<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1999
REGISTRATION NO. 333-82639
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NBC INTERNET, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<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:
<TABLE>
<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 KRISTIAN E. WIGGERT, ESQ. 425 Lexington Avenue
2800 BRIAN D. LEWANDOWSKI, ESQ. New York, NY 10017
Dallas, TX 75201 Morrison & Foerster LLP (212) 455-2000
(214) 939-5500 425 Market Street
San Francisco, CA
94105-2482
(415) 268-7000
</TABLE>
--------------------------
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. / /
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
November , 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. The new company, NBCi,
would combine the businesses of Xoom.com, SNAP and three Internet-related
businesses of NBC, as well as a 10 percent equity interest in CNBC.com. You will
also be asked at the meeting to approve the NBCi 1999 stock incentive plan.
Upon the closing of the transactions described in this proxy
statement/prospectus, stockholders of Xoom.com are expected to own approximately
38.8 percent of the outstanding common stock of NBCi, CNET is expected to own
approximately 13.8 percent and affiliates of NBC are expected to own
approximately 47.3 percent. The NBC affiliates involved in the transactions have
the ability to increase their ownership percentage to approximately 52.6 percent
in the future upon the exercise in full of two convertible notes issued by NBCi.
For each share of common stock of Xoom.com that you own, you will receive
one share of Class A common stock of NBCi. Currently, there is no public market
for NBCi shares. NBCi, however, 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
27,365,472 shares of its Class A common stock outstanding, of which 20,120,409
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, 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.
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. IN ADDITION, I HAVE AGREED TO
VOTE ALL SHARES OF XOOM.COM COMMON STOCK THAT I BENEFICIALLY OWN IN FAVOR OF THE
TRANSACTIONS.
Please use this opportunity to take part as a stockholder 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, SO PLEASE TAKE THE TIME TO VOTE YOUR SHARES.
<TABLE>
<S> <C>
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 NOVEMBER , 1999 AND WAS FIRST
MAILED TO STOCKHOLDERS ON OR ABOUT NOVEMBER , 1999.
<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 transactions set forth in this proxy statement/prospectus. 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 PROPOSALS. 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 NOVEMBER ,
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 IN CONNECTION WITH THE TRANSACTIONS SET FORTH IN
THIS PROXY STATEMENT/PROSPECTUS SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
<PAGE>
XOOM.COM, INC.
300 MONTGOMERY STREET, SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date: , November , 1999
Time: 8:00 a.m.
Place: Sheraton Palace Hotel, 2 New Montgomery Street, San Francisco,
California 94105
At the meeting you will be asked to:
(1) Adopt the Agreement and Plan of Contribution and Merger, dated as of
May 9, 1999, as amended on October 20, 1999 and referred to as 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, as amended on October 20, 1999 and
referred to as 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) Approve the NBCi 1999 stock incentive plan, referred to as the stock
incentive plan.
(4) 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, the contribution agreement and the stock incentive plan.
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 October
6, 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.
<TABLE>
<S> <C>
By order of the board of directors
Chris Kitze
Chairman of the Board
</TABLE>
San Francisco, California
November , 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>
<CAPTION>
PAGE
---------
<S> <C>
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
Opinions of Financial Advisors to
Xoom.com.................................. 11
Interests of Executive Officers and
Directors of Xoom.com in the
Transactions.............................. 11
The Special Meeting......................... 12
Stockholder Approval........................ 12
Nasdaq Listing.............................. 12
Governmental and Regulatory Matters......... 12
Material Federal Income Tax Consequences.... 12
Anticipated Accounting Treatment............ 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
THE SPECIAL MEETING........................... 44
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
<CAPTION>
PAGE
---------
<S> <C>
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.............................. 50
Opinion of Bear Stearns..................... 53
Opinion of Hambrecht & Quist................ 61
Interests of Executive Officers and
Directors of Xoom.com in the
Transactions.............................. 68
Governmental and Regulatory Matters......... 70
Material Federal Income Tax Consequences.... 71
Accounting Treatment........................ 72
No Appraisal Rights......................... 73
Listing of NBCi Class A Common Stock........ 73
Delisting and Deregistration of Xoom.com
Common Stock.............................. 73
Restriction on Resales of NBCi Common
Stock..................................... 73
THE MERGER AGREEMENT AND THE CONTRIBUTION
AGREEMENT................................... 74
The Merger Agreement........................ 74
The Contribution Agreement.................. 80
DESCRIPTION OF RELATED AGREEMENTS............. 90
The Stock Option Agreement.................. 90
The Registration Rights Agreement........... 92
The Voting Agreement........................ 94
The Brand Integration and License
Agreement................................. 95
The Convertible Notes....................... 96
Advertising Agreement....................... 96
Governance Agreement........................ 97
CNET Voting And Right of First Offer
Agreement................................. 97
CNET Standstill Agreement................... 97
CNET Carriage Agreement..................... 97
CNBC Carriage Agreement..................... 98
Equity Investment and Restructuring......... 98
NBCI 1999 STOCK INCENTIVE PLAN................ 99
Purposes.................................... 99
Administration/Eligible Participants........ 99
Number of Shares Authorized Under the Stock
Incentive Plan............................ 100
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Substitute Awards........................... 100
Term and Conditions of Awards Under the
Stock Incentive Plan...................... 100
Transferability............................. 101
Change of Control........................... 101
Amendment to Stock Incentive Plan........... 102
Federal Income Tax Consequences Relating to
Stock Options............................. 102
Anticipated Awards.......................... 103
NBCI UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (STEP ONE)............ 104
NBCI UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (STEPS ONE AND TWO)... 108
NBCI'S BUSINESS............................... 114
Overview.................................... 114
Industry Background......................... 115
The NBCi Approach........................... 116
NBCi Strategy............................... 118
Recent Transactions Affecting NBCi.......... 121
Technology and Infrastructure............... 121
Competition................................. 122
Intellectual Property and Proprietary
Rights.................................... 123
Effect on NBCi if the Transactions
Contemplated by the Contribution Agreement
Do Not Occur.............................. 124
Legal Proceedings........................... 125
Employees................................... 125
Facilities.................................. 125
Disclosures About Market Risk............... 125
MANAGEMENT OF NBCI FOLLOWING TRANSACTIONS..... 126
Executive Officers and Directors............ 126
Key Employees............................... 126
Board Committees............................ 130
Director Compensation....................... 130
NBCI EXECUTIVE COMPENSATION................... 130
Stock Incentive Plan........................ 130
401(k) Plan................................. 130
Welfare Benefit Plans....................... 131
NBCI CERTAIN TRANSACTIONS..................... 131
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL
STOCKHOLDERS OF XOOM.COM AND NBCI........... 135
XOOM.COM BUSINESS............................. 137
Overview.................................... 137
<CAPTION>
PAGE
---------
<S> <C>
Community and E-Commerce Industry
Background................................ 137
Approach.................................... 139
Strategy.................................... 140
Products and Services....................... 141
Strategic Alliances......................... 142
Sales and Marketing......................... 144
Customer Service and Support................ 145
Warehousing and Fulfillment................. 145
Technology and Infrastructure............... 146
Competition................................. 146
Intellectual Property and Proprietary
Rights.................................... 147
Legal Proceedings........................... 147
Employees................................... 148
Facilities.................................. 148
XOOM.COM'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................... 149
Overview.................................... 149
Recent Events............................... 151
Results of Operations....................... 152
Quarterly Results of Operations............. 168
Liquidity and Capital Resources............. 170
Disclosures About Market Risk............... 172
Year 2000 Compliance........................ 172
SNAP BUSINESS................................. 174
Overview.................................... 174
Portal Industry Background.................. 175
The SNAP Strategy........................... 175
Products and Services....................... 177
Strategic Alliances......................... 180
Revenue Sources............................. 181
Marketing................................... 182
Technology and Infrastructure............... 183
Competition................................. 183
Research and Development.................... 184
Intellectual Property and Proprietary
Rights.................................... 184
Legal Proceedings........................... 184
Employees................................... 185
Facilities.................................. 185
SNAP'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................. 186
Overview.................................... 186
Recent Events............................... 187
Results of Operations....................... 188
Quarterly Results of Operations............. 192
Liquidity and Capital Resources............. 194
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Disclosures About Market Risk............... 195
Year 2000 Compliance........................ 195
Recent Accounting Pronouncements............ 197
NBC CONTRIBUTED INTERNET ASSETS............... 198
Overview.................................... 198
NBC.com..................................... 198
NBC-IN.com.................................. 200
VideoSeeker................................. 202
General Matters Affecting NBC.com,
NBC-IN.com and VideoSeeker................ 203
CNBC.com.................................... 204
NBC MULTIMEDIA DIVISION'S MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......... 208
Overview.................................... 208
Results of Operations....................... 209
Liquidity and Capital Resources............. 213
Year 2000 Compliance........................ 213
Impact of Recently Issued Accounting
Pronouncements............................ 215
<CAPTION>
PAGE
---------
<S> <C>
COMPARISON OF CAPITAL STOCK................... 216
Description of NBCi Capital Stock........... 216
NBCi Certificate of Incorporation and
Bylaws.................................... 217
Other Agreements............................ 222
Antitakeover Effects of Provisions of NBCi's
Charter and Bylaws........................ 222
Section 203 of the General Corporation Law
of the State of Delaware.................. 223
Comparison of Rights of NBCi Stockholders
and Xoom.com Stockholders................. 223
FUTURE STOCKHOLDER PROPOSALS.................. 227
LEGAL MATTERS................................. 227
EXPERTS....................................... 227
INDEX TO FINANCIAL STATEMENTS................. F-1
</TABLE>
APPENDICES TO THE PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
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 Restated Certificate of Incorporation of NBCi
APPENDIX D-2 Form of Amended and Restated Bylaws of NBCi
APPENDIX E Stock Incentive Plan
APPENDIX F Supplemental EASDAQ Information
</TABLE>
iii
<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 July 1999, according to
Media Metrix based on the percentage increase in reach among home and work
users,
- SNAP, the owner of www.snap.com, one of the fastest-growing major Internet
portals from July 1998 to July 1999, according to Media Metrix based on
the percentage increase in reach among home and work users, and
- selected Internet assets of a subsidiary of NBC, a wholly owned subsidiary
of General Electric Company. NBC was 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 GlobalBrain.net, Inc., an unaffiliated third party, will contribute
their ownership interests in SNAP to NBCi. 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.
At the same time, NBC Multimedia, a subsidiary of NBC, will contribute its
ownership interests in SNAP to NBCi. NBC Multimedia will also transfer the
business related to VideoSeeker.com to NBCi in exchange for a convertible note
of NBCi. In addition, GE Investments Subsidiary, 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]
We expect 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 32 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 20,120,409 shares of
Class A common stock of NBCi, representing approximately 38.8% 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, which is expected to represent
approximately 13.8% 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. On July 30, 1999 NBC acquired 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 are expected to own approximately 47.3% of
NBCi's outstanding common stock upon the closing of the transactions. Under the
contribution
3
<PAGE>
agreement, NBC and its affiliates will also receive two convertible notes of
NBCi. 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 52.6% 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, 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 216 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. The holders of the Class B common stock will retain
this 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 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 members to the NBCi board of directors, several significant
corporate actions by NBCi will require the approval of the Class A Directors.
See page 219 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 126. NBCi will be
managed principally by individuals that currently manage Xoom.com and SNAP. See
page 126 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 114. Users will be able
to access Xoom.com from the Snap.com Web site or from the current Xoom.com
address.
Q: WHAT WILL HAPPEN TO THE NBC.COM, NBC-IN.COM AND VIDEOSEEKER.COM WEB SITES?
A: After the closing of the transactions, the NBC.com, NBC-IN.com and
VideoSeeker.com Web sites will be integrated into the Snap.com Web site. Users
will be able to access these Web sites from the Snap.com Web site or from the
current Web site address of each Web site.
Q: WHAT AM I VOTING ON?
A: You will vote on whether to adopt the merger agreement, whether to
approve Xoom.com's adoption, as the sole stockholder of
4
<PAGE>
NBCi, of the contribution agreement and whether to approve the stock incentive
plan.
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 you vote to adopt the merger agreement and vote in favor of
Xoom.com's adoption of the contribution agreement. Xoom.com's board of directors
also recommends that you vote to approve the stock incentive plan.
For a more complete description of the recommendation of the board of
directors of Xoom.com, see page 50.
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, "FOR" approval of Xoom.com's adoption of the contribution
agreement and "FOR" approval of the stock incentive plan.
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. 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 or against the approval of the stock
incentive plan.
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
in November 1999.
For a more complete description of the conditions to the transactions, see
pages 74 and 80.
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 Innisfree M&A Incorporated, the proxy solicitation firm retained
by Xoom.com, at (212) 750-5833.
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."
5
<PAGE>
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" for additional sources of information.
THE COMPANIES (PAGES 114, 137, 174 AND 198)
NBCI
300 Montgomery Street, Suite 300
San Francisco, California 94104
Attn: Investor Relations
(415) 288-2500
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 94104
Attn: Investor Relations
(415) 288-2500
Xoom.com's objective is to be a leading direct e-commerce company 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. 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 94133
Attn: Chief Financial Officer
(415) 875-7900
Snap.com 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 entertainment programming and information on the
Internet. NBC-IN.com is a portal to a
6
<PAGE>
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 74)
Under 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 20,120,409 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
- GlobalBrain.net 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% of the ownership interests in SNAP. NBCi's ownership interest
may be reduced to 40% and thereafter to 25% after giving effect 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;
- a governmental authority or legal action permanently prohibits
consummation of
7
<PAGE>
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 80)
Under 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;
- 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 $39,477,953 subordinated zero coupon convertible
note of NBCi due 2006; and
- GE Investments Subsidiary will purchase a $447,416,805 subordinated 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.
8
<PAGE>
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;
- 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;
or
- automatically and without any action by the parties upon the termination
of the merger agreement.
RELATED AGREEMENTS (PAGE 90)
NBC STOCK OPTION (PAGE 90)
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 represented 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 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 90. 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.
9
<PAGE>
VOTING AGREEMENT (PAGE 94)
Chris Kitze, Xoom.com's Chairman and, through a company he controls, the
owner of approximately 16.4% of Xoom.com outstanding common stock, has agreed to
vote all of his shares of Xoom.com common stock to adopt the merger agreement
and to approve Xoom.com's adoption of the contribution agreement.
BRAND INTEGRATION AND LICENSE AGREEMENT (PAGE 95)
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 specified 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 license rights to
the Web site addresses for NBC.com, NBC-IN.com and VideoSeeker.com, although NBC
retains title to such addresses.
ADVERTISING AGREEMENT (PAGE 96)
NBC and NBCi will enter into an agreement to purchase at least $405 million
of advertising on NBC's television properties including the NBC Television
Network, CNBC, MSNBC and NBC's owned and operated television stations over the
next four years. At the end of the four year period, NBC and NBCi have agreed to
negotiate concerning the purchase of an additional $500 million of advertising
on NBC during the following six years.
GOVERNANCE AGREEMENT (PAGE 97)
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 the case of a third
party tender offer or if NBCi agrees to enter into a relationship that would
result in a change in control. 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 WITH CNET (PAGE 97)
In connection with the transactions, CNET will enter into a voting and right
of first offer agreement with NBC under which CNET will
- agree to vote its shares of Class A common stock in the same manner as NBC
and its affiliates with respect to change in control transactions
involving NBCi, and
- provide NBC with a right of first offer to purchase shares of Class A
common stock owned by CNET.
CNET will also 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 transfers in connection with a third party tender offer or a merger,
consolidation or reorganization of NBCi.
AMENDMENT TO CNET CARRIAGE AGREEMENT (PAGE 97)
In connection with the transactions, CNET, SNAP and NBC and its affiliates
entered into an
10
<PAGE>
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.
XOOM.COM/NBC STOCK PURCHASE AGREEMENT (PAGE 98)
On June 11, 1999, Xoom.com and NBC entered into a stock purchase agreement.
Under the agreement, on July 30, 1999 NBC acquired 960,028 shares of Xoom.com's
common stock, which at that time represented approximately 5.0% of Xoom.com's
outstanding shares, for $55 million. NBC has 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.
REASONS FOR THE TRANSACTIONS (PAGE 50)
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.
OPINIONS OF FINANCIAL ADVISORS TO XOOM.COM (PAGES 53 AND 61 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 and its
stockholders. 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 EXECUTIVE OFFICERS AND DIRECTORS OF XOOM.COM IN THE TRANSACTIONS
(PAGE 68)
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 the 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. Specifically, the closing
of the transactions will result in the accelerated vesting of options relating
to 527,389 shares of Xoom.com common stock held by the executive officers and
directors of Xoom.com. As a result, directors and officers may be more likely to
vote to approve the transactions than Xoom.com's stockholders generally.
11
<PAGE>
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 transactions contemplated thereby, including the merger of
Xoom.com with Xenon 3. You also will be asked to approve the stock incentive
plan. Xoom.com will initially pay the costs of soliciting proxies for the
special meeting. If the transactions contemplated by the merger agreement close,
NBCi will be responsible for these expenses.
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 of (A) Xoom.com's adoption of
the contribution agreement, and (B) the stock incentive plan.
As of the record date, Mr. Kitze, including his affiliates, and NBC,
collectively owned 4,310,708 shares or approximately 21.1% of the Xoom.com
outstanding common stock. Mr. Kitze and NBC have agreed to vote their shares in
favor of the transactions. Accordingly, the vote of stockholders owning an
additional 5,920,678 shares or 28.9% of Xoom.com common stock is required to
approve both the merger agreement, contribution agreement and the stock
incentive plan, assuming all shares of Xoom.com common stock are present in
person or by proxy at the meeting.
As of the record date, the executive officers and directors of Xoom.com and
their affiliates collectively owned 3,966,986 shares of Xoom.com common stock
representing approximately 19.4% of the outstanding shares.
NASDAQ LISTING (PAGE 73)
NBCi has applied to have the Class A common stock listed 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.
NBCi has also applied to have the Class A common stock listed on the
European Association of Securities Dealers Automated Quotation system, refered
to as EASDAQ.
GOVERNMENTAL AND REGULATORY MATTERS (PAGE 70)
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
expired on August 1, 1999.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 71)
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 determination by Xoom.com to waive
receipt of an opinion as a condition to the completion of
12
<PAGE>
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 72)
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.
13
<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 104 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 six months ended June 30, 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 June 30, 1999 and combine the historical
balance sheets of Xoom.com, SNAP and the NBC Multimedia Division and other
purchase adjustments at that date.
The final purchase price allocation will be calculated based on NBC
Multimedia's and SNAP's balance sheets and SNAP's stock options outstanding at
the date the transaction is consummated.
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.
14
<PAGE>
XOOM.COM'S SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1996 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) DECEMBER 31, JUNE 30,
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 $ 2,565 $10,947
Loss from operations......................... (439) (3,132) (9,356) (3,339) (12,993)
Net loss..................................... (439) (3,132) (10,798) (3,339) (10,050)
Net loss per share--basic and diluted........ (0.89) (0.64) (1.37) (0.52) (0.66)
Number of shares used in per share
calculation--basic and diluted.............. 496 4,874 7,879 6,402 15,288
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998 1999
---- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash and cash equivalents and short-term marketable securities... $ 1 $ 6 $56,575 $165,413
Working capital (deficit)........................................ 156 (1,400) 52,560 160,068
Total assets..................................................... 705 782 66,874 292,464
Long-term debt and capital lease obligations, less current
portion......................................................... -- -- 528 429
Total stockholders' equity (deficit)............................. 560 (873) 60,333 277,922
</TABLE>
SNAP! LLC'S SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------ -------------------------
1997 1998 1998 1999
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS DATA:
Revenues..................................... $ 817 $ 7,317 $ 1,958 $ 13,368
Loss from operations......................... (15,568) (39,213) (9,054) (45,659)
Net loss..................................... (15,568) (39,288) (9,054) (46,254)
Net loss per unit--basic and diluted......... (1.33) (2.95) (0.77) (3.19)
Number of units used in per share
calculation--basic and diluted.............. 11,700 13,301 11,700 14,481
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1997 1998 1999
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash and cash equivalents.................... $ -- $ 865 $ 37
Working capital (deficit).................... (561) 193 (10,566)
Total assets................................. 1,530 11,634 35,380
Long-term debt............................... -- 13,500 30,100
Total members' equity (deficit).............. 602 (7,986) (11,813)
</TABLE>
15
<PAGE>
NBC MULTIMEDIA DIVISION'S SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- -------------------------
1997 1998 1998 1999
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL COMBINED STATEMENTS OF OPERATIONS DATA:
Revenues............................................... $ 3,232 $11,615 $ 4,248 $ 8,925
(Loss) income from operations.......................... (7,739) (3,050) (2,793) 3,630
Net (loss) income...................................... (7,739) (3,050) (2,793) 3,630
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
HISTORICAL COMBINED BALANCE SHEET DATA:
Working capital (deficit).............................. $ 350 $ 407 $ (15)
Total assets........................................... 2,321 2,909 2,578
Long-term debt......................................... -- -- --
Parent Company's investment and net advances........... (429) (13,610) (19,869)
</TABLE>
NBCI'S SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1998 JUNE 30, 1999
------------ --------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA:
Net revenue........................................................................ $ 28,132 $ 33,531
Loss from operations............................................................... (300,723) (180,770)
Net loss........................................................................... (300,253) (176,890)
Net loss per share--basic and diluted.............................................. (7.22) (3.68)
Number of shares used in per share calculation--basic and diluted.................. 41,595 48,014
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE
30, 1999
------------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments.................................................. $ 190,949
Working capital..................................................................................... 231,145
Total assets........................................................................................ 2,323,211
Long-term debt and capital lease obligations, less current portion.................................. 370,429
Total stockholders' equity.......................................................................... 1,897,327
</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.
16
<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-3, F-34 and F-51, 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 six months ended June 30, 1999.................... (0.66) (3.19)
Book value per share at June 30, 1999....................... 11.95 (817.85) $ 6.02 $ 7.74
</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 June 30, 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.
17
<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. ALL OF THESE RISKS 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
THE FAILURE OF NBCI TO SUCCESSFULLY INTEGRATE THE OPERATIONS OF XOOM.COM,
SNAP AND THE NBC CONTRIBUTED INTERNET BUSINESSES COULD HAVE A MATERIAL
ADVERSE EFFECT ON ITS OPERATIONS
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. 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 the 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 businesses 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 businesses;
- 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.
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 AND A HISTORY OF LOSSES
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 Snap.com Web site was launched by CNET in September
1997. SNAP was spun-off from CNET as an
18
<PAGE>
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. In addition, Xoom.com, SNAP
and the NBC contributed Internet businesses have not achieved positive annual
operating cashflows and NBCi expects to incur net losses for the foreseeable
future.
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;
19
<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.
IF NBCI DOES NOT SUCCESSFULLY INTEGRATE THE WEB SITES OF XOOM.COM, NBC.COM,
NBC-IN.COM AND VIDEOSEEKER.COM INTO THE SNAP.COM WEB SITE OR IF USERS DO
NOT ACCEPT THE INTEGRATED SNAP.COM WEB SITE NBCI'S OPERATIONS COULD BE
ADVERSELY AFFECTED
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 users, 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 some
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.
20
<PAGE>
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 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. 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
approximately 1.2% 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.
BECAUSE NBC WILL HAVE SIGNIFICANT INFLUENCE OVER THE MANAGEMENT AND STRATEGY
OF NBCI, THE ABILITY OF THE EXISTING STOCKHOLDERS OF XOOM.COM TO DETERMINE
THE OUTCOME OF MATTERS WILL BE REDUCED
Upon the closing of the transactions, NBC and its affiliates are expected to
own approximately 47.3% of the outstanding common stock of NBCi. If the
convertible notes are converted, this ownership interest could increase up to
approximately 52.6%, 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 change in control transactions involving NBCi,
enabling NBC to determine the outcome of such
21
<PAGE>
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
restated 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 significant 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
restated 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 specified 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 restated 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, to do business with potential or actual customers and
suppliers of NBCi and to employ 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 restated certificate of incorporation of NBCi in a
22
<PAGE>
manner adverse to NBC's interests will require the approval of at least 80% of
the outstanding common stock of NBCi.
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. NBC is also 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. In addition, the value of NBC-IN.com
will be dependent on NBCi's ability to negotiate content and distribution
relationships with NBC's affiliated television stations, including the 13
stations owned by NBC. 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.
NBC'S RELATIONSHIPS WITH ITS STRATEGIC PARTNERS WILL LIMIT NBCI'S ABILITY TO
ENTER INTO STRATEGIC RELATIONSHIPS AND TO PROVIDE NEWS, INCLUDING SPORTS
AND BUSINESS NEWS, ON ITS WEB SITES
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 services that NBCi might otherwise offer 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 or provide some activities or 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 businesses 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 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 AND WILL MAKE IT MORE DIFFICULT FOR NBCI TO ACHIEVE
PROFITABILITY
NBCi will incur substantial costs in connection with the transactions which
may make it more difficult to achieve profitability in the future. 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.
23
<PAGE>
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.
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
24
<PAGE>
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 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 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 HAS CREATED AND CONTINUES TO CREATE COMPANIES THAT ARE
LARGER AND HAVE GREATER RESOURCES THAN NBCI
In the recent past, there have been a number of significant acquisitions and
strategic plans announced among and between NBCi's anticipated 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 some 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 HAVE RESULTED IN COMPETITORS OFFERING A BROADER VARIETY OF
INTERNET RELATED SERVICES THROUGH MORE INTEGRATED WEB SITES AND THE USE OF
PROMINENT SEARCH BUTTONS TO DIRECT TRAFFIC, WHICH MAY MAKE IT MORE
DIFFICULT FOR INTERNET USERS TO FIND AND USE NBCI'S PRODUCTS AND MEDIA
PROPERTIES
As discussed above, 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.
25
<PAGE>
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.
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 $405 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
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.
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 expects to continue to devote its efforts to continuing
this success, NBCi cannot be assured 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 declines to 5% or less, or if there is a change in control of
NBCi.
26
<PAGE>
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.
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, some 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. Any failure in NBCi's
networking hardware and software infrastructure could significantly and
adversely impact the results of NBCi's operations.
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.
27
<PAGE>
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 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 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.
28
<PAGE>
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;
- 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 some 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 distribution agreements and informal
29
<PAGE>
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.
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.
30
<PAGE>
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 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.
31
<PAGE>
THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT MAY OCCUR WITHOUT THE
TRANSACTIONS CONTEMPLATED BY THE CONTRIBUTION AGREEMENT OCCURRING, AND AS A
RESULT, MANY OF THE PERCEIVED BENEFITS ARISING FROM A RELATIONSHIP WITH NBC
AND ITS CONTRIBUTED INTERNET BUSINESSES WOULD NOT OCCUR
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 and the resulting company may be less competitive
and consequently less attractive to investors. Specifically, the surviving
entity:
- would consist of Xoom.com plus an 81% non-controlling interest in SNAP,
which may be reduced to 40% and thereafter down to 25% if NBC Multimedia
were to exercise its two options to purchase additional ownership
interests in SNAP;
- would have significant influence over the operating and financing
decisions of SNAP, but would not control SNAP because of the governance
rights shared by the surviving entity and NBC;
- would not be affiliated with NBC, other than through their shared
ownership of SNAP;
- would not enter into an advertising agreement 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.
In addition, the Class B Directors, including John F. Welch, Jr., would not
serve as directors nor would Robert C. Wright become the chairman of the board
of the surviving entity. Also, as discussed beginning on page 90, if the
stockholders of Xoom.com fail to approve the adoption of the contribution
agreement after a third party has made a bona fide proposal to Xoom.com or its
stockholders to engage in an acquisition transaction, NBC could exercise its
option to purchase approximately 19.9% of the common stock of Xoom.com, which
would dilute the ownership interests of Xoom.com's current stockholders.
Xoom.com cannot estimate accurately the risk that the transactions
contemplated by the merger agreement will occur without the transactions
contemplated by the contribution agreement occurring, as it cannot control or
predict, as of the date of this proxy statement/prospectus, whether the
stockholders of Xoom.com will approve either or both of the transactions. A more
detailed discussion of the effect on the surviving entity if the transactions
contemplated by the contribution agreement do not occur can be found on page
124.
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
32
<PAGE>
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 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.
33
<PAGE>
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.
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 OF XOOM.COM AND SNAP 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 one matter, which is
described on page 184. Xoom.com is also litigating three matters which are
described on page 147. 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.
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
34
<PAGE>
incorporating the technology or businesses. Any of these risks could prevent
NBCi from realizing significant benefits from NBCi's acquisitions.
NBCi will face increased competition with other entities for desirable
acquisition targets. Like several of its competitors and other Internet
companies, NBCi expects to issue common stock in future acquisitions. If the
market price of NBCi's common stock suffers declines which are disproportionate
relative to its competitors or fails to keep pace with any increases in the
price of the stock of its competitors, NBCi may not be able to compete with
other entities for desirable acquisition candidates. NBCi's inability to acquire
complementary businesses, products and technologies may have a material adverse
effect on NBCi's business and results of operations.
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
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.
35
<PAGE>
THE YEAR 2000 PROBLEM COULD CAUSE NBCI'S SOFTWARE PRODUCTS AND THOSE OF ITS
SUPPLIERS TO MALFUNCTION, WHICH COULD PREVENT OR LIMIT ACCESS TO NBCI'S
ONLINE PROPERTIES AND COULD BE COSTLY TO REMEDY
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. The NBCi businesses have not
determined the state of compliance of some of their 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 $500,000.
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.
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.
36
<PAGE>
NBCI'S STOCK PRICE MAY BE VOLATILE BASED ON A NUMBER OF FACTORS, SOME OF
WHICH ARE NOT IN NBCI'S CONTROL
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 by NBCi or its stockholders, which could occur at
any time after the closing of the transactions; 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. While the trading prices of
many Internet companies' stocks have recently declined from their 52-week highs,
these stocks continue to trade at multiples of earnings or revenues which are
substantially above historic 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.
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. As a result of NBC's influence, NBC may be able to exercise
effective control over significant corporate transactions which may delay or
prevent a change in control of NBCi resulting in a lower stock price. NBC and
its affiliates have enhanced voting rights with respect to the approval of
significant corporate 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.
37
<PAGE>
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 are expected to be
approximately 27,365,472 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 7,147,584 shares of Class A common stock held by CNET and the 24,550,708
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, CNET and Chris Kitze, among others, will
enter into a registration rights agreement with NBCi under which they will be
able to register their shares. Upon the sale of Class B common stock by NBC or
its affiliates, such shares will be converted into Class A common stock. The
exercise by NBC, CNET or Chris Kitze of these registration rights with respect
to a significant portion of the shares of common stock to be issued in the
transactions could substantially increase the number of shares of Class A common
stock available for sale in the public market. In particular, CNET will be
entitled to exercise its initial demand right before the other parties to the
registration rights agreement for a period of 60 days following consummation of
the transactions. As a result, any such exercise by NBC, CNET or Chris Kitze 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.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document contains forward-looking statements. 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.
38
<PAGE>
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-3 of this proxy statement/prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 149 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-3 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 six months ended June 30,
1998 and 1999 and the selected historical consolidated balance sheet data as of
June 30, 1999 are derived from Xoom.com's unaudited interim consolidated
financial statements and begin on page F-3 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 six months ended June 30, 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 SIX MONTHS ENDED
(INCEPTION) DECEMBER 31, JUNE 30,
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 $ 1,834 $ 5,933
Advertising.................................. -- 60 2,144 355 4,975
License fees and other....................... -- 454 592 376 39
------ --------- --------- --------- ---------
Total net revenue.......................... -- 841 8,318 2,565 10,947
Cost of net revenue:
Cost of e-commerce........................... -- 171 3,542 899 4,649
Cost of advertising.......................... -- -- -- -- 75
Cost of license fees......................... -- 148 42 27 --
------ --------- --------- --------- ---------
Total cost of net revenue.................. -- 319 3,584 926 4,724
------ --------- --------- --------- ---------
Gross profit................................... -- 522 4,734 1,639 6,223
Operating expenses:
Operating and development.................... 266 1,150 3,841 1,349 2,700
Sales and marketing.......................... 23 292 2,834 717 7,538
General and administrative................... 150 721 3,366 1,099 3,666
Purchased in-process research and
development................................ -- -- 790 660 2,603
Amortization of deferred compensation........ -- 248 1,416 807 405
Amortization of intangible assets............ -- -- 1,843 346 2,304
Non-recurring charges........................ -- 1,243 -- -- --
------ --------- --------- --------- ---------
Total operating expenses................... 439 3,654 14,090 4,978 19,216
------ --------- --------- --------- ---------
Loss from operations....................... (439) ($ 3,132) (9,356) (3,339) (12,993)
Other interest income (expense), net......... -- -- 52 -- 2,943
Interest expense related to warrant.......... -- -- (1,494) -- --
------ --------- --------- --------- ---------
Net loss..................................... $ (439) $ (3,132) $ (10,798) $ (3,339) $ (10,050)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Basic and diluted net loss per share......... $ (0.89) $ (0.64) $ (1.37) $ (0.52) $ (0.66)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Number of shares used in per share
calculation--basic and diluted............. 496 4,874 7,879 6,402 15,288
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- JUNE 30,
1996 1997 1998 1999
----- --------- --------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term marketable securities.............. $ 1 $ 6 $ 56,575 $ 165,413
Working capital (deficit)................................................... 156 (1,400) 52,560 160,068
Total assets................................................................ 705 782 66,874 292,464
Long-term debt and capital lease obligations, less current portion.......... -- -- 528 429
Total stockholders' equity (deficit)........................................ 560 (873) 60,333 277,922
</TABLE>
40
<PAGE>
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-34 of this proxy statement/prospectus. The
selected financial data presented below for the six months ended June 30, 1998
and 1999, and as of June 30, 1999, are derived from the unaudited financial
statements of SNAP, and begin on page F-34 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 Discussion
and Analysis of Financial Condition and Results of Operations of SNAP" beginning
on page 186 of this proxy statement/prospectus and the SNAP financial statements
and the related notes beginning on page F-34 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 SIX MONTHS ENDED JUNE
DECEMBER 31, 30,
-------------------- ------------------------
1997 1998 1998 1999
--------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues....................................... $ 817 $ 7,317 $ 1,958 $ 13,368
Cost of net revenues............................... 1,520 7,626 3,934 5,858
--------- --------- ----------- -----------
Gross profit (deficit)......................... (703) (309) (1,976) 7,510
Operating expenses:
Product development.............................. 9,403 6,263 2,303 5,009
Sales and marketing.............................. 4,090 12,482 3,368 14,613
General and administrative....................... 1,372 5,939 1,407 5,744
Amortization of deferred compensation............ -- 160 -- 1,766
Promotion and advertising provided by NBC........ -- 14,060 -- 26,037
--------- --------- ----------- -----------
Total operating expenses....................... 14,865 38,904 7,078 53,169
--------- --------- ----------- -----------
Operating loss................................. (15,568) (39,213) (9,054) (45,659)
Other expense, net................................. -- (75) -- (595)
--------- --------- ----------- -----------
Net loss....................................... $ (15,568) $ (39,288) $ (9,054) $ (46,254)
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Basic and diluted net loss per unit................ $ (1.33) $ (2.95) $ (0.77) $ (3.19)
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Units used in per unit calculation................. 11,700 13,301 11,700 14,481
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash................................................................................. -- 865 37
Working capital (deficit)............................................................ (561) 193 (10,566)
Total assets......................................................................... 1,530 11,634 35,380
Long-term obligations, less current portion.......................................... -- 13,500 30,100
Total member's equity (deficit)...................................................... 602 (7,986) (11,813)
</TABLE>
41
<PAGE>
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-51 of this proxy statement/prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 208
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-51 of this
proxy statement/prospectus. The statement of operations data for each of the six
months ended June 30, 1998 and 1999, and the balance sheet data as of June 30,
1999, are derived from the unaudited interim combined financial statements of
the NBC Multimedia Division beginning on page F-51 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>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenue................................................................. $ 3,232 $ 11,615 $ 4,248 $ 8,925
Cost of revenue......................................................... 4,398 5,249 2,535 2,806
--------- --------- --------- ---------
Gross profit (loss)................................................. (1,166) 6,366 1,713 6,119
Operating expenses:
Operating and development............................................. 677 938 564 297
Sales and marketing................................................... 2,356 3,989 1,810 748
General and administrative............................................ 3,540 4,489 2,132 1,444
--------- --------- --------- ---------
Total operating expenses............................................ 6,573 9,416 4,506 2,489
--------- --------- --------- ---------
Income (loss) from operations....................................... (7,739) (3,050) (2,793) 3,630
--------- --------- --------- ---------
Net income (loss)................................................... $ (7,739) $ (3,050) $ (2,793) $ 3,630
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Working capital (deficit)....................................................... $ 350 $ 407 $ (15)
Total assets.................................................................... 2,321 2,909 2,578
Long-term obligations, less current portion..................................... -- -- --
Parent Company's investment and net advances.................................... (429) (13,610) (19,869)
</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......................................................... $61 15/16 $30
Fourth Quarter (through October 28, 1999)............................. $65 1/2 $47 1/2
</TABLE>
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 October 28, 1999, the latest practicable trading day before the printing
of this proxy statement/prospectus.
<TABLE>
<S> <C>
May 7, 1999.......................................................... $75 1/8
October 28, 1999..................................................... $61 1/2
</TABLE>
The high and low sales price per share of Xoom.com common stock on the
Nasdaq National Market on May 7, 1999 were $81 3/8 and $66.00, respectively.
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.
43
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The special meeting will be held on November , 1999 at 8:00 a.m. local
time at the Sheraton Palace Hotel, 2 New Montgomery Street, San Francisco,
California 94105.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, stockholders of Xoom.com will be asked to vote
separately to approve:
- the adoption of the merger agreement;
- Xoom.com's adoption, as the sole stockholder of NBCi, of the contribution
agreement;
- the stock incentive plan; 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 October 6, 1999, are entitled to notice of and to vote at the
special meeting. As of the close of business on the record date, there were
20,462,775 shares of Xoom.com common stock outstanding and entitled to vote,
held of record by 375 stockholders and by over 22,000 beneficial owners. 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, "FOR" the
approval of Xoom.com's adoption of the contribution agreement and "FOR" approval
of the stock incentive plan. 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.
The Xoom.com board of directors is also seeking your approval of the stock
incentive plan. The approval of the stock incentive plan 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 the stock incentive plan
and therefore will not affect the outcome of the vote. Abstentions will have the
effect of a vote against the stock incentive plan.
On the date the merger agreement and contribution agreement were signed,
Chris Kitze, the chairman of Xoom.com 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, Mr. Kitze was deemed to beneficially own in the aggregate
approximately 16.4% of the outstanding shares of Xoom.com common stock. As of
the record date, NBC owned 960,028 shares of Xoom.com common stock, which
represents approximately 4.7% 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. Robert C. Harris, Jr., a director
of Xoom.com, is also the senior managing director of Bear Stearns, which was
engaged to render a fairness opinion on the transactions. Mr. Harris abstained
from voting on the merger agreement, the contribution agreement and the
transactions contemplated thereby due to the potential conflict of interest
arising from his position with Bear Stearns. All other directors of Xoom.com
voted in favor of the transactions. THE BOARD OF DIRECTORS OF XOOM.COM
RECOMMENDS A VOTE IN FAVOR OF THE ADOPTION OF THE
45
<PAGE>
MERGER AGREEMENT AND OF XOOM.COM'S ADOPTION OF THE CONTRIBUTION AGREEMENT. THE
BOARD OF DIRECTORS OF XOOM.COM ALSO RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
STOCK INCENTIVE PLAN.
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 exchanging your Xoom.com stock certificates for NBCi stock certificates,
please see the section entitled "Procedures for Exchanging Xoom.com Stock
Certificates" on page 80 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, Innisfree M&A Incorporated, to aid it in the solicitation.
Xoom.com anticipates that its fees plus expenses will be approximately $10,000.
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, vice president, corporate development of
Xoom.com, and Mr. Russell S. Hyzen, vice president, business development 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. The alternatives reviewed included an
initial public offering, the acquisition of a private company and the
acquisition of a public company. After concluding that SNAP's operating history
was too limited for an initial public offering, and considering the need for
SNAP to expand, particularly in the areas of community and chat, the management
team concluded that a strategic transaction with Xoom.com would be the best
choice. On February 24, 1999, this proposal was presented to SNAP's 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 some 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, 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.
47
<PAGE>
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 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 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
selected 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 of directors
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
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 of directors 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 and its stockholders. 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 and
its stockholders. 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 90.
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 some of its subsidiaries and NBC and some of
its affiliates entered into:
- a stock purchase agreement,
- the amended and restated agreement and plan of contribution, investment
and merger, and
- 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, vice president, finance and chief financial officer 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. The
board of directors' approval was 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 some of its
subsidiaries and NBC and some of its affiliates entered into the contribution
agreement, which amended and restated 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.
On October 18, 1999, Xoom.com's board of directors met with senior
management and Xoom.com's legal counsel at a special meeting to discuss the
terms and advisability of amending the merger agreement and the contribution
agreement. At the meeting, Mr. Harbottle, vice president, finance and chief
financial officer of Xoom.com, described the proposed amendments.
Representatives of Bear Stearns and Hambrecht & Quist had previously confirmed
to Xoom.com's senior management that their opinions rendered on May 9, 1999
remained in full force and effect and were unaffected by the proposed
amendments. Following these presentations, Xoom.com's board of directors engaged
in a full discussion of the terms of the proposed amendments and their
advisability. At the conclusion of this meeting, Xoom.com's board approved the
terms of the proposed amendments and authorized management to proceed with their
execution.
49
<PAGE>
The amendments included clarification of the manner in which the options to
purchase units of SNAP would be converted into options to purchase shares of
Class A common stock as described on page 79 and an increase in the total number
of options SNAP could issue prior to the closing to 17% of the units of SNAP.
The amendments also increased the total amount of advertising spots agreed to be
purchased by NBCi over a four-year period under the advertising agreement from
$380 million to $405 million.
On October 20, 1999, the parties to the merger agreement and the
contribution agreement entered into the amendments.
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:
- determined that the terms of the merger agreement and contribution
agreement, as then in effect, and the transactions contemplated thereby
are advisable and fair to and in the best interests of Xoom.com and its
stockholders,
- approved the merger agreement and the contribution agreement,
- directed that the merger agreement and the contribution agreement be
submitted for consideration by the Xoom.com stockholders and
- 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:
- 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 and its stockholders. 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. Prior to the meeting of the board of directors of Xoom.com on
October 18, 1999, Bear Stearns confirmed that its opinion remained in full
force and effect and was unaffected by the amendments to the merger
agreement and contribution agreement entered into as of October 20, 1999.
- 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
and its stockholders. 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
50
<PAGE>
second restructuring entered into as of July 8, 1999. Prior to the meeting
of the board of directors of Xoom.com on October 18, 1999, Hambrecht &
Quist confirmed that its opinion remained in full force and effect and was
unaffected by the amendments to the merger agreement and contribution
agreement entered into as of October 20, 1999.
- 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 90;
- the legal and business due diligence examination of SNAP and the NBC
contributed Internet businesses 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 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, and
- 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.
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 available in combination with NBCi, the board
of directors of Xoom.com determined that 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
businesses will result in a larger company, with more members, users,
products and services, which should enable NBCi to compete more
effectively 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;
- NBCi's enhanced ability to take advantage of future strategic
opportunities;
- the value of NBC's name and trademarks;
- the license to use NBC's name and brand with the Internet properties of
NBCi;
51
<PAGE>
- 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; and
- the expected tax and accounting treatment of the Xoom.com merger.
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;
- the possibility that the transactions and the resulting relationship with
SNAP and NBC might adversely affect Xoom.com's relationship with 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 exercisable, 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. The board
of directors' approval was 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.
At its meeting on October 18, 1999, the board of directors approved the
terms of the amendments to the merger agreement and the contribution agreement
and directed that such agreements, as amended, be submitted for consideration by
the Xoom.com stockholders. In reaching this conclusion,
52
<PAGE>
the board of directors of Xoom.com, with the assistance of its financial and
legal advisers, considered and analyzed the proposed amendments and determined
such amendments 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 the executive officers and
directors of Xoom.com have 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. These interests are discussed on page
68 of this proxy statement/prospectus.
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, 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 and its stockholders. 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.
Prior to the meeting of the board of directors of Xoom.com on October 18, 1999,
Bear Stearns confirmed that its opinion remained in full force and effect and
was unaffected by the amendments to the merger agreement and contribution
agreement entered into as of October 20, 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. BEAR STEARNS HAS CONSENTED TO THE INCLUSION OF ITS OPINION IN THIS
PROXY STATEMENT/ PROSPECTUS. Xoom.com shareholders are urged to read carefully
the Bear Stearns opinion in its entirety.
53
<PAGE>
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 and its stockholders;
- 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.
PREPARATION OF 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 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 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 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 operating and financial information, including projections,
provided to Bear Stearns by the management of Xoom.com relating to the NBC
contributed Internet businesses and SNAP;
- met with 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 businesses;
- 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
54
<PAGE>
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 businesses, 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 47.3% 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 and its stockholders.
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.
55
<PAGE>
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:
- discounted cash flow analysis,
- comparable company analysis, and
- 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>
The summary reference range represents a single range of values summarizing
the values implied by the three analyses, but does not necessarily represent an
average of the three analyses. The range is based on Bear Stearns' judgment
regarding a reasonable range that may be implied by the various valuation
methods, with a preference for conservative values and values that will narrow
the range rather than expand the range to the maximum range that the data may
support. As a result, Bear Stearns determined that a reasonable summary
reference range for this transaction would be the range implied by the estimates
at the lower end of the ranges resulting from the three analyses.
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. A discounted cash flow analysis provides
insight into the intrinsic value of a business based on the net present value of
the projected cash flows net of gross investment anticipated to be generated by
the assets of the business. 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 because comparable companies typically have
multiples in such range. Bear Stearns determined that a multiple of 12.0x to
13.0x was most
56
<PAGE>
appropriate, and weighted such data points more heavily, because at the time of
the Bear Stearns' analysis, Xoom.com traded at approximately 13.2x year 2000
estimated revenues. Additionally, Bear Stearns' valuation of the combined
company based on a comparable company analysis implied a multiple of 12.2x to
13.6x year 2000 estimated revenues. The discounted cash flow analysis also
assumed a discount rate for the combined company ranging from 17% to 20% because
analyst coverage of comparable companies indicated that research analysts
typically use discount rates of approximately 15% for more established Internet
companies, and discount rates of approximately 20% for start-up Internet
companies. Bear Stearns determined that a discount rate of 17% to 18% was most
appropriate, and weighted such data points more heavily, because Bear Stearns'
weighted average cost of capital analysis indicated a range of 17% to 18%. 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 operating, financial,
trading and valuation information for the operations of the combined company
to 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. A comparable company analysis reviews a
business' operating performance and outlook relative to a group of peer
companies to determine an implied unaffected market trading value. Bear Stearns
used the following metrics to arrive at its valuation range:
- enterprise value as a multiple of calendar year 1999 and 2000 projected
revenues,
- enterprise value as a multiple of unique visitors, and
- enterprise value as a multiple of daily page views.
Because portal, content providers and e-commerce firms utilizing the Internet
are relatively new, generally accepted metrics for performing a comparable
company analysis have not yet fully evolved. Bear Stearns used these metrics
because in Bear Stearns' judgment such metrics are reasonable for portal,
content providers and e-commerce firms and such metrics are beginning to be
widely used in the internet sector. In performing the comparable company
analysis, Bear Stearns did not weight any one metric more heavily than any
other. The 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>
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.
In the instances where Bear Stearns determined that the applicable
comparable company did not fit well with the combined company's profile for a
particular metric, Bear Stearns weighted the resulting data less heavily than
the data obtained for comparable companies which more closely match the combined
company's profile. Therefore, Bear Stearns did not necessarily weight each
comparable company equally. Specifically, the combined company has
characteristics of a portal, a content provider and an e-commerce player.
However, Bear Stearns determined that the combined company is unlike other
comparable e-commerce companies based on the assumption that the combined
company would
57
<PAGE>
not have to pay for its traffic through banner placements on other Web sites, as
it would be able to generate its own traffic. In addition, when comparing the
combined company to the portals/ communities sector, Bear Stearns determined
that the portal portion of the combined company should be valued at a discount
to multiples of other portals that have a larger market share or are market
leaders. Also, when comparing the combined company with broadband content
providers, Bear Stearns estimated that the broadband content portion of the
combined company should be valued at a discount to multiples of other broadband
content providers that may deliver content from various television program
providers, because the combined company's television programming will be limited
by the combined company's relationship with NBC.
In general, Bear Stearns placed less emphasis on certain of the comparable
companies which are market leaders since the combined company will be newly
formed and have no operating history. In addition, some of the comparable
companies are on a steeper growth trajectory and thus justify a greater multiple
while others have less growth potential than the combined company and thus will
not support a multiple as high as that of the combined company.
In short, the comparable companies are comparable in some respects, but none
are comparable in all respects. Bear Stearns examined each comparable company to
determine its relevance to the combined company and weighted such comparable
companies appropriately. The examples described in the two paragraphs above are
examples only; Bear Stearns conducted other similar analysis for all the
comparable companies. 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.
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. A comparable
acquisition analysis provides a valuation range based upon financial information
of companies which have been acquired in selected recent acquisitions and which
are in the same or similar industries as the business being evaluated. 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
58
<PAGE>
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%.
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. Bear Stearns concluded that the enterprise value of
Xoom.com represents between 23.9% and 27.3% of the enterprise value of the
combined company indicated by the summary reference range of $3,940 to $4,510
million. As Xoom.com will receive over 33.3% of the combined company, under this
valuation method Xoom.com will receive a greater proportion of the combined
company than its proportion of the aggregate contribution to the combined
company.
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
59
<PAGE>
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.
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 businesses. 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
39% of the equity of the combined company, before conversion of the NBCi
convertible notes, Bear Stearns concluded that the value range of Xoom.com's
interest in the combined company both pre-synergies ($1,313.3 to $1,503.3
million), and post-synergies ($1,416.7 to $1,583.3 million) exceeds the current
enterprise value of Xoom.com absent consummation of the transactions ($1,077.0
million).
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 and its stockholders, from a financial
point of view, of the financial terms of the transactions.
60
<PAGE>
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 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
specific liabilities in connection with its engagement, including liabilities
under the federal securities laws.
Bear Stearns has previously rendered 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 and its stockholders. 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 and its
stockholders. 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. Prior to
the meeting of the board of directors of Xoom.com on October 18, 1999, Hambrecht
& Quist confirmed that its opinion remained in full force and effect and was
unaffected by the amendments to the merger agreement and contribution agreement
entered into as of October 20, 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 DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY XOOM.COM
61
<PAGE>
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 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 internal financial and operating information, including
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 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 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 financial information
for SNAP, the NBC contributed Internet businesses and Xoom.com with
similar information for other companies engaged in businesses Hambrecht &
Quist considered generally comparable;
- Reviewed the financial terms, to the extent publicly available, of
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 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 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,
62
<PAGE>
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 the material 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. This analysis
reviews a business' operating performance and outlook relative to a group of
peer companies to determine an implied value. 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. Hambrecht & Quist used revenues when
making its comparisons because revenue valuations are generally accepted when
analyzing Internet companies which, in many cases, have not
63
<PAGE>
achieved profitability. 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>
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>
These implied value ranges were compared to the ranges of implied equity
values for the portion of NBCi to be received by Xoom.com's stockholder's as
described in "Analysis of the Proposed Xoom.com Share of NBCi" below, ranging
from approximately $1,240 million to $1,759 million before conversion of the
NBCi convertible notes, to approximately $1,248 million to $1,720 million
assuming conversion of the NBCi convertible notes.
