent as security for the faithful performance and observance by such assignee of
the terms and obligations of this Lease, which sum shall be held by Landlord in
accordance with the provisions of Article 31 hereof, (b) furnish Landlord with
financial statements of such assignee for the prior three (3) fiscal years, as
finally determined after an audit and certified as correct by a certified public
accountant, which financial statements shall show a net worth of at least six
(6) times the then Fixed Rent for each of such three (3) years, (c) grant to
Landlord a security interest in such property of the proposed assignee as
Landlord shall deem necessary to secure such assignee's future performance under
this Lease, and (d) provide such other information or take such action as
Landlord, in its reasonable judgment shall determine is necessary to provide
adequate assurance of the performance by such assignee of its obligations under
the Lease.
SECTION 12.4. (A) As long as XOOM.com, Inc. is Tenant, Tenant shall have
the privilege, subject to the terms and conditions hereinafter set forth,
without the consent of Landlord but subject to Tenant's satisfaction of
conditions set forth in clauses (1), (4) and (5) of Section 12.8(A) hereof, and
without Landlord having the right granted in Section 12.8(B) hereof to
recapture, to assign its interest in this Lease (i) to any corporation which is
a successor to Tenant either by merger or consolidation, (ii) to a purchaser of
all or substantially all of Tenant's assets (provided such purchaser shall have
also assumed substantially all of Tenant's liabilities) or (iii) to a Person
which shall (1) Control, (2) be under the Control of, or (3) be under common
Control with Tenant (any such Person referred to in this clause (iii) being a
"RELATED ENTITY"). As
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long as XOOM.com, Inc. is Tenant, Tenant also shall have the privilege, subject
to the terms and conditions hereinafter set forth, without the consent of
Landlord but subject to Tenant's satisfaction of conditions set forth in clauses
(3), (6) through (8) and (10) of Section 12.6(A) and without Landlord having the
right granted in Section 12.6(B) hereof to recapture, to sublease all or any
portion of the Premises to a Related Entity. Any assignment or subletting
described above may only be made upon the condition that (a) any such assignee
or subtenant shall continue to use the Premises for general, administrative and
executive offices, (b) the principal purpose of such assignment or sublease is
not the acquisition of Tenant's interest in this Lease or to circumvent the
provisions of Section 12.1 of this Article (except if such assignment or
sublease is made to a Related Entity and is made for a valid intracorporate
business purpose and is not made to circumvent the provisions of Section 12.1 of
this Article), and (c) in the case of an assignment, any such assignee shall
have a net worth and annual income and cash flow, determined in accordance with
generally accepted accounting principles, consistently applied, after giving
effect to such assignment, equal to the greater of Tenant's net worth and annual
income and cash flow, as so determined, on (i) the date immediately preceding
the date of such assignment, and (ii) the Commencement Date. Tenant shall,
within ten (10) Business Days after execution thereof, deliver to Landlord
either (x) a duplicate original instrument of assignment in form and substance
reasonably satisfactory to Landlord, duly executed by Tenant, together with an
instrument in form and substance reasonably satisfactory to Landlord, duly
executed by the assignee, in which such assignee shall assume observance and
performance of, and agree to be personally bound by, all of the terms, covenants
and conditions of this Lease on Tenant's part to be observed and performed, or
(y) a duplicate original sublease in form and substance reasonably satisfactory
to Landlord, duly executed by Tenant and the subtenant.
(B) If Tenant is a partnership, the admission of new Partners, the
withdrawal, retirement, death, incompetency or bankruptcy of any Partner, or the
reallocation of partnership interests among the Partners shall not constitute an
assignment of this Lease, provided the principal purpose of any of the foregoing
is not to circumvent the restrictions on assignment set forth in the provisions
of this Article 12. The reorganization of Tenant from a professional corporation
into a partnership or the reorganization of a Tenant from a partnership into a
professional corporation, shall not constitute an assignment of this Lease,
provided that immediately following such reorganization the Partners of Tenant
shall be the same as the shareholders of Tenant existing immediately prior to
such reorganization, or the shareholders of Tenant shall be the same as the
Partners of Tenant existing immediately prior to such reorganization, as the
case may be. If Tenant shall become a professional corporation, each individual
shareholder in Tenant and each employee of a professional corporation which is a
shareholder in Tenant shall have the same personal liability as such individual
or employee would have under this Lease if Tenant were a partnership and such
individual or employee were a Partner in Tenant. If any individual Partner in
Tenant is or becomes an employee of a professional corporation, such individual
shall have the same personal liability under this Lease as such individual would
have if he and not the professional corporation were a Partner of Tenant.
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(C) Except as set forth above, either a transfer (including the
issuance of treasury stock or the creation and issuance of new stock or a new
class of stock) of a more than fifty percent (50%) interest in the shares of
Tenant (if Tenant is a corporation or trust) or a transfer of a majority of the
total interest in Tenant (if Tenant is a partnership or other entity) at any one
time or over a period of time through a series of transfers, shall be deemed an
assignment of this Lease and shall be subject to all of the provisions of this
Article 12, including, without limitation, the requirement that Tenant obtain
Landlord's prior consent thereto. The transfer of shares of Tenant (if Tenant is
a corporation or trust) for purposes of this Section 12.4 shall not include the
sale of shares by persons other than those deemed "insiders" within the meaning
of the Securities Exchange Act of 1934, as amended, which sale is effected
through the "over-the-counter market" or through any recognized stock exchange.
SECTION 12.5. If, at any time after the originally named Tenant herein may
have assigned Tenant's interest in this Lease, this Lease shall be disaffirmed
or rejected in any proceeding of the types described in paragraph (E) of Section
16.1 hereof, or in any similar proceeding, or in the event of termination of
this Lease by reason of any such proceeding or by reason of lapse of time
following notice of termination given pursuant to said Article 16 based upon any
of the Events of Default set forth in such paragraph, any prior Tenant,
including, without limitation, the originally named Tenant, upon request of
Landlord given within thirty (30) days next following any such disaffirmance,
rejection or termination (and actual notice thereof to Landlord in the event of
a disaffirmance or rejection or in the event of termination other than by act of
Landlord), shall (1) pay to Landlord all Fixed Rent, Escalation Rent and other
items of Rental due and owing by the assignee to Landlord under this Lease to
and including the date of such disaffirmance, rejection or termination, and (2)
as "tenant", enter into a new lease with Landlord of the Premises for a term
commencing on the effective date of such disaffirmance, rejection or termination
and ending on the Expiration Date, unless sooner terminated as in such lease
provided, at the same Fixed Rent and upon the then executory terms, covenants
and conditions as are contained in this Lease, except that (a) Tenant's rights
under the new lease shall be subject to the possessory rights of the assignee
under this Lease and the possessory rights of any person claiming through or
under such assignee or by virtue of any statute or of any order of any court,
(b) such new lease shall require all defaults existing under this Lease to be
cured by Tenant with due diligence, and (c) such new lease shall require Tenant
to pay all Escalation Rent reserved in this Lease which, had this Lease not been
so disaffirmed, rejected or terminated, would have accrued under the provisions
of Article 27 hereof after the date of such disaffirmance, rejection or
termination with respect to any period prior thereto. If any such prior Tenant
shall default in its obligation to enter into said new lease for a period of ten
(10) days next following Landlord's request therefor, then, in addition to all
other rights and remedies by reason of such default, either at law or in equity,
Landlord shall have the same rights and remedies against such Tenant as if such
Tenant had entered into such new lease and such new lease had thereafter been
terminated as of the commencement date thereof by reason of such Tenant's
default thereunder.
SECTION 12.6. (A) Notwithstanding the provisions of Section 12.1 hereof,
if Landlord shall not exercise its rights pursuant to paragraph (B) of this
Section 12.6, Landlord shall not unreasonably withhold its consent to any
subletting of the Premises, provided that:
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(1) The Premises shall not, without Landlord's prior consent,
have been listed or otherwise publicly advertised for subletting at a rental
rate less than the greater of (i) the sum of the Fixed Rent, Electricity
Additional Rent, and Escalation Rent then payable hereunder, and (ii) the
prevailing rental rate set by Landlord for comparable space in the Building or
if there is no comparable space, the prevailing rental rate reasonably
determined by Landlord (the "PREVAILING RATE"), nor shall Tenant advise any
broker, agent, finder or prospective subtenant that Tenant intends to sublet the
Premises at a rate less than the Prevailing Rate;
(2) Intentionally Omitted Prior to Execution;
(3) no Event of Default shall have occurred and be continuing;
(4) upon the date Tenant delivers the Tenant Statement to
Landlord and upon the date immediately preceding the commencement date of any
sublease approved by Landlord, the proposed subtenant shall have a financial
standing (taking into consideration the obligations of the proposed subtenant
under the sublease) reasonably satisfactory to Landlord, be of a character, be
engaged in a business, and propose to use the Premises in a manner in keeping
with the standards in such respects of the other tenancies in the Building;
(5) the proposed subtenant (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed subtenant) shall not be a tenant or subtenant of any space in the
Building, nor shall the proposed subtenant (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed subtenant) be a Person with whom Landlord is negotiating or discussing
to lease space in the Building; if Tenant shall propose to sublease space and is
about to commence negotiations with a tenant, subtenant or prospective
subtenant, Tenant shall advise Landlord of the identity of such prospective
subtenant and Landlord shall promptly advise Tenant if the execution of a
sublease with such tenant, subtenant or prospective subtenant would violate the
provisions of this clause (5);
(6) the character of the business to be conducted or the proposed
use of the Premises by the proposed subtenant shall not (a) be likely to
increase Landlord's operating expenses beyond that which would be incurred for
use by Tenant or for use in accordance with the standards of use of other
tenancies in the Building; (b) increase the burden on existing cleaning services
or elevators over the burden prior to such proposed subletting; (c) violate any
provision or restrictions herein relating to the use or occupancy of the
Premises; (d) require any alterations, installations, improvements, additions or
other physical changes to be performed in or made to any portion of the Building
or the Real Property other than the Premises; or (e) violate any provision or
restrictions in any other lease for space in the Building or in any Superior
Lease or Mortgage; if Landlord shall have consented to a sublease and, as a
result of the use and occupancy of the subleased portion of the Premises by the
subtenant, operating expenses are increased, then Tenant shall pay to Landlord,
within ten (10) days after demand, as additional rent, all resulting increases
in operating expenses;
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(7) the subletting shall be expressly subject to all of the
terms, covenants, conditions and obligations on Tenant's part to be observed and
performed under this Lease and the further condition and restriction that the
sublease shall not be modified without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, or assigned (by operation of
law or otherwise; for purposes of this clause (7), the transfer of a majority of
the issued and outstanding capital stock of any corporate subtenant or the
transfer of a majority of the total interest in a subtenant (if a partnership or
other entity), however accomplished, whether in a single transaction or in a
series of related or unrelated transactions, shall be deemed an assignment of
the sublease, except that the transfer of the outstanding capital stock of a
corporate subtenant shall be deemed not to include the sale of such stock by
persons other than those deemed "insiders" within the meaning of the Securities
Exchange Act of 1934, as amended, which sale is effected through the
"over-the-counter market" or through any recognized stock exchange) encumbered
or otherwise transferred or the subleased premises further sublet by the
subtenant in whole or in part, or any part thereof suffered or permitted by the
subtenant to be used or occupied by others, without the prior written consent of
Landlord in each instance;
(8) the subletting shall end no later than one (1) day before the
Expiration Date and shall not be for a term of less than two (2) years unless it
commences less than two (2) years before the Expiration Date;
(9) no subletting shall be for less than Three Thousand Two
Hundred Sixty-Five (3,265) contiguous rentable square feet and at no time shall
there be more than two (2) occupants, including Tenant, in the Premises; and
(10) such sublease shall expressly provide that in the event of
termination, re-entry or dispossess of Tenant by Landlord under this Lease,
Landlord may, at its option, take over all of the right, title and interest of
Tenant, as sublessor under such sublease, and such subtenant, at Landlord's
option, shall attorn to Landlord pursuant to the then executory provisions of
such sublease, except that Landlord shall not be:
(i) liable for any act or omission of Tenant under such
sublease, or
(ii) subject to any defense or offsets which such subtenant
may have against Tenant, or
(iii) bound by any previous payment which such subtenant may
have made to Tenant more than thirty (30) days in advance of the date upon which
such payment was due, unless previously approved by Landlord, or
(iv) bound by any obligation to make any payment to or on
behalf of such subtenant, or
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(v) bound by any obligation to perform any work or to make
improvements to the Premises, or
(vi) bound by any amendment or modification of such sublease
made without its consent, or
(vii) bound to return such subtenant's security deposit, if
any, until such deposit has come into its actual possession and such subtenant
would be entitled to such security deposit pursuant to the terms of such
sublease.
(B) At least fifteen (15) Business Days prior to any proposed
subletting of the Premises for which Landlord's consent is required, Tenant
shall submit a statement to Landlord (a "TENANT STATEMENT") containing the
following information: (a) the name and address of the proposed subtenant, (b) a
description of the portion of the Premises to be sublet, (c) the terms and
conditions of the proposed subletting, including, without limitation, the rent
payable and the value (including cost, overhead and supervision) of any
improvements (including any demolition to be performed) to the Premises for
occupancy by such subtenant, (d) the nature and character of the business of the
proposed subtenant, and (e) any other information that Landlord may reasonably
request, together with a statement specifically directing Landlord's attention
to the provisions of this Section 12.6(B) requiring Landlord to respond to
Tenant's request within fifteen (15) Business Days after Landlord's receipt of
the Tenant Statement. Landlord shall have the right, exercisable by notice to
Tenant within fifteen (15) Business Days after Landlord's receipt of the Tenant
Statement, to sublet (in its own name or that of its designee) such portion of
the Premises ("RECAPTURE SPACE") from Tenant on the terms and conditions set
forth in the Tenant Statement, subject to the further provisions of paragraph
(C) of this Section 12.6. If Landlord shall fail to notify Tenant within said
fifteen (15) Business Day period of Landlord's intention to exercise its rights
pursuant to this Section 12.6(B) hereof or of Landlord's consent to or
disapproval of the proposed subletting pursuant to the Tenant Statement as
contemplated by Section 12.6(A) hereof, or if Landlord shall have consented to
such subletting as provided in Section 12.6(A) hereof, Tenant shall have the
right to sublease such portion of the Premises to such proposed subtenant on the
same terms and conditions set forth in the Tenant Statement, subject to the
terms and conditions of this Lease, including, without limitation, paragraph (A)
of this Section 12.6. If Tenant shall not enter into such sublease within sixty
(60) days after the delivery of the Tenant Statement to Landlord, then the
provisions of Section 12.1 hereof and this Section 12.6 shall again be
applicable to any other proposed subletting. If Tenant shall enter into such
sublease within sixty (60) days as aforesaid, Tenant shall deliver a true,
complete and fully executed counterpart of such sublease to Landlord within five
(5) days after execution thereof.
(C) If Landlord exercises its option to sublet the Recapture Space,
such sublease to Landlord or its designee as subtenant (each, a "RECAPTURE
SUBLEASE") shall:
(1) be at a rental equal to the lesser of (x) the sum of the Rent
Per Square Foot multiplied by the number of rentable square feet of the
Recapture Space, and (y) the sublease rent set forth in the Tenant Statement,
and otherwise be upon the same terms and
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conditions as those contained in this Lease (as modified by the Tenant
Statement, except such as are irrelevant or inapplicable and except as otherwise
expressly set forth to the contrary in this paragraph (C);
(2) give the subtenant the unqualified and unrestricted right,
without Tenant's permission, to assign such sublease and to further sublet the
Recapture Space or any part thereof and to make any and all changes,
alterations, and improvements in the Recapture Space;
(3) provide in substance that any such changes, alterations, and
improvements made in the Recapture Space may be removed, in whole or in part,
prior to or upon the expiration or other termination of the Recapture Sublease
provided that any material damage and injury caused thereby shall be repaired;
(4) provide that (i) the parties to such Sublease expressly
negate any intention that any estate created under such Sublease be merged with
any other estate held by either of said parties, (ii) prior to the commencement
of the term of the Recapture Sublease, Tenant, at its sole cost and expense
(unless the Tenant Statement provides otherwise), shall make such alterations as
may be required or reasonably deemed necessary by the subtenant to physically
separate the Recapture Space, if such Space constitutes a portion of the
Premises, from the balance of the Premises and to provide appropriate means of
ingress to and egress thereto and to the public portions of the balance of the
floor such as toilets, janitor's closets, telephone and electrical closets, fire
stairs, elevator lobbies, etc., and (iii) at the expiration of the term of such
Sublease, Tenant shall accept the Recapture Space in its then existing
condition, broom clean; and
(5) provide that the subtenant or occupant may use and occupy the
Recapture Space for any lawful purpose (without regard to any limitation set
forth in the Tenant Statement).
(D) Performance by Landlord, or its designee, under a Recapture
Sublease shall be deemed performance by Tenant of any similar obligation under
this Lease and Tenant shall not be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or arises
from any act or omission of the subtenant under the Recapture Sublease or is
occasioned by or arises from any act or omission of any occupant under the
Recapture Sublease.
(E) If Landlord is unable to give Tenant possession of the Recapture
Space at the expiration of the term of the Recapture Sublease by reason of the
holding over or retention of possession of any tenant or other occupant, then
(w) Landlord shall continue to pay all charges previously payable, and comply
with all other obligations, under the Recapture Sublease until the date upon
which Landlord shall give Tenant possession of the Recapture Space free of
occupancies, (x) neither the Expiration Date nor the validity of this Lease
shall be affected, (y) Tenant waives any rights under Section 223-a of the Real
Property Law of New York, or any successor statute of similar import, to rescind
this Lease and further waives the right to recover
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any damages from Landlord which may result from the failure of Landlord to
deliver possession of the Recapture Space at the end of the term of the
Recapture Sublease, and (z) Landlord, at Landlord's expense, shall use its
reasonable efforts to deliver possession of the Recapture Space to Tenant and in
connection therewith, if necessary, shall institute and diligently and in good
faith prosecute holdover and any other appropriate proceedings against the
occupant of such Space; if Landlord fails to prosecute such proceedings in such
manner and such failure continues after reasonable notice thereof by Tenant,
Tenant may prosecute such proceedings in Landlord's name and at Landlord's
expense.
(F) The failure by Landlord to exercise its option under Section
12.6(B) with respect to any subletting shall not be deemed a waiver of such
option with respect to any extension of such subletting or any subsequent
subletting of the Premises affected thereby.
SECTION 12.7. (A) In connection with any subletting of all or a portion
of the Premises, Tenant shall pay to Landlord an amount equal to fifty percent
(50%) of any Sublease Profit derived therefrom. Anything contained herein to the
contrary notwithstanding Tenant shall not be entitled to any proceeds derived
from or relating to (directly or indirectly) any subletting of the Recapture
Space by Landlord or its designee to a subtenant. All sums payable hereunder by
Tenant shall be calculated on an annualized basis, but shall be paid to
Landlord, as additional rent, within ten (10) days after receipt thereof by
Tenant.
(B) For purposes of this Lease:
(1) "RENT PER SQUARE FOOT" shall mean the sum of the then Fixed
Rent, Escalation Rent, and, if applicable, Electricity Additional Rent divided
by the Space Factor.
(2) "SUBLEASE PROFIT" shall mean the product of (x) the Sublease
Rent Per Square Foot less the Rent Per Square Foot, and (y) the number of
rentable square feet constituting the portion of the Premises sublet by Tenant.
(3) "SUBLEASE RENT" shall mean any rent or other consideration
paid to Tenant directly or indirectly by any subtenant or any other amount
received by Tenant from or in connection with any subletting (including, but not
limited to, sums paid for the sale or rental, or consideration received on
account of any contribution, of Tenant's Property or sums paid in connection
with the supply of electricity or HVAC) less the Sublease Expenses.
(4) "SUBLEASE EXPENSES" shall mean: (i) in the event of a sale
of Tenant's Property, the then unamortized or undepreciated cost thereof
determined on the basis of Tenant's federal income tax returns, (ii) the
reasonable out-of-pocket costs and expenses of Tenant in making such sublease,
such as brokers' fees, attorneys' fees, and advertising fees paid to unrelated
third parties, (iii) any sums paid to Landlord pursuant to Section 12.2(B)
hereof, (iv) the cost of improvements or alterations made by Tenant expressly
and solely for the purpose of preparing that portion of the Premises for such
subtenancy if not used by Tenant subsequent to the expiration of the term of the
sublease, and (v) the unamortized or undepreciated cost of any
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Tenant's Property leased to and used by such subtenant. In determining Sublease
Rent, the costs set forth in clauses (ii), (iii) and (iv) shall be amortized on
a straight-line basis over the term of such sublease and the costs set forth in
clause (v) shall be amortized on a straight line basis over the greater of the
longest useful life of such improvements, alterations or Property (as permitted
pursuant to the Internal Revenue Code of 1986, as amended) and the term of such
sublease.
(5) "SUBLEASE RENT PER SQUARE FOOT" shall mean the Sublease Rent
divided by the rentable square feet of the space demised under the sublease in
question.
(6) Sublease Profit shall be recalculated from time to time to
reflect any corrections in the prior calculation thereof due to (i) subsequent
payments received or made by Tenant, (ii) the final adjustment of payments to be
made by or to Tenant, and (iii) mistake. Promptly after receipt or final
adjustment of any such payments or discovery of any such mistake, Tenant shall
submit to Landlord a recalculation of the Sublease Profit, and an adjustment
shall be made between Landlord and Tenant, on account of prior payments made or
credits received pursuant to this Section 12.7. In addition, if Sublease
Expenses utilized for the purpose of calculating Sublease Profit included an
amount attributable to the cost of the improvements made by Tenant expressly and
solely for the purpose of preparing the Premises or a portion thereof for the
occupancy of the subtenant and subsequent to the expiration of the sublease such
improvements and/or alterations were not demolished and/or removed, Sublease
Profits shall be recalculated as if the cost of such improvements and/or
alterations were not incurred by Tenant and Tenant promptly shall pay to
Landlord fifty percent (50%) of the additional amount of such Sublease Profit
resulting from such recalculation.
SECTION 12.8. (A) Notwithstanding the provisions of Section 12.1 hereof,
if Landlord shall not exercise its rights pursuant to paragraph (B)(2) of this
Section 12.8, Landlord shall not unreasonably withhold its consent to an
assignment of this Lease in its entirety provided that:
(1) no Event of Default shall have occurred and be continuing;
(2) upon the date Tenant delivers the Assignment Statement to
Landlord and upon the date immediately preceding the date of any assignment
approved by Landlord, the proposed assignee shall have a financial standing
(taking into consideration the obligations of the proposed assignee under this
Lease) reasonably satisfactory to Landlord, be of a character, be engaged in a
business, and propose to use the Premises in a manner in keeping with the
standards in such respects of the other tenancies in the Building;
(3) the proposed assignee (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed assignee) shall not be a person or entity with whom Landlord is
negotiating to lease space in the Building at the time of receipt of an
Assignment Statement;
(4) the character of the business to be conducted or the proposed
use of the Premises by the proposed assignee shall not (a) be likely to increase
Landlord's operating
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expenses beyond that which would be incurred for use by Tenant or for use in
accordance with the standards of use of other tenancies in the Building; (b)
increase the burden on existing cleaning services or elevators over the burden
prior to such proposed assignment; (c) violate any provision or restrictions
herein relating to the use or occupancy of the Premises; (d) require any
alterations, installations, improvements, additions or other physical changes to
be performed in or made to any portion of the Building or the Real Property
other than the Premises; or (e) violate any provision or restrictions in any
other lease for space in the Building or in any Superior Lease or Mortgage; if
Landlord shall have consented to an assignment and, as a result of the use and
occupancy of the Premises by Tenant/assignee, operating expenses are increased,
then Tenant shall pay to Landlord, within ten (10) days after demand, as
additional rent, all resulting increases in operating expenses; and
(5) the assignee shall agree to assume all of the obligations of
Tenant under this Lease from and after the date of the assignment.
(B) (1) At least fifteen (15) Business Days prior to any proposed
assignment, Tenant shall submit a statement to Landlord (the "ASSIGNMENT
STATEMENT") containing the following information: (i) the name and address of
the proposed assignee, (ii) the essential terms and conditions of the proposed
assignment, including, without limitation, the consideration payable for such
assignment and the value (including cost, overhead and supervision) of any
improvements (including any demolition to be performed) to the Premises proposed
to be made by Tenant to prepare the Premises for occupancy by such assignee,
(iii) the nature and character of the business of the proposed assignee, and
(iv) any other information that Landlord may reasonably request, together with a
statement specifically directing Landlord's attention to the provisions of this
Section 12.8(B) requiring Landlord to respond to Tenant's request within fifteen
(15) Business Days after Landlord's receipt of the Assignment Statement. The
Assignment Statement shall be executed by Tenant and the proposed assignee and
shall indicate both parties' intent (but not necessarily binding obligation) to
enter into an assignment agreement conforming to the terms and conditions of the
Assignment Statement and on such other terms and conditions to which the parties
may agree which are not inconsistent with the essential terms set forth in the
Assignment Statement.
(2) Landlord shall have the right, exercisable within fifteen
(15) Business Days after Landlord's receipt of the Assignment Statement, to take
an assignment of this Lease (in its own name or that of its designee) for the
same consideration payable to Tenant pursuant to the terms of the Assignment
Statement (less the amount of any brokerage commission which would have been
payable on account of the assignment pursuant to the Assignment Statement),
provided Landlord shall take possession of the Premises "as is" in its condition
as of the date of such assignment and shall be entitled to a credit against the
consideration otherwise payable in the amount, if any, of the value of any
improvements, work or demolition proposed to be provided or performed by Tenant
pursuant to the Assignment Statement.
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(3) If Landlord shall fail to notify Tenant within said fifteen
(15) Business Day period of Landlord's intention to exercise its rights pursuant
to paragraph (B)(2) of this Section 12.8 or of Landlord's consent to or
disapproval of the proposed assignment pursuant to the Assignment Statement, or
if Landlord shall have consented to such assignment as provided in Section
12.8(A) hereof, Tenant shall be free to assign the Premises to such proposed
assignee on the same terms and conditions set forth in the Assignment Statement.
If Tenant shall not enter into such assignment within sixty (60) days after the
delivery of the Assignment Statement to Landlord, then the provisions of this
Section 12.8 shall again be applicable in their entirety to any proposed
assignment.
(4) If Tenant shall propose to assign this Lease and is about to
commence negotiations with a prospective assignee, Tenant shall advise Landlord
of the identity of such prospective assignee and Landlord shall, within five (5)
Business Days, advise Tenant if the execution of an assignment agreement with
such prospective assignee would violate the provisions of paragraph (A)(3) of
this Section 12.8.
(C) If Tenant shall assign this Lease, Tenant shall deliver to
Landlord, within five (5) days after execution thereof, (x) a duplicate original
instrument of assignment in form and substance reasonably satisfactory to
Landlord, duly executed by Tenant, and (y) an instrument in form and substance
reasonably satisfactory to Landlord, duly executed by the assignee, in which
such assignee shall assume observance and performance of, and agree to be
personally bound by, all of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed.
