<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
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 (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NO.) IDENTIFICATION
INCORPORATION OR ORGANIZATION) NO.)
</TABLE>
225 BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 375-5000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE
OF BUSINESS)
------------------------------
CHRIS KITZE
CHIEF EXECUTIVE OFFICER
NBC INTERNET, INC.
300 MONTGOMERY STREET, SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
(415) 288-2500
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
BRUCE ALAN MANN, ESQ. NORA GIBSON, ESQ.
P. RUPERT RUSSELL, ESQ. LAURA M. DE PETRA, ESQ.
KRISTIAN E. WIGGERT, ESQ. LORA D. BLUM, ESQ.
BRIAN D. LEWANDOWSKI, ESQ. Brobeck, Phleger & Harrison, LLP
Morrison & Foerster LLP One Market
425 Market Street Spear Street Tower
San Francisco, California 94105 San Francisco, California 94105
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
Class A Common Stock, $0.0001 par value per share........... $515,717,500 $136,150
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement relates to up to 4,600,000 shares (or up to
5,290,000 shares if the underwriter's over-allotment option is exercised in
full) of Class A common stock of NBC Internet, Inc. that will be offered for
sale directly to the public, and up to 1,320,132 shares (or 1,518,152 shares if
the underwriter's over-allotment option is exercised in full) of Class A common
stock that may be delivered by the NBCi Automatic Common Exchange Security Trust
(the "Trust"), a non-diversified closed-end management investment company, to
holders of Automatic Exchange Securities of the Trust (the "Automatic Common
Exchange Securities") upon exchange of the Automatic Common Exchange Securities.
The Automatic Common Exchange Securities are being offered pursuant to a
separate prospectus of the Trust (the "Trust Prospectus") included in a
registration statement on Form N-2 (Registration Nos. 333-77563 and 811-09323).
The complete prospectus for the Class A common stock offering follows
immediately. After such prospectus are the alternate pages for the prospectus to
be attached to the Trust Prospectus. All other pages of the prospectus for the
Class A common stock offering will be used in the prospectus to be attached to
the Trust Prospectus.
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION. DATED JANUARY 14, 2000.
[NBC Internet LOGO]
Shares
NBC INTERNET, INC.
Class A Common Stock
-------------
This is a public offering of 4,600,000 shares of Class A common stock of NBC
Internet, Inc. NBC Internet is selling 3,650,000 shares of Class A common stock
and the selling stockholders identified in this prospectus are selling
950,000 shares of Class A Common Stock. NBC Internet will not receive any of the
proceeds from the shares of Class A common stock sold by the selling
stockholders.
NBC Internet's Class A common stock is traded on the Nasdaq National Market
under the symbol "NBCI." On January 12, 2000, the last reported sale price for
the common stock was $75.75 per share.
Concurrent with this offering, the NBCi Automatic Common Exchange Security
Trust, or the TRACES Trust, a stockholder named in this prospectus is offering
up to 1,320,132 shares of Class A common stock (or up to 1,518,152 shares if the
underwriters' over-allotment option in the TRACES offering is exercised in full)
that may be delivered by the TRACES Trust upon exchange of such securities on
the Exchange Date as defined in the TRACES Trust prospectus. The Automatic
Common Exchange Securities are being sold by the TRACES Trust in an offering
described in the Trust prospectus. The respective closings of the offerings of
the Class A common stock and the Automatic Common Exchange Securities are not
dependent upon one another.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE CLASS A COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
----------- ----------------
<S> <C> <C>
Public offering price............................................................... $ $
Underwriting discount............................................................... $ $
Proceeds, before expenses, to NBC Internet.......................................... $ $
Proceeds, before expenses, to the selling stockholders.............................. $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional shares from NBC Internet at the public offering price, less the
underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO. BEAR, STEARNS & CO. INC.
------------
CHASE H & Q
DEUTSCHE BANC ALEX. BROWN
ROBERTSON STEPHENS
------------------
Prospectus dated , 2000
<PAGE>
[inside front cover]
Graphic with NBCi logo in the center of a circular display of the logos of
NBCi's Internet properties, which include Snap, SnapTV, VideoSeeker, NBC-IN.com,
Xoom.com and NBC.com.
<PAGE>
[GATEFOLD]
Graphic depicting NBCi logo; below the NBCi logo the text "Viewers" between
the NBCi logo and "Viewers" is the text "NBC TV Broadcast Network" below this
text "91 million households/month in 1999"; to the right, the text "Visitors"
below this text "Information Services: directory, global resources and
information, local and personalized content, personal finance"; to the right,
the text "Members" above text "Utility Services: free e-mail, search engine, web
development tools, digital user storage and software" below "Members" the text
"Entertainment Services: rich media and broadband services, user-generated
content, chat rooms, online greeting cards"; to the right the text "Buyers",
below this text "e-Commerce Services: auctions, price comparison shopping
engine, database marketing, shopping directory, digital wallet, business portal
and business directory".
The logos of NBCi's Internet properties are displayed along the bottom of
the page from left to right: Snap, Xoom.com, VideoSeeker, NBC.com, NBC-IN.com
and Snap TV.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR PRO FORMA FINANCIAL
INFORMATION AND THE FINANCIAL STATEMENTS OF XOOM.COM, INC., SNAP! LLC AND NBC
MULTIMEDIA DIVISION BEFORE MAKING AN INVESTMENT DECISION. EXCEPT AS OTHERWISE
REQUIRED BY THE CONTEXT, REFERENCES IN THIS PROSPECTUS TO "WE", "US", "OUR" OR
"NBCI" REFER TO NBC INTERNET, INC. AND ITS SUBSIDIARIES. THE TERM "YOU" REFERS
TO PROSPECTIVE INVESTORS IN OUR CLASS A COMMON STOCK. THE TERM "NBC" REFERS TO
NATIONAL BROADCASTING COMPANY, INC.
OUR BUSINESS
NBCI OVERVIEW
NBCi is an integrated Internet media company that combines portal, community
and e-commerce services designed to deliver a comprehensive, next-generation
online experience to a global audience. Our online properties collectively were
equivalent to the sixth-ranked site on the Internet in November 1999 with over
15 million unique visitors, according to Media Metrix reports, implying an
aggregate Internet reach among home and work users of 24%. We deliver enhanced
branded services and content with a growing emphasis on services that take
advantage of Internet ubiquity and broadband access. NBCi integrates
fast-growing and premier assets such as Snap.com, Xoom.com, NBC.com,
VideoSeeker.com and NBC-IN.com and content from AccessHollywood.com. We combine
the NBC media brand and related content with the complementary portal and
navigation services of Snap.com and community and direct e-commerce services of
Xoom.com to deliver a comprehensive, entertaining and compelling Internet
experience to a broad audience. We believe our core services will provide the
foundation for a next-generation media company whose e-commerce and community
orientation will reach a diverse user base through a variety of interactive
media including broadcast and cable television, radio and the Internet.
We believe that our services create an environment that attracts users and
encourages both longer and repeat visits as well as customer loyalty, resulting
in a large base of registered members. These services are focused on generating
both advertising and e-commerce revenue by allowing advertisers and merchants to
reach a broad and segmented audience of Internet users. Our portfolio of
content, community and e-commerce services include:
- ENTERTAINMENT SERVICES: free rich media and broadband content,
user-generated content, chat rooms and online greeting cards
- INFORMATION SERVICES: free directory, global resources and information,
local and personalized content and personal finance information
- UTILITY SERVICES: e-mail, search engine, Web development tools, home
pages, digital user storage and software libraries
- E-COMMERCE SERVICES: business-to-consumer services and
business-to-business tools such as auctions, price comparison shopping
engine, database marketing, shopping directory, digital wallet, business
portal and business directory
We believe our ability to aggregate information about our consumers'
interests across these online services, in combination with our ability to
coordinate network advertising with NBC, will provide cross-selling and
promotional opportunities that distinguish us from most of our competitors in
the Internet industry. In addition, we have the ability to target customers with
advertising and e-commerce opportunities using demographic data and information
on buying habits, services used and lifestyle interests. This information is
collected on a permission basis and we use it to assist advertisers in
2
<PAGE>
focusing and monitoring the effectiveness of their presentations, as well as to
offer relevant e-commerce opportunities. We facilitate these transactions
through our direct e-commerce platform and proprietary database management
system.
The total number of registered users on our various properties was over
16 million as of December 31, 1999, with new members registering at the rate of
33,000 per day during December 1999. In December 1999, our Internet properties
had over 783 million collective page views. From these users we have generated
$45.3 million and $10.4 million in pro forma revenues from advertising and
e-commerce, respectively, in the nine months ended September 30, 1999.
OUR MARKET OPPORTUNITY
The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business electronically.
The proliferation of Internet users, combined with the Web's reach and lower
cost of marketing, has created a powerful channel for conducting commerce,
marketing and advertising. The ability to compete effectively in the current
environment will require Internet companies to offer high quality products and
multimedia content, to maintain a sufficiently high level of service to attract
a strong and diverse user base, to access capital and to establish partnerships
with companies offering complementary services.
The growing adoption of the Web has created an important new advertising
channel and represents a significant opportunity for businesses to conduct
commerce over the Internet. Online community sites provide more detailed
demographic data on self-selected groups of consumers with an affinity for
particular products, services and lifestyles. As a result, advertisers can more
easily deliver targeted messages in a cost-effective manner. The Internet also
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. Increased consumer
acceptance of online shopping and targeted product offerings is expected to be a
significant factor in the growth of e-commerce.
The development of higher speed access to the home and the proliferation of
Internet devices other than the PC are beginning to result in significant
changes in the dynamics of Internet usage. The Internet is increasingly being
used as a means to distribute video, audio and other high-data rate content, as
well as distributed applications. Additionally, devices such as Internet-enabled
wireless phones and personal digital assistants are enabling users to access
Internet content and services outside the home and office. As a result,
consumers will access the Internet with greater frequency and duration, building
a more valuable and loyal interaction between Internet services and users.
OUR STRATEGY
By providing a broad array of professionally created and user-generated
content in a single service, we intend to develop the leading integrated media
properties on the Internet. We will continually upgrade and expand NBCi's
portfolio of services to create a more entertaining and dynamic online
experience. We believe this will enable us to grow our registered user base and
increase the level of Internet traffic on the NBCi properties. We also intend to
capture relevant data on our users to enhance our proprietary database of user
demographics and to provide them with more personalized services. A key element
of our business strategy is the development and introduction of new services
designed for specific user groups with particular demographic characteristics
and geographic concentration. We plan to accomplish these goals through the
following strategies:
- Build and enhance our core brands
- Increase content and service offerings to grow our user base
- Create a valuable advertising and e-commerce franchise
3
<PAGE>
- Aggregate users around selected vertical content areas
- Lead next-generation broadband and wireless initiatives
- Build our business-to-business offerings
- Accelerate pursuit of international opportunities
- Continue to develop or acquire leading-edge targeting technology and
software
Under our brand integration and license agreement with NBC, we are the
exclusive vehicle for NBC to operate a general portal service, a broad-based
community service and a direct broad-based e-commerce service. The NBC
relationship will offer us opportunities to access content and extend NBCi's
brand awareness in defining the next-generation Internet user experience. We
believe our brands will be ideally suited for this accessible, immersive, rich
media environment and will enable a high value relationship with our users and a
dynamic selling environment for our business partners. We intend to leverage
NBC's extensive advertising relationships to create unique ways for advertisers
to reach consumers by capitalizing on synergies between on-air and online media.
We have also entered into a multi-year television network advertising agreement
with NBC enabling us to market the integrated NBCi services to viewers of the
NBC television network, which attracted the highest percentage of Internet users
among all major networks during the February 1999 sweeps period according to
Nielsen Media Research. This relationship combined with our attractive offering
of free services and content, as well as our large and diverse range of active
communities, will encourage users of our Web sites to become members. Finally,
with our proprietary consumer database of purchasing information, we intend to
offer advertisers and e-commerce partners the ability to deliver highly targeted
messages and product offerings to our members.
We plan to grow our e-commerce activities through investments, strategic
partnerships and complementary acquisitions. We will continue to build our
business-to-consumer e-commerce platform by aggregating buyers, creating
innovative and targeted promotional opportunities for high quality products and
services, and enhancing the user experience to encourage completion of online
transactions. Similarly, we will develop our business-to-business e-commerce
platform by leveraging our auction, business portal, business directory and
database services.
"NBCi", "Snap" and "Xoom.com" are some of our trademarks. This prospectus
also contains other product names, trade names and trademarks of other
organizations that belong to such organizations.
RECENT EVENTS
On November 29, 1999 and November 30, 1999, respectively, the transactions
contemplated by the agreement and plan of contribution and merger dated May 9,
1999 as amended on October 20, 1999, among us, CNET, Inc., Xoom.com, Xenon 3,
Inc. and Snap! LLC and by the second amended and restated agreement and plan of
contribution, investment and merger dated July 8, 1999, as amended on October
20, 1999, among us, NBC, GE Investments Subsidiary, Inc., Neon Media
Corporation, and Xoom.com, were consummated. As a result of these transactions,
Xoom.com and Snap became our wholly owned subsidiaries and we became the owners
of the businesses related to NBC.com, NBC-IN.com and VideoSeeker.com and of a
10% ownership interest in CNBC.com LLC.
OUR OFFICES
We were incorporated in Delaware on May 7, 1999 under the name Xenon
2, Inc. and changed our name to NBC Internet, Inc. on July 8, 1999. Our
headquarters are located at 225 Bush Street, San Francisco and our telephone
number is (415) 375-5000. Our Web site is WWW.NBCI.COM. This reference to our
Web site does not constitute incorporation by reference of the information
contained at our site.
4
<PAGE>
CONCURRENT OFFERING
Concurrent with this offering, the NBCi Internet Automatic Common Exchange
Security Trust, or the TRACES Trust, a stockholder named in this prospectus is
offering up to 1,320,132 shares of Class A common stock (or up to 1,518,152
shares if the underwriters' over-allotment option in the Traces offering is
exercised in full) that may be delivered by the TRACES Trust upon exchange of
such securities on the Exchange Date as defined in the TRACES Trust prospectus.
The Automatic Common Exchange Securities are being sold by the TRACES Trust in
an offering described in the Trust prospectus. The respective closings of the
offerings of the Class A common stock and the Automatic Common Exchange
Securities are not dependent upon one another.
------------------------
THIS PROSPECTUS INCLUDES STATISTICAL DATA ABOUT THE INTERNET INDUSTRY THAT
COMES FROM INFORMATION PUBLISHED BY SOURCES INCLUDING MEDIA METRIX, INC., A
MEDIA RESEARCH FIRM SPECIALIZING IN MARKET AND TECHNOLOGY MEASUREMENT ON THE
INTERNET. WE ALSO REFER TO NIELSEN MEDIA RESEARCH, JUPITER COMMUNICATIONS, LLC,
A MEDIA RESEARCH FIRM FOCUSING ON THE INTERNET INDUSTRY, AND INTERNATIONAL DATA
CORPORATION, ALSO KNOWN AS IDC, AND FORRESTER RESEARCH, PROVIDERS OF MARKET
INFORMATION AND STRATEGIC INFORMATION FOR THE INFORMATION TECHNOLOGY INDUSTRY.
ALTHOUGH WE BELIEVE THAT DATA FROM THESE COMPANIES IS GENERALLY RELIABLE, THIS
TYPE OF DATA IS INHERENTLY IMPRECISE. WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE
ON THIS DATA.
5
<PAGE>
THE OFFERING
The following information assumes that the underwriters do not exercise the
option to purchase additional shares in the offering. See "Underwriting."
<TABLE>
<S> <C>
Class A common stock offered by NBC
Internet................................... 3,650,000 shares
Class A common stock offered by selling
shareholders............................... 950,000 shares
Common stock to be outstanding after the
offering:
Class A common stock....................... 30,396,708 shares
Class B common stock....................... 24,550,708 shares
Total.................................. 54,947,416 shares
Use of proceeds.............................. For general corporate purposes, including
developing new e-commerce channels, expanding
our operations internationally, enhancing the
value of our brands, potential acquisitions
and minority investments and working capital.
Listing...................................... The Class A common stock is quoted on The
Nasdaq National Market.
Nasdaq National Market Symbol................ NBCI
</TABLE>
In addition to the offering described in this prospectus, the TRACES Trust
stockholder named in this prospectus is offering up to 1,320,132 shares of the
Class A common stock (or up to 1,518,152 shares if the underwriters'
over-allotment option is exercised in full) that may in certain circumstances be
delivered by the TRACES Trust to holders of its Automatic Common Exchange
Securities upon exchange of those securities on the exchange date.
------------------------
The number of shares of Class A common stock to be outstanding after this
offering is based on the pro forma number of shares outstanding as of
September 30, 1999 and does not include the following:
- 6,548,329 shares of Class A common stock issuable upon exercise of options
outstanding at September 30, 1999 at a weighted average exercise price of
$21.53 per share;
- 3,105,702 shares of Class A common stock issuable upon exercise of options
outstanding subsequent to September 30, 1999 at a weighted average
exercise price of $61.39 per share;
- 924,526 shares issued upon exercise of stock options and 1,811 shares
issued to directors and consultants subsequent to September 30, 1999;
- 4,437,038 shares of Class A common stock reserved for future issuance
subsequent to September 30, 1999 under our 1999 stock incentive plan and
our 1999 employee stock purchase plan;
- 5,809,388 shares of Class B common stock issuable upon conversion of two
subordinated zero coupon convertible notes subsequent to September 30,
1999 held by affiliates of NBC;
- 244,004 shares of Class A common stock issuable upon the exercise of a
warrant held by ValueVision International, Inc. at an exercise price of
$40.893 per share; or
- 24,550,708 shares of Class B common stock convertible into 24,550,708
shares of Class A common stock subsequent to September 30, 1999 at the
discretion of NBC and its affiliates.
Please see "Capitalization" for a more complete description regarding the
outstanding shares of our Class A common stock and options to purchase our
Class A common stock and other related matters.
6
<PAGE>
UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT:
- THE UNDERWRITERS WILL NOT EXERCISE THEIR OPTION TO PURCHASE ADDITIONAL
SHARES OF CLASS A COMMON STOCK TO COVER OVER-ALLOTMENTS, IF ANY; AND
- THE OFFERING PRICE WILL BE $75.75 PER SHARE, BASED ON THE LAST REPORTED
SALES PRICE OF OUR CLASS A COMMON STOCK ON JANUARY 12, 2000.
------------------------
7
<PAGE>
SUMMARY SELECTED PRO FORMA FINANCIAL INFORMATION
SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following selected unaudited pro forma condensed combined financial data
of Xoom.com, Snap and the NBC Multimedia Division, which previously owned the
Internet assets contributed by NBC, are derived from the unaudited pro forma
condensed combined financial information, which gives effect to the purchase of
the businesses related to the NBC Multimedia Division and to NBCi's acquisition
of CNET's and NBC's ownership interests in Snap, with Xoom.com treated as the
accounting acquiror, and should be read in conjunction with the unaudited pro
forma condensed combined financial information and related notes, which begin on
page F-1 of this prospectus.
The unaudited pro forma condensed combined statement of operations data
assumes that the transactions occurred on the first day of each of the periods
presented. The unaudited pro forma condensed combined balance sheet data assumes
that the transactions took place as of September 30, 1999 and combines 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 was calculated based on the values as
represented on the balance sheets of NBC Multimedia Division and Snap, as of
November 30, 1999, the date the transactions were completed.
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.
The pro forma as adjusted balance sheet data has been adjusted to reflect
the sale by us of 3,650,000 shares of Class A common stock in this offering,
assuming a public offering price of $75.75 per share, based on the last reported
sales price of our Class A common stock on January 12, 2000, after deducting the
underwriting discount and estimated offering expenses. See "Use of Proceeds."
8
<PAGE>
NBC INTERNET, INC. SELECTED PRO FORMA HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1998 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA:
Net revenue.............................................................. $ 28,132 $ 15,912 $ 55,684
Loss from operations..................................................... $ (322,205) $ (232,423) $ (281,455)
Net loss................................................................. $ (321,932) $ (230,576) $ (274,654)
Net loss per share--basic and diluted(1)................................. $ (7.74) $ (5.64) $ (5.77)
Number of shares used in per share calculation--basic and diluted(1)..... 41,595 40,888 47,616
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------
PRO FORMA AS
PRO FORMA ADJUSTED
------------ ------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..................................... $ 156,167 $ 417,830
Notes receivable from NBC and its affiliates, current and non-current ($78,288
current)............................................................................ 340,000 340,000
Working capital....................................................................... 198,773 460,436
Total assets.......................................................................... 2,464,258 2,725,921
Long-term obligations, less current portion and amounts due to related parties........ 2,836 2,836
Convertible notes payable due to NBC and its affiliates, current and non-current ($101
current)............................................................................ 370,101 370,101
Amounts due to CNET, current.......................................................... 1,788 1,788
Total stockholders' equity............................................................ 2,038,108 2,299,771
</TABLE>
(1) See note (K) of NBC Internet, Inc. notes to the selected unaudited pro forma
condensed combined financial information for an explanation of the
determination of the number of shares used to compute basic and diluted net
loss per share.
9
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS,
INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES, BEFORE
YOU PURCHASE ANY SHARES OF OUR CLASS A COMMON STOCK. ADDITIONAL RISKS AND
UNCERTAINTIES, INCLUDING THOSE GENERALLY AFFECTING THE MARKET IN WHICH WE
OPERATE OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS.
THE INFORMATION IN THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER THE "RISK FACTORS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS" SECTIONS AND ELSEWHERE IN THIS PROSPECTUS.
BUSINESS RISKS
OUR FAILURE TO SUCCESSFULLY INTEGRATE THE OPERATIONS OF XOOM.COM, SNAP AND THE
INTERNET BUSINESSES CONTRIBUTED BY NBC COULD SERIOUSLY HARM OUR OPERATIONS
Our success will depend substantially on whether Xoom.com, Snap and the
Internet businesses contributed by NBC can be integrated by us in an efficient
and effective manner. We can provide no assurance that this will occur. The
combination of our online 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 Internet businesses
contributed by NBC.
Some of the factors contributing to the risks attendant to integration are:
- difficulties and expenses of integrating operations, technology and
personnel into our operations while preserving the goodwill of our
businesses;
- the additional financial resources that may be needed to fund our
operations;
- the potential disruption caused to the businesses of Xoom.com, Snap and
the Internet businesses contributed by NBC by the need to dedicate
management and other resources to completing the transactions;
- our ability to retain employees; and
- the difficulty of creating and maintaining uniform standards, controls,
procedures and policies.
We cannot assure you that we will be able to integrate our businesses
smoothly or successfully. The integration of operations will continue to require
significant management resources, which may distract attention from our
day-to-day operations.
WE WILL RECORD EXPENSES RELATED TO OUR MERGER THAT WILL HAVE A NEGATIVE IMPACT
ON OUR FINANCIAL CONDITION IN THE QUARTER ENDED DECEMBER 31, 1999 AND IN
FUTURE PERIODS
On November 30, 1999, we completed a transaction accounted for using the
purchase method of accounting whereby the operations of Snap, Xoom.com and
Internet businesses contributed by NBC were merged into our operations. As a
result of the transaction, in the quarter ended December 31, 1999, we will
record an aggregate of approximately $1.7 billion in intangible assets which
will be amortized on a straight-line basis over periods ranging from three to
seven years. In addition, in the quarter ended December 31, 1999, we will record
non-recurring restructuring charges of approximately $17.8 million. These
expenses will have a negative impact on our financial condition and results of
operations for the quarter ended December 31, 1999 and in the case of the
amortization of intangibles, in future periods.
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WE CANNOT ASSURE YOU THAT WE WILL BE PROFITABLE BECAUSE WE HAVE A LIMITED
OPERATING HISTORY AND OUR BUSINESSES ALSO HAVE LIMITED OPERATING HISTORIES AND
A HISTORY OF LOSSES
We and the businesses that were combined to form us have a limited operating
history. We were launched in November 1999, Xoom.com was founded in April 1996,
the Snap.com Web site was launched in September 1997, and 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 Internet businesses contributed by NBC have not achieved positive annual
operating cashflows and we expect to incur net losses for the foreseeable
future.