ANALYSIS OF SELECTED TRANSACTIONS. This analysis provides a valuation range
based upon financial information of companies which have been acquired in
selected recent acquisitions and which are in the same or similar industries as
the business being evaluated. 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>
These implied value ranges were compared to the ranges of implied equity
values for the portion of NBCi to be received by Xoom.com's stockholder's as
described in "Analysis of the Proposed Xoom.com Share of NBCi" below, ranging
from approximately $1,240 million to $1,759 million before conversion of the
NBCi convertible notes, to approximately $1,248 million to $1,720 million
assuming conversion of the NBCi convertible notes, which ranges Hambrecht &
Quist concluded to be at or above the implied range of Xoom.com on a stand-alone
basis.
64
<PAGE>
PREMIUM ANALYSIS. Hambrecht & Quist compared the implied premium of the
offer as of May 7, 1999 to similar premiums for the comparable public company
transactions listed above. Hambrecht & Quist applied the mean premiums paid to
Xoom.com's closing price on May 7, 1999, resulting in the following enterprise
and equity values of Xoom.com.
<TABLE>
<CAPTION>
IMPLIED
MEAN ENTERPRISE IMPLIED
DATE OF SALES PRICE COMPARISON PREMIUM PAID VALUE EQUITY VALUE
- ------------------------------------------------------------------- ----------------- --------------- ------------
($ 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 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>
65
<PAGE>
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.
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, which ranges Hambrecht &
Quist concluded to be at or above the implied ranges of Xoom.com on a
stand-alone basis as calculated in the "Analysis of Publicly Traded Companies
Comparable to Xoom.com".
66
<PAGE>
COMPARISON OF IMPLIED EQUITY VALUES
Hambrecht & Quist analyzed the contribution of each of Xoom.com, SNAP and
the NBC contributed Internet businesses 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, which figures Hambrecht & Quist concluded
to be within the respective implied ranges of aggregate percentage equity
interests stated above.
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 specific liabilities, including
liabilities under the federal securities laws or relating to or arising out of
Hambrecht & Quist's engagement as financial advisor.
67
<PAGE>
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF XOOM.COM IN THE TRANSACTIONS
GENERAL
The executive officers and members of the Xoom.com board of directors have
interests in the transactions contemplated by the merger agreement and the
contribution agreement that are 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 specified
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, to assume and
honor in accordance with their terms specified 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 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
indemnification obligations include the payment of any costs, judgments,
settlements or attorneys' fees and providing advances of expenses. 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,
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 on page 88,
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 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
68
<PAGE>
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.
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:
- have a term of 2 years,
- bear interest at the lowest permissible rate without the imputation of
income,
- become repayable upon the termination of such employee's employment with
NBCi and its affiliates for cause or due to resignation, and
- be forgiven:
- 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
- entirely if such employee is terminated by NBCi without cause or due to
the employee's death or disability.
The transactions will result in the accelerated vesting of Plan Options and
Non-Plan Options, of which 527,389 options are held by all of the executive
officers and directors of Xoom.com, except for Mr. Kitze who does not own any
options.
DIRECTORS AND EXECUTIVE OFFICERS
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, secretary and treasurer
of NBCi. The salaries of Mr. Kitze and Mr. Harbottle will remain the same as
currently paid by Xoom.com. In addition Mr. Kitze and four of the five current
outside directors of Xoom.com will be appointed to the board of directors of
NBCi.
Mr. Harris, a member of the board of directors of Xoom.com and who will be
appointed as a director of NBCi upon consummation of the transactions, also
serves as a managing director of Bear Stearns which provided advisory services
to Xoom.com in connection with the transactions. Mr. Harris abstained from
voting on the transactions at Xoom.com's board of directors meetings.
SEVERANCE AGREEMENT
In September 1999 Xoom.com and Laurent Massa, Xoom.com's president and chief
executive officer, entered into a severance and consulting agreement. Under the
severance agreement, Mr. Massa will resign from Xoom.com upon the closing of the
transactions. After resigning, Mr. Massa will provide consulting services to
NBCi on a part-time basis to assist in the integration of the businesses that
will comprise NBCi, through June 30, 2000.
69
<PAGE>
Under the severance agreement, Mr. Massa will receive, among other things,
the following benefits from Xoom.com or NBCi, as its successor:
- the remainder of his 1999 salary ($216,000 per year);
- the remainder of his 1999 bonus of approximately $39,815;
- $216,000 severance in January 2000;
- payment of his COBRA premiums for medical coverage until December 31,
2000;
- the unvested portion of Mr. Massa's stock options, 222,576 shares, will
become fully vested upon the closing of the transactions;
- Mr. Massa's Non-Plan Options for 175,000 shares will remain exercisable
for their entire term and will not terminate upon the closing of the
transactions as they currently provide;
- Mr. Massa's non-qualified Plan Options for 169,835 shares, will also
remain exercisable for 24 months after the closing of the transactions;
and
- a gross-up payment to reimburse Mr. Massa for all golden parachute excise
taxes on benefits received pursuant to the severance agreement including
all income and excise taxes on the gross-up payment.
In addition, to reflect Mr. Massa's additional responsibilities in
connection with the transactions, in May 1999 Xoom.com granted Mr. Massa
additional options to purchase 25,000 shares of Xoom.com common stock at an
exercise price of $45.50 per share.
Under the severance agreement, Mr. Massa agreed that for a period of six
months following the termination of the consulting arrangement, or until
December 31, 2000, whichever is longer, he will not, directly or indirectly,
- divert or attempt to divert from Xoom.com or NBCi any business, including
the solicitation of customers; or
- engage in business activities competitive with Xoom.com or NBCi unless Mr.
Massa proves in court that any of the above actions was done without the
use of confidential information. Examples of the types of business
activities in which Mr. Massa has agreed not to engage in include
community web sites, web site hosting, home page hosting, e-mail, chat
rooms, electronic newsletters, clip art, software libraries, page
counters, online greeting cards, software downloading, and working as an
employee for or consultant to Yahoo, Excite, America Online, Lycos,
Infoseek, the globe.com, Talk City or Fortune City. Mr. Massa has further
agreed that in the event he breaches or threatens to breach any of the
confidentiality or anti-competition provisions, Xoom.com and NBCi shall be
entitled to liquidated damages from and injunctive relief against Mr.
Massa. Mr. Massa, Xoom.com and NBCi have executed releases of claims and
Mr. Massa has covenanted not to sue either Xoom.com or NBCi.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino 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 Hart-Scott-Rodino 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. The waiting period
under the Hart-Scott-Rodino Act expired at
70
<PAGE>
11:59 p.m., Eastern Standard time, on August 1, 1999. Notwithstanding the
termination of the waiting periods under the Hart-Scott-Rodino Act, the
Antitrust Division, the FTC or any state or 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 specific circumstances. Pursuant to the merger
agreement, any filing fees required by the Hart-Scott-Rodino 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. Morrison & Foerster LLP,
counsel to Xoom.com, is of the opinion that the following discussion accurately
describes such material federal income tax consequences. This disscusion 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 its counsel, 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
71
<PAGE>
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.
- 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 described above is based upon facts, representations and
assumptions set forth or referred to in the opinion and the continued accuracy
and completeness of 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 any material
respect 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.
72
<PAGE>
NO APPRAISAL RIGHTS
Delaware law provides appraisal rights to stockholders of Delaware
corporations in situations involving the merger, consolidation or sale of
substantially all of a company's assets. 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.; and
- 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.
Stockholders of Xoom.com will not have appraisal rights with respect to the
Xoom.com merger with Xenon 3 due to the following factors:
- 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 has applied to have the Class A common stock listed
on The Nasdaq National Market. NBCi has also applied to have the Class A common
stock listed on the EASDAQ.
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 EASDAQ 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 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 proxy statement/prospectus 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.
73
<PAGE>
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 Hart-Scott-Rodino 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 on The Nasdaq National
Market, subject to notice of issuance; 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;
74
<PAGE>
- 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 or NBC has consented to such action,
that:
(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,
75
<PAGE>
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;
- 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;
- 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, 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;
76
<PAGE>
- 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;
- 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;
- 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;
- 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;
77
<PAGE>
- 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,
- 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,
- grant any severance or termination pay to any employee except in
the ordinary course of business,
- hire any new employees or consultants, except in the ordinary
course of business or
- 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;
78
<PAGE>
- 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 specific 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;
- the 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 of Xoom.com 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.
Each option to purchase units in SNAP that was outstanding or committed to
be issued as of May 9, 1999 will be converted into an option to purchase a
number of shares of NBCi's Class A common stock equal to the product of 1.2853
times the number of units for which the option is exercisable, which will result
in the issuance of options to purchase an additional 394,894 shares of Class A
common stock. These options will vest and be immediately exercisable to the
extent that they would have otherwise vested within 12 months following the
closing of the merger agreement. Each option to purchase units of SNAP that were
committed and issued after May 9, 1999 will be converted into an option to
purchase a number of shares of NBCi's Class A common stock equal to the number
of units for which the option is exercisable. The per share exercise price of
the NBCi options will equal the per unit exercise price of the SNAP options
divided by the exchange ratio used to convert the SNAP options into options to
purchase Class A common stock of NBCi. The vesting schedule of all of
79
<PAGE>
these options will change from annual to monthly increments and otherwise
correspond with the SNAP schedule, except as noted above in this paragraph.
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 Hart-Scott-Rodino 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;
80
<PAGE>
- 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
- 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;
81
<PAGE>
- furnish any information to any person relating to any transaction
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
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.
A transaction proposal does not include transactions contemplated by the
contribution agreement and transactions 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;
- 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.
82
<PAGE>
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
83
<PAGE>
(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 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;
- 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;
- 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;
84
<PAGE>
- 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 contribution agreement, or required under existing
employee benefit plans, agreements or arrangements as in effect on the
date of the contribution agreement,
- 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,
- grant any severance or termination pay to any present or former
director, officer or employee except in the ordinary course of
business, or
- 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;
85
<PAGE>
- 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 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;
- 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;
- 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,
- 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,
- grant any severance or termination pay to any employee except in
the ordinary course of business,
- hire any new employees or consultants, except in the ordinary
course of business, or
- 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
86
<PAGE>
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.
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,
- 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,
- grant any severance or termination pay to any transferred employee
except in the ordinary course of business, or
- 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;
87
<PAGE>
- 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;
- 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;
88
<PAGE>
- employee benefit matters of NBC, SNAP, Xoom.com and NBCi;
- the absence of specific 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;
- the 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
- interim operations and structure of Neon Media Corporation, NBCi and Xenon
3.
COVENANTS
The contribution agreement provides that immediately following the closing
of the contribution agreement, NBCi will repay and terminate the outstanding
obligations of SNAP under its $55 million revolving credit facility. In
addition, NBCi has agreed to use its best efforts to cause the guarantee of such
indebtedness by GE to be released.
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 OPTIONS
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.
89
<PAGE>
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. 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 specific rights,
- to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods;
- during any period for which an injunction or similar legal prohibition on
exercise shall be in effect; or
- 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
90
<PAGE>
stockholders approve or accept any acquisition transaction, other than the
transactions contemplated by the contribution agreement;
- 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 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 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:
- 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 from a third party
on terms which (1) 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 (2)
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
- 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
91
<PAGE>
- any tender offer or exchange offer, including by Xoom.com or its
subsidiaries, that if consummated would result in any person having
beneficial ownership of 20% or more of any class of equity securities of
Xoom.com or any of its subsidiaries; 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;
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 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 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 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
NBCi, NBC, GE Investments Subsidiary, CNET, Flying Disc Investments Limited
Partnership and Chris Kitze will enter into the registration rights agreement.
SHELF REGISTRATION
NBCi will have the obligation to file a registration statement with the SEC
upon the request of NBC, CNET, Mr. Kitze or any of their respective transferees
for an offering to be made on a continuous basis covering a minimum of $50
million of shares of Class A common stock (valued at the time of such request)
at any time following the later of the 12-month anniversary of the date of the
registration rights agreement and the date upon which NBCi is first able to file
such registration statement on Form S-3.
DEMAND REGISTRATION RIGHTS
At any time and from time to time during which there is no effective shelf
registration statement covering all of the Class A common stock registrable
under the registration rights agreement, NBC, CNET, Mr. Kitze or any of their
respective transferees may make a written demand that NBCi effect
92
<PAGE>
the registration under the Securities Act of all or part of their shares of
Class A common stock, provided that:
- NBC and its transferees, on behalf of NBC and GE Investments Subsidiary,
shall have only four such demand rights, one of which can be made on Form
S-1 and one of which can be for a shelf registration;
- CNET and its transferees shall have only three such demand rights, two of
which can be made on Form S-1 and one of which can be for a shelf
registration;
- Mr. Kitze, on behalf of himself and Flying Disc, shall have only three
such demand rights, one of which can be made on Form S-1 and one of which
can be for a shelf registration;
- the market value of the shares to be included in the demand registration
on Form S-1 must be at least $25,000,000, valued at the time of such
request;
- no demand can be made prior to six months after the effective date of the
immediately preceding demand registration; and
- in any underwritten offering, shares may be excluded by the underwriters
based on market conditions and marketing factors.
Priority of inclusion in demand registrations is given first to the party or
parties initiating the demand registration; then inclusion is pro rata among the
other parties based on the amount of shares requested to be included, provided
that the Class A common stock requested by NBCi to be included in such offering
will comprise the lesser of 50% of the securities to be sold or all of the
securities requested to be included by NBCi.
CNET will be entitled to exercise its initial demand right before other
parties for a period of 60 days following consummation of the contribution
agreement. In such event, the Class A common stock requested by CNET to be
included in such offering may be reduced to the lesser of 50% of the securities
to be sold or all of the securities requested to be included by CNET, with the
remainder to be allocated between NBCi and Mr. Kitze.
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 and NBCi, 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.
In the event a registration statement is filed by NBCi during the six month
period after the effective date of the registration statement filed as a result
of CNET's exercise of its initial demand right, the Class A common stock
requested by CNET to be included in such offering will comprise the lesser of
25% of the securities to be sold or all of the securities requested to be
included by CNET, but will not exceed 1,000,000 shares of Class A common stock.
However, if the number of CNET's shares of Class A common stock included in such
registration exceeds 500,000, such inclusion shall be deemed an exercise by CNET
of one of its demand rights.
OTHER PROVISIONS
The Registration Rights Agreement contains customary terms and conditions
for transactions of this type including provisions that NBCi:
- will covenant to become S-3 eligible;
93
<PAGE>
- 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 first demand registration; and
- 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, Chris Kitze, NBC and CNET entered into the
voting agreement. On the record date, the number of shares beneficially owned by
Flying Disc and Mr. 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 agreement and the contribution
agreement, except for modifications that would adversely affect Flying
Disc and Mr. Kitze, and each of the other transactions contemplated by
these agreements;
- 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 agreement and
the contribution agreement.
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, 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 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, advisors or representatives to directly or
indirectly solicit, knowingly encourage 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 to be bound by all of the provision of the voting
agreement;
94
<PAGE>
- 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 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 specified license rights to the
Website addresses for NBC.com, NBC-IN.com and VideoSeeker.com, although NBC
retains title to such Website addresses.
The license agreement also grants the licensee an exclusive license to use,
reproduce and display on the NBCi Internet sites short excerpts from some NBC
television programs and to create interactive programs therefrom, in accordance
with the terms of the license.
The license agreement further provides for 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 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
- NBC grants first look rights in relation to acquisitions of 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.
95
<PAGE>
THE CONVERTIBLE NOTES
In connection with the transactions, NBCi will issue two subordinated zero
coupon convertible notes due 2006. The convertible note to be issued to NBC
Multimedia will have a principal at maturity of $39,477,953 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 GE Investments Subsidiary will have a principal at
maturity of $447,416,805 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. If both of the
convertible notes are not converted in full, the holders of the Class B common
stock will have the right to elect six of the 13 members of the NBCi board of
directors. The holders of the Class A common stock will have the right to elect
the remaining seven 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.
Each of the notes provides that payments of principal and interest shall be
subordinated in right of payment to the prior payment in full of all of NBCi's
other indebtedness. Such subordination, however, does not limit the payment of
principal of and interest on the notes in accordance with their terms unless, at
the time of such payment, there is a default in the payment of principal of or
interest on NBCi's other indebtedness.
ADVERTISING AGREEMENT
At closing, NBC and NBCi will enter into an advertising agreement pursuant
to which NBCi will purchase 15-, 30- and 60-second advertising spots valued at
$405 million over a four-year period, on the NBC Television Network, CNBC, MSNBC
and NBC's owned and operated television stations. The advertisements will be
subject to standard terms and conditions generally applicable to such
advertising. The advertising purchased under the advertising agreement will be
valued at 85% of the gross market rate charged by NBC at the time of the order,
whether on or off any rate cards. The rate charged will be adjusted for any
applicable frequency discounts, early payment discounts, rebates and other
discounts charged by NBC to an advertisier purchasing the same amount as NBCi
purchases in any given broadcast year. 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 that is not cured within
30 days. The advertising agreement may be terminated by NBCi upon a material
breach by NBC that is not cured within 30 days.
At the end of the four-year advertising period, NBC and NBCi have agreed to
negotiate 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.
96
<PAGE>
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:
- acquire additional shares of NBCi;
- solicit proxies in connection an amendment to NBCi's restated certificate
of incorporation or for the election of Class A directors; or
- propose to the holders of the Class A common stock a merger, business
combination or similar transaction.
These limitations will terminate if a third party initiates a tender offer
for NBCi common stock or NBCi agrees to enter into a transaction that would
result in a change in control. 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 222.
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 the following transactions
involving NBCi:
- change in control transactions, including a merger, business combination
and sale of substantially all assets or equity securities of NBCi; and
- other material transactions, including any sale of more than 5% of the
total assets or equity securities of 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 transfers in connection with a third party tender offer or a merger,
consolidation or reorganization of NBCi.
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 specified headlines, summaries and other information services from
CNET Internet sites receive preferred placement on SNAP Internet sites, through,
among other things, preferred links and 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 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 relationships with competitors of SNAP, including co-branding agreements,
investments and acquisitions, and restricts CNET from operating its Search.com
Web site in competition with SNAP until May 9, 2000.
97
<PAGE>
CNBC CARRIAGE AGREEMENT
CNBC and NBCi intend to enter into a carriage agreement after the closing of
the transactions pursuant to which CNBC will provide selected services and some
content from CNBC.com to NBCi.
EQUITY INVESTMENT AND RESTRUCTURINGS
On June 11, 1999, Xoom.com, NBC and other parties 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, on July 30, 1999 NBC acquired 960,028 shares of common stock of
Xoom.com, for $57.29 per share in cash. NBC has agreed to vote all of these
shares 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:
- 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;
- the purchase by an affiliate of NBC of a $486,894,758 NBCi convertible
note for the business related to VideoSeeker.com 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
- 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.
On July 8, 1999, Xoom.com, NBC and other parties 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:
- the purchase by GE Investments Subsidiary, an affiliate of NBC, of a
$447,416,805 NBCi convertible note convertible into 5,342,896 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
- the transfer by NBC Multimedia of a $39,477,953 NBCi convertible note
convertible into 471,432 shares of NBCi Class B common stock in exchange
for the business related to VideoSeeker.com.
On October 20, 1999, Xoom.com, NBC and other parties entered into amendments
to the merger agreement and the contribution agreement, which are discussed on
page 50.
98
<PAGE>
NBCI 1999 STOCK INCENTIVE PLAN
This section of the proxy statement/prospectus describes the material
aspects of the stock incentive plan. The following description of the stock
incentive plan is qualified in its entirety by reference to the stock incentive
plan, which is attached as Appendix E to this proxy statement/prospectus. You
are urged to read the stock incentive plan.
The stockholders of Xoom.com are being asked to approve the stock incentive
plan. In October 1999, NBCi's board of directors adopted the stock incentive
plan, subject to the approval of the stockholders of Xoom.com and the board of
directors of Xoom.com, as NBCi's sole stockholder, approved the stock incentive
plan. If stockholder approval is obtained, the stock incentive plan will be
effective as of immediately prior to the closing of the merger agreement.
PURPOSES
The purposes of the stock incentive plan are to promote the interests of
NBCi and its stockholders by:
- attracting and retaining exceptional officers, directors and other key
employees and consultants of NBCi and its subsidiaries;
- motivating those individuals with performance-related incentives to
achieve longer-range performance goals; and
- enabling those individuals to participate in the long-term growth and
financial success of NBCi.
ADMINISTRATION/ELIGIBLE PARTICIPANTS
The stock incentive plan is administered by an administrator, defined as the
board of directors of NBCi or one or more committees designated by the board of
directors. The administrator of the stock incentive plan is expected to be one
or more committees of two or more members of the board of directors of NBCi. The
committee that administers the plan for grants to officers and directors will
consist of committee members intended to be "non-employee directors," within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act, to the
extent Rule 16b-3 is applicable to NBCi and the stock incentive plan. The
committee that administers the plan for grants to officers who are or may
reasonably be expected to become "covered employees" within the meaning of
Internal Revenue Code Section 162(m) will consist of "outside directors," within
the meaning of Section 162(m). The mere fact that a committee member fails to
qualify as a non-employee director or outside director, however, will not
invalidate any award made by the committee which award is otherwise validly made
under the stock incentive plan.
Any officer or other employee, director or consultant to NBCi or any of its
subsidiaries will be eligible to be designated a participant under the stock
incentive plan.
As of August 31, 1999, NBCi and the companies that will, upon completion of
the transactions, be subsidiaries of NBCi had approximately 19 officers, 479
employees and 18 directors/managers, each of whom would be eligible to be
granted awards by the committee under the stock incentive plan upon completion
of the transactions. The committee has the authority to determine the
participants to whom awards shall be granted under the stock incentive plan.
However, the board of directors of NBCi may delegate to one or more officers of
NBCi the authority to grant awards to participants who are not officers or
directors of NBCi subject to Section 16 of the Securities Exchange Act or
"covered employees" within the meaning of Section 162(m).
99
<PAGE>
NUMBER OF SHARES AUTHORIZED UNDER THE STOCK INCENTIVE PLAN
Initially, the stock incentive plan authorizes the grant of awards for up to
13,500,000 shares of NBCi's Class A common stock. On the first business day of
each calendar year beginning 2001, the maximum number of shares issuable under
the stock incentive plan will be increased to that number that, when added to
the number of unissued shares under outstanding awards, equals 30% of the number
of outstanding shares of NBCi common stock on a fully diluted basis as of
December 31 of the immediately preceding calendar year. The maximum number of
shares available for grant of incentive stock options will be 13,500,000, which
amount is not subject to annual adjustment. The number of shares reserved for
issuance under the stock incentive plan is subject to adjustment to avoid
dilution or enlargement of intended benefits in the event of certain significant
corporate events.
Awards may be made in the form of:
- nonqualified stock options;
- stock options intended to qualify as incentive stock options under Section
422 of the Internal Revenue Code;
- stock appreciation rights;
- restricted stock;
- performance awards and/or performance units;
- dividend equivalent rights; or
- other stock based awards.
The maximum number of shares of Class A common stock with respect to which
stock options and stock appreciation rights may be granted to any participant in
the stock incentive plan in any calendar year may not exceed 1,000,000 shares.
If, after the effective date of the stock incentive plan, any shares of Class A
common stock covered by an award granted under the stock incentive plan, or to
which such an award relates, are forfeited, or if an award has expired,
terminated or been cancelled for any reason, other than by reason of exercise or
vesting, or if any unissued shares are retained by NBCi upon exercise of an
award to satisfy the exercise price or any withholding taxes, then the shares of
Class A common stock covered by such award shall again be, or shall become,
shares of Class A common stock with respect to which awards may be granted under
the stock incentive plan.
SUBSTITUTE AWARDS
Awards may be made under the stock incentive plan in assumption of, or in
substitution for, outstanding awards previously granted by NBCi or its
affiliates or a company acquired by NBCi or its affiliates with which NBCi or
its affiliates combines. The number of shares underlying any such assumed or
substitute awards will be counted towards the aggregate number of shares of
Class A common stock which are available for grant under awards made under the
stock incentive plan.
TERMS AND CONDITIONS OF AWARDS UNDER THE STOCK INCENTIVE PLAN
Awards made under the stock incentive plan will be subject to the terms and
conditions, vesting requirements, form and timing of exercise or settlement, as
applicable, as may be determined by the committee and specified in the
applicable award agreement or thereafter; provided that (1) stock options
intended to qualify as incentive stock options will be subject to terms and
conditions that comply with the rules applicable to incentive stock options and
(2) the exercise price per share of any stock option granted under the stock
incentive plan may not be less than 85% of the fair market value per share on
the date of grant.
100
<PAGE>
Payment in respect of the exercise of an option granted under the stock
incentive plan may be made:
- in cash or its equivalent;
- through the delivery of a promissory note with such recourse, interest,
security and redemption provisions as the committee deems appropriate;
- by exchanging shares of Class A common stock;
- subject to such rules as may be established by the committee, through
delivery of irrevocable instructions to a broker to sell the shares being
acquired upon exercise of the option and to deliver to NBCi an amount
equal to the aggregate exercise price; or
- by any combination of the foregoing, provided that the combined value of
the consideration received is at least equal to the aggregate exercise
price of the option.
The committee may designate stock options and stock appreciation rights
intended to qualify as "performance-based compensation" under Section 162(m),
provided that the exercise price is established by the committee to be at least
equal to the fair market value per share as of the date of grant. This form of
award enables the committee to treat certain other awards under the stock
incentive plan as "performance-based compensation" and thus preserve
deductibility by NBCi for federal income tax purposes of such awards which are
made to individuals who are "covered employees" as defined in Section 162(m).
Under Code Section 162(m) no deduction is allowed in any taxable year of
NBCi for compensation in excess of $1 million paid to its chief executive
officer and each of its four most highly paid other executive officers who are
serving in such capacities as of the last day of such taxable year. An exception
to this rule applies to compensation that is paid pursuant to a stock incentive
plan approved by stockholders and that specifies, among other things, the
maximum number of shares with respect to which options and stock appreciation
rights may be granted to eligible employees under such plan during a specified
period. Compensation paid pursuant to options and stock appreciation rights
granted under such a plan and with an exercise price equal to the fair market
value of NBCi's stock on the date of grant is deemed to be inherently
performance-based, since such awards provide value to employees only if the
stock price appreciates.
TRANSFERABILITY
Incentive stock options may only be exercised by the optionee during the
optionee's lifetime and may not be transferred or encumbered by the optionee
except by will or by the laws of descent and distribution. Any such purported
transfer or encumbrance shall be void and unenforceable against NBCi or any
affiliate. The designation of a beneficiary is not considered a transfer or
encumbrance. The committee has the discretion under the stock incentive plan to
provide that other awards granted under the stock incentive plan may be
transferred without consideration to certain family members or trusts,
partnerships or limited liability companies in which the original grantee and/or
his or her family members own a 50% beneficial interest or a 50% voting
interest.
CHANGE OF CONTROL
In the event of a change in control, as defined below, each currently
outstanding award under the stock incentive plan automatically will have its
vesting accelerated by 12 months on the effective date of the corporate
transaction. Upon consummation of the corporate transaction, all outstanding
awards will terminate unless such award is assumed or replaced with a comparable
award or cash incentive program by the successor corporation or its affiliates
or such award is purchased for cash. If within 12 months of a change in control,
a participant is subsequently terminated or leaves for good reason, each
outstanding award of the participant shall become fully vested and exercisable.
Under the stock
101
<PAGE>
incentive plan a "change in control" is defined as any merger, consolidation or
other form of business combination in which the stockholders of NBCi do not own
at least 50% of the combined voting power in the surviving entity, the
acquisition of 50% of the total combined voting power of NBCi's outstanding
securities or a change in a majority of the board of directors over a period of
three years by reason of one or more contested elections, except that any
increase in securities ownership by NBC or its successors does not constitute a
change in control.
The stock incentive plan also provides for the accelerated vesting of
outstanding awards held by participants primarily in the service of an
affiliated entity of NBCi, upon the sale, merger, consolidation or sale of
substantially all of the assets of such entity.
AMENDMENT TO STOCK INCENTIVE PLAN
The board of directors of NBCi may amend, suspend or terminate the stock
incentive plan; provided that no amendment or termination will be made without
stockholder approval if such approval is necessary to comply with any tax or
regulatory requirement applicable to the stock incentive plan. In addition, no
action that would adversely affect the rights of any participant to awards
previously granted under the stock incentive plan will be effective without the
participant's consent.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO STOCK OPTIONS
The following summary of the federal income tax consequences of the grant
and exercise of nonqualified and incentive stock options awarded under the stock
incentive plan, and the disposition of shares of Class A common stock purchased
pursuant to the exercise of such stock options, is intended to reflect the
current provisions of the Internal Revenue Code and the regulations thereunder.
This summary is not intended to be a complete statement of applicable law, nor
does it address state and local tax considerations.
No income will be realized by an optionee when a nonqualified stock option
is granted. Upon exercise of a nonqualified stock option, the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the underlying stock over the option exercise price
at the time of exercise, referred to as the "spread". The spread will be
deductible by NBCi for federal income tax purposes subject to the possible
limitations on deductibility, including those under Sections 280G and 162(m) of
the Internal Revenue Code, of compensation paid to specified executives. The
optionee's tax basis in the underlying shares acquired by exercise of a
nonqualified stock option will equal the exercise price plus the amount taxable
as compensation to the optionee. Upon sale of the shares received by the
optionee upon exercise of the nonqualified stock option, any gain or loss is
generally long-term or short-term capital gain or loss, depending on the holding
period. The optionee's holding period for shares acquired pursuant to the
exercise of a nonqualified stock option will begin on the date of exercise of
such option.
Pursuant to rules under Section 16(b) of the Securities Exchange Act, the
grant of an option, and not its exercise, to a person who is subject to the
reporting and short-swing profit provisions under Section 16 of the Securities
Exchange Act begins the six-month period of potential short-swing liability. The
taxable event for the exercise of an option that has been outstanding at least
six months ordinarily will be the date of exercise. If an option is exercised by
a person subject to Section 16 within six months after the date of grant,
however, taxation ordinarily will be deferred until the date which is six months
after the date of grant, unless the person has filed a timely election pursuant
to Section 83(b) of the Internal Revenue Code to be taxed on the date of
exercise. The six month period of potential short-swing liability may be
eliminated if the option grant (1) is approved in advance by NBCi's board of
directors, or a committee composed solely of two or more non-employee directors,
or (2) approved in advance, or subsequently ratified by NBCi's shareholders no
later than the next annual meeting of shareholders. Consequently, the taxable
event for the exercise of an option that satisfies either of the conditions
described in clauses (1) or (2) above will be the date of exercise.
102
<PAGE>
The payment by an optionee of the exercise price, in full or in part, with
previously acquired shares of NBCi common stock will not affect the tax
treatment of the exercise described above. No gain or loss generally will be
recognized by the optionee upon the surrender of the previously acquired shares
to NBCi, and shares received by the optionee, equal in number to the previously
surrendered shares of NBCi common stock, will have the same tax basis as the
shares surrendered to NBCi and will have a holding period that includes the
holding period of the shares surrendered. The value of the shares of NBCi common
stock received by the optionee in excess of the number of shares surrendered to
NBCi will be taxable to the optionee. Such additional shares of NBCi common
stock will have a tax basis equal to the fair market value of such additional
shares as of the date ordinary income is recognized, and will have a holding
period that begins on the date ordinary income is recognized.
The Internal Revenue Code requires that, for incentive stock option
treatment, shares of Class A common stock acquired through exercise of an
incentive stock option cannot be disposed of before two years from the date of
grant and one year from the date of exercise. Incentive stock option holders
will generally incur no federal income tax liability at the time of grant or
upon exercise of such options. However, the spread will be an "item of
adjustment" which may give rise to "alternative minimum tax" liability at the
time of exercise. If the optionee does not dispose of the shares of NBCi common
stock before two years from the date of grant and one year from the date of
exercise, the difference between the exercise price and the amount realized upon
disposition of the shares of NBCi common stock will constitute long-term capital
gain or loss, as the case may be. Assuming both the holding periods are
satisfied, no deduction will be allowable to NBCi for federal income tax
purposes in connection with the grant or exercise of the option. If, within two
years of the date of grant or within one year from the date of exercise, the
holder of shares of NBCi common stock acquired through the exercise of an
incentive stock option disposes of the shares, the optionee will generally
realize ordinary taxable compensation at the time of the disposition equal to
the difference between the exercise price and the lesser of the fair market
value of the stock on the date of initial exercise or the amount realized on the
subsequent disposition, and this amount will generally be deductible by NBCi for
federal income tax purposes, subject to limitations on deductibility including
those in Sections 280G and 162(m) of the Internal Revenue Code for compensation
paid to executives designated in those sections.
ANTICIPATED AWARDS
As of the date of this proxy statement/prospectus, no executive officer or
director, and no associate of any executive officer or director, has been
granted any options under the stock incentive plan. Assuming that the stock
incentive plan is approved, upon the closing of the merger agreement outstanding
options held by the directors, officers and employees of Xoom.com and SNAP will
be converted into options to purchase shares of Class A common stock of NBCi in
the amounts set forth below based on the number of stock options held by such
individuals on the record date:
<TABLE>
<CAPTION>
ANTICIPATED NUMBER
OF SHARES
NAME OF POSITION UNDERLYING OPTIONS
- -------------------------------------------------------------------------- ------------------
<S> <C>
Executive Officer Group 528,554
Non-Executive Officer Group 182,223
Non-Executive Employee Group 5,309,158
</TABLE>
The aggregate number of options expected to be issued under the stock
incentive plan after conversion is 6,418,338. Except as noted above, the
benefits to be received pursuant to the stock incentive plan by the executive
officers, directors and employees of NBCi are not determinable at this time.
THE BOARD OF DIRECTORS OF XOOM.COM RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE STOCK INCENTIVE PLAN.
103
<PAGE>
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 purchase of 960,028 shares of
Xoom.com's common stock for $55 million on July 30, 1999, 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-3 and F-127,
respectively, 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 June 30, 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 six months ended June 30, 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.
104
<PAGE>
NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(STEP ONE)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 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................................. $ 58,017 $ -- $ 55,000 $ 113,017
Short-term investments.................................... 107,995 -- -- 107,995
Accounts receivable, net.................................. 3,025 -- -- 3,025
Inventories............................................... 793 -- -- 793
Other current assets...................................... 2,456 -- -- 2,456
------------ ----------- ------------- -----------
Total current assets.................................... 172,286 -- 55,000 227,286
Fixed assets, net......................................... 4,827 -- -- 4,827
Goodwill, net............................................. 72,120 -- -- 72,120
Intangible assets, net.................................... 27,251 -- -- 27,251
Investments............................................... 53,615 338,852 -- 392,467
Other assets.............................................. 1,316 -- -- 1,316
------------ ----------- ------------- -----------
Total assets................................................ $ 331,415 $ 338,852 $ 55,000 $ 725,267
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,930 $ -- $ -- $ 3,930
Accrued compensation and related expenses................. 1,101 -- -- 1,101
Other accrued liabilities................................. 2,266 -- -- 2,266
Deferred revenue.......................................... 2,676 -- -- 2,676
Notes payable............................................. 1,103 -- -- 1,103
Capital lease obligations................................. 41 -- -- 41
Contingency accrual....................................... 1,000 -- -- 1,000
------------ ----------- ------------- -----------
Total current liabilities............................... 12,117 -- -- 12,117
Deferred revenue, less current portion...................... 2,500 -- -- 2,500
Notes payable, less current portion......................... 331 -- -- 331
Capital lease obligations, less current portion............. 98 -- -- 98
Stockholders' equity:
Common stock.............................................. 342,700 338,852 55,000 736,552
Notes receivable from stockholders........................ (995) -- -- (995)
Deferred compensation..................................... (499) -- -- (499)
Accumulated deficit....................................... (24,837) -- (24,837)
------------ ----------- ------------- -----------
Total stockholders' equity.................................. 316,369 338,852 55,000 710,221
------------ ----------- ------------- -----------
Total liabilities and stockholders' equity.................. $ 331,415 $ 338,852 $ 55,000 $ 725,267
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
</TABLE>
- ------------------------------
(1) Represents pro forma combination of Xoom.com and LiquidMarket, Inc.,
beginning on page F-127 in this proxy statement/prospectus.
(2) Issuance of 7,245,063 shares of NBCi's Class A common stock with a fair
value per share of $46.77 for an aggregate amount of $338,852,000 or
approximately 81% (39% on a fully diluted basis) 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. See Merger Agreement on page 7 for a description of
this transaction.
(3) To reflect the issuance of 960,028 shares of Xoom.com common stock to NBC at
a price per share of $57.29 for an aggregate purchase amount of $55,000,000,
as agreed to in the stock purchase agreement dated June 11, 1999 and
executed on July 30, 1999. See Xoom.com/NBC Stock Purchase Agreement on page
11 for a description of this transaction.
105
<PAGE>
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.............................................. $ 9,200 $ -- $ 9,200
Cost of net revenue...................................... 3,857 -- 3,857
----------- ----------- ---------
Gross profit............................................. 5,343 -- 5,343
Operating expenses:
Operating and development.............................. 4,339 -- 4,339
Sales and marketing.................................... 3,160 -- 3,160
General and administrative............................. 4,110 -- 4,110
Purchased in-process research and development.......... 330 -- 330
Amortization of deferred compensation.................. 1,605 -- 1,605
Amortization of goodwill and other intangible assets... 27,620 -- 27,620
----------- ----------- ---------
Total operating expenses................................. 41,164 -- 41,164
----------- ----------- ---------
Loss from operations..................................... (35,821) -- (35,821)
Other income (expense):
Interest income........................................ 192 -- 192
Interest expense....................................... (145) -- (145)
Interest expense related to warrant.................... (1,494) -- (1,494)
----------- ----------- ---------
Loss before loss on investment recorded using the equity
method................................................. (37,268) -- (37,268)
Equity share in losses of SNAP........................... -- (81,381) (81,381)
----------- ----------- ---------
Net loss................................................. $ (37,268) $ (81,381) $(118,649)
----------- ----------- ---------
----------- ----------- ---------
Basic and diluted net loss per share..................... (3) $ (6.59)
---------
---------
Shares used in per share calculation--basic and
diluted................................................ (3) 18,004
---------
---------
</TABLE>
- ------------------------
(1) Represents pro forma combination of Xoom.com, Paralogic Corporation, Global
Bridges Technologies, Inc., PageCount, Inc., MightyMail Networks, Inc.,
Paralogic Software Corporation and LiquidMarket, Inc., beginning on page
F-127 of this proxy statement/prospectus.
(2) To record NBCi's 81% 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. See merger agreement on page 7 for a description of this transaction.
(3) Basic and diluted net loss per share has been adjusted to reflect the
issuance of 7,245,063 shares of NBCi Class A common stock primarily to CNET
and 960,028 shares of NBCi Class A common stock to NBC as if the shares of
Class A common stock had been outstanding for the entire period. See merger
agreement on page 7 and Xoom.com/NBC stock purchase agreement on page 11 for
descriptions of these transactions.
106
<PAGE>
NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(STEP ONE)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, 1999
-------------------------------------
XOOM.COM
PRO FORMA INVESTMENT PRO FORMA
(1) IN SNAP(2) (STEP 1)
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue.............................................. $ 11,238 $ -- $ 11,238
Cost of net revenue...................................... 4,736 -- 4,736
----------- ----------- -----------
Gross profit............................................. 6,502 -- 6,502
Operating expenses:
Operating and development.............................. 4,073 -- 4,073
Sales and marketing.................................... 7,964 -- 7,964
General and administrative............................. 4,483 -- 4,483
Amortization of deferred compensation.................. 3,243 -- 3,243
Amortization of goodwill and other intangible assets... 14,160 -- 14,160
----------- ----------- -----------
Total operating expenses................................. 33,923 -- 33,923
----------- ----------- -----------
Loss from operations..................................... (27,421) -- (27,421)
Other income (expense):
Interest income........................................ 3,022 -- 3,022
Interest expense....................................... (68) -- (68)
----------- ----------- -----------
Loss before loss on investment recorded using the equity
method................................................. (24,467) -- (24,467)
Equity share in losses of SNAP........................... -- (62,245) (62,245)
----------- ----------- -----------
Net loss................................................. $ (24,467) $ (62,245) $ (86,712)
----------- ----------- -----------
----------- ----------- -----------
Basic and diluted net loss per share..................... (3) $ (3.55)
-----------
-----------
Shares used in per share calculation--basic and
diluted................................................ (3) 24,423
-----------
-----------
</TABLE>
- ------------------------
(1) Represents pro forma combination of Xoom.com, MightyMail Networks Inc.,
Paralogic Software Corporation and LiquidMarket, Inc., beginning on page
F-127 of this proxy statement/prospectus.
(2) To record NBCi's 81% share of losses in SNAP for the six months ended June
30, 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. See
merger agreement on page 7 for a description of this transaction.
(3) Basic and diluted net loss per share has been adjusted to reflect the
issuance of 7,245,063 shares of NBCi Class A common stock primarily to CNET
and 960,028 shares of NBCi Class A common stock to NBC as if the shares of
Class A common stock had been outstanding for the entire period. See merger
agreement on page 7 and Xoom.com/NBC stock purchase agreement on page 11 for
descriptions of these transactions.
107
<PAGE>
NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(STEPS ONE AND TWO)
The following unaudited pro forma condensed combined financial information
for NBCi gives effect to the step one and step two transactions among Xoom.com,
NBC and the NBC Multimedia Division, which consist of NBC.com, NBC-IN.com and
VideoSeeker, CNET and SNAP. The following unaudited pro forma condensed combined
financial statements reflect the combination of the following:
- Xoom.com pro forma (represents pro forma combination of Xoom.com and
LiquidMarket, Inc. beginning on page F-127 of this proxy
statement/prospectus);
- NBC.com;
- NBC-IN.com;
- VideoSeeker;
- CNET's ownership interest in SNAP;
- NBC's ownership interest in SNAP; and
- 10% equity interest in CNBC.com LLC.
The total purchase costs 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 CNET's and NBC's ownership
interests 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-3, F-34
and F-51 in this proxy statement/prospectus, respectively.
The unaudited pro forma condensed combined balance sheet as of June 30, 1999
has been prepared assuming the transactions 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 unaudited pro forma condensed combined statements of operations combine
the Xoom.com 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 six months ended June 30, 1999; reflect NBC's
investment in Xoom.com's common stock; and give effect to the transactions,
including the amortization of goodwill and other intangible assets, as if they
had occurred at the beginning of each period presented.
The final purchase price allocation will be calculated based on NBC
Multimedia's and SNAP's balance sheets and SNAP's stock options outstanding at
the date the transactions are consummated.
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 position of the combined companies and
should not be construed as representative of these amounts for any future dates
or periods.
As set forth in the pro forma condensed combined statements of operations,
NBCi experienced net losses for the six months ended June 30, 1999 and the year
ended December 31, 1998. We believe that we have the financial resources needed
to meet the presently anticipated business requirements of NBCi, including
capital expenditure and strategic operating programs, for at least the next 12
months. Thereafter, if cash generated by operations is insufficient to satisfy
our liquidity requirements, we 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 our
stockholders. We may not be able to raise any such capital on terms acceptable
to us or at all.
108
<PAGE>
NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(STEPS ONE AND TWO)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
XOOM.COM MULTIMEDIA COMBINATION
PRO FORMA(1) SNAP DIVISION COMBINED ADJUSTMENTS PRO FORMA
---------------- -------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 58,017 $ 37 $ -- $58,054 $ 24,900(F)(G) $ 82,954
Short-term investments..................... 107,995 -- -- 107,995 -- 107,995
Accounts receivable, net................... 3,025 4,415 2,099 9,539 -- 9,539
Note receivable from NBC................... -- -- -- -- 78,288(D) 78,288
Inventories................................ 793 -- -- 793 -- 793
Other current assets....................... 2,456 2,075 -- 4,531 -- 4,531
-------- -------- ---------- -------- -------------- -------------
Total current assets......................... 172,286 6,527 2,099 180,912 103,188 284,100
Fixed assets, net.......................... 4,827 8,277 479 13,583 -- 13,583
Goodwill, net.............................. 72,120 -- -- 72,120 1,408,108(B) 1,480,228
Intangible assets, net..................... 27,251 -- -- 27,251 100,830(B) 128,081
Investments................................ 53,615 18,382 -- 71,997 80,000(B) 151,997
Note receivable from NBC, less current
portion.................................. -- -- -- -- 261,712(D) 261,712
Other assets............................... 1,316 2,194 -- 3,510 -- 3,510
-------- -------- ---------- -------- -------------- -------------
Total assets................................. $331,415 $ 35,380 $ 2,578 $369,373 $1,953,838 $2,323,211
-------- -------- ---------- -------- -------------- -------------
-------- -------- ---------- -------- -------------- -------------
LIABILITIES, STOCKHOLDERS' EQUITY,
MEMBERS' EQUITY AND PARENT
COMPANY'S INVESTMENT AND NET ADVANCES
Current liabilities:
Accounts payable........................... $ 3,930 $ 3,011 $ 1,921 $ 8,862 $ 23,500(B) $ 32,362
Accrued compensation and related
expenses................................. 1,101 6,357 194 7,652 -- 7,652
Other accrued liabilities.................. 2,266 -- -- 2,266 -- 2,266
Deferred revenue........................... 2,676 3,741 20,333 26,750 (22,203)(E) 4,547
Notes payable.............................. 1,103 -- -- 1,103 -- 1,103
Due to CNET................................ -- 2,611 -- 2,611 -- 2,611
Due to NBC................................. -- 1,373 -- 1,373 -- 1,373
Capital lease obligations.................. 41 -- -- 41 -- 41
Contingency accrual........................ 1,000 -- -- 1,000 -- 1,000
-------- -------- ---------- -------- -------------- -------------
Total current liabilities.................... 12,117 17,093 22,448 51,658 1,297 52,955
Convertible notes payable to NBC and its
affiliates, less current portion........... -- -- -- -- 370,000(A) 370,000
Deferred revenue less current portion........ 2,500 -- -- 2,500 -- 2,500
Other notes payable, less current portion.... 331 -- -- 331 -- 331
Capital lease obligations, less current
portion.................................... 98 -- -- 98 -- 98
Line of credit............................... -- 30,100 -- 30,100 (30,100)(F) --
Stockholders' equity, Members' equity and
Parent Company's investment and net advances:
Common stock............................... 342,700 -- -- 342,700 1,580,958(A)(G) 1,923,658
Members' equity............................ -- 86,808 -- 86,808 (86,808)(C) --
Parent Company's investment and net
advances................................. -- -- (19,870) (19,870 ) 19,870(C) --
Notes receivable from stockholders......... (995) -- -- (995 ) -- (995)
Deferred compensation...................... (499) (9,146) -- (9,645 ) 9,146 (499)
Unrealized gain............................ -- 11,635 -- 11,635 (11,635)(C) --
Accumulated deficit........................ (24,837) (101,110) -- (125,947) 101,110 (24,837)
-------- -------- ---------- -------- -------------- -------------
Total stockholders' equity................... 316,369 (11,813) (19,870) 284,686 1,612,641 1,897,327
-------- -------- ---------- -------- -------------- -------------
Total liabilities and stockholders' equity... $331,415 $ 35,380 $ 2,578 $369,373 $1,953,838 $2,323,211
-------- -------- ---------- -------- -------------- -------------
-------- -------- ---------- -------- -------------- -------------
</TABLE>
- ------------------------------
(1) Represents pro forma combination of Xoom.com and LiquidMarket, Inc.,
beginning on page F-127 in this proxy statement/ prospectus.
109
<PAGE>
NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(STEPS ONE AND TWO)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
XOOM.COM MULTIMEDIA COMBINATION
PRO FORMA(1) SNAP DIVISION COMBINED ADJUSTMENTS PRO FORMA
---------------- -------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................. $ 9,200 $ 7,317 $11,615 $ 28,132 $ -- $ 28,132
Cost of net revenue.......................... 3,857 7,626 5,249 16,732 -- 16,732
---------------- -------- ---------- --------- ------------- -------------
Gross profit................................. 5,343 (309) 6,366 11,400 -- 11,400
Operating expenses:
Operating and development.................. 4,339 6,263 938 11,540 -- 11,540
Sales and marketing........................ 3,160 12,482 3,989 19,631 -- 19,631
General and administrative................. 4,110 5,939 4,489 14,538 -- 14,538
Purchased in-process research and
development.............................. 330 -- -- 330 -- 330
Amortization of deferred compensation...... 1,605 160 -- 1,765 -- 1,765
Amortization of goodwill and other
intangible assets........................ 27,620 -- -- 27,620 222,639(H) 250,259
Promotion and advertising provided by
NBC...................................... -- 14,060 -- 14,060 -- 14,060
---------------- -------- ---------- --------- ------------- -------------
Total operating expenses..................... 41,164 38,904 9,416 89,484 222,639 312,123
---------------- -------- ---------- --------- ------------- -------------
Loss from operations......................... (35,821) (39,213) (3,050) (78,084) (222,639) (300,723)
Other income (expense):
Interest income............................ 192 -- -- 192 16,792(I) 16,984
Interest expense........................... (145) -- -- (145) (14,800)(J) (14,945)
Interest expense related to warrant........ (1,494) -- -- (1,494) -- (1,494)
Other expense.............................. -- (75) -- (75) -- (75)
---------------- -------- ---------- --------- ------------- -------------
Net loss..................................... (37,268) (39,288) (3,050) (79,606) (220,647) (300,253)
---------------- -------- ---------- --------- ------------- -------------
---------------- -------- ---------- --------- ------------- -------------
Basic and diluted net loss per share......... (K) $ (7.22)
-------------
-------------
Shares used in per share calculation--basic
and diluted................................ (K) 41,595
-------------
-------------
</TABLE>
- ------------------------
(1) Represents pro forma combination of Xoom.com, Paralogic Corporation, Global
Bridges Technologies, Inc., PageCount, Inc., MightyMail Networks, Inc.,
Paralogic Software Corporation and LiquidMarket, Inc., beginning on page
F-127 of this proxy statement/prospectus.