(D) Tenant shall pay to Landlord, upon receipt thereof, an amount
equal to fifty percent (50%) of all Assignment Proceeds. For purposes of this
paragraph (D), "ASSIGNMENT PROCEEDS" shall mean all consideration payable
to Tenant, directly or indirectly, by any assignee, including Landlord pursuant
to paragraph (B) of this Section 12.8, or any other amount received by Tenant
from or in connection with any assignment (including, but not limited to, sums
paid for the sale or rental, or consideration received on account of any
contribution, of Tenant's Property) after deducting therefrom: (i) in the event
of a sale (or contribution) of Tenant's Property, the then unamortized or
undepreciated cost thereof determined on the basis of Tenant's federal income
tax returns, (ii) the reasonable out-of-pocket costs and expenses of Tenant in
making such assignment, such as brokers' fees, attorneys' fees, and advertising
fees paid to unrelated third parties, (iii) any payments required to be made by
Tenant in connection with the assignment of its interest in this Lease pursuant
to Article 31-B of the Tax law of the State of New York or any real property
transfer tax of the United States or the City or State of New York (other than
any income tax), (iv) any sums paid by Tenant to Landlord pursuant to Section
12.2(B) hereof, (v) the cost of improvements or alterations made by Tenant
expressly and solely for the purpose of preparing the Premises for such
assignment, as determined by Tenant's federal income tax returns, (vi) the
unamortized or undepreciated cost of any Tenant's Property leased to and used by
such assignee, and (vii) the then unamortized or undepreciated cost of the
Alterations determined on the basis of Tenant's federal income tax returns. If
the consideration paid to Tenant for any assignment shall be paid in
installments, then the expenses specified in this paragraph (D) shall be
amortized over the period during which such installments shall be
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payable. If Landlord exercises its right to take an assignment of this Lease
pursuant to the provisions of Section 12.8(B) hereof, in no event shall Tenant
be entitled to any proceeds derived from or relating to (directly or indirectly)
any lease or sublease of the Premises by Landlord or further assignment of the
Lease.
SECTION 12.9. Notwithstanding any other provision of this Lease, neither
Tenant nor any direct or indirect assignee or subtenant of Tenant may enter into
any lease, sublease, license, concession or other agreement for use, occupancy
or utilization of space in the Premises which provides for a rental or other
payment for such use, occupancy or utilization based in whole or in part on the
net income or profits derived by any person from the property leased, occupied
or utilized, or which would require the payment of any consideration which would
not fall within the definition of "rents from real property", as that term is
defined in Section 856(d) of the Internal Revenue Code of 1986, as amended.
ARTICLE 13
ELECTRICITY
SECTION 13.1. Tenant shall at all times comply with the rules,
regulations, terms and conditions applicable to service, equipment, wiring and
requirements of the public utility supplying electricity to the Building. Tenant
shall not use any electrical equipment which, in Landlord's reasonable judgment,
would exceed the capacity of existing feeders to the Building or the risers or
wiring installations therein or which will overload such installations or
interfere with the electrical service to other tenants of the Building. In the
event that, in Landlord's sole judgment, Tenant's electrical requirements
necessitate installation of an additional riser, risers or other proper and
necessary equipment, Landlord shall so notify Tenant of same. Within five (5)
Business Days after receipt of such notice, Tenant shall either cease such use
of such additional electricity or shall request that additional electrical
capacity (specifying the amount requested) be made available to Tenant.
Landlord, in Landlord's reasonable judgment shall determine whether to make
available such additional electrical capacity to Tenant and the amount of such
additional electrical capacity to be made available. If Landlord shall agree to
make available additional electrical capacity and the same necessitates
installation of an additional riser, risers or other proper and necessary
equipment, including, without limitation, any switchgear, the same shall be
installed by Landlord. Any such installation shall be made at Tenant's sole cost
and expense, and shall be chargeable and collectible as additional rent and paid
within ten (10) days after the rendition of a bill to Tenant therefor. Landlord
shall not be liable in any way to Tenant for any failure or defect in the supply
or character of electric service furnished to the Premises by reason of any
requirement, act or omission of the utility serving the Building or for any
other reason not attributable to the gross negligence of Landlord, whether
electricity is provided by public or private utility or by any electricity
generation system owned and operated by Landlord.
SECTION 13.2. (A) Unless Landlord elects to supply electricity to the
Premises pursuant to Section 13.3 or Landlord elects to have Tenant obtain
electricity from the public utility furnishing electricity to the Building
pursuant to the provisions of Section 13.4 hereof, Landlord
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shall furnish electric current to the Premises for the use of Tenant for the
operation of the lighting fixtures and the electrical receptacles for ordinary
office equipment in the Premises on a "rent inclusion" basis, that is, there
shall be no separate charge to Tenant for such electric current by way of
measuring such electricity service on any meter. The Fixed Rent set forth in
this Lease includes an annual charge for electricity service of Nineteen
Thousand Five Hundred Ninety-Three Dollars ($19,593) (such amount, as it may be
increased pursuant to the provisions of this Lease, being referred to as the
"ELECTRICITY INCLUSION FACTOR"). The parties agree that although the charge for
furnishing electrical energy is included in the Fixed Rent on a so-called "rent
inclusion" basis, the value to Tenant of such service may not be fully reflected
in the Fixed Rent. Accordingly, Tenant agrees that Landlord, in the event that
Landlord, in its reasonable discretion determines that Tenant is consuming
electrical energy in an amount which exceeds the consumption level consistent
with companies conducting businesses comparable to that of Tenant, may cause a
reputable and independent electrical engineer or electrical consulting firm,
selected by Landlord (such engineer or consulting firm being hereinafter
referred to as "LANDLORD'S ENGINEER"), to make a determination, following the
commencement of Tenant's normal business activities in the Premises, of the Full
Value of such service to Tenant. As used herein, the "FULL VALUE" to Tenant of
such service shall mean the product obtained by multiplying the demand and
consumption of electric energy at the Premises by the Electric Rate. Landlord's
Engineer shall certify such determination in writing to Landlord and Tenant. If
the Full Value to Tenant is in excess of the Electricity Inclusion Factor, the
Electricity Inclusion Factor and the Fixed Rent shall be increased by such
excess. However, if it shall be so determined that the Full Value to Tenant of
such service does not exceed the Electricity Inclusion Factor, there shall
nevertheless be no decrease in the Electricity Inclusion Factor or in the Fixed
Rent.
(B) If during the Term the Electric Rate shall increase over the Base
Electric Rate, the Electricity Inclusion Factor (and therefore the Fixed Rent)
shall be proportionately increased.
(C) (i) Landlord, from time to time during the Term, may cause
Landlord's Engineer to survey the demand and consumption of electrical energy at
the Premises. If the then Full Value shall exceed the then Electricity Inclusion
Factor, the Electricity Inclusion Factor (and therefore the Fixed Rent), shall
be proportionately increased, based on the increased demand and consumption and
the then prevailing Electric Rate.
(ii) Landlord shall furnish to Tenant a written statement (an
"ELECTRICITY STATEMENT") setting forth Landlord's determination of any increase
which has occurred in the Full Value and the Electricity Inclusion Factor (and
therefore the Fixed Rent) pursuant to the provisions of either Sections 13.2(A),
(B), or (C)(i). Any such increase in the Electricity Inclusion Factor and the
Fixed Rent shall be effective as of the date of such increase in the Electric
Rate or the consumption and demand of electric energy by Tenant and shall be
retroactive to such dates if necessary. Any retroactive increase shall be paid
by Tenant within ten (10) days after demand and such amount shall be collectible
by Landlord as Fixed Rent hereunder.
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(iii) Each such Electricity Statement given by Landlord pursuant
to Section 13.2(C)(ii) above, shall be conclusive and binding upon Tenant,
unless within ninety (90) days after the receipt of such Electricity Statement,
Tenant shall notify Landlord that it disputes the correctness of the Electricity
Statement. If such dispute is based on Tenant's demand and consumption of
electric current, Tenant shall submit a survey and determination of such
adjustment, made at its sole cost and expense, by a reputable and independent
electrical engineer or electrical consulting firm ("TENANT'S ENGINEER"),
within ninety (90) days after receipt of such Electricity Statement.
If Landlord and Tenant are unable to resolve the dispute differences between
them within thirty (30) days after receipt by Landlord of a copy of the
determination of Tenant's Engineer, the dispute shall be decided by a third
reputable and independent electrical engineer or electrical consulting firm
("THIRD ENGINEER"). If the parties shall fail to agree upon the designation of
the Third Engineer within forty (40) days after the receipt by Landlord of the
determination of Tenant's Engineer, then either party may apply to the American
Arbitration Association or any successor thereto for the designation of the
Third Engineer. The Third Engineer shall conduct such hearings as he deems
appropriate. The Third Engineer, within thirty (30) days after his designation,
shall select the determination of either Landlord's Engineer or Tenant's
Engineer and such determination shall be conclusive and binding upon the parties
whether or not a judgment shall be entered in any court. The fees of the Third
Engineer and the costs of arbitration shall be paid equally by the parties,
except that each party shall pay its own counsel fees and expenses, if any, in
connection with the arbitration. Pending the resolution of such dispute by
agreement or arbitration as aforesaid, Tenant shall pay the increase in the
Electricity Inclusion Factor in accordance with the Electricity Statement,
without prejudice to Tenant's position, as herein provided. If the dispute shall
be resolved in Tenant's favor, Landlord, at its option, shall either credit the
amount of such overpayment against subsequent monthly installments of Fixed Rent
hereunder or pay to Tenant the amount of such overpayment.
(D) Landlord's failure during the Term to prepare and deliver any
Electricity Statement, or bills, or Landlord's failure to make a demand, under
this Article or any other provisions of this Lease, shall not in any way be
deemed to be a waiver of, or cause Landlord to forfeit or surrender, its rights
to collect any portion of the increase in the Electricity Inclusion Factor (and
therefore the Fixed Rent) which may have become due pursuant to this Article 13
during the Term. Tenant's liability for the amounts due under this Article 13
shall survive the expiration or sooner termination of this Lease and Landlord's
obligation, if any, to refund any payments by Tenant in excess of the amounts
required to be paid by Tenant to Landlord pursuant to this Article 13 shall
survive the expiration or sooner termination of this Lease. The preceding
sentence shall not, however, be construed as limiting or restricting, in any
manner whatsoever, Landlord's right pursuant to this Lease or pursuant to law to
offset any such overpayments by Tenant against any amounts which may be due and
payable as provided in this Lease.
(E) In no event shall any adjustment of the payments made or to be
made hereunder result in a decrease in Fixed Rent or additional rent payable
pursuant to any other provision of this Lease, or in the amount paid for
electricity for the prior year.
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(F) The Electricity Inclusion Factor shall be collectible by Landlord
in the same manner as Fixed Rent.
(G) For the purposes of this Section 13.2, Landlord and Tenant agree
that the term "ELECTRIC RATE" (including all applicable surcharges, demand
charges, energy charges, fuel adjustment charges, time of day charges, taxes and
other sums payable in respect thereof) shall mean the greater of:
(i) the service classification pursuant to which
Landlord purchases electricity from the utility company servicing the Building,
and
(ii) the service classification pursuant to which
Tenant would purchase electricity directly from the utility company servicing
the Building.
(H) If Landlord discontinues furnishing electricity to Tenant pursuant
to this Section 13.2, the Fixed Rent shall be decreased by the Electricity
Inclusion Factor effective as of the date Landlord discontinues the provision of
electricity in such manner
SECTION 13.3. (A) If Landlord shall no longer elect to have electricity
furnished to the Premises pursuant to Section 13.2 hereof then, unless Landlord
elects to have Tenant obtain electricity from the public utility company
furnishing electricity to the Building pursuant to the provisions of Section
13.4 hereof, electricity shall be furnished by Landlord to the Premises and
Tenant shall pay to Landlord, as additional rent for such service, during the
Term, an amount (the "ELECTRICITY ADDITIONAL RENT") equal to (i) the amount
Landlord actually pays to the utility company to provide electricity to the
Premises, including all applicable surcharges, demand charges, time-of-day
charges, energy charges, fuel adjustment charges, rate adjustment charges, taxes
and other sums payable in respect thereof, based on Tenant's demand and/or
consumption of electricity (and/or any other method of quantifying Tenant's use
of or demand for electricity as set forth in the utility company's tariff) as
registered on a meter or submeter (installed by Landlord at Landlord's sole cost
and expense) for purposes of measuring such demand, consumption and/or other
method of quantifying Tenant's use of or demand for electricity (it being agreed
that such meter or submeter shall measure demand and consumption, and off-peak
and on-peak use, in either case to the extent such factors are relevant in
making the determination of Landlord's cost) plus (ii) an amount equal to the
out-of-pocket costs and expenses incurred by Landlord in connection with reading
such meters and preparing bills therefor. Tenant, from time to time, shall have
the right to review Landlord's meter readings, and Landlord's calculation of the
Electricity Additional Rent, at reasonable times and on reasonable prior notice,
by giving notice thereof to Landlord on or prior to the ninetieth (90th) day
after the date when Landlord gives Tenant a bill or statement for the
Electricity Additional Rent.
(B) Where more than one meter measures the electricity supplied to
Tenant, the electricity rendered through each meter may be computed and billed
separately in accordance with the provisions hereinabove set forth. Bills for
the Electricity Additional Rent shall be rendered to Tenant at such time as
Landlord may elect, and Tenant shall pay the amount shown
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thereon to Landlord within ten (10) days after receipt of such bill. Tenant
expressly acknowledges that in connection with the installation of the meters or
submeters, the electricity being supplied to the Premises shall be temporarily
interrupted. Landlord shall use reasonable efforts to minimize interference with
the conduct of Tenant's business in connection with such installation; provided,
however, that Landlord shall have no obligation to employ contractors or labor
at so-called overtime or other premium pay rates or to incur any other overtime
costs or expenses whatsoever.
SECTION 13.4. If Landlord shall be required by Requirements or the public
utility serving the Premises to discontinue furnishing electricity to Tenant
this Lease shall continue in full force and effect and shall be unaffected
thereby, except only that from and after the effective date of such
discontinuance, Landlord shall not be obligated to furnish electricity to Tenant
and Tenant shall not be obligated to pay the Electricity Additional Rent. If
Landlord so discontinues furnishing electricity to Tenant, Tenant shall use
diligent efforts to obtain electric energy directly from the public utility
furnishing electric service to the Building. The costs of such service shall be
paid by Tenant directly to such public utility. Such electricity may be
furnished to Tenant by means of the existing electrical facilities serving the
Premises, at no charge, to the extent the same are available, suitable and safe
for such purposes as reasonably determined by Landlord. All meters and all
additional panel boards, feeders, risers, wiring and other conductors and
equipment which may be required to obtain electricity shall be installed by
Landlord at Tenant's expense. Provided Tenant shall use and continue to use
diligent efforts to obtain electric energy directly from the public utility,
Landlord, to the extent permitted by applicable Requirements, shall not
discontinue furnishing electricity to the Premises until such installations have
been made and Tenant shall be able to obtain electricity directly from the
public utility.
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ARTICLE 14
ACCESS TO PREMISES
SECTION 14.1. (A) Tenant shall permit Landlord, Landlord's agents,
representatives, contractors and employees and public utilities servicing the
Building to erect, use and maintain, concealed ducts, pipes and conduits in and
through the Premises. Landlord, Landlord's agents, representatives, contractors,
and employees and the agents, representatives, contractors, and employees of
public utilities servicing the Building shall have the right to enter the
Premises at all reasonable times upon reasonable prior notice (except in the
case of an emergency in which event Landlord and Landlord's agents,
representatives, contractors, and employees may enter without prior notice to
Tenant), which notice may be oral, to examine the same, to show them to
prospective purchasers, or prospective or existing Mortgagees or Lessors, and to
make such repairs, alterations, improvements, additions or restorations (i) as
Landlord may deem necessary or desirable to the Premises or to any other portion
of the Building, or (ii) which Landlord may elect to perform following ten (10)
days after notice, except in the case of an emergency (in which event Landlord
and Landlord's agents, representatives, contractors, and employees may enter
without prior notice to Tenant), following Tenant's failure to make repairs or
perform any work which Tenant is obligated to make or perform under this Lease,
or (iii) for the purpose of complying with any Requirements, a Superior Lease or
a Mortgage, and Landlord shall be allowed to take all material into and upon the
Premises that may be required therefor without the same constituting an eviction
or constructive eviction of Tenant in whole or in part and the Fixed Rent (and
any other item of Rental) shall in no wise abate while said repairs,
alterations, improvements, additions or restorations are being made, by reason
of loss or interruption of business of Tenant, or otherwise.
(B) Any work performed or installations made pursuant to this Article
14 shall be made with reasonable diligence and otherwise pursuant to the
provisions of Section 4.3 hereof.
(C) Except as hereinafter provided, any pipes, ducts, or conduits
installed in or through the Premises pursuant to this Article 14 shall be
concealed behind, beneath or within partitioning, columns, ceilings or floors
located or to be located in the Premises. Notwithstanding the foregoing, any
such pipes, ducts, or conduits may be furred at points immediately adjacent to
partitioning columns or ceilings located or to be located in the Premises,
provided that the same are completely furred and that the installation of such
pipes, ducts, or conduits, when completed, shall not reduce the usable area of
the Premises beyond a DE MINIMIS amount.
SECTION 14.2. During the eighteen (18) month period prior to the
Expiration Date, Landlord may exhibit the Premises to prospective tenants
thereof.
SECTION 14.3. If Tenant shall not be present when for any reason entry
into the Premises shall be necessary or permissible, Landlord or Landlord's
agents, representatives, contractors or employees may enter the same without
rendering Landlord or such agents liable therefor if during
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such entry Landlord or Landlord's agents shall accord reasonable care under the
circumstances to Tenant's Property, and without in any manner affecting this
Lease. Nothing herein contained, however, shall be deemed or construed to impose
upon Landlord any obligation, responsibility or liability whatsoever, for the
care, supervision or repair of the Building or any part thereof, other than as
herein provided.
SECTION 14.4. Landlord also shall have the right at any time, without the
same constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement or location of entrances
or passageways, doors and doorways, and corridors, elevators, stairs, toilets,
or other public parts of the Building and to change the name, number or
designation by which the Building is commonly known, provided any such change
does not (a) unreasonably reduce, interfere with or deprive Tenant of access to
the Building or the Premises or (b) reduce the rentable area (except by a DE
MINIMIS amount) of the Premises. All parts (except surfaces facing the interior
of the Premises) of all walls, windows and doors bounding the Premises
(including exterior Building walls, exterior core corridor walls, exterior doors
and entrances), all balconies, terraces and roofs adjacent to the Premises, all
space in or adjacent to the Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other
mechanical facilities, service closets and other Building facilities are not
part of the Premises, and Landlord shall have the use thereof, as well as access
thereto through the Premises for the purposes of operation, maintenance,
alteration and repair.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
Tenant shall not at any time use or occupy the Premises in violation of the
certificate of occupancy at such time issued for the Premises or for the
Building and in the event that any department of the City or State of New York
shall hereafter contend or declare by notice, violation, order or in any other
manner whatsoever that the Premises are used for a purpose which is a violation
of such certificate of occupancy, Tenant, upon written notice from Landlord or
any Governmental Authority, shall immediately discontinue such use of the
Premises. On the Commencement Date and throughout the Term, a temporary or
permanent certificate of occupancy covering the Premises will be in force
permitting the Premises to be used as offices, provided, however, neither such
certificate, nor any provision of this Lease, nor any act or omission of
Landlord, shall be deemed to constitute a representation or warranty that the
Premises, or any part thereof, lawfully may be used or occupied for any
particular purpose or in any particular manner, in contradistinction to mere
"office" use.
ARTICLE 16
DEFAULT
SECTION 16.1. Each of the following events shall be an "EVENT OF DEFAULT"
hereunder:
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(A) If Tenant shall default in the payment when due of any installment
of Fixed Rent and such default shall continue for five (5) Business Days after
notice of such default is given to Tenant, or in the payment when due of any
other item of Rental and such default shall continue for five (5) Business Days
after notice of such default is given to Tenant, except that if Landlord shall
have given two (2) such notices in any twelve (12) month period, Tenant shall
not be entitled to any further notice of its delinquency in the payment of
Rental until such time as twelve (12) consecutive months shall have elapsed
without Tenant having defaulted in any such payment; or
(B) if Tenant shall default in the observance or performance of any
term, covenant or condition on Tenant's part to be observed or performed under
any other lease with Landlord or Landlord's predecessor in interest of space in
the Building and such default shall continue beyond any grace period set forth
in such other lease for the remedying of such default; or
(C) if the Premises shall become vacant, deserted or abandoned; or
(D) if Tenant's interest or any portion thereof in this Lease shall
devolve upon or pass to any person, whether by operation of law or otherwise,
except as expressly permitted under Article 12 hereof; or
(E) (1) if Tenant shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or
(2) if Tenant shall commence or institute any case, proceeding or
other action (A) seeking relief on its behalf as debtor, or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
property; or
(3) if Tenant shall make a general assignment for the benefit of
creditors; or
(4) if any case, proceeding or other action shall be commenced or
instituted against Tenant (A) seeking to have an order for relief entered
against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its property, which in either of such cases (i) results in
any such entry of an order for relief, adjudication of bankruptcy
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or insolvency or such an appointment or the issuance or entry of any other order
having a similar effect or (ii) remains undismissed for a period of sixty (60)
days; or
(5) if any case, proceeding or other action shall be commenced or
instituted against Tenant seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its property which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within sixty (60) days from the entry thereof; or
(6) if Tenant shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (2), (3), (4) or (5) above; or
(7) if a trustee, receiver or other custodian is appointed for
any substantial part of the assets of Tenant which appointment is not vacated or
stayed within seven (7) Business Days; or
(F) if Tenant shall fail more than five (5) times during any twelve
(12) month period to pay any installment of Fixed Rent or any item of Rental
when due, after receipt of the notice and the expiration of the applicable grace
period pursuant to the provisions of paragraph (A) above, if such notice and
grace period are then required; or
(G) if Tenant shall fail to pay any installments of Fixed Rent or
items of Rental when due as required by this Lease, and Landlord shall bring
more than one (1) summary dispossess proceeding during any twelve (12) month
period; or
(H) if this Lease is assigned (or all or a portion of the Premises are
subleased) to a Related Entity and such Related Entity shall no longer (i)
Control, (ii) be under common Control with, or (iii) be under the Control of
Tenant (or any permitted successor by merger, consolidation or purchase as
provided herein); or
(I) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be observed
or performed and Tenant shall fail to remedy such default within twenty (20)
days after notice by Landlord to Tenant of such default, or if such default is
of such a nature that it cannot with due diligence be completely remedied within
said period of twenty (20) days and Tenant shall not commence within said period
of twenty (20) days, or shall not thereafter diligently prosecute to completion,
all steps necessary to remedy such default.
SECTION 16.2. (A) If an Event of Default (i) described in Section 16.1(E)
hereof shall occur, or (ii) described in Sections 16.1(A), (B), (C), (D), (F),
(G), (H) or (I) shall occur and Landlord, at any time thereafter, at its option
gives written notice to Tenant stating that this Lease and the Term shall expire
and terminate five (5) days after the date Landlord shall give Tenant such
notice, then this Lease and the Term and all rights of Tenant under this Lease
shall expire
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and terminate as if the date on which the Event of Default described in clause
(i) above occurred or the date of such notice, pursuant to clause (ii) above, as
the case may be, were the Fixed Expiration Date and Tenant immediately shall
quit and surrender the Premises, but Tenant shall nonetheless be liable for all
of its obligations hereunder, as provided for in Articles 17 and 18 hereof.
Anything contained herein to the contrary notwithstanding, if such termination
shall be stayed by order of any court having jurisdiction over any proceeding
described in Section 16.1(E) hereof, or by federal or state statute, then,
following the expiration of any such stay, or if the trustee appointed in any
such proceeding, Tenant or Tenant as debtor-in-possession shall fail to assume
Tenant's obligations under this Lease within the period prescribed therefor by
law or within one hundred twenty (120) days after entry of the order for relief
or as may be allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease as provided in Section 12.3(B), Landlord, to the extent permitted by law
or by leave of the court having jurisdiction over such proceeding, shall have
the right, at its election, to terminate this Lease on five (5) days' notice to
Tenant, Tenant as debtor-in-possession or said trustee and upon the expiration
of said five (5) day period this Lease shall cease and expire as aforesaid and
Tenant, Tenant as debtor-in-possession or said trustee shall immediately quit
and surrender the Premises as aforesaid.
(B) If an Event of Default described in Section 16.1(A) hereof shall
occur, or this Lease shall be terminated as provided in Section 16.2(A) hereof,
Landlord, without notice, may reenter and repossess the Premises using such
force for that purpose as may be necessary without being liable to indictment,
prosecution or damages therefor and may dispossess Tenant by summary proceedings
or otherwise.
SECTION 16.3. If at any time, (i) Tenant shall be comprised of two (2) or
more persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease shall have been assigned, the word "Tenant", as used in Section 16.1(E),
shall be deemed to mean any one or more of the persons primarily or secondarily
liable for Tenant's obligations under this Lease. Any monies received by
Landlord from or on behalf of Tenant during the pendency of any proceeding of
the types referred to in Section 16.1(E) shall be deemed paid as compensation
for the use and occupation of the Premises and the acceptance of any such
compensation by Landlord shall not be deemed an acceptance of Rental or a waiver
on the part of Landlord of any rights under Section 16.2.
ARTICLE 17
REMEDIES AND DAMAGES
SECTION 17.1. (A) If there shall occur any Event of Default, and this
Lease and the Term shall expire and come to an end as provided in Article 16
hereof:
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(1) Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time after such
default or after the date upon which this Lease and the Term shall expire and
come to an end, re-enter the Premises or any part thereof, without notice,
either by summary proceedings, or by any other applicable action or proceeding,
or by force or otherwise (without being liable to indictment, prosecution or
damages therefor), and may repossess the Premises and dispossess Tenant and any
other persons from the Premises and remove any and all of their property and
effects from the Premises; and
(2) Landlord, at Landlord's option, may relet the whole or any
portion or portions of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine; provided, however, that
Landlord shall have no obligation to relet the Premises or any part thereof and
shall in no event be liable for refusal or failure to relet the Premises or any
part thereof, or, in the event of any such reletting, for refusal or failure to
collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this Lease or otherwise
affect any such liability, and Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Premises as Landlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Tenant of any liability under
this Lease or otherwise affecting any such liability.
(B) Tenant hereby waives the service of any notice of intention to
re-enter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law. Tenant, on its own behalf
and on behalf of all persons claiming through or under Tenant, including all
creditors, does further hereby waive any and all rights which Tenant and all
such persons might otherwise have under any present or future law to redeem the
Premises, or to re-enter or repossess the Premises, or to restore the operation
of this Lease, after (a) Tenant shall have been dispossessed by a judgment or by
warrant of any court or judge, or (b) any re-entry by Landlord, or (c) any
expiration or termination of this Lease and the Term, whether such dispossess,
re-entry, expiration or termination shall be by operation of law or pursuant to
the provisions of this Lease. The words "re-enter," "re-entry" and "re-entered"
as used in this Lease shall not be deemed to be restricted to their technical
legal meanings. In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or condition of
this Lease, Landlord shall have the right to enjoin such breach and the right to
invoke any other remedy allowed by law or in equity as if re-entry, summary
proceedings and other special remedies were not provided in this Lease for such
breach. The right to invoke the remedies hereinbefore set forth are cumulative
and shall not preclude Landlord from invoking any other remedy allowed at law or
in equity.