Because of the limited operating histories of our businesses and the
uncertain nature of the rapidly changing markets we serve, future results of
operations cannot be predicted. Moreover, it is difficult for us to plan or
anticipate our revenue potential and operating expenses based on the limited
historical financial data of our businesses.
We currently expect that our operating expenses will continue to increase
significantly as we expand our sales and marketing operations, continue to
build, develop and extend our online brands, fund greater levels of product
development, develop and commercialize additional media properties, and acquire
complementary businesses and technologies. Accordingly, we will need to increase
revenues to be profitable. As a result, we may experience significant losses on
a quarterly and annual basis. If our actual revenue is lower than predicted, we
may be unable to adjust our operating expenses accordingly. If revenues do not
grow as expected or increases in expenses are not in line with forecasts, our
business, results of operations and financial condition could be seriously
harmed. If our operating results in any period fall below the expectations of
securities analysts and investors, the market price of our shares would likely
decline.
OUR BUSINESSES WILL BE SUBJECT TO ALL OF THE RISKS AND DIFFICULTIES FREQUENTLY
ENCOUNTERED BY EARLY STAGE COMPANIES
The prospects of our 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 we offer;
- the lack of success of our proposed business model on the Internet;
- our failure to continue to build, develop and extend our online brands;
- our inability to obtain needed financing;
- higher than anticipated marketing costs that we will need to incur to
build, maintain and enhance our online brands;
- our inability to generate significant advertising, e-commerce or premium
service revenue;
- our inability to maintain and increase levels of traffic and membership on
our Web sites or to manage rapidly expanding operations effectively;
- the emergence of new services offered by our competitors that affect the
level of traffic on our Web sites and our ability to expand our membership
base;
- our inability to predict demand for products and services we offer and to
optimize advertising inventory levels accordingly;
- our inability to meet minimum guaranteed impressions under advertising
agreements;
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- our failure to adapt to the mix of types of advertising we will sell and
developments relating to advertising on the Web;
- our failure to anticipate and adapt to a developing Internet market and
increased competition;
- our inability to upgrade, develop and deploy our network, systems and
infrastructure and attract new personnel in a timely and effective manner;
and
- the failure of our server and networking systems to handle traffic on our
Web sites efficiently.
SUBSTANTIALLY ALL OF OUR CUSTOMERS ARE INTERNET COMPANIES AND OUR BUSINESS WILL
BE SERIOUSLY HARMED IF THE INTERNET DOES NOT BECOME A VIABLE COMMERCIAL
MARKETPLACE
Substantially all of our customers are Internet companies that are dependent
upon the acceptance of the Internet as a viable commercial marketplace. If the
use of the Internet for e-commerce transactions and as an advertising medium
does not continue to grow, we could lose a substantial portion of our customer
base, which would seriously harm our business and financial condition.
WE ANTICIPATE OUR BUSINESS WILL FLUCTUATE FROM QUARTER TO QUARTER DUE TO OUR
INITIAL RELIANCE ON SHORT-TERM ADVERTISING AGREEMENTS AND SEASONAL
FLUCTUATIONS, WHICH COULD HARM OUR RESULTS OF OPERATIONS
Initially, a substantial portion of our net revenue is expected to be from
short-term advertising contracts, usually one to two months in length. That
means our quarterly operating results will be a function of the contracts we
enter into within the quarter and our 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 our operating results. Our
operating expenses are likely to increase significantly over the near term. To
the extent that our expenses increase but our revenues do not, our business,
operating results and financial condition may be seriously harmed.
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, we expect our results
of operations to fluctuate throughout the year, which may have a material
adverse effect on our business and financial condition.
OUR ADVERTISING REVENUE MAY BE AFFECTED BY THE LOSS OF TRAFFIC ON OUR WEB SITES
Advertising revenue is linked to the level of traffic on our Web sites, so
if traffic is less than the level expected by our advertising customers, revenue
from this source could be reduced. We will have some advertising contracts that
include a guaranteed minimum number of impressions on our Web sites. Reduced
traffic on our Web sites would cause us to fall short in meeting these minimum
requirements and, as a result, we may give credits to our advertisers and reduce
advertising rates, which would lead to a reduction in our revenue from
advertising.
OUR FAILURE TO ATTRACT ADVERTISING REVENUE IN QUANTITIES AND AT RATES THAT ARE
SATISFACTORY TO US COULD HARM OUR BUSINESS
We expect to derive a significant portion of our net revenue from the sale
of advertisements, including banners, buttons, windows and text links. It is
uncertain whether Web advertising will continue to grow at a rate that will
support expansion in our 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 our
suppliers and advertisers have only limited experience with the Web as a
marketing and advertising medium.
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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, which may fall based on increased competition from
online companies and offline media.
No standards have yet been widely accepted for the measurement of the
effectiveness of Web-based advertising. Advertisers may determine that banner
advertising, which currently comprises a substantial portion of our revenues, is
not an effective advertising medium. If other forms of Web-based advertising
prove more popular than banner advertisements, we may not be able to change our
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. Our advertising
customers may not accept the internal and third-party measurements of
impressions received by advertisements on our online media properties and such
measurements may contain errors. We rely primarily on our 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, we may not be able to sustain or increase advertising sales levels.
Failure to do so may harm our business, operating results and financial
position.
WE ARE IN A HIGHLY COMPETITIVE INDUSTRY AND SOME OF OUR COMPETITORS MAY BE MORE
SUCCESSFUL IN ATTRACTING AND RETAINING CUSTOMERS
The market for Internet products and services is highly competitive.
Generally, there are no substantial barriers to entry in these markets; however,
the ability to secure financial resources necessary to promote brand awareness
is increasingly becoming a barrier to entry in the market in which we compete.
We expect that competition will continue to intensify. Negative competitive
developments could seriously harm our business and the trading price of our
Class A common stock. In addition, our competitors may still have superior or
more attractive product offerings.
We 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).
Our businesses 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;
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- 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 Yahoo! Get Local.
- 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, we 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 our
stockholders.
Our carriage agreement with CNET limits CNET's ability to compete with Snap
to provide a broad based information, navigation and content aggregation
service. These restrictions, however, will no longer apply after May 9, 2000. As
a result, CNET could become a competitor of Snap. Competition from CNET could
seriously harm our business.
IF OUR INVESTMENT OF RESOURCES IN DEVELOPING AND PROMOTING OUR ONLINE BRANDS IS
NOT SUCCESSFUL, THE RESULTS OF OUR OPERATIONS COULD BE SERIOUSLY HARMED
As the number of Internet sites grows, brand recognition will play an
increasingly important role in the success of Internet companies. Establishing
and promoting our online brands in the face of pressures from our competitors
will be critical to further developing our member and user base as well as
various strategic and commercial relationships. We will need to continue to
devote substantial financial and other resources to increase and maintain the
awareness of our online brands among members, advertisers and e-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, we have agreed to purchase at least $405 million of
promotional services from NBC over a four year period to develop and promote our
online brands as well as our products and services. Our results of operations
could be seriously harmed if this investment of financial and other resources in
developing and promoting our online brands does not generate a corresponding
increase in net revenue, or if the expense of developing and promoting our
online brands becomes excessive.
IF FUTURE ACQUISITIONS ARE NOT SUCCESSFUL, OR IF WE ARE NOT ABLE TO STRUCTURE
FUTURE ACQUISITIONS IN A FINANCIALLY EFFICIENT MANNER, THERE COULD BE AN
ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS
Acquiring complementary businesses, products and technologies is an integral
part of our business strategy. We are and will continue to be engaged in
exploring potential acquisitions both of publicly traded and private companies.
This acquisition strategy will subject us to integration risks similar to those
we face in integrating our current businesses. In addition, the success of the
acquisitions will be dependent upon the ability of our management to maximize
our financial and strategic position when incorporating the technology or
businesses. Any of these risks could prevent us from realizing significant
benefits from our acquisitions.
In addition, we may invest in business areas in which we do not currently
compete. Such acquisitions represent greater risks as we would be entering
markets, at potentially great expense, where we have little or no direct prior
experience. Accordingly, such acquisitions, if unsuccessful, could have a
significant adverse impact on our financial condition and the price of our
Class A common stock. Even if we believe an acquisition is in our best interest,
investors or securities analysts may disagree and the size of a potential
acquisition could adversely impact the price of our Class A
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common stock. We may also engage in other forms of financial transactions such
as spin-offs or initial public offerings of common stock of our subsidiaries.
These transactions or large acquisitions could effectively change our corporate
structure, without providing you an opportunity to vote on the transaction. We
cannot assure you that such acquisition or investment strategies, if
implemented, will prove successful.
We will face increased competition with other entities for desirable
acquisition targets. Like several of our competitors and other Internet
companies, we expect to issue common stock in future acquisitions. If the market
price of our Class A common stock suffers declines which are disproportionate
relative to our competitors or fails to keep pace with any increases in the
price of the stock of our competitors, we may not be able to compete with other
entities for desirable acquisition candidates. Our inability to acquire
complementary businesses, products and technologies may seriously harm our
business and results of operations.
In addition, issuing Class A common stock in acquisitions will dilute our
existing stockholders, while the use of cash will deplete cash reserves. We
anticipate that we will be unable to account for future acquisitions under the
"pooling of interests" method of accounting and, therefore, expect to incur
significant, one-time write-offs and amortization charges. These write-offs and
charges would decrease our future earnings or increase our future losses. Due to
all of the foregoing, our inability to structure acquisitions in a financially
efficient manner may seriously harm our business and results of operations.
THE USE OF A COMMUNITY PLATFORM IS UNPROVEN AND DEPENDS ON MAINTAINING AND
EXPANDING OUR MEMBERSHIP BASE; WE DO NOT KNOW WHETHER OUR COMMUNITY PLATFORM
WILL BE VIABLE AND PROFITABLE
A part of our business model relies on using our community platform and
membership base to generate revenues from different sources. To be profitable,
we will need to provide goods and services that are attractive to our members,
advertisers and vendors. We had previously relied on member-generated content
and the "grassroots" voluntary promotional efforts of our members to develop and
maintain our profile as a community site. A decline in voluntary promotional
activities by the members or member-generated content could make our community
services less attractive.
We 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.
WE WILL NOT BE ABLE TO SUSTAIN THE RAPID GROWTH OF OUR INTERNET PROPERTIES
Although Xoom.com and Snap have experienced rapid growth in net revenues,
members, customers and reach in recent periods, these growth rates are likely
not sustainable. These growth rates will likely decrease and are not indicative
of future growth rates we may experience.
ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD SERIOUSLY HARM OUR RESULTS OF
OPERATIONS
Our success depends upon the capacity, reliability and security of our
networking hardware and software infrastructure. Any failure in our networking
hardware and software infrastructure could significantly and adversely impact
the results of our operations.
Our businesses have developed systems for maintaining their Web sites,
processing transactions and managing orders internally. If, in the future, we
cannot modify these systems to accommodate increased traffic and an increased
volume of transactions and orders, we could suffer from slower response times,
problems with customer service and delays in reporting accurate financial
information.
We use network servers that are housed separately by application at Exodus
Communications, Inc. in Santa Clara, California and GlobalCrossing Global Center
in Sunnyvale, California. Our Web sites are connected to the Internet via
multiple links on a 24 hour-a-day, seven days per week basis by Exodus and
GlobalCrossing Global Center. Exodus and GlobalCrossing Global Center also
provide and
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manage power and maintain the correct environment for our networking and server
equipment. We manage and monitor our servers and network remotely from our
headquarters in San Francisco, California. We strive to rapidly develop and
deploy high-quality tools and features into our systems without interruption or
degradation in service.
Although agreements with hosting companies will give us remedies for service
interruptions, we cannot guarantee that:
- we will have uninterrupted access to the Internet;
- our members and users will be able to reach our Web sites; or
- communications via our Web sites will be secure.
Any disruption in the Internet access provided by our hosting companies, or
any interruption in the service that our hosting companies receive from other
providers, or any failure of our hosting companies to handle higher volumes of
Internet users to our Web sites, could seriously harm our business, results of
operations and financial condition.
Despite precautions taken by our businesses and by the companies that host
our Web sites, our systems are susceptible to natural and man-made disasters
such as earthquakes, fires, floods, power loss and sabotage. Our systems also
may be vulnerable to disruptions from computer viruses and attempts by hackers
to penetrate our network security.
We are 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. We also 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
our primary facilities and servers are located.
Any of the events listed above could cause interference, delays, service
interruptions or suspensions and seriously harm our business and results of
operations.
We must continue to expand and adapt our system infrastructure to keep pace
with the increase in the number of members who use the free services we provide.
Demands on infrastructure that exceed our current forecasts could result in
technical difficulties with our Web sites. Any system failure that interferes
with the access to our Web sites and the use of the free services we provide
could diminish the level of traffic on our Web sites. Continuing or repeated
system failures could impair our reputation and our brand names and reduce our
commerce and advertising revenue. At present, we do not know if we 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, all of which could harm our operations.
If, in the future, we cannot modify these systems to accommodate increased
traffic and an increased volume of transactions and orders, we 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 our operations.
DIFFICULTIES WE MAY ENCOUNTER IN DEALING WITH OUR GROWTH AND EXPANSION COULD
SERIOUSLY HARM OUR RESULTS OF OPERATIONS
Our strategy is to continue growing our membership and user base at a rapid
pace. If this growth continues, we will experience a significant strain on our
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 our businesses;
- the need to train and manage a growing employee base; and
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- pressures for the continued development of our financial and information
management systems.
Difficulties we may encounter in dealing successfully with the above risks
could seriously harm our operations. In addition, in the first quarter of 2000
we expect to move our headquarter facilities to a new facility in San Francisco.
The move could cause disruption of our business or otherwise divert management's
attention which could harm our financial results.
THE SUCCESSFUL OPERATION OF OUR BUSINESS DEPENDS UPON THE SUPPLY OF CRITICAL
ELEMENTS FROM OTHER COMPANIES
In addition to the infrastructure, we will depend substantially upon third
parties for several critical elements of our business including technology,
order fulfillment, content development and distribution activities.
TECHNOLOGY: We will continue to license technology and related databases
from third parties for some elements of our properties, including, among others,
technology underlying the delivery of stock quotes and current financial
information, chat services, street mapping, telephone listings and similar
services. We expect to experience interruptions and delays in service and
availability for such elements, from time to time. Furthermore, we will be
dependent on hardware suppliers for prompt delivery, installation and service of
servers and other equipment used to deliver our products and services. Any
errors, failures, or delays experienced in connection with these third-party
products and information services could negatively affect our relationship with
users and adversely affect our brands and business, and could expose us to third
party liability.
ORDER FULFILLMENT: We continue to rely on other companies for critical
aspects of our e-commerce business. For example, Banta Global Turnkey
Corporation is primarily responsible for fulfilling orders for products and
services sold via our Web sites and in response to direct e-mail marketing. If
our relationship with Banta were to terminate without sufficient advance notice,
our operations would be negatively affected, even if we were able to quickly
establish a relationship with a comparable vendor to fulfill orders. The success
of our specific e-mail direct e-commerce campaigns depends on the timely supply
of inventory by the manufacturers and suppliers of the products we offer for
sale to our members. The failure of the suppliers on whom we depend would
adversely affect the results of our operations.
CONTENT DEVELOPMENT: A key element of our strategy involves the
implementation of our branded online properties targeted for specific interest
areas, demographic groups and geographic areas. In these efforts, we rely on
content development and localization efforts of third parties. We cannot
guarantee that the third parties will effectively implement these properties, or
that their efforts will result in significant revenue to us. Any failure of
these parties to develop and maintain high-quality and successful media
properties also could hurt our brands.
DISTRIBUTION RELATIONSHIPS: In order to create traffic for our online
properties and make them more attractive to advertisers and consumers, we expect
to have distribution agreements and informal relationships with leading Web
browser providers and portals, 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 our
online properties. Any failure to cost-effectively obtain distribution could
seriously harm our business, results of operations and financial condition.
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PLANNED INTERNATIONAL OPERATIONS ARE SUBJECT TO RISKS THAT COULD SERIOUSLY HARM
OUR RESULTS OF OPERATIONS
We plan to establish operations or form business partnerships in other parts
of the world. We have very limited experience in international markets and may
not be able to compete effectively in international markets. The expansion of
operations into international markets will require substantial management
attention and financial resources. We cannot be certain that our investment in
establishing operations in other countries will produce 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 of the Internet by users and advertisers 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 the 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 seriously harm our operations.
TO BE SUCCESSFUL IN THE CONTINUALLY EVOLVING MARKET FOR ONLINE SERVICES, WE MUST
CONTINUE TO ENHANCE OUR 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 our existing
services, technology and systems obsolete. We must continually improve the
performance features and reliability of our services to respond to evolving
market demands and competition. Our business, operating results and financial
condition would be seriously harmed if we are unable to respond in a
cost-effective and timely manner to changing market conditions or customer
requirements.
To remain competitive, we must continue to enhance and improve the
functionality, features and content of our Web sites. We 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
our Web-based e-mail services, message boards, stock portfolios and our
community features, require significantly greater expenses than our general
services. We cannot guarantee that these higher expenses will be offset by
additional revenues.
A key element of our business strategy is the development and introduction
of new branded online properties targeted for specific user groups with
particular demographic characteristics and geographic concentration. We may not
be successful in developing, introducing and marketing such products or media
properties and such properties may not achieve market acceptance, enhance our
brand name recognition or increase user traffic. Furthermore, enhancements of or
improvements to our Web sites
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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 our brand name. If we fail to effectively
develop and introduce new properties, or those properties fail to achieve market
acceptance, our business, results of operations and financial condition could be
seriously harmed.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD SERIOUSLY HARM
OUR BUSINESS AND FINANCIAL CONDITION
We view our technology as proprietary and will seek to protect it under
existing United States and international laws relating to protection of
intellectual property. We will also develop internal procedures to control
access to and dissemination of our proprietary information. Despite our
precautions, third parties may succeed in misappropriating our intellectual
property or independently developing similar intellectual property. Protecting
our intellectual property against infringement could result in substantial legal
and other costs and could divert our limited management resources and attention.
This could adversely impact our business and the results of our operations.
Some of the technology to be incorporated into our Web sites is based on
technology licensed from third parties. As we continue to introduce new
services, we may need to license additional technology. If we are unable to
license needed technology in a timely manner and on commercially reasonable
terms, we could experience delays and reductions in the quality of our services,
all of which could seriously harm our business and results of operations. Our
reputation and the value of our proprietary information could also be adversely
affected by actions of third parties to whom we license our proprietary
information and intellectual property. If someone asserts a claim relating to
proprietary technology or information against us, it may be necessary to seek a
license to such intellectual property. We cannot assure you, however, that we
will be able to obtain such licenses on commercially reasonable terms, if at
all. The failure to obtain any necessary licenses or other rights could
seriously harm our business and results of operations.
Each of our businesses has been subject to claims that they have allegedly
infringed the proprietary rights of third parties, and we cannot assure you that
third parties will not assert claims against us or our businesses in the future.
These claims, whether or not meritorious, sometimes result in litigation and
could become a drain on our management and financial resources. If successful,
claims of this nature could subject us to liability for money damages as well as
injunctive relief restricting our use of intellectual property important to our
operations, and could ultimately cause us to lose rights to some of our
intellectual property. Any of these events could seriously harm our business and
results of operations.
WE COULD BE SUBJECT TO LIABILITY FOR ONLINE CONTENT THAT MAY NOT BE COVERED BY
OUR INSURANCE
The nature and breadth of information disseminated on our Web sites and
through the sites of our members could expose us to liability in various areas,
including claims relating to:
- product information and reviews we 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 our Web sites 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 we will
offer.
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Claims of these kinds against us could result in us incurring substantial
costs and could also be a drain on our financial and other resources. If the
number or severity of claims of this nature were significant, we would need to
implement measures to reduce our exposure and potential liability. In addition
to being a drain on our resources, this could also require taking measures that
could make our services less attractive to our members and visitors. This in
turn could reduce traffic on our Web sites, negatively impact our member and
user base, and reduce our revenue from e-commerce and advertising. Our general
liability insurance may be insufficient to cover expenses and losses arising in
connection with any claims against us. To the extent our insurance coverage does
not cover liability or expenses we incur, our business and results of operations
would be seriously harmed.
E-COMMERCE ACTIVITIES MAY EXPOSE US TO UNCERTAIN LEGAL RISKS AND POTENTIAL
LIABILITIES
As part of our business, we will enter into agreements with sponsors,
content providers, service providers and merchants under which we are entitled
to receive a share of revenue from the purchase of goods and services by users
of our Web sites. In addition, we will provide hosting and other services to
online merchants. These types of arrangements may expose us to additional legal
risks and uncertainties, including potential liabilities relating to the
products and services offered by such third parties.
Although we 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
seriously harm our business and operations.
WE COULD FACE LIABILITY FROM LEGAL PROCEEDINGS OF XOOM.COM AND SNAP THAT COULD
SERIOUSLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS
Because Snap and Xoom.com are our wholly owned subsidiaries, claims made
against Snap and Xoom.com will impact our financial condition and results of
operations. Snap is currently litigating one matter and Xoom.com is litigating
three matters. See "Business--Legal Proceedings." An unfavorable outcome in any
of this litigation could seriously harm our business and results of operations
and the market price of our Class A common stock.
IF OUR CAPITAL IS INSUFFICIENT TO PROMOTE OUR BUSINESS, AND IF WE CANNOT OBTAIN
NEEDED FINANCING, WE WILL BE UNABLE TO PROMOTE OUR BRAND NAMES, EXPLOIT
ACQUISITION OPPORTUNITIES AND OTHERWISE MAINTAIN OUR POSITION RELATIVE TO OUR
COMPETITORS
We believe we have sufficient capital resources to support our operations at
least for the next 12 months. Nevertheless, we anticipate that we will need to
raise funds to maintain and develop our position in the marketplace. It may be
difficult or impossible for us to obtain financing on favorable terms, if at
all. Neither GE nor its affiliates, including NBC, has made any commitment to
provide financing to us. We cannot assure you that there will be a market for
our securities at any time when we 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 our stockholders, subject to
NBC's exercise of its preemptive rights, and we cannot assure you that an
offering of securities would be completed successfully. Also, new securities we
may issue could have rights senior to the rights of our common stock. If we
cannot obtain needed financing, we could jeopardize our ability to complete the
integration of our Web properties and otherwise meet our business plan and we
will likely be unable to promote our brand names, take advantage of acquisition
opportunities and otherwise maintain our position relative to that of our
competitors, which could seriously harm our business and results of operations.
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IF IMPORTANT STRATEGIC RELATIONSHIPS ARE DISCONTINUED FOR ANY REASON, THERE
WOULD BE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION
Although strategic relationships are a key factor in our overall business
strategy, our strategic partners may not view their relationships with us as
significant to their own business. There is a risk that parties with whom we
will have strategic alliance agreements may not perform their obligations as
agreed. We expect that our arrangements with strategic partners generally will
not establish minimum performance requirements but instead rely on the voluntary
efforts of our partners. In addition, we expect that most of our agreements with
strategic partners will be terminable by either party with little notice. If
important strategic relationships are discontinued for any reason, our business
and results of operations may be harmed.
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE AND OUR RELATIONSHIP WITH NBC
BECAUSE NBC HAS SIGNIFICANT INFLUENCE OVER OUR MANAGEMENT AND STRATEGY, THE
ABILITY OF THE HOLDERS OF OUR CLASS A COMMON STOCK TO DETERMINE THE OUTCOME OF
MATTERS WILL BE REDUCED
After the offering, NBC and its affiliates will own approximately 43.9% of
our outstanding common stock. If the convertible notes held by NBC are
converted, this ownership interest could increase up to approximately 49.2%,
although such conversion cannot occur until November 30, 2000. 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 us, enabling NBC to determine the outcome of such vote.