110
<PAGE>
NBCI
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(STEPS ONE AND TWO)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
XOOM.COM MULTIMEDIA COMBINATION
PRO FORMA(1) SNAP DIVISION COMBINED ADJUSTMENTS PRO FORMA
---------------- -------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................. $ 11,238 $ 13,368 $8,925 $ 33,531 $ -- $ 33,531
Cost of net revenue.......................... 4,736 5,858 2,806 13,400 -- 13,400
-------- -------- ---------- -------- ------------- -------------
Gross profit................................. 6,502 7,510 6,119 20,131 -- 20,131
Operating expenses:
Operating and development.................. 4,073 5,009 297 9,379 -- 9,379
Sales and marketing........................ 7,964 14,613 748 23,325 -- 23,325
General and administrative................. 4,483 5,744 1,444 11,671 -- 11,671
Amortization of deferred compensation...... 3,243 1,766 -- 5,009 -- 5,009
Amortization of goodwill and other
intangible assets........................ 14,160 -- -- 14,160 111,319(H) 125,479
Promotion and advertising provided by
NBC...................................... -- 26,037 -- 26,037 -- 26,037
-------- -------- ---------- -------- ------------- -------------
Total operating expenses..................... 33,923 53,169 2,489 89,581 111,319 200,900
-------- -------- ---------- -------- ------------- -------------
(Loss) income from operations................ (27,421) (45,659) 3,630 (69,450) (111,319) (180,769)
Other income (expense):
Interest income............................ 3,022 -- -- 3,022 8,921(I) 11,943
Interest expense........................... (68) -- -- (68) (7,400)(J) (7,468)
Other expense.............................. -- (595) -- (595) -- (595)
-------- -------- ---------- -------- ------------- -------------
Net (loss) income............................ (24,467) (46,254) 3,630 (67,091) (109,798) (176,889)
-------- -------- ---------- -------- ------------- -------------
-------- -------- ---------- -------- ------------- -------------
Basic and diluted net loss per share......... (K) $ (3.68)
-------------
-------------
Shares used in per share calculation--basic
and diluted................................ (K) 48,014
-------------
-------------
</TABLE>
- ------------------------
(1) Represents pro forma combination of Xoom.com, MightyMail Networks Inc.,
Paralogic Software Corporation and LiquidMarket, Inc., beginning on page
F-127 of this proxy statement/prospectus.
111
<PAGE>
NBCI
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(STEPS ONE AND TWO)
The total estimated purchase cost assumes that both the step one and step
two transactions are 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.
The final purchase price allocation will be calculated based on NBC Multimedia's
and SNAP's balance sheets and SNAP's stock options outstanding at the date the
transactions are consummated.
The adjustments to the unaudited pro forma condensed combined balance sheet
as of June 30, 1999, have been calculated as if the transactions occurred on
June 30, 1999 and are as follows:
(A)(1) 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 $39,447,953; and (ii) a zero coupon convertible note of NBCi
with a principal at maturity of $447,416,805. 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.
(2) To reflect the issuance of 7,245,063 shares of NBCi's Class A common
stock with a fair value per share of $46.77 for an aggregate amount of
$338,852,000 or approximately 81% (39% on a fully diluted basis) 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. See Merger
Agreement on page 7 for a description of this transaction.
(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
-----------
-----------
112
<PAGE>
NBCI
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(STEPS ONE AND TWO)
(2) To allocate the total purchase price of the transaction ($1,919,458,000)
and recognize the excess purchase cost of $1,588,938,000 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 1,408,108,000
--------------
$1,588,938,000
--------------
--------------
(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 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.
(E) To eliminate the gross margin associated with the SNAP deferred revenue
and to eliminate the deferred revenue of the NBC Multimedia Division.
(F) To record the repayment by NBCi of SNAP's revolving line of credit.
(G) To reflect the issuance of 960,028 shares of Xoom.com common stock to
NBC at a price per share of $57.29 for an aggregate purchase amount of
$55,000,000, as agreed to in the stock purchase agreement dated June 11,
1999 and executed on July 30, 1999. See Xoom.com/NBC Stock Purchase
Agreement on page 11 for a description of this transaction.
The adjustments to the unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1998 and the six months ended June
30, 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) Basic and diluted net loss per share has been adjusted to reflect 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.
113
<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 intends to offer these core services through its primary
consumer brand SNAP. 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, one of the fastest growing major Internet
portals from July 1998 to July 1999 according to Media Metrix based on the
percentage increase in reach among home and work users, 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 July 1999, according to Media Metrix based on the percentage
increase in reach among home and work users, 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; and
- 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.
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>
114
<PAGE>
After the closing of the transactions, NBCi will integrate the Xoom.com,
NBC.com, NBC-IN.com and VideoSeeker.com Web sites into the Snap.com Web site.
Users will be able to access these Web sites from the Snap.com Web site or from
the current address of each individual Web site.
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 enter into a multi-year television network advertising
agreement with NBC. 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
seventh ranked site on the Internet in July 1999 based on the number of unique
users, and the fastest growing major Internet company from July 1998 to July
1999 based on the percentage increase in reach among home and work users. In
July 1999 the Internet properties to be combined in forming NBCi had an
aggregate Internet reach among home and work users of approximately 26%, with
over 16 million unique visitors, based on data available from Media Metrix. The
term "reach" means the percentage of projected individuals within a designated
demographic or market category that accessed the Web content of a specific site
or category among the total number of projected individuals using the Web during
the month.
The total number of registered users of the Internet properties to be
combined in forming NBCi totaled over 12 million as of July 31, 1999, up from
2.5 million on July 31, 1998. For the months of June and July the average number
of users registering per day exceeded 31,000 and 28,000, respectively, for the
combined Web sites. In July 1999 the Internet properties to be combined in
forming NBCi had over 660 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 $33.5
million of total revenue for the six months ended June 30, 1999, 68% of which
would have been advertising revenue, 18% of which would have been e-commerce
revenue and 14% of which would have been other revenue, primarily relating to
outsourcing agreements. Pro forma revenues for the six months ended June 30,
1999 represented an increase of 282% over the pro forma revenues for the six
months ended June 30, 1998. There can be no assurance that NBCi can continue to
generate revenue from equity instruments received, which would have comprised
$10.4 million, or 29%, of total revenue for the six months ended June 30, 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.
115
<PAGE>
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 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 intends to expand the audience for its primary consumer brand, SNAP, as
well as the other NBCi brands by capitalizing on the demonstrated growth ability
and the leading edge technologies of the NBCi businesses, as well as NBC's
strong appeal to television viewers and consequent attractiveness to
advertisers. 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, 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,
116
<PAGE>
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 season that ended in May 1999, NBC
was the most-watched television network during primetime among adults age 18 to
54 in the United States. Primetime means 8:00 p.m. to 11:00 p.m. Monday through
Saturday and 7:00 p.m. to 11:00 p.m. Sunday. 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. On average, for example, 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 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 as well as other NBCi brands through the
purchase of $405 million in advertising on the NBC Television Network, CNBC,
MSNBC and NBC's owned and operated television stations over a four-year term.
NBCi and NBC have agreed to negotiate 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, Snap.com, 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. 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,
and provide a breadth of detailed information on such product offerings 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.
117
<PAGE>
DEMONSTRATED GROWTH CAPABILITY
From July 1998 to July 1999, Snap.com and Xoom.com were two of the
fastest-growing Web sites among home and work 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, 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 be 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
118
<PAGE>
advantageous to the component companies even if the proposed NBCi transactions
are not 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. In addition
to exposure through television advertising, 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
119
<PAGE>
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 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. A vertical hub
is a website on topics of general interest such as sports, weather or health,
which is supported by professionally-created content and may contain chat rooms,
bulletin boards and e-commerce product offerings related to that particular
topic. 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 was one of the first portals to deliver broadband content
through the Snap.com For Higher Speed Users Web site. 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.com. Xoom.com has developed a proprietary database stratification, offer
targeting and delivery system. This system uses 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.
120
<PAGE>
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.
RECENT TRANSACTIONS AFFECTING NBCI
On September 13, 1999, Xoom.com and SNAP entered into a strategic alliance
with ValueVision International, Inc. whereby the parties entered into
re-branding and electronic commerce agreements, including television home
shopping, Internet shopping and direct e-commerce initiatives. Under the terms
of the agreements, SNAP granted ValueVision a ten-year, exclusive license to use
SNAP's "SnapTV" trademark for the purpose of operating a television home
shopping service and a Website at www.snaptv.com in exchange for a royalty of 2%
of gross revenues received from Internet users in connection with commerce
opportunities on the SnapTV Website. ValueVision's television home shopping
network, currently called ValueVision, will be re-branded as SnapTV. The
re-branding will be phased in during late 1999 and the first half of 2000.
Xoom.com will become the exclusive direct electronic commerce partner for
SnapTV, managing all such initiatives, including database management, e-mail
marketing and other sales efforts. Direct online shopping offers will include
Xoom.com products and services, as well as SnapTV merchandise. ValueVision and
Xoom.com will share revenues from all such initiatives. ValueVision and SNAP
will roll-out a new companion Internet shopping service, SnapTV.com--featuring
online purchasing opportunities that spotlight products offered on-air along
with online-only e-commerce opportunities offered by SnapTV and its merchant
partners. In addition, SNAP will have the exclusive right to sell all Internet
advertising on SnapTV.com and will retain 50% of the revenues generated from
such advertising. The SnapTV.com online store will be featured prominently
within Snap.com's shopping area. As part of the agreements, ValueVision and
Xoom.com entered into a warrant purchase agreement whereby Xoom.com agreed to
purchase a warrant for 404,760 shares of ValueVision common stock at an exercise
price of $24.706, and ValueVision agreed to purchase a warrant for 244,004
shares of Xoom.com common stock at an exercise price of $40.983 per share. The
warrants may be exercised at any time after the closing of the contribution
agreement through September 12, 2004. In the event the transactions contemplated
in the contribution agreement do not occur by December 31, 1999, the warrants
will terminate. These rights and obligations of Xoom.com and SNAP will be
assigned to and assumed by NBCi following consummation of the transactions
contemplated in the merger agreement and the contribution agreement.
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 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 146 and 183, respectively.
121
<PAGE>
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 some 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;
- 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 146, 183 and 203.
122
<PAGE>
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 specific 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 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.
123
<PAGE>
EFFECT ON NBCI IF THE TRANSACTIONS CONTEMPLATED BY THE CONTRIBUTION AGREEMENT DO
NOT OCCUR
The following information discusses the consequences to NBCi if the
transactions contemplated by the merger agreement occur without the transactions
contemplated by the contribution agreement occurring. This discussion is
necessarily speculative in nature as Xoom.com cannot control or predict whether
the stockholders of Xoom.com will approve either or both of the transactions.
In general, if the transactions contemplated by the contribution agreement
do not occur the surviving entity would:
- consist of Xoom.com plus an 81% non-controlling interest in SNAP, which
may be reduced to 40% and thereafter down to 25% if NBC Multimedia were to
exercise its two options to purchase additional ownership interests in
SNAP;
- have significant influence over the operating and financing decisions of
SNAP, but would not control SNAP because of the governance rights shared
by the surviving entity and NBC;
- not be affiliated with NBC other than through their shared ownership of
SNAP;
- not enter into an advertising agreement with NBC;
- not have access to NBC's name, trademarks or the NBC contributed Internet
properties; and
- not have the right to use "NBC" in its name.
The proposed Class B Directors, including John F. Welch, Jr., would not serve as
directors of the surviving entity and Robert C. Wright would not serve as its
chairman of the board. In addition, the employees of SNAP would hold options in
the surviving entity even though the surviving entity would not own a
controlling interest in SNAP.
The current stockholders of Xoom.com are expected to own approximately 74.4%
of the outstanding shares of the surviving entity and CNET is expected to own
approximately 25.2% of the outstanding shares. However, as discussed beginning
on page 90, if the stockholders of Xoom.com fail to approve the adoption of the
contribution agreement after a third party has made a bona fide proposal to
Xoom.com or its stockholders to engage in an acquisition transaction, NBC could
exercise its option to purchase approximately 19.9% of the common stock of
Xoom.com, which would dilute the ownership interests of Xoom.com's current
stockholders.
Although Xoom.com has not developed a formal business plan that addresses
the future operations of the surviving entity without the transactions
contemplated by the contribution agreement occurring, it expects that the
surviving entity would:
- not be able to integrate the operations of Xoom.com and SNAP as fully as
is currently contemplated, because the surviving entity would not hold a
controlling interest in SNAP;
- promote Xoom.com instead of SNAP as its primary consumer brand over a
variety of media, but to a significantly lesser extent than that planned
currently for NBCi;
- seek to develop relationships with SNAP, including entering into operating
agreements that would govern their strategic relationships; and
- seek to increase its user base by offering leading edge Internet products
and services, selectively developing vertical hubs, expanding broadband
content available to users and expanding internationally.
Xoom.com may in addition consider other possible strategic relationships
with NBC in the future. Xoom.com expects that the surviving entity would have
sufficient capital resources to fund its operations for the twelve months
following the closing of the merger agreement. Thereafter, if cash
124
<PAGE>
generated from operations is insufficient to satisfy its liquidity requirements,
the surviving entity may need to sell additional equity or debt securities or
obtain other forms of financing.
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 147 and 184
and "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, the current operations of SNAP and
Xoom.com will be consolidated at Xoom.com's newly leased facilities in San
Francisco, California, which will serve as NBCi's headquarters. NBCi will also
employ some of the persons formerly employed by NBC Multimedia at NBC
Multimedia's facilities. NBCi also intends to consolidate the East Coast
operations of Xoom.com and SNAP into Xoom.com's office space in New York, New
York.
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.
125
<PAGE>
MANAGEMENT OF NBCI FOLLOWING TRANSACTIONS
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 217 and 223. To date, 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 August 31, 1999, are
expected to be as follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Robert C. Wright................... 56 Chairman of the Board and Class B Director
Chris Kitze........................ 40 Chief Executive Officer and Class A Director
John Harbottle..................... 45 Chief Financial Officer and Executive Vice President, Finance,
Secretary and Treasurer
Edmond P. Sanctis.................. 37 President and Chief Operating Officer
Diane Cordova...................... 38 Vice President, Human Resources
Jeffrey Ballowe.................... 43 Class A Director
Robert C. Harris, Jr............... 53 Class A Director
James Heffernan.................... 58 Class A Director
Michael M. Lynton.................. 39 Class A Director
L. Lowry Mays...................... 64 Class A Director
Philip Schlein..................... 65 Class A Director
Mark W. Begor...................... 41 Class B Director
Gary M. Reiner..................... 45 Class B Director
Scott M. Sassa..................... 40 Class B Director
John F. Welch, Jr.................. 63 Class B Director
Martin J. Yudkovitz................ 45 Class B Director
</TABLE>
KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Shawn Hardin....................... 37 Executive Vice President, Product and Executive Producer
Andrew Hyde........................ 41 Senior Vice President, Finance
Kenneth S. Norton.................. 28 Chief Technology Officer
Marc Sznajderman................... 33 Vice President, Corporate Development
</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.
126
<PAGE>
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 since that
time and Secretary since that time until April 1999. 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 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 NBCi's Executive Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer since August 1999 and 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.
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.
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.
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
127
<PAGE>
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 Technology Group, Inc. Mr. Heffernan has a B.S. in Business and an M.B.A.
from Santa Clara University.
MICHAEL M. LYNTON has been the Chairman and Chief Executive Officer of the
Penguin Group since 1996. From 1987 to 1996, at The Walt Disney Company, Mr.
Lynton was President of Hollywood Pictures and President of Disney
Publishing--Magazines and Books. Mr. Lynton is a director of Marvel Enterprises,
Inc. and of Telebanc Financial Corporation. Mr. Lynton received an A.B. in
History and Literature from Harvard, and an M.B.A. from Harvard Business School.
Mr. Lynton is the unaffiliated director jointly nominated by NBC and Xoom.com.
L. LOWRY MAYS has served as a director of Xoom.com since October 1999. In
1972, Mr. Mays founded Clear Channel Communications, a diversified media
company, and has served as its Chairman, Chief Executive Officer and a director
since 1972. From 1972 to February 1997 Mr. Mays served as the President of Clear
Channel Communications. Mr. Mays has a B.S. in Petroleum Engineering from Texas
A&M University and an M.B.A. from Harvard Business School.
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.
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.
128
<PAGE>
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.
SCOTT M. SASSA has been President, NBC West Coast, since May 1999. Mr. Sassa
joined NBC in September 1997 as President of its Television Stations Division,
and was promoted to President of NBC Entertainment in October 1998. From
November 1996 to August 1997, Mr. Sassa was President and Chief Operating
Officer of Andrews Group, a unit of MacAndrews & Forbes Holding Co., and was
also Chief Executive Officer of Marvel Entertainment. Prior to joining Andrews
Group, Mr. Sassa was President of Turner Entertainment Group, a division of
Turner Broadcasting System, from September 1990 to November 1996. Mr. Sassa is a
member of the board of managers of SNAP.
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.
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-
129
<PAGE>
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. with honors from
Boston University and is certified as a Project Management Professional by the
Project Management Institute.
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.
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 Scott Sassa, 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, which will consist 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
long term compensation from NBCi during the last fiscal year.
STOCK INCENTIVE PLAN
The material terms of the stock incentive plan are described beginning on
page 99.
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
130
<PAGE>
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.
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 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 of Xoom.com 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 purchased 1,333,336 and 94,445 shares of
common stock of Xoom.com, 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 of Xoom.com 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
Xoom.com, 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.
131
<PAGE>
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 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 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.
Schlein also receives a monthly fee of $10,000 payable in cash or in common
stock of Xoom.com, 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 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.
Harris also receives a monthly fee of $10,000 payable in cash or in common stock
of Xoom.com, 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
132
<PAGE>
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 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 of Xoom.com 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 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. 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. In
September 1999, Xoom.com granted Mr. Harbottle options to purchase up to 90,000
shares of common stock at a per share exercise price of $35.9375 per share.
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 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.
In August 1999, Mr. Ballowe, Mr. Schlein, Mr. Harris and Mr. Heffernan each
received options to purchase up to 25,000 shares of common stock of Xoom.com at
a per share exercise price of $30.19. The options vest at a rate of 1/36 per
month over 36 months.
From September 1998 through August 1999, Diane Cordova, vice president of
human resources of SNAP, received options to purchase an aggregate amount of
75,000 units of SNAP at an exercise price ranging from $7.79 to $30.19 per unit.
The options generally vest on a monthly basis over a period of three to four
years.
On September 13, 1999, Xoom.com and SNAP entered into a strategic alliance
with ValueVision, a company in which an affiliate of NBC owns a 38.1% ownership
interest. The terms of the strategic alliance were negotiated at arms length and
are described on page 121.
On October 18, 1999, as consideration for agreeing to serve on Xoom.com's
board of directors, L. Lowry Mays was granted an option to purchase 25,000
shares of common stock of Xoom.com at an exercise price of $54.875 per share.
The options vest monthly over a three year period. In June 1999, Xoom.com
entered into an agreement with Clear Channel Broadcasting, Inc., a subsidiary of
Clear Channel Communications. Mr. Mays is the chief executive officer, chairman
of the board and a director of Clear Channel Communications. The terms of the
agreement with Clear Channel Broadcasting are described on page 143 and Mr. Mays
was not affiliated with Xoom.com at the time the agreement was entered into.
On October 21, 1999, Edmond P. Sanctis, the chief operating officer of SNAP,
entered into a letter agreement with Xoom.com under which he agreed to become an
employee of Xoom.com and to serve
133
<PAGE>
as the president and chief operating officer of NBCi upon the closing of the
transactions contemplated by the merger agreement. As president and chief
operating officer of NBCi, Mr. Sanctis will receive an annual salary of $400,000
and will be eligible to receive a bonus of up to $66,000 for the remainder of
the 1999 calendar year. For the 2000 calendar year, Mr. Sanctis will be entitled
to a quarterly bonus of up to $100,000 and an annual bonus of up to $100,000
upon the achievement of certain performance goals to be agreed upon by Mr.
Sanctis and NBCi. Upon entering into the letter agreement Mr. Sanctis received a
bonus of $200,000 and is entitled to receive an option to purchase 500,000
shares of Xoom.com common stock at an exercise price equal to the closing price
on the last trading date prior to the date such options are granted by the board
of directors of Xoom.com. The options will vest monthly over a three-year period
beginning on the closing date of the merger agreement. In the event the
transactions contemplated by the merger agreement do not occur by December 31,
1999, Mr. Sanctis' employment with Xoom.com will terminate as of such date as
will any of his unvested options to purchase shares of Xoom.com common stock.
Until the transactions contemplated by the merger agreement occur, Mr. Sanctis
may continue his current employment with SNAP.
From July 1998 through August 1999, Mr. Sanctis received options to purchase
an aggregate amount of 260,494 units of SNAP at an exercise price ranging from
$7.79 to $30.19 per unit. The options generally vest on a monthly basis over a
period of three to four years.
134
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF XOOM.COM AND NBCI
The following table sets forth information known to Xoom.com with respect to
the beneficial ownership of Xoom.com common stock as of October 6, 1999 by:
- each person known to Xoom.com to own beneficially more than 5% of the
outstanding shares of Xoom.com common stock,
- each director or director nominee of Xoom.com,
- 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
- 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 common stock following the consummation of the transactions
by:
- each person known to NBCi who will own beneficially more than 5% of the
outstanding shares of NBCi common stock,
- each director or director nominee of NBCi,
- the chief executive officer of NBCi, and
- 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 4.7% 24,550,708 47.3%
CNET(4).......................................... -- -- 7,147,584 13.8%
Chris Kitze(5)................................... 3,350,680 16.4% 3,350,680 6.5%
Naveen Jain(6)................................... 562,162 2.8% -- --
Bob Ellis(7)..................................... 431,116 2.1% -- --
Laurent Massa(8)................................. 186,366 * -- --
James J. Heffernan(9)............................ 136,846 * 137,540 *
Alicia Molnar(10)................................ 84,487 * -- --
Janine Popick(11)................................ 54,330 * -- --
Jeffrey Ballowe(12).............................. 23,854 * 32,327 *
Robert C. Harris, Jr.(13)........................ 23,002 * 31,475 *
Philip Schlein(14)............................... 12,215 * 20,688 *
L. Lowry Mays(15)................................ -- -- 1,389 *
Michael Lynton................................... -- -- -- --
Mark W. Begor.................................... -- -- -- --
Gary M. Reiner................................... -- -- -- --
Scott M. Sassa................................... -- -- -- --
John F. Welch, Jr................................ -- -- -- --
Robert C. Wright................................. -- -- -- --
Martin J. Yudkovitz.............................. -- -- -- --
All executive officers and directors as a group
(Xoom.com--14 persons)(16)
(NBCi--16 persons)(17)......................... 4,467,803 21.3% 3,866,898 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 October 6, 1999
and
135
<PAGE>
warrants to purchase shares of common stock that are exercisable within 60
days of October 6, 1999 are deemed outstanding. Percentage of beneficial
ownership is based upon shares of 20,462,775 Xoom.com common stock
outstanding on August 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 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 October 31, 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 October 31,
1999. Percentage of beneficial ownership of NBCi common stock is based upon
51,916,180 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 purchased by NBC 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 420,423 shares of Xoom.com common stock held by the Robert A. Ellis
Revocable Trust. Also includes options exercisable for 10,693 shares of
Xoom.com common stock.
(8) Includes options exercisable for 186,366 shares of Xoom.com common stock.
(9) Includes options exercisable for 4,166 shares of Xoom.com common stock and
options to purchase 4,861 shares of NBCi Class A common stock. Also includes
128,679 shares of Xoom.com 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 84,487 shares of Xoom.com common stock.
(11) Includes options exercisable for 54,330 shares of Xoom.com common stock.
(12) Includes options exercisable for 2,638 shares of Xoom.com common stock and
options to purchase 11,111 shares of NBCi Class A common stock.
(13) Includes options exercisable for 17,638 shares of Xoom.com common stock and
options to purchase 26,111 shares of NBCi Class A common stock.
(14) Includes options exercisable for 10,833 shares of Xoom.com common stock and
options to purchase 19,306 shares of NBCi Class A common stock.
(15) Includes options to purchase 1,389 shares of NBCi Class A common stock.
(16) Includes options to purchase 500,816 shares of Xoom.com common stock.
(17) Includes options to purchase 346,577 shares of NBCi Class A common stock.
136
<PAGE>
XOOM.COM BUSINESS
OVERVIEW
Xoom.com is one of the fastest growing community based Web sites based on
the percentage increase in reach among home and work users. 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 present an attractive platform for
advertising.
According to Media Metrix, Xoom.com was the seventeenth most visited site on
the Internet in July 1999, and its reach among home and work users increased to
13.8% in July 1999 from less than 3% in January 1998. In June 1999, the Xoom.com
site and Xoom.com's network of chat rooms and page counters had a total reach
among home and work users of 31.3%, according to Media Metrix. Xoom.com had
approximately 9.8 million members as of August 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 June 30, 1999, Xoom.com delivered
approximately 50% of its net revenue from e-commerce and approximately 13% of
net revenue from non-U.S. sales. E-commerce revenue consists of the sale of
products and services over the Internet, net of returns and inclusive of
outbound shipping and handling fees. Quarterly net revenue increased from
approximately $1.7 million in the second quarter of 1998 to $6.5 million in the
second quarter of 1999, representing compound quarterly sales growth of
approximately 40%. Quarterly net losses were approximately $2.3 million and $6.7
million in the second quarter of 1998 and 1999, respectively.
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
137
<PAGE>
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 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 $108 billion in 2003.
Forrester Research also projects that the number of U.S. households that shop
online will reach 40 million in 2003.
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.
138
<PAGE>
APPROACH
Xoom.com uses the unique characteristics of the Web to cost-effectively
market products and services to its rapidly growing member base. 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. 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
Because of Xoom.com's relationship with its members, 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
139
<PAGE>
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 approach creates high volumes of traffic, enabling business
advertisers to cost-effectively promote their products and services on the
Xoom.com 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.
140
<PAGE>
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.
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 allows Xoom.com 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
Xoom.com's business model 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.
141
<PAGE>
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 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 specific 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 Talk City, Mplayer.com, Ulead Systems, Web 3000
and Name Secure 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, Ulead Systems, Beyond.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
142
<PAGE>
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 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, a service that allows users to make phone
calls over the Internet, and unified messaging. Unified messaging refers
to the ability of a user to read, view, and respond to different message
types using a common interface that can be accessed by a variety of
Internet connected devices, including computers, wireless phones and
pagers.
- CLEAR CHANNEL. Xoom.com has entered into an agreement with Clear Channel
Broadcasting, Inc. a globally diversified media and outdoor advertising
company which operates, or is affiliated with over 625 radio stations
worldwide. The agreement provides that Xoom.com will be the exclusive
provider of free Web site space, chat rooms and Web e-mail to the members
of the Web sites associated with the radio stations affiliated with Clear
Channel in the United States. In exchange, Xoom.com will have the
exclusive right to send direct advertising and marketing to members of the
Web sites. Additionally, Xoom.com will purchase at least $3.5 million per
year of advertising on the Clear Channel radio network and billboards.
- FAIRMARKET. FairMarket AuctionPlace has developed a private-labeled online
auction site on the Xoom.com Web site. The auction site enables Xoom.com
members to list and bid on items in several categories including antiques
collectibles, jewelry and automobiles. FairMarket distributes products
listed by Xoom.com members on the Xoom.com auction site across other sites
in FairMarket's network of auction sites. Similarly, FairMarket
distributes products from other auction sites in its network on Xoom.com's
auction site. FairMarket provides all of the hardward, software and
support associated with the Xoom.com auction site.
- 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.
143
<PAGE>
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.
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. 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 to generate
product sales. 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 uses its marketing campaign-management software to
efficiently test-market potential product offers. 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 August
31, 1999, Xoom.com had 24 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 August 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, i.e., the
144
<PAGE>
number of times an advertisement is seen by a user, 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 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 Beyond.com, eBay, Job Options 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
Beyond.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
145
<PAGE>
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 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 and has a peak bandwidth of
over 200 megabits per second.
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 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. 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
146
<PAGE>
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 123.
LEGAL PROCEEDINGS
Xoom.com is litigating a dispute with Imageline, Inc., which claims to own
the copyright in some of the 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.
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
147
<PAGE>
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. A
hearing on the motion for preliminary injunction was held on September 30, 1999.
On October 7, 1999, the court denied Zoom Telephonics motion for a preliminary
injunction, but allowed Zoom Telephonics to request the court to reconsider the
motion if the Xoom.com merger does not close by October 31, 1999. 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.
John G. Balletto filed a lawsuit against Xoom.com in September 1999 in the
San Francisco Superior Court alleging breach of contract and specific
performance. Mr. Balletto has alleged that in connection with a loan which
Xoom.com obtained from Sand Hill Capital LLC in 1998 and pursuant to an oral
contract with Xoom.com, he is entitled to a finder's fee. Mr. Balletto has
sought specific performance of the alleged oral contract by having the court
direct Xoom.com to issue 33,784 shares of its common stock to Mr. Balletto and
such other relief that the court may deem just and proper. Xoom.com believes
that this lawsuit is without merit and intends to defend the suit vigorously.
EMPLOYEES
As of August 31, 1999, Xoom.com had 199 full-time employees, including 102
in sales and marketing, 62 in operating and development and 35 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
intends to move its headquarters in early 2000 to a leased facility in San
Francisco, California, consisting of approximately 187,000 square feet of office
space, which is under a lease that expires in approximately 2010. 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. In
addition, Xoom.com's wholly-owned subsidiary Liquid Market leases approximately
4,000 square feet of office space in Los Angeles, California on a month-to-month
basis.
148
<PAGE>
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 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 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 $10.9 million for the years
ended December 31, 1997 and 1998 and for the six months ended June 30, 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.
From inception through June 30, 1999, Xoom.com generated total net revenue
of approximately $20.1 million. Quarterly net revenue increased from
approximately $420,000 in the fourth quarter of 1997 to $6.5 million in the
second quarter of 1999. Since January 1998, the number of members has grown from
100,000 to 9.2 million as of July 31, 1999.
As of June 30, 1999, Xoom.com had an accumulated deficit of $24.8 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
149
<PAGE>
- 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 various 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. Xoom.com also acquired Sitemail,
an HTML-based e-mail product, through its purchases of Global Bridges and
selected assets of Revolutionary Software in June 1998. HTML refers to hypertext
markup language, a computer language that people use widely to create Web sites.
Global Bridges, which Xoom.com purchased for approximately $1.2 million, owned
the exclusive selling rights to Sitemail. Revolutionary Software, from which
Xoom.com purchased selected assets for approximately $1.7 million, 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. Additionally, in
July 1998, Xoom.com acquired Pagecount, a Web page counter and guestbook
service, for approximately $1.5 million. In April 1999, Xoom.com acquired
Focused Presence, Inc., a company that operates a global directory of small
businesses, for approximately $1.7 million. In May 1999, Xoom.com acquired
Netfloppy.com LLC, a provider of online file storage for Web users for
approximately $1.4 million, and MightyMail Networks, Inc., a developer of an
enhanced e-mail product that enables customization of e-mail according to user
preferences for approximately $23.1 million. In June 1999, Xoom.com acquired
Paralogic Software Corporation, which provides Web site authoring and community
building tools, such as Java based community products and services, including
customizable chat rooms, discussion boards, guestbooks and event calendars, for
approximately $35.4 million.
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 six months ended June 30, 1998 and 1999, Xoom.com expensed $660,000 and $2.6
million, respectively for purchased in-process research and development and
approximately $346,000 and $2.3 million, respectively for the amortization of
goodwill and purchased technology.
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.
150
<PAGE>
International sales comprised approximately 30%, 25% and 16% of total net
revenue for the years ended December 31, 1997 and 1998 and the six months ended
June 30, 1999, respectively. This consisted of $252,000, $2.1 million and $1.7
million 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, its 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 value of some of the stock options Xoom.com granted to its
employees. The deferred compensation charges include options granted to various
employees that vest upon specified 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 $405,000 in the years ended
December 31, 1997 and 1998 and the six months ended June 30, 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
obsolescence, excess inventory and inventory shortages resulting in unfulfilled
orders, which could materially adversely affect operating results in the future.
RECENT EVENTS
On August 3, 1999, Xoom.com acquired 100% of the outstanding shares of
LiquidMarket, Inc., the developer of a next-generation on-line comparison
shopping guide and purchasing service. The purchase consideration consisted of
718,224 shares of Xoom.com's common stock with an estimated fair value of $40.70
per share. In addition, 212,202 shares of Xoom.com's common stock will be placed
into an escrow account. Of the shares held in escrow, 50% will be released on
various milestone dates prior to June 2000, upon the completion of specified
performance objectives, and 50% will be released in August 2000, upon the
expiration of specified indemnification obligations. Xoom.com will account for
this acquisition as a purchase.
On August 3, 1999, Xoom.com acquired all of the outstanding shares of
Private One, Inc., a designer and developer of a secure e-mail software service.
The purchase consideration consisted of 47,999 shares of Xoom.com's common stock
at an estimated fair value of $40.70 per share. In addition, 12,000 shares of
Xoom.com's common stock will be placed into an escrow account. Of the shares
held in escrow, 25% will be released in February 2000, and 25% in August 2000,
or upon the completion of specified milestones, whichever is earlier. The
remaining 50% of the shares held in escrow will be released in August 2000, upon
the expiration of specified indemnification obligations. Xoom.com will account
for this acquisition as a purchase.
On September 13, 1999, Xoom.com entered into a strategic alliance with SNAP
and ValueVision which is described on page 121.
151
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
The following table presents 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 were no material costs of advertising revenue during the years ended
December 31, 1997 and 1998.
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:
- the expansion of its membership base;
- an increase in the frequency of e-mail offerings and broader product
offerings, which resulted in an increase in product sales through
e-commerce;
152
<PAGE>
- an increase in Web-based advertising, Xoom.com's higher Web site traffic
increased its attractiveness to advertisers; and
- to a lesser extent, 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.
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.
153
<PAGE>
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.
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,
154
<PAGE>
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.
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 selected 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 base of chat members, called the ParaChat Personal
Network, as well as the rights to use the underlying chat technology, called
ParaChat Personal. ParaChat Personal 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 Xoom.com's server and the Web site host is provided 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 Personal 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 Personal technology into a commercially viable product included:
- 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
155
<PAGE>
the Internet to retrieve and modify information relating to the user and
the chat room, e.g., the topic of discussion.
- 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, this feature was not useable on a commercial
basis. Internet Standard RFC1459 is a standard message format for Internet
relay chat, allowing usage on multiple platforms. The server functioned
only with the limited ParaChat Personal 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 HTML.
These building blocks would then use a Java-based communication protocol
to communicate with each other and coordinate communication with the chat
server. Since the Java-based communication protocol 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.
- CONTROL INTERFACE: The acquired ParaChat Personal 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
were complex and required significant additional development.
- 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 Personal 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 Personal 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.
156
<PAGE>
As of the date of acquisition, SiteMail was in the alpha testing stage of
development and required the resolution of 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:
- improving the user interface;
- connecting the e-mail server with external databases;
- completing spam detection and filtering functions; and
- 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 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:
- 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.
- 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
157
<PAGE>
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 some options, which
required Xoom.com to accelerate the amortization of the related deferred
compensation, which occurred during 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 selected 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
158
<PAGE>
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 some of
the 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 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.
NET LOSS
Xoom.com's net loss for the year ended December 31, 1998 was $10.8 million
and it was $3.1 million for the year ended December 31, 1997. The increase in
the net loss was a result of an increase in operating expenses which were $14.1
million in the year ended December 31, 1998, compared to $3.7 million in the
year ended December 31, 1997. The operating expenses in the year ended December
31, 1998 included amortization of goodwill and other intangible assets of $1.8
million related to acquisitions, and amortization of deferred compensation of
$1.4 million. The operating expenses in the year ended December 31, 1997 also
included amortization of deferred compensation of $248,000 and non-recurring
charges of $1.2 million. The expenses in the year ended December 31, 1998 were
partially offset by revenues of $8.3 million. The expenses in the year ended
December 31, 1997 were partially offset by revenues of $841,000.
159
<PAGE>
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE AND SIX
MONTHS ENDED JUNE 30, 1998
The following table presents consolidated statement of operations data for
the periods indicated as a percentage of total net revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue:
E-commerce.................................................... 67.4% 50.5% 71.5% 54.2%
Advertising................................................... 15.9 49.2 13.8 45.4
Licensing..................................................... 16.7 0.3 14.7 0.4
--------- --------- --------- ---------
Total net revenue....................................... 100.0 100.0 100.0 100.0
Cost of net revenue(1):
Cost of e-commerce............................................ 36.2 40.0 35.0 42.5
Cost of advertising revenue................................... -- 1.1 -- 0.7
Cost of licensing............................................. 1.1 -- 1.1 --
--------- --------- --------- ---------
Cost of net revenue............................................. 37.3 41.1 36.1 43.2
--------- --------- --------- ---------
Gross profit...................................................... 62.7 58.9 63.9 56.8
Operating expenses:
Operating and development..................................... 45.0 23.8 52.6 24.7
Sales and marketing........................................... 26.5 78.2 28.0 68.8
General and administrative.................................... 45.8 31.3 42.8 33.5
Purchased in-process research and development................. 42.4 2.7 31.5 3.7
Amortization of deferred compensation......................... 19.2 39.9 25.7 23.8
Amortization of intangible assets............................. 20.2 22.1 13.5 21.0
--------- --------- --------- ---------
Total operating expenses................................ 199.1 198.0 194.1 175.5
--------- --------- --------- ---------
Loss from operations.............................................. (136.4) (139.1) (130.2) (118.7)
Other income, net................................................. 0.1 35.8 -- 26.9
--------- --------- --------- ---------
Net loss.......................................................... (136.3)% (103.3)% (130.2)% (91.8)%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) There were no material costs of advertising revenue during 1998.
NET REVENUE
Total net revenue for the three months ended June 30, 1999 was $6.5 million,
an increase of approximately $4.8 million over revenues of $1.7 million for the
three months ended June 30, 1998. Total net revenue for the six months ended
June 30, 1999 was $10.9 million, an increase of approximately $8.3 million over
revenues of $2.6 for the six months ended June 30, 1998. The increases in both
the three-month and six-month periods were primarily due to the following three
factors:
- the expansion of Xoom.com's membership base;
- an increase in the frequency of e-mail offerings and broader product
offerings, which resulted in an increase in product sales through
e-commerce; and
- an increase in Web-based advertising--Xoom.com's higher Web site traffic
increased its attractiveness to advertisers.
160
<PAGE>
E-COMMERCE REVENUE
E-commerce revenue increased to $3.3 million in the three months ended June
30, 1999 from $1.2 million in the three months ended June 30, 1998. E-commerce
revenue increased to $5.9 million in the six months ended June 30, 1999 from
$1.8 million in the six months ended June 30, 1998. The increases in net revenue
in both periods are 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 Xoom.com's total net revenue
attributable to e-commerce revenue decreased to 50.5% in the three months ended
June 30, 1999 from 67.4% in the three months ended June 30, 1998. The percentage
of Xoom.com's total net revenue attributable to e-commerce revenue decreased to
54.2% in the six months ended June 30, 1999 from 71.5% in the six months ended
June 30, 1998. The decreases in both periods were due to the fact that
advertising revenue grew at a more rapid rate than e-commerce revenue during the
three and six months ended June 30, 1999 as compared to the three and six months
ended June 30, 1998. Xoom.com expects e-commerce revenue to continue to account
for a large percentage of net revenue as it 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 to 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 it
experienced for the three and six months ended June 30, 1999 and 1998.
ADVERTISING REVENUE
Advertising revenue increased to $3.2 million in the three months ended June
30, 1999 from $272,000 in the three months ended June 30, 1998. Advertising
revenue increased to $5.0 million in the six months ended June 30, 1999 from
$355,000 in the six months ended June 30, 1998. The percentage of Xoom.com's
total net revenue attributable to advertising revenue increased to 49.2% in the
three months ended June 30, 1999 from 15.9% in the three months ended June 30,
1998. The percentage of Xoom.com's total net revenue attributable to advertising
revenue increased to 45.4% in the six months ended June 30, 1999 from 13.8% in
the six months ended June 30, 1998. The increases in advertising revenue in each
period in both absolute dollars and in percentage of net revenue are primarily a
result of the increase in Xoom.com's membership, increased site traffic, and
expansion of its advertising sales force. As Xoom.com's membership base
continues to grow and the demand for advertising on its Web-site remains strong,
Xoom.com can expect that its advertising revenues will continue to represent a
large percentage of its overall net revenue.
LICENSE FEES AND OTHER REVENUE
Licensing revenue decreased to $18,000 in the three months ended June 30,
1999 from $287,000 in the three months ended June 30, 1998. Licensing revenue
decreased to $39,000 in the six months ended June 30, 1999 from $376,000 in the
three months ended June 30, 1998. As Xoom.com expands its e-commerce and
advertising revenue, it can expect that licensing revenue will continue to
represent a small percentage of net revenue.
COST OF NET REVENUE
Gross margins decreased to 58.9% in the three months ended June 30, 1999
from 62.7% in the three months ended June 30, 1998. Gross margins decreased to
56.8% in the six months ended June 30, 1999 from 63.9% in the six months ended
June 30, 1998. Both decreases were a result of a change in the overall product
mix. In the three and six months ended June 30, 1999, Xoom.com began
161
<PAGE>
selling a broader range of products than in the three and six months ended June
30, 1998. The new product mix includes higher priced items, such as digital
versatile disks and digital cameras, that have lower gross margin percentages.
COST OF E-COMMERCE REVENUE
Cost of e-commerce revenue 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 $2.6 million for the three
months ended June 30, 1999 and it was $621,000 for the same period ended June
30, 1998. Cost of e-commerce revenue was $4.6 million for the six months ended
June 30, 1999 and it was $899,000 for the same period ended June 30, 1998. As a
percentage of e-commerce revenue, the cost of e-commerce was 79.1% for the three
months ended June 30, 1999 and it was 53.7% for the same period ended June 30,
1998. As a percentage of e-commerce revenue, the cost of e-commerce was 78.4%
for the six months ended June 30, 1999 and it was 49.0% for the same period
ended June 30, 1998. The increase was primarily attributable to the fact that in
1999 Xoom.com broadened its product offerings. Xoom.com's new product offerings
included items with higher costs than in the prior year.
COST OF ADVERTISING REVENUE
Cost of advertising revenue consists primarily of revenue share amounts
Xoom.com pays its customers for advertising sold on co-branded sites. Cost of
advertising revenue was $75,000 in the three and six months ended June 30, 1999
and it was $0 in the same periods ended June 30, 1998. This increase is
primarily a result of an increased demand for advertising on co-branded sites,
and the expansion of Xoom.com's advertising and business development sales
forces.
COST OF LICENSING REVENUE
Cost of licensing revenue consists primarily of royalties on net revenue
from license fees. Cost of licensing revenue was $0 for the three months ended
June 30, 1999 and it was $19,000 for the same period ended June 30, 1998. The
costs of licensing revenue were $0 during the six months ended June 30, 1999 and
$27,000 during the same period ended June 30, 1998. Xoom.com expects that the
cost of licensing revenue should continue to be a small percentage of total cost
of revenues.
The mix of products Xoom.com sells will impact its gross margins and the
overall mix of e-commerce revenue, advertising revenue and licensing revenue.
Xoom.com typically recognizes higher gross margins on advertising revenue and
licensing revenue. Xoom.com expects that shifts in the mix of sales could
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 the Xoom.com Web site. Operating and development
expenses increased to $1.6 million in the three months ended June 30, 1999 from
$773,000 in the three months ended June 30, 1998. Operating and development
expenses increased to $2.7 million in the six months ended June 30, 1999 from
$1.3 million in the six months ended June 30, 1998. 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
162
<PAGE>
expects that its operating and development expenses will continue to increase in
absolute dollars for the foreseeable future.
Operating and development costs decreased as a percentage of total net
revenue to 23.8% in the three months ended June 30, 1999 from 45.0% in the three
months ended June 30, 1998. Operating and development costs decreased as a
percentage of total net revenue to 24.7% in the six months ended June 30, 1999
from 52.6% in the six months ended June 30, 1998. The decreases in operating and
development expense as a percentage of total revenue in both periods was due to
the overall growth in net revenue.
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 $5.1 million in the three months ended June 30,
1999 from $455,000 in the three months ended June 30, 1998. Sales and marketing
expenses increased to $7.5 million in the six months ended June 30, 1999 from
$717,000 in the six months ended June 30, 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
Xoom.com's sales and marketing strategy as well as increased public relations
and other promotional and advertising expenses. Additionally, in connection with
the proposed business combination of Xoom.com, SNAP and the NBC contributed
Internet assets, Xoom.com incurred a $424,000 charge related to the cancellation
of an advertising contract in the three and six months ended June 30, 1999.
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 continue to increase significantly in absolute dollars.
Sales and marketing expenses increased as a percentage of total net revenue
to 78.2% in the three months ended June 30, 1999 from 26.5% in the three months
ended June 30, 1998. Sales and marketing expenses increased as a percentage of
total net revenue to 68.8% in the six months ended June 30, 1999 from 28.0% in
the six months ended June 30, 1998. The increase in sales and marketing expenses
as a percentage of total revenue in both periods is due to the hiring of new
sales and marketing personnel and other promotional and advertising expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and related
expenses for general corporate functions, including finance, accounting,
business development, human resources, investor relations, facilities and
administration, as well as legal fees, insurance, and fees for professional
services and directors. General and administrative expenses increased to $2.0
million in the three months ended June 30, 1999 from $785,000 in the three
months ended June 30, 1998. General and administrative expenses increased to
$3.7 million in the six months ended June 30, 1999 from $1.1 million in the six
months ended June 30, 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 Xoom.com's
operations. Xoom.com expects general and administrative expenses to increase in
absolute dollars in future periods as it expands its staff and incurs additional
costs related to its operations.
General and administrative expenses decreased as a percentage of total net
revenue to 31.3% in the three months ended June 30, 1999 from 45.8% in the three
months ended June 30, 1998. General and administrative expenses decreased as a
percentage of total net revenue to 33.5% in the six months ended June 30, 1999
from 42.8% in the six months ended June 30, 1998. The decreases in operating
163
<PAGE>
and development expenses as a percentage of total revenue in both periods were
due to the overall growth in net revenue.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
For the three months ended June 30, 1999 Xoom.com recognized the cost of
purchased in-process research and development of $2,603,000 in connection with
the acquisitions of MightyMail Networks, Inc. and Paralogic Software
Corporation, and for the same period ended June 30, 1998 Xoom.com recognized
$330,000 in connection with the acquisition of Paralogic Corporation. For the
six months ended June 30, 1999 Xoom.com recognized the cost of purchased
in-process research and development of $2,603,000 in connection with the
acquisitions of MightyMail Networks, Inc. and Paralogic Software Corporation,
and for the same period ended June 30, 1998 Xoom.com recognized $660,000 in
connection with the acquisitions of Paralogic Corporation and the purchase of
selected assets of Revolutionary Software, Inc.
MIGHTYMAIL NETWORKS, INC.
In connection with the MightyMail Networks acquisition, Xoom.com acquired
MightyMail Networks' e-mail platform. The MightyMail platform allows branding
material and marketing content to be placed within person-to-person e-mail that
is sent by individuals to individuals. The MightyMail application runs on an
Oracle database and Unix operating system. All the application code is written
using Java servlets, which are Java applets that run within a Web server
environment. The MightyMail application uses a three-tiered architecture common
to most Internet applications: an interface layer, an application layer, and a
database layer. In addition, MightyMail uses a custom mail agent that links into
a standard mail transfer agent. In the future, Xoom.com expects that this custom
mail agent will be useable by any standard mail protocol for users who wish to
run the MightyMail application in their own mail environment.
At the time of the acquisition, version 1.0 of the MightyMail technology was
functional as a commercially viable product. However, the current product has
various e-mail options and is not a truly customizable product with a rich
library of content or business user interface. In fact, version 1.0 is
approximately half of the true customizable, rich-e-mail product originally
intended to be developed. At the time of the acquisition, MightyMail Networks
was developing a second version of the MightyMail Networks technology, which was
not completely functional as a commercially viable product. Version 2.0 of the
MightyMail technology will be fully customizable, have access to a rich library
of content, have the ability to add surveys, be compatible with corporate
servers, have e-mail wizards, allow end-users to create their own content and
enable the inclusion of photographs.
The nature of the remaining estimated efforts necessary to develop version
2.0 of the MightyMail technology include:
- Integration with Xoom.com's existing webmail system. This integration will
bring MightyMail capabilities, which includes the ability to compose rich
e-mail, to Xoom.com's existing account holders, which now exceed 700,000
users.
- Re-architecting of the MightyMail platform to be technically compatible
with the Xoom.com technology infrastructure. The primary compatibility
issue will be the integration of Apache Web server technology in place of
the current Java Web Server from Sun Microsystems.
As of the date of the technology's valuation, Xoom.com estimated that 50% 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 version 2.0 MightyMail technology would require
approximately six months of effort from the date of valuation through its
release date in the fourth quarter of 1999. Xoom.com estimated that three
full-time engineers would be required to
164
<PAGE>
complete the in-process projects. These projects included the use of one
full-time engineer for six months to work on the Apache Web server integration
efforts, and two full-time engineers for 6 months to work on the
MightyMail/Xoom.com e-mail integration efforts. Accordingly, Xoom.com has
estimated that the total estimated research and development costs to complete
MightyMail version 2.0 are $170,000. Xoom.com anticipates completion of the
project in the fourth quarter of 1999.
PARALOGIC SOFTWARE CORPORATION
In connection with the Paralogic Software Corporation acquisition, Xoom.com
acquired Paralogic Software Corporation's product Anexa.com, a combination of
Web site authoring and community building tools that allows users to instantly
create comprehensive Web sites featuring multi-media albums, discussion forums,
events, chat, news announcements, classified ads, guest books, membership
databases and community administration. In connection with this acquisition
Xoom.com also obtained ParaChat Professional, a chat software that is licensed
to individuals and businesses. This software is hosted by a server and is
supported by a staff of engineers, both of which were acquired in conjunction
with the Paralogic Software Corporation acquisition. This is in contrast to the
purchase of the ParaChat Personal Network, which Xoom.com acquired in connection
with the purchase of Paralogic Corporation in March 1998. The ParaChat Personal
Network is hosted by Xoom.com, and is based on a free chat service that Xoom.com
members can download on to their Web pages.
At the time of acquisition, the current versions of Anexa.com and ParaChat
Professional did not represent the more robust, feature-rich products that
Paralogic Software Corporation envisioned and intended to develop in the twelve
months following the acquisition date. The future versions of these products are
expected to incorporate a number of significant additional features, including
enhanced scalability as traffic is added, a relational database management
system, support capability, e-mail verification, improved directory services,
search capability, instant messaging, file sharing capability, home page
publishing, additional administration and management tools, calendar and address
book capabilities, polls, gift galleries, greeting cards, voice chat, and white
board functionality. The nature of the remaining estimated efforts necessary to
develop the acquired, incomplete new versions of Anexa.com and ParaChat
Professional into commercially viable products include:
- ANEXA.COM. These changes fall into the following categories:
(A) new features like Paralogic Instant Messenger, support for Uniplanet
calendar and support for MightyMail mail;
(B) feature enhancements and upgrades, like Media Albums Plus to handle
MP3 files, moderated message boards and improved event notification;
(C) user interface enhancements like administration tools; and
(D) bug fixing.