SECTION 17.2. (A) If this Lease and the Term shall expire and come to an
end as provided in Article 16 hereof, or by or under any summary proceeding or
any other action or proceeding,
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or if Landlord shall re-enter the Premises as provided in Section 17.1, or by or
under any summary proceeding or any other action or proceeding, then, in any of
said events:
(1) Tenant shall pay to Landlord all Fixed Rent, Escalation Rent
and other items of Rental payable under this Lease by Tenant to Landlord to the
date upon which this Lease and the Term shall have expired and come to an end or
to the date of re-entry upon the Premises by Landlord, as the case may be;
(2) Tenant also shall be liable for and shall pay to Landlord, as
damages, any deficiency (referred to as "DEFICIENCY") between the Rental for
the period which otherwise would have constituted the unexpired portion of the
Term and the net amount, if any, of rents collected under any reletting effected
pursuant to the provisions of clause (2) of Section 17.1 (A) for any part of
such period (first deducting from the rents collected under any such reletting
all of Landlord's expenses in connection with the termination of this Lease,
Landlord's re-entry upon the Premises and with such reletting, including, but
not limited to, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees and disbursements, alteration costs, contribution to work and
other expenses of preparing the Premises for such reletting); any such
Deficiency shall be paid in monthly installments by Tenant on the days specified
in this Lease for payment of installments of Fixed Rent; Landlord shall be
entitled to recover from Tenant each monthly Deficiency as the same shall arise,
and no suit to collect the amount of the Deficiency for any month shall
prejudice Landlord's right to collect the Deficiency for any subsequent month by
a similar proceeding; and
(3) whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and
Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as
and for liquidated and agreed final damages, a sum equal to the amount by which
the Rental for the period which otherwise would have constituted the unexpired
portion of the Term (commencing on the date immediately succeeding the last date
with respect to which a Deficiency, if any, was collected) exceeds the then fair
and reasonable rental value of the Premises for the same period, both discounted
to present worth at the Base Rate; if, before presentation of proof of such
liquidated damages to any court, commission or tribunal, the Premises, or any
part thereof, shall have been relet by Landlord for the period which otherwise
would have constituted the unexpired portion of the Term, or any part thereof,
the amount of rent reserved upon such reletting shall be deemed, PRIMA FACIE, to
be the fair and reasonable rental value for the part or the whole of the
Premises so relet during the term of the reletting.
(B) If the Premises, or any part thereof, shall be relet together with
other space in the Building, the rents collected or reserved under any such
reletting and the expenses of any such reletting shall be equitably apportioned
for the purposes of this Section 17.2. Tenant shall in no event be entitled to
any rents collected or payable under any reletting, whether or not such rents
shall exceed the Fixed Rent reserved in this Lease. Solely for the purposes of
this Article 17, the term "Escalation Rent" as used in Section 17.2(A) shall
mean the Escalation Rent in effect immediately prior to the Expiration Date, or
the date of re-entry upon the Premises by
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Landlord, as the case may be, adjusted to reflect any increase pursuant to the
provisions of Article 27 hereof for the Comparison Year immediately preceding
such event. Nothing contained in Article 16 hereof or this Article 17 shall be
deemed to limit or preclude the recovery by Landlord from Tenant of the maximum
amount allowed to be obtained as damages by any statute or rule of law, or of
any sums or damages to which Landlord may be entitled in addition to the damages
set forth in this Section 17.2.
ARTICLE 18
LANDLORD FEES AND EXPENSES
SECTION 18.1. If an Event of Default shall have occurred and be continuing
or if Tenant shall do or permit to be done any act or thing upon the Premises
which would cause Landlord to be in default under any Superior Lease or
Mortgage, Landlord may (1) as provided in Section 14.1 hereof, perform the same
for the account of Tenant, or (2) make any expenditure or incur any obligation
for the payment of money, including, without limitation, reasonable attorneys'
fees and disbursements in instituting, prosecuting or defending any action or
proceeding, and the cost thereof, with interest thereon at the Applicable Rate,
shall be deemed to be additional rent hereunder and shall be paid by Tenant to
Landlord within ten (10) days of rendition of any bill or statement to Tenant
therefor and if the term of this Lease shall have expired at the time of making
of such expenditures or incurring of such obligations, such sums shall be
recoverable by Landlord as damages.
SECTION 18.2. If Tenant shall fail to pay any installment of Fixed Rent,
Escalation Rent or any other item of Rental when due, Tenant shall pay to
Landlord, in addition to such installment of Fixed Rent, Escalation Rent or
other item of Rental, as the case may be, as a late charge and as additional
rent, a sum equal to interest at the Applicable Rate on the amount unpaid,
computed from the date such payment was due to and including the date of
payment.
ARTICLE 19
NO REPRESENTATIONS BY LANDLORD
SECTION 19.1. Landlord and Landlord's agents and representatives have made
no representations or promises with respect to the Building, the Real Property
or the Premises except as herein expressly set forth, and no rights, easements
or licenses are acquired by Tenant by implication or otherwise except as
expressly set forth herein. Tenant shall accept possession of the Premises in
the condition which shall exist on the Commencement Date "as is" (subject to the
provisions of Section 4.1 hereof), and Landlord shall have no obligation to
perform any work or make any installations in order to prepare the Premises for
Tenant's occupancy, except that Landlord, at its expense, shall (i) construct a
demising wall in the Premises, and (ii) touch up and repair paint and wall
coverings in the Premises where damaged ("LANDLORD'S WORK").
SECTION 19.2. Landlord has made and makes no representation as to the date
on which it will complete Landlord's Work. No delay in completing Landlord's
Work shall in any way affect the validity of this Lease or the obligations of
Tenant hereunder or give rise to a claim for
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damages by Tenant or a claim for rescission of this Lease, nor shall the same be
construed in any wise to extend the Term hereof. Landlord agrees that, subject
to Unavoidable Delay, each item of Landlord's Work shall be prosecuted with due
diligence; provided, however, that nothing contained in this Article 19 shall be
deemed to impose upon Landlord any obligations to employ contractors or labor at
so-called overtime or other premium pay rates or to incur any other overtime
costs or expenses whatsoever. Landlord shall have the right to enter the
Premises subsequent to the Commencement Date to complete Landlord's Work and the
payment of Fixed Rent and Escalation Rent shall not be affected thereby.
Landlord and Tenant agree to cooperate with each other in accordance with good
construction practice and scheduling to permit Landlord's Work to be performed
simultaneously with the Initial Alterations.
ARTICLE 20
END OF TERM
Upon the expiration or other termination of this Lease, Tenant shall quit
and surrender to Landlord the Premises, vacant, broom clean, in good order and
condition, ordinary wear and tear and damage for which Tenant is not responsible
under the terms of this Lease excepted, and otherwise in compliance with the
provisions of Article 3 hereof. If the last day of the Term or any renewal
thereof falls on Saturday or Sunday, this Lease shall expire on the Business Day
immediately preceding. Tenant expressly waives, for itself and for any person
claiming through or under Tenant, any rights which Tenant or any such person may
have under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and of any successor law of like import then in force in connection with
any holdover summary proceedings which Landlord may institute to enforce the
foregoing provisions of this Article 20. Tenant acknowledges that possession of
the Premises must be surrendered to Landlord on the Expiration Date. Tenant
agrees to indemnify and save Landlord harmless from and against all claims,
losses, damages, liabilities, costs and expenses (including, without limitation,
attorneys' fees and disbursements) resulting from delay by Tenant in so
surrendering the Premises, including, without limitation, any claims made by any
succeeding tenant founded on such delay. The parties recognize and agree that
the damage to Landlord resulting from any failure by Tenant to timely surrender
possession of the Premises as aforesaid will be extremely substantial, will
exceed the amount of the monthly installments of the Fixed Rent and Rental
theretofore payable hereunder, and will be impossible to accurately measure.
Tenant therefore agrees that if possession of the Premises is not surrendered to
Landlord within twenty-four (24) hours after the Expiration Date, in addition to
any other rights or remedies Landlord may have hereunder or at law, and without
in any manner limiting Landlord's right to demonstrate and collect any damages
suffered by Landlord and arising from Tenant's failure to surrender the Premises
as provided herein, Tenant shall pay to Landlord on account of use and occupancy
of the Premises for each month and for each portion of any month during which
Tenant holds over in the Premises after the Expiration Date, a sum equal to the
greater of (i) two (2) times the aggregate of that portion of the Fixed Rent,
Escalation Rent and Rental which was payable under this Lease during the last
month of the Term, and (ii) the then fair market rental value for the Premises.
Nothing herein contained shall be deemed to permit Tenant to retain possession
of the Premises after the Expiration Date or to limit in any
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manner Landlord's right to regain possession of the Premises through summary
proceedings, or otherwise, and no acceptance by Landlord of payments from Tenant
after the Expiration Date shall be deemed to be other than on account of the
amount to be paid by Tenant in accordance with the provisions of this Article
20. The provisions of this Article 20 shall survive the Expiration Date.
ARTICLE 21
QUIET ENJOYMENT
Provided no Event of Default has occurred and is continuing, Tenant may
peaceably and quietly enjoy the Premises subject, nevertheless, to the terms and
conditions of this Lease.
ARTICLE 22
FAILURE TO GIVE POSSESSION
Landlord shall deliver possession of the Premises on the Commencement Date.
ARTICLE 23
NO WAIVER
SECTION 23.1. No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept such surrender shall be valid unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys of the Premises prior to the termination of this Lease. The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of this Lease or a surrender of the Premises. In the
event Tenant at any time desires to have Landlord sublet the Premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive said
keys for such purpose without releasing Tenant from any of the obligations under
this Lease, and Tenant hereby relieves Landlord of any liability for loss of or
damage to any of Tenant's effects in connection with such subletting.
SECTION 23.2. The failure of Landlord to seek redress for violation of, or
to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the Rules and Regulations set forth or hereafter adopted by
Landlord, shall not prevent a subsequent act, which would have originally
constituted a violation of the provisions of this Lease, from having all of the
force and effect of an original violation of the provisions of this Lease. The
receipt by Landlord of Fixed Rent, Escalation Rent or any other item of Rental
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth, or hereafter adopted, against Tenant or any other tenant
in the Building shall not be deemed a waiver of any such Rules and Regulations.
No provision of this Lease shall be deemed to have been waived by Landlord,
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unless such waiver be in writing signed by Landlord. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly Fixed Rent or other item
of Rental herein stipulated shall be deemed to be other than on account of the
earliest stipulated Fixed Rent or other item of Rental, or as Landlord may elect
to apply same, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Fixed Rent or other item of Rental be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such Fixed Rent
or other item of Rental or to pursue any other remedy provided in this Lease.
This Lease contains the entire agreement between the parties and all prior
negotiations and agreements are merged herein. Any executory agreement hereafter
made shall be ineffective to change, modify, discharge or effect an abandonment
of this Lease in whole or in part unless such executory agreement is in writing
and signed by the party against whom enforcement of the change, modification,
discharge or abandonment is sought.
ARTICLE 24
WAIVER OF TRIAL BY JURY
The respective parties hereto shall and they hereby do waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
hereto against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
or for the enforcement of any remedy under any statute, emergency or otherwise.
If Landlord commences any summary proceeding against Tenant, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding (unless failure to impose such counterclaim would preclude Tenant
from asserting in a separate action the claim which is the subject of such
counterclaim), and will not seek to consolidate such proceeding with any other
action which may have been or will be brought in any other court by Tenant.
ARTICLE 25
INABILITY TO PERFORM
This Lease and the obligation of Tenant to pay Rental hereunder and perform
all of the other covenants and agreements hereunder on the part of Tenant to be
performed shall in no wise be affected, impaired or excused because Landlord is
unable to fulfill any of its obligations under this Lease expressly or impliedly
to be performed by Landlord or because Landlord is unable to make, or is delayed
in making any repairs, additions, alterations, improvements or decorations or is
unable to supply or is delayed in supplying any equipment or fixtures, if
Landlord is prevented or delayed from so doing by reason of strikes or labor
troubles or by accident, or by any cause whatsoever beyond Landlord's control,
including, but not limited to, laws, governmental preemption in connection with
a national emergency or by reason of any Requirements of any Governmental
Authority or by reason of failure of the HVAC, electrical, plumbing, or other
Building Systems in the Building, or by reason of the conditions of supply and
demand which
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have been or are affected by war or other emergency ("UNAVOIDABLE DELAYS")
(except that Landlord's financial inability to perform shall not be considered
an Unavoidable Delay)..
ARTICLE 26
BILLS AND NOTICES
Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications given
or required to be given under this Lease shall be in writing and shall be deemed
sufficiently given or rendered if delivered by hand (against a signed receipt)
or if sent by registered or certified mail (return receipt requested) addressed
IF TO TENANT (a) at XOOM.com, Inc., 300 Montgomery Street,
Suite 300, San Francisco, California 94104, Attn.:
Controller, or (b) at the Building, Attn.: Patricia Whalen,
if mailed subsequent to Tenant's taking possession of the
Premises, or (c) at any place where Tenant or any agent or
employee of Tenant may be found if mailed subsequent to
Tenant's vacating, deserting, abandoning or surrendering the
Premises, in each case with a copy to Morrison & Foerster
LLP, 1290 Avenue of the Americas, New York, New York _____,
Attn.: C.E. Ryan, Esq., or
IF TO LANDLORD at Landlord's address set forth in this
Lease, Attn.: Mr. Kevin R. Wang and with copies to (y)
Proskauer Rose LLP, 1585 Broadway, New York, New York 10036,
Attn.: Lawrence J. Lipson, Esq., and (z) each Mortgagee and
Lessor which shall have requested same, by notice given in
accordance with the provisions of this Article 26 at the
address designated by such Mortgagee or Lessor, or
to such other address(es) as Landlord, Tenant or any Mortgagee or Lessor may
designate as its new address(es) for such purpose by notice given to the other
in accordance with the provisions of this Article 26. Any such bill, statement,
consent, notice, demand, request or other communication shall be deemed to have
been rendered or given on the date when it shall have been hand delivered or
three (3) Business Days from when it shall have been mailed as provided in this
Article 26. Anything contained herein to the contrary notwithstanding, any
Operating Statement, Tax Statement or any other bill, statement, consent,
notice, demand, request or other communication from Landlord to Tenant with
respect to any item of Rental (other than any "default notice" if required
hereunder) may be sent to Tenant by regular United States mail.
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ARTICLE 27
ESCALATION
SECTION 27.1. For the purposes of this Article 27, the following terms
shall have the meanings set forth below.
(A) "ASSESSED VALUATION" shall mean the amount for which the Real
Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the purpose
of calculating all or any portion of the Taxes payable with respect to the Real
Property.
(B) "BASE TAXES" shall mean fifty percent (50%) of the sum of (i) the
Taxes payable for the Tax Year commencing July 1, 1998 and ending June 30, 1999,
and (ii) the Taxes payable for the Tax Year commencing July 1, 1999 and ending
June 30, 2000.
(C) "TAXES" shall mean the aggregate amount of real estate taxes and
any general or special assessments (exclusive of penalties and interest thereon)
imposed upon the Real Property (including, without limitation, (i) assessments
made upon or with respect to any "air" and "development" rights now or hereafter
appurtenant to or affecting the Real Property, (ii) any fee, tax or charge
imposed by any Governmental Authority for any vaults, vault space or other space
within or outside the boundaries of the Real Property, and (iii) any taxes or
assessments levied after the date of this Lease in whole or in part for public
benefits to the Real Property or the Building, including, without limitation,
any Business Improvement District taxes and assessments) without taking into
account any discount that Landlord may receive by virtue of any early payment of
Taxes; provided, that if because of any change in the taxation of real estate,
any other tax or assessment, however denominated (including, without limitation,
any franchise, income, profit, sales, use, occupancy, gross receipts or rental
tax) is imposed upon Landlord or the owner of the Real Property or the Building,
or the occupancy, rents or income therefrom, in substitution for any of the
foregoing Taxes, such other tax or assessment shall be deemed part of Taxes
computed as if Landlord's sole asset were the Real Property. With respect to any
Tax Year, all expenses, including reasonable and customary attorneys' fees and
disbursements, experts' and other witnesses' fees, incurred in contesting the
validity or amount of any Taxes or in obtaining a refund of Taxes shall be
considered as part of the Taxes for such Tax Year. Anything contained herein to
the contrary notwithstanding, Taxes shall not be deemed to include (w) any taxes
on Landlord's income, (x) franchise taxes, (y) estate or inheritance taxes or
(z) any similar taxes imposed on Landlord, unless such taxes are levied,
assessed or imposed in lieu of or as a substitute for the whole or any part of
the taxes, assessments, levies, impositions which now constitute Taxes.
(D) "TAX STATEMENT" shall mean a statement in reasonable detail
setting forth a comparison of the Taxes for a Tax Year with the Base Taxes.
(E) "TAX YEAR" shall mean the period July 1 through June 30 (or such
other period as hereinafter may be duly adopted by the Governmental Authority
then imposing taxes as its fiscal year for real estate tax purposes), any
portion of which occurs during the Term.
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(F) "COMPARISON YEAR" shall mean each calendar year subsequent to the
calendar year 1999.
(G) "LOCAL 32B" shall mean Local 32B-32J of the Building Service
Employees International Union, AFL-CIO, or its successor, or if there shall be
no successor, then any other union representing employees employed at the
Building and performing similar services.
(H) "PORTERS" shall mean that classification of employee engaged in
the general maintenance and operation of Class A office buildings most nearly
comparable to the classification now applicable to porters in the current
agreement between R.A.B. and Local 32B (which classification is currently termed
"others" in said agreement).
(I) "PORTERS' WAGE FACTOR" shall mean Six Thousand Five Hundred
Thirty-One (6,531).
(J) "PORTERS' WAGE PAYMENT" shall mean the amount obtained by
multiplying the Porters' Wage Factor by the amount by which the Wage Rate in
effect on January 1 of a Comparison Year exceeds the Base Wage Rate.
(K) "R.A.B." shall mean the Realty Advisory Board on Labor Relations,
Incorporated, or its successor.
(L) "WAGE RATE" shall mean the composite hourly wage rate, including
the regular hourly wage rate required to be paid to Porters pursuant to any
agreement between R.A.B. and Local 32B in effect during the year in question,
exclusive of fringe benefits, which Wage Rate shall be based upon the minimum
effective number of hours in a calendar week which Porters are required to work
pursuant to such agreement, provided that if any such agreement shall require
Porters to be regularly employed on days or during hours when overtime or other
premium pay rates are in effect, then the term "regular hourly wage rate" shall
mean the regular average hourly wage rate for the hours in a calendar week which
Porters are required to be regularly employed (whether or not actually at work
in the Building), e.g., if as of November 1, 1986, an agreement between R.A.B.
and Local 32B would require the regular employment of Porters for thirty-five
(35) hours during a calendar week at a regular hourly wage of $4.00 for the
first thirty (30) hours and at an overtime hourly average wage of $5.00 for the
remaining five (5) hours, then the regular hourly wage rate hereunder, as of
November 1, 1986, would be the sum arrived at by dividing the total weekly
average wages of $145.00 by the minimum effective number of required hours of
employment per week. The computation of the regular hourly wage rate shall be on
the same basis whether based on an hourly or other pay scale but predicated on
the minimum effective number of hours during such calendar week which Porters
are required to work under such agreement whether paid by Landlord or any
independent contractor. If there is no such agreement in effect from which such
regular hourly rate is determinable, the computations shall be made on the basis
of the regular hourly wage rate, calculated as provided above, being paid by
Landlord or by the contractor performing porter or cleaning services for
Landlord as of the date any adjustment provided herein shall be made and an
appropriate retroactive adjustment shall be made when the regular hourly wage
rate is finally determined. If
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length of service shall be a factor in determining any element of wages, it
shall be conclusively presumed that all employees have two (2) years of service.
(M) "WAGE STATEMENT" shall mean the written statement furnished by
Landlord to Tenant setting forth the Porters' Wage Payment.
SECTION 27.2. (A) If the Taxes payable for any Tax Year (any part or all
of which falls within the Term) shall represent an increase above the Base
Taxes, then Tenant shall pay as additional rent for such Tax Year and continuing
thereafter until a new Tax Statement is rendered to Tenant, Tenant's Tax Share
of such increase (the "TAX PAYMENT") as shown on the Tax Statement with respect
to such Tax Year. Tenant shall be obliged to pay the Tax Payment regardless of
whether Tenant is exempt in whole or part, from the payment of any Taxes by
reason of Tenant's diplomatic status or for any other reason whatsoever. The
Taxes shall be computed initially on the basis of the Assessed Valuation in
effect at the time the Tax Statement is rendered (as the Taxes may have been
settled or finally adjudicated prior to such time) regardless of any then
pending application, proceeding or appeal respecting the reduction of any such
Assessed Valuation, but shall be subject to subsequent adjustment as provided in
Section 27.3 hereof.
(B) At any time during or after the Term, Landlord may render to
Tenant a Tax Statement or Statements showing (i) a comparison of the Taxes for
the Tax Year with the Base Taxes and (ii) the amount of the Tax Payment
resulting from such comparison. On the first day of the month following the
furnishing to Tenant of a Tax Statement, Tenant shall pay to Landlord a sum
equal to 1/12th of the Tax Payment shown thereon to be due for such Tax Year
multiplied by the number of months of the Term then elapsed since the
commencement of such Tax Year. Tenant shall continue to pay to Landlord a sum
equal to one-twelfth (1/12th) of the Tax Payment shown on such Tax Statement on
the first day of each succeeding month until the first day of the month
following the month in which Landlord shall deliver to Tenant a new Tax
Statement. If Landlord furnishes a Tax Statement for a new Tax Year subsequent
to the commencement thereof, promptly after the new Tax Statement is furnished
to Tenant, Landlord shall give notice to Tenant stating whether the amount
previously paid by Tenant to Landlord for the current Tax Year was greater or
less than the installments of the Tax Payment for the current tax year in
accordance with the Tax Statement, and (a) if there shall be a deficiency,
Tenant shall pay the amount thereof within ten (10) days after demand therefor,
or (b) if there shall have been an overpayment, Landlord shall credit the amount
thereof against the next monthly installments of the Fixed Rent payable under
this Lease. Tax Payments shall be collectible by Landlord in the same manner as
Fixed Rent. Landlord's failure to render a Tax Statement shall not prejudice
Landlord's right to render a Tax Statement during or with respect to any
subsequent Tax Year, and shall not eliminate or reduce Tenant's obligation to
make Tax Payments for such Tax Year.
SECTION 27.3. (A) Only Landlord shall be eligible to institute tax
reduction or other proceedings to reduce the Assessed Valuation. In the event
that, after a Tax Statement has been sent to Tenant, an Assessed Valuation which
had been utilized in computing the Taxes for a Tax Year is reduced (as a result
of settlement, final determination of legal proceedings or otherwise),
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and as a result thereof a refund of Taxes is actually received by or on behalf
of Landlord, then, promptly after receipt of such refund, Landlord shall send
Tenant a Tax Statement adjusting the Taxes for such Tax Year (taking into
account the expenses mentioned in Section 27.1(C) hereof) and setting forth
Tenant's Tax Share of such refund and Tenant shall be entitled to receive such
Share, at Landlord's option, either by way of a credit against the Fixed Rent
next becoming due after the sending of such Tax Statement or by a refund to the
extent no further Fixed Rent is due; provided, however, that Tenant's Tax Share
of such refund shall be limited to the portion of the Tax Payment, if any, which
Tenant had theretofore paid to Landlord attributable to increases in Taxes for
the Tax Year to which the refund is applicable on the basis of the Assessed
Valuation before it had been reduced.
(B) In the event that, after a Tax Statement has been sent to Tenant,
the Assessed Valuation which had been utilized in computing the Base Taxes is
reduced (as a result of settlement, final determination of legal proceedings or
otherwise) then, and in such event: (i) the Base Taxes shall be retroactively
adjusted to reflect such reduction, and (ii) all retroactive Tax Payments
resulting from such retroactive adjustment shall be due and payable when billed
by Landlord. Landlord promptly shall send to Tenant a statement setting forth
the basis for such retroactive adjustment and Tax Payments.
SECTION 27.4. (A) If the Wage Rate in effect for any Comparison Year (or
portion thereof, any part or all of which falls within the Term) shall be
greater than the Base Wage Rate, then for such Comparison Year, and continuing
thereafter until a new Wage Statement is rendered to Tenant, Tenant shall pay to
Landlord, as additional rent, an amount equal to the Porters' Wage Payment shown
thereon as provided in paragraph (B) below. Landlord shall render a Wage
Statement to Tenant at any time during or after the Term. The Porters' Wage
Payment shall be prorated for any partial calendar year in which the term of
this Lease shall commence or expire. Notwithstanding the foregoing, if, by
reason of any Requirement, an increase in the Wage Rate is reduced or does not
take effect, or increases in the Wage Rate are limited or prohibited, then for
the period covered by such Requirement ("REQUIREMENT PERIOD"), the applicable
increase (the "INCREASE") in the Wage Rate for purposes of this Article shall be
the maximum increase or increases in the Wage Rate permitted during the
Requirement Period, and, upon the expiration thereof, Tenant shall pay to
Landlord, on demand, to the extent permitted by applicable Requirements, the
amount by which the aggregate Porters' Wage Payments applicable to the
Requirement Period exceeds the aggregate Increase paid for such period by Tenant
pursuant to such Requirement, together with interest thereon at the lesser of
(i) the Base Rate or (ii) the maximum rate permitted by law.
(B) At any time during or after each Comparison Year, Landlord shall
render to Tenant a Wage Statement setting forth the Porters' Wage Payment for
such Comparison Year. On the first day of the month following the furnishing to
Tenant of a Wage Statement, Tenant shall pay to Landlord an amount equal to
one-twelfth (1/12th) of the Porters' Wage Payment shown thereon to be due for
such Comparison Year. If Landlord furnishes a Wage Statement for a Comparison
Year subsequent to the commencement thereof, then (i) until the first day of the
month following the month in which the Porters' Wage Statement is furnished to
Tenant, Tenant shall continue to pay to Landlord on the first day of each month
an amount equal to the monthly
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sum payable by Tenant to Landlord with respect to the next previous Comparison
Year; (ii) promptly after the Wage Statement is furnished to Tenant, Landlord
shall give notice to Tenant stating whether the amount previously paid by Tenant
to Landlord for the current Comparison Year was greater or less than the
installments of the Porters' Wage Payment to be paid for the current Comparison
Year in accordance with the Wage Statement, and (a) if there shall be a
deficiency, Tenant shall pay the amount thereof within ten (10) days after
demand therefor, or (b) if there shall have been an overpayment, Landlord shall
credit the amount thereof against the next monthly installments of the Fixed
Rent payable under this Lease; and (iii) on the first day of the month following
the month in which the Wage Statement is furnished to Tenant, and monthly
thereafter throughout the remainder of the current Comparison Year, Tenant shall
pay to Landlord an amount equal to one-twelfth (1/12th) of the Porters' Wage
Payment shown on the Wage Statement. Porter's Wage Payments shall be collectible
by Landlord in the same manner as Fixed Rent. Landlord's failure to render a
Wage Statement shall not prejudice Landlord's right to render a Wage Statement
during or with respect to any subsequent Comparison Year, and shall not
eliminate or reduce Tenant's obligation to make Porter's Wage Payments for such
Comparison Year.