In addition, NBC and its affiliates have rights to maintain their percentage
ownership in the event of dilutive issuances of stock by us. As a result, NBC
may be able to exercise significant influence in the future over many matters
requiring approval by our stockholders, including amending our certificate of
incorporation and bylaws, the issuance of additional shares of our Class B
common stock 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 our board of directors, and will retain that right so long as they
own 20% of the outstanding shares of our common stock. Following conversion of
the convertible notes, for so long as NBC and its affiliates own 35% or more of
the outstanding shares of our common stock, NBC and its affiliates will have the
right to elect seven of the 13 members of our board of directors. As long as the
NBC directors do not constitute a majority of our board of directors, several
significant corporate actions by us will require the approval of our directors
appointed by NBC, including a change in control of us or our significant
subsidiaries and significant sales of assets or securities. For as long as there
are any Class B directors, those directors will have the exclusive ability to
remove our chief executive officer and to appoint our chief financial officer
and our general counsel. In addition, Robert C. Wright, the president and chief
executive officer of NBC, serves as our chairman of the board. Many of these
rights are embodied in our certificate of incorporation, and as a result any
amendment will require a vote of our stockholders. See "Description of Capital
Stock."
Because of these rights, NBC has the ability to exert significant influence
over our management and strategy. While our directors appointed by NBC are
obligated by Delaware law to act in the best interests of NBCi and its
stockholders, NBC's views concerning our management and strategy may be
different from the views held by directors appointed by the holders of shares of
our Class A common stock.
NBC WILL BE ABLE TO ENGAGE FREELY IN MANY ACTIVITIES THAT MAY BE COMPETITIVE
WITH OUR BUSINESS
Under our brand integration and license agreement with NBC, NBC is obligated
not to co-brand the portal, community and e-commerce services of our competitors
with specified NBC marks, and
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NBC may not operate a general portal service, a broad-based community service or
a broad-based e-commerce service other than through us. However, apart from the
restrictions in the brand integration and license agreement, our certificate of
incorporation 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
we do, to do business with our potential or actual customers and suppliers and
to employ any of our employees. In the event that NBC learns of a potential
corporate opportunity to both NBC and us, NBC has no duty to communicate or
present the opportunity to our management. NBC will have no liability to us or
our stockholders for breach of any fiduciary duty which may be applicable to NBC
as one of our major stockholders 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 us.
Moreover, our certificate of incorporation provides that persons who are
directors or officers of us and also of NBC are deemed to have fully satisfied
their fiduciary duties to us with respect to corporate opportunities of NBC and
NBCi if they act consistently with the policy regarding corporate opportunities
set forth in our certificate of incorporation. In particular, a corporate
opportunity offered to any person who is a director, but not an officer, of us
and who is also a director or officer of NBC belongs to us only if offered in
writing to such person solely in his or her capacity as our director, and
otherwise such corporate opportunity belongs to NBC.
These provisions are effective for so long as NBC owns at least 20% of our
common stock and at least one person who is one of our directors or officers is
also a director or officer of NBC. In addition, amendment of these provisions of
our certificate of incorporation in a manner adverse to NBC's interests requires
the approval of holders of at least 80% of our outstanding common stock.
Although as our principal stockholder NBC has a significant financial
interest in our success, NBC also has the objective of maximizing value for its
parent company, General Electric, and the stockholders of GE. There may be
circumstances under which NBC's corporate objectives conflict with our
operations or strategy, and, except as may otherwise be required by law, NBC has
no obligation to act in a manner beneficial to us 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 owns 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 there is no limitation on its ability to
continue to do so or to develop new methods of distribution or delivery or forms
of content independently from us. In addition, the value of NBC-IN.com will be
dependent on our ability to negotiate content and distribution relationships
with NBC's affiliated television stations, including the 13 stations owned and
operated by NBC. Although NBC is obligated to comply with the terms of the brand
integration and license agreement, we cannot assure you that NBC will not engage
in activities which are competitive with or otherwise negatively affect our
business. Any such action by NBC may seriously harm our business, operating
results and financial condition.
NBC'S RELATIONSHIPS WITH OUR STRATEGIC PARTNERS WILL LIMIT OUR ABILITY TO ENTER
INTO STRATEGIC RELATIONSHIPS AND TO PROVIDE NEWS, INCLUDING SPORTS AND
BUSINESS NEWS, ON OUR WEB SITES
Our relationships with our existing strategic partners and our future
relationships with partners may limit our ability to enter into other strategic
relationships or provide services that we might otherwise offer on our 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.
Consequently, our ability to develop and present news
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content on our sites is limited, and our efforts must be consistent with these
restrictions. 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. We may enter
into similar or other non-competition arrangements with strategic partners that
may limit our ability to engage in or provide some activities or services.
WE 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 seriously harm our business,
operating results and financial condition. Our licensed use of the NBC brand is
a critical aspect of our efforts to retain, attract and expand our user and
advertiser base, both through the advertising and promotion we will purchase on
the NBC television network as well as the inclusion of the NBC brand on our 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, we 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, we cannot predict the extent to which
use of the NBC brand will have a positive effect on our 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 us
declines to 5% or less, or if there is a change in control of us.
THE SIGNIFICANT INFLUENCE OF NBC AND ANTI-TAKEOVER PROVISIONS IN OUR CHARTER
DOCUMENTS COULD NEGATIVELY IMPACT OUR STOCKHOLDERS
NBC has significant influence with respect to our management and strategy.
As a result of NBC's influence, NBC is able to exercise effective control over
significant corporate transactions which may delay or prevent a change in
control. 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 our common stock or we agree to enter
into any transaction which would result in a change of control, the limitations
on NBC's ability to acquire additional shares in us, to solicit proxies in
connection with an amendment to our 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 terminate.
Moreover, NBC can terminate our use of the NBC trademarks and logos in the event
of a change of control of us. Other provisions of our charter documents could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders. Any of these factors could impede or prevent
transactions that would cause a change in control in us. This might discourage
bids for our common stock at a premium over the market price of our common stock
and adversely affect the trading price of our common stock.
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MARKET AND INDUSTRY RISKS
ANY INCREASE IN COMPETITION IN THE E-COMMERCE MARKET COULD ADVERSELY AFFECT OUR
ABILITY TO MAINTAIN OR IMPROVE OUR POSITION IN THE MARKET RELATIVE TO THAT OF
OUR COMPETITORS
We expect intense competition in the e-commerce market from an ever
increasing number of companies selling goods and services over the Internet.
These competitors include: traditional retailers, various mail-order retailers,
Internet-focused retailers, manufacturers that sell directly over the Internet
and many software companies. We expect new competitors to emerge.
Increased competition from these and other sources could require us to
respond by establishing pricing, marketing and other programs or seeking out
additional strategic alliances or acquisitions that may be less favorable to us
than we otherwise establish or obtain. Such outcomes could seriously harm our
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 US
In the recent past, there have been a number of significant acquisitions and
strategic plans announced among and between our competitors, including:
- America Online's acquisition of Netscape and its proposed merger with Time
Warner, Inc.;
- CMGI's acquisition of 83% of AltaVista;
- Disney's acquisition of the remaining interest in Infoseek not already
owned by Disney;
- @Home Network's acquisition of Excite; and
- Yahoo!'s acquisitions of GeoCities and Broadcast.com.
The effects these completed and pending acquisitions and strategic plans
have on us cannot be predicted with accuracy, but some of these competitors are
aligned with companies that are larger or more well established than us. In
addition, these competitors include television broadcasters with access to
unique content and substantial marketing resources. As a result, these
competitors may have access to greater financial, marketing and technical
resources than us.
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 OUR PRODUCTS AND ONLINE PROPERTIES
As discussed above, recent acquisitions and alliances will result in greater
competition as more users of the Internet consolidate to 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 our products and
services.
In the future, Netscape, Microsoft and other browser suppliers may also more
tightly integrate products and services similar to ours 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
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Microsoft affiliated end-user services such as WebTV Networks. Each of these
situations creates a potential competitive advantage over us because Internet
navigational offerings of competitors may be more conveniently accessed by
users.
OUR SUCCESS WILL DEPEND UPON THE GROWTH IN THE USE OF THE INTERNET FOR
E-COMMERCE TRANSACTIONS
Our future success 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, we do not know whether our business model 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. Our members may also choose not to receive our e-mail
offerings or may fail to respond to such offerings. If these blocking or
limiting programs become popular, there could be a negative effect upon the
viability of e-commerce on the Web and on our business, results of operations
and financial condition.
COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE, AND THE LOSS OF KEY PERSONNEL
AND OUR INABILITY TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS
Our success depends to a significant degree upon the contributions of our
executive management team, most of whom have not previously worked together, as
well as our technical, marketing and sales personnel. Due to the integration of
the operations of our businesses, our employees may have different job
responsibilities and may be required to work with new people. Accordingly, we
may experience loss of key management and other personnel due to the change in
job responsibilities and work environment. Our employees may voluntarily
terminate their employment with us at any time. Our success also depends upon
our 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
our 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
our results of operations.
THE YEAR 2000 PROBLEM COULD CAUSE OUR SOFTWARE PRODUCTS AND THOSE OF OUR
SUPPLIERS TO MALFUNCTION, WHICH COULD PREVENT OR LIMIT ACCESS TO OUR 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
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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. To
date we have not experienced any significant Year 2000 issues in our internal
technology systems or with the vendors of systems we believe to be critical to
our business. In addition, we believe that it is unlikely we will experience any
significant Year 2000 issues in the future.
However, our applications operate in complex network environments and
directly and indirectly interact with a number of other hardware and software
systems. We cannot predict whether Year 2000 unknown errors or defects that
affect the operation of software and systems that we use in operating our
businesses will arise in the future. These errors or defects, should they occur,
could harm our business.
REGULATORY AND LEGISLATIVE RISKS
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 US
Imposition of sales or other similar taxes on our sales of merchandise in
states or countries where we ship goods could have a material adverse effect on
our 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 us.
PRIVACY CONCERNS, GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS
Laws and regulations that apply directly to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the United
States Congress resulted in Internet laws regarding privacy and the protection
of children, copyrights, taxation and the transmission of sexually explicit
material. The European Union recently enacted its own privacy regulations and
other countries may do so in the future. In addition, new laws may be adopted in
the United States and in other countries covering issues such as music
licensing, broadcast licensing fees and the characteristics and quality of
Internet services. Laws regulating the Internet, however, remain largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws that govern intellectual
property, privacy, libel and taxation apply to the Internet. The development of
laws governing these areas, or the application to the Internet of existing laws
not designed for the Internet, may decrease the growth in the use of the
Internet. In addition, the growth and development of the e-commerce market may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business online. The adoption or modification of laws or regulations relating to
the Internet could adversely affect our 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 our business and results of operations.
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OFFERING RISKS
OUR STOCK PRICE MAY BE VOLATILE BASED ON A NUMBER OF FACTORS, SOME OF WHICH ARE
NOT IN OUR CONTROL
The trading price of our Class A common stock has been highly volatile. Our
stock price could be subject to wide fluctuations in response to a variety of
factors, many of which are out of our control, including:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations;
- new products or services offered by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet industry and the portal and community
services segment in particular;
- our announcement of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- additions or departures of key personnel; and
- sales of common stock by us or our stockholders, which could occur at any
time after the closing of the transaction.
In addition, The Nasdaq National Market, where most publicly held Internet
companies are traded, has recently experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or disproportionate
to the operating performance of these companies. The trading prices of many
Internet companies 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 our Class A common stock, regardless of our
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.
SALES OF SUBSTANTIAL AMOUNTS OF OUR CLASS A COMMON STOCK IN THE OPEN MARKET
COULD DEPRESS OUR STOCK PRICE
Sales of a substantial number of shares of Class A common stock in the
public market following this offering could cause the market price of our
Class A common stock to decline. See "Shares Eligible for Future Sale" for a
description of the eligibility of shares of our Class A common stock for future
sale.
OUR MANAGEMENT CAN SPEND MOST OF THE PROCEEDS FROM THIS OFFERING IN WAYS THAT DO
NOT INCREASE OUR RESULTS OF OPERATIONS OR MARKET SHARE
Our management can spend most of the proceeds from this offering in ways
which may not increase our results of operations or market share. In connection
with your decision to purchase the shares of our Class A common stock, you will
not have the opportunity to consider the uses to which the proceeds will be put.
We cannot predict that the proceeds will be invested to yield a favorable
return. See "Use of Proceeds."
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
Investors purchasing shares of common stock in the offering will incur
immediate and substantial dilution in net tangible book value per share of the
common stock from the assumed offering price of
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$75.75 per share, based on the last reported sales price of our Class A common
stock on January 12, 2000. To the extent outstanding options or warrants to
purchase common stock are exercised, there will be further dilution. See
"Dilution."
THE TRACES TRANSACTION COULD CAUSE OUR STOCK PRICE TO DECLINE
The price of the shares of Class A common stock could become more volatile
and could be depressed by investors in anticipation of the potential
distribution into the market of additional shares of Class A common stock as a
result of the delivery of shares of Class A common stock by the NBCi Automatic
Common Exchange Securing Trust, by possible sales of shares of Class A common
stock who view the TRACES as a more attractive means of equity participation in
us and by hedging or arbitrage trading activity that may develop involving the
TRACES and the Class A common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to a
number of risks and uncertainties, many of which are beyond our control, which
may include statements about our:
- plans for and ability to hire additional personnel;
- business strategy;
- expectations for future expansion both in the U.S. and internationally;
- anticipated growth in revenue from our various service offerings;
- uncertainty regarding our future operating results;
- anticipated sources of funds, including the proceeds from this offering,
to fund our operations for the 12 months following the date of this
prospectus; and
- plans, objectives, expectations and intentions contained in this
prospectus that are not historical facts.
All statements, other than statements of historical facts included in this
prospectus, regarding our strategy, future operations, financial position,
estimated revenues or losses, projected costs, prospects, plans and objectives
of management are forward-looking statements. When used in this prospectus, the
words "will", "believe", "anticipate", "intend", "estimate", "expect", "project"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this prospectus. You
should not place undue reliance on these forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in or suggested by
the forward-looking statements we make in this prospectus are reasonable, we can
give no assurance that these plans, intentions or expectations will be achieved.
We disclose important factors that could cause our actual results to differ
materially from our expectations under "Risk Factors" and elsewhere in this
prospectus. These cautionary statements qualify all forward-looking statements
attributable to us or persons acting on our behalf.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of $261,663,125 from the sale
of the 3,650,000 shares of Class A common stock in this offering, assuming a
public offering price of $75.75 per share and after deducting the estimated
underwriting discount and offering expenses. We will not receive any proceeds
from the sale of the shares that the selling stockholders are selling.
We expect to use the net proceeds to expand our corporate infrastructure and
for general corporate purposes, including working capital and capital
expenditures. While we cannot predict with certainty how the proceeds of this
offering will be used, we currently intend to use them as follows:
- to develop new e-commerce channels;
- to expand our operations internationally;
- to build and enhance the value of our online brands;
- for potential acquisitions and minority investments; and
- for general corporate purposes, including capital expenditures and working
capital.
We expect to use a portion of the net proceeds to acquire or invest in
complementary businesses or obtain the right to use complementary technologies.
However, we have no current commitments or agreements with respect to any of
these types of investments. Pending these uses, the net proceeds of this
offering will be invested in short-term, investment-grade interest-bearing
investments or accounts.
The amounts we actually spend for the above purposes may vary significantly
and will depend on a number of factors, including our future revenue and cash
generated by operations and the other factors described under "Risk Factors."
Therefore, we will have broad discretion in the way we use the net proceeds. See
"Risk Factors--Our management may invest or spend the proceeds of this offering
in ways that do not increase our results of operations or market share" for more
information.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common
stock. We intend to retain any future earnings for future growth and do not
anticipate paying any cash dividends in the foreseeable future.
PRICE RANGE OF CLASS A COMMON STOCK
Our Class A common stock has been traded on the Nasdaq National Market and
on the European Association of Securities Dealers Automated Quotation System
under the symbol "NBCI" since November 30, 1999. The following table sets forth,
for the periods indicated, the high and low sales prices for our common stock as
reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fourth Quarter (from November 30, 1999).................................... $ 95.00 $ 59.00
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
First Quarter (through January 12, 2000)................................... $ 84.50 $ 70.94
</TABLE>
On January 12, 2000, the last reported sale price for our Class A common
stock on the Nasdaq National Market was $75.75 per share. As of January 12,
2000, we estimated that there were approximately 358 holders of record and over
22,100 beneficial owners of the Class A common stock.
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CAPITALIZATION
The following table sets forth our:
- pro forma capitalization at September 30, 1999; and
- pro forma adjusted capitalization, which gives effect to the sale in this
offering of shares of Class A common stock at a public
offering price of $75.75 per share and after deducting the estimated
underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------
PRO FORMA AS
PRO FORMA ADJUSTED
------------ -------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Long-term obligations, less current portion and amounts due to related parties....... $ 2,836 $ 2,836
Convertible notes payable due to NBC and its affiliates, less current portion........ 370,000 370,000
Stockholders' equity:
Preferred stock, $.0001 par value; 10,000,000 shares authorized, no shares issued
and outstanding:
Class A common stock, $.0001 par value; 100,000,000 shares authorized, shares
issued and outstanding:.......................................................... 914,156 1,175,819
Pro forma: 26,746,708 shares
Pro forma As adjusted: 30,396,708 shares
Class B common stock, $.0001 par value, 100,000,000 shares authorized; shares
issued and outstanding:.......................................................... 1,158,336 1,158,336
Pro forma: 24,550,708 shares
Pro forma as adjusted: 24,550,708
Note receivable from stockholders.................................................. (995) (995)
Deferred compensation.............................................................. (409) (409)
Accumulated deficit................................................................ (32,980) (32,980)
------------ -----------
Total stockholders' equity....................................................... 2,038,108 2,299,971
------------ -----------
Total capitalization............................................................. $ 2,410,944 $ 2,672,807
============ ===========
</TABLE>
This table excludes the following shares:
- 6,548,329 shares of Class A common stock issuable upon exercise of stock
options outstanding as of September 30, 1999 at a weighted average
exercise price of $21.53 per share granted under our 1999 stock incentive
plan;
- 3,105,702 shares of Class A common stock issuable upon exercise of options
granted subsequent to September 30, 1999 with a weighted average exercise
price of $61.39 per share;
- 924,526 shares issued upon exercise of stock options and 1,811 shares
issued to directors and consultants subsequent to September 30, 1999;
- 4,437,038 shares of Class A common stock reserved for future issuance
subsequent to September 30, 1999 under our 1999 stock incentive plan and
our 1999 employee stock purchase plan;
- 5,809,388 shares of Class B common stock issuable upon conversion of two
subordinated zero coupon convertible notes subsequent to September 30,
1999 held by affiliates of NBC;
- 244,004 shares of Class A common stock issuable upon the exercise of a
warrant held by ValueVision International, Inc. at an exercise price of
$40.893 per share; or
- 24,550,708 shares of Class B common stock convertible into
24,550,708 shares of Class A common stock subsequent to September 30, 1999
at the discretion of NBC and its affiliates.
30
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $288.2 million, or $10.78 per share of Class A common stock. Pro
forma net tangible book value per share represents the amount of tangible assets
less total liabilities, divided by the total number of shares of Class A common
stock outstanding.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of Class A common
stock in this offering and the adjusted pro forma net tangible book value per
share of our Class A common stock immediately after the offering. After giving
effect to our sale of 3,650,000 shares of Class A common stock in this offering,
at an assumed public offering price of $75.75 per share, and after deducting the
estimated underwriting discounts and estimated offering expenses payable by us,
our adjusted pro forma net tangible book value as of September 30, 1999 would
have been approximately $549.9 million, or $18.09 per share. This represents an
immediate increase in adjusted pro forma net tangible book value of $7.31 per
share to existing stockholders and an immediate dilution in as adjusted pro
forma net tangible book value of $57.66 per share to purchasers of Class A
common stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.................... $ 75.75
Pro forma net tangible book value per share as of
September 30, 1999....................................... $ 10.78
Increase in net tangible book value attributable to new
investors................................................ 7.31
---------
As adjusted pro forma net tangible book value per share
after the offering....................................... 18.09
---------
Dilution per share to new investors........................ $ 57.66
=========
</TABLE>
The following table sets forth, on a pro forma basis, as of September 30,
1999:
- the number of shares of Class A common stock purchased from us;
- the total consideration paid to us for Class A common stock;
- the average price per share paid by existing Class A common stockholders;
- the price per share paid by existing Class A common stockholders; and
- the price per share paid by new investors, based on an assumed public
offering price of $75.75 per share before deducting the estimated
underwriting discounts and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- --------- ---------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing Class A common stockholders........ 26,746,708 87.99% $ 817,357,372 75% $ 30.56
New investors............................... 3,650,000 12.01% $ 276,487,500 25% $ 75.75
------------- --------- ---------------- ---------
Total..................................... 30,396,708 100.00% $ 1,093,844,872 100.00%
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 4,040,000, or 13% of the total
shares of Class A common stock outstanding after this offering.
The information in the above table does not include the following:
- 6,548,329 shares of Class A common stock issuable upon exercise of options
outstanding at September 30, 1999, with a weighted average exercise price
of $21.53 per share;
31
<PAGE>
- 3,105,702 shares of Class A common stock issuable upon exercise of options
granted subsequent to September 30, 1999 with a weighted average exercise
price of $61.39 per share;
- 924,526 shares issued upon exercise of stock options and 1,811 shares
issued to directors and consultants subsequent to September 30, 1999;
- 4,437,038 shares of Class A common stock reserved for future issuance
subsequent to September 30, 1999 under our 1999 stock incentive plan and
our 1999 employee stock purchase plan;
- 5,809,388 shares of Class B common stock issuable upon conversion of two
subordinated zero coupon convertible notes subsequent to September 30,
1999 held by affiliates of NBC;
- 244,004 shares of Class A common stock issuable upon the exercise of a
warrant held by ValueVision International, Inc. at an exercise price of
$40.893 per share; or
- 24,550,708 shares of Class B common stock convertible into
24,550,708 shares of Class A common stock subsequent to September 30, 1999
at the discretion of NBC and its affiliates.
To the extent these options and warrants are exercised, there will be
further dilution to the new investors.
32
<PAGE>
NBCI
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited selected pro forma condensed combined financial
information for NBCi gives effect to the transactions among Xoom.com, NBC and
the NBC Multimedia Division (which consists 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,
Paralogic Corporation, Global Bridges Technologies, Inc., PageCount, Inc.,
MightyMail Networks Inc., Paralogic Software Corporation and LiquidMarket,
Inc.);
- 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 contained in
this prospectus.
The unaudited pro forma condensed combined balance sheet as of
September 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 nine months ended September 30, 1998 and 1999
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 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 nine months ended September 30, 1998 and
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.