- PARACHAT PROFESSIONAL. These changes fall into the following categories:
(A) new features like voice chat and chat using HTML, the computer
language used to create hypertext documents;
(B) user interface enhancements and support for moderated events, such as
the ability to accept or deny audience questions;
(C) administration tools, like a filth filter and Chat 911 to help manage
abusive behavior in chat rooms;
(D) support for internationalization; and
(E) bug fixing.
165
<PAGE>
As of the date of the technology's valuation, Xoom.com estimated that 17% 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 new versions of Anexa.com and ParaChat Professional
technology would require approximately nine months of effort from the date of
valuation through its expected release date of March 2000. These projects
include the use of eight engineers, spending 75% of their time on the project,
for nine months, to create the new versions of the products, at an estimated
total cost to complete of $576,000.
AMORTIZATION OF DEFERRED COMPENSATION
Xoom.com has recorded deferred stock compensation charges of $0 during the
three months ended June 30, 1999 and Xoom.com recorded charges of $913,000 for
the same period ended June 30, 1998. Xoom.com has recorded deferred stock
compensation charges of $0 during the six months ended June 30, 1999 and
Xoom.com recorded charges of $972,000 for the same period ended June 30, 1998.
The deferred compensation charges account for the difference between the
exercise price and the deemed fair value of some of the 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 reflects the amortization of stock compensation
charges resulting from stock options and restricted stock purchase agreements.
Xoom.com has recorded amortization of deferred compensation of $175,000 during
the three months ended June 30, 1999 and Xoom.com recorded $728,000 during the
same period ended June 30, 1998. Xoom.com has recorded amortization of deferred
compensation of $405,000 during the six months ended June 30, 1999 and it has
recorded $807,000 during the same period ended June 30, 1998.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets totaled $1.4 million for the three months
ended June 30, 1999 and it was $346,000 for the same period ended June 30, 1998.
Amortization of intangible assets totaled $2.3 million for the six months ended
June 30, 1999 and it totaled $346,000 for the same period ended June 30, 1998.
The additional amounts recorded in the periods ended June 30, 1999 represent
amortization of intangible assets and goodwill resulting from Xoom.com's
acquisitions of Focused Presence, Inc., MightyMail Networks, Inc., Net Floppy,
Inc., and Paralogic Software Corporation, amortized over periods ranging from 36
to 48 months. The amounts recorded in the periods ended June 30, 1998 represent
amortization of intangible assets and goodwill resulting from Xoom.com's
acquisitions of Paralogic Corporation and Global Bridges Technologies, Inc., and
the purchase of certain assets of Revolutionary Software, Inc., amortized over
periods ranging from 24 to 42 months.
For the acquisitions in the periods ended June 30, 1999, Xoom.com has
determined the appropriateness of the estimated useful lives related to the
intangible assets based on general and specific analysis. 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 the business and
technology acquisitions, Xoom.com considered the effects of obsolescence,
demand, competition, and other economic factors.
166
<PAGE>
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 36 to 48 month 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 24 to 48 months.
OTHER INCOME, NET
Other income, net represents interest Xoom.com earned on its cash and
investments, offset by interest expense Xoom.com paid on its borrowings.
Xoom.com has recorded approximately $2.4 million in interest income in the three
months ended June 30, 1999 and has recorded $0 in the same period ended June 30,
1998. Xoom.com has recorded approximately $3.0 million in interest income in the
six months ended June 30, 1999 and recorded $0 during the same period ended June
30, 1998. This increase was primarily due to the increased cash balances
available to invest as a result of Xoom.com's initial public offering in
December 1998 and its secondary public offering in April 1999.
Interest expense represents interest charges related to notes payable and
capital leases. Interest expense recorded in the three months ended June 30,
1999 was approximately $35,000 and interest expense during the same period ended
June 30, 1998 was $0. Interest expense recorded in the six months ended June 30,
1999 was approximately $65,000 and interest expense during the same period ended
June 30, 1998 was $0.
NET LOSS
Xoom.com's net loss for the three month period ended June 30, 1999 was $6.7
million, and it was $2.3 million for the same period ended June 30, 1998.
Xoom.com's net loss for the six month period ended June 30, 1999 was $10.1
million, and it was $3.3 million for the same period ended June 30, 1998. The
increase in the net loss for both periods was a result of additional expenses,
primarily in sales and marketing, which were $5.1 million and $7.5 million in
the three and six months ended June 30, 1999, compared to $455,000, and $717,000
in the three and six months ended June 30, 1998. Additionally, Xoom.com's net
loss for the three and six months ended June 30, 1999 and 1998 included costs
resulting from acquisitions such as amortization of goodwill and other
intangible assets, and purchased in-process research and development charges.
During the three and six months ended June 30, 1999, Xoom.com recorded $1.4
million and $2.3 million for the amortization of goodwill and other intangibles,
and Xoom.com recorded $2.6 million related to purchased in-process research and
development in both periods. In the three months ended June 30, 1998,
amortization related to goodwill and other intangibles was $346,000 and
purchased in process research and development charges were $330,000. In the six
months ended June 30, 1998, amortization related to goodwill and other
intangibles was $346,000 and purchased in process research and development
charges were $660,000. The expenses in the three and six months ended June 30,
1999 were partially offset by revenues of $6.5 million and $10.9 million and
interest income of $2.4 million and $3.0 million. The expenses in the three and
six months ended June 30, 1998 were partially offset by revenues of $1.7 million
and $2.5 million.
167
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present consolidated statements of operations data for
Xoom.com's ten most recent quarters ended June 30, 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,
1997 1997 1997 1997 1998
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue:
E-commerce............................ $ 9 $ 12 $ 38 $ 268 $ 677
Advertising........................... -- 7 14 39 83
License fees and other................ 20 151 170 113 89
-------- -------- --------- -------- --------
Total net revenue................... 29 170 222 420 849
-------- -------- --------- -------- --------
Cost of net revenue(1):
Cost of e-commerce.................... 4 49 19 99 278
Cost of advertising................... -- -- -- -- --
Cost of license fees.................. 82 23 31 12 8
-------- -------- --------- -------- --------
Total cost of net revenue........... 86 72 50 111 286
-------- -------- --------- -------- --------
Gross profit............................ (57 ) 98 172 309 563
Operating expenses:
Operating and development............. 397 350 132 271 576
Sales and marketing................... 37 83 51 121 262
General and administrative............ 152 130 195 244 316
Purchased in-process research and
development......................... -- -- -- -- 330
Amortization of deferred
compensation........................ 5 6 100 137 79
Amortization of intangible assets..... -- -- -- -- --
Non-recurring charges................. -- 243 1,000 -- --
-------- -------- --------- -------- --------
Total operating expenses............ 591 812 1,478 773 1,563
-------- -------- --------- -------- --------
Loss from operations.................. (648 ) (714) (1,306) (464) (1,000)
Other income, net..................... -- -- -- -- --
Interest expense related to warrant... -- -- -- -- --
-------- -------- --------- -------- --------
Net loss................................ $ (648 ) $ (714) $(1,306) $ (464) $(1,000)
-------- -------- --------- -------- --------
-------- -------- --------- -------- --------
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1999 1999
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue:
E-commerce............................ $ 1,157 $ 1,532 $ 2,216 $ 2,636 $ 3,297
Advertising........................... 272 598 1,191 1,765 3,210
License fees and other................ 287 170 46 21 18
-------- --------- -------- -------- --------
Total net revenue................... 1,716 2,300 3,453 4,422 6,525
-------- --------- -------- -------- --------
Cost of net revenue(1):
Cost of e-commerce.................... 621 1,067 1,576 2,041 2,607
Cost of advertising................... -- -- -- 1 75
Cost of license fees.................. 19 7 8 1 --
-------- --------- -------- -------- --------
Total cost of net revenue........... 640 1,074 1,584 2,043 2,682
-------- --------- -------- -------- --------
Gross profit............................ 1,076 1,226 1,869 2,379 3,843
Operating expenses:
Operating and development............. 773 1,209 1,283 1,149 1,551
Sales and marketing................... 455 853 1,264 2,434 5,104
General and administrative............ 783 1,059 1,208 1,623 2,043
Purchased in-process research and
development......................... 330 130 -- -- 2,603
Amortization of deferred
compensation........................ 728 304 305 230 175
Amortization of intangible assets..... 346 741 756 862 1,442
Non-recurring charges................. -- -- -- -- --
-------- --------- -------- -------- --------
Total operating expenses............ 3,415 4,296 4,816 6,298 12,918
-------- --------- -------- -------- --------
Loss from operations.................. (2,339) (3,070) (2,947) (3,919) (9,075)
Other income, net..................... -- 17 35 610 2,333
Interest expense related to warrant... -- -- (1,494) -- --
-------- --------- -------- -------- --------
Net loss................................ $(2,339) $(3,053) $(4,406) $(3,308) $(6,742)
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
</TABLE>
- ------------------------------
(1) There were no material costs of advertising during 1997 and 1998.
168
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue:
E-commerce............................ 31.0% 7.1% 17.1% 63.8% 79.7%
Advertising........................... -- 4.1 6.3 9.3 9.8
License fees and other................ 69.0 88.8 76.6 26.9 10.5
-------- -------- --------- -------- --------
Total net revenue................... 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
Cost of advertising................... -- -- -- -- --
Cost of license fees and other........ 282.8 13.5 13.9 2.9 0.9
-------- -------- --------- -------- --------
Total cost of net revenue........... 296.6 42.4 22.5 26.4 33.7
-------- -------- --------- -------- --------
Gross profit............................ (196.6 ) 57.6 77.5 73.6 66.3
Operating expenses:
Operating and development............. 1,369.0 205.9 59.5 64.6 67.8
Sales and marketing................... 127.6 48.8 23.0 28.8 30.9
General and administrative............ 524.1 76.5 87.8 58.1 37.2
Purchased in-process research and
development......................... -- -- -- -- 38.9
Amortization of deferred
compensation........................ 17.2 3.5 45.0 32.6 9.3
Amortization of intangible assets..... -- -- -- -- --
Non-recurring charges................. -- 142.9 450.5 -- --
-------- -------- --------- -------- --------
Total operating expenses............ 2,037.9 477.6 665.8 184.1 184.1
-------- -------- --------- -------- --------
Loss from operations.................. (2,234.5) (420.0) (588.3) (110.5) (117.8)
Other income, net..................... -- -- -- -- --
Interest expense related to warrant... -- -- -- -- --
-------- -------- --------- -------- --------
Net loss................................ (2,234.5)% (420.0)% (588.3)% (110.5)% (117.8)%
-------- -------- --------- -------- --------
-------- -------- --------- -------- --------
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1999 1999
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue:
E-commerce............................ 67.4% 66.6% 64.2% 59.6% 50.5%
Advertising........................... 15.9 26.0 34.5 39.9 49.2
License fees and other................ 16.7 7.4 1.3 0.5 0.3
-------- --------- -------- -------- --------
Total net revenue................... 100.0 100.0 100.0 100.0 100.0
Cost of net revenue(1):
Cost of e-commerce.................... 36.2 46.4 45.6 46.1 40.0
Cost of advertising................... -- -- -- -- 1.1
Cost of license fees and other........ 1.1 0.3 0.2 0.1 --
-------- --------- -------- -------- --------
Total cost of net revenue........... 37.3 46.7 45.8 46.2 41.1
-------- --------- -------- -------- --------
Gross profit............................ 62.7 53.3 54.2 53.8 58.9
Operating expenses:
Operating and development............. 45.0 52.6 37.2 26.0 23.8
Sales and marketing................... 26.5 37.1 36.6 55.0 78.2
General and administrative............ 45.7 46.0 35.0 36.7 31.3
Purchased in-process research and
development......................... 19.2 5.7 -- -- 39.9%
Amortization of deferred
compensation........................ 42.4 13.2 8.8 5.2 2.7%
Amortization of intangible assets..... 20.2 32.2 21.9 19.5 22.1
Non-recurring charges................. -- -- -- -- --
-------- --------- -------- -------- --------
Total operating expenses............ 199.0 186.8 139.5 142.4 198.0
-------- --------- -------- -------- --------
Loss from operations.................. (136.3) (133.5) (85.4) (88.6) (139.1)
Other income, net..................... -- 0.7 1.0 13.8 35.6%
Interest expense related to warrant... -- -- (43.3) -- --%
-------- --------- -------- -------- --------
Net loss................................ (136.3)% (132.8)% (127.7)% (74.8)% (103.5)%
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
</TABLE>
- ------------------------------
(1) There were no material costs of advertising revenue during 1997 and 1998.
Xoom.com's operating expenses have increased significantly in absolute
dollar amounts in each quarter during 1997, 1998 and 1999 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 it 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 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
169
<PAGE>
likely that in some future quarter or quarters its operating results will fall
below the expectations of 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 Xoom.com's initial public offering, it 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 it
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. On
April 9, 1999, Xoom.com completed a secondary public offering of its 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 were sold by Xoom.com and 1,940,200 shares were sold by existing
stockholders. Proceeds from the follow-on offering were approximately $167
million, net of offering costs.
As of December 31, 1998 and June 30, 1999, Xoom.com had cash and cash
equivalents and short-term investments of approximately $56.6 million and $165.4
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 six months ended June 30, 1999
was $5.8 million, and net cash provided by operating activities for the six
months ended June 30, 1998 was $313,000. Cash used in operating activities in
the period ended June 30, 1999 was primarily the result of net losses of $10.1
million and an increase in accounts receivable related to the growth of
advertising revenues of $1.5 million. These amounts were partially offset by
amortization of intangible assets of $2.3 million and in-process research and
development charges of $2.6 million related to Xoom.com's acquisitions,
amortization of deferred compensation incurred in connection with the granting
of options to employees to purchase common stock of $405,000, and an increase in
current liabilities as a result of the growth of its business of $2.6 million.
In the six months ended June 30, 1998, cash provided by operating activities was
primarily the result of net losses of $3.3 million, which were offset by charges
to in-process research and development of $660,000, the amortization of
intangibles of $346,000, and an increase in intangible assets of $1.6 million.
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 six months ended June 30, 1999
was $158.9 million and it was $863,000 in the same period ended June 30, 1998.
Cash used in investing activities during the six months ended June 30, 1999 was
primarily related to the purchase of marketable securities for $162.5 million.
The cash used in investing activities in each period was also related to
purchases of fixed assets and net cash paid for business acquisitions. From time
to time, we expect to evaluate the acquisition of products, businesses and
technologies that complement our business. These acquisitions may involve cash
investments.
170
<PAGE>
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.
Net cash provided by financing activities for the six months ended June 30,
1999 was $167.5 million and it was $4.6 million for the same period ended June
30, 1998. Cash provided by financing activities in the six months ended June 30,
1999 was primarily related to proceeds from Xoom.com's secondary public
offering, partially offset by the repayment of notes payable. Cash provided by
financing activities in the six months ended June 30, 1998 was primarily
attributable to net proceeds from the issuance of common stock, partially offset
by the repayment of notes payable.
As of June 30, 1999, 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 and June 30, 1999, Xoom.com had a total of $1.7
million and $1.4 million, respectively, in notes payable relating to its
acquisitions. 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 June 30, 1999, its
outstanding principal balance under this agreement was approximately $455,000.
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.
171
<PAGE>
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 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 some of its 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 $200,000. 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
172
<PAGE>
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 currently
expect that the Year 2000 issue will pose significant operational problems.
However, delays in the implementation of new information systems or a failure to
fully identify all Year 2000 dependencies in Xoom.com's existing system and in
the systems of its suppliers could harm Xoom.com's business. Therefore, Xoom.com
is developing, but does not yet have, contingency plans for continuing
operations in the event these problems arise.
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.
173
<PAGE>
SNAP BUSINESS
OVERVIEW
Snap.com has been one of the fastest-growing major portals on the Web from
July 1998 to July 1999, according to data provided by Media Metrix based on the
percentage increase in reach among home and work users. Snap.com is a free,
comprehensive information, navigation and content aggregation service targeted
at both consumer and business users. SNAP utilizes 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 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 through 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. While many of SNAP's direct
portal competitors may provide a similar range of services, SNAP believes it
offers a unique combination of these services. 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 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 among home and work users increased more than 200% in the
thirteen months since NBC acquired its equity interest in SNAP, from less than
5% in July 1998 to 14% in July 1999, according to Media Metrix. SNAP's
registered users increased from approximately 16,000 at the end of June 1998 to
more than 3.0 million at the end of August 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 June 30,
1999, SNAP increased revenues approximately $2.6 million, or 49% compared with
the preceding calendar quarter. Quarterly net revenue increased from
approximately $1.1 million for the second quarter of 1998 to $80 million for the
second quarter of 1999, representing compound quarterly sales growth of
approximately 64%. Quarterly net losses were approximately $21.8 million and
$5.1 million in the second quarter of 1998 and 1999, respectively.
174
<PAGE>
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.
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
175
<PAGE>
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 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. 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 use its technological capability to group
together users with similar interests in order 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 is
differentiated from many other search engines and directories because of its
combination of hand-built and automated technology. 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 content selected by SNAP's editors in conjunction with
related e-commerce opportunities, increasing the effectiveness of advertising
messages.
176
<PAGE>
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 innovative 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
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.
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 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 selected content from over 100 leading Web publishers
integrated with information from over 300,000 third party Web sites and 55,000
categories. If a particular result is not
177
<PAGE>
found in SNAP's own directory, the search result is served on SNAP from
Inktomi's index of over one hundred million Web pages, for which SNAP pays a
fee. According to research conducted by the NEC Research Institute, SNAP is one
of the top three search engines based on the number of Web sites indexed. SNAP
believes that all of these features provide a comprehensive and seamless search
experience for the user. 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. A search can
be effected using either simple keywords, phrases or full text natural language
searches. 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 innovative 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.
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 July 1, 1999, SNAP had increased its directory to over 300,000 entries.
According to Media Metrix, in July 1999 Snap.com was the sixth ranked search
engine based on its reach among home and work users.
178
<PAGE>
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 an
innovative 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.
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
179
<PAGE>
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 innovative
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 innovative 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 some 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 enables 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.
In the thirteen-month period from NBC's acquisition of an equity interest in
SNAP through July 31, 1999, SNAP has obtained promotion on the NBC television
network worth in excess of $42 million. Since July 1998, SNAP has increased its
monthly reach among home and work users by more than 211%, to 14%, and increased
the number of unique users per month by 236%, to approximately 8.8 million in
July 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
180
<PAGE>
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 innovative 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 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 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 innovative 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's advertising revenue includes fees charged for production and integration
of content, click-throughs, revenues
181
<PAGE>
generated for user subscriptions to free services offered 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 special 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 six months ended June 30, 1999, Mail.com comprised 29% of SNAP's net
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 August 31, 1998, SNAP's advertising sales force and account management
group consisted of 80 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 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 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.
182
<PAGE>
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 ranking algorithms with search
features geared toward advanced users, accessing producer-selected content from
over 100 leading Web publishers and information from over 300,000 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 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. Some,
but not all, of SNAP's competitors offer similar functionality in their search
technology.
For every search, SNAP's innovative 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.
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 some 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
183
<PAGE>
products and services who elect to incorporate their own search and retrieval
features into their offerings.
Positive factors relating to SNAP's competitive position in the portal
industry include:
- SNAP's strategic relationship with NBC and its ability to obtain network
promotion that many of its competitors do not have;
- SNAP's innovative SnapLENS-TM- technology, which gives SNAP the ability to
produce multiple, customized versions of the Snap.com portal rapidly;
- SNAP's innovative response compilation technology which ranks results
hierarchically according to relevance; and
- SNAP's strong reach and user base.
Negative factors relating to SNAP's competitive position in the portal
industry include:
- SNAP does not have the size and scale of some of its competitors;
- SNAP does not have the same sales force or engineering resources as some
of its competitors; and
- SNAP does not have a public currency which it can use to readily acquire
complementary business operations.
The principal methods of competition in the portal industry relate to the
features and benefits offered to the user, including free services such as
e-mail, portfolio tracking, local news and weather, customized user home pages
and chat services; the relevancy of search results; and the increasing ability
to provide richer user experiences, including through the use of high bandwidth
applications such as audio and video.
RESEARCH AND DEVELOPMENT
During 1998, SNAP spent approximately $6.3 million on research and
development activities. As of August 31, 1999, SNAP had a research and
development staff of 62 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 123.
LEGAL PROCEEDINGS
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. This matter is presently pending in
Superior Court in San Francisco, California. 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. SNAP is
seeking damages, injunctive and equitable relief of not less than $5 million
from CityAuction, in addition to
184
<PAGE>
damages from Ticketmaster Online-CitySearch Inc. for intentional interference
with the SNAP-CityAuction agreements. CityAuction has filed a cross-complaint
against SNAP seeking rescission of its promotion agreement with SNAP,
restitution of not less than $125,000 and unspecified damages. 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 August 31, 1999, SNAP had 289 full-time employees, including 62 in
research and development, 80 in sales and marketing, 108 in product development
and design, and 39 in finance and 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 to attract and retain qualified employees. The option grants are
typically subject to vesting over four years. 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.
185
<PAGE>
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 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 began operations as a division of CNET during December, 1996, and
launched the first version of the service 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 site. For the period
beginning with the September 1997 launch of the Snap.com 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 brand.
SNAP generates net revenue from sales of on-line advertising on its Web
site, including lead generation. Total net revenue 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 revenue 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 has grown, its
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 name and expansion of technology, operating
infrastructure and general and administrative staff needed to support its
growth.
From inception through June 30, 1999, SNAP generated total net revenue of
approximately $23.5 million. Over the last year, quarterly net revenue increased
from approximately $1.1 million to $8.0 million. Since January 1998, the number
of unique users has grown from 685,000 to more than 8.5 million as of July 1999,
according to Media Metrix, an independent Internet audience measurement service.
As of December 31, 1998 and June 30, 1999, SNAP had an accumulated deficit
of $54.9 million and $100.9 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
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 revenue 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.
186
<PAGE>
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 has had no international sales to date.
RECENT EVENTS
In April 1999, SNAP entered into a series of agreements with
GlobalBrain.net, Inc. In aggregate, SNAP provided GlobalBrain with $2 million in
cash and 75,000 membership units, valued at $3 million, in exchange for:
- a seven-year, exclusive right to utilize the GlobalBrain technology within
a portal service, with an option to extend an additional five years,
- non-exclusive rights to utilize the GlobalBrain technology in other SNAP
products and to sublicense the GlobalBrain technology,
- 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,
- a 10% ownership interest in GlobalBrain, and
- warrants to purchase an additional 41% of GlobalBrain in three separate
tranches over a five year period.
SNAP accounted for this transaction as the acquisition of tangible and
intangible assets, which will include allocations of the consideration
surrendered by SNAP relating to purchased technology of approximately $2
million, prepaid development fees of approximately $2 million, and an equity
investment in a private company of approximately $1 million.
On September 13, 1999, SNAP entered into a strategic alliance with Xoom.com
and ValueVision which is described on page 121.
187
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1998
The following table presents consolidated statement of operations data for
the periods indicated as a percentage of total net revenue.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Net revenue................................................................ 100.0% 100.0%
Cost of net revenue........................................................ 200.9% 43.8%
Gross profit (deficit)............................................. (100.9%) 56.2%
Operating expenses:
Product development...................................................... 117.6% 37.5%
Sales and marketing...................................................... 172.0% 109.3%
General and administrative............................................... 71.9% 43.0%
Amortization of deferred compensation.................................... 0.0% 13.2%
Promotion and advertising provided by NBC................................ 0.0% 194.8%
Total operating expenses........................................... 361.5% 397.7%
--------- ---------
Operating loss............................................................. (462.4%) (341.6%)
Other expense, net......................................................... 0.0% (4.5%)
Net loss........................................................... (462.4%) (346.0%)
--------- ---------
--------- ---------
</TABLE>
NET REVENUE
Total net revenue for the six months ended June 30, 1999 was $13.4 million,
an increase of approximately $11.4 million over revenues of $2.0 million for the
six months ended June 30, 1998. The increase in net revenue was primarily due to
the substantial traffic growth and an increase in Web-based advertising as
SNAP's higher Web site traffic increased its attractiveness to advertisers.
Traffic growth was attributable principally to promotion on NBC national
television network and to co-branded editions of Snap.com and other distribution
partnerships. One customer, Mail.com, comprised 29% of net revenues for the six
months ended June 30, 1999 in a non-cash transaction using equity as
consideration for services sold by SNAP.
COST OF NET REVENUE
Cost of net revenue increased to $5.9 million during the six months ended
June 30, 1999 from $3.9 million for the six months ended June 30, 1998 primarily
as a result of an increase of $1.2 million in content license fees and an
increase of $1.6 million in bandwidth and hosting charges.
Gross margins increased to 56.2% in the six months ended June 30, 1999 from
a negative 100.9% in the six months ended June 30, 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 $5.0
million in the six months ended June 30, 1999 from $2.3 million in the six
months ended June 30, 1998 as a result of hiring additional employees. Product
development costs
188
<PAGE>
decreased as a percentage of total net revenue to 37.5% in the six months ended
June 30, 1999 from 117.6% in the six months ended June 30, 1998 because of the
growth in net revenue.
SNAP believes product development expenses will continue to increase in the
future as management initiates new product features and makes significant
investments in its 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, as well as advertising, promotional and traffic distribution
expenditures. Sales and marketing expenses increased to $14.6 million in the six
months ended June 30, 1999 from $3.4 million in the six months ended June 30,
1998. The absolute dollar increase from period to period in sales and marketing
expenses was primarily attributable to an increase of $7.9 million in
distribution costs and an increase of $1.9 million in personnel and related
expenses required to implement its sales and marketing strategy. Sales and
marketing costs decreased as a percentage of total net revenue to 109.3% in the
six months ended June 30, 1999 from 172.0% in the six months ended June 30,
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, depreciation,
lease expense, insurance, and fees for professional services. General and
administrative expenses increased to $5.7 million in the six months ended June
30, 1999 from $1.4 million in the six months ended June 30, 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 costs, which increased costs by $2.5 million, and an increase of $1.5
million in facility expenses to support the growth of its operations. General
and administrative expenses decreased as a percentage of total net revenue to
43.0% in the six months ended June 30, 1999 from 71.9% in the six months ended
June 30, 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 $8.8 million and $0
during the six months ended June 30, 1999 and 1998, respectively. The deferred
compensation charges account for the difference between the exercise price and
the deemed fair value of some of the 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 stock
compensation charges resulting from stock options and restricted stock purchase
agreements. SNAP has recorded deferred compensation expense of $1,766,000 and
$0, during the six months ended June 30, 1999 and 1998, respectively.
PROMOTION AND ADVERTISING PROVIDED BY NBC
SNAP has recorded approximately $26.0 million and $0 in promotion and
advertising expense in the six months ended June 30, 1999 and 1998,
respectively. The promotion and advertising services provided have been recorded
as capital contributions based on average cost per thousand impressions value
for commercial air time during the period the services were provided.
189
<PAGE>
OTHER EXPENSE, NET
Other expense, net represents the interest income SNAP earned on its cash
and investments, and interest expense arising from the line of credit. SNAP has
recorded approximately $595 and $0 in other expense, net in the six months ended
June 30, 1999 and 1998, respectively. This increase was primarily due to
increased extensions of credit under SNAP's revolving credit facility.
NET LOSS
SNAP's net loss for the six month period ended June 30, 1999 was
approximately $46.2 million and it was approximately $9.0 million for the same
period ended June 30, 1998. The $37.2 million increase in the net loss was
principally attributable to non-cash expenses of $26.0 million for promotion and
advertising provided by NBC. The rest of the net loss increase was attributable
to higher distribution costs and increased personnel expenses to support the
growth of the business.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
The following table presents 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. SNAP's higher Web site traffic
increased its attractiveness to advertisers, and strategic partnership growth.
E! Online accounted for 18% of net revenues for the year ended December 31,
1997.
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
an increase of $4.1 million in payroll and related expenses for personnel
engaged in supporting SNAP's product, an increase of $0.9 million in additional
content license fees, and an increase of $1.0 million in bandwidth and hosting
charges.
190
<PAGE>
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.com 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 an increase of $3.0 million in personnel
and related expenses required to implement its sales and marketing strategy, as
well as an increase of $2.1 million in distribution costs. 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, which increased costs by $1.3
million and an increase of $3.0 million in 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.
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 some of
the unit options SNAP granted to its employees.
191
<PAGE>
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 cost per thousand impressions 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.
NET LOSS
SNAP's net loss for the year ended December 31, 1998 was approximately $39.3
million and it was approximately $15.6 million for the same period ended
December 31, 1997. The $23.7 million increase in the net loss was principally
attributable to non-cash expenses of $14.1 million for promotion and advertising
provided by NBC. The rest of the net loss increase was attributable to higher
distribution costs and increased personnel expenses to support the growth of the
business.
QUARTERLY RESULTS OF OPERATIONS
The following tables present consolidated statements of operations data for
SNAP's five most recent quarters ended June 30, 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
192
<PAGE>
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>
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1999 1999
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net revenue............................................... 1,097 1,352 4,007 5,361 8,007
Cost of net revenue....................................... 2,310 1,679 2,013 2,701 3,157
Gross profit (deficit).................................... (1,213) (327) 1,994 2,660 4,850
Operating expenses:
Product development..................................... 1,119 1,928 2,032 2,195 2,814
Sales and marketing..................................... 2,036 2,742 6,372 7,497 7,116
General and administrative.............................. 737 1,701 2,831 2,705 3,039
Amortization of deferred compensation................... -- -- 160 519 988
Promotion and advertising provided by NBC............... -- 3,484 10,576 13,656 12,381
Total operating expenses.................................. 3,892 9,855 21,971 26,572 26,338
--------- ---------- ---------- --------- ---------
Operating loss............................................ (5,105) (10,182) (19,977) (23,912) (21,488)
Other expense, net........................................ -- 36 (111) (263) (332)
Net loss.................................................. $ (5,105) $ (10,146) $ (20,088) (24,175) (21,820)
--------- ---------- ---------- --------- ---------
--------- ---------- ---------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1999 1999
--------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenue........................................... 210.6% 124.2% 50.2% 50.4% 39.4%
Gross profit (deficit)........................................ (110.6%) (24.2%) 49.8% 49.6% 60.6%
Operating expenses:
Product development......................................... 102.0% 142.6% 50.7% 40.9% 35.1%
Sales and marketing......................................... 185.6% 202.8% 159.0% 139.8% 88.9%
General and administrative.................................. 67.2% 125.8% 70.7% 50.5% 38.0%
Amortization of deferred compensation....................... 0.0% 0.0% 4.0% 9.7% 12.3%
Promotion and advertising provided by NBC................... 0.0% 257.7% 263.9% 254.7% 154.6%
--------- ----------- --------- --------- ---------
Total operating expenses...................................... 354.8% 728.9% 548.3% 495.6% 328.9%
--------- ----------- --------- --------- ---------
Operating loss................................................ (465.4%) (753.1%) (498.5%) (446.0%) (268.4%)
Other income, net............................................. 0.0% 2.7% (2.8%) (4.9%) (4.1%)
--------- ----------- --------- --------- ---------
Net loss...................................................... (465.4%) (750.4%) (501.3%) (450.9%) (272.5%)
--------- ----------- --------- --------- ---------
--------- ----------- --------- --------- ---------
</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 revenue, its 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.
193
<PAGE>
As a strategic response to changes in the competitive environment, SNAP
might from time to time make 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.com 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 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 SNAP's 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.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, 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 revolving credit facility. On September 14, 1999, the revolving credit
facility was amended to provide for extensions of credit of up to $55,000,000.
Extensions of credit under the facility can be in the form of revolving credit
loans or standby letters of credit. As of December 31, 1998 and June 30, 1999,
SNAP had a total of $13.5 million and $30.1 million, respectively, outstanding
under its revolving credit facility, 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.
At December 31, 1998 and June 30, 1999, SNAP had cash and cash equivalents
and short-term investments of approximately $865,000 and $37,000, 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, partially offset by non-cash promotion and advertising
provided by NBC. 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 six months ended June 30, 1999
and 1998 was $10.2 million and $9.4 million, respectively. Cash used in
operating activities for the six months ended June 30, 1999 was primarily the
result of net losses, partially offset by promotion and advertising provided by
NBC. Cash used in operating activities for the six months ended June 30, 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 six months ended June 30, 1999
and 1998 was $7.2 million and $1.1 million, 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
194
<PAGE>
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 the line of credit.
Net cash provided by financing activities for the six months ended June 30,
1999 was $16.6 million, and net cash provided by financing activities in the six
months ended June 30, 1998 was $16.4 million. Cash provided by financing
activities in the six months ended June 30, 1999 related to proceeds from the
revolving credit facility. Cash provided by financing activities in the six
months ended June 30, 1998 was attributable to CNET's capital contribution of
$10.5 million and NBC's cash contribution of $5.9 million.
As of December 31, 1998 and June 30, 1999 SNAP's principal commitments
consisted of obligations outstanding under operating leases.
SNAP 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 through an
increase of its credit facility and anticipated customer advance payments.
In the long term, if cash generated by operations is insufficient to satisfy
its liquidity requirements, SNAP 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. SNAP may not be able to raise any such capital on terms acceptable
to SNAP or at all.
DISCLOSURES ABOUT MARKET RISK
SNAP invests in equity investments in publicly- and privately-held companies
for business and strategic purposes. These investments are segregated as other
long-term assets and are accounted for under the cost method when ownership is
less than 20%. For publicly traded investments, which the Company generally
considers to be available-for-sale securities the Company's policy is to record
such at market value at each reporting date. Any unrealized gains and losses are
recorded in members equity. For non-quoted investments, SNAP's policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying 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 initiated a comprehensive review of potential issues associated
with the transition to the Year 2000. Executive level sponsorship has been
established and status reports are prepared and distributed weekly. The
appraisal includes:
- Assessing, remediating and testing software and hardware used to create
and maintain the Snap.com Web sites,
- Evaluating software and hardware used within SNAP for internal business
purposes, as well as updating and testing where appropriate, and
- Requesting and reviewing preparedness of key partners and suppliers.
The internal review of software systems supporting the Snap.com Web sites
includes those systems used for site management, network monitoring, quality
assurance and transactions processing. Many of these systems were developed
internally by SNAP when the Year 2000 problem already had some visibility, and
SNAP was largely able to anticipate four digit requirements where years were
considered in software programs. Nevertheless, these systems are being reviewed
line by line to help ensure they will continue to function as intended into the
Year 2000.
SNAP is also reviewing its computer infrastructure, including network
equipment and servers, for compliance. SNAP does not anticipate material
problems with this equipment, as the current
195
<PAGE>
configuration was installed within the last three years. Similarly, SNAP
purchased most of its servers in 1998 and 1999. 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 internally standardized all of its IBM-compatible personal
computers on Windows NT 4.0 using reasonably current service packs. SNAP's
vendor for these service packs has advised that these products are Year 2000
compliant. For Apple computers, SNAP has installed the Mac OS Version 8.6 and
has been advised by the vendor that these products 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 or
developed within the last three years, and SNAP is in the process of obtaining
verification from key vendors that the product in use is Year 2000 compliant.
SNAP has made inquiries to vendors of systems that SNAP believes to be
mission critical to its business, as well as key partners, customers and content
providers regarding their Year 2000 readiness. Although SNAP has received and
continues to request various assurances, SNAP has not received affirmative
documentation of Year 2000 compliance from all of these companies and has not
yet completed comprehensive operational testing on its internal systems. SNAP
generally does not have contractual rights against third party providers should
their equipment or software fail due to Year 2000 issues. If these kinds of
issues arise, SNAP may incur unexpected expenses to remedy problems, which could
potentially include purchasing replacement hardware and software and negotiating
arrangements with new partners, customers and content providers. SNAP has not
yet fully appraised the compliance of various third-party suppliers of services
such as telephone 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 Year 2000 issues have not been material. If any Year 2000 issues are
uncovered with respect to systems that support its Web sites or serve internal
functions, SNAP believes that it will be able to resolve these problems without
material difficulty, as replacement systems are generally available on
commercially reasonable terms. SNAP presently estimates that the total remaining
cost of addressing Year 2000 issues will not exceed $300,000. 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 spite of SNAP's 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 is in the process of developing contingency plans
to deal with any foreseeable material Year 2000 issues. These are intended to
mitigate Year 2000 issues but may or may not prevent failures that could
severely disrupt SNAP's ability to carry on its business.
SNAP's applications operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems that
are owned and operated by other companies. While SNAP is attempting to verify
that other companies are prepared for the Year 2000, SNAP is unable to predict
with certainty 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:
- a delay or loss of revenue,
- interruption of services,
- cancellation of contracts and memberships,
- diversion of development resources,
196
<PAGE>
- damage to its reputation, and
- increased costs, including litigation costs.
Any of these results could adversely affect SNAP's business, financial
condition and results of operations. SNAP's worst case scenario is that the
Internet fails due to Year 2000 problems, leaving SNAP unable to offer any
services on its Web sites for an extended period of time.
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 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,
2001. Management does not believe the adoption of SFAS No. 133 will have a
material adverse effect on the financial positions or operations of SNAP.
197
<PAGE>
NBC CONTRIBUTED INTERNET ASSETS
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.
Currently, NBC.com, NBC-IN.com and VideoSeeker are operating divisions
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 3.8% among home users in July 1999, recording
1.37 million unique visitors, a 11.4% 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 provides show descriptions, episode updates, actor biographies,
schedule information and program trivia for 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 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
198
<PAGE>
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 in 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 for 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 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 at least once every week. The NBC.com
Web site address is included with NBC's logo graphic at the end of many
entertainment programs broadcast on the NBC television network in primetime,
although NBC is not obligated to continue to display the NBC.com logo or NBC.com
Web site address in this particular manner. NBC.com has been featured in
promotional spots during NBC
199
<PAGE>
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 enables the user to connect 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. The NBC-IN.com network of station Web sites
offers advertisers 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 July 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 throughout the United
States.
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 a portion of each
Web site's content through contractual relationships with national providers of
search services and directories tailored to deliver specialized local
information. Each NBC affiliate station Web site in the NBC-IN.com network has
agreed to include in its Web site all or a portion of the content secured by
NBC-IN.com, depending upon the terms of such affiliate's agreement with
NBC-IN.com. As subsidiaries of NBC, the 13 stations owned by NBC have
historically included all content furnished by NBC-IN.com on their Web sites,
but they are not presently under a written obligation to do so.
STRATEGIC RELATIONSHIPS
NBC-IN.com provides a portion 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
200
<PAGE>
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 seeks to leverage the NBC brand to supplement
marketing opportunities that have been tailored for local audiences.
Jupiter Communications estimates that online advertising revenues will reach
$7.7 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-IN.com seeks to take advantage of this growth in local online
advertising revenues by 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, 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 seeks to capitalize on this growth in online auto dealer
advertising throughout the NBC-IN.com network of local sites.
201
<PAGE>
VIDEOSEEKER
PRODUCTS AND SERVICES
VideoSeeker is a 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, some
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 including
RealVideo, Windows Media or QuickTime, and connection speeds ranging from
28.8Kbps to T1, using video capturing and encoding processes approved by
Microsoft and RealNetwork.
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. 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. Users are
offered the opportunity to register as members, but registration is optional.
Redesigned in October 1998, VideoSeeker delivered over 400,000 clips to users in
July 1999 compared to approximately 80,000 in November 1998.
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 coordination with NBC, InterVU built the video
search engine, database, and video-publishing and proprietary traffic analysis
tools used by VideoSeeker. Except for some 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.
202
<PAGE>
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.
Web sites such as NBC.com, NBC-IN.com and VideoSeeker principally seek to
compete for users by providing a depth and breadth of innovative content, and
for advertisers by offering significant numbers of users in valuable demographic
categories. NBC has been conducting Web site operations since its launch of
NBC.com in August 1995, and NBC's television programming has been a principal
source of content for its sites during this period. While NBC historically has
been successful in attracting on-air advertising by offering television
viewership attractive to its advertisers, competitors of the NBC contributed
Internet businesses have demonstrated greater reach among Internet users and
many have been more successful in attracting advertisers to their Web sites.
The negative factors relating to the competitive position of the NBC
contributed Internet assets include:
- Significant dependence upon NBC television programming to furnish Web site
content;
- The existence of media competitors with substantial resources to devote to
interactive media initiatives, as well as smaller cutting edge content
providers;
- The historically limited combined reach of the NBC contributed Internet
assets; and
- The absence of a publicly traded, Internet-focused currency with which to
finance complementary acquisitions.
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
203
<PAGE>
and VideoSeeker.com are substantially similar to those discussed above with
respect to NBCi on page 123.
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 August 31, 1999, NBC had 11 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 distributed to over 70 million homes, and was watched at
least once each week by more than 14.3 million adults 18 or older during August
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 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
204
<PAGE>
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 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.
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 70 million cable homes throughout the United States. The CNBC.com logo and
Web site address are 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 to compete for Internet advertisers, including e-commerce services, by
offering cross-promotional opportunities with the CNBC cable television
platform.
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
205
<PAGE>
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 specific 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 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 specific 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
206
<PAGE>
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 August 31, 1999, CNBC.com had 34 full-time employees of NBC devoted to
its operations, including one in sales and marketing, 22 in operations and
product development and 11 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.
207
<PAGE>
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 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
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 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.
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.
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:
- a two-year strategic alliance agreement with InterVU, Inc. whereby InterVU
is the exclusive provider, subject to specified limitations, of technology
and services for VideoSeeker;
- 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
208
<PAGE>
- 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 specific 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
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1998
REVENUE
Total revenue for the six months ended June 30, 1999 was $8.9 million, an
increase of $4.7 million over revenue of $4.2 million for the six months ended
June 30, 1998. Included in revenue is revenue from equity instruments received
of $6.3 million and $1.8 million during the six months ended June 30, 1999 and
1998, respectively. The increase in revenue was primarily due to an increase in
license fee revenue from additional content and service providers and an
increase in equity instruments received as part of entering into outsourcing
agreements.
ADVERTISING AND SPONSORSHIP REVENUE
Advertising and sponsorship revenue decreased to $1.6 million in the six
months ended June 30, 1999 from $1.8 million in the six months ended June 30,
1998. The decrease in advertising and sponsorship revenue is primarily a result
of reallocating resources to assist in the development of new media initiatives
within NBC such as the re-launch of CNBC.com. In addition, the NBC Multimedia
Division's sales force was integrated into the SNAP sales force to create one
combined sales team during July 1999.
LICENSE FEE REVENUE
License fee revenue increased to $2.7 million in the six months ended June
30, 1999 from $460,000 in the six months ended June 30, 1998. Included in
license fee revenue is revenue from equity instruments received of $2.2 million
and $263,000 in the six months ended June 30, 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 and the increase in market value of
the equity instruments received under these agreements 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
209
<PAGE>
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 $4.6 million in the six months ended June 30,
1999 from $2.0 million in the six months ended June 30, 1998. Included in other
revenue is revenue from equity instruments received of $4.1 million and $1.5
million in the six months ended June 30, 1999 and 1998, respectively. The
increase in other revenue is due to an increase in the number of equity
instruments received under outsourcing agreements, and the increase in market
value of those equity instruments on the applicable measurement date.
Other revenue is 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 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 $2.8 million in the six months ended June
30, 1999 from $2.5 million in the six months ended June 30, 1998. The increase
was primarily the result of the costs to produce VideoSeeker.com, which was not
launched until May of 1998. Although, during 1998, the NBC Multimedia Division
outsourced some of its Web production functions to USWeb, this did not have a
material impact on cost of revenue.
Cost of revenue is likely 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.
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 $297,000 in the six months ended June 30, 1999
from $563,000 in the six months ended June 30, 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 $747,000 in the six months ended June 30, 1999 from $1.8 million in the six
months ended June 30, 1998. Included in sales and marketing expenses are noncash
charges related to advertising provided by NBC of $0 and $792,000 during the six
months ended June 30, 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 the
decrease in advertising provided by NBC of $792,000 and the remaining decrease
is attributable to 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.
210
<PAGE>
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 $1.4 million in
the six months ended June 30, 1999 from $2.1 million in the six months ended
June 30, 1998. Included in general and administrative expenses are costs related
to the allocation of corporate general and administrative expenses incurred on a
consolidated basis by NBC of $973,000 and $967,000 during the six months ended
June 30, 1999 and 1998, respectively. The decrease was primarily the result of
reallocating 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.
NET INCOME
Net income increased to $3.6 million in the six months ended June 30, 1999
from a net loss of $2.8 million in the six months ended June 30, 1998. The
increase in net income is primarily a result of an increase in equity and
warrants received as part of entering into licensing and outsourcing agreements.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
REVENUE
Total 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 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 revenue was primarily due to an increase in
the number of advertising and sponsorship packages sold, an increase in license
fee revenue from service providers 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 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 in these fees is
attributable to both the increase in the number of
211
<PAGE>
equity instruments received and in the market value of those 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
due to an increase in the number of equity instruments received as part of
entering into outsourcing agreements. No such agreements were entered into prior
to 1998.
COST OF 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 some of its 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 growth of the NBC Multimedia Division resulting from 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.
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 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.
212
<PAGE>
NET LOSS
Net loss decreased to $3.1 million in the year ended December 31, 1998 from
a net loss of $7.7 million in the year ended December 31, 1997. The decrease in
net loss is primarily a result of an increase in equity instruments received as
part of entering into licensing and outsourcing agreements.
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, 1998
and 1997 was $5.9 million and $7.0 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 six months ended June 30, 1999
and 1998 was $2.6 million and $2.9 million, respectively. Cash used in operating
activities for the six months ended June 30, 1999 was primarily the result of
net income decreased by noncash revenue related to partner agreements. Cash used
in operating activities for the six months ended June 30, 1998 was primarily the
result of net losses, increased by noncash revenue related to partner
agreements.
Net cash used in investing activities for the years ended December 31, 1998
and 1997 was $103,000 and $152,000, respectively, and was related to purchases
of property and equipment.
Net cash used in investing activities for the six months ended June 30, 1999
and 1998 was $0 and $99,000, respectively, and was related to purchases of
property and equipment.
Net cash provided by financing activities for the years ended December 31,
1998 and 1997 was $6.0 million and $7.1 million, respectively, and consisted of
net proceeds from advances from NBC.
Net cash provided by financing activities for the six months ended June 30,
1999 and 1998 was $2.6 million and $3.0 million, respectively, and consisted of
net proceeds from advances from NBC.
NBC Multimedia Division is an operating division of NBC Multimedia Inc., a
wholly-owned subsidiary of NBC. To date, NBC Multimedia Division has been funded
by NBC and will continue to be funded by NBC for at least the next twelve months
so long as NBC Multimedia Division remains a consolidated entity of NBC and GE.
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;
213
<PAGE>
- 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 expenses to remedy any problem
could adversely affect the operations of the NBC Multimedia Division.
COSTS TO ADDRESS YEAR 2000 ISSUES
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
214
<PAGE>
material. However, the full impact of the Year 2000 issues cannot be determined
at this time. The failure by 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.
215
<PAGE>
COMPARISON OF CAPITAL STOCK
DESCRIPTION OF NBCI CAPITAL STOCK
Upon the closing of the contribution agreement, the authorized capital stock
of NBCi will consist of 100,000,000 shares of Class A common stock, $0.0001 par
value per share, 100,000,000 shares of Class B common stock, $0.0001 par value
per share and 10,000,000 shares of preferred stock, $0.0001 par value per share.
NBCI COMMON STOCK
As of August 31, 1999, 100 shares of NBCi Class A common stock were
outstanding, all of which were held by Xoom.com. After giving effect to the
transactions contemplated by the merger agreement and the contribution
agreement, there will be approximately 27,365,472 shares of Class A common stock
outstanding and 24,550,708 shares of Class B common stock outstanding. The
number of shares of Class A common stock is subject to adjustment based on
changes in the number of outstanding shares of Xoom.com's common stock. The
number of outstanding shares of Xoom.com's common stock may increase due to the
issuance of additional shares upon the exercise of options or in transactions
separate from those contemplated in this proxy statement/prospectus.
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 specific 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.
216
<PAGE>
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 the provisions of NBCi's restated
certificate of incorporation and restated bylaws may not contain all of the
information that may be important to investors 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 the 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, referred to
as 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, referred to
as 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
217
<PAGE>
- 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 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
218
<PAGE>
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.
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:
219
<PAGE>
- 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.
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
220
<PAGE>
- 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;
- 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:
- shall be deemed to have fully satisfied the fiduciary duty such person
owes to NBCi and its stockholders with respect to that corporate
opportunity,
- shall not be deemed liable to NBCi or its stockholders for pursuing such
corporate opportunity on behalf of NBC,
- shall be deemed to have acted in good faith, and
- 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.
221
<PAGE>
Any amendment of the corporate opportunity provisions set forth in the
restated certificate of incorporation in a manner adverse to NBC requires the
approval of stockholders holding at least 80% of the outstanding shares of
common stock of NBCi.
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 will
provide, among other things:
- that when no shares of Class B common stock remain outstanding and NBC or
its affiliates beneficially own at least 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.
In addition, under the governance agreement NBC will have 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 by NBCi. This option
will expire when no shares of Class B common stock remain outstanding.
NBC and CNET will enter into a voting and right of first offer agreement
that will require, among other things, CNET to vote its shares of NBCi in the
same manner as NBC regarding a change of control transaction or a transaction
that would result in the acquisition or sale of 5% or more of NBCi's equity
securities should such transaction be submitted to NBCi's stockholders for
approval. 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.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF NBCI'S CHARTER AND BYLAWS
NBCi's amended and restated bylaws provide that all stockholder action must
be effected at a duly called meeting of stockholders and not by a consent in
writing, except where the Class B common stock constitutes a majority of the
outstanding shares of NBCi common stock. The amended and restated bylaws also
provide that only the chairman of the board, the chief executive officer or
president, the board of directors or the holders of a majority of the
outstanding shares of Class B common stock may call a special meeting of
stockholders.
These provisions, the provisions of NBCi's restated certificate of
incorporation discussed above and NBC's ownership interest in NBCi will make it
more difficult for NBCi's existing stockholders to replace the board of
directors as well as for another party to obtain control by replacing the board
of directors. Since the board of directors has the power to retain and discharge
NBCi's officers, these provisions could also make it more difficult for existing
stockholders or another party to effect a change in management.
These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management. These provisions are
intended to enhance the likelihood of continued stability in the composition of
the board of directors and in the policies furnished by the board of directors
and to discourage the types of transactions that may involve an actual or
threatened change of control. These provisions are designed to reduce NBCi's
vulnerability to an unsolicited acquisition
222
<PAGE>
proposal and are also intended to discourage tactics that may be used in proxy
fights. However, this could have the effect of discouraging others from making
tender offers for NBCi's shares and, as a consequence, may inhibit fluctuations
in the market price of NBCi's shares that could result from actual or rumored
takeover attempts. These provisions also may have the effect of preventing
changes in NBCi's management.
SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
NBCi is subject to Section 203 of the General Corporation Law of the State
of Delaware, which, subject to some exceptions, prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder, unless:
- prior to such time, the board of directors of the corporation approved
either the business combination or the transactions that resulted in the
stockholder becoming an interested holder;
- upon consummation of the transactions that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transactions commenced, excluding for purposes of determining the
number of shares outstanding:
- those shares owned by persons who are directors and also officers, and
- those shares issuable pursuant to employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such time, the business combination is approved by the
board of directors and authorized at an annual or special meeting of the
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines a business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to some exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholder;
- any transactions involving the corporation that have the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits by or through
the corporation.
In general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
COMPARISON OF RIGHTS OF NBCI STOCKHOLDERS AND XOOM.COM STOCKHOLDERS
After consummation of the transactions, the holders of Xoom.com common stock
will receive NBCi Class A common stock under the terms of the merger agreement
and become stockholders of NBCi. The following discussion summarizes the
material differences between the rights of holders of
223
<PAGE>
Xoom.com common stock and the rights of holders of NBCi Class A common stock,
and the material differences between the charters and bylaws of Xoom.com and
NBCi. This summary may not contain all of the information that may be important
to investors and is qualified by reference to Xoom.com's restated certificate of
incorporation and the amended and restated bylaws and NBCi's restated
certificate of incorporation and amended and restated bylaws.
<TABLE>
<CAPTION>
DESCRIPTION XOOM.COM CAPITAL STOCK NBCI COMMON STOCK
- --------------------- ----------------------------- ------------------------------------------
<S> <C> <C>
Authorized Stock 40,000,000 shares of common 100,000,000 shares of Class A common
stock, $0.0001 par value per stock, $0.0001 par value per share.
share.
5,000,000 shares of preferred 100,000,000 shares of Class B common
stock, $0.0001 par value per stock, $0.0001 par value per share.
share.
10,000,000 shares of preferred stock,
$0.0001 par value per share.
Board of Directors/ Xoom.com's bylaws currently The number of directors is fixed at
Number of Directors provide that the number of thirteen so long as shares of Class B
directors shall not be more common stock remain outstanding, which may
than nine, nor less than be increased under specified
five. The current number of circumstances. The number of directors may
directors is fixed at seven. not be less than seven nor more than
sixteen, as determined by the board of
directors, when no shares of Class B
common stock remain outstanding.
Nomination of May be made by or at the While shares of Class B common stock
Directors direction of the board of remain outstanding, Class A Directors are
directors, or by Xoom.com's nominated by the Class A nominating
stockholders in accordance committee and Class B Directors are
with the procedures set forth nominated by the Class B nominating
in Xoom.com's bylaws. committee. The nomination of the
unaffiliated director by NBCi must be
approved by at least seven directors.
Term of Directors One year term with annual One year term with annual elections. Term
elections. of independent director expires at such
time as holders of Class A common stock or
Class B common stock have the right to
elect a majority of the directors of NBCi.
Election of Directors Stockholders of Xoom.com have While shares of Class B common stock
the right to vote their remain outstanding, the holders of the
shares for all directors Class A common stock only have the right
nominated by the board of to elect directors nominated by the Class
directors. A nominating committee. Only in specified
circumstances will the holders of Class A
common stock have the right to elect a
majority of the directors of NBCi.
Stockholder Veto None. The holders of the Class A common stock
Rights and Class B common stock are entitled to
veto rights. See page 220.
</TABLE>
224
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION XOOM.COM CAPITAL STOCK NBCI COMMON STOCK
- --------------------- ----------------------------- ------------------------------------------
<S> <C> <C>
Consents Action may not be taken by Action may be taken by written consent
written consent. only when the shares of Class B common
stock constitute a majority of the
outstanding common stock. Accordingly,
subject to Nasdaq requirements, the
holders of the Class B common stock could
take action without a meeting and without
providing prior written notice to the
holders of the Class A common stock.
Meetings Special meetings of the Special meetings of the stockholders may
stockholders may only be only be called by the board of directors,
called by the chairman of the the chairman of the board of directors,
board of directors, the chief the chief executive officer or president,
executive officer or or the holders of a majority of the
president of Xoom.com. outstanding shares of Class B common stock
of NBCi.
Amendments to Bylaws An amendment to the Any amendment to the restated certificate
and Certificate of certificate of incorporation of incorporation must be approved by (1) a
Incorporation must be approved by a majority of the board of directors; (2) a
majority of the board of majority of the Class A Directors if the
directors and by the holders holders of Class B common stock have the
of a majority of the common right to elect seven directors to the
stock entitled to vote board of directors; (3) a majority of the
thereon. The bylaws may be Class B Directors, if the Class B
amended by a majority of the Directors do not constitute a majority of
board of directors or by a the board of directors; and (4) a majority
vote of a majority of the of the common stock entitled to vote
common stock entitled to thereon, including holders of a majority
vote, except that any change of the Class A common stock and holders of
to the requirements for a majority of the Class B common stock,
holding a special meeting of each voting as a separate class.
the stockholders shall An amendment to the amended and restated
require the favorable vote of bylaws must be approved by (1) either (A)
the holders of 66 2/3% of the a majority of the directors or a unanimous
then outstanding shares of written consent of the directors or (B) by
common stock entitled to the affirmative vote of a majority of the
vote. outstanding shares of common stock
entitled to vote thereon or by written
consent; (2) a majority of the Class A
Directors, if the holders of Class B
common stock have the right to elect seven
directors to the board of directors; (3) a
majority of the Class B Directors, if the
Class B Directors do not constitute a
majority of the board of directors; and
(4) except for amendments duly approved by
the board of directors, by the holders of
a majority of the Class A common stock and
the holders of a majority of the Class B
common stock; provided that:
- any change to the requirements for
</TABLE>
225
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION XOOM.COM CAPITAL STOCK NBCI COMMON STOCK
- --------------------- ----------------------------- ------------------------------------------
<S> <C> <C>
holding a special meeting or the
quorum or voting requirements for a
stockholders meeting will require the
affirmative vote of the holders of a
majority of outstanding shares of Class
A common stock and Class B common stock
entitled to vote, each voting as a
separate class,
- any change in the quorum or voting
requirements for meetings of the board
of directors, the designation of
committees of the board of directors or
a change in the name of NBCi shall
require the affirmative vote of the
Class A Directors and Class B Directors,
each voting as a separate class, and
- any change in the requirements governing
corporate opportunities (discussed
above) in a manner adverse to NBC will
require the affirmative vote of holders
of at least 80% of the outstanding
shares of NBCi common stock during such
time as NBC owns at least 20% of the
outstanding shares of NBCi common stock.
</TABLE>
INDEMNIFICATION AND EXCULPATION
Under Xoom.com's certificate of incorporation and bylaws, Xoom.com is
required to indemnify, in the manner and to the full extent permitted by the
General Corporation Law of the State of Delaware, any person made or threatened
to be made a party to a proceeding (whether civil, criminal or otherwise) by
reason of the fact that such person, or a person of whom such person is the
legal representative, is or was a director or officer of Xoom.com or by reason
of the fact that such director or officer was acting in any other capacity while
serving as a director or officer. In addition, under Xoom.com's certificate of
incorporation, a director is not liable for monetary damages to the corporation
or its stockholders for breach of fiduciary duty as a director; provided
however, a director will be liable to the extent provided by applicable law:
- for any breach of the director's duty of loyalty to Xoom.com or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law,
- under Section 174 of the General Corporation Law of the State of Delaware,
or
- for any transaction from which the director derived an improper personal
benefit. Xoom.com may also purchase and maintain insurance on behalf of
any of its directors, officers or agents and may advance the expenses of
any current or former director, officer, employee or trustee in defending
any action brought against any of them. Unless a proceeding was authorized
by the board of directors, no person will be entitled to indemnification
or to advances with respect to any action brought by them against Xoom.com
other than an action to recover or enforce such person's right to
indemnification or advance.
NBCi's restated certificate of incorporation and restated bylaws provides
substantially the same rights and obligations.
226
<PAGE>
FUTURE STOCKHOLDER PROPOSALS
If the merger of Xoom.com with Xenon 3 is not consummated, Xoom.com will
hold an annual meeting in the year 2000. If such meeting is held, proposals of
stockholders of Xoom.com which are intended to be presented by such stockholders
at Xoom.com's 2000 annual meeting of stockholders must be received by Xoom.com
no later than January 4, 2000 to be included in the proxy statement and form of
proxy relating to that meeting. The deadline for submitting a stockholder's
proposal that will not be included in the proxy statement and form of proxy for
Xoom.com's 2000 annual meeting of stockholders but nonetheless will be eligible
for consideration is March 20, 2000.
LEGAL MATTERS
Certain legal matters in connection with the issuance of NBCi common stock
under the merger agreement and the contribution agreement and the federal income
tax consequences of the Xoom.com merger will be passed upon for NBCi and
Xoom.com by Morrison & Foerster LLP.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Xoom.com's
consolidated financial statements as of December 31, 1997 and 1998, and the
period from April 16, 1996 (inception) to December 31, 1996 and the years ended
December 31, 1997 and 1998; the financial statements of Paralogic Corporation as
of December 31, 1996 and 1997 and for each of the two years ended December 31,
1997; the financial statements of Global Bridges Technologies, Inc. as of
December 31, 1996 and 1997 and for the period from July 23, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997; the
financial statements of Pagecount, Inc. as of December 31, 1997 and for the
period from January 23, 1997 (inception) through December 31, 1997; the
financial statements of MightyMail Networks, Inc. as of December 31, 1997 and
1998, and for each of the two years ended December 31, 1998 and the financial
statements of Paralogic Software Corporation as of December 31, 1998 and for the
period from February 11, 1998 (inception) through December 31, 1998, as set
forth in their reports. Xoom.com, Paralogic Corporation, Global Bridges
Technologies, Inc., Pagecount, Inc., MightyMail Networks, Inc. and Paralogic
Software Corporation have included their financial statements in this proxy
statement/prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
The financial statements of LiquidMarket, Inc. as of December 31, 1998 and
for the period from June 12, 1998, date of inception, through December 31, 1998
included in this proxy statement/prospectus, have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in accounting and auditing.
The financial statements and schedule of SNAP as of December 31, 1997 and
1998, and for each of the years in the two-year period ended December 31, 1998,
have been included in this proxy statement/ prospectus in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined financial statements of NBC Multimedia Division as of December
31, 1997 and 1998 and for each of the years then ended have been included herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
227
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Xoom.com, Inc.
Report of Ernst & Young LLP, Independent Auditors............................ F-3
Consolidated Balance Sheets.................................................. F-4
Consolidated Statements of Operations........................................ F-5
Consolidated Statements of Stockholders' Equity (Deficit).................... F-6
Consolidated Statements of Cash Flows........................................ F-7
Notes to Consolidated Financial Statements................................... F-10
SNAP! LLC
Independent Auditor's Report................................................. F-34
Balance Sheets............................................................... F-35
Statements of Operations..................................................... F-36
Statements of Members' Equity (Deficit)...................................... F-37
Statements of Cash Flows..................................................... F-38
Notes to Financial Statements................................................ F-39
NBC Multimedia Division
Independent Auditor's Report................................................. F-51
Combined Balance Sheets...................................................... F-52
Combined Statements of Operations............................................ F-53
Combined Statements of Cash Flows............................................ F-54
Notes to Combined Financial Statements....................................... F-55
Financial Statements related to Companies acquired by Xoom.com, Inc.
Paralogic Corporation..........................................................
Report of Ernst & Young LLP, Independent Auditors............................ F-62
Balance Sheets............................................................... F-63
Statements of Operations..................................................... F-64
Statements of Stockholders' Equity (Deficit)................................. F-65
Statements of Cash Flows..................................................... F-66
Notes to Financial Statements................................................ F-67
Global Bridges Technologies, Inc.
Report of Ernst & Young LLP, Independent Auditors............................ F-72
Balance Sheets............................................................... F-73
Statements of Operations..................................................... F-74
Statements of Stockholders' Equity (Deficit)................................. F-75
Statements of Cash Flows..................................................... F-76
Notes to Financial Statements................................................ F-77
Pagecount, Inc.
Report of Ernst & Young LLP, Independent Auditors............................ F-82
Balance Sheets............................................................... F-83
Statements of Income......................................................... F-84
Statements of Stockholders' Equity........................................... F-85
Statements of Cash Flows..................................................... F-86
Notes to Financial Statements................................................ F-87
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Paralogic Software Corporation
Report of Ernst & Young LLP, Independent Auditors............................ F-92
Balance Sheets............................................................... F-93
Statements of Operations..................................................... F-94
Statements of Stockholders' Equity........................................... F-95
Statements of Cash Flows..................................................... F-96
Notes to Financial Statements................................................ F-97
MightyMail Networks, Inc.
Report of Ernst & Young LLP, Independent Auditors............................ F-104
Balance Sheets............................................................... F-105
Statements of Operations..................................................... F-106
Statements of Stockholders' Equity (Deficit)................................. F-107
Statements of Cash Flows..................................................... F-108
Notes to Financial Statements................................................ F-109
Liquid Market, Inc.
Report of PricewaterhouseCoopers LLP, Independent Accountants................ F-116
Balance Sheets............................................................... F-117
Statements of Operations..................................................... F-118
Statements of Stockholders' Equity........................................... F-119
Statements of Cash Flows..................................................... F-120
Notes to Financial Statements................................................ F-121
Xoom.com, Inc. Unaudited Pro Forma Condensed Combined Financial Information
Introduction................................................................. F-127
Unaudited Pro Forma Condensed Combined Balance Sheets........................ F-128
Unaudited Pro Forma Condensed Combined Statements of Operations.............. F-129
Notes to Unaudited Pro Forma Condensed Combined Financial Information........ F-131
</TABLE>
F-2
<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
F-3
<PAGE>
XOOM.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 6 $ 54,575 $ 57,418
Marketable securities......................................................... -- 2,000 107,995
Accounts receivable, net of allowance for doubtful accounts of
$49, $195, and $249 in 1997, 1998, and 1999................................. 173 1,368 3,025
Stock subscription receivable................................................. 75 -- --
Inventories................................................................... -- 322 793
Other current assets.......................................................... 1 308 2,450
--------- --------- -----------
Total current assets........................................................ 255 58,573 171,681
Fixed assets, net............................................................... 414 2,071 4,499
Goodwill, net................................................................... -- 3,751 51,123
Purchased technology, net....................................................... -- 1,766 9,988
Acquired workforce, net......................................................... -- -- 242
Investments..................................................................... -- -- 53,615
Prepaid royalties and licenses.................................................. 53 216 --
Other assets.................................................................... 60 497 1,316
--------- --------- -----------
Total assets.............................................................. $ 782 $ 66,874 $ 292,464
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................................. $ 462 $ 1,229 $ 3,516
Accrued compensation and related expenses..................................... 38 497 1,101
Other accrued liabilities..................................................... 5 1,531 2,176
Deferred revenue.............................................................. -- 443 2,676
Note payable to stockholder................................................... 150 -- --
Notes payable................................................................. -- 1,276 1,103
Capital lease obligations..................................................... -- 37 41
Contingency accrual........................................................... 1,000 1,000 1,000
--------- --------- -----------
Total current liabilities................................................... 1,655 6,013 11,613
Deferred revenue, less current portion........................................ -- -- 2,500
Notes payable, less current portion........................................... -- 411 331
Capital lease obligations, less current portion............................... -- 117 98
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--80,000,000
Issued and outstanding shares--5,541,367, 13,699,555, and 18,129,978 in
1997, 1998 and 1999, respectively......................................... 3,001 75,606 304,253
Notes receivable from stockholders.............................................. -- -- (995)
Deferred compensation........................................................... (303) (904) (499)
Accumulated deficit............................................................. (3,571) (14,369) (24,837)
--------- --------- -----------
Total stockholders' equity (deficit)........................................ (873) 60,333 277,922
--------- --------- -----------
Total liabilities and stockholders' equity (deficit)...................... $ 782 $ 66,874 $ 292,464
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PERIOD FROM APRIL YEAR ENDED SIX MONTHS ENDED
16, 1996 DECEMBER 31, JUNE 30,
(INCEPTION) THROUGH ----------------- -------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue:
E-commerce.................................................. $ -- $ 327 $ 5,582 $ 1,834 $ 5,933
Advertising................................................. -- 60 2,144 355 4,975
License fees................................................ -- 454 592 376 39
------ ------- -------- ----------- -----------
Total net revenue......................................... -- 841 8,318 2,565 10,947
Cost of net revenue:
Cost of e-commerce.......................................... -- 171 3,542 899 4,649
Cost of advertising......................................... -- -- -- -- 75
Cost of license fees........................................ -- 148 42 27 --
------ ------- -------- ----------- -----------
Total cost of net revenue................................. -- 319 3,584 926 4,724
------ ------- -------- ----------- -----------
Gross profit.................................................. 522 4,734 1,639 6,223
Operating expenses:
Operating and development................................... 266 1,150 3,841 1,349 2,700
Sales and marketing......................................... 23 292 2,834 717 7,538
General and administrative.................................. 150 721 3,366 1,099 3,666
Purchased in-process research and development............... -- -- 790 660 2,603
Amortization of deferred compensation....................... -- 248 1,416 807 405
Amortization of intangible assets........................... -- -- 1,843 346 2,304
Non-recurring charges....................................... -- 1,243 -- -- --
------ ------- -------- ----------- -----------
Total operating expenses.................................. 439 3,654 14,090 4,978 19,216
------ ------- -------- ----------- -----------
Loss from operations.......................................... (439) (3,132) (9,356) (3,339) (12,993)
Other income (expense):
Interest income............................................. -- -- 187 -- 3,008
Interest expense............................................ -- -- (135) -- (65)
Interest expense related to warrant......................... -- -- (1,494) -- --
------ ------- -------- ----------- -----------
Net loss...................................................... $ (439) $(3,132) $(10,798) $(3,339) $(10,050)
------ ------- -------- ----------- -----------
------ ------- -------- ----------- -----------
Net loss per share--basic and diluted......................... $ (0.89) $ (0.64) $ (1.37) $ (0.52) $ (0.66)
------ ------- -------- ----------- -----------
------ ------- -------- ----------- -----------
Number of shares used in per share calculation--basic and
diluted..................................................... 496 4,874 7,879 6,402 15,288
------ ------- -------- ----------- -----------
------ ------- -------- ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK RECEIVABLE
------------------- FROM DEFERRED ACCUMULATED
SHARES AMOUNT STOCKHOLDERS COMPENSATION 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 -- -- --
Net loss.................................................. -- -- -- -- (439)
---------- ------- ----- ------ -----------
Balances at December 31, 1996............................... 3,333,335 1,000 -- -- (439)
Issuance of common stock for cash......................... 1,914,452 1,223 -- -- --
Issuance of common stock in exchange for cancellation of
notes payable to stockholders........................... 38,889 35 -- -- --
Issuance of common stock in exchange for stock
subscription receivable................................. 254,691 175 -- -- --
Issuance of stock options to consultants.................. -- 17 -- -- --
Deferred compensation related to grant of stock options... -- 551 -- (551) --
Amortization of deferred compensation..................... -- -- -- 248 --
Net loss.................................................. -- -- -- -- (3,132)
---------- ------- ----- ------ -----------
Balances at December 31, 1997............................... 5,541,367 3,001 -- (303) (3,571)
Issuance of common stock for cash, net of issuance costs
of $139................................................. 1,815,432 5,532 -- -- --
Issuance of common stock in exchange for Classic Media
Holdings license rights................................. 43,292 100 -- -- --
Issuance of common stock in connection with acquisitions.. 1,221,992 4,219 -- -- --
Issuance of common stock in exchange for cancellation of
notes payable to stockholders........................... 64,937 150 -- -- --
Issuance of common stock in exchange for stock
subscription receivable................................. 78,224 261 -- -- --
Issuance of common stock to directors and consultants in
exchange for services................................... 19,564 205 -- -- --
Issuance of stock options to consultants.................. -- 238 -- -- --
Issuance of common stock in initial public offering, net
of offering costs of $7,059............................. 4,600,000 57,341 -- -- --
Issuance of common stock upon exercise of warrants, net of
issuance costs of $28................................... 314,747 1,048 -- -- --
Issuance of warrant in connection with loan agreement..... -- 1,494 -- -- --
Deferred compensation related to grant of stock options... -- 2,017 -- (2,017) --
Amortization of deferred compensation..................... -- -- -- 1,416 --
Net loss.................................................. -- -- -- -- (10,798)
---------- ------- ----- ------ -----------
Balances at December 31, 1998............................... 13,699,555 75,606 -- (904) (14,369)
Issuance of common stock in connection with acquisitions
(unaudited)............................................. 1,026,913 60,410 -- -- --
Issuance of common stock to directors and consultants in
exchange for services (unaudited)....................... 8,696 458 -- -- --
Issuance of common stock in secondary public offering, net
of offering costs of $8,950 (unaudited)................. 2,659,800 166,597 -- -- --
Issuance of common stock upon issuance of warrants
(unaudited)............................................. 116,231 -- -- -- --
Issuance of common stock upon issuance of options
(unaudited)............................................. 618,783 1,182 -- -- --
Amortization of deferred compensation (unaudited)......... -- -- -- 405 --
Notes receivable from stockholders (unaudited)............ -- -- (995) -- --
Unrealized loss on investments (unaudited)................ -- -- -- -- (418)
Net loss (unaudited)...................................... -- -- -- -- (10,050)
---------- ------- ----- ------ -----------
Balances at June 30, 1999 (unaudited)....................... 18,129,978 $304,253 $ (995) $ (499) $(24,837)
---------- ------- ----- ------ -----------
---------- ------- ----- ------ -----------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Issuance of common stock to founders at inception......... $ --
Issuance of common stock in exchange for cancellation of
notes payable to stockholders........................... 1,000
Net loss.................................................. (439)
-------------
Balances at December 31, 1996............................... 561
Issuance of common stock for cash......................... 1,223
Issuance of common stock in exchange for cancellation of
notes payable to stockholders........................... 35
Issuance of common stock in exchange for stock
subscription receivable................................. 175
Issuance of stock options to consultants.................. 17
Deferred compensation related to grant of stock options... --
Amortization of deferred compensation..................... 248
Net loss.................................................. (3,132)
-------------
Balances at December 31, 1997............................... (873)
Issuance of common stock for cash, net of issuance costs
of $139................................................. 5,532
Issuance of common stock in exchange for Classic Media
Holdings license rights................................. 100
Issuance of common stock in connection with acquisitions.. 4,219
Issuance of common stock in exchange for cancellation of
notes payable to stockholders........................... 150
Issuance of common stock in exchange for stock
subscription receivable................................. 261
Issuance of common stock to directors and consultants in
exchange for services................................... 205
Issuance of stock options to consultants.................. 238
Issuance of common stock in initial public offering, net
of offering costs of $7,059............................. 57,341
Issuance of common stock upon exercise of warrants, net of
issuance costs of $28................................... 1,048
Issuance of warrant in connection with loan agreement..... 1,494
Deferred compensation related to grant of stock options... --
Amortization of deferred compensation..................... 1,416
Net loss.................................................. (10,798)
-------------
Balances at December 31, 1998............................... 60,333
Issuance of common stock in connection with acquisitions
(unaudited)............................................. 60,410
Issuance of common stock to directors and consultants in
exchange for services (unaudited)....................... 458
Issuance of common stock in secondary public offering, net
of offering costs of $8,950 (unaudited)................. 166,597
Issuance of common stock upon issuance of warrants
(unaudited)............................................. --
Issuance of common stock upon issuance of options
(unaudited)............................................. 1,182
Amortization of deferred compensation (unaudited)......... 405
Notes receivable from stockholders (unaudited)............ (995)
Unrealized loss on investments (unaudited)................ (418)
Net loss (unaudited)...................................... (10,050)
-------------
Balances at June 30, 1999 (unaudited)....................... $277,922
-------------
-------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM APRIL 16,
1996 (INCEPTION) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------- -----------------------
1996 1997 1998 1998 1999
----------------------- ------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS USED IN OPERATING ACTIVITIES:
Net loss.................................................... $ (439) $(3,132) $(10,798) $ (3,339) $(10,050)
Adjustments to reconcile net loss to net cash and cash
equivalents (used in) provided by operating activities:
Interest expense related to warrant..................... -- -- 1,494 -- --
Purchased in-process research and development........... -- -- 790 660 2,603
Depreciation and amortization........................... 2 254 796 225 708
Amortization of intangible assets....................... -- -- 1,843 346 2,304
Amortization of deferred compensation................... -- 248 1,416 807 405
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................ -- 17 238 103 --
Issuance of common stock to directors and consultants... -- -- 205 10 458
Changes in operating assets and liabilities:
Accounts receivable................................... -- (173) (1,167) (537) (1,510)
Inventories........................................... -- -- (322) (65) (471)
Other current assets.................................. -- (1) (303) (8) (2,136)
Intangible assets..................................... -- -- -- 1,567 --
Prepaid royalties and licenses........................ (324) (186) (426) -- --
Other assets.......................................... (19) (41) (445) (207) (653)
Accounts payable...................................... 136 326 762 370 2,287
Accrued compensation and related expenses............. 9 29 418 91 604
Other accrued liabilities............................. -- 5 1,403 174 35
Deferred revenue...................................... -- -- 443 16 (342)
Contingency accrual................................... -- 1,000 -- -- --
------- ------- -------- ---------- ----------
Net cash and cash equivalents (used in) provided by
operating activities...................................... (635) (1,411) (3,553) 313 (5,758)
Cash and cash equivalents used in investing activities:
Purchases of fixed assets................................. (64) (392) (1,954) (360) (2,907)
Purchase of investments................................... -- -- (2,000) -- (162,528)
Maturities of investments................................. -- -- -- -- 7,500
Business combinations, net of cash acquired............... -- -- (458) (230) (975)
Cash paid in connection with the purchase of certain
assets from Revolutionary Software, Inc................. -- -- (273) (273) --
------- ------- -------- ---------- ----------
Net cash and cash equivalents used in investing
activities.............................................. (64) (392) (4,685) (863) (158,910)
</TABLE>
See accompanying notes.
F-7
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD FROM APRIL 16, JUNE 30,
1996 (INCEPTION) YEAR ENDED -----------------------
THROUGH DECEMBER 31, 1998 1999
DECEMBER 31, ----------------- ---------- ----------
Cash and cash equivalents 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 in secondary public
offering................................................ -- -- -- -- 166,597
Proceeds from issuance of common stock.................... -- 1,223 5,532 4,734 --
Proceeds from exercise of warrants........................ -- -- 1,048 -- --
Proceeds from exercise of options......................... -- -- -- -- 1,182
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) -- (16)
Repayment of notes payable................................ -- -- (3,201) (111) (252)
------- ------- -------- ---------- ----------
Net cash and cash equivalents provided by financing
activities.............................................. 700 1,808 62,807 4,958 167,511
------- ------- -------- ---------- ----------
Net increase in cash and cash equivalents................. 1 5 54,569 4,048 2,843
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 $ 4,054 $ 57,418
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
</TABLE>
See accompanying notes.
F-8
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD FROM APRIL 16, JUNE 30,
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 $ 972 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Fixed assets acquired under capital lease obligations..... $ -- $ -- $ 165 $ -- $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Common stock issued to satisfy Paralogic Corporation legal
obligation.............................................. $ -- $ -- $ 165 $ 165 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Investment in a company in connection with a media
contract................................................ $ -- $ -- $ -- $ -- $ 5,000
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Issuance of common stock in conjunction with business and
technology acquisitions................................... $ -- $ -- $ 4,218 $ 4,218 $ 60,410
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Issuance of notes payable in conjunction with business and
technology acquisitions................................... $ -- $ -- $ 1,906 $ 1,906 $ --
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
Cash paid for interest...................................... $ -- $ -- $ 57 $ -- $ 32
------- ------- -------- ---------- ----------
------- ------- -------- ---------- ----------
</TABLE>
See accompanying notes.
F-9
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 June 30, 1998 and 1999, and for the
six months ended June 30, 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 six months ended June 30, 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.
F-10
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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
F-11
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
F-12
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
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
F-13
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 for the year ended December
31, 1998. Accordingly, the Company's comprehensive loss for the year ended
December 31, 1998 is equal to its reported loss. The Company's comprehensive
loss for the six months ended June 30, 1999 was approximately $7,160,000.
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.
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
During the year ended December 31, 1998 and the six months ended June 30,
1999, 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.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. 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. The values assigned to purchased in-process
technology were 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
F-14
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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 values of purchased technology, 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 lifecycles.
ACQUIRED WORKFORCE. To determine the values of the acquired workforce,
employees were identified who would require significant cost to replace and
train. Then each employee's fully-burdened cost (salary, benefits, overhead),
the cost to train the employee, and the recruiting costs (locating,
interviewing, hiring) were estimated. These costs were then summed up and tax
effected to estimate the value of the assembled workforce.
Amounts allocated to purchased technology, goodwill and other intangible
assets are being amortized on a straight-line basis over periods of two to four
years.
PARALOGIC CORPORATION
On March 10, 1998, the Company acquired 100% of the outstanding shares of
Paralogic Corporation. Paralogic Corporation 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>
F-15
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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.
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
F-16
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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.
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. 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.
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 SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
FOCUSED PRESENCE, INC.
On April 1, 1999, the Company acquired 100% of the outstanding shares of
Focused Presence, Inc., a company that 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, and
acquisition costs of approximately $4,000.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Cash................................................................ $ 1
Other current assets................................................ 61
Fixed assets, net................................................... 3
Goodwill............................................................ 1,760
Liabilities assumed................................................. (130)
---------
Total purchase consideration........................................ $ 1,695
---------
---------
</TABLE>
MIGHTYMAIL NETWORKS, INC.
On May 3, 1999, the Company acquired 100% of the outstanding shares of
MightyMail Networks, Inc., a developer of an enhanced e-mail product that
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, the assumption of 9,061 and 12,121
employee stock options at a price per share of $70.47 and $55.91, respectively,
and acquisition costs of approximately $300,000. In addition, 67,186 shares of
the Company's common stock were placed into an escrow account. Of the shares
held in escrow, 25% will be released in November 1999 and in May 2000, if
certain performance objectives are met, and 50% will be released in May 2000,
upon the expiration of certain indemnification obligations.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable................................................ $ 19
Net fixed assets................................................... 132
Other long-term assets............................................. 50
Notes receivable from shareholders................................. 995
Purchased in-process research and development charged to operations
in the quarter ended June 30, 1999............................... 1,082
Purchased technology............................................... 3,321
Acquired workforce................................................. 176
Goodwill........................................................... 17,735
Liabilities assumed................................................ (396)
---------
Total purchase consideration....................................... $ 23,114
---------
---------
</TABLE>
F-18
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
NET FLOPPY, INC.
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, approximately $560,000 in cash, and
approximately $57,000 of acquisition costs. In addition, 7,526 shares of the
Company's common stock were placed into an escrow account. Of the shares held in
escrow, 50% will be released if certain performance objectives are met in
November 1999 and 50% will be released in May 2000, upon the expiration of
certain indemnification obligations.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable and other current assets........................ $ 2
Goodwill............................................................ 1,443
Liabilities assumed................................................. (5)
---------
Total purchase consideration........................................ $ 1,440
---------
---------
</TABLE>
PARALOGIC SOFTWARE CORPORATION
On June 16, 1999, the Company 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 654,018 shares of
common stock at $47.13 per share, the assumption of 82,733 and 12,001 employee
stock options at a price per share of $46.67 and $33.05, respectively, and
acquisition costs of approximately $315,000.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Cash............................................................... $ 134
Accounts receivable and other current assets....................... 21
Net fixed assets................................................... 43
Purchased in-process research and development charged to operations
in the quarter ended June 30, 1999............................... 1,521
Purchased technology............................................... 4,986
Acquired workforce................................................. 81
Goodwill........................................................... 28,639
Liabilities assumed................................................ (29)
---------
Total purchase consideration....................................... $ 35,396
---------
---------
</TABLE>
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
F-19
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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. The intangible assets as of June 30, 1999 are summarized as follows
(in thousands):
<TABLE>
<S> <C>
Acquired workforce................................................. $ 257
Purchased technology............................................... 10,662
Goodwill........................................................... 54,580
---------
Intangible assets.................................................. 65,499
Accumulated amortization........................................... (4,146)
---------
Intangible assets, net............................................. $ 61,353
---------
---------
</TABLE>
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 and the six months ended June 30, 1999 is summarized below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1998 1999
--------------- -----------------
<S> <C> <C>
Paralogic Corporation........................................ $ 330 $ --
Revolutionary Software, Inc.................................. 330 --
Pagecount, Inc............................................... 130 --
MightyMail Networks, Inc..................................... -- 1,082
Paralogic Software Corporation............................... -- 1,521
----- ------
Total purchased in-process research and development.......... $ 790 $ 2,603
----- ------
----- ------
</TABLE>
F-20
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
The following unaudited pro forma summary represents the consolidated
results of operations as if all the acquisitions to date had occurred at the
beginning of the periods presented and are not intended to be indicative of
future results (in thousands, except for per share data):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- ----------------------
1997 1998 1998 1999
--------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma net revenue.......................... $ 1,371 $ 8,607 $ 3,659 $ 11,362
Pro forma loss from operations................. $ (5,835) $ (10,005) $ (10,397) $ (18,948)
Pro forma net loss............................. $ (5,883) $ (11,495) $ (10,422) $ (16,002)
Pro forma net loss per share--basic and
diluted...................................... $ (1.02) $ (1.41) $ (1.40) $ (1.05)
Number of shares used in pro forma per share
calculation--basic and diluted............... 5,740 8,142 7,429 15,288
</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. In-process research and development
charges of $330,000 and $2,603,000 were excluded from the pro forma net loss and
pro forma net loss per share figures for the periods ended June 30, 1998 and
1999, 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 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
F-21
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
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 MARKETABLE SECURITIES
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,
----------------------- JUNE 30,
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Demand and money market instrument accounts.............. $ 6 $ 8,731 $ 57,418
Corporate bonds and notes................................ -- 36,444 84,495
Market auction preferred stock........................... -- 11,400 23,500
----------- ---------- ----------
6 56,575 165,413
Less amounts included in cash and cash equivalents....... (6) (54,575) (57,418)
----------- ---------- ----------
Short-term investments................................... $ -- $ 2,000 $ 107,995
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
Unrealized gains and losses at December 31, 1998 and June 30, 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 June 30, 1999 have maturity dates in 1999 or 2000. In addition the Company
has long-term marketable securities of $48.6 million as of June 30, 1999.
F-22
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
Fixed assets consist of the following (in thousands): 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>
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>
F-23
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. NOTES PAYABLE (CONTINUED)
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-24
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 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-25
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 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-26
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 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."
In June 1999 the Company filed an opposition to Zoom Telephonics' motion for
preliminary injunction and filed a motion to suspend all proceedings in this
matter until September 30, 1999. 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.
On April 9, 1999, the Company completed a secondary public offering of its
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 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.
COMMON STOCK
In May, the Board of Directors voted to increase the number of authorized
shares to 80,000,000.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan was terminated by the Board
of Directors in May 1999.
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.
F-27
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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.
NOTES RECEIVABLE FROM STOCKHOLDERS
On June 16, 1999, in connection with its acquisition of MightyMail Networks,
Inc., the Company assumed stock subscriptions receivable from related parties in
exchange for shares of common stock. As of June 30, 1999, outstanding
subscriptions receivable amounted to approximately $995,000. All amounts mature
by April 2002 and bear interest at a rate of 5.28% per annum.
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.
F-28
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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
F-29
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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
F-30
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
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 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:
<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.............................. $ (439) $ (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>
F-31
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
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 July 12, 1999, a subsidiary of the Company filed a Form S-4 with the
Securities and Exchange Commission under such subsidiary's new corporate name,
NBC Internet, Inc.
On July 29, 1999, the Company issued 960,028 shares to National Broadcasting
Company, Inc. for $57.29 per share in connection with a Stock Purchase Agreement
dated June 11, 1999. The Company received proceeds of $55.0 million. The Stock
Purchase Agreement is filed on Form 8-K with the Securities and Exchange
Commission.
On August 3, 1999, the Company acquired 100% of the outstanding shares of
LiquidMarket, Inc., the developer of a next-generation on-line comparison
shopping guide and purchasing service. The purchase consideration consisted of
718,224 shares of the Company's common stock with an estimated fair value of
$40.70 per share. In addition, 212,202 shares of the Company's common stock will
be placed into an escrow account. Of the shares held in escrow, 50% will be
released on various milestone dates prior to June 2000, upon the completion of
certain performance objectives, and 50% will be released in August 2000, upon
the expiration of certain indemnification obligations. The Company will account
for this acquisition as a purchase.
On August 3, 1999, the Company acquired all of the outstanding shares of
Private One, Inc., a designer and developer of a secure e-mail software service.
The purchase consideration consisted of 47,999 shares of the Company's common
stock at an estimated fair value of $40.70 per share. In addition, 12,000 shares
of the Company's common stock will be placed into an escrow account. Of the
shares held in escrow, 25% will be released in February 2000, and 25% in August
2000, or upon the completion of certain milestones, whichever is earlier. The
remaining 50% of the shares held in escrow will be released in August 2000, upon
the expiration of certain indemnification obligations. The Company will account
for this acquisition as a purchase.
In August 1999, the Company entered into a 10-year non-cancelable leasing
agreement for approximately 187,000 square feet of office space located in San
Francisco, California. Minimum lease commitments for the years ended December
31, 1999, 2000, 2001, 2002, 2003, and thereafter are approximately $339,000,
$4,707,000, $5,655,000 $5,655,000, $5,655,000, and $37,275,000, respectively. In
August 1999, in connection with the lease agreement, the Company entered into an
irrevocable letter of credit with a commercial bank in the amount of $4,500,000
as a security deposit payable to the landlord.
On September 13, 1999, Xoom.com entered into a strategic alliance with SNAP!
LLC and ValueVision International, Inc. whereby the parties entered into
re-branding and electronic commerce agreements, including television home
shopping, Internet shopping and direct e-commerce initiatives. Under the terms
of the agreements, SNAP granted ValueVision a ten-year, exclusive license to
SNAP's "SnapTV" trademark for the purpose of operating a television home
shopping service and a Website at www.snaptv.com. ValueVision International
Inc.'s television home shopping network, currently called ValueVision, will be
F-32
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
12. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
re-branded as SnapTV. Xoom.com will become the direct electronic commerce
partner for SnapTV, managing the customer database, e-mail marketing and other
sales efforts. Direct online shopping offers will include Xoom.com products and
services, as well as SnapTV merchandise. ValueVision and Xoom.com will share
revenues from all such initiatives. As part of the agreements, ValueVision and
Xoom.com entered into a warrant purchase agreement whereby Xoom.com agreed to
purchase a warrant for 404,760 shares of ValueVision common stock at an exercise
price of $24.71 per share, and ValueVision agreed to purchase a warrant for
244,004 shares of Xoom.com common stock at an exercise price of $40.89 per
share. The warrants may be exercised after the closing of the proposed NBCi
merger agreement until September 12, 2004. In the event the transactions
contemplated in the merger agreement do not occur by December 31, 1999, the
warrants shall terminate. These rights and obligations of Xoom.com and SNAP will
be assigned to and assumed by NBC Internet, Inc. following consummation of the
transactions contemplated in the merger agreement.
On October 4, 1999, John G. Balletto ("Balletto") filed a lawsuit against
Xoom.com in September 1999 in the San Francisco Superior Court alleging breach
of contract and specific performance. Balletto has alleged that in connection
with a loan which Xoom.com obtained from Sand Hill Capital LLC in 1998 and
pursuant to an oral contract with Xoom.com, Balletto is entitled to a finder's
fee. Balletto has sought specific performance of the alleged oral agreement by
having the court direct Xoom.com to issue 33,784 shares of Common Stock to
Balletto and such other relief that the Court may deem just and proper. Xoom.com
believes that this lawsuit is without merit and intends to defend the suit
vigorously. Xoom.com does not believe that the outcome of this matter will
materially adversely impact its results of operations, cash flows, or financial
position. However, depending on the amount and timing, an unfavorable resolution
could have a material adverse effect on Xoom.com's results of operations,
financial position or cash flows in a particular period.
F-33
<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
F-34
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ -- 865 37
Accounts receivable, net of allowance for doubtful accounts of $0 at
December 31 1997, $469 at December 31, 1998, and $807 at June 30, 1999... 367 3,015 4,415
Due from CNET.............................................................. -- 655 --
Prepaid expenses and other current assets.................................. -- 1,778 2,075
---------- ---------- -----------
Total current assets..................................................... 367 6,313 6,527
Property and equipment, net.................................................. 1,127 4,674 8,277
Investments.................................................................. -- 605 18,382
Deposits and other assets.................................................... 36 42 2,194
---------- ---------- -----------
Total assets............................................................. $ 1,530 11,634 35,380
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................... $ 312 2,721 3,011
Accrued and other liabilities.............................................. 216 2,846 6,357
Deferred revenue........................................................... 400 553 3,741
Due to CNET................................................................ -- -- 2,611
Due to NBC................................................................. -- -- 1,373
---------- ---------- -----------
Total current liabilities................................................ 928 6,120 17,093
Line of credit............................................................... -- 13,500 30,100
---------- ---------- -----------
Total liabilities........................................................ 928 19,620 47,193
---------- ---------- -----------
Commitments
Members' equity:
Members' equity............................................................ 16,170 48,972 86,808
Deferred compensation...................................................... -- (2,102) (9,146)
Other accumulated comprehensive income..................................... -- -- 11,635
Accumulated deficit........................................................ (15,568) (54,856) (101,110)
---------- ---------- -----------
Total members' equity (deficit).......................................... 602 (7,986) (11,813)
---------- ---------- -----------
Total liabilities and members' equity (deficit).......................... $ 1,530 11,634 35,380
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- ------------------------
1997 1998 1998 1999
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net revenues..................................................... $ 817 7,317 1,958 13,368
Cost of net revenues............................................. 1,520 7,626 3,934 5,858
---------- --------- ----------- -----------
Gross profit (deficit)....................................... (703) (309) (1,976) 7,510
Operating expenses:
Product development............................................ 9,403 6,263 2,303 5,009
Sales and marketing............................................ 4,090 12,482 3,368 14,613
General and administrative..................................... 1,372 5,939 1,407 5,744
Amortization of deferred compensation.......................... -- 160 -- 1,766
Promotion and advertising provided by NBC...................... -- 14,060 -- 26,037
---------- --------- ----------- -----------
Total operating expenses..................................... 14,865 38,904 7,078 53,169
---------- --------- ----------- -----------
Operating loss............................................... (15,568) (39,213) (9,054) (45,659)
Other expense, net............................................... -- (75) -- (595)
---------- --------- ----------- -----------
Net loss..................................................... $ (15,568) (39,288) (9,054) (46,254)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Other comprehensive income:
Unrealized gains on available-for-sale securities............ $ -- -- -- 11,635
---------- --------- ----------- -----------
Comprehensive net loss........................................... $ (15,568) (39,288) (9,054) (34,619)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Basic and diluted net loss per unit.............................. $ (1.33) (2.95) (0.77) (3.19)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Units used in per unit calculation............................... 11,700 13,301 11,700 14,481
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER TOTAL
MEMBER UNITS DEFERRED ACCUMULATED MEMBERS'
-------------------- COMPENSATION COMPREHENSIVE ACCUMULATED EQUITY
UNITS AMOUNT EXPENSE INCOME DEFICIT (DEFICIT)
--------- --------- ------------- --------------- ------------ -------------
<S> <C> <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)............................. -- 26,037 -- -- -- 26,037
Grant of compensatory stock options
(unaudited)............................. -- 8,810 (8,810) -- -- --
Issuance of units in connection with
GlobalBrain transaction (unaudited)..... 75 2,989 -- -- -- 2,989
Unrealized gain on available-for-sale
securities (unaudited).................. -- -- -- 11,635 -- 11,635
Amortization of deferred compensation
(unaudited)............................. -- -- 1,766 -- -- 1,766
Net loss (unaudited)...................... -- -- -- -- (46,254) (46,254)
--------- --------- ------ ------ ------------ -------------
Balances as of June 30, 1999
(unaudited)............................. 14,519 $ 86,808 (9,146) 11,635 (101,110) (11,813)
--------- --------- ------ ------ ------------ -------------
--------- --------- ------ ------ ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- ------------------------
1997 1998 1998 1999
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss....................................................... $ (15,568) (39,288) (9,054) (46,254)
Adjustments to reconcile net loss to net cash used in operating
activities:
Receipt of stock in exchange for services provided........... -- (605) -- (4,139)
Depreciation and amortization................................ 329 929 182 1,489
Amortization of deferred compensation expense................ -- 160 -- 1,766
Promotion and advertising provided by NBC.................... -- 14,060 -- 26,037
Changes in operating assets and liabilities:
Accounts receivable.......................................... (367) (2,648) (356) (1,400)
Prepaid expenses, deposits and other assets................ (36) (1,784) (8) 632
Accounts payable........................................... 312 2,409 (80) 290
Accrued and other liabilities.............................. 216 2,630 325 3,511
Deferred revenue........................................... 400 153 (400) 3,188
Due to/from CNET........................................... -- (655) -- 3,266
Due to NBC................................................. -- -- -- 1,373
---------- --------- ----------- -----------
Net cash used in operating activities.................... (14,714) (24,639) (9,391) (10,241)
---------- --------- ----------- -----------
Cash flows used in investing activities:
Cash paid in connection with Global Brain transaction.......... -- -- -- (1,100)
Investment in Net2Phone........................................ -- -- -- (1,000)
Purchases of fixed assets...................................... (1,456) (4,476) (1,136) (5,087)
---------- --------- ----------- -----------
Net cash used in investing activities.................... (1,456) (4,476) (1,136) (7,187)
---------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from line of credit................................... -- 13,500 -- 16,600
Capital contribution........................................... 16,170 10,616 10,527 --
Cash contribution from NBC..................................... -- 5,864 5,864 --
---------- --------- ----------- -----------
Net cash provided by financing activities................ 16,170 29,980 16,391 16,600
---------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents............. -- 865 5,864 (828)
Cash and cash equivalents at beginning of the period............. -- -- -- 865
---------- --------- ----------- -----------
Cash and cash equivalents at end of the period................... $ -- 865 5,864 37
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Supplemental non-cash transactions:
Cash paid for interest......................................... $ -- 13 -- 324
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Supplemental non-cash investing and financing activities:
Promotion and advertising provided by NBC...................... $ -- 14,060 -- 26,037
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Issuance of member units in connection with Global Brain
transaction.................................................. $ -- -- -- 2,989
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Grant of compensatory stock options............................ $ -- 2,262 -- 8,810
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Unrealized gain on available-for-sale securities............... $ -- -- -- 11,635
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Services rendered in exchange for equity investments........... $ -- 605 -- 4,139
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 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 June 30, 1999, the Company had accumulated losses from inception
of approximately $101 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.
(C) 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,
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 SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
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.
(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 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, $986,000 and $28,367,000 for the years
ended December 31, 1997 and 1998, and the six months ended June 30, 1998 and
1999, respectively. These costs include the value of promotion and advertising
provided by NBC (see Note 7).
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 SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) CONCENTRATIONS OF CUSTOMERS AND CREDIT RISK
One customer comprised 8% and 29% of net revenues for the year ended
December 31, 1998 and the six-months ended June 30, 1999, respectively, in
conjunction with non-monetary transactions in which the Company received equity
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 six months ended June 30,
1998 and 1999 no other customer accounted for greater than 10% of revenues.
During the quarter ended June 30, 1999, the Company received stock in a
private company currently valued at approximately $10 million in exchange for
future services of equivalent value to be rendered by the Company. Subsequent to
the fiscal quarter end, the Company and the private company issuer of the stock
completed an escrow arrangement under which the Company would earn the release
of the shares from escrow. The release of the shares from escrow would be based
on the Company's actual monthly performance during a two-year term. As of June
30, 1999, the Company had earned the release of shares valued at approximately
$200,000, which has been recorded as revenue in the quarter then ended.
No other significant 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 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 June 30, 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. Equity investments in publicly traded
companies are initially recorded at market value when the Company's rights of
ownership vest and are assumed to be available-for-sale securities which are
carried at market value, with changes in market value recorded as unrealized
gains and losses in total member's equity.
(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
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 SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(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 adopted the provisions of SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which established standards for reporting and disclosures
of comprehensive results and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. During the second
quarter of 1999 the Company reported unrealized holding gains arising from
investments classified as available-for-sale. The Company has an investment in
Mail.com, Inc. (Mail.com), which completed an initial public offering during the
second quarter of 1999. The Company's investment in Mail.com was
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 SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded at market value based on the closing price of the stock on June 30,
1999, and the increase in value of the stock was recorded as an unrealized
holding gain in comprehensive loss.
(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,
$473,000 and $896,000 for the years ended December 31, 1997 and 1998 and for the
six months ended June 30, 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.
(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, 2001. Management does not believe the adoption of SFAS No. 133 will have a
material effect on the financial position or operations of the Company.
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 SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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, JUNE 30,
1998 1999
------------ ------------
<S> <C> <C>
Units issuable under unit option plan............................ 986,662 1,528,267
Units issuable under option to NBC (see Note 7).................. 14,805,556 14,805,556
------------ ------------
15,792,218 16,333,823
------------ ------------
------------ ------------
</TABLE>
As of December 31, 1998 and June 30, 1999, the weighted average exercise
price of unit options was $2.47 and $14.78, respectively.
(Q) INTERIM FINANCIAL DATA
The accompanying financial statements as of June 30, 1999 and for the six
months ended June 30, 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.
(3) GLOBALBRAIN INVESTMENT
In April 1999, the Company entered into a series of agreements with
GlobalBrain.net, Inc. (GlobalBrain). In aggregate, the Company committed to
provide GlobalBrain with $2 million in cash and 75,000 membership units (valued
at $3 million) 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 accounted for this transaction as
the acquisition of certain tangible and intangible assets, and allocations of
the consideration surrendered by the Company were made to the following:
purchased technology of approximately $2 million, prepaid development fees of
approximately $2 million, and an equity investment in a private company of
approximately $1 million.
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 SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Furniture, fixtures, leasehold improvements and equipment......... $ 102 1,763 1,948
Purchased software................................................ 159 242 662
Computer equipment................................................ 1,195 3,927 8,409
--------- --------- -----------
1,456 5,932 11,019
Less accumulated depreciation and amortization.................... 329 1,258 2,742
--------- --------- -----------
$ 1,127 4,674 8,277
--------- --------- -----------
--------- --------- -----------
</TABLE>
(5) CREDIT FACILITIES AND COMMITMENTS
(A) LINE OF CREDIT
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.
On June 25, 1999, the Company's revolving line of credit, guaranteed by
General Electric, was increased to $45,000,000. At June 30, 1999, $30,100,000
was outstanding and $11,220,000 was available under the line of credit. The
outstanding balance is comprised of multiple individual borrowings, due between
July 6, 1999, and December 7, 1999, and bear interest at various rates ranging
from 5.22% to 8.25%. These 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 twelve months.
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.