SECTION 27.5. The expiration or termination of this Lease during any
Comparison Year or Tax Year shall not affect the rights or obligations of the
parties hereto respecting any payments of Porters' Wage Payments for such
Comparison Year and any payments of Tax Payments for such Tax Year, and any Wage
Statement relating to such Porters' Wage Payment and any Tax Statement relating
to such Tax Payment, may be sent to Tenant subsequent to, and all such rights
and obligations shall survive, any such expiration or termination. In
determining the amount of the Porters' Wage Payment for the Comparison Year or
the Tax Payment for the Tax Year in which the Term shall expire, the payment of
the Porters' Wage Payment for such Comparison Year or the Tax Payment for the
Tax Year shall be prorated based on the number of days of the Term which fall
within such Comparison Year or Tax Year, as the case may be. Any payments due
under such Porters' Wage Statement or Tax Statement shall be payable within
twenty (20) days after such Statement is sent to Tenant.
ARTICLE 28
SERVICES
SECTION 28.1. (A) Landlord shall provide passenger elevator service to the
Premises on Business Days from 8:00 A.M. to 6:00 P.M. and have an elevator
subject to call at all other times.
(B) Commencing on the date Tenant shall occupy the Premises for the
conduct of its business, there shall be one (1) freight elevator serving the
Premises and the entire Building on call on a "first come, first served" basis
on Business Days from 8:00 A.M. to 5:00 P.M., and on a reservation, "first come,
first served" basis from 5:00 P.M. to 8:00 A.M. on Business Days and at any time
on days other than Business Days. If Tenant shall use the freight elevators
serving the Premises between 5:00 P.M. and 8:00 A.M. on Business Days or at any
time on any
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other days, Tenant shall pay Landlord, as additional rent for such use, the
standard rates then fixed by Landlord for the Building, or if no such rates are
then fixed, at reasonable rates. The current rate for overtime freight elevator
use, which rate is subject to change by Landlord during the Term, is listed on
EXHIBIT "B" attached hereto and made a part hereof.
(C) Landlord shall not be required to furnish any freight elevator
services during the hours from 5:00 P.M. to 8:00 A.M. on Business Days and at
any time on days other than Business Days unless Landlord has received advance
notice from Tenant requesting such services prior to 2:00 P.M. of the day upon
which such service is requested or by 2:00 P.M. of the last preceding Business
Day if such periods are to occur on a day other than a Business Day.
SECTION 28.2. Landlord, at Landlord's expense (but subject to recoupment
pursuant to Article 27 hereof), shall furnish to the perimeter of the Premises
(for distribution by Tenant within the Premises) through the HVAC System, when
required for the comfortable occupancy of the Premises, HVAC on a year round
basis from 8:00 A.M. to 6:00 P.M. on Business Days. Landlord, throughout the
Term, shall have free access to any and all mechanical installations of
Landlord, including, but not limited to, air-cooling, fan, ventilating and
machine rooms and electrical closets; Tenant shall not construct partitions or
other obstructions which may interfere with Landlord's free access thereto, or
interfere with the moving of Landlord's equipment to and from the enclosures
containing said installations. Neither Tenant, nor its agents, employees or
contractors shall at any time enter the said enclosures or tamper with, adjust
or touch or otherwise in any manner affect said mechanical installations. Tenant
shall draw and close the draperies or blinds for the windows of the Premises
whenever the HVAC System is in operation and the position of the sun so requires
and shall at all times cooperate fully with Landlord and abide by all of the
regulations and requirements which Landlord may prescribe for the proper
functioning and protection of the HVAC System.
SECTION 28.3. The Fixed Rent does not reflect or include any charge to
Tenant for the furnishing of any necessary HVAC to the Premises during periods
other than the hours and days set forth above ("OVERTIME PERIODS").
Accordingly, if Landlord shall furnish such HVAC to the Premises at the request
of Tenant during Overtime Periods, Tenant shall pay Landlord additional rent for
such services at the standard rates then fixed by Landlord for the Building, or
if no such rates are then fixed, at reasonable rates. The current rate for HVAC
during Overtime Periods, which rate is subject to change by Landlord during the
Term, is listed on EXHIBIT "B" attached hereto and made a part hereof. Landlord
shall not be required to furnish any such services during any Overtime Periods
unless Landlord has received advance notice from Tenant requesting such services
prior to 2:00 P.M. of the day upon which such services are requested or by 2:00
P.M. of the last preceding Business Day if such Overtime Periods are to occur on
a day other than a Business Day. If Tenant fails to give Landlord such advance
notice, then, failure by Landlord to furnish or distribute any such services
during such Overtime Periods shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of Rental, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord or its agents by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant's business or
otherwise. If more than one tenant utilizing the same system
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as Tenant requests the same services as Tenant for any of the same hours during
the Overtime Periods, the charge to Tenant shall be adjusted pro rata, based
upon the ratio which the rentable area of the Premises bears to the rentable
area of the premises demised to such other tenants.
SECTION 28.4. Provided Tenant shall keep the Premises in order, Landlord,
at Landlord's expense, subject to recoupment pursuant to Article 27 hereof,
shall cause the Premises, excluding any portions thereof used for the storage,
preparation, service or consumption of food or beverages, to be cleaned,
substantially in accordance with the standards set forth in SCHEDULE B annexed
hereto and made a part hereof. Tenant shall pay to Landlord the cost of removal
of any of Tenant's refuse and rubbish from the Premises and the Building to the
extent that the same exceeds the refuse and rubbish usually attendant upon the
use of such Premises as offices. Bills for the same shall be rendered by
Landlord to Tenant at such time as Landlord may elect and shall be due and
payable when rendered as additional rent. Tenant, at Tenant's sole cost and
expense, shall cause all portions of the Premises used for the storage,
preparation, service or consumption of food or beverages to be cleaned daily in
a manner satisfactory to Landlord, and to be exterminated against infestation by
vermin, rodents or roaches regularly and, in addition, whenever there shall be
evidence of any infestation. Any such exterminating shall be done at Tenant's
sole cost and expense, in a manner satisfactory to Landlord, and by Persons
approved by Landlord. If Tenant shall perform any cleaning services in addition
to the services provided by Landlord as aforesaid, Tenant shall employ the
cleaning contractor providing cleaning services to the Building on behalf of
Landlord or such other cleaning contractor as shall be approved by Landlord.
Tenant shall comply with any recycling program and/or refuse disposal program
(including, without limitation, any program related to the recycling, separation
or other disposal of paper, glass or metals) which Landlord shall impose or
which shall be required pursuant to any Requirements.
SECTION 28.5. If the New York Board of Fire Underwriters or the Insurance
Services Office or any Governmental Authority, department or official of the
state or city government shall require or recommend that any changes,
modifications, alterations or additional sprinkler heads or other equipment be
made or supplied by reason of Tenant's business, or the location of the
partitions, trade fixtures, or other contents of the Premises, Landlord, at
Tenant's cost and expense, shall promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.
SECTION 28.6. Landlord reserves the right to stop service of the HVAC
System or the elevator, electrical, plumbing or other Building Systems when
necessary, by reason of accident or emergency, or for repairs, additions,
alterations, replacements or improvements in the judgment of Landlord desirable
or necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed (which repairs, additions, alterations,
replacements and improvements shall be performed in accordance with Section 4.3
hereof). Landlord shall have no responsibility or liability for interruption,
curtailment or failure to supply HVAC, elevator, electrical, plumbing or other
Building Systems when prevented by Unavoidable Delays or by any Requirement of
any Governmental Authority or due to the exercise of its right to stop service
as provided in this Article 28. The exercise of such right or such failure by
Landlord shall not
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constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any compensation or to any abatement or diminution of Rental, or
relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Landlord or its agents by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise.
SECTION 28.7. Landlord shall make available to Tenant the computerized
directory in the lobby of the Building for up to thirty-five (35) listings. The
initial programming shall be without charge to Tenant. From time to time, but
not more frequently than once every three (3) months, Landlord shall reprogram
the computerized directory to reflect such changes in the listings therein as
Tenant shall request, and Tenant promptly after request shall pay to Landlord a
reasonable reprogramming charge for each reprogramming Tenant requests. If
Landlord replaces the computerized directory with a standard directory in the
lobby of the Building, Tenant shall be entitled to Tenant's Tax Share of such
listings on such directory.
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ARTICLE 29
PARTNERSHIP TENANT
If Tenant is a partnership (including, without limitation, a limited
liability partnership) or a limited liability company or a professional
corporation (or is comprised of two (2) or more Persons, individually or as
copartners of a partnership (including, without limitation a limited liability
partnership), as members of a limited liability company or as shareholders of a
professional corporation) or if Tenant's interest in this Lease shall be
assigned to a partnership (including, without limitation, a limited liability
partnership) a limited liability company or a professional corporation (or to
two (2) or more Persons, individually or as co-partners of a partnership, as
members of a limited liability company or shareholders of a professional
corporation) pursuant to Article 12 hereof (any such partnership, professional
corporation and such Persons are referred to in this Article 29 as "PARTNERSHIP
TENANT"), the following provisions shall apply to such Partnership Tenant: (a)
the liability of each of the parties comprising Partnership Tenant shall be
joint and several; (b) each of the parties comprising Partnership Tenant hereby
consents in advance to, and agrees to be bound by (x) any written instrument
which may hereafter be executed by Partnership Tenant or any successor entity,
changing, modifying, extending or discharging this Lease, in whole or in part,
or surrendering all or any part of the Premises to Landlord, and (y) any
notices, demands, requests or other communications which may hereafter be given
by Partnership Tenant or by any of the parties comprising Partnership Tenant;
(c) any bills, statements, notices, demands, requests or other communications
given or rendered to Partnership Tenant or to any of such parties shall be
binding upon Partnership Tenant and all such parties; (d) if Partnership Tenant
shall admit new partners, shareholders or members, as the case may be,
Partnership Tenant shall give Landlord notice of such event not later than ten
(10) Business Days prior to the admission of such partner(s), shareholder(s) or
member(s) together with an assumption agreement in form and substance
satisfactory to Landlord pursuant to which each of such new partners,
shareholders or members, as the case may be, shall, by their admission to
Partnership Tenant, agree to assume joint and several liability for the
performance of all of the terms, covenants and conditions of this Lease (as the
same may have been or thereafter be amended) on Tenant's part to be observed and
performed; it being expressly understood and agreed that each such new partner,
shareholder or member (as the case may be) shall be deemed to have assumed joint
and several liability for the performance of all of the terms, covenants and
conditions of this Lease (as the same may have been or thereafter be amended),
whether or not such new partner, shareholder or member shall have executed such
assumption agreement, and that neither Tenant's failure to deliver such
assumption agreement nor the failure of any such new partner or shareholder, as
the case may be, to execute or deliver any such agreement to Landlord shall
vitiate the provisions of this clause (d) of this Article 29).
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ARTICLE 30
VAULT SPACE
Notwithstanding anything contained in this Lease or indicated on any
sketch, blueprint or plan, any vaults, vault space or other space outside the
boundaries of the Real Property are not included in the Premises. Landlord makes
no representation as to the location of the boundaries of the Real Property. All
vaults and vault space and all other space outside the boundaries of the Real
Property which Tenant may be permitted to use or occupy are to be used or
occupied under a revocable license, and if any such license shall be revoked, or
if the amount of such space shall be diminished or required by any Governmental
Authority or by any public utility company, such revocation, diminution or
requisition shall not constitute an actual or constructive eviction, in whole or
in part, or entitle Tenant to any abatement or diminution of Rental, or relieve
Tenant from any of its obligations under this Lease, or impose any liability
upon Landlord. Any fee, tax or charge imposed by any Governmental Authority for
any such vaults, vault space or other space occupied by Tenant shall be paid by
Tenant.
ARTICLE 31
INTENTIONALLY OMITTED PRIOR TO EXECUTION
ARTICLE 32
CAPTIONS
The captions are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope of this Lease nor the intent
of any provision thereof.
ARTICLE 33
PARTIES BOUND
The covenants, conditions and agreements contained in this Lease shall bind
and inure to the benefit of Landlord and Tenant and their respective legal
representatives, successors, and, except as otherwise provided in this Lease,
their assigns.
ARTICLE 34
BROKER
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Each party represents and warrants to the other that it has not dealt with
any broker or Person in connection with this Lease other than Wharton Property
Advisors, Inc. ("BROKER"). The execution and delivery of this Lease by each
party shall be conclusive evidence that such party has relied upon the foregoing
representation and warranty. Tenant shall indemnify and hold Landlord harmless
from and against any and all claims for commission, fee or other compensation by
any Person (other than Broker) who shall claim to have dealt with Tenant in
connection with this Lease and for any and all costs incurred by Landlord in
connection with such claims, including, without limitation, reasonable
attorneys' fees and disbursements. Landlord shall indemnify and hold Tenant
harmless from and against any and all claims for commission, fee or other
compensation by any Person (including Broker) who shall claim to have dealt with
Landlord in connection with this Lease and for any and all costs incurred by
Tenant in connection with such claims, including, without limitation, reasonable
attorneys' fees and disbursements. Landlord agrees that it shall pay to Broker
all commission, compensation and other fees in connection with this Lease
pursuant to a separate agreement between Landlord and Broker. The provisions of
this Article 34 shall survive the Expiration Date.
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ARTICLE 35
INDEMNITY
SECTION 35.1. (A) Tenant shall not do or permit any act or thing to be
done upon the Premises which may subject Landlord to any liability or
responsibility for injury, damages to persons or property or to any liability by
reason of any violation of any Requirement, and shall exercise such control over
the Premises as to fully protect Landlord against any such liability. Tenant
shall indemnify and save the Indemnitees harmless from and against (a) all
claims of whatever nature against the Indemnitees arising from any act, omission
or negligence of Tenant, its contractors, licensees, agents, servants,
employees, invitees or visitors (except to the extent the same are due to the
negligence or willful misconduct of Landlord, Landlord's employees, agents or
licensees), (b) all claims against the Indemnitees arising from any accident,
injury or damage whatsoever caused to any person or to the property of any
person and occurring during the Term in or about the Premises, (c) all claims
against the Indemnitees arising from any accident, injury or damage occurring
outside of the Premises but anywhere within or about the Real Property, where
such accident, injury or damage results or is claimed to have resulted from a
wrongful act, omission or negligence of Tenant or Tenant's contractors,
licensees, agents, servants, employees, invitees or visitors, and (d) any
breach, violation or non-performance of any covenant, condition or agreement in
this Lease set forth and contained on the part of Tenant to be fulfilled, kept,
observed and performed. This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of any kind or nature (including, without limitation, attorneys'
fees and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof but except with respect to
claims with respect to bodily injury or death, shall be limited to the extent
any insurance proceeds collectible by Landlord under policies owned by Landlord
or such injured party with respect to such damage or injury are insufficient to
satisfy same. Tenant shall have no liability for any consequential damages
suffered either by Landlord or by any party claiming through Landlord.
(B) Except as provided in Articles 4, 9, 10, 13, 28, 36 and 37 hereof and
otherwise as expressly provided herein, Landlord shall indemnify and save Tenant
its shareholders, directors, officers, Partners, employees and agents harmless
from and against all claims against Tenant arising from any direct damage to the
Premises and any bodily injury to Tenant's employees, agents or invitees
resulting from the acts, omissions or negligence of Landlord or its agents. This
indemnity and hold harmless agreement shall include indemnity from and against
any and all liability, fines, suits, demands, costs and expenses of any kind or
nature (including, without limitation, reasonable attorneys' fees and
disbursements) incurred in or in connection with any such claim or proceeding
brought thereon, but shall be limited to the extent any insurance proceeds
collectible by Tenant or such injured party with respect to such damage or
injury are insufficient to satisfy same. Landlord shall have no liability for
any consequential damages suffered either by Tenant or by any party claiming
through Tenant.
SECTION 35.2. If any claim, action or proceeding is made or brought
against either party, which claim, action or proceeding the other party shall be
obligated to indemnify such first party
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against pursuant to the terms of this Lease, then, upon demand by the
indemnified party, the indemnifying party, at its sole cost and expense, shall
resist or defend such claim, action or proceeding in the indemnified party's
name, if necessary, by such attorneys as the indemnified party shall approve,
which approval shall not be unreasonably withheld. Attorneys for the
indemnifying party's insurer are hereby deemed approved for purposes of this
Section 35.2. Notwithstanding the foregoing, an indemnified party may retain its
own attorneys to defend or assist in defending any claim, action or proceeding
involving potential liability of Five Million Dollars ($5,000,000) or more, and
the indemnifying party shall pay the reasonable fees and disbursements of such
attorneys. The provisions of this Article 35 shall survive the expiration or
earlier termination of this Lease.
ARTICLE 36
ADJACENT EXCAVATION-SHORING
If an excavation shall be made upon land adjacent to the Premises, or shall
be authorized to be made, Tenant, upon reasonable advance notice, shall afford
to the person causing or authorized to cause such excavation, a license to enter
upon the Premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the Building from injury or damage and to
support the same by proper foundations, without any claim for damages or
indemnity against Landlord, or diminution or abatement of Rental, provided that
Tenant shall continue to have access to the Premises and the Building.
ARTICLE 37
MISCELLANEOUS
SECTION 37.1. This Lease is offered for signature by Tenant and it is
understood that this Lease shall not be binding upon Landlord or Tenant unless
and until Landlord and Tenant shall have executed and unconditionally delivered
a fully executed copy of this Lease to each other.
SECTION 37.2. The obligations of Landlord under this Lease shall not be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder. The partners, shareholders, directors, officers and principals,
direct and indirect, comprising Landlord (collectively, the "PARTIES") shall not
be liable for the performance of Landlord's obligations under this Lease. Tenant
shall look solely to Landlord to enforce Landlord's obligations hereunder and
shall not seek any damages against any of the Parties. The liability of Landlord
for Landlord's obligations under this Lease shall be limited to Landlord's
interest in the Real Property and Tenant shall not look to any other property or
assets of Landlord or the property or
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assets of any of the Parties in seeking either to enforce Landlord's obligations
under this Lease or to satisfy a judgment for Landlord's failure to perform such
obligations.
SECTION 37.3. Notwithstanding anything contained in this Lease to the
contrary, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated Fixed Rent, Escalation Rent,
additional rent or Rental, shall constitute rent for the purposes of Section
502(b)(7) of the Bankruptcy Code.
SECTION 37.4. Tenant's liability for all items of Rental shall survive the
Expiration Date.
SECTION 37.5. Tenant shall reimburse Landlord as additional rent, within
ten (10) days after rendition of a statement, for all expenditures made by, or
damages or fines sustained or incurred by, Landlord, due to any default by
Tenant under this Lease, with interest thereon at the Applicable Rate.
SECTION 37.6. This Lease shall not be recorded.
SECTION 37.7. Tenant hereby waives any claim against Landlord which Tenant
may have based upon any assertion that Landlord has unreasonably withheld or
unreasonably delayed any consent or approval requested by Tenant, and Tenant
agrees that its sole remedy shall be an action or proceeding to enforce any
related provision or for specific performance, injunction or declaratory
judgment. In the event of a determination that such consent or approval has been
unreasonably withheld or delayed, the requested consent or approval shall be
deemed to have been granted; however, Landlord shall have no liability to Tenant
for its refusal or failure to give such consent or approval. Tenant's sole
remedy for Landlord's unreasonably withholding or delaying consent or approval
shall be as provided in this Section 37.7.
SECTION 37.8. This Lease contains the entire agreement between the parties
and supersedes all prior understandings, if any, with respect thereto. This
Lease shall not be modified, changed, or supplemented, except by a written
instrument executed by both parties.
SECTION 37.9. Tenant hereby (a) irrevocably consents and submits to the
jurisdiction of any Federal, state, county or municipal court sitting in the
State of New York in respect to any action or proceeding brought therein by
Landlord against Tenant concerning any matters arising out of or in any way
relating to this Lease; (b) irrevocably waives personal service of any summons
and complaint and consents to the service upon it of process in any such action
or proceeding by mailing of such process to Tenant at the address set forth
herein and hereby irrevocably designates Morrison & Foerster LLP or other law
firm located in Manhattan if disclosed to Landlord in writing (or if not so
located, then upon any member of the law firm of Morrison & Foerster LLP, or
their successor, if so located in Manhattan), to accept service of any process
on Tenant's behalf and hereby agrees that such service shall be deemed
sufficient; (c) irrevocably waives all objections as to venue and any and all
rights it may have to seek a change of venue with respect to any such action or
proceedings; (d) agrees that the laws of the State of New York shall govern in
any such action or proceeding and waives any defense to any action or
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proceeding granted by the laws of any other country or jurisdiction unless such
defense is also allowed by the laws of the State of New York; and (e) agrees
that any final judgment rendered against it in any such action or proceeding
shall be conclusive and may be enforced in any other jurisdiction by suit on the
judgment or in any other manner provided by law. Tenant further agrees that any
action or proceeding by Tenant against Landlord in respect to any matters
arising out of or in any way relating to this Lease shall be brought only in the
State of New York, county of New York. In furtherance of the foregoing, Tenant
hereby agrees that its address for notices given by Landlord and service of
process under this Lease shall be the Premises. Notwithstanding the foregoing
provisions of this Section 37.9, Tenant may, by written notice to Landlord,
change the designated agent for acceptance of service of process to any other
law firm located in the City, county and State of New York.
SECTION 37.10. Unless Landlord shall render written notice to Tenant to
the contrary in accordance with the provisions of Article 26 hereof, MRC
Management LLC is authorized to act as Landlord's agent in connection with the
performance of this Lease, including, without limitation, the receipt and
delivery of any and all notices and consents in accordance with Article 26.
Tenant shall direct all correspondence and requests to, and shall be entitled to
rely upon correspondence received from, MRC Management LLC, as agent for the
Landlord in accordance with Article 26. Tenant acknowledges that MRC Management
LLC is acting solely as agent for Landlord in connection with the foregoing, and
neither MRC Management LLC nor any of its direct or indirect partners, officers,
shareholders, directors or employees shall have any liability to Tenant in
connection with the performance of Landlord's obligations under this Lease and
Tenant waives any and all claims against any such party arising out of, or in
any way connected with, this Lease or the Real Property.
SECTION 37.11. (A) All of the Schedules and Exhibits attached hereto are
incorporated in and made a part of this Lease, but, in the event of any
inconsistency between the terms and provisions of this Lease and the terms and
provisions of the Schedules and Exhibits hereto, the terms and provisions of
this Lease shall control. Wherever appropriate in this Lease, personal pronouns
shall be deemed to include the other genders and the singular to include the
plural. All Article and Section references set forth herein shall, unless the
context otherwise specifically requires, be deemed references to the Articles
and Sections of this Lease.
(B) If any term, covenant, condition or provision of this
Lease, or the application thereof to any person or circumstance, shall ever be
held to be invalid or unenforceable, then in each such event the remainder of
this Lease or the application of such term, covenant, condition or provision to
any other Person or any other circumstance (other than those as to which it
shall be invalid or unenforceable) shall not be thereby affected, and each term,
covenant, condition and provision hereof shall remain valid and enforceable to
the fullest extent permitted by law.
(C) All references in this Lease to the consent or approval
of Landlord shall be deemed to mean the written consent or approval of Landlord
and no consent or approval
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of Landlord shall be effective for any purpose unless such consent or approval
is set forth in a written instrument executed by Landlord.
SECTION 37.12. At any time and from time to time during the term of this
Lease, Landlord shall have the right to substitute for the Premises (for the
purposes of this Article only, the Premises are referred to as the "REPLACED
PREMISES") other space in the Building (such other space being referred to as
the "SUBSTITUTE PREMISES") by written notice given to Tenant not later than
sixty (60) days prior to the date set forth in said notice as the effective date
(the "SUBSTITUTION DATE") for such substitution. Landlord's notice shall
include a floor plan identifying the Substitute Premises, which Substitute
Premises shall have a rentable area equal to or greater than the Replaced
Premises and shall be similar thereto in configuration. Tenant shall vacate the
Replaced Premises and surrender the same to Landlord on or before the
Substitution Date. Promptly after Tenant enters into occupancy of the Substitute
Premises and provided Tenant is not then in default under the terms or
conditions of this Lease, Landlord shall reimburse Tenant for any reasonable
moving expenses and for any other reasonable costs and expenses incurred by
Tenant in duplicating in the Substitute Premises the Alterations previously made
by Tenant in the Replaced Premises, including the costs of duplicating cabling
and panel systems, and of reconfiguring furniture, in each case as they existed
immediately prior to Tenant's relocation to the Substitute Premises. From and
after the Substitution Date, the term "Premises" shall mean the Substitute
Premises for all purposes hereunder.
ARTICLE 38
RENT CONTROL
If at the commencement of, or at any time or times during the Term of this
Lease, the Rental reserved in this Lease shall not be fully collectible by
reason of any Requirement, Tenant shall enter into such agreements and take such
other steps (without additional expense to Tenant) as Landlord may request and
as may be legally permissible to permit Landlord to collect the maximum rents
which may from time to time during the continuance of such legal rent
restriction be legally permissible (and not in excess of the amounts reserved
therefor under this Lease). Upon the termination of such legal rent restriction
prior to the expiration of the Term, (a) the Rental shall become and thereafter
be payable hereunder in accordance with the amounts reserved in this Lease for
the periods following such termination, and (b) Tenant shall pay to
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Landlord, if legally permissible, an amount equal to (i) the items of Rental
which would have been paid pursuant to this Lease but for such legal rent
restriction less (ii) the rents paid by Tenant to Landlord during the period or
periods such legal rent restriction was in effect.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
ELEVEN PENN PLAZA LLC
By: Vornado M 393 L.L.C., member
By: Vornado Realty Trust, authorized signatory
By: /s/ Irwin Goldberg
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Irwin Goldberg
Vice President and Chief Financial Officer
By: M 393 Associates LLC, member
By: Vornado M 393 L.L.C.
By: Vornado Realty Trust, authorized signatory
By: /s/ Irwin Goldberg
---------------------
Irwin Goldberg
Vice President and Chief Financial Officer
XOOM.COM, INC., Tenant
By: /s/ Laurent Massa
------------------------
Name: Laurent Massa
Title: CEO
Fed. Id. No. 88-0361336
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STATE OF CALIFORNIA )
) ss.:
COUNTY OF SAN FRANCISCO )
On the 5th day of March, 1999, before me personally came Laurent Massa, to
me known, who, being by me duly sworn, did depose and say that he resides at No.
27 Oak Valley Drive, Novato, CA 94947; that he is the CEO of XOOM.COM, INC., the
corporation described and which executed the foregoing instrument; that he
signed his name thereto by order of the board of directors of said corporation.
/s/ Dewi Tjandra
-----------------
Notary Public
DEWI TJANDRA
Comm# 1145723
Notary Public - California
City & County of San Francisco
My Commission Expires July 4, 2001
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SCHEDULE A
RULES AND REGULATIONS
(1) The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, or halls shall not be obstructed or encumbered by Tenant
or used for any purpose other than ingress and egress to and from the Premises
and for delivery of merchandise and equipment in prompt and efficient manner,
using elevators and passageways designated for such delivery by Landlord.
(2) No awnings, air-conditioning units, fans or other projections shall be
attached to the outside walls of the Building. No curtains, blinds, shades, or
screens, other than those which conform to Building standards as established by
Landlord from time to time, shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior written
consent of Landlord which shall not be unreasonably withheld or delayed. Such
awnings, projections, curtains, blinds, shades, screens or other fixtures must
be of a quality, type, design and color, and attached in the manner reasonably
approved by Landlord. All electrical fixtures hung in offices or spaces along
the perimeter of the Premises must be of a quality, type, design and bulb color
approved by Landlord, which consent shall not be withheld or delayed
unreasonably unless the prior consent of Landlord has been obtained for other
lamping.