33
<PAGE>
The following table presents unaudited pro forma condensed combined
statements of operations data for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------ -----------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro Forma Condensed Combined Statement of Operations Data:
Advertising revenue......................................... $ 21,958 $ 12,000 $ 45,308
E-commerce revenue.......................................... 6,174 3,912 10,376
--------- --------- ---------
Total net revenue......................................... 28,132 15,912 55,684
Cost of advertising revenue................................. 13,148 9,389 11,647
Cost of e-commerce revenue.................................. 3,584 2,000 7,462
--------- --------- ---------
Cost of net revenue....................................... 16,732 11,389 19,109
--------- --------- ---------
Gross profit................................................ 11,400 4,523 36,575
Operating expenses:
Operating and development................................. 11,540 7,701 15,981
Sales and marketing....................................... 19,631 10,652 35,978
General and administrative................................ 14,538 9,614 19,625
Purchased in-process research and development............. 790 790 2,603
Amortization of deferred compensation..................... 1,765 1,248 6,648
Amortization of intangible assets......................... 271,281 203,457 204,245
Promotion and advertising provided by NBC................. 14,060 3,484 32,950
--------- --------- ---------
Total operating expenses.................................... 333,605 236,946 318,030
--------- --------- ---------
Loss from operations........................................ (322,205) (232,423) (281,455)
Other income (expense):
Interest and other income................................. 16,985 13,065 19,218
Interest and other expense................................ (15,218) (11,218) (12,417)
Interest expense related to warrant....................... (1,494) -- --
--------- --------- ---------
Net loss.................................................... $(321,932) $(230,576) $(274,654)
========= ========= =========
Net loss per share--basic and diluted....................... $ (7.74) $ (5.64) $ (5.77)
========= ========= =========
Number of shares used in per share calcuation--basic and
diluted................................................... 41,595 40,888 47,616
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1999
--------------
(IN THOUSANDS)
<S> <C>
</TABLE>
Pro Forma Condensed Combined Balance Sheet Data:
<TABLE>
<CAPTION>
Cash, cash equivalents and short-term investments. $ 156,167
<S> <C>
Notes receivable from NBC and it's affiliates, current and
non-current ($78,288 current)............................. 340,000
Working capital............................................. 198,773
Total assets................................................ 2,464,258
Long-term obligations, less current portion................. 2,836
Amounts due to NBC and its affiliates, current and
non-current ($101 current)................................ 370,101
Amounts due to CNET (current)............................... 1,788
Total stockholders' equity.................................. 2,038,108
</TABLE>
34
<PAGE>
NBC INTERNET, INC.'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are an integrated media company that combines portal, community and
e-commerce services designed to deliver a comprehensive, next-generation online
experience to a global audience. We were organized in May 1999. As a result of
transactions that occurred on November 29 and 30 of 1999, Xoom.com and Snap
became our wholly owned subsidiaries, and we became the owners of the businesses
related to NBC.com, NBC-IN.com and VideoSeeker.com and a 10% ownership interest
in CNBC.com, LLC. On November 29, 1999 the transactions contemplated by the
merger agreement were consummated. Under the merger agreement, (1) Xenon 3, our
wholly-owned subsidiary, was merged with and into Xoom.com and (2) CNET
exchanged its ownership interest in Snap, all in exchange for shares of our
Class A common stock. On November 30, 1999 the transactions contemplated by the
contribution agreement were consummated. Under the contribution agreement,
(1) Neon Media Corporation, the owner of the businesses related to NBC.com,
NBC-IN.com and a 10% ownership interest in CNBC.com, was merged with and into us
in exchange for shares of our Class B common stock issued to NBC Multimedia;
(2) NBC Multimedia received shares of our Class B common stock in exchange for
its ownership interests in Snap; (3) NBC Multimedia transferred the business
related to VideoSeeker.com to us in exchange for our $39,477,953 subordinated
zero coupon convertible note due 2006; and (4) GE Investments Subsidiary
purchased our $447,416,805 subordinated zero coupon convertible note due 2006 in
exchange for an assignment of a $340 million note issued by NBC. 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 Internet
properties contributed by NBC and to NBCi's acquisition of CNET's and NBC's
ownership interests in Snap.
We have not achieved profitability on a quarterly or annual basis to date,
and anticipate that we 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 our net revenue from advertising and e-commerce. We expect our operating
expenses to increase significantly, especially in the areas of sales and
marketing and brand promotion. As a result, we will need to increase our
quarterly net revenue to achieve profitability. We believe that pro-forma
period-to-period comparisons of our operating results are not meaningful and
that you should not rely upon the results for any period as an indication of
future performance. Our 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
- we are unable to adjust operating expense levels as a result of lower net
revenues.
Our operating losses might increase in the future, and we cannot guarantee
that we will ever achieve or sustain profitability.
We intend 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 we market our 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 we have little
or no prior experience; and
- potential loss of key employees of acquired entities.
35
<PAGE>
We cannot guarantee that we 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
seriously harm our business, results of operations and financial condition. In
addition, we cannot guarantee that we will be successful in identifying and
closing transactions with potential acquisition candidates.
RECENT EVENTS
VALUEVISION INTERNATIONAL, INC. 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 Web site at www.snaptv.com in
exchange for a royalty of 2.0% of gross revenues received from Internet users in
connection with commerce opportunities on the SnapTV Web site. Xoom.com will
become the exclusive direct e-commerce partner for SnapTV and 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. In addition, Snap has the exclusive right to sell all Internet
advertising on SnapTV.com and will retain 50.0% of the revenues generated from
such advertising. 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 $40.893 per share. The warrants may be
exercised at any time after the closing of the contribution agreement through
September 12, 2004. These rights and obligations of Xoom.com and Snap were
assigned to and assumed by us on November 30, 1999.
TELOCITY, INC. On December 13, 1999, we entered into a 15 year operating
agreement with Telocity, Inc. to bring "plug and play" broadband Internet
services to home residences. We will develop with Telocity a co-branded
nationwide service to offer users high-speed Internet access and multimedia
content and services. We entered into the agreement as a joint venture with NBC,
GE Equity, and ValueVision, in which the companies collectively agreed to make a
$70.5 million investment in Telocity in return for an aggregate ownership stake
of 19.5%. We received an ownership stake in Telocity of approximately 6.8% and a
seat on Telocity's board. We made a $28.0 million investment in Telocity
consisting of $10.0 million in cash and $18.0 million in online promotions. NBCi
and Telocity will share revenues from the co-branded initiatives. We also
received a warrant to purchase 1,039,122 shares of Telocity Series C preferred
stock at an exercise price of $5.24 per share. The warrant has a term of five
years.
CLEAR CHANNEL BROADCASTING, INC. On June 30, 1999 we entered into a two
year agreement with Clear Channel Broadcasting, Inc. a globally diversified
media and outdoor advertising company, which operates, or is affiliated with
over 500 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 on the
Web sites associated with 474 of the over 500 radio stations affiliated with
Clear Channel and that Snap will be the premier provider of search and directory
services on such Clear Channel Web sites. Xoom.com also has the exclusive right
to send direct advertising and marketing to members associated with the services
provided by Xoom.com on the Clear Channel Web sites. We have agreed to purchase
at least $3.5 million per year of advertising on the Clear Channel radio network
and billboards and paid Clear Channel a sponsorship fee. In addition we share
advertising revenue with Clear Channel, the amount of which is dependent upon
the type of service involved.
36
<PAGE>
RESULTS OF OPERATIONS
The following table presents pro forma condensed combined statement of
operations data of NBCi for the periods indicated as a percentage of total net
revenue.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
-------------- --------------
<S> <C> <C>
Advertising revenue................................ 75.4% 81.4%
E-commerce revenue................................. 24.6 18.6
--------- ---------
Total net revenue.............................. 100.0 100.0
Cost of advertising revenue........................ 59.0 20.9
Cost of e-commerce revenue......................... 12.6 13.4
--------- ---------
Cost of net revenue............................ 71.6 34.3
--------- ---------
Gross profit....................................... 28.4 65.7
Operating expenses:
Operating and development........................ 48.4 28.7
Sales and marketing.............................. 67.0 64.6
General and administrative....................... 60.4 35.2
Purchased in-process research and development.... 5.0 4.7
Amortization of deferred compensation............ 7.8 11.9
Amortization of intangible assets................ 1,278.6 366.8
Promotion and advertising provided by NBC........ 21.9 59.2
--------- ---------
Total operating expenses........................... 1,489.1 571.1
--------- ---------
Loss from operations............................... (1,460.7) (505.4)
Other income (expense):
Interest income.................................. 82.1 34.5
Interest expense................................. (70.5) (22.3)
--------- ---------
Net loss........................................... (1,449.1)% (493.2)%
========= =========
</TABLE>
NET REVENUE. Total pro forma net revenue for the nine months ended
September 30, 1999 was $55.7 million, an increase of $39.8 million over pro
forma net revenue of $15.9 million in the same period ended September 30, 1998.
This increase was primarily due to the following factors: (A) an increase in
traffic directed to our Web sites, which resulted in increased attractiveness to
advertisers and strategic partnership growth; (B) an increase in the number and
frequency of e-mail offerings and broader product offerings which resulted in an
increase in product sales through e-commerce; (C) an increase in license fee
revenue from additional content and service providers; and (D) an increase in
equity instruments received for placement of their content or services on our
Web sites.
ADVERTISING REVENUE. Pro forma advertising revenue increased to
$45.3 million in the nine months ended September 30, 1999 from $12.0 million in
the nine months ended September 30, 1998. The increase in pro forma advertising
revenue is primarily a result of an increase in membership, increased site
traffic, and the expansion of our advertising sales force. The increase in
traffic can primarily be attributed to the promotion on NBC's television network
and to co-branding agreements with our Web sites, as well as other distribution
partnerships.
The percentage of total pro forma net revenue attributable to advertising
revenue increased to 81.4% in the nine months ended September 30, 1999 from
75.4% in the same period ended September 30, 1998. This increase was primarily
due to the increase in our membership base, increased
37
<PAGE>
site traffic, and the expansion of our advertising sales force, which resulted
in a higher volume of advertising customers.
E-COMMERCE REVENUE. Pro forma e-commerce revenue consists of on-line
product sales (inclusive of shipping and handling fees), license fee revenue as
well as fees paid to us for co-branded e-mail-based product offers and for lead
generation fees. Pro forma e-commerce revenue increased to $10.4 million in the
nine months ended September 30, 1999 from $3.9 million in the nine months ended
September 30, 1998. The increase in pro forma e-commerce revenue was primarily
due to the expansion of our membership base combined with an increase in the
number and frequency of e-mail offerings, which resulted in an increase in
product sales, as well as an expansion of the breadth of products offered.
The percentage of total pro forma net revenue attributable to pro forma
e-commerce revenue decreased to 18.6% in the nine months ended September 30,
1999 from 24.6% in the same period ended September 30, 1998. This decrease was
due to the fact that pro forma advertising revenue grew at a more rapid rate
than pro forma e-commerce revenue in the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998.
COST OF NET REVENUE. Pro forma cost of net revenue increased to
$19.1 million in the nine months ended September 30, 1999 from $11.4 million in
the nine months ended September 30, 1998, as a result of the increase in pro
forma net revenue. As a percentage of pro forma net revenue, pro forma cost of
net revenue decreased to 34.3% of pro forma net revenue in the nine months ended
September 30, 1999 from 71.6% of pro forma net revenue in the same period ended
September 30, 1998 due to net revenues growing at a higher rate than cost of net
revenues.
COST OF ADVERTISING REVENUE. Pro forma cost of advertising revenue consists
of costs incurred to create and produce the content of our Web sites as well as
the technical hosting and bandwidth charges associated with transmitting such
content over the Internet. Pro forma cost of advertising revenue increased to
$11.6 million in the nine months ended September 30, 1999 from $9.4 million in
the same period ended September 30, 1998. This increase was primarily a result
of an increase in content license fees, costs incurred to produce
VideoSeeker.com and an increase in demand for advertising on co-branded sites.
As a percentage of pro forma net revenue, pro forma cost of advertising
revenue decreased to 20.9% of pro forma net revenue in the nine months ended
September 30, 1999 from 59.0% of pro forma net revenue in the same period ended
September 30, 1998 due to net revenues growing at a higher rate than costs of
advertising revenues.
COST OF E-COMMERCE REVENUE. Pro forma 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. Pro
forma cost of e-commerce was $7.5 million for the nine months ended
September 30, 1999 and it was $2.0 million for the same period ended
September 30, 1998. The increase was primarily attributable to the growth in
e-commerce sales and the mix of products sold.
As a percentage of pro forma net revenue, pro forma cost of e-commerce
revenue increased to 13.4% of pro forma net revenue in the nine months ended
September 30, 1999 from 12.6% of pro forma net revenue in the same period ended
September 30, 1998. This increase was primarily attributable to the fact that in
1999, we broadened our product offerings. Our new product offerings included
items with higher costs than in the prior period.
OPERATING AND DEVELOPMENT EXPENSES. Pro forma operating and development
expenses consist primarily of payroll and related expenses for development and
network operations personnel and consultants, costs related to modifications,
enhancements and new development operations to enhance our Web sites. Pro forma
operating and development expenses increased to $16.0 million in the nine
38
<PAGE>
months ended September 30, 1999 from $7.7 million in the same period ended
September 30, 1998. The increase is primarily due to higher payroll and related
expenses caused by additional headcount. We believe operating and development
expenses will increase significantly in the future as management initiates new
product features and makes significant investments in its Web sites to remain
competitive.
Pro forma operating and development expenses decreased as a percentage of
pro forma net revenue to 28.7% in the nine months ended September 30, 1999 from
48.4% in the same period ended September 30, 1998. This decrease was due to net
revenues growing at a higher rate than spending for operations and development.
SALES AND MARKETING EXPENSES. Pro forma sales and marketing expenses
consist of payroll and related expenses for personnel engaged in sales,
marketing and customer support, as well as advertising, promotional and traffic
distribution expenditures. Pro forma sales and marketing increased to
$36.0 million in the nine months ended September 30, 1999 from $10.7 million in
the same period ended September 30, 1998. This increase was due to increased
personnel and related expenses required to implement our sales and marketing
strategy, an increase in distribution costs, as well as increased public
relations and other promotional and advertising expenses. We believe sales and
marketing expenses will increase significantly in future periods as additional
personnel are hired and as a result of increased branding, marketing and
promotional spending.
Pro forma sales and marketing expenses decreased as a percentage of pro
forma net revenue to 64.6% in the nine months ended September 30, 1999 from
67.0% in the same period ended September 30, 1998. This decrease was due to net
revenues growing at a higher rate than spending for sales and marketing.
GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma general and administrative
expenses consist primarily of payroll and related expenses for general corporate
functions, including finance, legal, accounting, business development, human
resources, investor relations and administration, as well as outside legal and
accounting fees, director fees and insurance and facilities-related expenses.
Pro forma general and administrative expenses increased to $19.6 million in the
nine months ended September 30, 1999 from $9.6 million in the same period ended
September 30, 1998. This increase was primarily due to increases in the number
of general and administrative personnel, as well as increases in professional
services and facilities-related expenses to support the growth of our
operations. We believe general and administrative expenses will increase
significantly in future periods as a result of staff expansion and increased
operational costs associated with the growth of our business.
Pro forma general and administrative expenses decreased as a percentage of
pro forma net revenue to 35.2% in the nine months ended September 30, 1999 from
60.4% in the same period ended September 30, 1998. This decrease was due to net
revenues growing at a higher rate than spending for general and administrative.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. For the nine months ended
September 30, 1999 we recognized pro forma cost of purchased in-process research
and development of $2.6 million in connection with the acquisitions of
MightyMail Networks, Inc. and Paralogic Software Corporation, and for the same
period ended September 30, 1998 we recognized $790,000 in connection with the
acquisition of Paralogic Corporation, the purchase of certain assets of
Revolutionary Software, Inc. and the acquisition of substantially all of the
assets of Pagecount, Inc.
ACQUISITIONS DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1999
MIGHTYMAIL NETWORKS, INC. On May 3, 1999, we 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
Xoom.com's common stock with an estimated fair value of $71.10 per share, the
assumption of options
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to acquire 9,061 shares of common stock at a price per share of $70.47 and the
assumption of options to acquire 12,121 shares of common stock at a price per
share of $55.91 and acquisition costs of approximately $300,000. In addition,
67,186 shares of Xoom.com's common stock were placed into an escrow account. In
connection with the MightyMail Networks acquisition, we recorded a $1.1 million
charge to purchased in-process research and development.
PARALOGIC SOFTWARE CORPORATION. On June 16, 1999, we 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 options to
acquire 82,733 shares of common stock at a price per share of $46.67 and the
assumption of options to acquire 12,001 shares of common stock at a price per
share of $33.05 and acquisition costs of approximately $315,000. In connection
with the Paralogic Software Corporation acquisition, we recorded a $1.5 million
charge to purchased in-process research and development.
ACQUISITIONS DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1998
PARALOGIC CORPORATION. On March 10, 1998, we acquired 100% of the
outstanding shares of Paralogic Corporation. Paralogic Corporation provides free
communication between members via a chat Web site network. The purchase
consideration was $3.0 million consisting of 682,410 shares of common stock with
an estimated fair value of $2.31 per share, $1.4 million of debt and $62,000 of
acquisition costs. Contingent consideration consisted of an additional $860,000,
included in debt above, which was to be paid if certain performance criteria
were met. In connection with the Paralogic Corporation acquisition, we recorded
a $330,000 charge to purchased in-process research and development.
REVOLUTIONARY SOFTWARE, INC. On June 11, 1998, we purchased specific
technology of Revolutionary Software, Inc. Revolutionary Software is the
developer of the Sitemail technology and had licensed Sitemail to Global Bridges
Technology, Inc. who was also acquired by us on June 11, 1998. The purchase
consideration for Revolutionary Software was $701,000, consisting of 128,052
shares of common stock with an estimated fair value of $3.33 per share, $12,000
of cash and a note payable of $263,000 with fixed payment terms. Revolutionary
Software may earn up to an additional 34,608 shares of common stock upon the
completion of specific performance targets. In connection with the acquisition
of specific technology of Revolutionary Software, Inc., we recorded a $330,000
charge to purchased in-process research and development.
PAGECOUNT, INC. On July 24, 1998, we acquired substantially all of the
assets of Pagecount, Inc. The consideration was $1.5 million, consisting of
$200,000 of cash, a note payable of $1.2 million with fixed payment terms and
acquisition costs of approximately $60,000. In connection with the acquisition,
we recorded a $130,000 charge to purchased in-process research and development.
AMORTIZATION OF DEFERRED COMPENSATION. Pro forma amortization of deferred
compensation reflects the amortization of stock compensation charges resulting
from employee stock option grants. Deferred compensation charges account for the
difference between the exercise price and the deemed fair value of specific
stock options granted to NBCi employees. We recorded pro forma amortization of
deferred compensation of $6.6 million in the nine months ended September 30,
1999 and $1.2 million for the same period ended September 30, 1998. We cannot
guarantee that we will not accrue additional charges, which could seriously harm
our business, results of operations and financial condition.
AMORTIZATION OF INTANGIBLE ASSETS. Pro forma amortization of intangible
assets totaled $204.2 million for the nine months ended September 30, 1999 and
was $203.5 million for the same period ended September 30, 1998. The pro forma
amortization of intangible assets for the nine months ended September 30, 1999
and 1998 was due to the acquisitions of Paralogic Corporation, Global Bridges
Technologies, Inc., Focused Presence, Inc., MightyMail Networks, Inc., Net
Floppy, Inc.,
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Paralogic Software Corporation, LiquidMarket, Inc., Private One, Inc., the
purchase of substantially all of the assets of Pagecount, Inc. and the purchase
of specific assets of Revolutionary Software, Inc., amortized over periods
ranging from 24 to 48 months. The pro forma amortization of intangible assets
for the nine months ended September 30, 1999 and 1998 also included amortization
of intangible assets related to the purchase of Snap and NBC Multimedia,
amortized over periods ranging from 36 to 84 months.
PROMOTION AND ADVERTISING PROVIDED BY NBC. We have recorded $33.0 million
in pro forma promotion and advertising expense in the nine months ended
September 30, 1999, and $3.5 million in pro forma promotion and advertising
expense in the same period ended September 30, 1998. The promotion and
advertising services provided by NBC have been recorded as capital contributions
based on average cost per thousand impressions value for commercial airtime
during the period the services were provided. The increase is due to higher
volume of promotions and advertising provided by NBC during the nine months
ended September 30, 1999, as compared to nine months ended September 30, 1998.
INTEREST INCOME. Pro forma interest income represents interest we earned on
our cash investments as well as on a note receivable from NBC. We earned
$19.2 million of pro forma interest income in the nine months ended
September 30, 1999, and $13.1 million in the same period ended September 30,
1998. The increase in pro forma interest income was primarily due to the
increased cash balances available to invest as a result of funds raised in
Xoom.com's initial public offering in December 1998 and its secondary offering
in April 1999 as well as proceeds from the issuance of 960,028 shares of
Xoom.com common stock to NBC in July 1999.
INTEREST EXPENSE. Pro forma interest expense represents interest charges
related to notes payable, including two notes payable to NBC, our revolving line
of credit and capital leases. We incurred $12.4 million in pro forma interest
expense in the nine months ended September 30, 1999 and $11.2 million in the
same period ended September 30, 1998. The increase in pro forma interest expense
was primarily due to carrying a higher balance on our revolving line of credit
during the nine months ended September 30, 1999 than the nine months ended
September 30, 1998.
NET LOSS. Our pro forma net loss for the nine months ended September 30,
1999 was $274.7 million and it was $230.6 million for the same period ended
September 30, 1998. The $44.1 million increase was primarily attributable to an
increase of $7.7 million in cost of net revenue, an increase of $8.3 million in
pro forma operating and development expenses, an increase of $25.3 million in
pro forma sales and marketing expenses, an increase of $10.0 million in pro
forma general and administrative expenses and an increase of $29.5 million in
non-cash expenses for promotion and advertising provided by NBC, offset by an
increase in pro forma net revenue of $39.8 million.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily from funds Xoom.com raised in its
initial public offering in December 1998, its secondary offering in April 1999
and proceeds from the issuance of 960,028 shares of Xoom.com common stock to NBC
in July 1999.
We had pro forma cash, cash equivalents and short-term investments of
$156.2 million as of September 30, 1999. We regularly invest excess funds in
short-term money market funds, government securities and commercial paper.
Pro forma cash and cash equivalents and marketable securities increased to
$156.2 million as of September 30, 1999 from $100.6 million as of December 31,
1998. This increase was primarily due to proceeds from Xoom.com's secondary
offering in April, 1999 of $166.6 million, an increase in pro forma accounts
payable and accrued compensation and related expenses of $12.0 million, an
increase in
41
<PAGE>
pro forma deferred revenue of $6.4 million, and an increase in related party
payables of $1.8 million offset by an increase in pro forma current assets of
$7.5 million, an increase in pro forma fixed assets of $10.6 million, an
increase in pro forma long-term investments of $63.0 million, an increase in pro
forma other long-term assets of $10.6 million, a decrease in pro forma other
accrued liabilities of $2.1 million, a decrease in pro forma notes payable of
$1.2 million and pro forma cash operating expenses of $35.0 million in the nine
months ending September 30, 1999.
As set forth in the pro forma condensed combined statements of operations,
we experienced net losses for the nine months ended September 30, 1999 and 1998.
We believe that we have the financial resources needed to meet our presently
anticipated business requirements, including capital expenditure and strategic
operating programs, for at least the next 12 months. Thereafter, if cash
generated by operations is insufficient to satisfy 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.
DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is confined principally to our short-term
available-for-sale securities, which have short maturities and, therefore,
minimal and immaterial market risk. We occasionally invest in equity securities
of privately held companies for business and strategic purposes. For investments
in which no public market exists, our policy is 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. We expect to identify and record impairment losses on long-lived
assets when events and circumstances indicate that such assets might be
impaired.
YEAR 2000
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. To date we have not experienced
any significant Year 2000 issues in our internal technology systems or with the
vendors of systems we believe to be critical to our business. In addition, we
believe that it is unlikely we will experience any significant Year 2000 issues
in the future. However, there can be no assurance that the Year 2000 issue will
not materially adversely affect our results of operations, cash flows or
financial position in a particular period.
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. We 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 our financial position or operations.
SUBSEQUENT EVENTS
On November 30, 1999, Xoom.com acquired Snap and Internet properties
contributed by NBC through a series of transactions resulting in the creation of
NBCi. In connection with the transaction, we recorded non-cash, non-recurring
charges of $17.8 million in the fourth quarter of 1999 related to the
termination of the employment of Xoom.com's chief executive officer, and the
write-off of specific leasehold improvements related to facility leases that
will be abandoned as a result of the merger transactions.
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XOOM.COM
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
You should read the following Xoom.com, Inc. selected consolidated financial
data in conjunction with the consolidated financial statements and the notes
contained in this prospectus and "Xoom.com's Management's Discussion And
Analysis Of Financial Condition And Results Of Operations." 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 the selected historical consolidated
balance sheet data at December 31, 1996, 1997 and 1998 are derived from our
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors, and are included in this prospectus. The selected
consolidated statement of operations data for the nine months ended
September 30, 1999, and 1998 are derived from selected unaudited condensed
consolidated financial statements appearing in this prospectus. The consolidated
financial data for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999 or any other future period.