(B) COMMITMENTS
The Company is obligated under a noncancelable operating lease for office
space, expiring in 2008. Rent expense was $200,000, $1,923,000, $500,000, and
$1,456,000 for the years ended December 31, 1997 and 1998, and for the six
months ended June 30, 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 $393,000 for the years ended
F-45
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(B) COMMITMENTS (CONTINUED)
December 31, 1997 and 1998, and for the six months ended June 30, 1998 and 1999,
respectively. The Company has no capital lease obligations.
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
June 30, 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).................................................... 578,249 26.49
Canceled (unaudited)................................................... (36,644) 11.18
---------- -----
Options outstanding, June 30, 1999 (unaudited)......................... 1,528,267 14.78
---------- -----
----------
Options exercisable, December 31, 1998 and June 30, 1999 (unaudited)... 31,107 7.79
---------- -----
----------
</TABLE>
F-46
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(6) OPTION PLAN (CONTINUED)
The following summarizes information about options outstanding as of June
30, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF NUMBER OF REMAINING CONTRACTUAL WEIGHTED AVERAGE
EXERCISE PRICES UNITS LIFE (YRS.) EXERCISE PRICE
- ----------------- ---------- ----------------------- -----------------
<S> <C> <C> <C>
$ 7.79 - $ 7.79 1,103,613 9.17 $ 7.79
$ 31.25 - $31.25 370,353 9.78 $ 31.25
$ 42.00 - $48.50 54,301 9.94 $ 44.65
---------- --- ------
$ 7.79 - $48.50 1,528,267 9.35 $ 14.78
---------- --- ------
---------- --- ------
</TABLE>
As of December 31, 1998 and June 30, 1999, options available for grant under
the Company's option plan totaled 618,276 and 1,721,733, respectively.
For the year ended December 31, 1998 and the six months ended June 30, 1999,
the Company recorded $2,262,000 and $8,810,000 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 six months ended June 30, 1999, $160,000 and
$1,766,000 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
F-47
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
to the Company based on headcount, estimates on the percentage usage by the
Company, or estimates of 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 $3.9 million for the year ended December 31, 1998 and for the
six months ended June 30, 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
F-48
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
and promotion expenses of approximately $14.1 million and $26.0 million for the
year ended December 31, 1998 and the six months ended June 30, 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 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 $1.4 million for the year ended December 31, 1998 and for the six
months ended June 30, 1999, respectively, for amounts due to NBC for such
services.
During the years ended December 31, 1997 and 1998 and the six months ended
June 30, 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 Note 5).
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 information reviewed by the CEO
for purposes of making operating decisions and assessing financial performance
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 was involved in a dispute with SNAP Technologies, Inc. (SNAP
Tech) which claimed to own the SNAP trademark. SNAP Tech 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. On July
15, 1999, the lawsuit with SNAP Tech was settled. Pursuant to the settlement
F-49
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(10) LEGAL PROCEEDINGS (CONTINUED)
agreement, the Company shall pay $200,000, grant an advertising credit of
$1,000,000, and provide certain other promotions to SNAP Tech in exchange for
all worldwide rights to all names, trademarks, and service marks previously used
by SNAP Tech. NBC and CNET will indemnify the Company for this legal settlement.
Accordingly, no amounts related to this settlement have been accrued in the
accompanying financial statements.
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 warrants 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.
F-50
<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-51
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
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
$161,000 in 1999.................................... $1,348,082 2,274,240 2,034,526
Other receivables..................................... 56,848 11,852 65,138
--------- ---------- ----------
Total current assets................................ 1,404,930 2,286,092 2,099,664
Property and equipment, net of accumulated depreciation
of $243,501 in 1997, $339,570 in 1998, and $377,646 in
1999.................................................. 916,513 622,561 478,727
--------- ---------- ----------
Total assets........................................ $2,321,443 2,908,653 2,578,391
--------- ---------- ----------
--------- ---------- ----------
LIABILITIES AND PARENT COMPANY'S INVESTMENT
AND NET ADVANCES
Current liabilities:
Accounts payable...................................... $ 637,044 1,464,743 1,920,704
Accrued expenses and liabilities (note 2)............. 418,227 414,402 194,373
--------- ---------- ----------
Total current liabilities........................... 1,055,271 1,879,145 2,115,077
Deferred revenue (note 1(d))............................ 1,695,637 14,639,258 20,332,591
Parent Company's investment and net advances............ (429,465) (13,609,750) (19,869,277)
Commitments and contingencies (note 5)
--------- ---------- ----------
Total liabilities and Parent Company's investment
and net advances.................................. $2,321,443 2,908,653 2,578,391
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-52
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN
PARENT COMPANY'S INVESTMENT AND NET ADVANCES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
---------------------- ----------------------
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 2,210,732 4,303,128
Other revenue............................ -- 4,693,300 2,037,094 4,622,217
---------- ---------- ---------- ----------
Total revenue........................ 3,232,384 11,614,550 4,247,826 8,925,345
Cost of revenue............................ 4,398,846 5,248,928 2,534,983 2,806,436
---------- ---------- ---------- ----------
Gross (loss) profit.................. (1,166,462) 6,365,622 1,712,843 6,118,909
Operating expenses:
Operating and development................ 677,055 938,295 563,327 297,154
Sales and marketing...................... 2,355,519 3,988,810 1,810,033 747,354
General and administrative............... 3,540,408 4,488,756 2,132,152 1,444,074
---------- ---------- ---------- ----------
Total operating expenses............. 6,572,982 9,415,861 4,505,512 2,488,582
---------- ---------- ---------- ----------
(Loss) income from operations........ (7,739,444) (3,050,239) (2,792,669) 3,630,327
---------- ---------- ---------- ----------
Net (loss) income.................... (7,739,444) (3,050,239) (2,792,669) 3,630,327
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) (11,134,894) (9,889,854)
---------- ---------- ---------- ----------
Parent Company's investment and net
advances, end of period.................. $ (429,465) (13,609,750) (14,357,028) (19,869,277)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-53
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- ------------------------
1997 1998 1998 1999
------------ ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income..................................................... $ (7,739,444) (3,050,239) (2,792,669) 3,630,327
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Provision for doubtful accounts..................................... 59,000 66,440 39,580 35,560
Depreciation and amortization....................................... 156,995 176,287 97,221 74,357
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) (1,800,433) (6,285,254)
Advertising provided by NBC......................................... -- 2,015,400 791,500 --
Changes in operating assets and liabilities:
Accounts receivable................................................... (1,335,482) (992,598) 615,595 204,154
Other receivables..................................................... 541,604 44,996 40,618 (53,286)
Accounts payable...................................................... (465,351) 827,699 297,649 455,961
Accrued expenses and liabilities...................................... 247,054 (3,825) (173,153) (220,029)
Deferred revenue...................................................... 1,462,499 (67,085) (64,584) (441,473)
------------ ----------- ---------- ----------
Net cash used in operating activities............................. (6,996,590) (5,864,244) (2,948,676) (2,599,574)
------------ ----------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment................................. (151,823) (102,911) (98,621) (--)
------------ ----------- ---------- ----------
Cash flows from financing activities:
Advances received from parent, net.................................... 7,148,413 5,967,155 3,047,297 2,599,574
------------ ----------- ---------- ----------
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 14,973,691 12,420,060
</TABLE>
See accompanying notes to combined financial statements.
F-54
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 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-55
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allocated costs are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
------------ ---------- --------- ---------
NBC Corporate................................ $ 913,000 1,059,000 529,500 466,704
Rent......................................... 684,209 851,833 437,106 505,886
------------ ---------- --------- ---------
$ 1,597,209 1,910,833 966,606 972,590
------------ ---------- --------- ---------
------------ ---------- --------- ---------
</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-56
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 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, $263,339, and $2,163,037 in the years ended December 31, 1997, and
1998, and the six months ended June 30, 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,
$1,537,094, and $4,122,217 in the years ended December 31, 1997 and 1998, and
the six months ended June 30, 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,
$74,500 and $--0- for the years ended December 31, 1997 and 1998, and the six
months ended June 30, 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-57
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 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, $1,077,008 and
$164,187 for the years ended December 31, 1997 and 1998 and the six months ended
June 30, 1998 and 1999, respectively. These costs include the value of
advertising provided by NBC of $0, $2,015,400, $791,500, and $0 for the years
ended December 31, 1997 and 1998 and the six months ended June 30, 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-58
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 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 June 30, 1999
and for the six months ended June 30, 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 June 30, 1999 and the results of the
Division's operations and its cash flows for the six months ended June 30, 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 six months ended June 30, 1999 are not necessarily indicative of
the results to be expected for the year ending December 31, 1999.
F-59
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
(2) BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ 1999
1997 1998 (UNAUDITED)
------------ ---------- -----------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT, NET
Machinery and equipment.................................................. $ 955,184 762,458 656,700
Leasehold improvements................................................... 204,830 199,673 199,673
------------ ---------- -----------
1,160,014 962,131 856,373
------------ ---------- -----------
Less accumulated depreciation and amortization........................... (243,501) (339,570) (377,646)
------------ ---------- -----------
$ 916,513 622,561 478,727
------------ ---------- -----------
------------ ---------- -----------
ACCRUED EXPENSES AND LIABILITIES
Accrued salaries, incentive compensation and related benefits............ $ 381,802 414,402 194,373
Other.................................................................... 36,425 -- --
------------ ---------- -----------
$ 418,227 414,402 194,373
------------ ---------- -----------
------------ ---------- -----------
</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 six months
ended June 30, 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 six months ended
June 30, 1998 and 1999, respectively, net advances were reduced by $266,442,
$18,112,601, $14,973,691, and $12,420,060, 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-60
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 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 had been cancelled by the Division before May 1999, USWeb could have
cancelled the warrants to purchase 1,050,000 shares or, if the warrants had been
previously exercised, could have repurchased 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.
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.
These agreements are accounted for as described in note 1(d).
F-61
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Paralogic Corporation
We have audited the accompanying balance sheets of Paralogic Corporation as
of December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paralogic Corporation at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for years then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Palo Alto, California
July 20, 1998
F-62
<PAGE>
PARALOGIC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1996 1997
--------- ----------
ASSETS
Current assets:
Cash..................................................................................... $ 29,680 $ 26,910
Accounts receivable, net of allowance for doubtful accounts of $375 in 1996 and $11,314
in 1997................................................................................ 10,946 24,362
Income taxes receivable.................................................................. -- 836
--------- ----------
Total current assets....................................................................... 40,626 52,108
Fixed assets, net.......................................................................... 40,429 40,086
--------- ----------
Total assets............................................................................... $ 81,055 $ 92,194
--------- ----------
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................................................... $ 15,202 $ 27,719
Accrued compensation and related expenses................................................ 27,155 12,641
Income taxes payable..................................................................... 2,261 --
Deferred revenue......................................................................... -- 64,210
Contingency accrual...................................................................... -- 164,802
Deferred income taxes.................................................................... 2,026 --
--------- ----------
Total current liabilities.................................................................. 46,644 269,372
--------- ----------
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $1.00 par value:
Authorized shares--1,000,000;
Issued and outstanding shares--5,000 in 1996 and 5,250 in 1997......................... 5,000 11,000
Retained earnings (accumulated deficit).................................................. 29,411 (188,178)
--------- ----------
Total shareholders' equity (deficit)....................................................... 34,411 (177,178)
--------- ----------
Total liabilities and shareholders' equity (deficit)....................................... $ 81,055 $ 92,194
--------- ----------
--------- ----------
</TABLE>
See accompanying notes.
F-63
<PAGE>
PARALOGIC CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C> <C>
1996 1997
---------- -----------
Net revenue:
Services............................................................................... $ 132,569 $ 215,917
License fees........................................................................... 39,074 --
Advertising............................................................................ 1,379 34,028
---------- -----------
Total net revenue........................................................................ 173,022 249,945
Cost of net revenue:
Cost of services....................................................................... 80,019 117,963
---------- -----------
Gross profit............................................................................. 93,003 131,982
---------- -----------
Costs and expenses:
Operating and development.............................................................. 38,529 45,875
Sales and marketing.................................................................... 26,129 86,097
General and administrative............................................................. 11,591 45,757
Contingency accrual.................................................................... -- 164,802
---------- -----------
Total costs and expenses................................................................. 76,249 342,531
---------- -----------
Income (loss) before provision for income taxes.......................................... 16,754 (210,549)
Provision for income taxes............................................................... 3,666 7,040
---------- -----------
Net income (loss)........................................................................ $ 13,088 $ (217,589)
---------- -----------
---------- -----------
</TABLE>
See accompanying notes.
F-64
<PAGE>
PARALOGIC CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
---------------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1995..................................... 5,000 $ 5,000 $ 16,323 $ 21,323
Net income...................................................... -- -- 13,088 13,088
----- --------- ------------ -----------
Balances at December 31, 1996..................................... 5,000 5,000 29,411 34,411
Issuance of common stock in exchange for consulting services.... 250 6,000 -- 6,000
Net loss........................................................ -- -- (217,589) (217,589)
----- --------- ------------ -----------
Balances at December 31, 1997..................................... 5,250 $ 11,000 $ (188,178) $ (177,178)
----- --------- ------------ -----------
----- --------- ------------ -----------
</TABLE>
See accompanying notes.
F-65
<PAGE>
PARALOGIC CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................................... $ 13,088 $(217,589)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation....................................................... 11,794 29,321
Common stock issued in exchange for consulting services............ -- 6,000
Changes in operating assets and liabilities:
Accounts receivable.............................................. 7,379 (13,416)
Accounts payable................................................. 4,366 12,517
Accrued compensation and related expenses........................ 10,265 (14,514)
Income tax payable/receivable.................................... (238) (3,097)
Deferred revenue................................................. -- 64,210
Contingency accrual.............................................. -- 164,802
Deferred income taxes............................................ (1,115) (2,026)
--------- ---------
Net cash provided by operating activities............................ 45,539 26,208
INVESTING ACTIVITIES:
Purchases of fixed assets............................................ (42,066) (28,978)
--------- ---------
Net cash used in investing activities................................ (42,066) (28,978)
--------- ---------
Net change in cash................................................... 3,473 (2,770)
Cash at beginning of year............................................ 26,207 29,680
--------- ---------
Cash at end of year.................................................. $ 29,680 $ 26,910
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes........................................... $ 5,019 $ 10,812
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-66
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Paralogic Corporation (the "Company"), was incorporated in the State of
California on January 12, 1995.
The Company is a provider of chat room software and various online services.
BASIS OF PRESENTATION
The Company has negative working capital and an accumulated deficit at
December 31, 1997. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. On March 11, 1998,
the Company agreed to be acquired by Xoom.com, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
CASH
The Company maintains cash in depository accounts with two financial
institutions.
CONCENTRATIONS OF CREDIT RISK
The Company conducts business primarily with companies throughout the United
States. Management believes that any risk of accounting loss is mitigated by the
Company's ongoing credit evaluations of its customers. The Company generally
does not require collateral. The Company analyzes the need for reserves for
potential credit losses and records reserves when necessary.
For the year ended December 31, 1996, four customers accounted for $41,000,
$35,320, $29,625 and $28,000 or 24%, 20%, 17% and 16% of net revenue; of these,
one customer owed the Company $8,020 at December 31, 1996. There was no single
customer that accounted for more than 10% of net revenue for the year ended
December 31, 1997.
FIXED ASSETS
Fixed assets are recorded at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three years.
REVENUE RECOGNITION
SERVICE
The majority of the Company's service revenue is from fees related to
fees charged for chat network hosting and are recognized when the services
are performed.
F-67
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LICENSE FEES
The Company licenses software under non-cancelable license agreements to
end-users. License fee revenue is recognized when a non-cancelable license
agreement has been signed, the product has been delivered, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable, collection is considered probable and all significant
contractual obligations have been satisfied.
ADVERTISING
Advertising revenue are derived from the sale of banner advertisements
under short-term contracts. Advertising revenue on banner contracts are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain and collection of
the resulting receivable is probable. Company obligations typically include
the guarantee of a minimum number of "impressions" or times that an
advertisement appears in pages viewed by the users of the Company's online
properties. To the extent minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenue until the remaining
guaranteed impression levels are achieved.
ADVERTISING EXPENSE
All advertising costs are expensed when incurred. Advertising costs which
are included in sales and marketing expense for the years ended December 31,
1996 and 1997 were $0 and $9,377, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("FAS 130"), and Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these statements in fiscal year 1998.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these statements is expected to have
no impact on the Company's consolidated financial position, results of
operations or cash flows.
F-68
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Computer equipment...................................... $ 49,122 $ 78,100
Office equipment........................................ 5,413 5,413
--------- ---------
54,535 83,513
Accumulated depreciation................................ (14,106) (43,427)
--------- ---------
$ 40,429 $ 40,086
--------- ---------
--------- ---------
</TABLE>
3. INCOME TAXES
Significant components of the provision (benefit) for income taxes
attributable to operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Current:
Federal................................................. $ 2,770 $ 2,242
State................................................... 2,011 1,824
Foreign................................................. -- 5,000
--------- ---------
4,781 9,066
Deferred:
Federal................................................. (368) (2,266)
State................................................... (747) 240
--------- ---------
(1,115) (2,026)
--------- ---------
Total provision........................................... $ 3,666 $ 7,040
--------- ---------
--------- ---------
</TABLE>
F-69
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES (CONTINUED)
A reconciliation of income taxes at the statutory federal income tax rate to
net income taxes included in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
U.S. federal taxes at statutory rate..................... $ 4,774 $ (72,658)
Impact of graduated U.S. statutory rate.................. (3,055) (2,098)
State taxes, net of federal benefit...................... 1,264 (12,261)
Foreign withholding taxes................................ -- 5,000
Foreign tax deduction.................................... -- (1,700)
Valuation allowance...................................... -- 89,586
Other.................................................... 683 1,171
--------- ---------
Total tax provision...................................... $ 3,666 $ 7,040
--------- ---------
--------- ---------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and tax
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Cash to accrual adjustment............................. $ 1,431 $ 97,518
Depreciation........................................... (3,457) (7,932)
--------- ---------
Net deferred tax assets (liabilities).................... (2,026) 89,586
Valuation allowance...................................... -- (89,586)
--------- ---------
Total net deferred tax assets (liabilities).............. $ (2,026) $ --
--------- ---------
--------- ---------
</TABLE>
The valuation allowance increased by $89,586 in 1997.
4. SHAREHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue 1,000,000 shares of common stock, with a
par value of $1.00 per share.
During 1997, the Company issued shares of common stock to consultants in
exchange for consulting services. The Company valued the common stock using the
estimated fair value of the services performed which amounted to $6,000. This
amount was amortized by charges to operations over the consulting period.
5. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company has entered into certain operating leases for office space. At
December 31, 1997, the Company had no future commitments for noncancelable
operating leases.
F-70
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company's rental expense under operating leases for the years ended
December 31, 1996 and 1997 totaled $300 and $3,900, respectively.
CONTINGENCY ACCRUAL
Due to the nature of its business, Paralogic Corporation is subject to
various threatened or filed legal actions. At December 31, 1997, there were
certain legal proceedings pending against the Company. These legal disputes were
settled in 1998 in connection with the business combination which is described
in Note 6. The settlement consisted of an issuance to the plaintiff of 71,343
shares of the acquiror's common stock, valued at approximately $164,802. This
settlement amount associated with this dispute was accrued for at December 31,
1997.
6. SUBSEQUENT EVENTS
In March 1998, the Company spun off certain components of the business into
a new company named Paralogic Software, Inc. ("PSI"). The shareholders of the
Company retained the same ownership privileges and rights in PSI as were in
effect for the Company at the time of the spin off. PSI retained the Company's
advertising and services businesses as well as the ownership of the Paralogic
chat technology. The Company retained a perpetual right to use and license the
Paralogic chat technology and all of the tangible assets and liabilities.
Effective March 11, 1998, the Company entered into merger agreement with
Xoom.com, Inc. under which the outstanding shares of common stock of the Company
were exchanged for common shares of Xoom.com, Inc. and the right to receive
certain cash distributions from 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.
7. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company believes that it will not be required to modify or replace any
portion of its software so that its computer systems will function properly with
respect to dates in the year 2000 and thereafter.
F-71
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Global Bridges Technologies, Inc.
We have audited the accompanying balance sheets of Global Bridges
Technologies, Inc. as of December 31, 1996 and 1997, and the related statements
of operations, shareholders' equity (deficit) and cash flows for the period from
July 23, 1996 (inception) through December 31, 1996 and for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Bridges Technologies,
Inc. at December 31, 1996 and 1997, and the results of its operations and its
cash flows for the period from July 23, 1996 (inception) through December 31,
1996 and for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
July 10, 1998
F-72
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................................... $ -- $ 1,036 $ 230
Note receivable from shareholder........................................... 3,404 -- --
---------- ---------- -----------
Total current assets......................................................... 3,404 1,036 230
Deposits..................................................................... 712 712 712
---------- ---------- -----------
Total assets................................................................. $ 4,116 $ 1,748 $ 942
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses...................................... $ 19,466 $ 47,557 $ 46,131
Note payable to shareholder................................................ -- 2,446 13,746
---------- ---------- -----------
Total current liabilities.................................................... 19,466 50,003 59,877
Commitments
Shareholders' equity (deficit):
Preferred stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--none in 1996, 1997 or 1998.............. -- -- --
Common stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--630,000, 500,000 and 500,000
in 1996, 1997 and 1998, respectively................................. 5,000 5,000 5,000
Accumulated deficit........................................................ (20,350) (53,255) (63,935)
---------- ---------- -----------
Total shareholders' equity (deficit)......................................... (15,350) (48,255) (58,935)
---------- ---------- -----------
Total liabilities and shareholders' equity (deficit)......................... $ 4,116 $ 1,748 $ 942
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
F-73
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23,
1996 THREE MONTHS ENDED
(INCEPTION) MARCH 31,
THROUGH YEAR ENDED ------------------------
DECEMBER 31, DECEMBER 31, 1997 1998
1996 1997 ----------- -----------
------------ ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................................... $ 49,153 $ 27,937 $ 8,500 $ --
Cost of net revenue....................................... 38,885 23,718 7,302 --
------------ ------------ ----------- -----------
Gross profit.............................................. 10,268 4,219 1,198 --
Costs and expenses:
Operating and development............................... 3,457 19,300 4,634 6,595
Sales and marketing..................................... 5,991 3,841 2,836 --
General and administrative.............................. 18,716 13,983 5,826 4,085
------------ ------------ ----------- -----------
Total costs and expenses.................................. 28,164 37,124 13,296 10,680
------------ ------------ ----------- -----------
Loss before provision for income taxes.................... (17,896) (32,905) (12,098) (10,680)
Provision for income taxes................................ 2,454 -- -- --
------------ ------------ ----------- -----------
Net loss.................................................. $ (20,350) $ (32,905) $ (12,098) $ (10,680)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
See accompanying notes.
F-74
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
---------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Issuance of common stock at inception to founders............... 630,000 $ 5,000 $ -- $ 5,000
Net loss........................................................ -- -- (20,350) (20,350)
---------- --------- ------------ ----------
Balances at December 31, 1996..................................... 630,000 5,000 (20,350) (15,350)
Repurchase of common stock in September 1997 in exchange for
future royalties.............................................. (130,000) -- -- --
Net loss........................................................ -- -- (32,905) (32,905)
---------- --------- ------------ ----------
Balances at December 31, 1997..................................... 500,000 5,000 (53,255) (48,255)
Net loss (unaudited)............................................ -- -- (10,680) (10,680)
---------- --------- ------------ ----------
Balances at March 31, 1998 (unaudited)............................ 500,000 $ 5,000 $ (63,935) $ (58,935)
---------- --------- ------------ ----------
---------- --------- ------------ ----------
</TABLE>
See accompanying notes.
F-75
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23,
1996 THREE MONTHS ENDED
(INCEPTION) MARCH 31,
THROUGH YEAR ENDED ------------------------
DECEMBER 31, DECEMBER 31, 1997 1998
1996 1997 ----------- -----------
------------ ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $ (20,350) $ (32,905) $ (12,098) $ (10,680)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Deposits................................................ (712) -- -- --
Accounts payable and accrued expenses................... 19,466 28,091 17,512 (1,426)
------------ ------------ ----------- -----------
Net cash provided by (used in) operating activities....... (1,596) (4,814) 5,414 (12,106)
INVESTING ACTIVITIES:
Cash advanced to shareholder in exchange for note
receivable.............................................. (3,404) -- -- --
Payment received from shareholder......................... -- 3,404 -- --
------------ ------------ ----------- -----------
Net cash provided by (used in) investing activities....... (3,404) 3,404 -- --
FINANCING ACTIVITIES:
Capital contributed by founders........................... 5,000 -- -- --
Proceeds from note payable to shareholder................. -- 2,446 -- 11,300
------------ ------------ ----------- -----------
Net cash provided by financing activities................. 5,000 2,446 -- 11,300
------------ ------------ ----------- -----------
Net change in cash........................................ -- 1,036 5,414 (806)
Cash at beginning of period............................... -- -- -- 1,036
------------ ------------ ----------- -----------
Cash at end of period..................................... $ -- $ 1,036 $ 5,414 $ 230
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes................................ $ -- $ -- $ 2,454 $ --
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
See accompanying notes.
F-76
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Global Bridges Technologies, Inc. (the "Company"), formerly known as Dream
Fabrications and Design, Inc., was incorporated in California on July 23, 1996.
The Company designs, develops and markets games, educational, and on-line
titles on behalf of publishers and developers. It also hosts and operates its
subscribers' branded web-based e-mail service using Sitemail, a web-based e-mail
solution which enables the integration of computer software for use in the field
of Internet based e-mail, advertising and commerce, and intranet based content
distribution.
BASIS OF PRESENTATION
The Company began operations on July 23, 1996 and has incurred operating
losses through December 31, 1997. On June 11, 1998, the Company sold all of its
stock to Xoom.com, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial information as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 is unaudited but has been prepared on the
same basis as the audited financial statements and includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at such date and its
results of operations and cash flows for those periods. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of results
that may be expected for any future periods.
CASH
The Company maintains its cash in depository accounts with one financial
institution.
CONCENTRATIONS OF CREDIT RISK
The Company conducts business primarily with companies in various industries
throughout the United States. The Company generally does not require collateral.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes" ("FAS 109"), which requires the use of the liability method in accounting
for income taxes. Under FAS 109, deferred tax assets and
F-77
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities are measured using enacted rates and laws that will be in effect
when the differences are expected to reverse.
REVENUE RECOGNITION
The Company generally recognizes revenue from consulting services as such
services are performed and when collection is determined to be probable.
ADVERTISING EXPENSE
All advertising costs are expensed when incurred. Advertising costs, which
are included in sales and marketing expense, for the period from July 23, 1996
(inception) through December 31, 1996 and the year ended December 31, 1997 were
$205 and $397, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998 the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("FAS 130") which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The adoption
of this standard had no impact on the Company's financial position,
shareholders' equity (deficit), results of operations or cash flows.
2. NOTE RECEIVABLE FROM AND PAYABLE TO SHAREHOLDER
At December 31, 1996 the note receivable from shareholder represents cash
advances to the shareholder by the Company. The note receivable is repayable on
demand and bears no interest.
The note payable to shareholder as of December 31, 1997 represented amounts
funded to the Company by the shareholder for working capital purpose and is
repayable on demand. The note payable bears no interest.
3. INCOME TAXES
Significant components of the provision for income taxes attributable to
operations are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1996
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- -----------------
<S> <C> <C>
Current:
Federal........................................................ $ 1,656 $ --
State.......................................................... 798 --
------ ---
$ 2,454 $ --
------ ---
------ ---
</TABLE>
F-78
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
3. INCOME TAXES (CONTINUED)
A reconciliation of income taxes at the statutory federal income tax rate to
net income taxes included in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23,
1996
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
U.S. federal taxes at statutory rate............................. $ (6,085) $ (11,188)
Impact of graduated U.S. statutory rate.......................... (1,919) 192
State taxes, net of federal benefit.............................. (397) (1,862)
Pre incorporation operations..................................... 4,545 --
Valuation allowance.............................................. 6,331 12,064
Other............................................................ (21) 794
------------ ------------
$ 2,454 $ --
------------ ------------
------------ ------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and tax
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- -----------
<S> <C> <C>
Deferred tax assets:
Cash to accrual adjustment........................................... $ 5,667 $ 17,053
Depreciation......................................................... 664 1,283
Net operating loss and tax credit carryovers......................... -- 59
--------- -----------
Total deferred tax assets.............................................. 6,331 18,395
Valuation allowance.................................................... (6,331) (18,395)
--------- -----------
Total net deferred tax assets.......................................... $ -- $ --
--------- -----------
--------- -----------
</TABLE>
The valuation allowance increased by $6,331 and $12,064 in 1996 and 1997
respectively.
As of December 31, 1997, the Company has state net operating loss
carryforwards of approximately $1,000 that will expire in 2004. Due to the
change in ownership provisions of the Internal Revenue Code, the availability of
the Company's net operating loss carryforwards will be subject to an annual
limitation due to its acquisition by Xoom.com. This limitation could cause these
losses to expire prior to utilization by the Company.
F-79
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock, no
par value, none of which is issued or outstanding. The Board of Directors has
the authority to issue preferred stock in one or more series and to fix the
designations, powers, preferences, rights, qualifications, limitations and
restrictions with respect to any series of preferred stock and to specify the
number of shares of any series of preferred stock without any further vote or
action by the shareholder.
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of common stock, no par
value.
In July 1996, the Company issued 630,000 shares of its common stock in
exchange for cash of $5,000. During September 1997, the Company repurchased
130,000 shares of its common stock from a shareholder in exchange for royalties
to be paid on the future sales of certain products. No payments under this
royalty agreement have been made through December 31, 1997 and March 31, 1998 as
no sales of the products bearing royalties were made in those periods.
5. LEASE COMMITMENTS
The Company leases its operating facilities under a noncancelable operating
lease agreement that expires in 1998.
Total rent expense for the period from July 23, 1996 (inception) through
December 31, 1996 and the year ended December 31, 1997 totaled $4,605 and
$4,642, respectively.
6. RELATED PARTY TRANSACTIONS
During the period from July 23, 1996 (inception) through December 31, 1996
the Company paid certain expenses, totaling $3,918, on behalf of another company
which shares common ownership with the Company. All owed amounts were reimbursed
to the Company as of December 31, 1996.
7. SUBSEQUENT EVENTS
In April 1998, the Company issued 500,000 shares of its common stock to a
shareholder in exchange for cancellation of a note payable due to him of $3,929
and the assignment of a software license to the Company.
In May 1998, the operating lease agreement for the lease of the Company's
facilities was assigned by the Company to the stockholder. As a result, all
rental payments are made to the stockholder. The minimum monthly rental payments
did not change from the original lease agreement with the lessor.
Effective June 11, 1998, the Company entered into a merger agreement with
Xoom.com, Inc. under which the outstanding shares of common stock of the Company
were exchanged for common shares of Xoom.com, Inc. and the right to receive
certain cash distributions from Xoom.com, Inc. The
F-80
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JULY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. SUBSEQUENT EVENTS (CONTINUED)
financial statements do not include any adjustments to the recorded amounts of
assets and liabilities which may result from this transaction.
8. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This situation could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
F-81
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pagecount, Inc.
We have audited the accompanying balance sheet of Pagecount, Inc. as of
December 31, 1997, and the related statements of income, stockholders' equity
and cash flows for the period from January 23, 1997 (inception) through December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pagecount, Inc. at December
31, 1997, and the results of its operations and its cash flows for the period
from January 23, 1997 (inception) through December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
July 7, 1998,
except for Note 6, as to which the date is,
July 24, 1998
F-82
<PAGE>
PAGECOUNT, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 14,627 $ 50,145
Accounts receivable................................................................. 16,827 15,573
Unbilled receivables................................................................ 4,931 2,133
Other current assets................................................................ 725 725
------------ -----------
Total current assets.................................................................. 37,110 68,576
Fixed assets, net..................................................................... 16,661 20,597
------------ -----------
Total assets.......................................................................... $ 53,771 $ 89,173
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 7,237 $ 29,475
Accrued compensation and related expenses........................................... 9,037 11,709
Other accrued liabilities........................................................... 10,051 --
Deferred revenue.................................................................... -- 12,500
Income taxes payable................................................................ 2,443 3,991
Deferred income taxes............................................................... 3,042 3,042
------------ -----------
Total current liabilities............................................................. 31,810 60,717
------------ -----------
Commitment
Stockholders' equity:
Common stock, $1.00 par value:
Authorized shares--5,000
Issued and outstanding shares--115................................................ 650 650
Retained earnings................................................................... 21,311 27,806
------------ -----------
Total stockholders' equity............................................................ 21,961 28,456
------------ -----------
Total liabilities and stockholders' equity............................................ $ 53,771 $ 89,173
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-83
<PAGE>
PAGECOUNT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23,
PERIOD FROM 1997 SIX MONTHS
JANUARY 23, (INCEPTION) ENDED
1997 THROUGH JUNE 30,
(INCEPTION) JUNE 30, 1998
THROUGH 1997 -----------
DECEMBER 31, -----------
1997 (UNAUDITED)
------------ (UNAUDITED)
<S> <C> <C> <C>
Net revenue............................................................. $ 252,332 $ 111,200 $ 208,689
Cost of net revenue..................................................... 45,634 36,075 14,314
------------ ----------- -----------
Gross profit............................................................ 206,698 75,125 194,375
Costs and expenses:
Sales and marketing................................................... 1,519 -- 2,371
General and administrative............................................ 178,513 58,907 184,023
------------ ----------- -----------
Total costs and expenses................................................ 180,032 58,907 186,394
------------ ----------- -----------
Income from operations.................................................. 26,666 16,218 7,981
Other income............................................................ 130 -- 62
------------ ----------- -----------
Income (loss) before provision for income taxes......................... 26,796 16,218 8,043
Provision for income taxes.............................................. 5,485 3,122 1,548
------------ ----------- -----------
Net income.............................................................. $ 21,311 $ 13,096 $ 6,495
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes.
F-84
<PAGE>
PAGECOUNT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Issuance of common stock to founders in January 1997.................. 115 $ 650 $ -- $ 650
Net income............................................................ -- -- 21,311 21,311
--- ----- --------- ---------
Balances at December 31, 1997........................................... 115 650 21,311 21,961
Net income (unaudited)................................................ -- -- 6,495 6,495
--- ----- --------- ---------
Balances at June 30, 1998 (unaudited)................................... 115 $ 650 $ 27,806 $ 28,456
--- ----- --------- ---------
--- ----- --------- ---------
</TABLE>
See accompanying notes.
F-85
<PAGE>
PAGECOUNT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23,
PERIOD FROM 1997 SIX MONTHS
JANUARY 23, (INCEPTION) ENDED
1997 THROUGH JUNE 30,
(INCEPTION) JUNE 30, 1998
THROUGH 1997 -----------
DECEMBER 31, -----------
1997 (UNAUDITED)
------------ (UNAUDITED)
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income.............................................................. $ 21,311 $ 13,096 $ 6,495
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.......................................................... 2,689 878 3,876
Changes in operating assets and liabilities:
Accounts receivable................................................. (16,827) (23,909) 1,254
Unbilled receivables................................................ (4,931) (2,112) 2,798
Other current assets................................................ (725) (725) --
Accounts payable.................................................... 7,237 4,119 22,238
Accrued compensation and related expenses........................... 9,037 8,951 2,672
Other accrued liabilities........................................... 10,051 22,595 (10,051)
Deferred revenue.................................................... -- -- 12,500
Income taxes payable................................................ 2,443 3,122 1,548
Deferred income taxes............................................... 3,042 -- --
------------ ----------- -----------
Net cash provided by operating activities............................... 33,327 26,015 43,330
CASH USED IN INVESTING ACTIVITIES
Purchases of computer equipment......................................... (19,350) (6,535) (7,812)
CASH PROVIDED BY FINANCING ACTIVITIES
Issuance of common stock for cash....................................... 650 650 --
------------ ----------- -----------
Net increase in cash.................................................... 14,627 20,130 35,518
Cash at beginning of period............................................. -- -- 14,627
------------ ----------- -----------
Cash at end of period................................................... $ 14,627 $ 20,130 $ 50,145
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes.
F-86
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Pagecount, Inc. (the "Company") was incorporated in the State of Maryland on
January 23, 1997.
The Company provides statistical counters which generate the number of times
a user views a customer's web site.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial information as of June 30, 1998 and for the period
from January 23, 1997 (inception) through June 30, 1997 and the six months ended
June 30, 1998 is unaudited but has been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, that the Company considers necessary for a fair
presentation of its financial position at such date and its results of
operations and cash flows for those periods. Operating results for the six
months ended June 30, 1998 are not necessarily indicative of results that may be
expected for any future periods.
CASH
The Company maintains its cash in depository accounts with one financial
institution.
UNBILLED RECEIVABLES
Unbilled receivables represent amounts earned as revenue but not yet billed
to customers.
CONCENTRATIONS OF CREDIT RISK
The Company conducts business primarily with companies in various industries
throughout the United States. The Company generally does not require collateral.
For the period from January 23, 1997 (inception) to December 31, 1997, three
customers accounted for 35%, 15%, and 11% of total revenue, and three customers
accounted for 27%, 20%, and 12% of accounts receivable at December 31, 1997.
For the six months ended June 30, 1998, two customers accounted for 42% and
12% of total revenue, and three customers accounted for 51%, 14%, and 10% of
accounts receivable at June 30, 1998.
F-87
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, which is estimated to be three years.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes" ("FAS 109"), which requires the use of the liability method in accounting
for income taxes. Under FAS 109, deferred tax assets and liabilities are
measured based on differences between the financial reporting and tax bases of
assets and liabilities using enacted rates and laws that will be in effect when
the differences are expected to reverse.
REVENUE RECOGNITION
Advertising revenue is derived from the sale of banner advertisements under
short-term contracts. To date, the duration of the Company's advertising
commitments has been from one to seven months. Advertising revenue on banner
contracts is recognized ratably in the period in which the advertisement is
displayed, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include the guarantee of a minimum number of "impressions" or times
that an advertisement appears in pages viewed by the users of the Company's
online properties. To the extent minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenue until the remaining
guaranteed impression levels are achieved.
ADVERTISING EXPENSE
All advertising costs are expensed when incurred. Advertising costs, which
are included in sales and marketing expense, for the period from January 23,
1997 (inception) through December 31, 1997 were $1,124.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("FAS 130"), and Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these statements in fiscal year 1998.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these statements is expected to have
no impact on the Company's consolidated financial position, results of
operations or cash flows.
F-88
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1998
DECEMBER 31, -----------
1997 (UNAUDITED)
------------
<S> <C> <C>
Computer equipment................................................ $ 19,350 $ 27,162
Accumulated depreciation.......................................... (2,689) (6,565)
------------ -----------
$ 16,661 $ 20,597
------------ -----------
------------ -----------
</TABLE>
3. COMMITMENTS
The Company has entered into certain operating leases for office space. The
future minimum lease payments under the Company's noncancelable operating leases
at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 4,100
</TABLE>
The Company's rental expense under operating leases for the period from
January 23, 1997 (inception) through December 31, 1997 totaled $8,725.
4. COMMON STOCK
Common stock consists of the following at December 31, 1997:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
CLASS AUTHORIZED AND OUTSTANDING
- ---------------------------------------------------------------- ----------- -------------------
<S> <C> <C>
A............................................................... 500 100
B............................................................... 4,500 15
----- ---
5,000 115
----- ---
----- ---
</TABLE>
F-89
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
5. INCOME TAXES
Significant components of the provision for income taxes attributable to
operations are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23,
PERIOD FROM 1997 SIX MONTHS
JANUARY 23, (INCEPTION) ENDED
1997 THROUGH JUNE 30,
(INCEPTION) JUNE 30, 1998
THROUGH 1997 -----------
DECEMBER 31, -------------
1997 (UNAUDITED)
------------- (UNAUDITED)
<S> <C> <C> <C>
Current:
Federal............................................................... $ 1,808 $ 2,311 $ 1,146
State................................................................. 635 811 402
------ ------ -----------
2,443 3,122 1,548
------ ------ -----------
Deferred:
Federal............................................................... 2,281 -- --
State................................................................. 761 -- --
------ ------ -----------
3,042 -- --
------ ------ -----------
Total provision......................................................... $ 5,485 $ 3,122 $ 1,548
------ ------ -----------
------ ------ -----------
</TABLE>
A reconciliation of income taxes at the statutory federal income tax rate to
net income taxes included in the accompanying statements of income is as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23,
PERIOD FROM 1997 SIX MONTHS
JANUARY 23, (INCEPTION) ENDED
1997 THROUGH JUNE 30,
(INCEPTION) JUNE 30, 1998
THROUGH 1997 -----------
DECEMBER 31, -----------
1997 (UNAUDITED)
------------ (UNAUDITED)
<S> <C> <C> <C>
U.S. federal taxes at statutory rate.................................... $ 9,111 $ 5,514 $ 2,735
Impact of graduated U.S. tax at 15% statutory rate...................... (5,092) (3,081) (1,589)
State income taxes, net of federal benefit.............................. 1,139 689 402
Other................................................................... 327 -- --
------------ ----------- -----------
$ 5,485 $ 3,122 $ 1,548
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The principal source of the Company's deferred tax liabilities is the use of
accelerated depreciation methods for tax purposes.
6. SUBSEQUENT EVENT
Effective July 24, 1998, the Company entered into an asset sale agreement
under which it sold substantially all of its net assets to Xoom.com, Inc. The
financial statements do not include any adjustments to the recorded amounts of
assets and liabilities which may result from this transaction.
F-90
<PAGE>
PAGECOUNT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM JANUARY 23, 1997 (INCEPTION) THROUGH JUNE 30,
1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
7. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, the Company has determined they will not be
required to modify or replace any portion of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter.
F-91
<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-92
<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-93
<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-94
<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-95
<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-96
<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-97
<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-98
<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-99
<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-100
<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-101
<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-102
<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-103
<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-104
<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-105
<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-106
<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-107
<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-108
<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-109
<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-110
<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-111
<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-112
<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-113
<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-114
<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-115
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
To the Shareholders of
LiquidMarket, Inc.
In our opinion, the accompanying balance sheet of LiquidMarket, Inc. (A
Company In The Developmental Stage) (the "Company") and the related statements
of operations, shareholders' equity and cash flows present fairly, in all
material respects, the financial position of the Company as of December 31,
1998, and the results of its operations and its cash flows for the period June
12, 1998 (Date of Inception) through December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's negative cash flows from operations and
limited capital resources raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
addressed in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
April 16, 1999, except for Note 8 as to which
the date is July 15, 1999
F-116
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
BALANCE SHEET
ASSETS:
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1998 1999
----------- ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $1,528,264 $ 598,800
Prepaid and other current assets.................................. 10,722 5,562
----------- ----------
Total current assets............................................ 1,538,986 604,362
Property and equipment, net......................................... 305,424 328,444
----------- ----------
Total assets.................................................... $1,844,410 $ 932,806
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable.................................................. $ 179,341 $ 113,493
Accrued liabilities and other..................................... 30,407 90,295
----------- ----------
Total liabilities............................................... 209,748 203,788
----------- ----------
Commitments and contingencies (Note 5)
Shareholders' equity:
Series A Convertible Preferred Stock: $0.001 par value
(liquidation value $800,000); 3,200,000 shares authorized,
issued and outstanding.......................................... 3,200 3,200
Series B Convertible Preferred Stock: $0.001 par value
(liquidation value $1,500,000); 2,000,000 and 2,250,000 shares
authorized, issued and outstanding at December 31, 1998 and June
30, 1999 (unaudited)............................................ 2,000 2,250
Common stock: $0.001 par value; 15,000,000 shares authorized;
3,600,000 shares issued and outstanding......................... 3,600 3,600
Additional paid-in capital........................................ 2,400,800 3,267,350
Unearned compensation............................................. (99,350) (185,294)
Accumulated deficit............................................... (675,588) (2,362,088)
----------- ----------
Total shareholders' equity...................................... 1,634,662 729,018
----------- ----------
Total liabilities and shareholders' equity...................... $1,844,410 $ 932,806
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-117
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 12, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
JUNE 12, 1998
JUNE 30, (DATE OF
1999 INCEPTION)
DECEMBER ---------- THROUGH
31, 1998 JUNE 30, 1999
----------- (UNAUDITED) --------------
(UNAUDITED)
<S> <C> <C> <C>
Costs and expenses:
Research and product development................. $ 267,529 $ 419,919 $ 687,448
Sales and marketing.............................. 192,380 241,621 434,001
General and administrative....................... 211,750 441,446 653,196
Amortization of deferred compensation............ 6,650 593,356 600,006
----------- ---------- --------------
Loss from operations........................... (678,309) (1,696,342) (2,374,651)
----------- ---------- --------------
Other income (expense):
Interest income.................................. 3,521 10,642 14,163
----------- ---------- --------------
Loss before income tax provision............... (674,788) (1,685,700) (2,360,488)
Income tax provision............................... 800 800 1,600
----------- ---------- --------------
Net loss....................................... $(675,588) $(1,686,500) $(2,362,088)
----------- ---------- --------------
----------- ---------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JUNE 12, 1998 (DATE OF INCEPTION) THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ---------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 12, 1998
(Date of Inception).............. -- -- -- -- 3,600,000 $ 3,600 --
Sale of preferred stock for
cash........................... 3,200,000 $ 3,200 -- -- -- $ 796,800
Sale of preferred stock for
cash........................... -- -- 2,000,000 $ 2,000 -- -- 1,498,000
Unearned compensation related to
stock options granted.......... -- -- -- -- -- -- 106,000
Compensation related to stock
options granted................ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- -----------
Balance at December 31, 1998....... 3,200,000 $ 3,200 2,000,000 $ 2,000 3,600,000 $ 3,600 $2,400,800
--------- ----------- --------- ----------- --------- ----------- -----------
--------- ----------- --------- ----------- --------- ----------- -----------
Sale of preferred stock for
cash........................... -- -- 250,000 $ 250 -- -- $ 187,250
Unearned compensation related to
stock options granted.......... -- -- -- -- -- -- 679,300
Compensation related to stock
options granted................ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- -----------
Balance at June 30, 1999
(Unaudited)...................... 3,200,000 $ 3,200 2,250,000 $ 2,250 3,600,000 $ 3,600 $3,267,350
--------- ----------- --------- ----------- --------- ----------- -----------
--------- ----------- --------- ----------- --------- ----------- -----------
<CAPTION>
TOTAL
UNEARNED ACCUMULATED SHAREHOLDERS'
COMPENSATION DEFICIT EQUITY
------------- ------------ -------------
<S> <C> <C> <C>
Balance at June 12, 1998
(Date of Inception).............. -- -- $ 3,600
Sale of preferred stock for
cash........................... -- -- 800,000
Sale of preferred stock for
cash........................... -- -- 1,500,000
Unearned compensation related to
stock options granted.......... $(106,000) -- --
Compensation related to stock
options granted................ 6,650 -- 6,650
Net loss......................... -- $ (675,588) (675,588)
------------- ------------ -------------
Balance at December 31, 1998....... $ (99,350) $ (675,588) $ 1,634,662
------------- ------------ -------------
------------- ------------ -------------
Sale of preferred stock for
cash........................... -- -- $ 187,500
Unearned compensation related to
stock options granted.......... $(679,300) -- --
Compensation related to stock
options granted................ 593,356 -- 593,356
Net loss......................... -- $(1,686,500) $(1,686,500)
------------- ------------ -------------
Balance at June 30, 1999
(Unaudited)...................... $(185,294) $(2,362,088) $ 729,018
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-119
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD JUNE 12, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
JUNE 12, 1998
JUNE 30, (DATE OF
1999 INCEPTION)
DECEMBER ---------- THROUGH
31, 1998 JUNE 30, 1999
----------- (UNAUDITED) --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(675,588) $(1,686,500) (2,362,088)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 24,440 69,529 93,969
Amortization of deferred compensation.......... 6,650 593,356 600,006
Changes in current assets and liabilities:
Prepaid and other current assets............. (10,722) 5,160 (5,562)
Accounts payable............................. 179,341 (65,848) 113,493
Accrued expenses............................. 30,407 59,888 90,295
----------- ---------- --------------
Net cash used in operating activities...... (445,472) (1,024,415) (1,469,887)
----------- ---------- --------------
Cash flows from investing activities:
Capital expenditures............................. (329,864) (92,549) (422,413)
----------- ---------- --------------
Net cash used in investing activities...... (329,864) (92,549) (422,413)
----------- ---------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock........... 3,600 -- 3,600
Proceeds from issuance of Series A convertible
preferred stock................................ 800,000 -- 800,000
Proceeds from issuance of Series B convertible
preferred stock................................ 1,500,000 187,500 1,687,500
----------- ---------- --------------
Net cash provided by financing
activities............................... 2,303,600 187,500 2,491,100
----------- ---------- --------------
Net increase (decrease) in cash and cash
equivalents.............................. 1,528,264 (929,464) 598,800
Cash and cash equivalents at beginning of period... -- 1,528,264 --
----------- ---------- --------------
Cash and cash equivalents at end of period......... $1,528,264 $ 598,800 $ 598,800
----------- ---------- --------------
----------- ---------- --------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest....................................... -- -- --
Income taxes................................... $ 800 $ 800 $ 1,600
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT BUSINESS RISKS:
NATURE OF BUSINESS
LiquidMarket (the "Company") was incorporated in June 1998 in the State of
Delaware and is engaged in software development. As of December 31, 1998, the
Company is a development stage enterprise, as defined in Financial Accounting
Standards Board Statement No. 7. Since inception, the Company has devoted
substantially all of its efforts toward the development of its product and
establishing new business. The Company's business is extremely competitive and
is characterized by rapid technological change, new product development and a
competitive environment for the attraction and retention of knowledge workers.
The Company is an early stage enterprise and is subject to all the risks
associated with development stage companies.
SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating losses.
The ability of the Company to successfully carry out its business plan is
primarily dependent upon its ability to (1) obtain sufficient additional
capital, (2) overcome product development issues, and (3) generate significant
revenues and cash flows through the future sales of its primary product.
BASIS OF PRESENTATION
The Company's financial statements for the period June 12, 1998 (Date of
Inception) through December 31, 1998 have been prepared on a going-concern basis
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company had negative cash
flows from operations of ($445,472), and a net loss and an accumulated deficit
of ($675,588), as of December 31, 1998 and for the period June 12, 1998 (Date of
Inception) through December 31, 1998. The Company expects to incur additional
expenditures to complete and enhance its product. The Company's revenues from
product sales, and its working capital, may not be sufficient to fund its
working capital needs and meet its expansion objectives over the next twelve
months. Management recognizes that the Company may need to obtain additional
financing or consider reductions in its operating costs to enable it to continue
operations with available resources. Management's plans include raising funds
through the sale of additional equity securities, and expect that these efforts
will result in the additional capital needed to fund the Company's operations
and planned expansion. There can be no assurance that these funds will be
sufficient to adequately fund the operations and that the Company will achieve
profitability or positive cash flows.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-121
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are carried at cost, which approximates fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and short-term
investments. The Company invests its excess cash in money market funds with
major financial institution. At times the Company's cash balances may be in
excess of the FDIC Insurance limits.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method based upon
the estimated useful lives of the assets. Leasehold improvements are amortized
over the shorter of the estimated useful life or the life of the lease. Useful
lives are evaluated regularly by management in order to determine recoverability
in light of current technological conditions. Maintenance and repairs are
charged to expense as incurred while renewals and improvements are capitalized.