(3) No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside of the
Premises or Building or on the inside of the Premises if the same can be seen
from the outside of the Premises without the prior written consent of Landlord
except that the name of Tenant may appear on the entrance door of the Premises.
In the event of the violation of the foregoing by Tenant, if Tenant has refused
to remove same after reasonable notice from Landlord, Landlord may remove same
without any liability, and may charge the expense incurred by such removal to
Tenant. Interior signs on doors and directory tablet shall be of a size, color
and style reasonably acceptable to Landlord.
(4) The exterior windows and doors that reflect or admit light and air into
the Premises or the halls, passageways or other public places in the Building,
shall not be covered or obstructed by Tenant.
(5) No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules, nor shall any article obstruct any air-conditioning supply or
exhaust without the prior written consent of Landlord.
(6) The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein.
All damages resulting from any misuse of the fixtures shall be borne by Tenant.
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(7) Subject to the provisions of Article 3 of this Lease, Tenant shall not
mark, paint, drill into, or in any way deface any part of the Premises or the
Building. No boring, cutting or stringing of wires shall be permitted, except
with the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed, and as Landlord may direct.
(8) No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction or otherwise.
(9) Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or premises or those having business with them whether by the use of any musical
instrument, radio, television set, talking machine, unmusical noise, whistling,
singing, or in any other way.
(10) Tenant, or any of Tenant's employees, agents, visitors or licensees,
shall not at any time bring or keep upon the Premises any inflammable,
combustible or explosive fluid, chemical or substance except such as are
incidental to usual office occupancy.
(11) No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in existing locks
or the mechanism thereof, unless Tenant promptly provides Landlord with the key
or combination thereto. Tenant must, upon the termination of its tenancy, return
to Landlord all keys of stores, offices and toilet rooms, and in the event of
the loss of any keys furnished at Landlord's expense, Tenant shall pay to
Landlord the cost thereof.
(12) No bicycles, vehicles or animals of any kind except for seeing eye
dogs shall be brought into or kept by Tenant in or about the Premises or the
Building.
(13) All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place in the manner and
during the hours which Landlord or its agent reasonably may determine from time
to time. Landlord reserves the right to inspect all safes, freight or other
bulky articles to be brought into the Building and to exclude from the Building
all safes, freight or other bulky articles which violate any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
(14) Tenant shall not occupy or permit any portion of the Premises demised
to it to be occupied as an office for a public stenographer or typist, or for
the possession, storage, manufacture, or sale of liquor, narcotics, dope, or as
a barber or manicure shop, or as an employment bureau. Tenant shall not engage
or pay any employees on the Premises, except those actually working for Tenant
at the Premises, nor advertise for labor giving an address at the Premises.
(15) Tenant shall not purchase spring water, ice, towels or other like
service, or accept barbering or bootblacking services in the Premises, from any
company or persons not approved
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by Landlord, which approval shall not be withheld or delayed unreasonably and at
hours and under regulations other than as reasonably fixed by Landlord.
(16) Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's reasonable opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
(17) Landlord reserves the right to exclude from the Building between the
hours of 6 P.M. and 8 A.M. and at all hours on days other than Business Days all
persons who do not present a pass to the Building signed or approved by
Landlord. Tenant shall be responsible for all persons for whom a pass shall be
issued at the request of Tenant and shall be liable to Landlord for all acts of
such persons.
(18) Tenant shall, at its expense, provide artificial light for the
employees of Landlord while doing janitor service or other cleaning, and in
making repairs or alterations in the Premises.
(19) The requirements of Tenant will be attended to only upon written
application at the office of the Building. Building employees shall not perform
any work or do anything outside of the regular duties, unless under special
instructions from the office of Landlord.
(20) Canvassing, soliciting and peddling in the Building is prohibited and
Tenant shall cooperate to prevent the same.
(21) There shall not be used in any space, or in the public halls of the
Building, either by Tenant or by jobbers or others, in the delivery or receipt
of merchandise, any hand trucks, except those equipped with rubber tires and
side guards.
(22) Except as specifically provided in Section 2.2 of this Lease, Tenant
shall not do any cooking, conduct any restaurant, luncheonette or cafeteria for
the sale or service of food or beverages to its employees or to others, or cause
or permit any odors of cooking or other processes or any unusual or
objectionable odors to emanate from the Premises. Tenant shall not permit the
delivery of any food or beverage to the Premises, except by such persons
delivering the same as shall be approved by Landlord, which approval shall not
be unreasonably withheld or delayed.
(23) Tenant shall keep the entrance door to the Premises closed at all
times.
(24) Landlord shall have the right to require that all messengers and other
Persons delivering packages, papers and other materials to Tenant (i) be
directed to deliver such packages, papers and other materials to a Person
designated by Landlord who will distribute the same to Tenant or (ii) be
escorted by a person designated by Landlord to deliver the same to Tenant
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(25) Landlord and its agents reserve the right to inspect all packages,
boxes, bags, handbags, attache cases, suitcases, and other items carried into
the Building, and to refuse entry into the Building to any person who either
refuses to cooperate with such inspection or who is carrying any object which
may be dangerous to persons or property. In addition, Landlord reserves the
right to implement such further measures designed to ensure safety of the
Building and the persons and property located therein as Landlord shall deem
necessary or desirable.
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SCHEDULE B
CLEANING SPECIFICATIONS
GENERAL CLEANING:
NIGHTLY
GENERAL OFFICES:
1. All hardsurfaced flooring to be swept using approved dustdown
preparation.
2. Carpet sweep all carpets, moving only light furniture (desks, file
cabinets, etc. not to be moved).
3. Hand dust and wipe clean all furniture, fixtures and window sills.
4. Empty and clean all ash trays and screen all sand urns.
5. Empty and clean all waste disposal cans and baskets.
6. Dust interiors of all waste disposal cans and baskets.
7. Wash clean all water fountains and coolers.
PUBLIC LAVATORIES (BASE BUILDING):
1. Sweep and wash all floors, using proper disinfectants.
2. Wash and polish all mirrors, shelves, bright work and enameled
surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Wash all toilet seats.
5. Hand dust and clean all partitions, tile walls, dispensers and
receptacles in lavatories and restrooms.
6. Empty paper receptacles and remove wastepaper.
7. Fill and clean all soap, towel and toilet tissue dispensers as needed,
supplies therefore to be furnished by Landlord at a reasonable charge
to Tenant. If the
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Premises consists of a part of a rentable floor, said charge to Tenant
shall be that portion of a reasonable charge for such supplies that is
reasonably allocable to Tenant.
8. Empty and clean sanitary disposal receptacles.
WEEKLY:
1. Vacuum clean all carpeting and rugs.
2. Dust all door louvres and other ventilating louvres within a person's
reach.
3. Wipe clean all brass and other bright work.
QUARTERLY:
High dust the Premises complete, including the following:
1. Dust all pictures, frames, charts, graphs and similar wall hangings
not reached in nightly cleaning.
2. Dust clean all vertical surfaces, such as walls, partitions, doors and
door bucks and other surfaces not reached in nightly cleaning.
3. Dust all pipes, ventilating and air-conditioning louvres, ducts, high
mouldings and other high areas not reached in nightly cleaning.
4. Dust all venetian blinds.
Wash exterior and interior of windows periodically, subject to weather
conditions and requirements of law.
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EXHIBIT "A"
FLOOR PLAN
This floor plan is annexed to and made a part of this Lease solely to indicate
the Premises by outlining and diagonal marking. All areas, conditions,
dimensions and locations are approximate.
<PAGE>
PREFERRED CARRIAGE AGREEMENT
This Preferred Carriage Agreement (the "Agreement") is made effective as of June
30, 1998 (the "Effective Date"), among CNET, Inc., a Delaware corporation
("CNET"), National Broadcasting Company, Inc., a Delaware corporation ("NBC"),
NBC Multimedia, Inc., a Delaware corporation ("NBC Multimedia"), and Snap! LLC,
a Delaware limited liability company (together with its successors, the "LLC" or
"Snap").
Reference is made to the Contribution Agreement, dated as of June 4, 1998, among
the parties hereto (the "Contribution Agreement"). Capitalized terms used in
this Agreement and not otherwise defined have the meanings assigned to such
terms in the Contribution Agreement.
Pursuant to the Contribution Agreement, CNET is contributing the Snap! Assets to
the LLC so that the LLC can begin to operate the Snap! Business. On the terms
and subject to the conditions set forth in this Agreement, the LLC has agreed to
provide certain preferred carriage rights to CNET, NBC and NBC Multimedia, and
CNET, NBC and NBC Multimedia have agreed to certain exclusivity provisions.
THEREFORE, CNET, NBC, NBC Multimedia and the LLC hereby agree as follows:
1. CARRIAGE OF CNET SERVICES ON SNAP SITES:
Until the earlier to occur of (i) CNET no longer owing 3,656,250 Units
(adjusted as appropriate to reflect any conversion to corporate form and any
stock split or similar recapitalization) or (ii) CNET no longer owning 5% of the
outstanding Units (or common stock of any successor corporation as contemplated
by the LLC Agreement) on a fully-diluted basis (the "CNET Carriage Period"),
certain Content (as defined below) from sites majority-owned or otherwise
controlled by CNET ("CNET Content") will be displayed in the following manner on
Snap Sites, subject to Snap's editorial and technical guidelines and standards:
1.1 In the Computing and Internet Topic (as defined below)
as it exists today (and its successors) and the Subtopics (as defined
below) for such Topic as they exist today (and their successors,
including any new Topics into which such Subtopics may be converted)
(collectively, the "CNET Topics and Subtopics"), Snap Sites will
display CNET Content or link to CNET Content where applicable as the
Default and Preferred (as defined below) but non-exclusive Content (as
defined below) provider, including in "Showcase Portals", "Highlight
Links", and "Resource Pages" (which are illustrated in Appendix A)
which appear on pages where the CNET Topics or Subtopics are located.
As used herein, the following terms have the following meanings:
(a) "Content" means headlines, summaries, commodity information
(such as weather), links to databases of information, and other
information.
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(b) "Topic" means a sub-section of the Snap Site that
organizes information about a particular area of interest. Topics
are organized in a hierarchy. The top-most level of the hierarchy
is called the "Main Topic Page." Pages within the Topic but below
the Main Topic Page are called "Sub-Topic Pages". Main Topic
Pages and Sub-Topic Pages may include links to Resource Centers,
which aggregate Content relevant to the Topic. Resource Centers
may contain one or more pages which may be programmed by a third
party content provider or Snap or both.
(c) "Preferred" means (i) when a link to or
display of Content appears in a list, the link or Content is in
the default, top-most, and left-most position; or (ii) when a link
to or display of Content appears in a format other than a list,
the link or Content is more visually prominent than links to or
Content displayed from competitive services.
(d) "Default" means Content that appears in all
versions of the Snap Site, including but not limited to all
co-branded versions, unless an individual Snap distribution
partner has been granted the right to replace the Default with its
own Content or Content from third parties. The LLC will treat
CNET's Content and NBC's Content equally with respect to the
manner and terms upon which it allows distribution partners to
replace Content within versions of the Snap Site. For purposes of
clarity, the parties acknowledge that the preceding sentence will
not prevent a distribution partner from choosing to replace CNET
Content but not NBC Content (or vice versa).
1.2 In any case where a Snap Site provides a link to a site the
principal purpose of which is to promote, provide information about or
sell computer hardware or software, Computers.com and/or
ComputerESP.com (or other appropriate successor sites majority-owned or
otherwise controlled by CNET and designated by CNET) will be the
Preferred, but non-exclusive Content provider on a Default basis.
1.3 CNET will be the Preferred and Default software
downloading service for Snap Sites. The software downloading service
to be provided by CNET will be a web-based service that aggregates over
500 independent software titles in a web-based environment that
facilitates direct software downloading and is similar in functionality
to download.com or the successor thereof. CNET will not charge the LLC
for this service, except that Snap will reimburse CNET for reasonable
direct costs of providing the service plus 10%. CNET will not share
revenue from this service with the LLC, and the LLC will not charge
CNET fees for using this service. The LLC will access the underlying
raw software downloading data from CNET and such data will be served by
the LLC on Snap and the LLC will retain all related revenue. The LLC
will not alter the order of CNET's listing of FTP sites or remove any
promotional links embedded in such listing, but the LLC may
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alter the formatting of such promotional links (for example, by
changing graphical links or buttons into text links). CNET will retain
any revenue related to the ordering of such listing or such promotional
links.
1.4 No third party Content provider can buy a more prominent
position on any page of the Snap Site than the position to which CNET
Content is entitled to appear on such page pursuant to this Section 1.
1.5 Whenever CNET provides Content to the LLC in accordance
with this Section 1, such Content will include branding for CNET
similar to branding provided for similarly situated content and service
providers, subject to Snap's reasonable guidelines and subject to
compliance with CNET's reasonable trademark usage guidelines.
1.6 The LLC will not charge CNET, and (except as set forth
in the next sentence) CNET will not charge the LLC, for the right to
display CNET Content or links to CNET Content within Snap Sites. If
the LLC pays a CNET competitor for the right to display the
competitor's Content or links to the competitor's Content within Snap
Sites in the CNET Topics or Subtopics and such Content is comparable to
Content provided by CNET within the CNET Topics or Subtopics, then the
LLC will negotiate terms for provisions of equivalent Content by CNET
on a most favored nations basis, such that, in return for providing
Content comparable to that to be provided by the relevant competitor
under the applicable arrangement in terms of subject matter, breadth,
depth and quality, CNET will receive compensation as favorable as the
compensation afforded by the LLC to any provider of like Content.
1.7 During the one year period following expiration of the
CNET Carriage Period set forth above, other than due to a sale of all
of CNET's Units pursuant to the buy/sell procedure in Section 7.5 of
the LLC Agreement (the "Buy/Sell") (in which event this Section 1.7
will not apply), CNET will have a right of first offer to provide to
each Snap Site on a Preferred and Default basis any Content provided by
CNET to such Snap Site on a Preferred and Default basis immediately
prior to such expiration, provided that in Snap's good faith judgment
CNET's Content is comparable to the best Content provided by other
Content providers in terms of subject matter, breadth, depth and
quality. Such right of first offer will be implemented as follows: (a)
before offering any third party the right to provide any portion of
such Content on a Preferred and Default basis, the LLC and CNET will
negotiate in good faith concerning the terms on which CNET would be
willing to provide such portion of the Content on a Preferred and
Default basis; and (b) if the LLC elects not to obtain such portion of
the Content from CNET on such terms, then the LLC will be able to
obtain such portion of the Content from a third party, but only on
terms that are no more favorable to such third party than those
previously offered to CNET.
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2. Carriage of NBC Services on Snap Sites:
Until the earlier to occur of (i) NBC Multimedia no longer owning
3,656,250 Units (adjusted as appropriate to reflect any conversion to corporate
form and any stock split or similar recapitalization) or (ii) NBC Multimedia no
longer owning 5% of the outstanding Units (or common stock of any successor
corporation as contemplated by the LLC Agreement) on a fully-diluted basis (the
"NBC Carriage Period"), certain NBC Content (as defined below) will be displayed
in the following manner on Snap Sites, subject to Snap's editorial and technical
guidelines:
2.1 In the News Topic as it exists today (and its
successors) and the Subtopics for such Topic as they exist today (and
their successors including any new Topics into which such Subtopics may
be converted), Snap Sites will display or link to content from sites
majority-owned or otherwise controlled by NBC (such as CNBC or MSNBC)
(collectively, "NBC Content") where applicable as the Default and
Preferred but non-exclusive Content provider, including in "Showcase
Portals", "Highlight Links", and "Resource Pages" which appear on pages
where such Topics or Subtopics are located.
2.2 In the Business and Money and Sports Topics as they
exist today (and their successors) and in the Subtopics for such Topics
as they exist today (and their successors including any new Topics into
which such Subtopics may be converted), Snap Sites will display NBC
Content or link to NBC Content (including, without limitation,
MSNBCSports.com and NBCSports.com) where applicable, with the
prominence of such display or link being commensurate with the quality
of such Content in terms of subject matter, breadth, depth and quality
relative to other Content that is displayed or linked to. With respect
to such Topics and Subtopics, NBC Content will be displayed or linked
to where applicable as the Default and Preferred but non-exclusive
Content provider, including in "Showcase Portals", "Highlight Links"
and "Resource Pages" which appear on pages where such Topics or
Subtopics are located, if such NBC Content is comparable to the best
such Content otherwise available to the Snap Site (measured in terms of
subject matter, breadth, depth and quality taken as a whole) such that
the quality of such Topic or Subtopic would not be adversely affected
in any material respect by NBC Content being the Preferred Content.
2.3 In the Local Topic as its exists today (and its
successors) and in the Subtopics for such Topic as they exist today
(and their successors including any new Topics into which such
Subtopics may be converted), Snap Sites will provide (i) a fixed
position branded link to the appropriate NBC television station site
positioned prominently above the fold on the Resource Center page
corresponding to the geographic area served by such NBC television
station and (ii) for each NBC Interactive Neighborhood (NBC-IN)
affiliate, a directory listing on the Subtopic page for such relevant
city.
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2.4 With respect to any existing or future NBC Content
relating to Topics or Subtopics not governed by Section 2.1 or 2.2
above (including, without limitation, under the Entertainment and Audio
Video Topics and Subtopics under such Topics) the provider of such
Content and the LLC will, at NBC's request, enter into carriage and
prominence arrangements with Snap for consideration commensurate to the
prominence received, with the carriage and prominence received being
commensurate with the quality of such Content in terms of subject
matter, breadth, depth and quality relative to other Content contained
on Snap Sites in the relevant Topic or Subtopic.
2.5 No third party Content provider can buy a more prominent
position on any page of the Snap Site than the position to which NBC
Content is entitled to appear on such page pursuant to this Section 2.
2.6 Whenever NBC Content is provided to the LLC in accordance
with this Section 2, such Content will including branding for NBC
similar to branding provided for similarly situated content and service
providers, subject to Snap's reasonable guidelines and subject to
compliance with NBC's reasonable trademark usage guidelines.
2.7 The LLC will not charge NBC, and (except as set forth in
the next sentence) NBC will not charge the LLC, for the right to
display NBC Content or links to NBC Content within Snap Sites. If the
LLC pays a NBC competitor for the right to display the competitor's
Content or links to the competitor's Content within Snap Sites on
Topics or Subtopics within which NBC Content is entitled to appear
pursuant to this Section 2 ("NBC Topics and Subtopics") and such
Content is comparable to Content provided by NBC within the NBC Topics
or Subtopics, then the LLC will negotiate terms for provisions of
equivalent Content by NBC on a most favored nations basis, such that,
in return for providing Content comparable to that to be provided by
the relevant competitor under the applicable arrangement in terms of
subject matter, breadth, depth and quality, NBC will receive
compensation as favorable as the compensation afforded by the LLC to
any provider of like Content.
2.8 During the one year period following expiration of the
NBC Carriage Period set forth above, other than due to a sale of all of
NBC's Units pursuant to the Buy/Sell (in which event this Section 2.8
will not apply), NBC will have a right of first offer to provide to
each Snap Site on a Preferred and Default basis any Content provided by
NBC to such Snap Site on a Preferred and Default basis immediately
prior to such expiration, provided that in Snap's good faith judgment
NBC's Content is comparable to the best Content provided by other
Content providers in terms of subject matter, breadth, depth and
quality. Such right of first offer will be implemented as follows: (a)
before offering any third party the right to provide any portion of
such Content on a Preferred and Default basis, the LLC and NBC will
negotiate in good faith concerning the terms on which NBC would be
willing
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to provide such portion of the Content on a Preferred and Default
basis; and (b) if the LLC elects not to obtain such portion of the
Content from NBC on such terms, then the LLC will be able to obtain
such portion of the Content from a third party, but only on terms that
are no more favorable to such third party than those previously offered
to NBC.
2.9 All references herein to "NBC" when related to NBC
Content will include the relevant NBC-affiliated provider of such NBC
Content.
3. NBC EXCLUSIVITY
3.1 The provisions of this Section 3 will apply during the
period ending on the earlier to occur of (i) the five year anniversary
of the Closing, (ii) the exercise of the NBC Call and (iii) closing of
any purchase and sale under the Buy/Sell (the "Exclusivity Period").
3.2 "Snap Competitor" means a broad-based information,
navigation and content aggregation service distributed primarily
through the world wide web that provides, across more than five topics
of general interest that do not relate to each other or to any other
common topic or theme, a combination of all or substantially all of the
following: Internet searching, content aggregation, online community,
topical interest categories, and web directories (a "General Internet
Portal Service"). A "topic of interest" ("Main Topic") is defined as a
top-level category of information as shown (or, in the case of a Snap
competitor, comparable to a category of information as shown) on the
home page of Snap (e.g., Sports, Travel, Computing and the Internet,
etc.). As of today, the "Snap Competitors" are Microsoft Start,
Netscape NetCenter, AOL, Prodigy Internet, Yahoo, Excite, Infoseek,
Lycos, LookSmart, HotBot, Alta Vista, and Planet Direct. For the
avoidance of doubt, the terms "Snap Competitor" and "General Internet
Portal Service" do not include any information, navigation and content
aggregation service (a "Specialized Internet Content Service") designed
to organize a specific type of Internet Content that is limited in
scope by topic or otherwise not intended to organize the broad spectrum
of the Internet as described above. Examples of Specialized Internet
Content Services that do not constitute Snap competitors include
NBC.com, NBC-IN, MSNBC, Videoseeker, Search.com, CNET.COM, NEWS.COM,
COMPUTERS.COM, ComputerESP.com, GAMECENTER.COM, DOWNLOAD.COM,
SHAREWARE.COM and BUILDER.COM.
3.3 Snap will be the Preferred search engine and general
content aggregation service (i.e., General Internet Portal Service) on
any NBC Site (as defined below) with the exception of links to Snap
Competitors that are provided as part of editorial content (e.g. a news
story), which shall not be subject to this clause. At the option of
NBC, such services shall be delivered via either (i) a direct link to
Snap or (ii) a real time query ("RTQ") to Snap which is served on pages
of the relevant NBC Site. If NBC chooses RTQ delivery, it will pay the
LLC's actual direct costs plus
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10% for providing such service. Notwithstanding the foregoing, if (a)
Snap cannot provide the required functionality within a reasonable
period of time, or (b) if the quality of services available from Snap
is materially inferior to those available from a third party, or (c)
with respect to customized or specialized search or aggregation
services (as opposed to general search services covering an unlimited
range of Content areas), if the price of services available from Snap
is not competitive with that offered by a third party, then the NBC
Site may utilize another search engine or general content aggregation
service, as applicable, as the Preferred service for such function,
provided that NBC first offers Snap the right to provide such services
on the specified terms and does not thereafter offer more favorable
terms to a third party. For purposes hereof, an "NBC Site" (i) shall
include any Internet site directly operated and controlled by NBC or
any of its majority-owned subsidiaries and (ii) for the avoidance of
doubt will not include any Internet site operated or controlled by
MSNBC, Interactive Desktop Video LLC, Interactive Business News Video
LLC, European business News Partners or ASIA Business News (Singapore)
Private.
3.4 Whenever Snap provides search or aggregation services to
an NBC Site pursuant to this Section 3, such services will include
branding for Snap similar to branding provided for similarly situated
service providers, subject to the NBC Sites' reasonable guidelines and
subject to compliance with Snap's reasonable trademark usage
guidelines. To the extent that an NBC Site is required to provide
branding for a third party information provider (e.g. Inktomi) in
connection with such Snap services, branding for Snap will be more
prominent than branding for such third party (subject to Snap's
contractual obligations to such third party).
3.5 Notwithstanding anything to the contrary herein, NBC may
continue to allow Infoseek to provide services on NBC-IN in accordance
with, and until termination of, NBC's current agreement with Infoseek.
NBC will use reasonable commercial efforts to terminate such
arrangement if possible without detrimental economic impact to NBC if
requested by CNET.
3.6 NBC will not enter into a relationship with a Snap
Competitor that allows the Snap Competitor to co-brand its General
Internet Portal Service with NBC's brand. Notwithstanding the
foregoing, NBC may co-brand NBC Content provided to a Snap Competitor.
NBC will not enter into any agreement to provide to any Snap Competitor
NBC Content having greater overall breadth, depth, or quality than the
Content offered by NBC to the LLC.
3.7 Neither NBC, any subsidiary of NBC in which NBC,
directly or indirectly, owns more than 50% of the voting securities of
such subsidiary or any other entity for which NBC directly or
indirectly has the right to designate a majority of the board of
directors or similar governing body or otherwise solely controls (i.e.,
no other Person has control rights) (collectively, a "majority owned
subsidiary of NBC"), will invest in, purchase or loan money to a Snap
Competitor, provided that this
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will not prevent (i) the acquisition of up to a 5% equity interest in a
Snap Competitor, (ii) acquisitions of a majority of the voting
securities or partnership interests, or the right to designate a
majority of the directors or other governing body, of any Person or
business that has as part of its operations a Snap Competitor provided
that such Snap Competitor accounts for less than 20% of such acquired
Person's or business's gross revenues at the time of acquisition and
the acquiring party divests (or takes such actions as may be necessary
so that the operations no longer constitute a Snap Competitor) no later
than 18 months after such acquisition and (iii) investments ("NBC
Ancillary Investments") constituting less than a majority of the voting
securities or partnership interests (without any right to designate a
majority of the directors or other governing body) of any Person or
business that has as part of its operations a Snap Competitor provided
that (A) at the time of such investment such Snap Competitor accounts
for less than 20% of the gross revenues of the Person in whom such
investment is made, (B) neither NBC nor any of its majority-owned
subsidiaries is actively involved in the management or operations of
such Snap Competitor and (C) NBC and its majority-owned subsidiaries
will not make available to such Snap Competitor any promotional
assistance except pursuant to clause (ii) of the following sentence.
NBC and its majority-owned subsidiaries will not provide promotional
assistance to a Snap Competitor, other than (i) in the case of Snap
Competitors other than those owned by NBC Ancillary Investments,
promotional assistance provided as part of or in connection with the
provision by NBC or its majority-owned subsidiaries of Content,
provided that the value of such promotion does not exceed $5 million
per year as measured by NBC's or its subsidiary's standard rate card;
and (ii) promotional assistance that is acquired by a Snap Competitor
on market terms in the ordinary course of conduct of NBC's and its
subsidiaries' business. The foregoing will not prevent NBC or its
subsidiaries from selling, providing, purchasing or acquiring
advertising or advertising time or space to or from a Snap Competitor
in the ordinary course of business.
3.8 For the avoidance of doubt, "Snap Competitor" does not
include any service the principal purpose of which is (i) the
transmission of any kind, now or hereafter devised, which makes
programs and other audio and/or visual recordings of any length,
available for viewing in a linear predetermined presentation (E.G.,
broadcast television, cable television, pay-per-view, video-on-demand)
and/or (ii) the delivery of Content related to the material transmitted
in clause (i). In addition, (A) "Snap Competitor" does not include any
General Internet Portal Service or application having as its primary
target use in connection with television and/or television-related
devices (e.g. Web TV) and (B) the provisions of this Section 3 will not
apply to (and NBC and its majority-owned subsidiaries will not in any
way be restricted or have any obligations or liabilities with respect
to) any Internet services or sites (including without limitation, Web
TV) having as its primary target use in connection with television
and/or television-related devices and applications. Snap intends to
actively pursue becoming a general
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Internal portal for television-based Internet applications, which could
result in Snap becoming a competitor of WebTV and similar services.