<TABLE>
<CAPTION>
APRIL 16, 1996 TWELVE MONTHS ENDED NINE MONTHS ENDED
(INCEPTION) THROUGH --------------------------- -----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998 1999
------------------- ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total net revenue............. $ -- $ 841 $ 8,318 $ 4,865 $ 19,903
Cost of net revenue........... -- 319 3,584 2,000 7,645
------ ------- -------- ------- --------
Gross profit.................. -- 522 4,734 2,865 12,258
Operating expenses:
Operating and development... 266 1,150 3,841 2,558 5,708
Sales and marketing......... 23 292 2,834 1,570 13,507
General and
administrative............ 150 721 3,366 2,158 6,846
Purchased in-process
research & development.... -- -- 790 790 2,603
Amortization of deferred
compensation.............. -- 248 1,416 1,111 495
Amortization of intangible
assets.................... -- -- 1,843 1,087 7,836
Non-recurring charges....... -- 1,243 -- -- --
------ ------- -------- ------- --------
Total operating expenses...... 439 3,654 14,090 9,274 36,995
------ ------- -------- ------- --------
Loss from operations.......... (439) (3,132) (9,356) (6,409) (24,737)
Other income (expense):
Interest income............. -- -- 187 37 6,213
Interest expense............ -- -- (1,629) (20) (90)
------ ------- -------- ------- --------
Net loss...................... $ (439) $(3,132) $(10,798) $(6,392) $(18,614)
====== ======= ======== ======= ========
Net loss per share--basic and
diluted..................... $(0.89) $ (0.64) $ (1.37) $ (0.89) $ (1.11)
====== ======= ======== ======= ========
Number of shares used in per
share calcuation--basic and
diluted..................... 496 4,874 7,879 7,172 16,780
====== ======= ======== ======= ========
</TABLE>
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<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments............................ $ 6 $56,575 $198,925
Working capital (deficit)................ (1,400) 52,560 194,271
Total assets............................. 782 66,874 389,072
Long-term obligations, less current
portion................................ -- 528 2,836
Total stockholders' equity (deficit)..... (873) 60,333 373,285
</TABLE>
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XOOM.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this prospectus. The results
shown in this 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 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 for the year ended December 31, 1997,
$8.3 million for the year ended December 31, 1998 and $19.9 million for the nine
months ended September 30, 1999. The increase in total net revenue was primarily
due to the growth of Xoom.com's 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.
From inception through September 30, 1999, Xoom.com generated total net
revenue of approximately $29.1 million. Quarterly net revenue increased from
approximately $420,000 in the fourth quarter of 1997 to $9.0 million in the
third quarter of 1999.
As of September 30, 1999, Xoom.com had an accumulated deficit of
$33.0 million.
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. Xoom.com believes that period-to-period
comparisons of its operating results are not meaningful and that you should not
rely upon the results for any period as an indication of future performance.
Xoom.com's business, results of operations and financial condition will be
materially and adversely affected if:
- net revenue does not grow at anticipated rates;
- increases in operating expenses are not offset by commensurate increases
in net revenue; or
- Xoom.com is unable to adjust operating expense levels as a result 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
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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. In August 1999, Xoom.com acquired Liquid
Market Inc., the developer of a next-generation on-line comparison shopping
guide and purchasing service, for approximately $38.7 million, and Private
One, Inc., a designer and developer of a secure e-mail software service, for
approximately $2.2 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 nine months ended September 30, 1998, Xoom.com expensed $790,000 for
purchased in-process research and development and $1.1 million for the
amortization of goodwill, purchased technology and acquired work force. During
the nine months ended September 30, 1999, Xoom.com expensed $2.6 million for
purchased in-process research and development and $7.8 million for the
amortization of goodwill, purchased technology and acquired workforce.
International sales comprised 30.0% of total net revenue in the year ended
December 31, 1997, 25.0% of total net revenue in the year ended December 31,
1998 and 14.0% of total net revenue in the nine months ended September 30, 1999.
Net revenue was $252,000 in the year ended December 31, 1997, $2.1 million in
the year ended December 31, 1998 and $2.8 million in the nine months ended
September 30, 1999.
Xoom.com has recorded deferred stock compensation charges of $0 during the
period from April 16, 1996, its inception, through December 31, 1996, $551,000
for the year ended December 31, 1997, $2.0 million for the year ended
December 31, 1998 and Xoom.com did not record any deferred compensation charges
in the nine months ended September 30, 1999. 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 during the year ended
December 31, 1997, $1.4 million during the year ended December 31, 1998 and
$495,000 during the nine months ended September 30, 1999.
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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 seriously harm its business,
results of operations and financial condition.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue:
E-commerce......................................... 66.6 % 48.3 % 69.2 % 51.5 %
Advertising........................................ 26.0 50.8 19.6 47.9
Licensing.......................................... 7.4 0.9 11.2 0.6
------ ------ ------ ------
Total net revenue................................ 100.0 100.0 100.0 100.0
Cost of net revenue:
Cost of e-commerce................................. 46.4 31.4 40.4 37.5
Cost of advertising revenue(1)..................... -- 1.2 -- 0.9
Cost of licensing.................................. 0.3 -- 0.7 --
------ ------ ------ ------
Cost of net revenue.............................. 46.7 32.6 41.1 38.4
------ ------ ------ ------
Gross profit......................................... 53.3 67.4 58.9 61.6
Operating expenses:
Operating and development............................ 52.6 33.6 52.6 28.7
Sales and marketing................................ 37.1 66.6 32.3 67.9
General and administrative......................... 46.0 35.5 44.4 34.4
Purchased in-process research and development...... 5.7 -- 16.2 13.1
Amortization of deferred compensation.............. 13.2 1.0 22.8 2.5
Amortization of intangible assets.................. 32.2 61.8 22.3 39.4
------ ------ ------ ------
Total operating expenses......................... 186.8 198.5 190.6 186.0
------ ------ ------ ------
Loss from operations................................. (133.5) (131.1) (131.7) (124.4)
Other income, net.................................... 0.7 35.5 0.3 30.8
------ ------ ------ ------
Net loss............................................. (132.8)% (95.6)% (131.4)% (93.6)%
====== ====== ====== ======
</TABLE>
- ------------------------
(1) There were no material costs of advertising revenue during 1998.
NET REVENUE. Total net revenue for the three months ended September 30,
1999 was $9.0 million, an increase of approximately $6.7 million over revenues
of $2.3 million for the three months ended September 30, 1998. Total net revenue
for the nine months ended September 30, 1999 was $19.9 million, an increase of
approximately $15.0 million over revenues of $4.9 million for the nine months
ended September 30, 1998. The increases in both the three-month and nine-month
periods were primarily due to the following three factors: (A) the expansion of
Xoom.com's membership base; (B) an increase in the frequency of e-mail offerings
and broader product offerings (which resulted in an increase in product sales
through e-commerce); and (C) an increase in Web-based advertising (Xoom.com's
higher Web site traffic increased its attractiveness to advertisers).
E-COMMERCE REVENUE. E-commerce revenue consists of on-line product sales
(inclusive of shipping and handling fees), as well as fees paid to Xoom.com for
co-branded e-mail-based product offers and for customer referrals. E-commerce
revenue increased to $4.3 million in the three months
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<PAGE>
ended September 30, 1999 from $1.5 million in the three months ended
September 30, 1998. E-commerce revenue increased to $10.3 million in the nine
months ended September 30, 1999 from $3.4 million in the nine months ended
September 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 48.3% in the three months ended September 30,
1999 from 66.6% in the three months ended September 30, 1998. The percentage of
Xoom.com's total net revenue attributable to e-commerce revenue decreased to
51.5% in the nine months ended September 30, 1999 from 69.2% in the nine months
ended September 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 nine months ended September 30, 1999 as compared to the
three and nine months ended September 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.
ADVERTISING REVENUE. Advertising revenue increased to $4.6 million in the
three months ended September 30, 1999 from $598,000 in the three months ended
September 30, 1998. Advertising revenue increased to $9.5 million in the nine
months ended September 30, 1999 from $953,000 in the nine months ended
September 30, 1998. Of these increases, approximately $400,000 is related to
advertising inventory sold to Snap. The percentage of Xoom.com's total net
revenue attributable to advertising revenue increased to 50.8% in the three
months ended September 30, 1999 from 26.0% in the three months ended
September 30, 1998. The percentage of Xoom.com's total net revenue attributable
to advertising revenue increased to 47.9% in the nine months ended
September 30, 1999 from 19.6% in the nine months ended September 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, it can expect that its advertising revenues will
continue to represent a large percentage of its overall net revenue.
LICENSING REVENUE. Licensing revenue decreased to $80,000 in the three
months ended September 30, 1999 from $170,000 in the three months ended
September 30, 1998. Licensing revenue decreased to $119,000 in the nine months
ended September 30, 1999 from $546,000 in the three months ended September 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 increased to 67.4% in the three months
ended September 30, 1999 from 53.3% in the three months ended September 30,
1998. Gross margins increased to 61.6% in the nine months ended September 30,
1999 from 58.9% in the nine months ended September 30, 1998. Both increases were
a result of a change in the revenue mix. In the three and nine months ended
September 30, 1999, advertising sales (which have higher margins than e-commerce
sales) generated more of Xoom.com's overall revenue than e-commerce sales, as
compared to the three and nine months ended September 30, 1998.
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
$2.8 million for the three months ended September 30, 1999 and it was
$1.1 million for the same period ended September 30, 1998. Cost of e-commerce
revenue was $7.5 million for the nine months ended September 30, 1999 and it was
$2.0 million for the same period ended September 30, 1998. The increase in
absolute dollars of the cost of e-commerce revenue in the three and nine months
ended September 30, 1999 as compared to the same period ended September 30, 1998
was primarily due to the overall growth in e-commerce revenue.
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As a percentage of net revenue, the cost of e-commerce revenue was 31.4% for
the three months ended September 30, 1999 and it was 46.4% for the same period
ended September 30, 1998. As a percentage of net revenue, the cost of e-commerce
was 37.5% for the nine months ended September 30, 1999 and it was 40.4% for the
same period ended September 30, 1998. These decreases in percentages were
primarily due to the increase in sources of e-commerce revenue which have higher
margins, such as co-branded e-mail-based product offers and customer referrals.
COST OF ADVERTISING REVENUE. Cost of advertising revenue consists primarily
of revenue sharing amounts Xoom.com pays to its customers for advertising sold
on co-branded sites. Cost of advertising revenue was $108,000 in the three
months ended September 30, 1999, and it was $183,000 in the nine months ended
September 30, 1999. There was no material cost of advertising revenue in the
three and nine months ended September 30, 1998. These increases are primarily a
result of an increased demand for advertising on co-branded Web sites, and the
expansion of Xoom.com's advertising and business development sales forces.
As a percentage of net revenue, cost of advertising revenue was 1.2% in the
three months ended September 30, 1999 and it was 0.9% for the nine months ended
September 30, 1999. There was no material costs of advertising revenue in 1998.
Xoom.com expects the cost of advertising revenue to continue to grow as a
percentage of net revenue.
COST OF LICENSING REVENUE. Cost of licensing revenue consists primarily of
royalties on net revenue from license fees. Cost of licensing revenue was $4,000
for the three months ended September 30, 1999 and it was $7,000 for the same
period ended September 30, 1998. Cost of licensing revenue was $4,000 during the
nine months ended September 30, 1999 and it was $35,000 during the same period
ended September 30, 1998. Xoom.com expects that the cost of licensing revenue
should continue to be a small percentage of the total cost of revenues as
compared to the cost of e-commerce revenues.
OPERATING AND DEVELOPMENT EXPENSES. Operating and development expenses
consist primarily of payroll and related expenses for development and network
operations personnel and consultants, costs related to systems infrastructure
including Web site hosting and costs of acquired content to enhance Xoom.com's
Web site. Operating and development expenses increased to $3.0 million in the
three months ended September 30, 1999 from $1.2 in the three months ended
September 30, 1998. Operating and development expenses increased to
$5.7 million in the nine months ended September 30, 1999 from $2.6 million in
the nine months ended September 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.
Operating and development costs decreased as a percentage of total net
revenue to 33.6% in the three months ended September 30, 1999 from 52.6% in the
three months ended September 30, 1998. Operating and development costs decreased
as a percentage of total net revenue to 28.7% in the nine months ended
September 30, 1999 from 52.6% in the nine months ended September 30, 1998. The
decreases in operating and development expense as a percentage of total net
revenue in both periods were 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
$6.0 million in the three months ended September 30, 1999 from $853,000 in the
three months ended September 30, 1998. Sales and marketing expenses increased to
$13.5 million in the nine months ended September 30, 1999 from $1.6 million in
the nine months ended September 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
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as increased public relations and other promotional and advertising expenses.
Additionally, in connection with the proposed business combination of Xoom.com,
Snap and selected Internet assets of NBC Multimedia, it incurred a $424,000
charge related to the cancellation of an advertising contract in the nine months
ended September 30, 1999. Xoom.com expects to continue hiring additional
personnel and to pursue a branding and marketing campaign.
Sales and marketing expenses increased as a percentage of total net revenue
to 66.6% in the three months ended September 30, 1999 from 37.1% in the three
months ended September 30, 1998. Sales and marketing expenses increased as a
percentage of total net revenue to 67.9% in the nine months ended September 30,
1999 from 32.3% in the nine months ended September 30, 1998. The increases in
sales and marketing expenses as a percentage of total net revenue in both
periods were 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 costs for general corporate functions,
including finance, legal, 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 $3.2 million in the three months ended
September 30, 1999 from $1.1 million in the three months ended September 30,
1998. General and administrative expenses increased to $6.8 million in the nine
months ended September 30, 1999 from $2.2 million in the nine months ended
September 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, as well as increases in
professional services and facilities-related expenses to support the growth of
Xoom.com's operations.
General and administrative expenses decreased as a percentage of total net
revenue to 35.5% in the three months ended September 30, 1999 from 46.0% in the
three months ended September 30, 1998. General and administrative expenses
decreased as a percentage of total net revenue to 34.4% in the nine months ended
September 30, 1999 from 44.4% in the nine months ended September 30, 1998. The
decreases in general and administrative expenses as a percentage of total net
revenue in both periods were due to the overall growth in net revenue.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. For the three months ended
September 30, 1999 there were no charges for the cost of purchased in-process
research and development, and for the same period ended September 30, 1998
Xoom.com recognized $130,000 in connection with the acquisition of
Pagecount, Inc. For the nine months ended September 30, 1999 Xoom.com recognized
the cost of purchased in-process research and development of $2.6 million in
connection with the acquisitions of MightyMail Networks, Inc. and Paralogic
Software Corporation, and for the same period ended September 30, 1998 Xoom.com
recognized $790,000 in connection with the acquisitions of Paralogic
Corporation, the purchase of selected assets of Revolutionary Software, Inc. and
the acquisition of substantially all of the assets of Pagecount, 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 other 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
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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 50.0%
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 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
six 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
completed 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
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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.
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 did not record any deferred
stock compensation charges to equity during the three months ended
September 30, 1999 and it recorded charges to equity of $1.0 million for the
same period ended September 30, 1998. Xoom.com did not record any deferred stock
compensation charges to equity during the nine months ended September 30, 1999
and it recorded charges to equity of $2.0 million for the same period ended
September 30, 1998. The deferred compensation charges account for the difference
between the exercise price and the deemed fair value of certain stock options
Xoom.com granted to its employees.
The amortization of deferred compensation reflects the amortization of the
deferred stock compensation charges to equity. Xoom.com has recorded
amortization of deferred compensation of $90,000 during the three months ended
September 30, 1999 and it recorded $304,000 during the same period ended
September 30, 1998. Xoom.com recorded amortization of deferred compensation of
$495,000 during the nine months ended September 30, 1999 and it recorded
$1.1 million during the same period ended September 30, 1998.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
totaled $5.5 million for the three months ended September 30, 1999 and it was
$741,000 for the same period ended September 30, 1998. Amortization of
intangible assets totaled $7.8 million for the nine months ended September 30,
1999 and it totaled $1.1 million for the same period ended September 30, 1998.
The additional amounts recorded in the three months ended September 30, 1999
represent amortization of intangible assets and goodwill resulting from
Xoom.com's acquisitions of LiquidMarket, Inc. and Private One, Inc.,
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amortized over periods ranging from 36 to 42 months. The additional amounts
recorded in the nine months ended September 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., Paralogic Software
Corporation, LiquidMarket, Inc. and Private One, Inc., amortized over periods
ranging from 36 to 48 months. The amounts recorded in the three months and the
nine months ended September 30, 1998, represent amortization of intangible
assets and goodwill resulting from Xoom.com's acquisitions of Paralogic
Corporation, Global Bridges Technologies, Inc., Pagecount, 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 September 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. 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
periods ranging from 24 to 48 months.
With respect to the goodwill associated with 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 range from 24 to 48 months.
OTHER INCOME, NET. Other income, net, represents interest Xoom.com earned
on its cash and investments, offset by interest expense it paid on its
borrowings. Xoom.com earned approximately $3.2 million of interest income in the
three months ended September 30, 1999 and it earned $37,000 in the same period
ended September 30, 1998. Xoom.com has earned approximately $6.2 million in
interest income in the nine months ended September 30, 1999 and it earned
$37,000 during the same period ended September 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, its secondary public
offering in April 1999 and the investment from NBC in July 1999.
Interest expense represents interest charges related to notes payable and
capital leases. Xoom.com incurred approximately $25,000 of interest expense in
the three months ended September 30, 1999 and it incurred approximately $20,000
in the same period ended September 30, 1998. Xoom.com incurred approximately
$90,000 of interest expense in the nine months ended September 30, 1999, and it
incurred approximately $20,000 in the same period ended September 30, 1998.
NET LOSS
Xoom.com's net loss for the three month period ended September 30, 1999 was
$8.6 million, and it was $3.1 million for the same period ended September 30,
1998. Xoom.com's net loss for the nine month period ended September 30, 1999 was
$18.6 million, and it was $6.4 million for the same period ended September 30,
1998. The increase in the net loss for both periods was a result of additional
expenses, primarily in sales and marketing, which were $6.0 million and
$13.5 million in the three and
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nine months ended September 30, 1999, compared to $853,000, and $1.6 million in
the three and nine months ended September 30, 1998. Additionally, Xoom.com's net
loss for the three and nine months ended September 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. In
the three months ended September 30, 1999, amortization related to goodwill and
other intangibles was $5.5 million and there were no charges to purchased in
process research and development. In the nine months ended September 30, 1999,
amortization related to goodwill and other intangibles was $7.8 million and
purchased in process research and development charges were $2.6 million. In the
three months ended September 30, 1998, amortization related to goodwill and
other intangibles was $741,000 and purchased in process research and development
charges were $130,000. In the nine months ended September 30, 1998, amortization
related to goodwill and other intangibles was $1.1 million and purchased in
process research and development charges were $790,000. The expenses in the
three and nine months ended September 30, 1999 were partially offset by net
revenue of $9.0 million and $19.9 million and other income, net of $3.2 million
and $6.1 million. The expenses in the three and nine months ended September 30,
1998 were partially offset by net revenue of $2.3 million and $4.9 million.
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,
----------------------
1997 1998
-------- --------
<S> <C> <C>
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.
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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 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;
- an increase in Web based advertising;
- Xoom.com's higher Web site traffic; 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 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 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 it offers 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
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 54.0% 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
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the year ended December 31, 1997. There were no material costs of net revenue
associated with advertising.
COST OF E-COMMERCE REVENUE. Cost of e-commerce consists primarily of the
costs of merchandise sold to customers, credit card commissions, product
fulfillment and outbound shipping and handling costs. Cost of e-commerce was
$3.5 million for the year ended December 31, 1998 and $171,000 for the year
ended December 31, 1997. As a percentage of e-commerce revenue, the cost of
e-commerce was 63.4% for the year ended December 31, 1998 and 52.3% for the year
ended December 31, 1997. 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
revenue consists primarily of royalties on net revenue from license fees. Cost
of license fees was $42,000 for the year ended December 31, 1998 and $148,000
for the year ended December 31, 1997. As a percentage of license fees and other
revenue, cost of license fees and other revenue were 7.2% for the year ended
December 31, 1998 and 32.7% for the year ended December 31, 1997. Cost of
license fees and other for the year ended December 31, 1997 included $81,000 in
amortization of prepaid royalties related to a product that Xoom.com
discontinued in the fourth quarter of 1997.
The mix of products Xoom.com sells will impact its gross margins and the
overall mix of e-commerce revenue, advertising revenue and license and other
fees. Xoom.com typically recognizes higher gross margins on advertising revenue
and license and other fees, which are expected to comprise a lower percentage of
total net revenue in the future. Therefore, Xoom.com expects shifts in the mix
of sales will adversely impact its overall gross margin and could materially
adversely impact its business, results of operations and financial condition.
OPERATING AND DEVELOPMENT EXPENSES. Operating and development expenses
consist primarily of payroll and related expenses for development and network
operations personnel and consultants, costs related to systems infrastructure
including Web site hosting and costs of acquired content to enhance its Web
site. Operating and development expenses increased to $3.8 million in the year
ended December 31, 1998 from $1.2 million in the year ended December 31, 1997,
and $266,000 in the period from April 16, 1996 through December 31, 1996. From
inception to the year ended December 31, 1997, apart from its Web site, Xoom.com
incurred approximately $300,000 in costs relating to the development of a home
office software product, which was subsequently abandoned due to low sales
volume. From June 30, 1997 to December 31, 1998, the absolute dollar increases
from quarter to quarter in operating and development expenses were primarily
attributable to increases in the number of personnel and associated costs
related to enhancing the functionality and content of its Web site. Operating
and development costs decreased as a percentage of total net revenue to 46.2% in
the year ended December 31, 1998 from 136.8% in the year ended December 31,
1997.
Xoom.com believes operating and development expenses will increase
significantly in the future, especially in relation to Web site hosting costs,
as its membership grows, thus requiring additional bandwidth to support the many
free services offered to members. Xoom.com believes that it will need to make
significant investments in its Web site to remain competitive. Therefore,
Xoom.com expects that its operating and development expenses will continue to
increase in absolute dollars for the foreseeable future.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of payroll and related expenses for personnel engaged in sales,
marketing, publishing and customer support, as well as advertising and
promotional expenditures. Sales and marketing expenses increased to
$2.8 million in the year ended December 31, 1998 from $292,000 in the year ended
December 31, 1997, and $23,000 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
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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 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
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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 55.0%
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.
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;
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- 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 50.0%
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 four and a half months of engineering effort. Xoom.com estimated
that three and a half 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 included its ability 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 55.0% of the research and development
effort had been completed at the date of acquisition and expected the remaining
research and development efforts relating to the completion of the Pagecount
technology to continue from the date of acquisition through the release date of
mid-December 1998. The remaining development effort at the date of acquisition
was estimated to require approximately five months of engineering effort.
Xoom.com estimated that two and a half 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.
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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, two to three and a half 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 two
to three and a half year period.
With respect to the goodwill associated with all of the acquisitions,
Xoom.com considered the effects of obsolescence, demand, competition, other
economic factors and expected actions of competitors and others. Based on these
considerations, Xoom.com determined the positive effect of the acquisitions, and
therefore the life of the goodwill, to be from 24 to 42 months.
With respect to the intangible assets associated with Global Bridges,
Pagecount, Revolutionary Software and ArcaMax, Xoom.com considered the
competition for users of electronic mail, Web page counters and online greeting
card services. Xoom.com also considered the fact that they provide free e-mail
and online greeting card services to all members. Xoom.com expects to generate
revenue from advertising and direct e-commerce to such users. The competition
for these users is intense and Xoom.com expects that within two years Xoom.com
or its competitors will develop new technologies that will render the existing
products obsolete. The obsolescence of its existing technologies, without the
introduction of new products, could result in a loss of members. As a result,
Xoom.com determined the positive effect of the Global Bridges, Pagecount,
Revolutionary Software and ArcaMax transactions, and therefore the life of
intangible assets, to be from 24 to 42 months.
NON-RECURRING CHARGES. Non-recurring charges totaled approximately
$1.2 million in the year ended December 31, 1997. These charges consisted of a
$243,000 write-off of costs associated with a discontinued product, and a
$1.0 million provision for a legal dispute for a copyright infringement claim
from Imageline relating to some of the clip art images that Xoom.com had
licensed from an unrelated
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third party. This litigation might subject Xoom.com to significant liability for
damages which could seriously harm 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 as a result of the transactions that formed NBCi.
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 net revenue of $8.3 million.
The expenses in the year ended December 31, 1997 were partially offset by net
revenue of $841,000.
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
$167.0 million, net of offering costs. On July 29, 1999, Xoom.com issued 960,028
shares to NBC for $57.29 per share in connection with a Stock Purchase Agreement
dated June 11, 1999. Xoom.com received proceeds of $55.0 million.