Upon the sale or retirement of property and equipment, the accounts are relieved
of the cost and the related accumulated depreciation or amortization, with any
resulting gain or loss included in the Statement of Operations.
SOFTWARE DEVELOPMENT COSTS
Under the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," the Company is required to capitalize software development
costs when "technological feasibility" of the product has been established and
anticipated future revenues ensure recovery of the capitalized amounts. As of
December 31, 1998, "technological feasibility" had not been reached and,
accordingly, no amount of software development costs have been capitalized.
Costs incurred in the research and development of products are expensed as
incurred.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
STOCK-BASED EMPLOYEE COMPENSATION
SFAS No. 123, "Accounting for the Awards of Stock-Based Compensation to
Employees," encourages, but does not require, companies to record compensation
costs for stock-based compensation plans at fair value. The Company has adopted
the disclosure requirements of SFAS No. 123, which involves pro forma
F-122
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
disclosure of net income under SFAS No. 123, detailed descriptions of plan terms
and assumptions used in valuing stock option grants. The Company has elected to
account for stock-based employee compensation awards in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25").
COMPREHENSIVE INCOME
Effective June 12, 1998 (Date of Inception the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources. To date, the Company
has not had any transactions that are required to be reported in comprehensive
income.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial amounts as of June 30, 1999 and the six
months then ended, include all adjustments (consisting of normal recurring
entries) which management believes are necessary for a fair presentation of the
financial position and results of operations for the interim period presented.
Certain information and footnotes disclosures normally included in financial
statements prepared in accordance with generally accounting principles have been
condensed or omitted in accordance with quarterly reporting guidelines.
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment at December 31, 1998 and June 30, 1999 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
USEFUL LIFE 31, 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software............................ 3 years $ 311,349 $ 402,090
Furniture and fixtures..................................... 7 years 16,026 17,834
Leasehold improvements..................................... 1 year 2,489 2,489
----------- -----------
329,864 422,413
Less: Accumulated depreciation............................. 24,440 93,969
----------- -----------
$ 305,424 $ 328,444
----------- -----------
----------- -----------
</TABLE>
4. INCOME TAXES:
The provision for income taxes represents the minimum state franchise taxes.
As of December 31, 1998, the Company has deferred income tax assets of
approximately $256,000, which has been offset by a 100% valuation allowance. The
deferred tax asset is primarily due to the Company's federal and state net
operating loss (NOL's) carryforwards available to offset future taxable income,
if any, of approximately $640,000 which begin to expire in 2013 and 2006 for
federal and state income tax purposes, respectively. However, the ultimate
realization of these NOL's is dependent on future taxable income of the Company,
subject to certain limitations, as defined under Section 382 of the Internal
Revenue Code.
F-123
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES: (CONTINUED)
As a result of the Company being in the development stage and the net loss
incurred during the period from June 12, 1998 (Date of Inception) through
December 31, 1998, management believes a valuation allowance for the entire
deferred tax asset, after considering deferred tax liabilities, is required.
5. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases its facility under a noncancellable lease through 1999.
The following are the minimum lease payments under this lease:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Due in fiscal year:
1999.......................................................................... $ 41,288
------------
Minimum lease payments.......................................................... $ 41,288
------------
------------
</TABLE>
Rent expense amounted to $22,478 and $30,966 for the period June 12, 1998
(Date of Inception) through December 31, 1998 and for the six months ended June
30, 1999 (Unaudited), respectively.
SOFTWARE LICENSE
The Company licenses certain technology for use in its product. Pursuant to
the terms of the agreement, the Company is obligated to pay $55,000 during the
first two years of the term of the agreement. In addition, the Company may
exercise an option to purchase the software for $110,000. Payments previously
made by the Company will be deducted from the purchase price.
6. CAPITALIZATION:
CAPITAL
The authorized capital stock of the Company consists of 15,000,000 shares of
common stock, $.001 par value and 5,450,000 shares of preferred stock, $.001 par
value, of which 3,200,000 shares have been designated as Series A Stock, and
2,250,000 shares have been designated as Series B Stock.
CONVERTIBLE PREFERRED STOCK
Preferred stockholders may at any time elect to convert shares of preferred
stock into common stock. In addition, all outstanding shares of preferred stock
shall automatically be converted into shares of common stock if either (i) the
Company consummates an underwritten initial public offering with gross proceeds
of at least $15,000,000 or (ii) more than 80% of the outstanding shares of
preferred stock have been converted into common stock. Preferred stock shall
initially convert into common stock on a one-for-one basis. The conversion price
of the Series A and B preferred stock shall initially equal $0.25 and $0.75 per
share, respectively, subject to adjustment for stock splits.
The Series A and B preferred stock shall have a liquidation value (the
"Liquidation Value") equal to the per share original cost of $0.25 and $0.75,
respectively. Liquidation value will increase by the amount of
F-124
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CAPITALIZATION: (CONTINUED)
any declared but unpaid dividends on the preferred stock. Upon a liquidation,
dissolution or winding-up of the business of the Company, the holders of the
preferred stock shall be entitled to a preference in an amount equal to the
greater of the (i) Liquidation Value (subject to appropriate adjustment in the
event of any stock dividend, stock split, or the like), or (ii) such amount per
share as would have been payable had each share of preferred stock been
converted into common stock prior to such liquidation. A merger or consolidation
of the Company in which the Company is not the surviving entity, or the sale of
all or substantially all of the assets of the Company, shall be considered to be
a liquidation, unless otherwise elected by the holders of a majority of the
outstanding shares of preferred stock.
Each share of Series A and B preferred stock will be entitled to dividends
as declared by the Board of Directors but, in any event, at the same rate as the
common stock with declared dividends paid first to the holders of the Series B
preferred and Series A preferred, then to the holders of the common stock.
The Series A preferred stock will vote with the Series B preferred stock and
the common stock as a single class on all matters (on an as-converted basis).
7. STOCK OPTIONS (ALL INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 IS
UNAUDITED):
In October 1998, the Company adopted the 1998 stock incentive plan (the
"Plan") which provides for grants to employees and non-employees of incentive
stock options to purchase up to an aggregate of 2,200,000 shares of common
stock. The options vest 25% at the first-year anniversary from the date of grant
and 2.0833% on a monthly basis thereafter up to a period of 4 years. All options
generally expire after ten years.
For the period June 12, 1998 (Date of Inception) through December 31, 1998,
the Company granted options to purchase 530,000 shares of common stock at an
exercise price of $0.05 per share. The estimated fair value of common stock on
the dates of grant was $0.25 per share. No options were exercisable at December
31, 1998 and options to purchase 1,670,000 shares of common stock remain
available for future grants.
From January 1, 1999 through April 15, 1999, the Company granted options to
employees to purchase 165,000 shares of common stock at an exercise price of
$0.08 per share. The estimated fair value of the common stock on the dates of
grant was $0.75 per share. In addition, in May 1999, the Company entered into a
consulting agreement with a Board member to provide strategic consulting
services in exchange for granting options to purchase 325,000 shares of the
Company's common stock at an exercise price of $0.08 per share vesting in
quarterly installments over a one year period. In the event there is an
Acquisition Event (as defined in the Plan) these options become immediately
exercisable in full prior to the Acquisition Event. The estimated fair value of
services to be provided approximates the estimated fair value of the common
stock on the date of grant of approximately $1.83 per share. No options were
exercisable at June 30, 1999 and options to purchase 1,180,000 shares of common
stock remain available for future grants.
The fair value of the options granted was estimated on the date of grant
using the minimum value method with the following assumptions: risk-free
rate--4.26%; expected option life--5 years; expected forfeitures rate--none;
expected dividend yield--none.
F-125
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTIONS (ALL INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 IS
UNAUDITED): (CONTINUED)
The Company uses the intrinsic value method of accounting for stock-based
compensation for employees prescribed by APB No. 25, and, accordingly, adopted
the disclosure-only provisions of SFAS No. 123. Had the Company applied the
provisions set forth in SFAS No. 123, the Company's net loss would not be
materially different from the amount presented for the period June 12, 1998
(Date of Inception) through December 31, 1998.
In connection with the stock option grants noted above, the Company
recognized unearned compensation of $185,294 which is being amortized over the
vesting period of the related options generally one to four years. The Company
recorded amortization of deferred compensation expense of $593,356 during the
six months ended June 30, 1999 relating to the stock options granted, of which
approximately $568,750 related to the options granted to the Board member noted
above (see Note 8).
8. SUBSEQUENT EVENT (UNAUDITED)
In July 1999, the Company entered into an agreement and plan of merger to
sell all the Company's outstanding preferred and common shares.
F-126
<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 mergers of Paralogic Corporation, Global
Bridges Technologies, Inc., Pagecount, Inc., Paralogic Software Corporation,
MightyMail Networks, Inc. and LiquidMarket, Inc. into Xoom.com. The merger of
LiquidMarket, Inc. into Xoom.com is 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
Corporation, Global Bridges Technologies, Inc., Pagecount, Inc., Paralogic
Software Corporation, MightyMail Networks, Inc., and LiquidMarket, Inc. and
should be read in conjunction with those financial statements and the related
notes which begin on pages F-3, F-62, F-72, F-82, F-92, F-104, and F-116, of
this proxy statement/prospectus, respectively.
The unaudited pro forma condensed combined balance sheet assumes the
LiquidMarket, Inc. merger took place as of June 30, 1999 and allocates the total
purchase cost of the fair values of assets and liabilities of LiquidMarket, Inc.
based on a preliminary valuation.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1998, combine historical statements of operations for
Xoom.com, Paralogic Corporation, Global Bridges Technologies, Inc., Pagecount,
Inc., Paralogic Software Corporation, MightyMail Networks, Inc. and
LiquidMarket, Inc. and give effect to the mergers, including the amortization of
goodwill and other intangible assets, as if they had occurred on January 1,
1998. The unaudited pro forma condensed combined statement of operations for the
six months ended June 30, 1999, combine historical statements of operations for
Xoom.com, Paralogic Software Corporation, MightyMail Networks, Inc. and
LiquidMarket, Inc., and give effect to the mergers, including amortization of
goodwill and other intangible assets, as if they had occurred on January 1,
1999.
The total estimated purchased cost of the LiquidMarket, Inc. merger 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. The final purchase cost allocation for the LiquidMarket,
Inc. merger occurred on August 3, 1999 and was not materially different from the
preliminary basis presented herein.
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-127
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------------------------------------------
PRO FORMA
BUSINESS
LIQUID- MARKET, COMBINATION
XOOM.COM INC. COMBINED ADJUSTMENTS PRO FORMA
----------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 57,418 $ 599 $ 58,017 $ -- $ 58,017
Short-term investments...................... 107,995 -- 107,995 -- 107,995
Accounts receivable, net.................... 3,025 -- 3,025 -- 3,025
Inventories................................. 793 -- 793 -- 793
Other current assets........................ 2,450 6 2,456 -- 2,456
----------- ------- ----------- ------------- -----------
Total current assets...................... 171,681 605 172,286 -- 172,286
Fixed assets, net........................... 4,499 328 4,827 -- 4,827
Goodwill, net............................... 51,123 -- 51,123 20,997(2) 72,120
Intangibles, net............................ 10,230 -- 10,230 17,021(2) 27,251
Investments................................. 53,615 -- 53,615 -- 53,615
Other assets................................ 1,316 -- 1,316 -- 1,316
----------- ------- ----------- ------------- -----------
Total assets.................................. $ 292,464 $ 933 $ 293,397 $ 38,018 $ 331,415
----------- ------- ----------- ------------- -----------
----------- ------- ----------- ------------- -----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 3,516 $ 114 $ 3,630 $ 300(1) $ 3,930
Accrued compensation and related expenses... 1,101 -- 1,101 -- 1,101
Other accrued liabilities................... 2,176 90 2,266 -- 2,266
Deferred revenue............................ 2,676 2,676 -- 2,676
Notes payable............................... 1,103 -- 1,103 -- 1,103
Capital lease obligations................... 41 -- 41 -- 41
Contingency accrual......................... 1,000 -- 1,000 -- 1,000
----------- ------- ----------- ------------- -----------
Total current liabilities................. 11,613 204 11,817 300 12,117
Deferred revenues, less current portion....... 2,500 -- 2,500 -- 2,500
Notes payable, less current portion........... 331 -- 331 -- 331
Capital lease obligations, less current
portion..................................... 98 -- 98 -- 98
Stockholders' equity:
Preferred stock............................. -- 5 5 (5)(3) --
Common stock................................ 304,253 3,271 307,524 35,176(3) 342,700
Notes receivable from stockholders.......... (995) -- (995) -- (995)
Deferred compensation....................... (499) (185) (684) 185(3) (499)
Accumulated deficit......................... (24,837) (2,362) (27,199) 2,362(3) (24,837)
----------- ------- ----------- ------------- -----------
Total stockholders' equity.................... 277,922 729 278,651 37,718 316,369
----------- ------- ----------- ------------- -----------
Total liabilities and stockholders' equity.... $ 292,464 $ 933 $ 293,397 $ 38,018 $ 331,415
----------- ------- ----------- ------------- -----------
----------- ------- ----------- ------------- -----------
</TABLE>
F-128
<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
-------------------------------------------------------------------------
PARALOGIC
CORPORATION
FOR THE GLOBAL
TWO BRIDGES
MONTHS TECHNOLOGIES PAGECOUNT, INC.
ENDED FOR THE FIVE FOR THE SIX
FEBRUARY MONTHS ENDED MONTHS ENDED
28, MAY 31, JUNE 30, MIGHTYMAIL
XOOM.COM 1998 1998 1998 NETWORKS, INC.
-------- -------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Net revenue....................................... $ 8,318 $ 80 $ -- $ 208 $ 355
Total cost of net revenue......................... 3,584 31 -- 14 215
-------- --- ----- ----- -----
Gross margin...................................... 4,734 49 -- 194 140
Operating expenses:
Operating and development....................... 3,841 12 11 -- 62
Sales and marketing............................. 2,834 2 -- 2 57
General and administrative...................... 3,366 13 4 184 297
Purchased in-process research and development... 790 -- -- -- --
Amortization of deferred compensation........... 1,416 -- -- -- --
Amortization of goodwill and other intangible
assets........................................ 1,843 -- -- -- --
-------- --- ----- ----- -----
Total operating expenses.......................... 14,090 27 15 186 416
-------- --- ----- ----- -----
Loss income from operations....................... (9,356 ) 22 (15) 8 (276)
Other income (expense):
Interest income................................. 187 -- -- 1 1
Interest expense................................ (135 ) -- -- (2) (6)
Interest expense related to warrant............. (1,494 ) -- -- -- --
-------- --- ----- ----- -----
Net loss.......................................... $(10,798) 22 $ (15) $ 7 $(281)
-------- --- ----- ----- -----
-------- --- ----- ----- -----
Basic and diluted net loss per share..............
Shares used in per share calculation--basic and
diluted.........................................
<CAPTION>
PRO FORMA
PARALOGIC LIQUID- BUSINESS
SOFTWARE MARKET, COMBINATION
CORPORATION INC. COMBINED ADJUSTMENTS PRO FORMA
----------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue....................................... $ 239 $ -- $ 9,200 $ -- $ 9,200
Total cost of net revenue......................... 13 -- 3,857 -- 3,857
----- ----- -------- -------------- ---------
Gross margin...................................... 226 -- 5,343 -- 5,343
Operating expenses:
Operating and development....................... 145 268 4,339 -- 4,339
Sales and marketing............................. 73 192 3,160 -- 3,160
General and administrative...................... 35 211 4,110 -- 4,110
Purchased in-process research and development... -- -- 790 (460)(A) 330
Amortization of deferred compensation........... 182 7 1,605 -- 1,605
Amortization of goodwill and other intangible
assets........................................ -- -- 1,843 25,777(B) 27,620
----- ----- -------- -------------- ---------
Total operating expenses.......................... 435 678 15,847 (25,317) 41,164
----- ----- -------- -------------- ---------
Loss income from operations....................... (209) (678) (10,504 ) (25,317) (35,821)
Other income (expense):
Interest income................................. -- 3 192 -- 192
Interest expense................................ (1) (1) (145 ) -- (145)
Interest expense related to warrant............. -- -- (1,494 ) -- (1,494)
----- ----- -------- -------------- ---------
Net loss.......................................... $(210) $(676) $(11,951) $(25,317) $(37,268)
----- ----- -------- -------------- ---------
----- ----- -------- -------------- ---------
Basic and diluted net loss per share.............. (C) $ (3.80)
---------
---------
Shares used in per share calculation--basic and
diluted......................................... (C) 9,799
---------
---------
</TABLE>
F-129
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------------------------------------
LIQUID-
PARALOGIC MARKET,
XOOM.COM SOFTWARE INC.
FOR THE CORPORATION FOR THE
SIX MIGHTYMAIL FOR THE SIX
MONTHS NETWORKS, INC. PERIOD MONTHS PRO FORMA
ENDED FOR THE PERIOD ENDED ENDED BUSINESS
JUNE 30, ENDED MAY 3, JUNE 16, JUNE 30, COMBINATION
1999 1999 1999 1999 COMBINED ADJUSTMENTS
-------- -------------- ----------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue..................................... $10,947 $ -- $ 291 $ -- $11,238 $ --
Total cost of net revenue....................... 4,724 -- 12 -- 4,736 --
-------- ------- ----------- -------- -------- --------------
Gross margin.................................... 6,223 -- 279 -- 6,502 --
Operating expenses:
Operating and development..................... 2,700 634 319 420 4,073 --
Sales and marketing........................... 7,538 24 160 242 7,964 --
General and administrative.................... 3,666 296 79 442 4,483 --
Purchased in-process research and
development................................. 2,603 -- -- -- 2,603 (2,603)(A)
Amortization of deferred compensation......... 405 1,283 962 593 3,243 --
Amortization of goodwill and other intangible
assets...................................... 2,304 -- -- -- 2,304 11,856(B)
-------- ------- ----------- -------- -------- --------------
Total operating expenses........................ 19,216 2,237 1,520 1,697 24,670 9,253
-------- ------- ----------- -------- -------- --------------
Loss from operations............................ (12,993) (2,237) (1,241) (1,697) (18,168) (9,253)
Other income (expense):
Interest income............................... 3,008 1 2 11 3,022 --
Interest expense.............................. (65) (2) -- (1) (68) --
-------- ------- ----------- -------- -------- --------------
Net loss........................................ $(10,050) $(2,238) ($1,239) $(1,687) $(15,214) $(9,253)
-------- ------- ----------- -------- -------- --------------
-------- ------- ----------- -------- -------- --------------
Basic and diluted net loss per share............ (C)
Shares used in per share calculation--basic and
diluted....................................... (C)
<CAPTION>
PRO FORMA
---------
<S> <C>
Net revenue..................................... $11,238
Total cost of net revenue....................... 4,736
---------
Gross margin.................................... 6,502
Operating expenses:
Operating and development..................... 4,073
Sales and marketing........................... 7,964
General and administrative.................... 4,483
Purchased in-process research and
development................................. --
Amortization of deferred compensation......... 3,243
Amortization of goodwill and other intangible
assets...................................... 14,160
---------
Total operating expenses........................ 33,923
---------
Loss from operations............................ (27,421)
Other income (expense):
Interest income............................... 3,022
Interest expense.............................. (68)
---------
Net loss........................................ $(24,467)
---------
---------
Basic and diluted net loss per share............ $ (1.51)
---------
---------
Shares used in per share calculation--basic and
diluted....................................... 16,218
---------
---------
</TABLE>
F-130
<PAGE>
XOOM.COM, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The excess of the purchase cost of the Paralogic Corporation, Global Bridges
Technologies, Inc., Pagecount, Inc., Paralogic Software Corporation, Might Mail
Networks, Inc. and LiquidMarket, Inc. mergers over the fair value of the net
assets acquired has been allocated to goodwill. The total estimated purchase
cost of the LiquidMarket, Inc. merger has been allocated on a preliminary basis
to assets and liabilities based on management's estimate of their fair values.
The final purchase cost allocation for the LiquidMarket, Inc. merger occurred on
August 3, 1999 and was not materially different from the preliminary basis
presented herein. The adjustments to the unaudited pro forma condensed combined
balance sheet as of June 30, 1999 exclude the effect of Paralogic Corporation,
Global Bridges Technologies, Inc., Pagecount, Inc., Paralogic Software
Corporation and Mighty Mail Networks, Inc. mergers, as these were consummated in
prior to June 30, 1999.
The adjustments to the unaudited pro forma condensed combined balance sheet
as of June 30, 1999, have been calculated as if the LiquidMarket, Inc. merger
occurred on June 30, 1999 and are as follows:
(1) To reflect the acquisition of LiquidMarket, Inc. for total estimated
purchase price of approximately $38,747,000. The purchase consideration
consists of the following:
- Issuance of 824,325 shares of Xoom.com's common stock to the shareholders
of LiquidMarket, Inc., with a fair value of $33,547,000. An additional
106,101 shares may be included in the purchase price if specific
performance objectives are met. The fair value per share of Xoom.com's
common stock issued in the LiquidMarket, Inc. acquisition is based on the
average closing price of Xoom.com's common stock on August 3, 1999 (the
day the merger was announced) and the three days prior and subsequent to
such date.
- Assumption of options related to the LiquidMarket, Inc. acquisition to
purchase 130,750 shares, of Xoom.com's common stock with a fair value of
$4,900,000. 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 the day the merger was
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 5.75%
- Expected dividend rate of 0%
- Other related transaction and merger costs estimated to be $300,000 for
the aquisition of LiquidMarket, Inc.
F-131
<PAGE>
XOOM.COM, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(2) Recognition of the excess purchase cost of $38,018,000 over the fair value
of the net assets acquired, has been recorded as goodwill and other
intangible assets as follows:
<TABLE>
<CAPTION>
LIQUIDMARKET,
INC.
-----------------
<S> <C>
Developed technology....................................................... $ 16,700,000
Acquired workforce......................................................... 321,000
Goodwill................................................................... 20,997,000
-----------------
Total...................................................................... $ 38,018,000
-----------------
-----------------
</TABLE>
(3) To reflect the elimination of the historical stockholders' equity accounts
of LiquidMarket, Inc.
The adjustments to the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1998 and the six months ended June
30, 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 six months ended June 30, 1999, as they
represent non-recurring charges. Additionally, purchased in-process research
and development charges of $330,000 and $130,000 related to the Paralogic
Corporation and Pagecount, Inc. acquisitions, respectively, have been
excluded from the net loss for the year ended December 31, 1998. No
purchased in-process research and development charges are anticipated for
the LiquidMarket, Inc. merger.
(B) To reflect the amortization of goodwill and other intangible assets
resulting from the MightyMail Networks, Inc., Paralogic Software
Corporation, and LiquidMarket, Inc. acquisitions. During the year ended
December 31, 1998, this amount also reflects the amortization of goodwill
and other intangible assets resulting from the Paralogic Corporation, Global
Bridges Technologies, Inc. and Pagecount, Inc. acquisitions. The goodwill
and other intangible assets are being amortized over periods of twenty-four
to forty-eight months.
(C) Basic and diluted net loss per share reflects the issuance of 682,410,
200,731, 335,947, 748,816 and 930,426 shares of Xoom.com's common stock
related to the Paralogic Corporation, Global Bridges Technologies, Inc.,
MightyMail Networks, Inc., Paralogic Software Corporation and LiquidMarket,
Inc. 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., and LiquidMarket,
Inc. include 33,593 and 106,101 shares, respectively, held in escrow which
will be released upon the achievement of specific performance obligations.
F-132
<PAGE>
APPENDIX A-1
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
AS AMENDED ON OCTOBER 20, 1999
- ------------------------
** On July 8, 1999, Xenon 2, Inc. changed its name to NBC Internet, Inc.
<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-1-30
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-1-34
6.11 Tax Cooperation and Consistent Reporting...................................................... A-1-34
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-1-41
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>
SCHEDULES
<TABLE>
<S> <C>
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
</TABLE>
A-1-ii
<PAGE>
<TABLE>
<S> <C>
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>
A-1-iii
<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.
A-1-1
<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
1.1 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.
"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
2.1 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").
2.2 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.
2.3 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").
2.4 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.
2.5 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.
2.6 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.
2.7 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.
2.8 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.
2.9 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.
2.10 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.
2.11 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.
2.12 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.
2.13 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.
2.14 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.
2.15 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.
2.16 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.
2.17 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.
2.18 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
3.1 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.
A-1-9
<PAGE>
(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
4.1 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.
A-1-10
<PAGE>
(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.
A-1-11
<PAGE>
(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.
A-1-12
<PAGE>
(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
A-1-13
<PAGE>
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
A-1-14
<PAGE>
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
A-1-15
<PAGE>
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
A-1-16
<PAGE>
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.
4.2 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
A-1-17
<PAGE>
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
A-1-18
<PAGE>
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
A-1-19
<PAGE>
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,
A-1-20
<PAGE>
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
A-1-21
<PAGE>
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
A-1-22
<PAGE>
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.
A-1-23
<PAGE>
(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.
4.3 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.
A-1-24
<PAGE>
(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.
4.4 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.
A-1-25
<PAGE>
4.5 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
5.1 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
A-1-26
<PAGE>
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.
5.2 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
A-1-27
<PAGE>
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 issued in accordance herewith, (ii) SNAP
Options issued pursuant to commitments to issue SNAP Options that were
included in job offers outstanding as of May 9, 1999, as identifed on
SCHEDULE 4.1(T) as amended and (iii) additional options that, when added to
SNAP Options previously outstanding, do not exceed options for units equal
in number to 17% of the 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
A-1-28
<PAGE>
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any employee of SNAP;
(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 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.
5.4 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.
A-1-29
<PAGE>
5.5 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 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
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 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
A-1-30
<PAGE>
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 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).
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 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
A-1-31
<PAGE>
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 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.
6.7 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.
A-1-32
<PAGE>
(b) SNAP EMPLOYEE OPTIONS
SNAP and Xenon 2 will take all requisite corporate action such that, as
of the Closing Date,
(i) each outstanding option to purchase SNAP units (a "SNAP OPTION")
held by a SNAP Employee that was issued before May 9, 1999, and each
outstanding SNAP Option held by a SNAP Employee that was issued after May 9,
1999 pursuant to a job offer that was extended before May 9, 1999, as
identified on SCHEDULE 4.1(T) as amended, shall be converted into a stock
option to purchase a number of shares of Xenon 2 (a "XENON 2 OPTION") equal
to 1.2853 times the number of shares of SNAP to which the SNAP Option
pertains; and
(ii) each outstanding option to purchase a SNAP Option held by a SNAP
Employee that was issued on or after May 9, 1999 (other than pursuant to a
job offer that was extended before May 9, 1999, as identified on SCHEDULE
4.1(T) as amended) shall be converted on a one-for-one basis into a Xenon 2
Option to purchase a number of shares of Xenon 2 equal to the number of
units of SNAP to which the SNAP Option pertains.
The per share exercise price of each such Xenon 2 Option shall equal the
aggregate exercise price of the corresponding SNAP Option divided by the
exchange ratio used to convert such corresponding Snap Option into such
Xenon 2 Option (I.E., either 1.2853:1 or 1:1, as the case may be). The
vesting schedule of such Xenon 2 Option shall be on a monthly basis, and
otherwise consistent with the vesting schedule of the corresponding SNAP
Option, except that in the case of the Xenon 2 Options issued pursuant to
(i) above, the vesting shall be accelerated by 12 months (in accordance with
the resolution of Snap's Board of Managers dated June 24, 1999), when
compared with the corresponding SNAP Option.
6.8 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.
6.9 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,
A-1-33
<PAGE>
between No. 1 Beach Street LLC and CNET, to be released as soon as practicable
following the Closing.
6.10 RESIGNATION OF SNAP'S CEO. CNET will cause the Chief Executive
Officer of SNAP to resign from such position as of the Effective Time.
6.11 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 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
A-1-34
<PAGE>
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
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.
6.12 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.
A-1-35
<PAGE>
(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 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.
6.13 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
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
A-1-36
<PAGE>
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 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.
7.2 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.
7.3 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
A-1-37
<PAGE>
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.
(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
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 (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
A-1-38
<PAGE>
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
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.
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 5.4,
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
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.
If to CNET or SNAP:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attn: Douglas N. Woodrum
Facsimile: (415) 395-9205
A-1-39
<PAGE>
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
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.
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. This
Agreement may be amended by the parties at any time before or after the
Stockholder Approval or the
A-1-40
<PAGE>
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.
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.
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. 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 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.
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.
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).
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.
A-1-41
<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
A-1-42
<PAGE>
APPENDIX A-2
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
AS AMENDED ON OCTOBER 20, 1999
- ------------------------
** On July 8, 1999, Xenon 2, Inc. changed its name to NBC Internet, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ARTICLE I
DEFINITIONS........................................................................................... A-2-2
1.1 Definitions..................................................................................... A-2-2
ARTICLE II
CONTRIBUTIONS AND ISSUANCES........................................................................... A-2-7
2.1 Contributions to NBC and NBC Multimedia......................................................... A-2-7
2.2 Contributions to NMC; Issuances of NMC Capital Stock............................................ A-2-7
2.3 Contributions To Xenon 2; Issuances of Convertible Note and Xenon 2 Capital Stock............... A-2-7
2.4 Note Purchase................................................................................... A-2-8
2.5 Required Consents............................................................................... A-2-8
2.6 Tax Refunds..................................................................................... A-2-9
ARTICLE III
THE MERGER............................................................................................ A-2-9
3.1 The Merger...................................................................................... A-2-9
3.2 Closing......................................................................................... A-2-9
3.3 Effective Time.................................................................................. A-2-9
3.4 Effects of the Merger........................................................................... A-2-9
3.5 Certificates of Incorporation................................................................... A-2-9
3.6 By-Laws......................................................................................... A-2-9
3.7 Officers and Directors of Surviving Corporation and Xenon 2..................................... A-2-9
3.8 Effect on Capital Stock......................................................................... A-2-9
3.9 Exchange Procedures............................................................................. A-2-10
3.10 No Further Ownership Rights in NMC Common Stock................................................. A-2-10
3.11 Further Assurances.............................................................................. A-2-10
3.12 Federal Income Tax Consequences................................................................. A-2-10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES......................................................... A-2-11
4.1 Representations and Warranties of NBC........................................................... A-2-11
4.2 Representations and Warranties with respect to SNAP............................................. A-2-17
4.3 Representations and Warranties of Xoom and Xenon 2.............................................. A-2-23
4.4 Representations and Warranties with respect to GE Investments Sub............................... A-2-31
4.5 Survival of Representations and Warranties...................................................... A-2-32
4.6 No Other Representation or and Warranties....................................................... A-2-32
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME........................................................... A-2-32
5.1 Conduct of the Business of Xoom Pending the Closing............................................. A-2-32
5.2 Conduct of the Business of SNAP Pending the Closing............................................. A-2-34
5.3 Conduct of the NBC Multimedia Businesses Pending the Closing.................................... A-2-35
5.4 Access to Information........................................................................... A-2-36
5.5 No Solicitation................................................................................. A-2-36
5.6 Non-Solicitation of Employees................................................................... A-2-38
5.7 Amendments to Schedules......................................................................... A-2-38
</TABLE>
A-2-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ARTICLE VI
OTHER AGREEMENTS...................................................................................... A-2-38
6.1 Registration Statement; Preparation of Proxy Statement.......................................... A-2-38
6.2 Stockholder Meeting............................................................................. A-2-39
6.3 Public Statements............................................................................... A-2-40
6.4 Reasonable Commercial Efforts................................................................... A-2-40
6.5 Notification of Certain Matters................................................................. A-2-40
6.6 Xenon 2 Directors............................................................................... A-2-41
6.7 Employee Matters................................................................................ A-2-41
6.8 Xenon 2 Options................................................................................. A-2-42
6.9 SNAP Indebtedness............................................................................... A-2-43
6.10 Organization of CNBC.com........................................................................ A-2-43
6.11 Tax Cooperation and Consistent Reporting........................................................ A-2-43
6.12 Tax Benefit Payments............................................................................ A-2-45
6.13 Xoom Cash....................................................................................... A-2-46
6.14 Transition Services............................................................................. A-2-46
6.15 Conversion of NBC's Class A Common Stock........................................................ A-2-46
ARTICLE VII
CONDITIONS TO CLOSING................................................................................. A-2-46
7.1 Conditions Precedent to Obligations of Each Party............................................... A-2-46
7.2 Conditions Precedent to Obligation of NBC....................................................... A-2-47
7.3 Conditions Precedent to Obligations of Xenon 2.................................................. A-2-47
ARTICLE VIII
INDEMNIFICATION....................................................................................... A-2-47
8.1 Indemnification by Xenon 2...................................................................... A-2-47
8.2 Indemnification by NBC.......................................................................... A-2-48
8.3 Claims Procedure................................................................................ A-2-48
8.4 Exclusive Remedy................................................................................ A-2-48
ARTICLE IX
TERMINATION........................................................................................... A-2-49
9.1 Termination Events.............................................................................. A-2-49
9.2 Effect of Termination........................................................................... A-2-50
ARTICLE X
MISCELLANEOUS AGREEMENTS OF THE PARTIES............................................................... A-2-50
10.1 Notices........................................................................................ A-2-50
10.2 Integration; Amendments........................................................................ A-2-51
10.3 Waiver......................................................................................... A-2-51
10.4 No Assignment; Successors and Assigns.......................................................... A-2-51
10.5 Expenses....................................................................................... A-2-51
10.6 Severability................................................................................... A-2-51
10.7 Section Headings; Table of Contents............................................................ A-2-52
10.8 Third Parties.................................................................................. A-2-52
10.9 GOVERNING LAW; SUBMISSION TO JURISDICTION...................................................... A-2-52
10.10 Specific Performance........................................................................... A-2-52
10.11 Counterparts................................................................................... A-2-52
10.12 Amendment and Restatement...................................................................... A-2-52
</TABLE>
A-2-ii
<PAGE>
<TABLE>
<S> <C>
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>
A-2-iii
<PAGE>
<TABLE>
<S> <C>
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>
A-2-iv
<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
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.
A-2-2
<PAGE>
"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 terms
of this Agreement), PROVIDED, HOWEVER, that "Losses and Expenses" shall not
include any lost profits or other incidental, consequential or punitive damages.
A-2-3
<PAGE>
"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 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,
A-2-4
<PAGE>
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.
"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.
A-2-5
<PAGE>
"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)
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>
A-2-6
<PAGE>
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 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
A-2-7
<PAGE>
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 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.
A-2-8
<PAGE>
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 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
A-2-9
<PAGE>
"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.
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.
A-2-10
<PAGE>
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),
A-2-11
<PAGE>
(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
A-2-12
<PAGE>
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.
A-2-13
<PAGE>
(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
A-2-14
<PAGE>
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
A-2-15
<PAGE>
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.
A-2-16
<PAGE>
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
A-2-17
<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").
A-2-18
<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
A-2-19
<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.
A-2-20
<PAGE>
(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
A-2-21
<PAGE>
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
A-2-22
<PAGE>
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
A-2-23
<PAGE>
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.
A-2-24
<PAGE>
(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
A-2-25
<PAGE>
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
A-2-26
<PAGE>
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
A-2-27
<PAGE>
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
A-2-28
<PAGE>
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
A-2-29
<PAGE>
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.
A-2-30
<PAGE>
(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,
A-2-31
<PAGE>
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.
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.
A-2-32
<PAGE>
(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;
(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;
A-2-33
<PAGE>
(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 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 the date hereof or issued in accordance herewith, (ii) SNAP
Options issued pursuant to commitments to issue SNAP Options that were
included in job offers outstanding as of May 9, 1999, as identified on
SCHEDULE 4.1(T) as amended and (iii) additional options that, when added to
SNAP Options previously outstanding, do not exceed options for units equal
in number to 17% of the 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;
A-2-34
<PAGE>
(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;
(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
A-2-35
<PAGE>
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;
(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
A-2-36
<PAGE>
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 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
A-2-37
<PAGE>
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 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
A-2-38
<PAGE>
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 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
A-2-39
<PAGE>
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 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.
A-2-40
<PAGE>
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
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
A-2-41
<PAGE>
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.
(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.
A-2-42
<PAGE>
(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.
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.
A-2-43
<PAGE>
(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 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.
A-2-44
<PAGE>
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 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.
A-2-45
<PAGE>
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 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).
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.
A-2-46
<PAGE>
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.
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.
A-2-47
<PAGE>
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 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.
A-2-48
<PAGE>
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 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
A-2-49
<PAGE>
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.
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
A-2-50
<PAGE>
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.
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.
A-2-51
<PAGE>
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 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)).
A-2-52
<PAGE>
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-2-53
<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.
B-1-1
<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
B-1-6
<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
B-1-7
<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
B-1-8
<PAGE>
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
B-1-9
<PAGE>
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
B-1-10
<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
B-1-11
<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.
B-1-12
<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.
B-1-13
<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
B-1-14
<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
B-2-1
<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.
B-2-2
<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
B-2-3
<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
B-2-4
<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
B-2-5
<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
B-2-7
<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
C-1-1
<PAGE>
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 and its stockholders.
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;
C-1-2
<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
C-1-3
<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 and its stockholders. 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 and its stockholders.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ LISA M. PRICE
--------------------------------------
Senior Managing Director
C-1-4
<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 and its stockholders.
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
C-2-1
<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;
(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, 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, 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
Transactions and those activities undertaken in the ordinary course of
conducting their respective
C-2-2
<PAGE>
The Board of Directors
XOOM.com, Inc.
Page 3
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 and its stockholders 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.
D-1-1
<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
D-1-4
<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.
D-1-6
<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.
D-1-7
<PAGE>
(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
D-1-8
<PAGE>
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.
D-1-9
<PAGE>
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;
D-1-10
<PAGE>
(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
D-1-11
<PAGE>
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.
D-1-12
<PAGE>
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
D-1-13
<PAGE>
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
D-1-14
<PAGE>
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
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.
D-2-7
<PAGE>
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
D-2-8
<PAGE>
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.
D-2-9
<PAGE>
(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.
D-2-10
<PAGE>
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.
D-2-11
<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
D-2-12
<PAGE>
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.
D-2-13
<PAGE>
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
D-2-14
<PAGE>
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.
D-2-15
<PAGE>
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>
APPENDIX E
NBC INTERNET, INC.
1999 STOCK INCENTIVE PLAN
<PAGE>
NBC INTERNET, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are to
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of the Committees appointed
to administer the Plan.
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, state corporate and securities laws, the Code,
the rules of any applicable stock exchange or national market system, and
the rules of any foreign jurisdiction applicable to Awards granted to
residents therein.
(d) "AWARD" means the grant of an Option, SAR, Dividend Equivalent
Right, Restricted Stock, Performance Unit, Performance Share, or other right
or benefit under the Plan.
(e) "AWARD AGREEMENT" means the written agreement evidencing the grant
of an Award executed by the Company and the Grantee, including any
amendments thereto.
(f) "BOARD" means the Board of Directors of the Company.
(g) "CAUSE" means, with respect to the termination by the Company or a
Related Entity of the Grantee's Continuous Service, that such termination is
for "Cause" as such term is expressly defined in a then-effective written
agreement between the Grantee and the Company or such Related Entity, or in
the absence of such then-effective written agreement and definition, is
based on, in the determination of the Administrator, the Grantee's: (i)
refusal or failure to act in accordance with any specific, lawful direction
or order of the Company or a Related Entity; (ii) unfitness or
unavailability for service or unsatisfactory performance (other than as a
result of Disability); (iii) performance of any act or failure to perform
any act in bad faith and to the detriment of the Company or a Related
Entity; (iv) dishonesty, intentional misconduct or material breach of any
agreement with the Company or a Related Entity; or (v) commission of a crime
involving dishonesty, breach of trust, or physical or emotional harm to any
person. At least 30 days prior to the termination of the Grantee's
Continuous Service pursuant to (i) or (ii) above, the Administrator shall
provide the Grantee with notice of the Company's or such Related Entity's
intent to terminate, the reason therefor, and an opportunity for the Grantee
to cure such defects in his or her service to the Company's or such Related
Entity's satisfaction. During this 30 day (or longer) period, no Award
issued to the Grantee under the Plan may be exercised or purchased.
(h) "CHANGE IN CONTROL" means a change in ownership or control of the
Company effected through any of the following transactions:
(i) a merger, consolidation or other form of business combination,
unless the business of the Company is continued following any such
transaction by a resulting company (which may be, but need not be, the
Company) and the stockholders of the Company immediately prior to such
transaction (the "Prior Stockholders") hold, directly or indirectly, at
least fifty percent (50%) of the total combined voting power of the
resulting company (there being excluded from the voting power held by the
Prior Stockholders, but not from the total voting power of the resulting
company, any voting power received by affiliates of a party to the
transaction,
E-1
<PAGE>
other than the Company) in their capacities as stockholders of the
Company, but excluding any such transaction that the Administrator
determines shall not be a Change in Control; or
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company (including the capital stock of the
Company's subsidiary corporations), but excluding any such transaction
that the Administrator determines shall not be a Change in Control; or
(iii) acquisition by any person or related group of persons (other
than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities, but
excluding any such transaction that the Administrator determines shall
not be a Change in Control; or
(iv) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals
who are Continuing Directors;
PROVIDED, HOWEVER, that a Change in Control shall not occur as a
result of an increase in the securities ownership of National
Broadcasting Company, Inc. or its successor in interest.
(i) "CODE" means the Internal Revenue Code of 1986, as amended.
(j) "COMMITTEE" means any committee appointed by the Board to
administer the Plan.
(k) "COMMON STOCK" means the Class A Common Stock of the Company,
except where other classes of stock are expressly referenced.
(l) "COMPANY" means NBC Internet, Inc., a Delaware corporation.
(m) "CONSULTANT" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's
capacity as a Director) who renders consulting or advisory services to the
Company or such Related Entity.
(n) "CONTINUING DIRECTORS" means members of the Board who either (i)
have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36)
months and were elected or nominated for election as Board members by at
least a majority of the Board members described in clause (i) who were still
in office at the time such election or nomination was approved by the Board.
(o) "CONTINUOUS SERVICE" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director or
Consultant, is not interrupted or terminated. Continuous Service shall not
be considered interrupted in the case of (i) any approved leave of absence,
(ii) transfers among the Company, any Related Entity, or any successor, in
any capacity of Employee, Director or Consultant, or (iii) any change in
status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee, Director or Consultant (except
as otherwise provided in the Award Agreement). An approved leave of absence
shall include sick leave, military leave, or any other authorized personal
leave. For purposes of Incentive Stock Options, no such leave may exceed
ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.
(p) "COVERED EMPLOYEE" means an Employee who is a "covered employee"
under Section 162(m)(3) of the Code.
(q) "DIRECTOR" means a member of the Board or the board of directors
of any Related Entity.
E-2
<PAGE>
(r) "DISABILITY" means that a Grantee would qualify for benefit
payments under the long-term disability policy of the Company or the Related
Entity to which the Grantee provides services regardless of whether the
Grantee is covered by such policy.
(s) "DIVIDEND EQUIVALENT RIGHT" means a right entitling the Grantee to
compensation measured by dividends paid with respect to Common Stock.
(t) "EMPLOYEE" means any person, including an Officer or Director, who
is an employee of the Company or any Related Entity. The payment of a
director's fee by the Company or a Related Entity shall not be sufficient to
constitute "employment" by the Company.
(u) "EQUITY SECURITIES" outstanding as of any time means all equity
securities of the Company, including (i) Shares of Class A Common Stock then
outstanding; (ii) shares of all other classes of common stock then
outstanding and (ii) shares of any class of common stock into which other
securities then outstanding are convertible or exercisable at such time or
in the future.
(v) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(w) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the last
market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on
which a closing price was reported) on the stock exchange determined by
the Administrator to be the primary market for the Common Stock or the
Nasdaq National Market, whichever is applicable or (B) if the Common
Stock is not traded on any such exchange or national market system, the
average of the closing bid and asked prices of a Share on the Nasdaq
Small Cap Market for the day prior to the time of the determination (or,
if no such prices were reported on that date, on the last date on which
such prices were reported), in each case, as reported in THE WALL STREET
JOURNAL or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common Stock of
the type described in (i), above, the Fair Market Value thereof shall be
determined by the Administrator in good faith.
(x) "GOOD REASON" means the occurrence after a Change in Control or a
Related Entity Disposition of any of the following events or conditions
unless consented to by the Grantee:
(i) (A) a change in the Grantee's status, title, position or
responsibilities which represents a materially adverse change from the
Grantee's status, title, position or responsibilities as in effect at any
time within six (6) months preceding the date of a Change in Control or
Related Entity Disposition or at any time thereafter or (B) the
assignment to the Grantee of any duties or responsibilities which are
materially and adversely inconsistent with the Optionee's status, title,
position or responsibilities as in effect at any time within six (6)
months preceding the date of a Change in Control or Related Entity
Disposition or at any time thereafter;
(ii) reduction in the Grantee's base salary to a level below that in
effect at any time within six (6) months preceding the date of a Change
in Control or Related Entity Disposition or at any time thereafter, other
than as part of a Company-wide reduction in salaries of employees
generally; or
(iii) requiring the Grantee to be based at any place outside a
50-mile radius from the Grantee's job location or residence prior to the
Change in Control or Related Entity
E-3
<PAGE>
Disposition, except for reasonably required travel on business which is
not materially greater than such travel requirements prior to the Change
in Control or Related Entity Disposition;
provided, however, that reasons (i) and (ii) shall be applicable only
with respect to a Grantee who is an Employee, and not to a Grantee who
is a non-employee Director or a Consultant; and provided further, that
an event or condition described in (i) or (ii) shall not constitute
"Good Reason" unless the Grantee shall have given notice to the Company
stating in writing that the Grantee believes that event or condition is
one described in this definition, and the Company shall not have cured
the same within 60 days after receipt of the notice.
(y) "GRANTEE" means an Employee, Director or Consultant who receives
an Award pursuant to an Award Agreement under the Plan.
(z) "IMMEDIATE FAMILY" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law,
or sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which
these persons have more than fifty percent (50%) of the beneficial interest,
a foundation in which these persons (or the Grantee) control the management
of assets, and any other entity in which these persons (or the Grantee) own
more than fifty percent (50%) of the voting interests.
(aa) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(bb) "NON-QUALIFIED STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(cc) "OFFICER" means a person who is an officer of the Company or a
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(dd) "OPTION" means an option to purchase Shares pursuant to an Award
Agreement granted under the Plan.
(ee) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(ff) "PERFORMANCE - BASED COMPENSATION" means compensation qualifying
as "performance-based compensation" under Section 162(m) of the Code.
(gg) "PERFORMANCE SHARES" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of
performance criteria established by the Administrator.
(hh) "PERFORMANCE UNITS" means an Award which may be earned in whole
or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities
or a combination of cash, Shares or other securities as established by the
Administrator.
(ii) "PLAN" means this 1999 Stock Incentive Plan.
(jj) "RELATED ENTITY" means any Parent, Subsidiary and any business,
corporation, partnership, limited liability company or other entity in which
the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(kk) "RELATED ENTITY DISPOSITION" means the sale, distribution or
other disposition by the Company, a Parent or a Subsidiary of all or
substantially all of the interests of the Company, a Parent or a Subsidiary
in any Related Entity effected by a sale, merger or consolidation or other
E-4
<PAGE>
transaction involving that Related Entity or the sale of all or
substantially all of the assets of that Related Entity, other than any
Related Entity Disposition to the Company, a Parent or a Subsidiary.
(ll) "RESTRICTED STOCK" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture
provisions, and other terms and conditions as established by the
Administrator.
(mm) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor thereto.
(nn) "SAR" means a stock appreciation right entitling the Grantee to
Shares or cash compensation, as established by the Administrator, measured
by appreciation in the value of Common Stock.
(oo) "SHARE" means a share of the Common Stock or any security into
which the Common Stock shall have been converted.
(pp) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10, below, the maximum aggregate
number of Shares which may be issued pursuant to Awards initially shall be
13,500,000 Shares, and commencing with the first business day of each calendar
year thereafter beginning with 2001, such maximum aggregate number of Shares
shall be increased to a number that, when added to Shares with respect to which
Awards were previously authorized and are as yet unissued, equals thirty percent
(30%) of the number of outstanding shares of Equity Securities as of December 31
of the immediately preceding calendar year. Notwithstanding the foregoing,
subject to the provisions of Section 10, below, the maximum aggregate number of
Shares available for grant of Incentive Stock Options shall be 13,500,000
Shares, and such number shall not be subject to annual adjustment as described
above. The Shares to be issued pursuant to Awards may be authorized, but
unissued, or reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which is
forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. If any unissued Shares are retained
by the Company upon exercise of an Award in order to satisfy the exercise price
for such Award or any withholding taxes due with respect to such Award, such
retained Shares subject to such Award shall become available for future issuance
under the Plan (unless the Plan has terminated). Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan and
shall not become available for future issuance under the Plan, except that if
unvested Shares are forfeited, or repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PLAN ADMINISTRATOR.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With respect
to grants of Awards to Directors or Employees who are also Officers or
Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from
Section 16(b) of the Exchange Act in
E-5
<PAGE>
accordance with Rule 16b-3. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board.
(ii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER EMPLOYEES.
With respect to grants of Awards to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Awards and may limit such authority as the Board
determines from time to time.
(iii) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES. Notwithstanding
the foregoing, grants of Awards to any Covered Employee, or any other
Employee whom the Administrator determines is likely to become a Covered
Employee during the term of the Award, and that are intended to qualify as
Performance-Based Compensation shall be made only by a Committee (or
subcommittee of a Committee) which is comprised solely of two or more
Directors eligible to serve on a committee making Awards qualifying as
Performance-Based Compensation. In the case of such Awards granted to
Covered Employees, references to the "Administrator" or to a "Committee"
shall be deemed to be references to such Committee or subcommittee.
(iv) ADMINISTRATION ERRORS. In the event an Award is granted in a manner
inconsistent with the provisions of this subsection (a), such Award shall be
presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom Awards
may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under the Plan,
provided that any amendment that would adversely affect the Grantee's rights
under an outstanding Award shall not be made without the Grantee's written
consent;
(vii) to construe and interpret the terms of the Plan and Awards granted
pursuant to the Plan, including without limitation, any notice of Award or
Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or procedures to
accommodate the rules or laws of applicable foreign jurisdictions and to
afford Grantees favorable treatment under such laws; provided, however, that
no Award shall be granted under any such additional terms, conditions, rules
or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms of the
Plan, as the Administrator deems appropriate.