3.9 The provisions of this Section 3 shall also apply to
activities of a subsidiary of General Electric Company (a "GE Entity")
to the same extent they apply to NBC if and only if (1) NBC or any of
its majority-owned subsidiaries is directly or indirectly responsible
for, or oversees, the management of such activity or (2) for internal
financial reporting purposes such activity is considered part of NBC
and its subsidiaries or is otherwise reflected on NBC's consolidated
financial results. For avoidance of doubt, except as provided in the
immediately preceding sentence, none of the GE Entities (other than NBC
and its majority-owned subsidiaries) will be subject to the provisions
of this Section 3.
4. CNET EXCLUSIVITY
During the Exclusivity Period:
4.1 Snap will be the Preferred search engine and general
content aggregation service (i.e. General Internet Portal Service) on
any CNET Site (as defined below), with the exception of links to Snap
Competitors that are provided as part of editorial content (e.g. a news
story, which shall not be subject to this clause). At the option of
CNET, such services shall be delivered via either (i) a direct link to
Snap or (ii) a RTQ to Snap which is served on pages of the relevant
CNET slide. If CNET chooses RTQ delivery, it will pay the LLC's actual
direct costs plus 10% for providing such service. Notwithstanding the
foregoing, if (a) Snap cannot provide the required functionality within
a reasonable period of time, or (b) if the quality of services
available from Snap is materially inferior to those available from a
third party, or (c) with respect to customized or specialized search or
aggregation services (as opposed to general search services covering an
unlimited range of Content areas), if the price of services available
from Snap is not competitive with that offered by a third party, then
the CNET Site may utilize another search engine or general content
aggregation service, as applicable, as the Preferred service for such
function, provided that CNET first offers Snap the right to provide
such services on specified terms and does not thereafter offer more
favorable terms to a third party. For purposes hereof, a "CNET Site"
shall include any Internet site directly operated and controlled by
CNET or any of its majority-owned subsidiaries.
4.2 Whenever Snap provides search or aggregation services to
a CNET Site pursuant to this Section 4, such services will include
branding for Snap similar to branding provided for similarly situated
service providers, subject to the CNET Sites' reasonable guidelines and
subject to compliance with Snap's reasonable trademark usage
guidelines. To the extent that a CNET Site is required to provide
branding for a third party information provider (e.g. Inktomi) in
connection with such Snap
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services, branding for Snap will be more prominent than branding for
such third party (subject to Snap's contractual obligations to such
third party).
4.3 CNET will not enter into a relationship with a Snap
Competitor that allows the Snap Competitor to co-brand its General
Internet Portal Service with CNET's brand. Notwithstanding the
foregoing, CNET may co-brand Content provided to a Snap Competitor.
CNET will not enter into any agreement to provide to any Snap
Competitor Content having greater overall breadth, depth, or quality
than the Content offered by CNET to the LLC.
4.4 Neither CNET, any subsidiary of CNET in which CNET,
directly or indirectly, owns more than 50% of the voting securities of
such subsidiary or any other entity for which CNET directly or
indirectly has the right to designate a majority of the board of
directors or similar governing body or otherwise solely controls (i.e.,
no other Person has control rights) (collectively, a "majority-owned
subsidiary of CNET") will not invest in, purchase, or loan money to a
Snap Competitor, provided that this will not prevent (i) the
acquisition of up to a 5% equity interest in a Snap competitor or (ii)
acquisitions of a majority of the voting securities or partnership
interests, or the right to designate a majority of the directors or
other governing body, of any Person or business that has as part of its
operations a Snap Competitor provided that such Snap Competitor
accounts for less than 20% of such acquired Person's or business's
gross revenues at the time of acquisition and the acquiring party
divests (or takes such actions as may be necessary so that the
operations no longer constitute a Snap Competitor) no later than 18
months after such acquisition. CNET and its majority- owned
subsidiaries will not provide promotional assistance to, or license any
material intellectual property or technology to or provide material
technical or operational assistance to, a Snap Competitor, other than
(i) promotional assistance provided as part of or in connection with
the provision by CNET, or its majority-owned subsidiaries, of Content,
provided that the value of such promotion does not exceed $5 million
per year for any Snap Competitor as measured by CNET's or its
Subsidiary's standard rate card; (ii) promotional assistance that is
acquired by a Snap Competitor on market terms in the ordinary course of
conduct of CNET's and its subsidiaries' business; and (iii) the
licensing of any intellectual property or technology or the provision
of technical or operational assistance to a Snap Competitor relating to
the transmission of CNET Content to such Snap Competitor and/or the
formatting and technical display of CNET Content by such Snap
Competitor. The foregoing will not prevent CNET or its subsidiaries
from selling, providing purchasing or acquiring advertising or
advertising time or space to or from a Snap Competitor in the ordinary
course of business.
4.5 Search.com
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4.5.1 CNET operates a web site that is an
organized collection of search engines, and includes both
broad-based search engines as well as those dedicated to specific
subject areas ("Search.com").
4.5.2 No later than 4 months after the
execution of a Definitive Agreement, and until expiration of the
Exclusivity Period, CNET will (i) position Search.com in marketing
and promotion efforts and, except as contemplated by Sections
4.5.3 and 4.5.4 below, in design and functionality, as providing
technology-oriented searches and the aggregation of
technology-oriented information; (ii) not aggregate information
other than technology related information; (iii) not develop
co-branded versions of Search.com; and (iv) not market or promote
Search.com, or enter into agreements pursuant to which Search.com
would be promoted, as a default portal to the Internet or as a
provider of general search results (as defined in Section 4.5.4
below). Provided that Search.com complies with this sub-section,
Search.com will not be considered a Snap Competitor.
4.5.3 Until CNET has repositioned Search.com as
described in Section 4.5.2, CNET will provide promotion for Snap
under a transition plan whereby:
4.5.3.1 CNET will take all reasonable
actions within its control to, and will permit the LLC to,
replace Infoseek with Snap, as soon as reasonably
practicable, within the "Search the Web" and "Express Search"
areas of Search.com (to the extent that such areas continue
to be offered), such that Snap will provide search results on
the business terms described in Section 4.5.5 and Search.com
will provide branding for Snap no less favorable than that
currently provided to Infoseek (as illustrated in Appendix
B).
4.5.3.2 Continue to make Snap the
default search partner in the "Express Search" function on
Search.com and move the "Express Search" function so that it
is between the "Search the Web" function and "Specialty
Search" function (as illustrated in Appendix C).
4.5.3.3 Provide links to Snap! no less
favorable than those currently provided to Snap! on
Search.com (as illustrated in Appendix D).
4.5.4 Until expiration of the Exclusivity
Period, and provided that Snap provides services with quality
reasonably comparable to those available from third parties, Snap
shall be the Preferred provider of general search results to
Search.com. For the purposes of this sub-section, "general search
results" mean results that span more than technology-related
topics based on a user's query. Nothing herein shall limit the
ability of CNET to
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include on Search.com links to Snap Competitors, provided
that the requirements of Sections 4.5.2 and 4.5.3 are met.
4.5.5 During the Exclusivity Period, Snap will
provide search results to Search.com on the following terms:
4.5.5.1 Search.com will request, and
Snap will provide, search results through the Real-Time Query
Interface or successor thereof. Search.com will display the
results in the Search.com user interface with branding for
Snap similar to the branding Snap currently provides to
Inktomi. To the extent that branding for Inktomi is also
required on Search.com in connection with displaying the Snap
results, branding for Snap will be more prominent than
branding for Inktomi (subject to Snap's contractual
obligations to Inktomi).
4.5.5.2 CNET will sell all advertising
and e-commerce opportunities and retain all revenue
associated with the display of search results on Search.com.
CNET will reimburse the LLC for the LLC's actual direct costs
to supply the search results (e.g., Inktomi and any bandwidth
costs), plus 10%.
5. REMNANT INVENTORY: Parties agree that during the Exclusivity Period,
NBC (collectively, with its majority-owned subsidiaries) and CNET (collectively,
with its majority-owned subsidiaries) will each be able to use 10% of any unsold
advertising inventory on Snap to promote their products. The remaining
inventory will be used by the LLC for the LLC's business purposes.
6. MISCELLANEOUS.
6.1 INVALIDITY OF PROVISIONS. If any provision of this Agreement is
declared or found to be illegal, unenforceable or void, in whole or in part,
then the parties will be relieved of all obligations arising under such
provision, but only to the extent that it is illegal, unenforceable, or void, it
being the intent and agreement of the parties that this Agreement be deemed
amended by modifying such provision to the extent necessary to make it legal and
enforceable while preserving its intent or, if that is not possible, by
substituting therefor another provision that is legal and enforceable and
achieves the same objectives.
6.2 RELATIONSHIP OF PARTIES. This Agreement will not be construed to
create a joint venture, partnership or the relationship of principal and agent
between the parties hereto, nor to impose upon either party any obligations for
any losses, debts or other obligations incurred by the other party except as
expressly set forth herein.
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6.3 ENTIRE AGREEMENT. This Agreement, together with the Contribution
Agreement and the other Implementing Agreements, constitute the final agreement
of the parties with respect to the subject matter hereof and thereof and
supersede any prior oral or written agreements between the parties. This
Agreement will be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
6.4 ASSIGNMENT. The rights and obligations of the parties under this
Agreement may not be assigned except to the transferee of all or substantially
all of a party's business or, in the case of the LLC, the Snap! Business
(whether by stock sale, merger, asset sale or otherwise).
6.5 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the substantive laws (and not the choice of law provisions)
of the State of New York.
6.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, which together will constitute a single agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized representatives as of the date first above
written.
CNET, INC.
/s/ Shelby W. Bonnie
Shelby W. Bonnie
Executive Vice President
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ Thomas S. Rogers
Name: Thomas S. Rogers
Title: President, NBC Cable/
Executive Vice President, NBC
NBC MULTIMEDIA, INC.
By: /s/ Martin Yudkovitz
Name: Martin Yudkovitz
Title: President
SNAP! LLC
By: /s/ Martin Yudkovitz
Name: Martin Yudkovitz
Title: President
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<PAGE>
APPENDIX A
SHOWCASE PORTALS, HIGHLIGHT LINKS AND RESOURCE PAGES
See attached.
Screen printouts of certain Snap! Web pages.
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APPENDIX B
EXISTING INFOSEEK BRANDING
See attached.
Screen printouts of Search.com Web page.
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APPENDIX C
REPOSITIONING OF EXPRESS SEARCH
See attached.
Screen printout of Search.com Web page.
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APPENDIX D
SNAP LINKS
See attached.
Screen printout of Search.com search results Web page.
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Exhibit 10.15
ADDENDUM TO PREFERRED CARRIAGE AGREEMENT
This Addendum to Preferred Carriage Agreement (the "Addendum") is entered into
as of June 30, 1998 between CNET, Inc., a Delaware corporation ("CNET"), and
Snap! LLC, a Delaware limited liability company ("Snap"). CNET, Snap, National
Broadcasting Company, Inc. and NBC Multimedia, Inc. entered into a Preferred
Carriage Agreement dated as of June 30, 1998 (the "Original Agreement").
Capitalized terms used in this Addendum and not otherwise defined have the
meanings assigned to such terms in the Original Agreement.
The parties to the Original Agreement intended to include in the Original
Agreement a requirement that CNET make available to Snap certain banner
advertising inventory on CNET's Search.com Internet site, but this provision was
inadvertently omitted from the Original Agreement. Accordingly, CNET and Snap
hereby agree as follows:
1. From July 1, 1998 through December 31, 1998, CNET will make available
to Snap, at no charge, 10% of the banner advertising inventory on Search.com.
Snap may use such inventory to promote the Snap service, but may not assign such
inventory to any third party. In connection with such advertising, Snap will
comply with the standard advertising terms and conditions applicable generally
to advertising customers of Search.com.
2. CNET will deliver to Snap, at no charge, 3,490,043 banner
impressions on Search.com., which will equate the advertising value provided
by CNET to the value of advertising Snap has provided to CNET under Section 5
of the Preferred Carriage Agreement through 12/31/98. As such, Snap will
cease to provide CNET additional advertising under Section 5 subsequent to
12/31/98. Snap may use such inventory to promote the Snap service, but may
not assign such inventory to any third party. In connection with such
advertising, Snap will comply with the standard advertising terms and
conditions applicable generally to advertising customers of Search.com. CNET
will fulfill such obligation by 12/31/99.
3. Except as expressly modified by this Addendum, the Original Agreement
remains in full force and effect in accordance with its terms. References in
the Original Agreement to the "Agreement" are hereby amended to refer to the
Original Agreement, as amended by this Addendum. This Addendum and the Original
Agreement constitute and contain the entire agreement between the parties with
respect to the subject matter hereof and thereof and supersede any prior oral or
written agreements. This Addendum will be construed in accordance with and
governed by the laws of the State of New York, without regard to principles of
conflicts of law.
IN WITNESS WHEREOF, the undersigned parties (which are the only parties to the
Original Agreement that have obligations under this Addendum) have caused this
Addendum to be executed by their duly authorized representatives as of the date
first written above.
CNET, INC. SNAP! LLC
By: /s/ Douglas N. Woodrum By: /s/ Andrew P. Hyde
Title: Chief Financial Officer Title: Chief Financial Officer
<PAGE>
Exhibit 10.16
ADDENDUM TO THE SNAP AGREEMENTS
THIS ADDENDUM TO SNAP AGREEMENTS (the "Addendum") is dated as of May 9, 1999
between CNET, Inc., a Delaware corporation ("CNET"), National Broadcasting
Company, Inc., a Delaware corporation ("NBC"), NBC Multimedia, Inc., a Delaware
corporation ("NBC Multimedia"), and Snap! LLC, a Delaware limited liability
company ("Snap").
WHEREAS, the parties entered into a Preferred Carriage Agreement dated effective
June 30, 1998 (the "PCA Agreement"), wherein CNET agreed to provide certain
services and grant certain exclusive placements to Snap.
WHEREAS, the parties also entered into the Contribution Agreement dated
effective June 4, 1998 (the "Contribution Agreement") and are parties to the
Amended and Restated Limited Liability Company Agreement dated June 30, 1998
(the "LLC Agreement," together with the PCA Agreement and the Contribution
Agreement, the "Agreements").
WHEREAS, the parties have determined that it is in the best interest of each
party to transfer the operations of Snap to a newly-formed corporation pursuant
to Agreements of Contribution and Merger dated May 9, 1999 (the "Snap
Transfer"), and to modify the Agreements on the terms set forth in this
Addendum.
NOW THEREFORE, in consideration of the mutual promises described herein, the
parties, intending to be legally bound, hereby agree as follows:
1. CARRIAGE OF CNET SERVICES ON SNAP SITES. Notwithstanding anything in the
PCA Agreement to the contrary, Section 1 (Carriage of CNET Services on
Snap Sites) of the PCA Agreement will remain in full force and effect for
one year following the closing date of the Snap Transfer; provided,
however, that CNET and Snap will, in good faith, continue their existing
negotiations related to modifying or restating Section 1of the PCA
Agreement.
2. NBC EXCLUSIVITY. Sections 3.1 and 3.3 through 3.9 inclusive of the PCA
Agreement are hereby deleted in their entirety.
3. CNET EXCLUSIVITY. Section 4 (CNET Exclusivity) of the PCA Agreement is
hereby deleted in its entirety and restated as follows:
4. CNET EXCLUSIVITY
During the period beginning on the date of the Addendum and
continuing for one (1) year thereafter (the "CNET Exclusivity
Period"):
4.1 PREFERRED CONTENT AGGREGATION SERVICE. Snap will be the
Preferred general content aggregation service (i.e. General
Internet Directory Service) on any CNET Site (as defined
below), with the exception of links to Snap
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Competitors that are provided as part of editorial
content (e.g. a news story, which shall not be subject
to this clause). At the option of CNET, such services
shall be delivered via either (i) a direct link to Snap
or (ii) a RTQ to Snap which is served on pages of the
relevant CNET Site. If CNET chooses RTQ delivery, it
will pay Snap's actual direct costs plus 10% for
providing such service. Notwithstanding the foregoing,
if (a) Snap cannot provide the required functionality
within a reasonable period of time, or (b) if the
quality of services available from Snap is materially
inferior to those available from a third party, or (c)
with respect to customized or specialized aggregation
services (as opposed to general aggregation services
covering an unlimited range of Content areas), if the
price of services available from Snap is not competitive
with that offered by a third party, then the CNET Site
may utilize another general content aggregation service,
as applicable, as the Preferred service for such
function, provided that CNET first offers Snap the right
to provide such services on specified terms and does not
thereafter offer more favorable terms to a third party.
For purposes hereof, a "CNET Site" shall include any
Internet site directly operated and controlled by CNET
or any of its majority-owned subsidiaries.
4.2 BRANDING ON CONTENT AGGREGATION SERVICE. Whenever Snap
provides content aggregation services to a CNET Site
pursuant to this Section 4, such services will include
branding for Snap similar to branding provided for
similarly situated content providers, subject to the CNET
Sites' reasonable guidelines and subject to compliance with
Snap's reasonable trademark usage guidelines. To the
extent that a CNET Site is required to provide branding for
a third party information provider in connection with such
Snap services, branding for Snap will be more prominent
than branding for such third party (subject to Snap's
contractual obligations to such third party).
4.3 CO-BRANDING.
4.3.1 CNET will not enter into a relationship with a
Snap Competitor that allows the Snap Competitor
to co-brand its General Internet Portal Service
with CNET's brand. Notwithstanding the
foregoing, CNET may co-brand Content provided to
a Snap Competitor.
4.3.2 The parties acknowledge that CNET produces
co-branded editions of CNET Sites for various
resellers, distributors and other licensees
(collectively the "Distributors"). In some
cases, such Distributors are entitled to replace
CNET's default content with other content within
their own co-branded editions of the CNET Sites.
Notwithstanding the other provisions of the
Agreement, if any such
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Distributor has specifically required that Snap's
content be replaced, then CNET will not be
required to display the Snap's content within
such Distributor's co-branded edition of the CNET
Site. If a Distributor elects to keep the Snap
content on the co-branded CNET Site, the display
of such Snap content shall be subject to the
branding requirements of Section 4.2, above.
4.4 CONTROL OF A SNAP COMPETITOR. Neither CNET, any subsidiary
of CNET in which CNET, directly or indirectly, owns more
than 50% of the voting securities of such subsidiary or any
other entity for which CNET directly or indirectly has the
right to designate a majority of the board of directors or
similar governing body or otherwise solely controls (i.e.,
no other Person has control rights) (collectively, a
"majority-owned subsidiary of CNET") will not invest in,
purchase, loan money to, build, develop or operate a Snap
Competitor, provided that this will not prevent (i) the
acquisition of up to a 5% equity interest in a Snap
Competitor or (ii) acquisitions of a majority of the voting
securities or partnership interests, or the right to
designate a majority of the directors or other governing
body, of any Person or business that has as part of its
operations a Snap Competitor provided that such Snap
Competitor accounts for less than 20% of such acquired
Person's or business's gross revenues at the time of
acquisition and the acquiring party divests (or takes such
actions as may be necessary so that the operations no
longer constitute a Snap Competitor) no later than 18
months after such acquisition. CNET and its majority-
owned subsidiaries will not provide promotional assistance
to, or license any material intellectual property or
technology to or provide material technical or operational
assistance to, a Snap Competitor, other than (i)
promotional assistance provided as part of or in connection
with the provision by CNET, or its majority-owned
subsidiaries, of Content, provided that the value of such
promotion does not exceed $5 million per year for any Snap
Competitor as measured by CNET's or its Subsidiary's
standard rate card; (ii) promotional assistance that is
acquired by a Snap Competitor on market terms in the
ordinary course of conduct of CNET's and its subsidiaries'
business; and (iii) the licensing of any intellectual
property or technology or the provision of technical or
operational assistance to a Snap Competitor relating to the
transmission of CNET Content to such Snap Competitor and/or
the formatting and technical display of CNET Content by
such Snap Competitor. The foregoing will not prevent CNET
or its subsidiaries from selling, providing purchasing or
acquiring advertising or advertising time or space to or
from a Snap Competitor in the ordinary course of business.
4.5 SEARCH.COM
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4.5.1 CNET operates a web site that is an organized
collection of search engines, and includes both
broad-based search engines as well as those
dedicated to specific subject areas ("Search.com").
4.5.2 During the Exclusivity Period, CNET will not operate
Search.com as a Snap Competitor.
4.5.3 If CNET uses Snap as the provider of general search
results during the Exclusivity Period, Snap will
provide such results to Search.com on the following
terms:
4.5.3.1 Search.com will request, and Snap will
provide, search results through the
Real-Time Query Interface or successor
thereof. Search.com will display the
results in the Search.com user interface
with branding for Snap similar to the
branding Snap currently provides to
Inktomi. To the extent that branding for
Inktomi is also required on Search.com
in connection with displaying the Snap
results, branding for Snap will be more
prominent than branding for Inktomi
(subject to Snap's contractual
obligations to Inktomi).
4.5.3.2 CNET will sell all advertising and
e-commerce opportunities and retain
all revenue associated with the
display of search results on
Search.com. CNET will reimburse the
Snap for the Snap's actual direct
costs to supply the search results
(e.g., Inktomi and any bandwidth
costs), plus 10%.
4.6 SEARCH SERVICE. The parties agree that CNET may obtain Web
and information search services for the CNET Sites
(including Search.com) from Snap and/or any search engine
OEM provider (e.g., Inktomi, FAST). If CNET elects to
obtain such search services from Snap, then at the option
of CNET, such services shall be delivered via either (i) a
direct link to Snap or (ii) a RTQ to Snap which is served
on pages of the relevant CNET Site. If CNET chooses RTQ
delivery, it will pay Snap's actual direct costs plus 10%
for providing such service.
4. REMNANT INVENTORY. Section 5 (Remnant Inventory) of the PCA Agreement is
hereby deleted in its entirety.
5. SERVICES BY CNET. On or before the closing date of the Snap Transfer,
Snap will pay CNET in full for the services requested by Snap or provided
by CNET to Snap in accordance with past practices. Any obligations of
CNET to provide any product or service to Snap will terminate on the
closing date of the Snap Transfer; provided that
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CNET will continue to perform certain limited administrative functions
(e.g., payroll services) normally provided for a transitional period
in connection with comparable transactions.
6. SNAP DEBT. The parties agree that NBC shall continue to provide
capital (either through an extended line of credit or otherwise) for
all Snap-related expenses arising between the date of this Addendum
and the closing date of the Snap Transfer. All amounts owed by Snap to
NBC shall be relieved by Snap effective on the closing date of the
Snap Transfer. Notwithstanding the foregoing, the parties each
acknowledge and agree that CNET shall not be liable for any amounts or
debts owed by Snap to NBC, and each party hereby releases CNET from
all obligations or liabilities related to the same.
7. LIABILITY/INDEMNIFICATION.
7.1 The parties hereby agree that any monetary damages, costs,
expenses or liabilities ("Damages") arising from or related to the
pending Snap trademark litigation shall be paid for as follows:
(a) NBC shall pay up to the first $500,000 of any such Damages and
(b) NBC and CNET will split the amount of the Damages in excess of
$500,000 equally, and shall each be severally liable for 50% of
the total Damages in excess of $500,000.
7.2 Subject to the provisions of Section 7.1, NBC shall indemnify and
hold CNET harmless from and against any costs, losses, liabilities
and expenses, including all court costs, reasonable expenses and
reasonable attorney's fees that CNET may suffer, incur or be
subjected to by reason of any legal action, proceeding,
arbitration or other claim by a third party, whether commenced or
threatened, arising out of any matter or issue related to Snap,
the Contribution Agreement, the LLC Agreement, the Snap Transfer
or the PCA Agreement.
8. RESTRICTIONS ON CNET SHARES.
8.1 Until January 1, 2000, NBC agrees, and agrees to cause its
controlled affiliates, not to sell, transfer or otherwise dispose
of any shares of common stock of CNET held by NBC or its
controlled affiliates (the "Shares") without the prior written
consent of CNET, in each case except pursuant to a tender offer
where the purchaser acquires a majority of the outstanding common
stock of CNET (provided that such tender offer is either approved
by CNET's board of directors or NBC tenders its shares during the
last two business days of the offer and at a time when the offer
is not impeded by a rights plan) or pursuant to a merger,
consolidation or other business combination involving CNET.
8.2 NBC acknowledges that unless the Shares are subsequently
registered for resale under the Securities Act of 1933, as amended
(the "Securities Act"), any sale of Shares by NBC or its
controlled affiliates will be subject to the provisions of Rule
144 promulgated under the Securities Act, which permits limited
resale of shares
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<PAGE>
subject to the satisfaction of certain conditions, including,
among other things: the availability of certain current public
information about the issuer, the resale occurring not less
than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited
"broker's transaction" or in transactions directly with a
market maker (as said term is defined under the Securities
Exchange Act of 1934, as amended) and the number of shares
being sold during any three-month period not exceeding
specified limitations.
8.3 NBC further acknowledges that the Shares may not be sold, pledged
or otherwise transferred in the absence of an effective
registration statement pertaining thereto under the Securities
Act, and all applicable regulations promulgated thereunder, and
under any applicable state securities laws and all applicable
regulations promulgated thereunder (the "State Acts"), or an
exemption from the registration requirements of the Securities Act
and all applicable State Acts.
8.4 NBC agrees that CNET may place a stop transfer order in accordance
with this Section 8 with its transfer agent, if any, with respect
to the certificates representing any Shares. Each certificate
representing the Shares will bear substantially the following
legends until such restriction is no longer required by law or
this Addendum:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE APPLICABLE SECURITIES
LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH THE REQUIREMENTS OF ALL SUCH
LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET
FORTH IN AN AGREEMENT DATED MAY 9, 1999 BETWEEN
CNET, INC., THE NATIONAL BROADCASTING COMPANY, NBC
MULTIMEDIA, INC. AND SNAP! LLC.
9. STOCK OPTION AGREEMENT. (a) If NBC exercises its right to purchase
shares of Xoom.com, Inc. ("Xoom") pursuant to the Stock Option Agreement
between NBC and Xoom dated May 9, 1999 (the "Stock Option Agreement"),
then at or prior to such exercise NBC shall assign to CNET 20% of the
option under the Stock Option Agreement (but not any shares purchased by
NBC) together with the associated rights and CNET will assume the related
obligations. In the event of any such assignment, the maximum Total
Profit (as defined in the Stock Option Agreement) permitted under the
Stock Option Agreement will be allocated 80% to NBC and 20% to CNET and
neither NBC nor CNET will exercise the option or take any other action
that would result in its Total Profit exceeding its allocable share of
the maximum Total Profit.
6
<PAGE>
(b) If NBC exercises its right to cause Xoom to repurchase the option
prior to having made any assignment pursuant to clause (a) above, NBC
will pay to CNET 20% of the net cash proceeds received by NBC pursuant to
such repurchase.
10. RELEASE OF NBC. NBC is hereby released from its oral promise to provide
free television advertising to CNET.