Xoom.com had cash and cash equivalents and short-term investments of
approximately $56.6 million as of December 31, 1998 and $198.9 million as of
September 30, 1999. Xoom.com regularly invests excess funds in short-term money
market funds, government securities and commercial paper.
Net cash used in operating activities was $3.6 million for the year ended
December 31, 1998, $1.4 million for the year ended December 31, 1997 and
$635,000 for the period from April 16, 1996 through December 31, 1996. 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
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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 nine months ended
September 30, 1999 was $14.9 million, and it was $3.1 million in the same period
ended September 30, 1998. Cash used in operating activities in the nine months
ended September 30, 1999 was primarily the result of net losses, $18.6 million,
an increase in accounts receivable, $2.5 million, related to the growth of
advertising revenues, and an increase in other assets, $7.6 million, related to
an increase in long-term deposits, partially offset by amortization of
intangible assets, $7.8 million, and in-process research and development
charges, $2.6 million, related to Xoom.com's acquisitions, and an increase in
trade accounts payable, $3.9 million, related to the growth of its business. In
the nine months ended September 30, 1998, cash used in operating activities was
primarily the result of net losses, $6.4 million and an increase in other assets
and prepaid royalties, $1.4 million, partially offset by amortization of
intangible assets, $1.1 million, and in-process research and development
charges, $790,000, related to Xoom.com's acquisitions, the amortization of
deferred compensation, $1.1 million, related to the granting of options to
employees to purchase common stock, and the increase in trade accounts payable,
$1.0 million, related to the overall growth of its business.
Net cash used in investing activities was $4.7 million for the year ended
December 31, 1998, $393,000 for the year ended December 31, 1997 and $64,000 for
the period from April 16, 1996 through December 31, 1996. 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 $2.0 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 in the nine months ended
September 30, 1999 was $187.0 million and it was $1.4 million in the same period
ended September 30, 1998. Net cash used in investing activities in the nine
months ended September 30, 1999 was primarily related to the purchase of
marketable securities, $198.5 million, partially offset by the maturity of
investments, $18.5 million. The net 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, Xoom.com expects to evaluate the
acquisition of products, businesses and technologies that complement our
business. These acquisitions may involve cash investments.
Net cash provided by financing activities was $62.8 million for the year
ended December 31, 1998, $1.8 million for the year ended December 31, 1997 and
$700,000 for the period from April 16, 1996 through December 31, 1996. 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 $512,000 received in connection with a secured financing
agreement with a leasing company and $1.3 million 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 in the nine months ended
September 30, 1999 was $222.8 million and it was $5.6 million in the same period
ended September 30, 1998. Net cash provided by financing activities in the nine
months ended September 30, 1999 was primarily related to proceeds from
Xoom.com's secondary public offering, $167.0 million, and proceeds from the
issuance of common stock to NBC, $55.0 million, partially offset by the
repayment of notes payable $608,000. Net cash provided by financing activities
in the nine months ended September 30, 1998 was primarily attributable to net
proceeds from the issuance of common stock $5.5 million.
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As of September 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.
Xoom.com had notes payable relating to acquisitions totaling $1.7 million as
of December 31, 1998 and $241,000 as of September 30, 1999. Total notes payable
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 July 2000 to the former
stockholder 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 September 30, 1999, its
outstanding principal balance under this agreement was approximately $424,000.
On November 3, 1998, Xoom.com entered into a secured loan agreement, which
provided for borrowings of up to $2.8 million. In November 1998, Xoom.com
borrowed $1.3 million under this agreement. Under the terms of the loan
agreement, Xoom.com agreed to issue the lender a warrant to purchase up to
183,333 shares of common stock at an exercise price equal to $14 share. Xoom.com
recorded a non-cash charge classified as a non-operating expense of
approximately $1.5 million during the fourth quarter of 1998 based on the fair
value of this warrant. As of December 31, 1998, all interest and principal
amounts had been fully paid, and the loan agreement had been canceled. On
January 11, 1999, the lender exercised the warrants in a net exercise
transactions and purchased 116,231 shares of Xoom.com's common stock at a price
of $14 per share. The effective interest rate on this secured loan agreement for
the year ended December 31, 1998 was approximately 1,450%.
Xoom.com believes that it has the financial resources needed to meet its
presently anticipated business requirements, including capital expenditure and
strategic operating programs, for at least the next 12 months. Thereafter, if
cash generated by operations is insufficient to satisfy its liquidity
requirements, Xoom.com may need to sell additional equity or debt securities or
obtain additional credit facilities. The sale of additional equity or
convertible debt securities may result in additional dilution to its
stockholders. Xoom.com may not be able to raise any such capital on terms
acceptable to Xoom.com or at all.
DISCLOSURES ABOUT MARKET RISK
Xoom.com's exposure to market risk is principally confined to its short-term
available-for-sale securities, which have short maturities and, therefore,
minimal and immaterial market risk.
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BUSINESS
OVERVIEW
NBCi is an integrated Internet media company that combines portal, community
and e-commerce services designed to deliver a comprehensive, next-generation
online experience to a global audience. Our online properties collectively were
equivalent to the sixth-ranked site on the Internet in November 1999 with over
15 million unique visitors, according to Media Metrix reports, implying an
aggregate Internet reach among home and work users of 24%. We deliver enhanced
branded services and content with a growing emphasis on services that take
advantage of Internet ubiquity and broadband access. NBCi integrates
fast-growing and premier assets such as Snap.com, Xoom.com, NBC.com,
VideoSeeker.com and NBC-IN.com and content from AccessHollywood.com. We combine
the NBC media brand and related content with the complementary portal and
navigation services of Snap.com and community and direct e-commerce services of
Xoom.com to deliver a comprehensive, entertaining and compelling Internet
experience to a broad audience. We believe our core services will provide the
foundation for a next-generation media company whose e-commerce and community
orientation will reach a diverse user base through a variety of interactive
media including broadcast and cable television, radio and the Internet.
We believe that our services create an environment that attracts users and
encourages both longer and repeat visits as well as customer loyalty, resulting
in a large base of registered members. These services are focused on generating
both advertising and e-commerce revenue by allowing advertisers and merchants to
reach a broad and segmented audience of Internet users. Our portfolio of
content, community and e-commerce services include:
- ENTERTAINMENT SERVICES: free rich media and broadband content,
user-generated content, chat rooms and online greeting cards
- INFORMATION SERVICES: free directory, global resources and information,
local and personalized content and personal finance information
- UTILITY SERVICES: e-mail, search engine, Web development tools, home
pages, digital user storage and software libraries
- E-COMMERCE SERVICES: business-to-consumer services and
business-to-business tools such as auctions, price comparison shopping
engine, database marketing, shopping directory, digital wallet, business
portal and business directory
We believe our ability to aggregate information about our consumers'
interests across these online services, in combination with our ability to
coordinate network advertising with NBC, will provide cross-selling and
promotional opportunities that distinguish us from most of our competitors in
the Internet industry. In addition, we have the ability to target customers with
advertising and e-commerce opportunities using demographic data and information
on buying habits, services used and lifestyle interests. This information is
collected on a permission basis and we use it to assist advertisers in focusing
and monitoring the effectiveness of their presentations, as well as to offer
relevant e-commerce opportunities. We facilitate these transactions through our
direct e-commerce platform and proprietary database management system.
The total number of registered users on our various properties was over
16 million as of December 31, 1999, with new members registering at the rate of
33,000 per day during December 1999. In December 1999, our Internet properties
had over 783 million collective page views. From these users we have generated
$45.3 million and $10.4 million in pro forma revenues from advertising and e-
commerce, respectively, in the nine months ended September 30, 1999.
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INDUSTRY BACKGROUND
GROWTH OF THE INTERNET. According to IDC, the number of Web users will grow
from approximately 97 million worldwide in 1998 to approximately 320 million
worldwide by the end of 2002. 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, however,
community sites have been among the fastest growing Internet sites as measured
by the number of users. This is a result of the growing attraction of
user-generated content and the desire for communication among like-minded
individuals through chat and discussion forums. More recently, as the number of
Internet users has increased, highly focused consumer and business sites have
developed to attract audiences with a particular interest. 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 and drive
traffic to their own Web properties.
ONLINE ADVERTISING AND DIRECT MARKETING. The growth of the Internet has
created an important new advertising channel. In particular, the emergence of
online community sites and their ability to collect detailed demographic data
about users has allowed advertisers to target specific groups of people with an
affinity for particular products and services. 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 without incurring major
development costs. Advertisers can thus more easily deliver targeted messages in
a cost effective manner. Forrester Research projects that the dollar value of
advertising on the Web is expected to increase from approximately $2.8 billion
in 1999 to approximately $22.2 billion in 2004.
The ability to target potential customers with specific demographic
characteristics is also facilitating the growth in direct e-commerce campaigns.
These campaigns use e-mail to reach specific groups of buyers worldwide,
offering them a significantly broader, yet more relevant selection of products.
The costs of direct e-commerce via e-mail are dramatically lower than those of
traditional direct marketing techniques and success rates are usually higher due
to the availability of better information about the targeted audience. Forrester
Research estimates that the amount spent on online direct marketing in the
United States will increase from $420 million in 1999 to $11.8 billion in 2004,
a which time online direct marketing is expected to comprise 53% of online
advertising expenditures in the United States.
BUSINESS-TO-CONSUMER E-COMMERCE. The Internet has become a significant
global medium for e-commerce. 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 convenience and vast selection of on-line
shopping are also a significant factor in the growth of e-commerce.
Additionally, an online consumer's ability to comparison shop is greatly
enhanced by the ability to access multiple retailers via the Internet. 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.
BUSINESS-TO-BUSINESS E-COMMERCE. The Internet also provides businesses the
opportunity to transact with other businesses via online marketplaces and
business portals by enabling buyers and suppliers to meet and automate
transactions on the Internet. Online marketplaces take advantage of the buying
power of a large customer base to attract a large number of suppliers, thereby
allowing businesses to streamline complex processes, lower costs and improve
efficiency. Forrester Research estimates that business-to-business electronic
commerce in the United States will grow from $109 billion in 1999 to
$1.3 trillion in 2003, accounting for 90% of the dollar value of all electronic
commerce by 2003.
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BROADBAND NETWORK GROWTH. The increasing availability of higher speed
Internet access from the home and the proliferation of Internet devices other
than the PC are beginning to result in significant changes in the dynamics of
Internet usage. The Internet is increasingly being used as a means to distribute
video, audio and other high data-rate content, as well as distributed
applications. Additionally, devices such as Internet enabled wireless phones and
personal digital assistants are enabling users to access Internet content and
services outside the home and office. As a result, consumers will access the
Internet with greater frequency and duration, building a more valuable and loyal
interaction between Internet services and users.
RECENT CONSOLIDATION. By providing a complete set of content, information
and services, Internet portals and communities attract a larger audience,
offering a more attractive platform for companies advertising on the Internet or
conducting e-commerce activities. Over the last twelve months, there has been
significant consolidation in the Internet industry as a result of increased
competition for users, advertising dollars and e-commerce sales revenue. Such
consolidation allows companies to offer services more quickly than if they built
them internally. Traditional media and cable companies have participated in this
consolidation using their access to content, promotion and distribution to
create significant Web properties.
NBCI STRATEGY
By providing a broad array of professionally created and user-created
content in a single service, we intend to develop the leading integrated media
properties on the Internet. Our strategy is to build upon our key component
assets, which are:
- the NBCi name, capitalizing on the broad reach and appeal of the NBC
television network brand to develop an online brand that will enable us to
convert television viewers into users of our online properties;
- Snap.com, a leading information, navigation and content aggregation portal
service;
- Xoom.com, a leading community based Web Site offering direct e-commerce
and community services, and a large membership base; and
- the Internet assets contributed by NBC, including NBC.com, NBC-IN.com and
VideoSeeker.com and content from AccessHollywood.com, which provide access
to a broad base of differentiated users and unique content.
We intend to complete the integration of our online properties rapidly and
cost effectively, to continually upgrade and expand our portfolio of services to
increase the level of Internet traffic on our Web sites and to grow our
registered user base. We intend to capture relevant data on such users to
provide more relevant information to advertisers and more personalized service
to our user base.
BUILD AND ENHANCE OUR CORE BRANDS. We may integrate and promote our other
core brands, such as Snap and Xoom.com, under the NBCi brand by leveraging our
relationship with NBC and its strong appeal to television viewers and
advertisers. We plan to use content recognizable by viewers of NBC television
programs throughout our Internet properties to capitalize on synergies between
on-air and online media. As a result, we believe we will be able to brand our
Internet properties as an ideal destination for a more accessible, immersive and
entertaining rich media environment providing value for both our users and our
business partners. Our agreements with Clear Channel Broadcasting, NBC and
others will enable us to tie together opportunities across multiple media
platforms--Internet, broadcast, cable and radio--allowing us and our partners to
reach and connect with virtually every household in the United States.
We will promote the NBCi brand and continue to promote our other online
brands through the purchase of $405 million in advertising through November 2003
on the NBC television network, CNBC,
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MSNBC and NBC's owned and operated television stations. We believe our
relationship with NBC provides us access to the premier television network.
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. Throughout the
1998-1999 television season, an average of more than 156 million people watched
NBC television programming at least once each week, representing more than 60%
of the population of the United States. In addition, the results of a study
commissioned by NBC from Nielsen Media Research in 1999 indicate that, during
the February sweeps period, NBC primetime programming attracted 25% more viewers
with access to the Internet than the primetime programming of its nearest
network competitor, and 65% more of such viewers than the primetime programming
of the top ten cable networks combined.
In addition to television advertising through our relationship with NBC, we
have entered into an agreement with Clear Channel Broadcasting, Inc., under
which our services will be promoted on 474 of Clear Channel's radio stations and
integrated into the stations' companion Internet properties. We also intend to
promote new brands and services such as SnapTV, through our strategic
relationship with ValueVision International, Inc. We believe that this set of
media links provides us with a diverse group of Internet entry points that will
help us to extend our reach to potential users.
INCREASE CONTENT AND SERVICE OFFERINGS TO GROW OUR USER BASE. We intend to
increase traffic to our Web sites and membership by offering visitors attractive
free services and content, and maintaining a large and diverse range of active
communities centered around special interest categories. We believe that through
our promotion on NBC and integration of NBC television content into our Web
sites, we will also be able to attract an increasing number of television
viewers. By increasing our user and member base, as well as expanding our
distribution channels, we will create a more dynamic environment for our
advertisers and e-commerce partners, allowing them to target specific audiences
across various media. A key component of our distribution model is our
innovative SnapLENS system which enables the rapid and cost effective creation
of special versions of the Snap.com Web site, with a unique "look and feel,"
customized content and targeted advertising.
CREATE A VALUABLE ADVERTISING AND E-COMMERCE FRANCHISE. We intend to
maximize revenue streams and create a valuable advertising and e-commerce
franchise by focusing on a number of key strategies, including:
- expanding our advertising customer base by leveraging NBC's extensive
advertising relationships to create synergies between on-air and online
media and create unique ways for advertisers to reach consumers;
- increasing the average size and duration of our advertising contracts by
offering special sponsorship and promotional advertising and marketing
programs across our media properties;
- obtaining higher average advertising rates by increasing the ability of
advertisers to provide highly targeted advertising to our membership base;
- hiring additional direct sales representatives and continuing to invest in
improving our advertisement serving and targeting technology; and
- expanding our e-commerce product offerings and services, such as magazine
subscriptions, appliances, games, photography supplies, home and auto
insurance, wireless telecommunication services and membership clubs.
AGGREGATE USERS AROUND SELECTED VERTICAL CONTENT AREAS. We intend to
selectively develop, partner with or acquire vertical content areas to create
active sets of users with similar interests. A vertical content area is a Web
site 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. As
opposed to a general Web audience,
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users with a specific set of interests provide opportunities to sell more
targeted advertising and facilitate more online transactions. Advertisers are
willing to pay premium prices to reach such targeted audiences. By providing
unique content, we intend to develop large databases 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. Similarly, usage of NBC.com,
VideoSeeker.com and NBC-IN.com's network of local sites provides demographic and
affinity segmentation that may be highly desirable to advertisers. We will also
seek to identify opportunities to leverage partner relationships and selectively
seek acquisitions in areas of particular value to accomplish this goal.
LEAD NEXT-GENERATION BROADBAND AND WIRELESS INITIATIVES. The Internet is
increasingly being used as a means to distribute video and audio content, gaming
services and distributed applications. We believe that as broadband access
proliferates and users become increasingly attuned to broadband content and
services, our industry-leading capabilities in this area will serve to
differentiate us from competitive sites. 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 provides our users with access to
streaming video content on the Web. Our agreement with Telocity, a national
broadband service provider, will provide users with a co-branded, high speed
Internet access service. This service will be specially designed for broadband
users to take advantage of improved video and audio technologies. We intend to
seek additional opportunities to vastly expand the nature and amount of
broadband content available to our user base through internal development,
acquisitions and strategic alliances. In addition, we also intend to utilize
emerging technologies, such as wireless Internet access devices to reach more
users more times each day.
BUILD OUR BUSINESS-TO-BUSINESS OFFERINGS. We intend to leverage our key
business-to-business assets to selectively enter the rapidly expanding
business-to-business e-commerce marketplace. We intend to leverage our existing
business-to-business assets, which include a business portal, a business
directory comprised of more than seven million businesses, including 750,000
registered members, and a comparison engine allowing users to compare the prices
of products offered by multiple suppliers. We also believe our experience in
operating an online auction site, our relationships with our current
business-to-business partners and users, and our skills in content management,
direct e-commerce marketing and database management will facilitate our entry
into the business-to-business market. We intend to rely on the substantial
experience of our board of directors in identifying opportunities where we can
obtain a leadership position with a view towards long-term value. To become the
industry leader in our selected categories, we will need to quickly obtain a
dominant position by acquiring companies in our targeted markets.
ACCELERATE PURSUIT OF INTERNATIONAL OPPORTUNITIES. We intend to rapidly
expand our platform internationally by providing our Web sites in local
languages and offering our services to local advertisers and e-commerce
companies. We also plan to leverage NBC's worldwide relationships to expand our
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. We have targeted several
European and Asian countries for possible international expansion and are
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. We intend to continue to develop leading edge technologies to provide
our users the highest possible level of service and our advertisers and
e-commerce partners the benefit of our 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.
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Advertisers currently benefit from the integration of advertisements and product
offers within search requests on Snap.com. We have developed a proprietary
system for database stratification, offer targeting and delivery. This system
uses demographic and personal interest information provided by our 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. We
intend to expand and improve on these capabilities by continuing to invest in
the development of new technologies or by acquiring such technologies through
acquisitions, joint ventures or strategic alliances.
OUR INTERNET ASSETS, PRODUCTS AND SERVICES
We provide a comprehensive and compelling online experience to users
worldwide via our powerful branded Web properties that incorporate
entertainment, information, utility and e-commerce services delivered across all
bandwidths. NBCi's select portfolio of online properties is comprised of highly
popular, content-rich sites and services geared to specific audiences with
various interests and needs.
NBCI INTERNET ASSETS
<TABLE>
<CAPTION>
<S> <C>
[Snap.com logo] SNAP.COM. Snap is currently NBCi's Internet portal service and
flagship consumer brand. Snap offers efficient, high-quality
Internet search results, comprehensive directory listings,
proprietary Resource Centers and engaging content from hundreds of
leading Web publishers.
[Xoom.com logo] XOOM.COM. Xoom.com is a leading online community service that
provides members with services such as home page development tools
and digital storage space. Members also receive targeted product and
service offerings from partner merchants and advertisers.
[NBC.com logo] NBC.COM. NBC.com is a full-scale online offering from the NBC
Television Network, featuring original online programming,
comprehensive backgrounds on the network's shows and stars,
interactive promotional campaigns, and innovative online product
offerings linked directly to on-air programs. Visitors to the site
will find a growing lineup of exclusive video content, show-related
games and downloads, exclusive Web content designed to complement
and extend NBC shows and network branding into the online space.
[NBC-IN.com logo] NBC-IN.COM. NBC-IN.com is a resource for valuable local information
on the Web, providing access to local content via the Web sites of
over 100 local NBC television affiliates nationwide. Users can find
promotions, contests and coupons, and various other local
information such as job and real estate listings, eateries and
television programming.
[VideoSeeker.com logo] VIDEOSEEKER.COM. VideoSeeker.com is a leading-edge video resource on
the Internet-a one-stop, on-demand service featuring popular video
content from NBC and third-party programmers. VideoSeeker is
building a comprehensive video directory on the Web, with popular
video content channels and user-friendly search capabilities.
</TABLE>
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PRODUCTS AND SERVICES
The following chart illustrates the categories and services that NBCi offers
through our online properties:
<TABLE>
<CAPTION>
<S> <C>
CATEGORIES SERVICES
Entertainment Services Free rich media and broadband content
User-generated content
Chat rooms
Online greeting cards
Information Services Free directory
Global resources and information
Local and personalized content
Personal finance information
Utility Services E-mail
Search engine
Web development tools
Home pages
Digital user storage and software
libraries
E-Commerce Services Auctions
Price comparison shopping engine
Database marketing
Shopping directory
Digital wallet
Business portal
Business directory
</TABLE>
ENTERTAINMENT SERVICES
FREE RICH MEDIA AND BROADBAND CONTENT. Through NBC.com we offer information
and promotion for NBC on-air broadcasts as well as original show extensions
developed specifically for Internet users. We provide show descriptions, episode
updates, actor biographies, schedule information, "backstage tours", online-only
interviews, online show "spin-offs", Internet-only segments and program trivia
for NBC entertainment programming. We also adapt program content owned by or
licensed to NBC for interactive uses, such as games and photo galleries. Through
AccessHollywood.com, we leverage the popularity of an on-air show to attract
online users interested in up-to-date entertainment industry news and online
extensions of the show. Our Videoseeker.com service is an innovative, on-demand
video service with search capability that provides access to various NBC-related
and third party video content.
To provide a more entertaining and dynamic online experience, we have
developed several initiatives to provide an enriched offering of our services to
broadband-enabled Internet users. Our Snap.com For Higher Speed Users, launched
in March 1999, uses innovative broadband technology to optimize users' access to
rapidly-evolving forms of content, including video, audio, animation and gaming,
to create a richer Internet experience. This service enhances and supports the
core
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functionality of Snap.com by offering multimedia content and navigation services
to the expanding number of users with high-speed Internet access. In addition,
because Snap.com For Higher Speed Users is positioned as an alternative 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.
Through our relationship with Telocity, we expect to offer a co-branded
high-speed Internet access service to consumers by the third quarter of 2000.
Through this co-branded service we expect to provide entertainment, shopping,
games, search applications and other utility services designed for broadband
users.
USER-GENERATED CONTENT, CHAT ROOMS AND ONLINE GREETING CARDS. Our members
can participate in one or more of over 200 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 our Web sites. We also generate significant user created content by
offering members the tools necessary to create their own personalized Web sites
and then provide the digital storage space to add their sites to the Internet.
Our community services include user created content, chat, bulletin boards,
electronic newsletters, online greeting cards, games and other services, which
enable us to attract and retain customers. These services build a long-term
relationship between NBCi and our visitors and members. By serving as a virtual
meeting ground for many people, we continue to broaden our reach and increase
the opportunities for our advertisers and e-commerce partners.
INFORMATION SERVICES
FREE DIRECTORY. The Snap Directory is a hierarchical listing of Web pages
that have been selected and summarized by us into 22 topic categories. The Snap
Directory enables a user to click on an entry and look through a hierarchy of
relevant Internet sites for various areas of interest. Our directory assists the
user by providing abstracts for each entry. The Snap Directory is hand built by
our editors, and we believe that searches through our directory return more
accurate results than searches through most of our competitors' mechanically
compiled directories. As of December 31, 1999, our directory contained over
800,000 entries.
Our LiveDirectory is a unique service that allows our members to submit
their Web sites and any other Web sites to our search and navigation service
quickly and easily. The LiveDirectory enables our members to monitor when
updates to their submitted Web sites occur and to determine the popularity of
such Web sites. The LiveDirectory is continually updated by the addition of new
sites by submitting members and ensures that our collection of searchable Web
sites remains up to date. The LiveDirectory is created and maintained through a
combination of GlobalBrain.net Inc.'s proprietary popularity ranking process and
by our editors, who choose the most popular and significant Web sites included
in the LiveDirectory for inclusion in the Snap Directory.