E-6
<PAGE>
5. ELIGIBILITY. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
6. TERMS AND CONDITIONS OF AWARDS.
(a) TYPE OF AWARDS. The Administrator is authorized under the Plan to
award any type of arrangement to an Employee, Director or Consultant that is
not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR
or similar right with a fixed or variable price related to the Fair Market
Value of the Shares and with an exercise or conversion privilege related to
the passage of time, the occurrence of one or more events, or the
satisfaction of performance criteria or other conditions, or (iii) any other
security with the value derived from the value of the Shares. Such awards
include, without limitation, Options, SARs, sales or bonuses of Restricted
Stock, Dividend Equivalent Rights, Performance Units or Performance Shares,
and an Award may consist of one such security or benefit, or two (2) or more
of them in any combination or alternative.
(b) DESIGNATION OF AWARD. Each Award shall be designated in the Award
Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of Shares subject to Options designated as Incentive Stock
Options which become exercisable for the first time by a Grantee during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-
Qualified Stock Options. For this purpose, Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the date the Option
with respect to such Shares is granted.
(c) CONDITIONS OF AWARD. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total
stockholder return, return on equity, return on assets, return on
investment, net operating income, cash flow, revenue, economic value added
and sales, in each case as applied to an individual, the Company or a
subsidiary, division, business unit, or department thereof. Partial
achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award
Agreement.
(d) ACQUISITIONS AND OTHER TRANSACTIONS. The Administrator may issue
Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with
the Company or a Related Entity acquiring another entity, an interest in
another entity or an additional interest in a Related Entity whether by
merger, stock purchase, asset purchase or other form of transaction.
(e) DEFERRAL OF AWARD PAYMENT. The Administrator may establish one or
more programs under the Plan to permit selected Grantees the opportunity to
elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the
election would entitle the Grantee to payment or receipt of Shares or other
consideration under an Award. The Administrator may establish the election
procedures, the timing of such elections,
E-7
<PAGE>
the mechanisms for payments of, and accrual of interest or other earnings,
if any, on amounts, Shares or other consideration so deferred, and such
other terms, conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(f) AWARD EXCHANGE PROGRAMS. The Administrator may establish one or more
programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
(g) SEPARATE PROGRAMS. The Administrator may establish one or more
separate programs under the Plan for the purpose of issuing particular forms
of Awards to one or more classes of Grantees on such terms and conditions as
determined by the Administrator from time to time.
(h) INDIVIDUAL OPTION AND SAR LIMIT. The maximum number of Shares with
respect to which Options and SARs may be granted to any Employee in any
fiscal year of the Company shall be 1,000,000 Shares. The foregoing
limitation shall be adjusted proportionately in connection with any change
in the Company's capitalization pursuant to Section 10, below. To the extent
required by Section 162(m) of the Code or the regulations thereunder, in
applying the foregoing limitation with respect to an Employee, if any Option
or SAR is canceled, the canceled Option or SAR shall continue to count
against the maximum number of Shares with respect to which Options and SARs
may be granted to the Employee. For this purpose, the repricing of an Option
(or in the case of a SAR, the base amount on which the stock appreciation is
calculated is reduced to reflect a reduction in the Fair Market Value of the
Common Stock) shall be treated as the cancellation of the existing Option or
SAR and the grant of a new Option or SAR.
(i) EARLY EXERCISE. The Award Agreement may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to
full vesting of the Award. Any unvested Shares received pursuant to such
exercise may be subject to a repurchase right in favor of the Company or a
Related Entity or to any other restriction the Administrator determines to
be appropriate.
(j) TERM OF AWARD. The term of each Award shall be the term stated in
the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who,
at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the term of the Incentive Stock Option shall be
five (5) years from the date of grant thereof or such shorter term as may be
provided in the Award Agreement.
(k) TRANSFERABILITY OF AWARDS. Incentive Stock Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee;
provided, however, that the Grantee may designate a beneficiary of the
Grantee's Incentive Stock Option in the event of the Grantee's death on a
beneficiary designation form provided by the Administrator. Other Awards may
be transferred by gift or through a domestic relations order to members of
the Grantee's Immediate Family to the extent provided in the Award Agreement
or in the manner and to the extent determined by the Administrator.
(l) TIME OF GRANTING AWARDS. The date of grant of an Award shall for all
purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director
or Consultant to whom an Award is so granted within a reasonable time after
the date of such grant.
E-8
<PAGE>
7. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION, AND TAXES.
(a) EXERCISE OR PURCHASE PRICE. The exercise or purchase price, if any, for
an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than
one hundred ten percent (110%) of the Fair Market Value per Share on the
date of grant; or
(B) granted to any Employee other than an Employee described in the
preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share exercise
price shall be not less than eighty-five percent (85%) of the Fair Market
Value per Share on the date of grant unless otherwise determined by the
Administrator.
(iii) In the case of Awards intended to qualify as Performance-Based
Compensation, the exercise or purchase price, if any, shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
(iv) In the case of other Awards, such price as is determined by the
Administrator.
(v) Notwithstanding the foregoing provisions of this Section 7(a), in
the case of an Award issued pursuant to Section 6(d), above, the exercise or
purchase price for the Award shall be determined in accordance with the
principles of Section 424(a) of the Code.
(b) CONSIDERATION. Subject to Applicable Laws, the consideration to be paid
for the Shares to be issued upon exercise or purchase of an Award including the
method of payment, shall be determined by the Administrator (and, in the case of
an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following, provided that the portion of the consideration
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator
determines as appropriate;
(iv) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of
the Award) which have a Fair Market Value on the date of surrender or
attestation equal to the aggregate exercise price of the Shares as to
which said Award shall be exercised (but only to the extent that such
exercise of the Award would not result in an accounting compensation
charge with respect to the Shares used to pay the exercise price unless
otherwise determined by the Administrator);
(v) with respect to Options, payment through a broker-dealer sale
and remittance procedure pursuant to which the Grantee (A) shall provide
written instructions to a Company designated brokerage firm to effect the
immediate sale of some or all of the purchased Shares and remit to the
Company, out of the sale proceeds available on the settlement date,
E-9
<PAGE>
sufficient funds to cover the aggregate exercise price payable for the
purchased Shares and (B) shall provide written directives to the Company
to deliver the certificates for the purchased Shares directly to such
brokerage firm in order to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) TAXES. No Shares shall be delivered under the Plan to any Grantee or
other person until such Grantee or other person has made arrangements acceptable
to the Administrator for the satisfaction of any foreign, federal, state, or
local income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Incentive Stock Option. Upon
exercise of an Award, the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations.
8. EXERCISE OF AWARD.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER.
(i) Any Award granted hereunder shall be exercisable at such times and
under such conditions as determined by the Administrator under the terms of
the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of
the Award by the person entitled to exercise the Award and full payment for
the Shares with respect to which the Award is exercised, including, to the
extent selected, use of the broker-dealer sale and remittance procedure to
pay the purchase price as provided in Section 7(b)(v). Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to Shares subject to an
Award, notwithstanding the exercise of an Option or other Award. The Company
shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Award. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate
is issued, except as provided in the Award Agreement or Section 10, below.
(b) EXERCISE OF AWARD FOLLOWING TERMINATION OF CONTINUOUS SERVICE.
(i) An Award may not be exercised after the termination date of such
Award set forth in the Award Agreement and may be exercised following the
termination of a Grantee's Continuous Service only to the extent provided in
the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an Award
following the termination of the Grantee's Continuous Service for a
specified period, the Award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of
the Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the extent not
exercised within the time permitted by law for the exercise of Incentive
Stock Options following the termination of a Grantee's Continuous Service
shall convert automatically to a Non-Qualified Stock Option and thereafter
shall be exercisable as such to the extent exercisable by its terms for the
period specified in the Award Agreement.
9. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an Award unless
the exercise of such Award and the issuance and delivery of such Shares pursuant
thereto shall comply with all Applicable Laws, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
E-10
<PAGE>
(b) As a condition to the exercise of an Award, the Company may require the
person exercising such Award to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any Applicable
Laws.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Options
and SARs may be granted to any Employee in any fiscal year of the Company, as
well as any other terms that the Administrator determines require adjustment
shall be proportionately adjusted for (i) any increase or decrease in the number
of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Shares, or similar event
affecting the Shares, (ii) any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company, or (iii)
as the Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies or any
similar transaction; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Administrator
and its determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
11. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/RELATED ENTITY
DISPOSITIONS. Except as may be provided in an Award Agreement:
(a) In the event of any Change in Control, each Award which is at the
time outstanding under the Plan automatically shall have its vesting
accelerated by 12 months (such that (1) any Award that is not yet vested but
was otherwise scheduled to become vested within 12 months instead becomes
vested and exercisable on the effective date of the Change in Control, and
(2) any Award that is not yet vested and was otherwise scheduled to become
vested on a date that is more than 12 months after the Change in Control
instead become fully vested and exercisable on a date that is 12 months
earlier than the date provided for in by the terms of the Award). Each such
Award that becomes vested and exercisable on the effective date of the
Change in Control shall also be released from any restrictions on transfer
(other than transfer restrictions applicable to Incentive Stock Options) and
repurchase or forfeiture rights, immediately prior to the specified
effective date of such Change in Control, for all of the Shares at the time
represented by the vested portion of such Award. Effective upon the
consummation of the Change in Control, all outstanding Awards under the Plan
shall terminate. However, an outstanding Award under the Plan shall not so
terminate if and to the extent: (i) such Award is, in connection with the
Change in Control, either assumed by the successor corporation or Parent
thereof or replaced with a comparable Award with respect to shares of the
capital stock of the successor corporation or Parent thereof, or (ii) such
Award is to be replaced with a cash incentive program of the successor
corporation which preserves the compensation element of such Award existing
at the time of the Change in Control and provides for subsequent payout in
accordance with the same vesting schedule applicable to such Award, or (iii)
such Award is purchased for cash in an amount equal to the fair value of the
Award, as reasonably determined by the Administrator, as of the date of the
Change in Control. The determination of Award comparability above shall be
made by the Administrator.
(b) Following a Change in Control and upon the termination of the
Continuous Service of a Grantee if such Continuous Service is terminated by
the Company or Related Entity or the
E-11
<PAGE>
successor employer corporation without Cause or voluntarily by the Grantee
with Good Reason within twelve (12) months of a Change in Control, each
Award of such Grantee which is at the time outstanding under the Plan (or
the replacement Award or cash incentive program, if applicable)
automatically shall become fully vested and exercisable and be released from
any restrictions on transfer (other than transfer restrictions applicable to
Incentive Stock Options) and repurchase or forfeiture rights, immediately
upon the termination of such Continuous Service.
(c) Effective upon the consummation of a Related Entity Disposition, for
purposes of the Plan and all Awards, the Continuous Service of each Grantee
who is at the time engaged primarily in service to the Related Entity
involved in such Related Entity Disposition shall be deemed to terminate and
each Award of such Grantee which is at the time outstanding under the Plan
automatically shall become fully vested and exercisable and be released from
any restrictions on transfer (other than transfer restrictions applicable to
Incentive Stock Options) and repurchase or forfeiture rights for all of the
Shares at the time represented by such Award and be exercisable in
accordance with the terms of the Award Agreement evidencing such Award.
However, such Continuous Service shall be not be deemed to terminate if such
Award is, in connection with the Related Entity Disposition, assumed by the
successor entity or its Parent. In addition, such Continuous Service shall
not be deemed to terminate and an outstanding Award under the Plan shall not
so fully vest and be exercisable and released from such limitations if and
to the extent: (i) such Award is, in connection with the Related Entity
Disposition, either to be assumed by the successor entity or its parent or
to be replaced with a comparable Award with respect to interests in the
successor entity or its parent or (ii) such Award is to be replaced with a
cash incentive program of the successor entity which preserves the
compensation element of such Award existing at the time of the Related
Entity Disposition and provides for subsequent payout in accordance with the
same vesting schedule applicable to such Award; provided, however, that such
Award (if assumed), the replacement Award (if replaced), or the cash
incentive program automatically shall become fully vested, exercisable and
payable and be released from any restrictions on transfer (other than
transfer restrictions applicable to Incentive Stock Options) and repurchase
or forfeiture rights immediately upon termination of the Grantee's
Continuous Service (substituting the successor employer entity for "Company
or Related Entity" for the definition of "Continuous Service") if such
Continuous Service is terminated by the successor entity without Cause or
voluntarily by the Grantee with Good Reason within twelve (12) months of the
Related Entity Disposition. The determination of Award comparability above
shall be made by the Administrator.
12. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective upon
the later to occur of its adoption by the Board or its approval by the
stockholders of Xoom.com, Inc. It shall continue in effect for a term of ten
(10) years unless sooner terminated.
13. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to
such a degree as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Awards
already granted, and such Awards shall remain in full force and effect as if
the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement
must be in writing and signed by the Grantee and the Company.
E-12
<PAGE>
14. RESERVATION OF SHARES.
(a) The Company, during the term of the Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy
the requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority shall not
have been obtained.
15. NO EFFECT ON TERMS OF EMPLOYMENT/CONSULTING RELATIONSHIP. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.
16. NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
E-13
<PAGE>
APPENDIX F
ADDITIONAL INFORMATION
REQUIRED BY THE BELGIAN REGULATOR
<PAGE>
ADDITIONAL INFORMATION
REQUIRED BY THE BELGIAN REGULATOR
APPROVAL BY EASDAQ
ADMISSION TO TRADING ON EASDAQ
NBCi has applied for admission of its Class A common stock to trading on
EASDAQ under the symbol "NBCI". The Class A common stock is expected to begin
trading on EASDAQ on the date after the closing of the contribution agreement,
which is expected to occur in November 1999. Admission to EASDAQ is subject to
certain adequacy and liquidity requirements determined by the EASDAQ Market
Authority. Companies whose securities are traded on EASDAQ are required to
publish relevant financial and other information regularly and to keep the
public informed of all events likely to affect the market price of their
securities. Price sensitive information is made available to investors in Europe
through the EASDAQ Reuters Regulatory Company Reporting System and international
information vendors. In case of any doubt about the contents or the meaning of
the information contained in this document, an authorized or professional person
specializing in advising on the acquisition of financial instruments should be
consulted. A copy of NBCi's restated certificate of incorporation will be
available for viewing at EASDAQ and is included in the proxy statement/
prospectus as Appendix D-1.
NBCi's Class A common stock has the following identification number:
CUSIP 62873D ISIN US 62873D1054
POSSIBILITY OF SHARE REPURCHASES
NBCi's restated certificate of incorporation, amended and restated bylaws
and the Delaware General Corporate Law do not prohibit NBCi from repurchasing or
otherwise acquiring outstanding shares of its common stock, and, accordingly,
NBCi may exercise its right to repurchase common stock, subject to applicable
law. Upon the issuance of the Class A common stock in the manner set forth in
the proxy statement/prospectus, such shares will be freely transferable within
the European Union, and be fully-paid and nonassessable.
ADDITIONAL INFORMATION REGARDING OUR CONSOLIDATED FINANCIAL STATEMENTS
The financial statements set forth in the proxy statement/prospectus have
been prepared in accordance with US GAAP.
PERSONS RESPONSIBLE FOR THE PROXY STATEMENT/PROSPECTUS AND DECLARATION
NBCi, represented by Chris Kitze, President, takes responsibility for the
contents of this proxy statement/prospectus. To the best of NBCi's knowledge and
belief, the information contained in this proxy statement/prospectus is
factually accurate in all material respects and is not misleading and there is
no omission of any information that would make any statement herein materially
misleading or be likely to affect the import of any information in the proxy
statement/prospectus.
NBC Internet, Inc.
by Chris Kitze
President
F-1
<PAGE>
SETTLEMENT AND CLEARANCE
The following summarizes NBCi's understanding of the operation of the
clearing system which will be in place. Persons proposing to trade the Class A
common stock on EASDAQ should inform themselves about the costs of such trading.
Transactions in the Class A common stock executed in the United States
generally will be settled by book-entry through financial institutions that are
participants in DTC.
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations (collectively, "DTC Participants") and to
facilitate the clearance and settlement of transactions in such securities
between participants through electronic book-entry changes in accounts of DTC
Participants. DTC Participants include securities brokers and dealers, banks and
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, "DTC Indirect Participants") that
clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly. Persons who are DTC Participants may beneficially
own securities held by or on behalf of DTC only through DTC Participants or DTC
Indirect Participants.
NBCi's Class A common stock is expected to be quoted on EASDAQ in USD.
Transactions in the common stock on EASDAQ will be settled in USD or any other
Euroclear or Cedelbank eligible currency through the Euroclear or Cedelbank
Systems. Investors in the Class A common stock on EASDAQ must have a securities
account with a financial institution which directly or indirectly has access to
Euroclear or Cedelbank. Euroclear and Cedelbank are DTC Indirect Participants.
Euroclear and Cedelbank hold securities and book-entry interests in
securities for their direct participants, which include banks, securities
brokers and dealers, other professional intermediaries and foreign depositories
and facilitate the clearance and settlement of securities transactions between
their respective participants, and between their participants and participants
of certain other securities intermediaries, including DTC, through electronic
book-entry changes in accounts of such participants or other securities
intermediaries.
Euroclear and Cedelbank provide their respective participants, among other
things, with safekeeping, administration, clearance and settlement, securities
lending and borrowing, and related services. Euroclear and Cedelbank
participants are investment banks, securities brokers and dealers, banks,
central banks, supranationals, custodians, investment managers, corporations,
trust companies and certain other organizations and include certain of the
underwriters.
F-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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>
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to 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 29th day of October, 1999.
NBC INTERNET, INC.
A DELAWARE CORPORATION
BY /S/ CHRIS KITZE
--------------------
Chris Kitze
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to 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 October 29, 1999
Chris Kitze Officer)
Chief Financial Officer,
/s/ JOHN HARBOTTLE Executive Vice President,
- ------------------------------ Secretary and Treasurer October 29, 1999
John Harbottle (Principal Financial and
Accounting Officer)
/s/ MARC SZNAJDERMAN Director
- ------------------------------ October 29, 1999
Marc Sznajderman
II-2
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Managers
Snap! LLC:
Under date of June 18, 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
</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)
2.2A First Amendment to Agreement and Plan of Contribution and Merger dated as of October 20, 1999 by and
among the Registrant, Xoom.com, Inc. CNET, Inc., SNAP! LLC and Xenon 3, Inc.(4)
2.2 Second Amended and Restated Agreement and Plan of Contribution, Investment and Merger dated July 8, 1999
by and among the Registrant, National Broadcasting Company, Inc., GE Investments Subsidiary, Inc., Neon
Media Corporation and Xoom.com, Inc. (filed as Appendix A-2 to the Proxy Statement/Prospectus forming a
part of this Registration Statement)
2.3A First Amendment to Second Amended and Restated Agreement and Plan of Contribution, Investment and Merger
dated October 20, 1999 by and among the Registrant, National Broadcasting Company, Inc., GE Investments
Subsidiary, Inc., Neon Media Corporation and Xoom.com, Inc.(4)
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Certificate of Amendment of Certificate of Incorporation of Registrant(1)
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(1)
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(4)
10.2 Agreement of Sublease between Xoom.com, Inc. and Cornerstone Internet Solutions Company d/b/a USWeb
Cornerstone dated August 1, 1998(1)
10.3 Assignment of Lease by Xaos Tools, Inc. and Acceptance of Assignment and Assumption of Lease by
Xoom.com, dated July 31, 1998(1)
10.4 Office Lease for One Beach Street, San Francisco, California between No. 1 Beach Street, LLC and CNET,
Inc. dated September 24, 1997(1)
10.5 Form of Governance and Investor Rights Agreement between the Registrant and National Broadcasting
Company, Inc.(1)
10.6 Form of Standstill Agreement between the Registrant and CNET, Inc.(1)
10.7 Brand Integration and License Agreement between NBC Multimedia, Inc. and National Broadcasting Company,
Inc., dated May 8, 1999(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
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)
10.10 Form of Voting and Right of First Offer Agreement between National Broadcasting Company, Inc. and CNET,
Inc.(1)
10.11 Loan Agreement between Xoom.com, Inc. and Sand Hill Capital, LLC, dated as of November 3, 1998(1)
10.12 Amended and Restated Letter Agreement between Bank of America National Trust and Savings Association and
SNAP! LLC, dated September 14, 1999(3)
10.13 Agreement of Lease between Eleven Penn Plaza LLC and Xoom.com, Inc., dated March 16, 1999(1)
10.14 Preferred Carriage Agreement by and between CNET, Inc., National Broadcasting Company, Inc., NBC
Multimedia, Inc. and SNAP LLC., dated June 30, 1998(1)
10.15 Addendum to Preferred Carriage Agreement between CNET, Inc. and SNAP LLC, dated June 30, 1998(1)
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(1)
10.17 Form of Severance Agreement by and between Xoom.com, Inc. and Laurent Massa(3)
10.18 1999 Stock Incentive Plan (filed as Appendix E to the Proxy Statement/Prospectus forming a part of this
Registration Statement)
10.19 Stock Purchase Agreement by and between Xoom.com, Inc. and National Broadcasting Company, Inc., dated
June 11, 1999(1)
10.20 Consulting Agreement by and between Xoom.com, Inc. and James Heffernan, dated May 15, 1998(1)
10.21 Letter Agreement by and between Xoom.com, Inc. and Jeffrey Ballowe, dated July 28, 1998(1)
10.22 Letter Agreement by and between Xoom.com, Inc. and Philip Schlein, dated July 28, 1998(1)
10.23 Letter Agreement by and between Xoom.com, Inc., and Robert Harris, dated July 28, 1998(1)
10.24 Employment Agreement by and between Xoom,com, Inc. and John Harbottle, dated August 4, 1988(1)
10.25 Form of Advertising Agreement between the Registrant and National Broadcasting Company, Inc.(4)
10.26 Form of Registration Rights Agreement by and among the Registrant, CNET, Inc., National Broadcasting
Company, Inc., GE Investments Subsidiary, Inc., Flying Disc Investments Limited Partnership and Chris
Kitze(4)
10.27 Form of $39,477,953 Subordinated Zero Coupon Convertible Debenture due 2006(4)
10.28 Form of $447,416,805 Subordinated Zero Coupon Convertible Debenture due 2006
10.29 Form of $340,000,000 Term Note(4)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.30 Office Lease for 225 Bush Street, San Francisco, California between OAIC Bush Street, LLC and Xoom.com,
Inc. dated August 13, 1999(3)
10.31 Letter Agreement by and between Xoom.com, Inc. and Edmond Sanctis, dated October 19, 1999
21.1 Subsidiaries of the Registrant(1)
23.1 Consent of Morrison & Foerster LLP. Reference is made to Exhibits 5.1 and 8.1
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
23.5 Consent of PricewaterhouseCoopers LLP, Independent Accountants
27.1 Financial Data Schedule of Xoom.com, Inc.(2)
27.2 Financial Data Schedule of NBC Multimedia, Inc.(2)
27.3 Financial Data Schedule of SNAP! LLC(2)
99.1 Consent of Bear, Stearns & Co. Inc.(4)
99.2 Consent of Hambrecht & Quist LLC(4)
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(1)
99.5 Consent of Jeffrey Ballowe to be named as a nominee for director of the Registrant(1)
99.6 Consent of Robert Harris, Jr. to be named as a nominee for director of the Registrant(1)
99.7 Consent of James Heffernan to be named as a nominee for director of the Registrant(1)
99.8 Consent of Philip Schlein to be named as a nominee for director of the Registrant(1)
99.9 Consent of Mark Begor to be named as a nominee for director of the Registrant(1)
99.10 Consent of Scott M. Sassa to be named as a nominee for director of the Registrant(3)
99.11 Consent of Martin Yudkovitz to be named as a nominee for director of the Registrant(1)
99.12 Consent of Gary M. Reiner to be named as a nominee for director of the Registrant(1)
99.13 Consent of John F. Welch, Jr. to be named as a nominee for director of the Registrant(1)
99.14 Consent of L. Lowry Mays to be named as a nominee for director of the Registrant.(4)
99.15 Consent of Michael Lynton to be named as a nominee for director of the Registrant.(4)
</TABLE>
- ------------------------
(1) Previously filed with Registrant's Registration Statement on Form S-4 on
July 12, 1999
(2) Previously filed with Amendment No. 1 to Registrant's Registration
Statement on Form S-4 on September 1, 1999.
(3) Previously filed with Amendment No. 2 to Registrant's Registration
Statement on Form S-4 on October 7, 1999.
(4) Previously filed with Amendment No. 3 to Registrant's Registration
Statement on Form S-4 on October 21, 1999.
<PAGE>
[LOGO] Exhibit 4.2
NBCi
NBC INTERNET, INC
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
NUMBER SHARES
________ ___________
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR CERTAIN
BOSTON, MA OR NEW YORK, NY DEFINITIONS
CUSIP
THIS CERTIFIES THAT _____________________________________________ IS THE
OWNER OF ________________________________________________ FULLY PAID AND
NONASSESSABLE SHARES OF THE [CLASS A/CLASS B] COMMON STOCK, $0.0001 PAR
VALUE PER SHARE, OF
NBC INTERNET, INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
_______________________ ________________
TREASURER AND SECRETARY [SEAL] PRESIDENT
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/
------------------------------
AUTHORIZED SIGNATURE
<PAGE>
NBC INTERNET, INC.
A statement of 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 as established, from time to time, by the
Certificate of Incorporation of the Corporation and by any certificate of
determination, the number of shares constituting each class and series, and
the designations thereof, may be obtained by the holder hereof upon request
and without charge from the Secretary of the Corporation at the principal
office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- __________Custodian__________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________
(State)
UNIF TRF MIN ACT -- _______Custodian (until age_______)
(Cust)
__________ under Uniform Transfers
(Minor)
to Minors Act______________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________hereby sell(s), assign(s) and transfer(s)
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
/ /
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________
X ___________________________________________
X ___________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By___________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[LETTERHEAD]
October 29, 1999
NBC Internet, Inc.
300 Montgomery Street, Suite 300
San Francisco, CA 94104
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 filed by you
with the Securities and Exchange Commission (the "Registration Statement")
relating to the registration under the Securities Act of 1933, as amended, of
20,120,409 shares of your Class A common stock, $0.0001 par value (the "Stock").
As your counsel, we have examined the proceedings taken and are familiar
with the proceedings proposed to be taken by you in connection with the issuance
of the Stock pursuant to the transactions set forth and described in the
Registration Statement.
Based upon and subject to the foregoing, it is our opinion that the
Stock when issued in the manner referred to in the Registration Statement, will
be legally and validly issued, fully-paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name whenever appearing in the
Registration Statement and any amendments thereto. In giving this consent, we do
not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE>
Exhibit 8.1
[LETTERHEAD]
October 29, 1999
XOOM.com, Inc.
300 Montgomery Street, Suite 300
San Francisco, California 94104
Ladies and Gentlemen:
We have acted as counsel to XOOM.com, Inc., a Delaware corporation
("Xoom.com"), in connection with that certain Registration Statement of NBC
Internet, Inc., a Delaware corporation ("NBCi"), initially filed on Form S-4
with the Securities and Exchange Commission ("SEC") on July 12, 1999 (File no.
333-82639), and amended from time to time through the date hereof (the
"Registration Statement"), which includes the proxy statement/prospectus of
Xoom.com and NBCi (the "Proxy/Prospectus").
We hereby confirm that the discussion under the caption "Material
Federal Income Tax Consequences" in the Proxy/Prospectus expresses our
opinion as to the material federal income tax consequences to the
stockholders of Xoom.com with respect to those transactions contemplated by
that certain Agreement and Plan of Contribution and Merger, dated as of
May 9, 1999, as amended (the "Agreement"), among CNET, Inc, a Delaware
corporation, Xoom.com, NBCi, Xenon 3 Inc., a Delaware corporation and a
wholly-owned subsidiary of NBCi, and SNAP! LLC, a Delaware limited liability
company, provided that such transactions are effected in accordance with the
terms of the Agreement.
We hereby consent to the reference to our firm name in the Registration
Statement and the Proxy/Prospectus contained therein. In giving such consent,
however, 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
(the "Act"), or the rules and regulations of the SEC promulgated thereunder,
nor do we thereby admit that we are experts with respect to any part of the
Registration Statement within the meaning of the term "experts" as used in
the Act or the rules and regulations of the SEC promulgated thereunder.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE>
Exhibit 10.28
NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF
THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF MAKER HAS BEEN FURNISHED
WITH AN OPINION REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO MAKER OF
COUNSEL REASONABLY SATISFACTORY TO MAKER THAT SUCH TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS THEREUNDER.
ISSUE PRICE: $759.918 PER $1,000 OF PRINCIPAL AMOUNT
TOTAL ISSUE PRICE: $340,000,000
ORIGINAL ISSUE DISCOUNT: $240.082 PER $1,000 OF PRINCIPAL AMOUNT
TOTAL AMOUNT OF ORIGINAL ISSUE DISCOUNT: $107,416,805
YIELD TO MATURITY: 4.0% per annum
ISSUE DATE: October __, 1999
SUBORDINATED ZERO COUPON
CONVERTIBLE DEBENTURE due 2006
representing up to
$447,416,805
No. 2. October __, 1999
1. PAYMENT OF PRINCIPAL AND ORIGINAL ISSUE DISCOUNT.
FOR VALUE RECEIVED, the undersigned, NBC Internet, Inc., a Delaware
corporation ("Maker"), hereby promises to pay GE Investments Subsidiary, Inc.
(or an affiliate thereof) or the subsequent registered owner of this Note
("Payee"), in the manner hereinafter provided, the principal amount of Four
Hundred Forty Seven Million Four Hundred Sixteen Thousand Eight Hundred
Five Dollars ($447,416,805) on October __, 2006 (the "Stated Maturity
Date").
The principal of this Note shall not bear interest except in the case
of a default in the payment of principal upon acceleration, upon redemption or
at the Stated Maturity Date and in such case the amount payable hereon, in lieu
of the principal amount due at the Stated Maturity Date hereof shall be the
amount (the "Amortized Face Amount") equal to (a) the Issue Price (as defined
below) plus (b) that portion of the difference between the Issue Price and the
principal amount that has accrued at the Yield to Maturity (as defined below)
(calculated on an annual bond equivalent basis from October __, 1999 [Closing])
at the date as of which the Amortized Face Amount is calculated, which shall
accrue from the date of such default in payment to the date payment on such
principal has been made or duly provided for. Interest on any overdue principal
shall be payable on demand. Any such interest on any overdue principal that is
not so paid on demand shall bear interest at the Yield to Maturity, which shall
accrue from the date of such demand for payment to the date payment of such
interest has been made or duly provided for, and such interest shall also be
payable on demand. As used herein, the term "Issue Price" means the principal
amount of this Note less the Original Issue Discount stated on the face
<PAGE>
2
hereof, and the term "Yield to Maturity" means the Yield to Maturity stated
on the face hereof for the period from the Original Issue Date stated on the
face hereof to the Stated Maturity Date.
This Note is issued pursuant to the Second Amended and Restated
Agreement and Plan of Contribution, Investment and Merger, dated as of July 8,
1999 (the "Merger Agreement"), among National Broadcasting Company, Inc., Payee,
Neon Media Corporation, Maker and Xoom.com, Inc. Subject to the right of Payee
to convert this Note pursuant to Section 2, this Note may be redeemed in whole
at any time after October __, 2004 [the fifth anniversary of the Closing] at the
option of Maker without penalty or premium, at a redemption price equal to the
Amortized Face Amount, upon at least thirty (30) days prior written notice
thereof to Payee. Maker may pay the redemption price in cash, Common Stock (as
defined below) or both, PROVIDED that in any event the issuance of 6,533,352
shares of Common Stock shall be deemed to be full satisfaction of the redemption
price. Any Common Stock issued to pay the redemption price shall be valued based
on the average closing price for the 30-day period ending the day prior to the
date of redemption. All payments to be made hereunder shall be made to Payee at
30 Rockefeller Plaza, New York, New York 10012 (Attention: Chief Financial
Officer).
2. CONVERSION RIGHT.
(a) CONVERSION. Payee has the right, at its option, at any time after
October ___, 2000 [the first anniversary of the Closing], to convert all
(but not less than all) of the principal of this Note into an aggregate of
5,338,357 fully paid and nonassessable shares (as adjusted pursuant to
Section 2(b), the "Conversion Shares") of Class B common stock, par value
$.0001 per share, of Maker ("Common Stock") upon surrender of this Note at
the office of Maker. Upon the receipt of this Note, duly endorsed, and a
signed notice from Payee that Payee is irrevocably exercising its
conversion right pursuant to this Section 2(a), Maker shall promptly
deliver the Conversion Shares registered in the name of Payee.
(b) ADJUSTMENTS. The conversion rights set forth are subject to
adjustment as provided below.
(i) STOCK SPLITS, STOCK DIVIDENDS AND COMBINATIONS. If Maker shall
at any time subdivide the outstanding shares of Common Stock or shall
issue a stock dividend with respect to the Common Stock, then the
number of shares of Common Stock for which this Note is convertible
immediately prior to that subdivision shall be proportionately
increased, and if Maker shall at any time combine the outstanding
shares of Common Stock, then the number of shares of Common Stock for
which this Note is exercisable immediately prior to that combination
shall be proportionately reduced. Any adjustment under this Section
2(b)(i) shall become effective at the close of business on the date
the subdivision, stock dividend or combination becomes effective.
<PAGE>
3
(ii) RECLASSIFICATION, EXCHANGE, SUBSTITUTION AND IN-KIND
DISTRIBUTION. If the Common Stock issuable on conversion of this Note
shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or
combination of shares provided for above) or upon the payment of a
dividend in cash, securities or property other than Common Stock, then
Payee shall, upon conversion of this Note, be entitled to receive, in
lieu of the Common Stock that Payee would have become entitled to
receive but for such change, that number of shares of such other class
or classes of stock that is equivalent to the number of shares of
Common Stock that Payee would have received had Payee converted this
Note immediately prior to that change. Following any
reclassification, exchange, substitution or in-kind distribution,
Maker shall promptly issue to Payee a new Note for such new securities
or other property. The new Note shall provide for adjustments which
shall be nearly equivalent as may be reasonably practicable to the
adjustments provided for in this Section 2(b) including, without
limitation, adjustments to the number of securities or property
issuable upon conversion of the new Note. The provisions of this
Section 2(b)(ii) shall similarly apply to successive
reclassifications, exchanges, substitutions or other events and
successive dividends.
(iii) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALE OF ASSETS. In
case of any merger of Maker with or into another company (other than a
merger with another company in which Maker is a continuing company and
which does not result in any reclassification or change of outstanding
securities issuable upon conversion of this Note), consolidation or in
case of any sale of all or substantially all of the assets of Maker,
Maker shall, as condition precedent to such transaction, execute a new
Note or cause such successor or purchasing company, as the case may
be, to execute a new Note, providing that Payee shall have the right
to convert such new Note and upon such conversion to receive, in lieu
of each share of Common Stock theretofore issuable upon conversion of
this Note, the kind and amount of shares of stock, other securities,
money and property issuable or payable, as the case may be, upon such
merger, consolidation, sale of assets or other change to a holder of
one share of Common Stock. Such new Note shall provide for
adjustments that shall be as nearly equivalent as may be reasonably
practicable to the adjustments provided for in this Section 2(b). The
provisions of this Section 2(b)(iii) shall similarly apply to
successive mergers, consolidations, sale of assets and other changes
and transfers.
(iv) NOTICE OF ADJUSTMENTS. Maker shall promptly give written notice
of each adjustment or readjustment of the number of shares of Common
Stock or other securities issuable upon conversion of this Note, by
first class mail, postage prepaid, to the Payee at the Payee's address
for notices in the Merger Agreement. This notice shall state that
adjustment or readjustment and show in reasonable detail the facts on
which the adjustment or readjustment is based. Maker further
<PAGE>
5
agrees to notify Payee in writing of a reorganization, merger or sale
in accordance with Section 2(b)(iii) at least thirty (30) days prior
to the effective date thereof.
(v) NO CHANGE NECESSARY. The form of this Note need not be changed
because of any adjustment in the number of shares of Common Stock
issuable upon its conversion. A Note issued after any adjustment on
conversion or upon replacement may continue to express the same number
of shares of Common Stock as are stated on this Note as initially
issued, and such number of shares shall be considered to have been so
changed as of the close of business on the date of adjustment.
(vi) RESERVATION OF STOCK. Maker covenants that it will at all times
reserve and keep available, for issuance upon conversion of this Note,
such shares of its Common Stock from time to time issuable upon
conversion of this Note, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect
the conversion of this Note, Maker will take such corporate action as
may, in the opinion of its counsel, be reasonably necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose. Issuance of
this Note shall constitute full authority to Maker's officers who are
charged with the duty of executing stock certificates to execute and
issue the necessary certificates for shares of Common Stock issuable
upon the conversion of this Note.
(vii) NOTICES OF RECORD DATE. In the event Maker intends to declare a
record date for the holders of Common Stock for the purpose of
determining the holders thereof who are entitled to receive any
dividend or other distribution, Maker shall mail to Payee of this Note
at least ten days prior to the proposed record date specified therein,
a notice specifying the date on which any such record is to be taken
for the purpose of such dividend or distribution.
(viii) NO IMPAIRMENT. Maker shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed under this Note by Maker, but shall at all time in good
faith assist in carrying out of all the provisions of this Section
2(b) and in taking all such action as may be reasonably necessary or
appropriate to protect Payee's rights under this Section 2(b) against
impairment.
(c) GOVERNANCE RIGHTS. Upon conversion of this Note pursuant to
Section 2(a), and conversion of the Zero Coupon Convertible Debenture due
2006 representing up to $39,477,953 issued by Maker to NBC Multimedia,
Inc., Payee shall have the right to elect one additional director to the
Board of Directors of Maker pursuant to the Certificate of Incorporation of
Maker.
<PAGE>
5
3. REPRESENTATIONS AND WARRANTIES OF MAKER. Maker hereby represents
and warrants to Payee that: (a) Maker is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, has the full
power and authority, and the legal right, to make, deliver and perform this Note
and its obligations hereunder on the terms and conditions hereof and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Note and to authorize the borrowing hereunder, and this Note
has been duly executed and delivered on behalf of Maker; (b) this Note
constitutes a legal, valid and binding obligation of Maker enforceable against
it in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law); (c) the execution, delivery and performance of this Note, the borrowing
hereunder and the use of the proceeds thereof will not violate any material
requirement of law, any material contractual obligation of Maker or its
subsidiaries or any of their applicable charters, bylaws or similar documents;
and (d) no Event of Default (as defined below) has occurred and is continuing.
4. REPRESENTATIONS AND WARRANTIES OF PAYEE. Payee hereby represents
and warrants to Maker that: (a) Payee is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, has the full
power and authority, and the legal right, to make the loan to Maker evidenced by
this Note and has taken all necessary corporate action to authorize the making
of such loan, and this Note has been duly executed and delivered on behalf of
Payee; (b) Payee is an "accredited investor" within the meaning of Regulation D
of the Securities Act of 1933, as amended (the "Securities Act") and is being
issued this Note for its own account and not with a view to the distribution
thereof in violation of the Securities Act; (c) Payee understands and
acknowledges that this Note has not been registered under the Securities Act and
may be offered and resold only if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such exemption is required by
law, and that Maker is not required to register this Note; and (d) Payee has had
access to such financial and other information concerning Maker as it deemed
necessary in connection with the issuance of this Note.
5. EVENTS OF DEFAULT. An Event of Default occurs if: (1) Maker
pursuant to or within the meaning of Title 11 of the U.S. Code or any similar
federal or state law for the relief of debtors (a "Bankruptcy Law"): (a)
commences a voluntary case, (b) consents to the entry of an order for relief
against it in an involuntary case, (c) consents to the appointment of a
receiver, trustee, assignee, liquidator, custodian or similar official under any
Bankruptcy Law (a "Custodian") or (d) makes a general assignment for the benefit
of its creditors; or (2) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (a) is for relief against Maker as debtor
in an involuntary case, (b) appoints a Custodian of Maker, or (c) orders the
liquidation of Maker, and the order or decree remains unstayed and in effect for
90 days; or (3) a Change of Control (as defined below) occurs, or (4) Maker
fails to pay the principal amount due at the Stated Maturity Date. Upon the
occurrence of an Event of Default, Payee shall have the option to receive either
(i) the number of Conversion Shares Payee would have received if
<PAGE>
6
Payee had exercised its rights under Section 2 immediately prior to such
Event of Default or (ii) either (A) in the event of a default pursuant to
(1), (2) or (3) above, the Amortized Face Amount or (B) in the event of a
default pursuant to (4) above, the principal amount due at the Stated
Maturity Date plus accrued interest thereon from the Stated Maturity Date at
the Yield to Maturity. In the case of either (i) or (ii), the obligations of
Payee shall immediately become due and payable. As used herein the term
"Change of Control" means any of the following: (i) a merger, consolidation
or other business combination or transaction to which a Maker is a party if
the shareholders of Maker 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 or entity shall have beneficial ownership of 20%
or more of the outstanding shares of Class A Stock (as such term is defined
in Maker's Certificate of Incorporation) at a time when the holders of Common
Stock do not elect a majority of the Board of Directors of Maker; (iii) a
sale of all or substantially all of the consolidated assets of Maker to
another person or entity or (iv) a liquidation or dissolution of Maker.
6. SUBORDINATION. Payee agrees that payment of the principal of and
interest on this Note shall be subordinated in right of payment to the prior
payment in full of all Senior Debt at any time outstanding. Notwithstanding the
immediately preceding sentence, such subordination shall not limit the payment
of principal of and interest on this Note in accordance with its terms unless,
at the time of such payment, there is a default in the payment of principal of
or interest on such Senior Debt, there exists any event which, with the giving
of notice or the passage of time, is reasonably likely to give rise to a default
under such Senior Debt, or in the event that a default under this Note has
caused a default under such Senior Debt. The limitation on payments under this
Note shall continue until such time as the default on such Senior Debt has been
cured or waived. The provisions of this paragraph are intended solely for the
purpose of defining the relative rights of the Payee of this Note, on the one
hand, and the holder of Senior Debt, on the other hand. "Senior Debt" shall
mean (a) any and all liabilities of Maker recorded on the Maker's balance sheet
or in the footnotes thereto in accordance with GAAP (as defined below); (b) the
principal of, premium (if any), interest on, and other moneys due which arise
out of any indebtedness of Maker (or any refinancing thereof): (1) for borrowed
funds; (2) due to sellers or lessors of any real or personal property to Maker;
or (3) for reimbursement obligations with respect to letters of credit, except
in each case referred to in subclauses (1), (2) and (3) above, to the extent the
holder of such indebtedness otherwise agrees in writing; (c) any other
indebtedness of Maker, except to the extent that the holder of such indebtedness
otherwise agrees in writing; and (d) any debentures, notes or other evidence of
indebtedness issued in exchange for any of the foregoing indebtedness, or any
indebtedness arising from the satisfaction of such indebtedness by a guarantor.
"GAAP" means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession). The provisions of this Section 6 shall not apply to conversions
pursuant to Section 2.
<PAGE>
7
7. BUSINESS DAY. If any payment or conversion shall be required by
the terms hereof to be made on a day that is not a Business Day (as defined
below), such payment or conversion shall be made on the immediately succeeding
Business Day. For purposes hereof, "Business Day" shall mean a day other than a
Saturday, Sunday, holiday or other day on which commercial banks in the State of
New York are authorized or required by law to close.
8.NO WAIVER. No action or omission by Payee shall constitute a waiver
of any rights or remedies of Payee hereunder. Such rights and remedies are
cumulative and not exclusive of any rights or remedies provided by law.
9. AMENDMENT; ASSIGNMENT . The terms of this Note may be amended,
supplemented or modified only with the written consent of Maker and Payee. This
Note shall be binding upon and inure to the benefit of Maker, Payee and their
respective successors and assigns, except that neither Payee nor Maker may
assign or transfer any of its rights or obligations under this Note without the
prior written consent of the other party. In the event of any assignment or
transfer by Payee with the prior written consent of Maker, Maker shall, upon the
request of the transferee and receipt of this Note from transferee, reissue this
Note in the name of the transferee.
10. GOVERNING LAW; JURISDICTION. This Note is made and delivered in
New York, New York, and, pursuant to Section 5-1401 of the General Obligations
Law of the State of New York, shall be governed by and construed and interpreted
in accordance with the laws of the State of New York applicable to contracts
fully performed in New York. All judicial actions, suits or proceedings brought
against Maker or Payee with respect to its obligations, liabilities or any other
matter under or arising out of or in connection with this Note or for
recognition or enforcement of any judgment rendered in any such proceedings
shall be brought exclusively in any state or federal court located in the County
of New York.
11. MUTILATED, DESTROYED OR MISSING NOTES. If this Note is
mutilated and surrendered to Maker or Maker receives evidence to its
satisfaction of the destruction, loss or theft of this Note, Maker shall issue a
replacement Note. If required by Maker, an indemnity bond must be supplied by
Payee that is sufficient in the judgment of Maker to protect Maker from any loss
it may suffer if this Note is replaced. Maker may charge for any expenses of
replacing this Note.
IN WITNESS WHEREOF, Maker has caused this Note to be duly issued as of
the date first above written.
NBC INTERNET, INC.
By:____________________________
Name:
Title:
<PAGE>
8
ACKNOWLEDGED AND AGREED:
GE INVESTMENTS SUBSIDIARY, INC.
By: ____________________________
Name:
Title:
<PAGE>
October 19, 1999
Edmond Sanctis
Dear Edmond,
We're delighted to offer you a position with XOOM.com, Inc. ("Xoom.com")
effective upon your acceptance of this offer. The following outlines your
compensation and benefit package and other terms of your employment:
POSITION: Following the closing of the proposed merger between Xoom.com and
Snap (the "Merger"), and subject to the closing of such merger,
you will serve as the President & Chief Operating Officer of NBC
Internet, Inc., reporting directly to me.
SALARY: Upon the closing of the Merger your salary will be $15,385 per pay
period, which equates to $400,000 annually. Until such time that
the Merger closes and you are a Xoom.com employee your salary will
be $1.00 per pay period. Xoom.com acknowledges that until the
Merger closes you may continue your current employment with Snap
and you may remain on Snap's payroll.
BONUS: Upon your acceptance of this offer you will be paid a bonus equal
to $200,000. Following the closing of the Merger, for the rest of
the 1999 calendar year, you will be eligible to receive a bonus of
up to $66,000 upon reaching certain performance goals which must
be agreed upon by you and Xoom.com prior to November 1, 1999.
Beginning in plan year 2000, based upon achievement of certain
performance goals to be agreed upon by you and NBC Internet, you
will be entitled to a quarterly bonus of up to $100,000. In
addition, you will be eligible to receive a bonus of up to
$100,000 upon achieving certain agreed upon annual goals. This
bonus plan may be modified in the future at the discretion of NBC
Internet.
START DATE: Monday, October 25, 1999
STOCK
OPTIONS: You will be granted an option to purchase 500,000 shares of Common
Stock of XOOM.com at an exercise price equal to the closing price
on the last trading day prior to the date such options are granted
by the Board of Directors of Xoom.com. These options will vest
monthly over a three-year period beginning on the date of closing
of the Merger.
BENEFITS: Following the closing of the Merger you will be entitled to
the benefits granted to senior executives of NBC Internet.
PTO: As an employee of NBC Internet you will be entitled to 20 days
paid time off.
EMPLOYMENT: Your employment relationship with XOOM.com and NBC Internet is "at
will", which means that both you and the companies have the right
to terminate the employment relationship at any time, with or
without cause and with or without notice. This at-will
relationship supercedes any prior oral and or written
representation or agreement. Any modification of your at-will
status with the companies must be in writing and signed by me.
Additionally, in the event that the Merger does not close by
December 31, 1999, your employment with Xoom.com will terminate on
December 31, 1999 and all of your unvested Xoom.com options on
such date will terminate.
<PAGE>
NON-
DISCLOSURE: Your employment with XOOM.com subject to the attached XOOM.com
Non-Disclosure Agreement. Please review this agreement carefully.
XOOM.com can not change or modify the terms of the Non-Disclosure
Agreement; however, XOOM.com in its sole discretion may eliminate
this policy in its entirety.
PROPERTY
RIGHTS: Your employment with XOOM.com is conditioned on your signing the
Xoom.com's Confidential Information and Proprietary Rights
Agreement, which is attached.
IRCA: Your employment at XOOM.com is conditioned on your ability to
document your identity and authorization to work pursuant to the
Immigration Reform Control Act of 1986. As a result of the IRCA,
all new employees must permit XOOM.com to inspect original
documents that establish that you are authorized to work.
This letter includes all promises and agreements between you and XOOM.com
pertaining to your compensation, benefits and your at-will employment
relationship.
If you wish to accept this offer of employment, please sign and date this letter
and return it to me. This offer will expire on Friday, October 22, 1999.
All of us would be thrilled to have you in this role. I am very excited about
the prospect of our working together to lead this venture into the New
Millennium and beyond.
Sincerely,
/s/ Chris Kitze
Chris Kitze
Chairman
XOOM.com
I have read, understand, and agree to the foregoing terms.
/s/ Edmond Sanctis 10/21/99
- ------------------------ -------------------
Edmond Sanctis Date
* Upon signature, please return signed original to Human Resources.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Historical Consolidated Financial Data" and "Experts" and to the use of our
reports pertaining to Xoom.com, Inc. dated January 25, 1999, pertaining to
Paralogic Corporation dated July 20, 1998, pertaining to Global Bridges
Technologies, Inc. dated July 10, 1998, pertaining to Pagecount, Inc. dated July
7, 1998 (except for Note 6, as to which the date is July 24, 1998), pertaining
to MightyMail Networks, Inc. dated June 4, 1999, and pertaining to Paralogic
Software Corporation dated June 22, 1999, included in the Proxy Statement of
Xoom.com, Inc. that is made a part of Amendment No. 4 to the Registration
Statement (Form S-4 No. 333-82639) and Prospectus of NBC Internet, Inc. for the
registration of 19,912,553 shares of its common stock.
/s/ ERNST & YOUNG, LLP
Palo Alto, California
October 28, 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
October 28, 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, 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
October 29, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
NBC Internet, Inc. of our report dated April 16, 1999, except for Note 8 as to
which the date is July 15, 1999, relating to the financial statements of
LiquidMarket, Inc., which appear in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
<TABLE>
<S> <C> <C>
/S/ PRICEWATERHOUSECOOPERS LLP
Woodland Hills, California
October 28, 1999
</TABLE>
<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 NOVEMBER __, 1999.
The undersigned hereby appoints John Harbottle and Raj Aji, 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 Sheraton Palace Hotel, 2 New Montgomery Street,
San Francisco, CA at 8:00 a.m. on November __, 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, 2 and 3.
You are encouraged to specify your choices by marking the appropriate
boxes on the reverse side 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.
(Continued and to be Signed on Reverse Side)
<PAGE>
[FORM OF BACK OF PROXY CARD]
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. /X/ Please mark your votes as
in this example.
------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
------------------------------------------------------------------
1. To adopt the Agreement and Plan of Contribution and Merger, dated as of
May 9, 1999, as amended on October 20, 1999, among the Company, NBC Internet,
Inc. ("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
the Second Amended and Restated Agreement and Plan of Contribution,
Investment and Merger, dated as of July 8, 1999, as amended on October 20,
1999, 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
3. To approve the NBCi 1999 Stock Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
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.