11. RELEASE OF CNET. Except as specifically set forth in this Addendum, CNET
is hereby released by NBC, NBC Multimedia and Snap from all
representations, warranties, obligations, exclusivity and non-compete
agreements and provisions made by CNET to, or for the benefit of, NBC,
NBC Multimedia and Snap, whether contained in the Agreements or
elsewhere.
12. ADDITIONAL AGREEMENT. CNET and NBC agree that as of the closing of the
Snap Transfer, they will enter into a Voting and Right of First Offer
Agreement in the form attached hereto as EXHIBIT A.
13. SINGLE INSTRUMENT. Upon the execution of this Addendum, each reference
in the Agreements to "this Agreement," "hereunder," "hereof," "herein,"
or words of like import, and each reference in any document related
thereto, or executed in connection herewith, shall mean and be a
reference to the Agreements as amended hereby, and the Agreements and
this Addendum shall be read together and construed as one single
instrument. All capitalized terms used herein but not defined herein have
the meaning for such term provided in the Agreements. This Addendum
shall be governed by and subject in all respects to the terms of the
Agreements; however, in the event of any conflict between the Agreements
and this Addendum, the terms of this Addendum shall control.
14. RATIFICATION. Except as specifically amended above, the Agreements and
any document related thereto or executed in connection therewith shall
remain in full force and effect and are hereby ratified and confirmed in
all respects.
15. NO WAIVER. The execution, delivery and effectiveness of this Addendum
shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of either party under any document related
thereto, or constitute a waiver of any provision of any document related
thereto.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Addendum effective the day
and year first written above.
CNET, INC. NATIONAL BROADCASTING
COMPANY, INC.
By: /s/ Douglas N. Woodrum By: /s/ Thomas A. Rogers
------------------------------- ------------------------------
Name: Douglas N. Woodrum Name: Thomas A. Rogers
----------------------------- ----------------------------
Title: Executive Vice President Title: President, NBC Cable and
and Chief Financial Officer Business Development
---------------------------- ---------------------------
NBC MULTIMEDIA, INC. SNAP! LLC
By: /s/ Thomas A. Rogers By: /s/ Edmond Sanctis
------------------------------ ------------------------------
Name: Thomas A. Rogers Name: Edmond Sanctis
---------------------------- ----------------------------
Title: President, NBC Cable and Title: COO
Business Development ---------------------------
---------------------------
8
<PAGE>
EXHIBIT A
VOTING AND RIGHT OF FIRST OFFER AGREEMENT
9
<PAGE>
Exhibit 10.19
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
June 11, 1999 by and among Xoom.com, Inc., a Delaware corporation (the
"Company"), and National Broadcasting Company, Inc. (together with its
successors and permitted assigns, the "Purchaser"). The Company desires to
sell, and the Purchaser desires to purchase, an aggregate of 960,028 shares (the
"Shares") of the Company's common stock, $.0001 par value per share (the "Common
Stock"), on the terms and subject to the conditions set forth herein.
Accordingly, the Company and the Purchaser hereby agree as follows:
1. AGREEMENT TO PURCHASE.
(a) At the Stock Closing (as defined below), and subject to the terms
and conditions set forth in this Agreement, the Purchaser will purchase the
Shares from the Company, and the Company will issue and sell the Shares to the
Purchaser, for an aggregate purchase price of $55,000,000 ($57.29 per Share).
(b) Upon the original issuance of the Shares by the Company to the
Purchaser and until such time as the same is no longer required under the
applicable requirements of the Securities Act or applicable state securities
laws, any certificate issued representing and such Shares shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (A) THEY ARE SO
REGISTERED OR (B) AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THE ISSUER IS
FURNISHED WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO
THAT EFFECT."
2. CLOSING. Subject to the satisfaction of the conditions set forth
in Section 6 below, the closing of the purchase and sale of the Shares
hereunder (the "Stock Closing") shall occur three business days after the HSR
Condition (as defined below) has been satisfied. Upon payment of the
purchase price for the Shares, by wire transfer of immediately available
funds to an account specified by the Company, the Company will deliver to the
Purchaser a certificate or certificates representing such Shares, registered
in the name of the Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants, as of the date hereof and as of the Stock Closing,
as follows:
(1) MERGER AGREEMENT REPRESENTATIONS. The representations and
warranties of the Company contained in the Amended and Restated Agreement and
Plan of Contribution,
<PAGE>
2
Investment and Merger, dated as of June 11, 1999 (the "Merger Agreement";
capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Merger Agreement), among the
Purchaser, GE Investments Subsidiary, Inc., Neon Media Corporation, Xenon 2,
Inc. and the Company (i) are true and correct in all material respects, in
each case, on and as of May 9, 1999 and (ii) in the case of the
representations contained in Section 4.3(i) and 4.3(j), are true and correct
in all material respects, in each case, on and as of the date hereof and
(iii) will be true and in all material respects, in each case, on and as of
the Stock Closing, except, in each case, to the extent such representations
and warranties by their terms speak as of a specified date, in which case
they are true and correct in all material respects as of such date.
(2) AUTHORIZATION. The Company has taken all corporate action
required to authorize the execution and delivery of this Agreement and the
performance of its obligations hereunder, including the issuance of the
Shares, and this Agreement has been duly executed and delivered by the
Company and constitutes a valid and legally binding obligation of the
Company. When issued to and paid for by the Purchaser in accordance with the
terms of this Agreement, the Shares will be duly and validly issued, fully
paid and nonassessable, and the issuance of the Shares will not be subject to
any preemptive or similar rights that have not been waived.
(3) CONSENTS. Except for any filings, authorizations, consents and
approvals as may be required under the HSR Act, no consent, approval,
authorization or order of any court, governmental agency or body or
arbitrator having jurisdiction over the Company or of the Company's
affiliates is required for the execution of this Agreement or the performance
of the Company's obligations hereunder, including, without limitation, the
sale of the Shares to the Purchaser.
(4) CAPITAL STOCK. The authorized capital stock of the Company
consists of 80,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock, $.0001 par value per share (the "Preferred Stock"), of the
Company, of which 17,449,049 shares of Common Stock and no shares of
Preferred Stock have been issued and are outstanding as of the date hereof.
All outstanding shares of Common Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, the certificate of incorporation or bylaws of the Company or any
agreement to which the Company is a party or by which it is bound and have
been issued in compliance with federal and state securities laws. There are
no declared or accrued unpaid dividends with respect to any shares of Common
Stock.
(5) STOCK OPTIONS. As of the date hereof, the Company has reserved
6,306,851 shares of Common Stock for issuance pursuant to the Xoom Plan
Options, Xoom Non-Plan Options and the
<PAGE>
3
MightyMail Networks, Inc. 1999 Stock Option Plan (the "MightyMail Plan"), of
which 3,363,009 have been issued as of the date hereof, of which 2,052,967
shares remain subject to Xoom Plan Options unexercised as of the date hereof,
742,282 shares remain subject to Xoom Non-Plan Options unexercised as of the
date hereof and 21,182 shares remain subject to the MightyMail Plan
unexercised as of the date hereof. None of the Xoom Options will be
accelerated in any way by the transactions contemplated by this Agreement.
(6) SECTION 203. The Boards of Directors of the Company and each
of its Subsidiaries has taken appropriate action so that the provisions of
Section 203 of the DGCL restricting "business combinations" with "interested
stockholders" (each as defined in such Section 203) will not, prior to the
termination of this Agreement pursuant to Section 7(a) hereof, apply to the
Purchaser or any of its Affiliates with respect to this Agreement or any of
the transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants, as of the date hereof and as of the Stock Closing,
as follows:
(1) AUTHORIZATION. The Purchaser has taken all corporate action
required to authorize the execution and delivery of this Agreement and the
performance of its obligations hereunder and this Agreement has been duly
executed and delivered by the Purchaser and constitutes a valid and legally
binding obligation of the Purchaser.
(2) CONSENTS. Except for any filings, authorizations, consents and
approvals as may be required under the HSR Act, no consent, approval,
authorization or order of any court, governmental agency or body or
arbitrator having jurisdiction over the Purchaser or of the Purchaser's
affiliates is required for the execution of this Agreement or the performance
of the Purchaser's obligations hereunder, including, without limitation, the
purchase of the Shares from the Company.
(3) PURCHASE FOR INVESTMENT. The Purchaser is acquiring the Shares
for its own account for investment purposes and not with a view to the
distribution thereof within the meaning of the Securities Act.
(4) RESTRICTED SECURITIES. The Purchaser understands that the
Shares constitute "restricted securities" within the meaning of Rule 144
under the Securities Act and may not be sold, pledged or otherwise disposed
of unless they are subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from registration is
available.
<PAGE>
4
(5) ACCREDITED INVESTOR. The Purchaser is an "accredited investor"
within the meaning of Rule 501 under the Securities Act.
5. CONDUCT OF BUSINESS OF THE COMPANY. The Company agrees that,
except as provided or permitted by the terms of the Merger Agreement, it
shall not issue, purchase or redeem, or authorize or propose the issuance,
purchase or redemption of, or declare or pay any dividend with respect to,
any shares of capital stock of the Company or any class of securities
convertible into, or rights, warrants or options to acquire, any such shares
of other convertible securities.
6. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of
the Company called with respect to any of the following, and at every
adjournment thereof, and on every action or approval by written consent of
the stockholders of the Company with respect to any of the following, the
Purchaser agrees that it shall vote (or cause to be voted) all of the Shares
that it beneficially owns on the record date of any such vote or action in
favor of the adoption of the Agreement and Plan of Contribution and Merger,
dated May 9, 1999, among CNET, Inc., the Company, Xenon 2, Inc., Xenon 3,
Inc., and Snap! LLC and the approval of the Company's adoption of the Merger
Agreement and the approval of the terms thereof (with such modifications as
the parties thereto may make (except for modifications that would adversely
affect the Purchaser)) and each of the other transactions contemplated by
such agreements.
7. CONDITIONS TO CLOSING. The obligations hereunder of the Company
and the Purchaser shall be subject to and conditioned upon the satisfaction
or waiver by the appropriate party of each of the following conditions on or
prior to the Stock Closing:
(1) NO INJUNCTIONS OR RESTRAINTS. At the Stock Closing, there
shall be (i) no injunction, restraining order or other decree of any nature
of any court of competent jurisdiction or other Governmental Authority that
is in effect that restrains or prohibits the consummation of any of the
transactions contemplated hereby, and (ii) no action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the transactions contemplated hereby, which makes the consummation of this
Agreement and the transactions herein illegal; PROVIDED, HOWEVER, that the
parties hereto shall use their reasonable commercial efforts to have such
injunction, order, decree, claim, action, suit, statute, rule or regulation
vacated or declared inapplicable as expeditiously as practicable.
(2) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each party shall be true and correct in all
material respects, in each case, as of the date hereof and as of the Stock
Closing, as if such representations and warranties had been made on and as of
such dates (except with respect to representations and warranties that, by
their terms, are made as of a different date, which must be true and correct
in all material respects as of such date).
<PAGE>
5
(3) COVENANTS OF THE PARTIES. Each party shall have performed its
obligations hereunder that are required to be performed at or prior to the
Stock Closing.
(4) REGULATORY AUTHORIZATION. Any required waiting period
applicable to the purchase of the Shares hereunder pursuant to the HSR Act
shall have expired or been terminated (the "HSR Condition"). The Company and
the Purchaser will make all filings and take all reasonable actions within
their respective control required in order to satisfy the HSR Condition;
provided that neither party will be required to dispose of or agree to hold
separate any assets or business operations or to agree to any restriction on
its business activities in connection therewith.
8. MISCELLANEOUS.
(1) The terms and conditions of this Agreement represent the entire
agreement between the parties with respect to the subject matter hereof and
supersede any prior agreements or understandings, whether written or oral,
between the parties respecting such subject matter. This Agreement may be
modified only in a writing signed by the party against whom such modification
is to be enforced.
(2) The Purchaser may not assign, other than to an affiliate, this
Agreement or any rights or obligations hereunder without the prior written
consent of the Company, and the Company may not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Purchaser.
(3) This Agreement shall be construed and enforced in accordance
with the laws of the state of New York applicable to agreements between
residents of New York wholly executed and wholly performed therein.
(4) This Agreement may be executed in one or more counterparts, and
such counterparts shall together constitute one and the same agreement.
<PAGE>
6
IN WITNESS WHEREOF, the parties have entered into this Agreement as
of the date first set forth above.
XOOM.COM, INC.
By: /s/ Chris Kitze
- ------------------------ ---------------------------------
Name: Chris Kitze
- ------------------------ -------------------------------
Title: Chairman
- ------------------------ ------------------------------
NATIONAL BROADCASTING
COMPANY, INC.
By: /s/ Mark W. Begor
- ------------------------ ---------------------------------
Name: Mark W. Begor
- ------------------------ -------------------------------
Title: Executive Vice President
- ------------------------ ------------------------------
<PAGE>
EXHIBIT 10.20
CONSULTING AGREEMENT
--------------------
This Consulting Agreement ("Agreement") is made and entered into as of the
fifteenth day of May 1998 by and between XOOM, Inc ("Company"), a Delaware
corporation, and James J. Heffernan ("Consultant"). Company desires to engage
Consultant as an independent contractor to perform consulting services for
Company and Consultant is willing to perform such services, on the terms and
conditions set forth below. In consideration of the mutual promises contained
herein, the parties agree as follows:
1. SERVICES AND COMPENSATION
-------------------------
(a) Company hereby engages Consultant, and Consultant accepts such
engagement, subject to the terms and conditions contained herein, to perform for
Company the services described in Attachment 1 (the "Services"). If Company
requests and Consultant agrees to provide additional Services, the parties will
sign a separate Attachment to this Agreement describing the additional Services
and compensation. Each Attachment for new services shall be successively
numbered (e.g., 1., 2, etc). Each Attachment for changes to existing Services
shall be successively numbered (e.g. 1.A, 1.B, etc.). All Attachment(s) must be
executed by the parties, and are subject to the terms and conditions of this
Agreement. Consultant agrees to use reasonable commercial efforts to meet any
delivery dates for work product set forth in the Attachment(s) and to deliver
work product to Company that conforms to the project specifications set forth in
such Attachment(s). Consultant warrants that the Services will be performed in
accordance with all reasonable professional standards for similar services.
(b) In consideration for the performance of the Services by
Consultant, Company agrees to pay Consultant the compensation set forth in the
applicable Attachment on a net 30 basis following receipt of Consultant's
invoice. Company shall not be responsible for any expenses or costs incurred by
Consultant that are not identified in any Attachment, unless authorized in
advance in writing by Company.
2. CONFIDENTIALITY
---------------
(a) "Confidential Information" means any Company proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, research, product plans, products, services, customers, customer
lists, markets, software, developments, inventions, processes, formulas,
technology, designs, drawings, engineering, hardware configuration information,
marketing, finances or other business information disclosed by Company either
directly or indirectly in writing, orally or by drawings or inspection of parts
or equipment.
(b) Consultant will not, during or subsequent to the term of this
Agreement, use Company's Confidential Information for any purpose whatsoever
other than the performance of the Services on behalf of Company or disclose
Company's Confidential Information to any third party, and it is understood that
said Confidential Information shall remain the sole property of Company.
Consultant further agrees to take all reasonable precautions to prevent any
unauthorized disclosure of such Confidential Information including, but not
limited to, having each employee of Consultant, if any, with access to any
Confidential Information, execute a nondisclosure agreement containing
provisions in Company's favor substantially similar to
1
<PAGE>
Sections 2, 3 and 5 of this Agreement. Confidential Information does not include
information which (i) is known to Consultant at the time of disclosure to
Consultant by Company as evidenced by written records of Consultant, (ii) has
become publicly known and made generally available through no wrongful act of
Consultant or (iii) has been rightfully received by Consultant from a third
party who is authorized to make such disclosure. Without Company's prior written
approval, Consultant will not directly or indirectly disclose to anyone the
existence of this Agreement or the fact that Consultant has this arrangement
with Company.
(c) Consultant agrees that Consultant will not, during the term of
this Agreement, improperly use or disclose any proprietary information or trade
secrets of any former or current employer or other person or entity with which
Consultant has an agreement or duty to keep in confidence information acquired
by Consultant in confidence, if any, and that Consultant will not bring onto the
premises of Company any unpublished document or proprietary information
belonging to such employer, person or entity unless consented to in writing by
such employer, person or entity. Consultant will indemnify Company and hold it
harmless from and against all claims, liabilities, damages and expenses,
including reasonable attorneys fees and costs of suit, arising out of or in
connection with any violation or claimed violation of a third party's rights
resulting in whole or in part from Company's use of the work product of
Consultant under this Agreement.
(d) Consultant recognizes that Company has received and in the
future will receive from third parties their confidential or proprietary
information subject to a duty on Company's part to maintain the confidentiality
of such information and to use it only for certain limited purposes. Consultant
agrees that Consultant owes Company and such third parties, during the term of
this Agreement and thereafter, a duty to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it to
any person, firm or corporation or to use it except as necessary in carrying out
the Services for Company consistent with Company's agreement with such third
party.
(e) Upon the termination of this Agreement, or upon Company's
earlier request, Consultant will deliver to Company all of Company's property or
Confidential Information in tangible form that Consultant may have in
Consultant's possession or control.
3. OWNERSHIP
---------
(a) Consultant agrees that all results and proceeds of Consultant's
services, including without limitation all project deliverables, work-in-
progress, copyrightable material, notes, records, drawings, designs, inventions,
improvements, developments, discoveries and trade secrets (collectively, "Work
Product") conceived, made or discovered by Consultant, solely or in
collaboration with others, during the period of this Agreement which relate in
any manner to the business of Company that Consultant may be directed to
undertake, investigate or experiment with or which Consultant may become
associated with in work, investigation or experimentation in the line of
business of Company in performing the Services hereunder, are the sole property
of Company. In addition, any Work Product which constitute copyrightable subject
matter shall be considered "works made for hire" as that term is defined in the
United States Copyright Act with Company as the sole author and owner thereof.
Consultant further agrees to assign and does hereby irrevocably and fully assign
to Company without reservation all
2
<PAGE>
right, title and interest in and to the Work Product, including without
limitation all rights therein and thereto throughout the universe in perpetuity
in any and all media whether now known or hereafter devised, and any and all
copyrights, patents, mask work rights trade secrets, database rights or other
intellectual property rights relating thereto, however denominated. Consultant
hereby waives any so-called "moral rights" in and to the Work Products and
agrees to waive and not assert any so-called "moral rights" against Company or
its successors, assigns or licensees.
(b) Consultant agrees to assist Company, or its designee, at
Company's expense, in every proper way to secure Company's rights in the Work
Product, to confirm the assignment to and ownership of the Work Product by
Company, and to secure Company's rights to any copyrights, patents, mask work
rights or other intellectual property rights relating thereto in any and all
countries, including the disclosure to Company of all pertinent information and
data with respect thereto, the execution of all applications, specifications,
oaths, assignments and all other instruments which Company shall deem necessary
in order to apply for and obtain such rights and in order to assign and convey
to Company, its successors, assigns and nominees the sole and exclusive rights,
title and interest in and to such Work Product, and any copyrights, patents,
mask work rights or other intellectual property rights relating thereto.
Consultant further agrees that Consultant's obligation to execute or cause to be
executed, when it is in Consultant's power to do so, any such instrument or
papers shall continue after the termination of this Agreement.
(c) Consultant agrees that if, in the course of performing the
Services, Consultant incorporates into any Work Product developed hereunder any
invention, improvement, development, concept, discovery or other proprietary
information owned by Consultant or in which Consultant has an interest,
Consultant shall notify Company in advance and obtain Company's prior written
consent, and Company is hereby granted and shall have a nonexclusive, royalty-
free, perpetual, irrevocable, worldwide license to make, have made, modify, use
and sell such item as part of or in connection with such Work Product.
(d) Consultant agrees that if Company is unable for any reason to
promptly secure Consultant's signature for any document confirming Company's
ownership rights hereunder, or to apply for or to pursue any application for any
United States or foreign patents or mask work or copyright registrations or
recordations covering the Work Product assigned to Company above, then
Consultant hereby irrevocably designates and appoints Company and its duly
authorized officers and agents as Consultant's agent and attorney-in-fact, which
appointment shall be deemed a power coupled with an interest, to act for and in
Consultant's behalf and stead to execute and file any such applications and to
do all other lawfully permitted acts to further the confirmation of Company's
ownership rights hereunder and the prosecution and issuance of patents,
copyright and mask work registrations thereon with the same legal force and
effect as if executed by Consultant.
4. REPORTS
-------
Consultant agrees that it will from time to time during the term of
this Agreement or any extension thereof keep Company advised as to Consultant's
progress in performing the Services hereunder and that Consultant will, as
requested by Company, prepare written reports
3
<PAGE>
with respect thereto. It is understood that the time required in the preparation
of such written reports shall be considered time devoted to the performance of
Consultant's Services.
5. CONFLICTING OBLIGATIONS
-----------------------
Consultant certifies that Consultant has no outstanding agreement or
obligation that is in conflict with any of the provisions of this Agreement, or
that would preclude Consultant from complying with the provisions hereof, and
further certifies that Consultant will not enter into any such conflicting
Agreement during the term of this Agreement.
6. TERM AND TERMINATION
--------------------
(a) This Agreement will commence on the date first written above and
will continue until the earlier of (i) final completion of the Services or (ii)
earlier termination as provided below.
(b) Upon such termination all rights and duties of the parties
toward each other shall cease except:
(i) that Company shall be obliged to pay, within thirty (30)
days of the effective date of termination, all amounts owing to Consultant for
unpaid Services and related expenses, if any, in accordance with the provisions
of Section 1 (Services and Compensation) hereof; provided that this Agreement
was not terminated by Company due to the breach or default by Consultant; and
(ii) Sections 2 (Confidentiality), 3 (Ownership) and 8
(Independent Contractor) shall survive termination of this Agreement, and
(iii) Consultant shall return to Company any and all Work
Product, whether completed or in progress, and all materials supplied by Company
to Consultant, including without limitation, software, tapes, listings, document
or equipment.
7. ASSIGNMENT
----------
The Services to be performed by Consultant hereunder are personal in
nature, and Company has engaged Consultant as a result of Consultant's unique
expertise relating to such Services. Neither this Agreement nor any right,
interest, duty or obligation hereunder may be assigned, transferred or delegated
by either party without the express written consent of the other party.
8. INDEPENDENT CONTRACTOR
----------------------
Nothing in this Agreement shall in any way be construed to constitute
Consultant as an agent, employee or representative of Company, but Consultant
shall perform the Services hereunder as an independent contractor. Consultant
agrees to furnish (or reimburse Company for) all tools and materials necessary
to accomplish this contract, and shall incur all expenses associated with
performance, except as expressly provided in the Attachment(s) of this
Agreement. Consultant acknowledges and agrees that Consultant is obligated to
report as
4
<PAGE>
income all compensation received by Consultant pursuant to this Agreement, and
Consultant agrees to and acknowledges the obligation to pay all self-employment
and other taxes thereon. Consultant further agrees to indemnify Company and hold
it harmless to the extent of any obligation imposed on Company (i) to pay in
withholding taxes or similar items or (ii) resulting from Consultant's being
determined not to be an independent contractor.
9. BENEFITS
--------
Consultant acknowledges and agrees, and it is the intent of the
parties hereto, that Consultant receive no benefits from Company, either as an
independent contractor or employee. If Consultant is reclassified by a state or
federal agency or court as an employee for tax or other purposes, Consultant
will become a non-benefit employee and will receive no benefits from Company,
except those mandated by state or federal law, even if by the terms of the
benefit plans or programs of Company in effect at the time of such
reclassification Consultant would otherwise be eligible for such benefits.
10. ARBITRATION AND EQUITABLE RELIEF
--------------------------------
(a) Except as provided in Section 10(d) below, Company and
Consultant agree that any dispute or controversy arising out of, relating to or
in connection with the interpretation, validity, construction, performance,
breach or termination of this Agreement shall be settled by binding arbitration
to be held in Santa Clara, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association as then in effect (the
"Rules"). The decision of the arbitrator shall be final, conclusive and binding
on the parties to the arbitration. Judgment may be entered on the arbitrator's
decision in any court of competent jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of
any dispute or claim, without reference to conflicts of law rules. Consultant
hereby consents to the personal jurisdiction of the state and federal courts
located in California for any action or proceeding arising from or relating to
this Agreement or relating to any arbitration in which the parties are
participants.
(c) Company and Consultant shall each pay one-half of the costs and
expenses of such arbitration, and each shall separately pay its counsel fees and
expenses.
(d) Consultant agrees that it would be impossible or inadequate to
measure and calculate Company's damages from any breach of the covenants set
forth in Sections 2 or 3 herein. Accordingly, Consultant agrees that if
Consultant breaches Sections 2 or 3, Company will have available, in addition to
any other right or remedy available, the right to obtain from any court of
competent jurisdiction an injunction restraining such breach or threatened
breach and specific performance of any such provision. Consultant further agrees
that no bond or other security shall be required in obtaining such equitable
relief and Consultant hereby consents to the issuances of such injunction and to
the ordering of such specific performance.
(e) CONSULTANT HAS READ AND UNDERSTANDS SECTION 10, WHICH DISCUSSES
ARBITRATION. CONSULTANT UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, CONSULTANT
AGREES TO SUBMIT ANY CLAIMS
5
<PAGE>
ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
THEREOF, EXCEPT AS PROVIDED IN SECTION 10(D), TO BINDING ARBITRATION, AND THAT
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF CONSULTANT'S RIGHT TO A JURY
TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF
THE RELATIONSHIP BETWEEN THE PARTIES.
11. INDEMNITY
---------
Consultant agrees to defend and indemnify Company from and against
any and all claims, demands or liability arising out of or relating to (i) any
injury to persons or damage to property caused by breach of contract, willful
misconduct or negligent acts by Consultant or by the acts of persons furnished
by Consultant in the performance of this Agreement, or (ii) any alleged
infringement by the Work Product of any copyright, trademark, trade secret,
patent or other intellectual property right of any third party.
12. GOVERNING LAW
-------------
This Agreement, the rights and obligations of the parties hereto, and
any claims or disputes thereto, shall be governed by and construed in accordance
with the laws of the State of California without reference to conflict of law
principles.
13. ENTIRE AGREEMENT
----------------
This Agreement is the entire agreement of the parties and supersedes
any prior or contemporaneous agreements between them, whether written or oral,
with respect to the subject matter hereof. This Agreement may not be modified,
replaced or rescinded except pursuant to a written instrument signed by a duly
authorized representative of each party. If any provision of this Agreement is
determined by a court of competent jurisdiction or other adjudicative body, such
determination shall not affect the validity or enforceability of any other part
or provision of this Agreement. Waiver of any breach, or failure to enforce any
term of this Agreement shall not be deemed a waiver of any breach or right to
enforce which may thereafter occur, and no waiver hereunder shall be effective
unless in writing and signed by a duly authorized representative of the party to
be charged with such waiver.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
<TABLE>
<S> <C>
COMPANY: James J. Heffernan
_________________________
/s/ Laurent Massa /s/ James J. Heffernan
- - --------------------------------- -------------------------------------
Authorized Signature Authorized Signature
Laurent Massa James J. Heffernan
- - --------------------------------- -------------------------------------
C.E.O Consultant
Address: 433 California Street, Suite 910 Address: 15908 Rose Avenue
San Francisco, CA 94104 Los Gatos, CA 95030
</TABLE>
7
<PAGE>
ATTACHMENT 1
SERVICES AND COMPENSATION
This Schedule describes Services to be provided by Consultant to Company under
this Consulting Agreement dated May 15, 1998.