GLOBAL RESOURCES AND INFORMATION. We maintain direct links to MSNBC News,
MSNBC Sports and CNBC.com, which provide users with access to breaking news,
worldwide sports and financial information. Content from national news magazine
shows such as Dateline NBC is available via links to MSNBC.com, and users can
link to NBC's site devoted to the Olympics through NBC.com. We also offer a
platform to gather information from and interact with national and international
government agencies.
LOCAL AND PERSONALIZED CONTENT. The NBC-IN.com Web site serves as a portal
to a network of local news and information Web sites developed in collaboration
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
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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. Information from local government agencies is also available
through our Web sites. 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. We provide a
portion of each local site's content through strategic relationships with Web
sites such as Big Yellow, Auto-by-Tel and CareerBuilder. These content providers
pay a fee to NBC-IN.com to furnish search or other functionality in a particular
category such as auto and real estate sales, apartment rentals, telephone
directory services and job searching services for the geographic areas covered
by each site throughout the NBC-IN.com site network. 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.
In addition to providing users local information through NBC-IN.com, we have
developed a number of personalization tools, integrated in the MySnap service,
that allow users to compile and format Internet content and advertising
information according to their specific interests. 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. MySnap also
offers e-mail and a reminder features with access to value-added Internet
content. MySnap seeks to complement our comprehensive search functionality by
positioning Snap.com and Snap.com For Higher Speed Users as a single source for
users' recurring information needs.
PERSONAL FINANCE INFORMATION. CNBC.com LLC, in which we own a 10% interest,
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. 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.
UTILITY SERVICES
E-MAIL. We offer members free e-mail accounts that allow them to check
e-mail from anywhere at any time. The sophisticated e-mail service includes an
integrated spell-checker and filter that enables the user to easily choose to
receive only certain types of e-mails.
SEARCH ENGINE. Our search capability allows users to execute query-based
searches of the Web and other premium content databases or the Snap Directory. A
search can be effected using simple keywords, phrases or full text natural
language searches. In addition to its general search function, Snap.com also
offers users a more focused or "search only" service that allows for natural
language queries or special search expressions. Our exclusive license agreement
with GlobalBrain.net, Inc. for GlobalBrain.net's proprietary search technology,
enables our search engine to rank sites by user preferences and formulate a
search response that reflects the popularity and relevance 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, age or
other variable we choose to set.
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We have also 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 resource centers serve as "mini-portals", delivering
intelligently compiled search results in over 500 niche areas of interest. In
addition, because our product managers can build resource centers and assemble
relevant content quickly, we have used resource centers to build search
capability opportunistically around topics of current interest as well as
contextual programming developed through our strategic relationship with NBC.
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.
WEB DEVELOPMENT TOOLS, HOME PAGES, DIGITAL STORAGE AND SOFTWARE
LIBRARIES. We offer Web development tools that allow our users to build
personal Web sites complete with the latest in Web page features such as
multimedia capabilities, counters that track and gather useful data about Web
site visitors, clip art and streaming video. In addition to providing tools to
build the Web sites, we also provide the digital storage that allows our members
to add their sites to the Internet. Members can also set up direct links to
their personal Web sites, allowing them to take advantage of our services
without the need to access our Web site directly. We also offer many free
downloadable software choices from our extensive free software library. Our
members rely on us to provide them with continually updated and expanded
software choices that further enhance their online experience. These services
strengthen our relationship with our members and incentivize them to provide the
valuable personal information that our advertisers and e-commerce partners use
to offer our members targeted products and services.
E-COMMERCE SERVICES
AUCTIONS. We offer our individual and business members the ability to sell
and buy goods via online auctions. Our service permits member sellers to list
items for sale, member buyers to bid on items of interest and users to browse
through listed items in a fully-automated, topically-arranged, intuitive and
easy-to-use online service that is available 24-hours-a-day, seven-days-a-week.
Our basic and advanced search capabilities are available for users of the
auction service to search for and identify items of interest. Non-member sellers
pay a nominal placement fee for an item based on the seller's minimum price for
the item. At the end of the auction period, if a bid exceeds the seller's
minimum price, we automatically notify the buyer and seller via email and then
the buyer and seller consummate the transaction independently of us. Buyers are
not charged for making bids or purchases through us. At no point during the
process do we take possession of either the item being sold or the buyer's
payment for the item. Following completion of a transaction, each user is able
to submit compliments or criticism to the trading profile of the seller. As we
continue to develop and refine our auction sites, we expect to build in many
more modern features that are a natural product extension, for example "group"
buying.
PRICE COMPARISON SHOPPING ENGINE. To assist members in their online
purchases we provide an online comparison shopping guide and purchasing service.
This service allows consumers to easily and quickly shop online for the products
they want at prices they desire. This technology also enables us to collect
valuable e-commerce related data about our online buyers, including information
about their preferences and purchase history. We use this data to better target
online buyers with products and services based on their individual needs. We
also provide a shopping service that brokers consumer transactions, serving as
an infomediary between online shoppers and more than 300 merchants, allowing
consumers to easily and quickly compare prices and shop online, without having
to navigate through multiple merchant Web sites. To enhance the shopping
experience we also offer free, objective and up-to-date reviews of top products
in dozens of merchandise categories, provided by Productopia, Inc., a third
party product review service. Along with third party reviews by Productopia,
users of the
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comparison engine also have access to unbiased merchant quality rankings from
BizRate.com, a leading Internet merchant rating site.
DATABASE MARKETING. We use the unique characteristics of the Web to
cost-effectively market products and services to our growing member base. We
believe we have created an innovative online sales channel with low customer
acquisition costs. We have gathered a significant base of information about our
members through registration information, responses to promotional campaigns and
purchasing information obtained from third parties. As more members join
Xoom.com and Snap.com, participate in our topical communities and use our other
free services, and as we obtain additional purchasing history data, the level of
information about our members will continue to grow. 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. We apply a
sophisticated direct e-commerce approach to generate product sales. Unlike
traditional direct marketing campaigns, which typically use paper-based
promotional materials delivered by mail, our campaigns use regular e-mails to
communicate offers to members, significantly reducing the cost of reaching the
consumer. The interactive nature of the Web enables us to present such offerings
in a more complete and dynamic manner than allowed by paper-based delivery
systems. Prior to introducing new product offerings to our entire membership
base, we select a subset of members for the purpose of test-marketing a
campaign. We have 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. We 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, we select
product offers for a larger audience and modify them to maximize response rates,
sales, profitability and member retention. Testing also increases the accuracy
of our forecasts of product demand. As a result, we typically are able to carry
small amounts of inventory, thus lowering overhead and the risk of write-offs.
SHOPPING DIRECTORY. We offer our visitors and members a variety of shopping
opportunities through our shopping directory. We facilitate online transactions
by providing custom tailored buying opportunities for visitors and members and
enabling customers to easily buy products or services from a wide variety of
suppliers in a seamless, "one stop shopping" experience. In addition to offers
via e-mail, members may purchase products through various themed areas on the
Xoom.com and Snap.com Web sites such as Investor Place and Health & Fitness and
other sites controlled by us such as the Xoom.com shopping channel and, in the
future, SnapTV.com. Under our Buyer's Club, our partners allow us to offer their
users the ability to receive pre-approved direct e-mail offers from us. In
return, we offer to manage their e-mail databases, offer to share revenue from
product sales and offer our e-commerce solutions. We currently manage
approximately 2.5 million e-mail addresses and third party sites, including
Roxy.com, Talk City, Ulead Systems and NameSecure.com. In addition, we have
access to over one million other e-mail addresses from third party sites who
prefer to send these direct e-mail offers themselves. These partners include
BuyItNow, BuyONet.com and Mplayer.com, among others.
DIGITAL WALLET. Our My Wallet-TM- offering is a secure e-commerce solution
that allows our users to shop for various products from our sites and our
partner merchants in one easy transaction, which makes the shopping experience
more convenient and strengthens our relationship with the shopper. This digital
wallet is capable of storing multiple billing and shipping addresses as well as
credit card information in a safe and secure location. This allows consumers to
enter their personal data once and conveniently access it every time they make
purchases, without having to re-enter their information with each purchase.
BUSINESS PORTAL. We offer our small business users a variety of business
services, resources and e-commerce opportunities at our business portal located
at business.snap.com. This site offers services provided on other areas of our
Web sites but tailored for business users as well as co-branded services
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provided by our partners. Services and resources available to business users at
our business portal include an online calendar and address book, free business
cards, assistance with developing a business plan and corporate credit cards.
BUSINESS DIRECTORY. Our global business directory provides a listing of
over seven million businesses in 250 countries. 750,000 of the businesses listed
in our directory have elected to become registered members. Membership enables
them to get a premier listing in our directory and provides them an opportunity
to receive targeted e-commerce product and service offers.
STRATEGIC ALLIANCES
NBC BRAND INTEGRATION AND LICENSE AGREEMENT. We have an agreement with NBC
that allows us to use the "NBC" trademark, multicolor logo and soundmark on our
Web properties. This will assist us in building our core brands and help us to
turn a large portion of the NBC television viewers into NBCi online members. The
license agreement licenses to us the exclusive right to use the Web site
addresses of NBC.com, VideoSeeker.com and NBC-IN.com, in connection with
interactive delivery of content from NBC's television programming. NBC retains
the title to such Web site addresses.
The license agreement also grants us an exclusive license to use, reproduce
and display on our Web sites short content from some NBC television programs.
Our 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 properties, products or services by a competitor
of the other;
- neither party can invest in, purchase or loan money to a competitor of the
other; and
- NBC has granted us first look rights in relation to acquisitions of our
non-primary competitors and related businesses.
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; or
- by NBC, in the event of a change of control of NBCi.
VALUEVISION/SNAPTV. To expand the market for our e-commerce services and
obtain direct access to the cable television audience, on September 13, 1999, we
entered into a strategic alliance with ValueVision International, Inc.,
consisting of 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 Web site 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 Web site. ValueVision's television
home shopping network, currently called ValueVision, will be re-branded as
SnapTV. The re-branding will be phased in during the first half of 2000. This
partnership is an important part of our strategy to gather members from various
media sources and become a fully integrated media company.
We 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 our products
and services, as well as SnapTV merchandise. ValueVision and NBCi 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 our merchant partners. In
addition, we 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.
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CLEAR CHANNEL BROADCASTING. We have entered into an agreement with Clear
Channel Broadcasting, Inc. a globally diversified media and outdoor advertising
company, which operates, or is affiliated with over 500 radio stations
worldwide. The agreement provides that NBCi, through Xoom.com, will be the
exclusive provider of free Web site space, chat rooms and Web e-mail on 474
Clear Channel Web sites and that NBCi, through Snap.com, will be the premier
provider of search and directory services on all Clear Channel Web sites.
Although we can promote Xoom.com or Snap.com on the Clear Channel Web sites, we
cannot display the NBC brand. NBCi, through Xoom.com, also has the exclusive
right to send direct advertising and marketing offers to members associated with
the services provided by Xoom.com on the Clear Channel Web sites. Additionally,
we have agreed to purchase at least $3.5 million per year of advertising on the
Clear Channel radio network and billboards. This partnership broadens our reach
beyond the Internet and television into radio, thereby strengthening our
position as a truly integrated media company.
TELOCITY. In December 1999, we entered into a strategic partnership with
Telocity, Inc., a national broadband service provider to bring "plug and play"
broadband Internet services to home residences. Under the agreement with
Telocity, we expect to provide a co-branded, high-speed Internet access service
to consumers by the third quarter of 2000. Under the agreement, we will also
promote Telocity's "plug and play" technology, a service that enables consumers
to obtain broadband services through the installation of a digital subscriber
line modem without additional telephone or computer equipment. This partnership
enables us to remain at the leading edge of broadband network growth and helps
position us as a dominant broadband content provider.
CNBC.COM. We currently own a 10% interest in CNBC.com and a subsidiary of
NBC owns the remaining ownership interests. CNBC.com is an online service that
provides financial information and analytic tools that is generated by CNBC and
other sources. Our equity interest is subject to restrictions against transfer
by us. Our equity interest has no governance rights with respect to CNBC.com
other than the right to vote such equity interest with respect to matters
requiring approval by a vote of equity holders of CNBC.com under the limited
liability company agreement of CNBC.com. However, as the indirect holder of the
remaining 90% interest in CNBC.com, 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 to a third party, NBC may compel us to transfer our equity interest in
CNBC.com as well, and in some circumstances we may compel NBC to include our
equity interest in such a transfer by NBC. We also intend to enter into a
carriage agreement with CNBC pursuant to which CNBC will provide specific
services and some content from CNBC.com to NBCi.
In the normal course of business, we have entered into a number of strategic
alliances with a variety of online properties to increase the distribution of
our products and services, to obtain access to content and to provide our
members with access to unique services and technologies.
MARKETING
Our strategy is to leverage the promotional reach of NBC to turn television
viewers into visitors and registered members. We intend to stimulate brand
awareness and user demand for our services through integrated marketing elements
including outdoor, television, radio and Internet advertising as well as
promotions and sponsorships. We also seek to leverage the marketing reach of our
distribution partners and content providers through a range of joint marketing
programs such as the SnapLENS initiative, which enables rapid creation of
customized versions of our Snap.com Web site centered around specific
promotions, events or interest areas. In addition, we cross-promote our services
with content providers though advertising swaps in both traditional and online
media.
We have also entered into distribution agreements with selected Internet
companies to increase our reach. For example, since February 1999, Snap.com has
been listed as a search and navigation serice on Netscape's Netcenter Web site
accessible via the "Internet Search" button, for which we pay 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
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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.
ADVERTISING
We believe we can leverage our relationship with NBC to offer advertisers
cross-promotion capability by coordinating network advertising with a variety of
advertising opportunities on the NBCi Web sites. Through our relationship with
NBC, we have 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 Internet advertising campaigns, through directory and channel
advertisements or keyword advertisements, 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. We have developed a
registration methodology and underlying databases that enable us to
differentiate among users. Through user segmentation, we intend to continue to
provide highly targeted content selected by our editors in conjunction with
related e-commerce opportunities, increasing the effectiveness of advertising
messages.
We have 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 December 31,
1999, we had 74 employees in our direct sales organization. Our sales
organization is focused solely on selling advertising on all of our online
properties. Our 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 number of times an
advertisement is seen by a user, for a fixed fee. We have experienced, and
expect to continue to experience, a variable renewal rate for our advertising
contracts. Advertising on our Web sites currently consists primarily of
banner-style advertisements that are prominently displayed at the top of pages
on a rotating basis throughout our Web 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.
We have signed a number of long-term sponsorships of a minimum of six months
duration as a result of the growth in reach of our Web sites and the desire of
advertisers to reach our membership and user base. Such sponsorships generally
provide for specific placement on our online properties and the delivery of a
minimum number of impressions over the course of the contract. We have signed
such agreements with Job Options and NECX, among others.
ADVERTISING CUSTOMERS
During the nine months ended September 30, 1999, we had approximately 504
advertisers on our Web sites. For the nine months ended September 30, 1999, the
five largest advertising customers, Mail.com, BuyItNow.com, iVillage, iOwn and
InsWeb, accounted for approximately 24% of pro forma advertising revenue
(approximately 19% of total net revenue). The following is a list of our top 15
advertising customers by net revenue for the nine months ended September 30,
1999:
AutoTrader.com LLC
BuyItNow.com, LLC
HealthAxis.com, Inc.
Hearst Communications, Inc.
InsWeb Corporation
Intel Corporation
iOwn, Inc.
iVillage, Inc
JobOptions, LLC
LendingTree, Inc.
Mail.com, Inc.
NECX Direct LLC
NextCard, Inc.
Preview Travel
Tower Records.com
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CUSTOMER SERVICE AND SUPPORT
We believe that the strength of our customer service and technical support
operations is critical to our success in maintaining our membership base,
increasing membership and encouraging repeat usage and purchases. We have
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. We
intend to enhance and automate the e-mail response portions of our customer
service and technical support operations in the near future.
TECHNOLOGY AND INFRASTRUCTURE
We use Exodus Communications, Inc. and GlobalCrossing Global Center to house
our network servers and to provide and manage power and maintain the correct
environment for their networking and server equipment. We intend to standardize
our network and mail platforms between our principal and satellite offices. In
addition, we will seek to standardize the hardware and software used by our
various businesses by making purchases through a select group of vendors. We do
not presently expect to incur any material costs due to the consolidation of
vendor and supplier relationships. We will continue to strive to rapidly develop
and deploy high-quality tools and features into our systems without interruption
or degradation in service. In addition, we will continue to upgrade and expand
our server and networking infrastructure in an effort to ensure fast and
reliable access to our Web sites.
We have developed an open standard hardware and software system that is
designed for reliability. Our 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 300 megabits per second.
We also use third-party and public domain server software that we have
optimized internally, and internally developed tools and utilities. Requests for
files are distributed to the appropriate servers using load distribution and
balancing hardware. We also employ 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.
We store member-generated content on a redundant array of independent disks.
We store member profile information on multiple disk arrays using Oracle and
Sybase database software and back it up on long-term tape storage devices on a
daily basis. We will continue to upgrade and expand our server and networking
infrastructure in an effort to maintain and improve fast and reliable access to
our Web sites and communities. Any system failure that causes an interruption in
service or a decrease in responsiveness of our Web sites could result in less
traffic on the Web site and, if sustained or repeated, could impair our
reputation and the attractiveness of our brands.
Exodus and GlobalCrossing Global Center connect our Web sites to the
Internet via multiple links on a 24 hour-a-day, seven days per week basis.
Exodus and GlobalCrossing Global Center also provide and manage power and
maintain the correct environment for our networking and server equipment. We
manage and monitor servers and networks remotely from our headquarters in San
Francisco, California. We strive to rapidly develop and deploy high-quality
tools and features into our system without interruption or degradation in
service. Any disruption in the Internet access provided by Exodus or
GlobalCrossing Global Center, or any interruption in the service that Exodus or
GlobalCrossing Global Center receives from other providers, or any failure of
Exodus or GlobalCrossing Global Center to handle higher volumes of Internet
users to our Web sites could have a material adverse effect on our business,
results of operations and financial condition.
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We developed our current search engine technology based on a collection of
third party licensed proprietary tools. Our engineers developed an enhanced
search technology to offer an approach to information retrieval that provides
users enhanced levels of accuracy, relevancy, comprehensiveness and speed. Our
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. Our search results are enhanced by
the GlobalBrain.net proprietary search technology that enables our search engine
to rank sites by user preferences, formulate search responses reflecting the
popularity of Web sites and customize search results for specific user groups.
Our search engine seeks to deliver relevant search results, emphasizing high
precision and recall functionality 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, our producers continually
refresh Snap's database of Web pages and regularly update the database with new
Web pages. For every search, our innovative response compilation technology
allows the importation of producer-selected data collections into our system and
gives users ready access to highly relevant results via targeted links to
related Web site addresses.
We have no fulfillment operation or warehouse facility of our own, and
currently rely primarily on Banta for warehousing and fulfillment services. We
use automated interfaces for accepting, sorting and processing orders to enable
us to achieve the most rapid and economical purchase and delivery terms. We
process approximately 95% of orders online, with the remainder by telephone, fax
or mail.
COMPETITION
The market for our products and services continues to develop and rapidly
evolve and is characterized by an increasing number of market entrants with
competing products and services. We expect 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 our competitors, including:
- America Online's acquisition of Netscape and its proposed merger with Time
Warner, Inc.;
- CMGI's acquisition of 83% of AltaVista;
- Disney's acquisition of the remaining interest in Infoseek not already
owned by Disney;
- @Home Network's acquisition of Excite; and
- Yahoo!'s acquisitions of GeoCities and Broadcast.com.
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 our 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, our 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. For example we will compete with other community Web sites such
as theglobe.com and iVilllage, content Web sites such as ESPN.com and local
content Web sites such as Ticketmaster Online-CitySearch.
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We also expect 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 Amazon.com, Egghead's Egghead.com and CompUSA.
We believe the principal factors upon which we will compete will be brand
name recognition and our ability to offer advertisers and e-commerce partners a
large user and membership base. In addition to brand name recognition, our
ability to increase our user and membership base will be dependent upon our
ability to differentiate ourselves by the quality and variety of our product and
service offerings, including the variety and depth of content offered on our
online properties. Our ability to attract users is also dependent upon strategic
alliances and distribution relationships we enter into. We believe the breadth
and quality of our service and product offerings, including our broadband
capabilities and our large and varied membership base, together with our
relationship with NBC, will enable us to effectively compete with our
competitors.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We view our technology as proprietary and will try to protect it under
existing United States and international laws relating to protection of
intellectual property. We have developed internal procedures to control access
and dissemination of our proprietary information. Despite our precautions, third
parties may succeed in misappropriating our intellectual property or
independently developing similar intellectual property. Protecting our
intellectual property against infringement could result in substantial legal and
other costs and could divert our limited management resources.
Some of our technology is based on technology licensed from third parties.
As we introduce new services, we may need to license additional technology. If
we are unable to license needed technology on a timely basis and on commercially
reasonable terms, we could experience delays and reductions in the quality of
our services, all of which could adversely affect our business and results of
operations. Our reputation and the value of our proprietary information could
also be adversely affected by actions of third parties to whom we license our
proprietary information and intellectual property. If someone asserts a claim
relating to proprietary technology or information against us or our
subsidiaries, we may seek licenses to such intellectual property. We cannot
assure you, however, that we 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 our business and results of
operations.
Although we do not believe our businesses infringe the proprietary rights of
any third parties, we cannot assure you that third parties will not assert
claims against us in the future. From time to time, our 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 our management and
financial resources. If successful, claims of this nature could subject us to
liability, injunctive relief restricting our use of intellectual property
important to our operations, and could ultimately cause us to lose rights to
some of our intellectual property. Any of these events could have a material
adverse effect on our business and results of operations.
LEGAL PROCEEDINGS
As a recently 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 or our other
subsidiaries or online properties.
Zoom Telephonics, Inc. filed a lawsuit against us in September 1998 in the
United States District Court for the District of Massachusetts alleging
trademark infringement and related statutory violations. We were not served with
Zoom Telephonics' complaint until January 1999. Zoom Telephonics has demanded
that we stop using the Xoom.com trademark and has asked for an unspecified
amount of money damages. We responded to the complaint in February 1999. In
April 1999, Zoom Telephonics filed a motion for preliminary injunction to stop
us from using any mark containing "Xoom". We have filed a motion to oppose Zoom
Telephonics' motion for preliminary
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injunction. A hearing on the motion 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 did not close by October 31, 1999. On November 3,
1999, Zoom Telephonics filed a motion to renew their previous motion for
preliminary injunction. On November 17, 1999 we filed an opposition to Zoom
Telephonics' motion to renew its previous motion for a preliminary injunction.
We believe that the claims asserted by Zoom Telephonics are without merit and we
intend to defend against them vigorously. We cannot assure you, however, that
the results of this litigation will be favorable to us. An adverse result of the
litigation would likely seriously harm our business and results of operations,
particularly if the litigation forces us to make substantial changes to our name
and trademark usage. Any name change could result in confusion to customers and
investors, which could adversely affect the results of our operations and the
market price of the common stock.
In January 1998, we became aware that Imageline, Inc. claimed to own the
copyright in certain images that a third party, Sprint Software Pty Ltd had
licensed to us. Some clip art images that Imageline alleged infringed
Imageline's copyright were included by us in versions of our Web Clip Empire
product and licensed by us to third parties, including other software clip
publishers. Our contracts with such publishers require us to indemnify the
publisher if copyrighted material licensed from us infringes a copyright.