1. DESCRIPTION OF SERVICES: Provide Financial and Investor Relations advise
during the pre-IPO period and for a period of 18 months and to serve as a
member of the Board of Directors.
2. Services to be completed by (date): The initial term of the agreement is 18
months.
3. Fee for Services: Consultant will receive Options for 25,000 shares at the
current Fair Market Value and they will vest over a 24 month period; in
addition, Consultant will receive an additional 25,000 shares when the
Company has a successful IPO. Consultant will also be paid $10,000 per month
for 18 months--paid in the form of Common Stock.
4. Consultant will also receive a fee (payable in Common Stock of the Company)
equal to 5% of any investments, which are made by investors, which
Consultant introduces to the Company during the period of May 15, 1998
through June 30, 1998.
<TABLE>
<S> <C>
COMPANY: James J. Heffernan
_________________________
/s/ Laurent Massa /s/ James J. Heffernan
- - --------------------------------- -------------------------------------
Authorized Signature Authorized Signature
Laurent Massa James J. Heffernan
- - --------------------------------- -------------------------------------
C.E.O Consultant
May 15 1998 5/15/98
- - --------------------------------- -------------------------------------
Date Date
</TABLE>
<PAGE>
EXHIBIT 10.21
July 28, 1998
Mr. Jeff Ballowe
85 Estrada Calabasa
Santa Fe, NM 87501
FAX: 505-984-2349
Dear Jeff:
I am pleased to offer you a position as a Director on XOOM, Inc.'s Board of
Directors. The company will carry Director's and Officer's insurance upon IPO.
Your compensation would be as follows:
1. Stock options in XOOM common stock for 35,000 shares at a strike price of
$4.50. These share vest monthly over 2 years of service and would
immediately vest upon sale of the company. This represents about 1/4 of a
percent of the 14 million shares currently outstanding.
2. Ongoing consulting fee of $10,000 per month in stock options with a strike
price of $4.50 per share vesting monthly over two years - this portion of
the option payment would discontinue upon IPO and all options earned for
consulting or fund raising (see #3 below) would immediately vest. The
options will be "grossed up" to cover the $4.50 strike price and achieve the
$10,000 per month rate. After the IPO, you will receive $10,000 per month,
payable in stock and "paid out" using the closing price on the last trading
day of the month or the last day of the month (if not public) for 18 months.
We agree to cooperate to minimize your personal tax and XOOM's cheap stock
issues, within the constraints of the above.
3. A commission of 5% of money raised for XOOM, payable in stock, if after the
IPO and "grossed up" options as above at the then current strike price if
payable before the IPO.
Please indicate your acceptance of the above terms by signing below.
Sincerely yours, ACCEPTED
/s/Chris Kitze
- - -------------------------------
Chris Kitze /s/ Jeff Ballowe
Chairman ---------------------------------
Jeff Ballowe
<PAGE>
EXHIBIT 10.22
July 28, 1998
Mr. Phillip Schlein
2360 Steiner
San Francisco, CA 94115
FAX: 775-6232
Dear Phil,
I am pleased to offer you a position as a Director on XOOM, Inc.'s Board of
Directors. We will have Director's and Officer's insurance in place at the time
of IPO. Your compensation would be as follows:
1. Stock options in XOOM common stock for 35,000 shares at a strike price of
$4.50. These share vest monthly over 2 years of service and would
immediately vest upon sale of the company. This represents about 1/4 of a
percent of the 14 million shares currently outstanding.
2. Ongoing consulting fee of $10,000 per month, payable in stock and "paid out"
using the closing price on the last trading day of the month or the last day
of the month (if not public) for 18 months, at your option.
Please indicate your acceptance of the above terms by signing below.
Sincerely yours, ACCEPTED
/s/ Chris Kitze
- - -------------------------------
Chris Kitze /s/ Philip Schlein
Chairman ---------------------------------
Phillip Schlein
<PAGE>
EXHIBIT 10.23
July 28, 1998
Mr. Robert C. Harris
One Sansome
Street, 41st Floor
San Francisco, CA 94104
FAX: 772-3277
Dear Bob:
I am pleased to offer you a position as a Director on XOOM, Inc.'s Board of
Directors. We will have Director's and Officer's insurance in place at the time
of IPO. Your compensation would be as follows:
1. Stock options in XOOM common stock for 35,000 shares at a strike price of
$4.50. These share vest monthly over 2 years of service and would
immediately vest upon sale of the company. This represents about 1/4 of a
percent of the 14 million shares currently outstanding.
2. As a director, you are offered a consulting fee of $10,000 per month,
payable in stock and "paid out" using the closing price on the last trading
day of the month or the last day of the month (if not public) for 18 months,
at your option.
Please indicate your acceptance of the above terms by signing below.
Sincerely yours, ACCEPTED
/s/ Chris Kitze
- - ---------------------------------
Chris Kitze /s/ Robert Harris
Chairman --------------------------------
Robert C. Harris, Jr.
<PAGE>
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
--------------------
This Agreement, dated as of August 4, 1998, is between XOOM, Inc. ("XOOM"), and
John Harbottle ("Mr. Harbottle"). XOOM and Mr. Harbottle agree to the following
terms and conditions of employment.
1. Position and Responsibilities. Mr. Harbottle is employed by XOOM as Vice
President-Finance and Chief Financial Officer and agrees to perform all services
appropriate to that position, as well as such other services as may be assigned
by XOOM. Mr. Harbottle shall devote his best efforts and full-time attention to
the performance of his duties and shall not accept any other employment or
engage in any other business, commercial, or professional activity that is or
may be competitive with XOOM, that might create a conflict of interest with
XOOM, or that otherwise might interfere with the business of XOOM or any
affiliate. Mr. Harbottle may serve as a director or as a member of the advisory
board of any company provided that he complies with the restrictions set forth
in Section 1 and Section 4.
2. Compensation and Benefits. XOOM shall pay Mr. Harbottle a base salary at the
rate of One hundred forty four thousand dollars ($144,000) per year and a
discretionary bonus of up to Ten Thousand Dollars ($10,000) per quarter to be
paid upon achievement of personal and company targets to be defined. Mr.
Harbottle will be eligible for an annual review of this agreement no later than
one year from the date of this agreement.
Mr. Harbottle shall receive benefits from all present and future benefit plans
set forth in XOOM's policies and generally made available to similarly situated
employees (as these policies may be amended). XOOM may, in its sole discretion,
adjust Mr. Harbottle's compensation and benefits provided under this Agreement.
3. Termination of Employment.
(a) By Employer Not For Cause. Except as modified in section 3(c), below, at
any time, XOOM may terminate Mr. Harbottle's employment for any reason,
with or without Cause, by providing one hundred eighty (180) days' advance
written notice, and shall have the option, in its discretion, to terminate
Mr. Harbottle's employment at any time prior to the end of such notice
period, provided XOOM pays Mr. Harbottle an amount equal to the base
compensation Mr. Harbottle would have earned through the balance of the
above notice period plus benefits, thereafter all of XOOM's obligations
under this Agreement shall cease. In the event that XOOM exercises its
right to terminate Mr. Harbottle's employment upon notice under the terms
of this subsection, Mr. Harbottle shall be immediately entitled to
exercise one hundred percent (100%) of any stock options granted by XOOM
that had not previously vested. If the stock of XOOM or any parent company
is publicly traded, Mr. Harbottle's exercise of stock options subject to
vesting under this subsection must be made within four (4) months of the
date upon which Mr. Harbottle was informed of XOOM's intent to terminate
his employment.
1
<PAGE>
In the event XOOM's stock is not publicly traded, Mr. Harbottle's exercise of
stock options must be made within twelve (12) months of the date upon which Mr.
Harbottle was informed of XOOM's intent to terminate his employment.
XOOM may dismiss Mr. Harbottle with or without cause notwithstanding anything to
the contrary contained in or arising from any statements, policies, or practices
of XOOM relating to employment, discipline, or termination.
(b) By Employer For Cause. Except as modified in section 3(c), below, at any
time, XOOM may terminate Mr. Harbottle for Cause (as defined below). XOOM
shall pay Mr. Harbottle all compensation then due; thereafter, all of
XOOM's obligations under this Agreement shall cease. "Cause" shall
include:
1. unsatisfactory performance, misconduct, failure to follow
policies or procedures, material breach of this Agreement, and
excessive absenteeism. XOOM shall provide at least one
appropriate written warning of specific deficiencies and provide
a reasonable period not to exceed thirty days for Mr. Harbottle
to cure any such deficiencies.
2. to the extent permitted by law, unavailability for work due to
disability for more than ninety (90) days in any one (1) year
period.
3. Committing a felony, an act of fraud against or the willful
misappropriation of property belonging to XOOM.
4. Conviction in a court of competent jurisdiction of a felony or
misdemeanor which adversely and materially affects the ability of
the executive to perform his duties, obligations and
responsibilities herein or the good name, goodwill or reputation
of XOOM.
(c) By Employer Following Change in Control or Corporate Transaction.
Notwithstanding the foregoing, in the event that Mr. Harbottle's
employment is involuntarily terminated by XOOM, or any successor or assign
of XOOM, for any reason, with or without cause (as defined above),
following a Change in Control or Corporate Transaction or the execution of
a letter of intent that, by its terms, ultimately results in a Change in
Control or Corporate Transaction, as those terms are defined in the XOOM,
Inc. 1998 Stock Incentive Plan, which is incorporated by reference herein,
Mr. Harbottle shall be entitled to payment of an amount equal to six
months (6) month's base compensation plus benefits; thereafter, all
obligations of XOOM, or any successor or assign of XOOM, under this
Agreement shall cease. In the event that Mr. Harbottle's employment is
terminated under the terms of this subsection, Mr. Harbottle shall be
immediately entitled to exercise any and all stock options granted by XOOM
that had not previously vested. In the event the company effecting the
change in control or XOOM is publicly traded, any exercise of Mr.
Harbottle's stock options subject to vesting under this subsection must be
made within four (4) months of the date upon which Mr. Harbottle was
informed by XOOM, or any successor or assign of XOOM, of its intent to
terminate his employment, whether such termination is with or without
notice. If the company effecting the change in control or XOOM is not
publicly traded, Mr. Harbottle may have up to twelve (12) months from the
date upon which Mr. Harbottle was informed by XOOM, or any successor or
assign of XOOM, of its intent to terminate his employment, to exercise his
options subject to vesting under this subsection.
2
<PAGE>
(d) By Employee. At any time, Mr. Harbottle may terminate his employment for
any reason, with or without cause, by providing XOOM thirty (30) days'
advance written notice. XOOM shall have the option, in its complete
discretion, to make Mr. Harbottle's termination effective at any time
prior to the end of such notice period, provided XOOM pays Mr. Harbottle
all compensation due and owing through the last day actually worked, plus
an amount equal to the base salary Mr. Harbottle would have earned through
the balance of the above notice period, not to exceed thirty (30) days;
thereafter, all of XOOM's obligations under this Agreement shall cease.
(e) Termination Obligations. Mr. Harbottle agrees that all property, including
tangible Proprietary Information (as defined below), documents, records,
notes, contracts, and computergenerated materials furnished to or prepared
by Mr. Harbottle related to his employment, belongs to XOOM and shall be
returned promptly to XOOM upon termination. Mr. Harbottle's obligations
under this subsection shall survive the termination of his employment and
the expiration of this Agreement.
4. Proprietary Information. "Proprietary Information" is all information and
any idea pertaining in any manner to the business of XOOM (or any affiliate),
its employees, clients, consultants, or business associates, which was produced
by any employee of XOOM in the course of his or her employment or otherwise
produced or acquired by or on behalf of XOOM. Proprietary Information shall
include, without limitation, trade secrets, product ideas, inventions,
processes, formulas, data, know-how, software and other computer programs,
copyrightable material, marketing plans, strategies, sales, financial reports,
forecasts, and customer lists. All Proprietary Information not generally known
outside of XOOM's organization, and all Proprietary Information so known only
through improper means, shall be deemed "Confidential Information." During his
employment, Mr. Harbottle shall use Proprietary Information, and shall disclose
Confidential Information, only for the benefit of XOOM and as is necessary to
perform his job responsibilities under this Agreement. Following termination,
Mr. Harbottle shall not use any Proprietary Information and shall not disclose
any Confidential Information, except with the express written consent of XOOM.
By way of illustration and not in limitation of the foregoing, following
termination, Mr. Harbottle shall not use any Confidential Information to compete
against XOOM or employ any of its employees. Mr. Harbottle further agrees that
for one (1) year following termination, he shall not solicit any customer or
employee of XOOM. Mr. Harbottle's obligations under this Section shall survive
the termination of his employment and the expiration of this Agreement.
5. Integration and Amendment. This Agreement is intended to be the final,
complete, and exclusive statement of the terms of Mr. Harbottle's employment.
This Agreement supersedes all other prior and contemporaneous agreements and
statements, whether written or oral, express or implied, pertaining in any
manner to the employment of Mr. Harbottle, and it may not be contradicted by
evidence of any prior or contemporaneous statements or agreements. To the extent
that the practices, policies, or procedures of XOOM, now or in the future, apply
to Mr. Harbottle and are inconsistent with the terms of this Agreement, the
provisions of this Agreement shall control.
3
<PAGE>
This Agreement may not be amended except by a written agreement signed by each
of the parties. Failure to exercise any right under this Agreement shall not
constitute a waiver of such right.
6. Interpretation. This Agreement shall be governed by and construed in
accordance with the law of the State of California. This Agreement shall be
construed as a whole, according to its fair meaning, and not in favor of or
against any party. By way of example and not in limitation, this Agreement shall
not be construed in favor of the party receiving a benefit nor against the party
responsible for any particular language in this Agreement. If a court or
arbitrator holds any provision of this Agreement to be invalid, unenforceable,
or void, the remainder of this Agreement shall remain in full force and effect.
Captions are used for reference purposes only and should be ignored in the
interpretation of the Agreement.
7. Acknowledgment. Mr. Harbottle acknowledges that he has had the opportunity
to consult legal counsel in regard to this Agreement, that he has read and
understands this Agreement, that he is fully aware of its legal effect, and that
he has entered into it freely and voluntarily and based on his own judgment and
not on any representations or promises other than those contained in this
Agreement.
The parties have duly executed this Agreement as of the date first written
above.
/s/ John Harbottle /s/ Chris Kitze
- - ------------------- ---------------------
By: John Harbottle By: Chris Kitze
Its: Chief Financial Officer Its: Chairman
4
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
Xenon 3, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to
the use of our reports pertaining to Xoom.com, Inc. dated January 25, 1999
(except for the fourth paragraph of Note 9, as to which the date is April 5,
1999), pertaining to MightyMail Networks, Inc. dated June 4, 1999, pertaining to
Paralogic Software Corporation dated June 22, 1999, included in the Proxy
Statement of Xoom.com, Inc. that is made a part of the Registration Statement
(Form S-4) and Prospectus of NBC Internet, Inc. for the registration of
18,786,980 shares of its common stock.
/s/ ERNST & YOUNG, LLP
Palo Alto, California
July 9, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF KPMG LLP INDEPENDENT AUDITORS
The Board of Directors
National Broadcasting Company, Inc.:
We consent to the use of our report on the combined financial statements of
NBC Multimedia Division as of December 31, 1997 and 1998 and for each of the
years then ended included herein and to the reference to our firm under the
headings "NBC Multimedia Division Selected Historical Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
July 9, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
The Board of Managers
SNAP! LLC
We consent to the use of our reports dated June 18, 1999, except as to Note
11(c) which is as of June 25, 1999, relating to the balance sheets of SNAP! LLC
as of December 31, 1997 and 1998, and the related statements of operations,
members' deficit, and cash flows for each of the years in the two-year period
ended December 31, 1998, and the related financial statement schedule, which
reports are included in the NBC Internet, Inc. proxy statement, and to the
references to our firm under the headings "SNAP Selected Financial Data" and
"Experts" in the proxy statement/prospectus.
/s/ KPMG LLP
San Francisco, California
July 9, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<CASH> 6 54,575 43,381
<SECURITIES> 0 2,000 9,290
<RECEIVABLES> 222 1,563 1,889
<ALLOWANCES> (49) (195) (279)
<INVENTORY> 0 322 282
<CURRENT-ASSETS> 255 58,573 55,040
<PP&E> 457 2,640 4,095
<DEPRECIATION> (43) (569) (846)
<TOTAL-ASSETS> 782 66,874 64,790
<CURRENT-LIABILITIES> 1,655 6,013 6,865
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 3,001 75,605 75,801
<OTHER-SE> (3,572) (14,369) (17,677)
<TOTAL-LIABILITY-AND-EQUITY> 782 66,874 64,790
<SALES> 841 8,318 4,422
<TOTAL-REVENUES> 841 8,318 4,422
<CGS> 171 3,542 2,041
<TOTAL-COSTS> 148 42 1
<OTHER-EXPENSES> 3,654 140 6,298
<LOSS-PROVISION> 49 269 112
<INTEREST-EXPENSE> 0 (1,442) 30
<INCOME-PRETAX> (3,132) (10,798) (3,308)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (3,132) (10,798) (3,308)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (3,131) (10,798) (3,308)
<EPS-BASIC> (0.43) (1.37) (0.24)
<EPS-DILUTED> (0.43) (1.37) (0.24)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<PERIOD-START> JAN-01-1997 JAN-10-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 1,464 2,412 1,937
<ALLOWANCES> (59) (125) (140)
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 1,405 2,286 1,797
<PP&E> 1,160 962 962
<DEPRECIATION> (244) (340) (375)
<TOTAL-ASSETS> 2,321 2,909 2,384
<CURRENT-LIABILITIES> 1,055 1,879 2,270
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> (429) (13,610) (16,819)
<TOTAL-LIABILITY-AND-EQUITY> 2,321 2,909 2,384
<SALES> 3,232 6,921 2,060
<TOTAL-REVENUES> 3,232 11,615 3,482
<CGS> 4,399 5,249 1,365
<TOTAL-COSTS> 10,972 14,665 2,644
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 59 66 14
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (7,739) (3,050) 838
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (7,739) (3,050) 838
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (7,739) (3,050) 838
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<CASH> 0 865 587
<SECURITIES> 0 0 0
<RECEIVABLES> 367 3,484 3,849
<ALLOWANCES> 0 (469) (683)
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 367 6,313 4,558
<PP&E> 1,456 5,932 8,319
<DEPRECIATION> (329) (1,258) (2,006)
<TOTAL-ASSETS> 1,530 11,634 12,942
<CURRENT-LIABILITIES> 928 6,120 10,428
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 16,170 48,972 65,917
<OTHER-SE> 0 (2,102) (4,873)
<TOTAL-LIABILITY-AND-EQUITY> 1,530 11,634 12,942
<SALES> 817 7,317 5,361
<TOTAL-REVENUES> 817 7,317 5,361
<CGS> 1,520 7,626 2,701
<TOTAL-COSTS> 14,865 38,904 26,572
<OTHER-EXPENSES> 0 (75) (263)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (15,568) (39,288) (24,175)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (15,568) (39,288) (24,175)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (15,568) (39,288) (24,175)
<EPS-BASIC> (1.33) (2.95) (1.67)
<EPS-DILUTED> (1.33) (2.95) (1.67)
</TABLE>
<PAGE>
EXHIBIT 99.1
[LETTERHEAD OF BEAR, STEARNS & CO. INC.]
Consent of Bear, Stearns & Co. Inc.
July 9, 1999
Board of Directors
NBC Internet, Inc.
300 Montgomery Street, Suite 300
San Francisco, CA 94104
Re: Registration Statement of NBC Internet, Inc. relating to the
Agreement and Plan of Contribution and Merger, dated as of May 9,
1999, among Xoom.com, Inc., NBCi, Inc., Xenon 3, Inc., CNET, Inc. and
SNAP LLC, and the Agreement and Plan of Contribution, Investment and
Merger, dated as of May 9, 1999 among Xoom.com, Inc., National
Broadcasting Company, Inc., GE Investments Subsidiary, Inc., Neon
Media Corporation and NBCI, Inc.
Ladies and Gentlemen:
We refer to our opinion letter, dated May 9, 1999 with respect to the
merger of Xoom.com, Inc. into Xenon 3, Inc., resulting in Xoom.com becoming a
wholly owned subsidiary of NBCi and with respect to the merger of Neon Media
Corporation with and into NBCi, with NBCi surviving.
We hereby consent to the reference to the foregoing opinion letter under
the captions "Summary -- Opinions of Financial Advisors to Xoom.com," "The
Transactions -- Background," "The Transactions -- Recommendation of
Xoom.com's Board of Directors and Reasons for the Transactions," "The
Transactions -- Opinion of Xoom.com's Financial Advisors," in, and to the
inclusion of such opinion letter as Appendix C-1 to the proxy
statement/prospectus that is part of the above referenced Registration
Statement. By giving such consent we do not thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "expert" as used in, or that we come within the category of persons
whose consent is required under, the Securities Act of 1933, as amended, or
the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Bear, Stearns & Co. Inc.
By:
/s/ Lisa M. Price
----------------------------
Senior Managing Director
<PAGE>
EXHIBIT 99.2
CONSENT OF HAMBRECHT & QUIST LLC
We hereby consent to the inclusion of our opinion letter dated May 9,
1999 to the Board of Directors of Xoom.com, Inc. as Appendix C-2 to the Proxy
Statement/Prospectus which forms part of the Registration Statement on Form
S-4 of NBC Internet, Inc., relating to the proposed business combination
involving Xoom.com, Inc., CNET and NBC Internet, Inc., and to the references
to such opinion in the Proxy Statement/Prospectus under the captions "Summary
- -- Opinion of Financial Advisors to Xoom.com," "The Transactions --
Background," and "-- Recommendation of Xoom.com's Board of Directors and
Reasons for the Transactions," "-- Opinion of Xoom.com's Financial Advisors"
and "-- Opinion of Hambrecht & Quist." In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations issued by the Securities and Exchange Commission thereunder
(collectively, the "Securities Act"), nor do we admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "expert" as used in the Securities Act.
Hambrecht & Quist LLC
By: /s/ David Golden
-------------------------------
Name: David Golden
Title: Managing Director
July 9, 1999
<PAGE>
EXHIBIT 99.3
[FORM OF FRONT OF PROXY CARD]
PROXY
XOOM.COM, INC.
300 MONTGOMERY ST., SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF THE STOCKHOLDERS OF XOOM.COM, INC.
TO BE HELD ON SEPTEMBER __, 1999.
The undersigned hereby appoints _________________and _________________, or
each of them with power of substitution, as proxies to vote as specified
on this card all shares of common stock of Xoom.com, Inc. (the "Company")
which the undersigned may be entitled to vote at the Company's Special
Meeting of Stockholders to be held at the Sir Francis Drake Hotel, 450 Powell
Street, San Francisco, CA at 10:00 a.m. on September __, 1999 and at any
adjournment or postponement thereof. Said proxies are authorized to vote in
their discretion as to any other business which may properly come before the
meeting. IF A VOTE IS NOT SPECIFIED, SAID PROXIES WILL VOTE FOR PROPOSALS 1
AND 2.
You are encouraged to specify your choices by marking the appropriate boxes
on both sides of this card--but you need not mark any boxes if you wish to
vote in accordance with the Board of Directors' recommendations. The proxies
cannot vote your shares unless you sign and return this card.
The signer hereby revokes all proxies heretofore given by the signer to
vote at said meeting or any adjournment or postponement thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2. /X/ Please make your votes as
in this example.
---------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
---------------------------------------------------------------
DETAILS OF AN AGREEMENT AND PLAN OF CONTRIBUTION AND MERGER, DATED AS OF
MAY 9, 1999, A SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF
CONTRIBUTION, INVESTMENT AND MERGER DATED AS OF JULY 7, 1999, AND OTHER
IMPORTANT INFORMATION CONCERNING THE PROPOSALS AT THE SPECIAL MEETING APPEAR
IN THE PROXY STATEMENT/PROSPECTUS. PLEASE READ THAT MATERIAL CAREFULLY.
(Continued and to be Signed on Reverse Side)
<PAGE>
[FORM OF BACK OF PROXY CARD]
1. To adopt an Agreement and Plan of Contribution and Merger, dated as of
May 9, 1999 (the "Merger Agreement"), among the Company, NBCi, a newly
organized Delaware corporation and a wholly owned subsidiary of the Company,
CNET, Inc. a Delaware corporation, SNAP LLC, a Delaware limited liability
company, and Xenon 3, Inc., a newly formed Delaware corporation and wholly
owned subsidiary of NBCi.
/ / FOR / / AGAINST / / ABSTAIN
2. To approve the Company's adoption, as the sole stockholder of NBCi, of a
Second Amended and Restated Agreement and Plan of Contribution, Investment
and Merger, dated as of July 7, 1999 the ("Contribution Agreement"), among
the Company, National Broadcasting Company, Inc., GE Investments Subsidiary,
Inc., a Delaware corporation, Neon Media Corporation, a newly formed Delaware
corporation, and NBCi.
/ / FOR / / AGAINST / / ABSTAIN
DATED: __________________________________,19_____________
SIGNATURE(s):
____________________________________________________________________
____________________________________________________________________
PLEASE SIGN EXACTLY AS NAME APPEARS HEREIN. IF SHARES ARE HELD JOINTLY OR BY
TWO OR MORE PERSONS, EACH STOCKHOLDER NAMED SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC. SHOULD SO INDICATE WHEN SIGNING. IF THE
SIGNER IS A CORPORATION, PLEASE SIGN CORPORATE NAME BY DULY AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED
PERSON.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE>
EXHIBIT 99.4
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ ROBERT C. WRIGHT
-----------------------------------------
Robert C. Wright
</TABLE>
<PAGE>
EXHIBIT 99.5
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ JEFFREY BALLOWE
-----------------------------------------
Jeffrey Ballowe
</TABLE>
<PAGE>
EXHIBIT 99.6
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ ROBERT C. HARRIS, JR.
-----------------------------------------
Robert C. Harris, Jr.
</TABLE>
<PAGE>
EXHIBIT 99.7
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ JAMES J. HEFFERNAN
-----------------------------------------
James J. Heffernan
</TABLE>
<PAGE>
EXHIBIT 99.8
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ PHILIP SCHLEIN
-----------------------------------------
Philip Schlein
</TABLE>
<PAGE>
EXHIBIT 99.9
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ MARK BEGOR
-----------------------------------------
Mark Begor
</TABLE>
<PAGE>
EXHIBIT 99.10
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ THOMAS ROGERS
-----------------------------------------
Thomas Rogers
</TABLE>
<PAGE>
EXHIBIT 99.11
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ MARTIN YUDKOVITZ
-----------------------------------------
Martin Yudkovitz
</TABLE>
<PAGE>
EXHIBIT 99.12
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ GARY M. REINER
-----------------------------------------
Gary M. Reiner
</TABLE>
<PAGE>
EXHIBIT 99.13
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
NBC Internet, Inc., a Delaware corporation, and to all references to him and to
his professional history, including but not limited to his biography in the
proxy statement/prospectus that is included or made a part of this Registration
Statement on Form S-4 filed with the Securities and Exchange Commission, and any
amendment thereto.
Dated as of July 9, 1999.
<TABLE>
<S> <C> <C>
By: /s/ JOHN F. WELCH
-----------------------------------------
John F. Welch
</TABLE>