Imageline claims that our infringement of Imageline's copyrights is ongoing. We
engaged in discussions with Imageline, but were unable to reach any agreement
regarding a resolution of this matter. On August 27, 1998, we filed a lawsuit in
the United States District Court for the Eastern District of Virginia against
Imageline, certain parties affiliated with Imageline, and Sprint Software
regarding our and our licensees' alleged infringement of Imageline's copyright
in certain clip art that we licensed from Sprint Software. The lawsuit seeks,
among other relief, disclosure of information from Imageline concerning the
alleged copyright infringement, a declaratory judgment concerning the validity
and enforceablilty of Imageline's copyrights and copyright registrations, a
declaratory judgment regarding damages, if any, owed by us to Imageline, and
indemnification from Sprint Software for damages, if any, owed by us to
Imageline. There is no contractual limitation on Sprint Software's
indemnification. While we are seeking indemnification from Sprint Software for
damages, if any, we cannot assure you Sprint Software will be able to fulfill
the indemnity obligations under its license agreements with us. In addition, we
may be subject to claims by third parties seeking indemnification from us 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 $60.0 million in damages. In March 1999, the parties
completed the discovery process and filed separate motions for summary
judgement. On April 5, 1999, the court granted one of our 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, we believe the range of liability related to this
matter is from $0 up to $10,000,000; however, we believe it is unlikely that the
liability would exceed $1,000,000. Accordingly, we reserved $1,000,000 for this
potential liability, the expense of which was included in non-recurring charges
for the year ended December 31, 1997. We believe that the $1,000,000 reserve
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 seriously harm our financial
position, results of operations and cash flows over and above the $1,000,000
accrued in the 1997 financial statements. If not successful in defending this
claim, the resulting outcome could seriously harm our business, results of
operations, cash flows and financial condition.
John G. Balletto filed a lawsuit against us in September 1999 in the San
Francisco Superior Court alleging breach of contract and seeking specific
performance. Mr. Balletto has alleged that in connection with a loan which we
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 us
to issue 33,784 shares of our common stock to Mr. Balletto and such other relief
as the court may deem just and proper. We believe that this lawsuit is without
merit and intend to defend this lawsuit vigorously.
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We filed a complaint against CityAuction, Inc. and Ticketmaster
Online-CitySearch 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. We are claiming that CityAuction breached the agreement
by refusing to honor our exercise in February 1999 of our CityAuction warrants,
failing to make a $125,000 payment due to us and failing to provide us with
notice of CityAuction's pending acquisition by Ticketmaster
Online-CitySearch, Inc. We are also claiming that Ticketmaster induced
CityAuction to breach its contractual obligations to us. We are seeking damages,
injunctive and equitable relief of not less than $5 million from CityAuction, in
addition to damages from Ticketmaster Online-CitySearch Inc. for intentional
interference with the Snap-CityAuction agreements. CityAuction has filed a
cross-complaint against us seeking rescission of its promotion agreement with
us, 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
us the economic benefit of the claimed payments and stock ownership of
CityAuction.
EMPLOYEES
As of December 31, 1999, we had approximately 635 full-time employees. Our
future success will depend, in part, on our ability to continue to attract,
retain and motivate highly qualified technical and management personnel, for
whom competition is intense. From time to time, we will employ independent
contractors to support our research and development, marketing, sales and
support and administrative organizations. Our employees are not covered by any
collective bargaining agreement.
FACILITIES
Our headquarters are currently located in a leased facility in San
Francisco, California, consisting of approximately 9,000 square feet of office
space, which is under a lease that expires in July 2004. We lease additional
office space in San Francisco, consisting of approximately 97,000 square feet,
which is under a lease that expires in April 2000. On or about March 2000 we
intend to move our headquarters and consolidate all currently leased San
Francisco office space to a leased facility in San Francisco, consisting of
approximately 187,000 square feet of office space, which is under a lease that
expires in 2010. We lease approximately 5,000 square feet of office space in Los
Angeles, California for a sales office under a lease that expires November 2004.
We also lease approximately 6,500 square feet of office space in New York, New
York for our East Coast sales offices under a lease that expires July 2004. In
addition, our wholly-owned subsidiary Liquid Market leases approximately 10,500
square feet of office space in Los Angeles, California, which is under a lease
that expires December 2004.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors as of December 31, 1999:
<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
Alan Braverman................................... 38 President, Business to Business
Shawn Hardin..................................... 37 Executive Vice President, Product and Executive
Producer
John McMenamin................................... 45 Executive Vice President, Sales and Marketing
Kenneth S. Norton................................ 28 Chief Technology Officer
Jeffrey Ballowe.................................. 44 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................................ 64 Class B Director
Martin J. Yudkovitz.............................. 45 Class B Director
Key Employees
Diane Cordova.................................... 38 Senior Vice President, Human Resources
Marc Sznajderman................................. 33 Senior Vice President, Corporate Development
</TABLE>
ROBERT C. WRIGHT has served as our Chairman of the Board and as a member of
our board of directors since November 1999. Mr. Wright has been the President
and Chief Executive Officer of NBC since September 1986. Prior to joining NBC,
Mr. Wright was President of General Electric Financial Services from April 1984
to August 1986, head of GE's housewares and audio division from May 1983 to
April 1984, and President of Cox Cable Communications from January 1980 to April
1983. Mr. Wright serves on the board of directors of the Motion Picture and
Television Fund Corporation and the board of trustees of the Museum of
Television and Radio and the American Film Institute, and is an honorary trustee
of the Foundation of American Women in Radio and Television. Mr. Wright received
his A.B. from the College of the Holy Cross and his L.L.B. from the University
of Virginia School of Law.
CHRIS KITZE has been a member of our board of directors since May 1999 and
has served as our Chief Executive Officer since November 1999. From May 1999 to
November 1999, Mr. Kitze served as our President. Mr. Kitze co-founded Xoom.com
and has served as its 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
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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 our 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 1998 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 holds a B.S. in Business Administration from
the University of California, Berkeley.
EDMOND P. SANCTIS has served as our President and Chief Operating Officer
since November 1999 and 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.
ALAN BRAVERMAN has served as our President, Business to Business since
December 1999. From April 1999 to December 1999, Mr. Braverman worked at Banc of
America Securities and held the position of Senior Managing Director and Head of
Internet Research. From July 1998 to April 1999, Mr. Braverman was Managing
Director and Head of Internet Research at Deutsche Bank Securities, the
investment banking arm of Deutsche Bank Group. From July 1996 to July 1998, he
was the senior Internet analyst at Credit Suisse First Boston. From 1995 to July
1996, Mr. Braverman was Vice President, Internet Analysis at Haniser Imhoff.
From 1991 to 1995, Mr. Braverman served as a senior executive at U.S. West as
well as General Manager for CityKey Online, where he oversaw the national
roll-out for the company's online business. Mr. Braverman earned a B.B.A. in
finance and strategy from The Wharton School of the University of Pennsylvania
and a M.B.A. in finance, strategy and marketing from Northwestern University's
Kellogg Graduate School of Management.
SHAWN HARDIN has served as our Executive Vice President, Product and
Executive Producer since November 1999 and 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.
JOHN MCMENAMIN has served as our Executive Vice President, Sales and
Marketing since December 1999. From June 1999 to December 1999, Mr. McMenamin
served as Vice President General Manager of Sponsorship for iVillage.com. From
December 1997 to August 1998, Mr. McMenamin served as President and Chief
Executive Officer of C3 Communications, Inc., an
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interactive media company. From 1991 through 1997, Mr. McMenamin served in
various positions at Time Warner/Turner and most recently held the position of
President of Turner Private Networks. Mr. McMenamin holds an M.B.A. and
certificate degree in business law from the Stillman Graduate School of Business
Administration at Seton Hall University and a B.A. from St. Anselm's College.
KENNETH S. NORTON has served as our Chief Technology Officer since November
1999 and has served as Vice President of Technology of Snap since August 1998.
From July 1996 to August 1998, Mr. Norton was Director of Software Engineering
at CNET where he was the original chief architect of the Snap.com service and
the lead designer of the SnapLENS architecture. Beginning in November 1993 until
January 1996, Mr. Norton developed transaction-processing software at Softbank
Services Group, a high technology outsourcing company. He sits on the Advisory
Committee of the World Wide Web Consortium and is a member of the Association
for Computing Machinery and the Institute of Electrical and Electronics
Engineers. Mr. Norton has a B.A. with honors from Boston University and is
certified as a Project Management Professional by the Project Management
Institute.
JEFFREY BALLOWE has served as a member of our board of directors since
November 1999 and 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. After
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. Mr. Ballowe is currently the President of the not-for-profit
Electronic Literature Organization. Currently Mr. Ballowe is Chairman of
deja.com, Inc. and serves on the boards of drkoop.com, Jupiter Communications,
Inc., Ovia.com Inc., 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 member of our board of directors
since November 1999 and 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 member of our board of directors since
November 1999 and 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 has a B.S. in
Business and an M.B.A. from Santa Clara University.
MICHAEL M. LYNTON has served as a member of our board of directors since
November 1999 and has been the Chairman and Chief Executive Officer of the
Penguin Group since 1996. From 1987 to 1996, Mr. Lynton was President of
Hollywood Pictures and President of Disney Publishing--Magazines and Books at
The Walt Disney Company. 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,
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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 member of our board of directors since
November 1999 and 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 member of our board of directors since
November 1999 and has served as a director of Xoom.com since July 1998. Since
April 1985, Mr. Schlein has been a 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 served as a member of our board of directors since
November 1999 and has been Executive Vice President and Chief Financial Officer
of NBC since April 1998, responsible for NBC's global finance, accounting, tax
and information technology activities. Mr. Begor began his career with GE in
1980, holding various financial positions in GE and GE Plastics, including
Manager-Finance and Business Development for GE Plastics Pacific in Singapore,
before being named General Manager of GE Plastics' Global Sourcing and
Petrochemicals operations in October 1993. From August 1995 to March 1998,
Mr. Begor served as GE's Manager of Investor Communications and was appointed a
corporate officer of GE in December 1996. Mr. Begor is a member of the board of
managers of Snap. Mr. Begor received his B.S. from Syracuse University and his
M.B.A. from Rennselaer Polytechnic Institute.
GARY M. REINER has served as a member of our board of directors since
November 1999 and 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 served as a member of our board of directors since
November 1999 and 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 served as a member of our board of directors since
November 1999 and 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 GE's 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 served as a member of our board of directors since
November 1999 and 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
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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.
DIANE CORDOVA has served as our Senior Vice President, Human Resources since
January 2000, as Vice President, Human Resources from November 1999 through
December 1999 and 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 Web sites. 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.
MARC SZNAJDERMAN has served as our Senior Vice President, Corporate
Development since January 2000, as Vice President, Corporate Development from
November 1999 through December 1999 and served as a member of our board of
directors from May 1999 to November 1999. Mr. 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.
BOARD COMPOSITION
Under our certificate of incorporation, so long as there are shares of our
Class B common stock outstanding, our board of directors will consist of 13
directors. The holders of our Class A common stock and Class B common stock are
entitled to elect a designated number of directors dependent upon the percentage
of outstanding common stock each class owns. See "Description of Capital Stock--
Governance Rights Set Forth in Our Certificate of Incorporation and Bylaws."
Directors elected by the holders of our Class A common stock are referred to as
"Class A Directors" and directors elected by the holders of our Class B common
stock are referred to as "Class B Directors." Currently, our Class A
stockholders are entitled to elect seven directors, with 6 directors nominated
by the Class A nominating committee and one director nominated by at least seven
members of the board of directors, and our Class B stockholders are entitled to
elect six directors, which are nominated by the Class B nominating committee.
Subject to the terms of NBCi's 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, consisting of James Heffernan, Philip Schlein
and Mark W. Begor, recommends the selection of independent public accountants to
the board of directors, reviews the scope and results of the audit and other
services provided by our independent accountants, and reviews our accounting
practices and systems of internal accounting controls.
The compensation committee, consisting of James Heffernan and Mark W. Begor,
reviews and approves the salaries, bonuses and other compensation payable to our
executive officers and administers and makes recommendations concerning our
employee benefit plans.
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DIRECTOR COMPENSATION
Upon appointment to our board of directors, the Class A Directors receive
25,000 options, at an exercise price equal to the fair market value of our
Class A common stock on the date of grant. The options vest on a monthly basis
over a period of three years. To date, we have not determined the amount of cash
compensation, if any, that our directors will receive for serving on our board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
There are no family relationships among any of our directors or executive
officers.
EXECUTIVE COMPENSATION
The following table contains information in summary form concerning the
compensation paid to our chief executive officer and each of our most highly
compensated executive officers whose total salary, bonus and other compensation
exceeded $100,000 during the fiscal period year beginning December 1, 1999 and
ending December 31, 1999. In accordance with the rules of the SEC, the
compensation described in this table does not include perquisites and other
personal benefits received by the executive officers named in the table below
which do not exceed the lesser of $50,000 or 10% of the total salary and bonus
reported for these officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
1999 ANNUAL -------------
COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- ------------------------------------------------------------- ----------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
Chris Kitze
Chief Executive Officer.................................. -- -- -- --
Edmond P. Sanctis
President and Chief Operating Officer.................... 30,770 244,000 500,000 --
John McMenamin
Executive Vice President, Sales and Marketing............ 13,462 175,000 300,000 --
</TABLE>
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OPTION GRANTS DURING FISCAL 1999
The following table sets forth information concerning grants of stock
options to each of the executive officers named in the table above during the
fiscal year ended December 31, 1999. All options granted to these executive
officers in the last fiscal year were granted under our 1999 stock incentive
plan. The percentage of total options set forth below is based on an aggregate
of 1,707,786 options granted to employees during the fiscal year ended
December 31, 1999. All options were granted at the fair market value of our
Class A common stock on the date of grant. The exercise price may in some cases
be paid by delivery of other shares or by offset of the shares subject to
options. The deemed value for the date of grant has been adjusted solely for
financial accounting purposes. Potential realizable values are net of exercise
price, but before taxes associated with exercise. Amounts represent hypothetical
gains that could be achieved for the options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the SEC and do not represent our
estimate or projection of the future Class A common stock price.
OPTIONS GRANTED IN FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM
OPTIONS FISCAL YEAR PRICE PER EXPIRATION ----------------------------
NAME GRANTED 1999 SHARE DATE 5% 10%
- ---------------------------------- ----------- ------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Chris Kitze....................... -- -- -- -- -- --
Edmond P. Sanctis................. 500,000 29.4% $ 52.50 12/7/09 $ 53,195,196 $ 82,352,897
John McMenamin.................... 300,000 17.6% $ 76.63 12/3/09 $ 29,535,117 $ 47,029,738
</TABLE>
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1999 AND OPTION
VALUES AT DECEMBER 31, 1999
The following table sets forth information concerning exercisable and
unexercisable stock options held by each of the executive officers named in the
summary compensation table at December 31, 1999. The value of unexercised
in-the-money options is based on the fair market value of our Class A common
stock on December 31, 1999 of $77.25 per share minus the actual exercise price.
All options were granted under our 1999 stock incentive plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
VALUE END FISCAL YEAR END
SHARES ACQUIRED REALIZED ------------------------ -------------------------
NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------- --------------- ------------ ------------------------ -------------------------
<S> <C> <C> <C> <C>
Chris Kitze.................. -- -- --/-- --/--
Edmond P. Sanctis............ 25,000 $ 1,686,050 110,441/670,841 $7,601,426/$22,385,040
John McMenamin............... -- -- --/300,000 --/$186,000
</TABLE>
EMPLOYMENT AGREEMENTS
On October 21, 1999, Edmond P. Sanctis, then the chief operating officer of
Snap, entered into a letter agreement under which he agreed to become our
employee and to serve as our president and chief operating officer upon the
closing of the transactions forming us. Upon entering into the letter agreement,
Mr. Sanctis received a bonus payment of $200,000. As our president and chief
operating officer, Mr. Sanctis will receive an annual salary of $400,000, and he
will be entitled to receive a quarterly bonus of up to $100,000 and an annual
bonus of up to $100,000 upon the achievement of certain performance goals. In
December 1999, Mr. Sanctis received an option to purchase 500,000
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shares of our Class A common stock at an exercise price of $52.50 per share. The
options vest monthly over a three-year period.
BENEFIT PLANS
1999 STOCK INCENTIVE PLAN
Our 1999 stock incentive plan was approved by our board of directors and our
stockholders in October of 1999 and by the stockholders of Xoom.com in
November 1999. Our 1999 stock incentive plan provides for the grant to our
employees, including officers and employee directors, of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code and for the grant
of nonstatutory stock options, stock appreciation rights, restricted stock,
performance awards or units, dividend equivalent rights or similar forms of
compensation to our employees, directors and consultants. Our 1999 stock
incentive plan is currently administered by our compensation committee which
selects the optionees, determines the number of shares to be subject to each
option and determines the exercise price of each option.
Our 1999 stock incentive plan authorizes the issuance of an aggregate of up
to 13,500,000 shares of Class A common stock. On the first business day of each
calendar year beginning 2001, the maximum number of shares issuable under the
1999 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 our common stock on a fully diluted basis as of
December 31 of the immediately preceding calendar year. The maximum number of
shares that may be granted to any individual under our 1999 stock incentive plan
in any year is 1,000,000. As of December 31, 1999, options to purchase an
aggregate of 8,446,215 shares of Class A common stock were outstanding under the
1999 stock incentive plan, and an aggregate of 4,437,038 shares of Class A
common stock remained available for future grants.
The exercise price of all incentive stock options granted under our 1999
stock incentive plan must be at least equal to the fair market value of the
Class A common stock on the date of grant. The exercise price of all
nonstatutory stock options granted under our 1999 stock incentive plan shall be
determined by the administrator, but in no event may be less than 85% of the
fair market value on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all our classes of stock,
the exercise price of any incentive option granted must equal at least 110% of
the fair market value on the grant date and the maximum term of any these
options must not exceed five years. The term of all other options granted under
our 1999 stock incentive plan may not exceed ten years.
In the event of a change in control, as defined below, each currently
outstanding award under the 1999 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 1999 stock incentive plan a "change in control" is defined as any
merger, consolidation or other form of business combination in which our
stockholders 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
our 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. Any
increase in the securities ownership of NBC or its successors will not
constitute a change in control.
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The stock incentive plan also provides for the accelerated vesting of
outstanding awards held by participants primarily in the service of one of our
affiliated entities, upon the sale, merger, consolidation or sale of
substantially all of the assets of such entity.
Our 1999 stock incentive plan will terminate in 2009. Our board of directors
has authority to amend or terminate our 1999 stock incentive plan, provided that
such action will not impair the rights of the holder of any outstanding awards
without the written consent of that holder.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted the 1999 employee stock purchase plan in
November 1999 and Xoom.com, at that time our sole stockholder, approved the plan
in November 1999. The 1999 employee stock purchase plan is intended to qualify
under Section 423 of the Internal Revenue Code. We have reserved 300,000 shares
of our Class A common stock for issuance under the plan.
On January 1 of each year, starting with the year 2001, the number of shares
in reserve will be increased by the lesser of (1) 100,000 shares, or (2) a
lesser number of shares as determined by the plan administrator. The plan is
administered by our compensation committee. All of our employees are eligible to
participate if they are employed by us for more than 20 hours per week and for
more than five months per year. Eligible employees may begin participating in
the 1999 employee stock purchase plan at the start of any offering period. Each
offering period lasts twenty-seven months. Offering periods start on January 1
and July 1 of each year. The 1999 employee stock purchase plan permits each
eligible employee to purchase Class A common stock through payroll deductions.
An employee's payroll deductions may not exceed 10% during any offer period.
Purchases of our Class A common stock will occur on June 30 and December 31
of each year or on the last trading day prior to those dates. Each participant
may purchase up to 200 shares on any purchase date; provided no more than 200
shares may be purchased during any offer period. The price of each share of
Class A common stock purchased under the 1999 employee stock purchase plan will
be 85% of the lower of, (1) the fair market value per share of Class A common
stock on the trading day immediately before the first day of the applicable
offering period or (2) the fair market value per share of Class A common stock
on the purchase date. Employees may end their participation in the 1999 employee
stock purchase plan at any time. Participation ends automatically upon
termination of employment with us. If a change in control occurs, the plan
administrator will either shorten the current offer period or provide for the
assumption of the purchase rights by the successor. Unless the participant
elects to withdraw from the revised offer period, shares will be purchased with
the payroll deductions accumulated to date by participating employees. Our board
of directors may amend or terminate the 1999 employee stock purchase plan at any
time. If our board increases the number of shares of Class A common stock
reserved for issuance under the plan, except for the automatic increases
described above, it must seek the approval of our stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation and bylaws provide that we will indemnify
all of our directors and officers to the fullest extent permitted by Delaware
law. Our certificate of incorporation and bylaws also authorize us to indemnify
our employees and other agents, at our option, to the fullest extent permitted
by Delaware law. We intend to enter into agreements to indemnify our directors
and officers, in addition to indemnification provided for in our charter
documents. These agreements, among other things, will provide for the
indemnification of our directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
NBC Internet, arising out of such person's services as one of our directors or
officers or any other company or enterprise to which such person provides
services at our request to the fullest extent permitted by applicable law. We
believe that these
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provisions and agreements will assist us in attracting and retaining qualified
persons to serve as directors and officers.
Delaware law permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for any breach of the
director's duty of loyalty to the corporation or its stockholders, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of 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. Our certificate of incorporation provides for the elimination
of personal liability of a director for breach of fiduciary duty, as permitted
by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the provisions contained in our charter documents, Delaware law or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.
We have purchased and maintain insurance on behalf of our officers and
directors insuring them against liabilities that they may incur in such
capacities or arising out of such status.
There is no pending litigation or proceeding involving one of our directors
or officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
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RELATED PARTY TRANSACTIONS
Xoom.com entered into a consulting agreement, dated May 15, 1998, with James
J. Heffernan, one of our and Xoom.com's outside directors, which agreement
terminated 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.
On July 28, 1998, Jeffrey Ballowe, one of our 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 our 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 C. Harris, Jr., one of our 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
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Mr. Harbottle without cause, Mr. Harbottle shall be immediately entitled to
exercise 100% of any stock options Xoom.com has granted to him that had not
previously vested. Mr. Harbottle may exercise his vested stock options for a
four month period from the date Xoom.com notifies him of its intention to
terminate his employment.
Should Xoom.com terminate Mr. Harbottle for cause, Xoom.com must pay
Mr. Harbottle all compensation due on the date of termination. In the event of a
change in control or corporate transaction, as defined in the agreement, as a
result of which Mr. Harbottle's employment with Xoom.com is involuntarily
terminated, with or without cause, Mr. Harbottle will be entitled to payment of
an amount equal to 6 months' base compensation plus benefits, and all stock
options Xoom.com previously granted to Mr. Harbottle will immediately become
fully vested and exercisable.
Under the terms of his agreement, Mr. Harbottle may terminate his employment
with Xoom.com at any time for any reason by providing Xoom.com with thirty days'
advance written notice. Should Mr. Harbottle's employment with Xoom.com
terminate for any reason, the agreement further provides that Mr. Harbottle:
(A) will not use any of Xoom.com's proprietary information without Xoom.com's
prior written consent; (B) will not use any confidential information to compete
against Xoom.com or any of Xoom.com's employees; and (C) will not, for one year
following termination, solicit any of Xoom.com's customers or employees.
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.
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 in favor of the
transactions that formed us.
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
one-thirty-sixth per month over 36 months.
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.
See "Business--Strategic Alliances" for a more detailed description of this
relationship.
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 under
"Business--Strategic Alliances" and Mr. Mays was not affiliated with Xoom.com at
the time the agreement was entered into.
In August 1999, Mr. Sanctis received options to purchase an aggregate amount
of 100,000 units of Snap at an exercise price of $30.19 per unit. The options
vest at a rate of one thirty-sixth per month over 36 months.
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In November 1999, Michael M. Lynton, one of our outside directors, received
options to purchase up to 25,000 shares of common stock of NBC Internet at a per
share exercise price of $63.19. The options vest at a rate of one thirty-sixth
per month over 36 months.
In August 1999, Shawn Hardin, NBCi's Executive Vice President, Product and
Executive Producer, and Kenneth S. Norton, NBCi's Chief Technology Officer, each
received options to purchase up to 75,000 units of Snap at an exercise price of
$30.19 per unit. The options vest at a rate of one thirty-sixth per month over
36 months. In December 1999, Mr. Hardin and Mr. Norton each received options to
purchase up to 30,000 shares of our Class A common stock at a per share exercise
price of $60.44. The options vest at a rate of one thirty-sixth per month over
36 months.
On November 17, 1999, John McMenamin, NBCi's Executive Vice President, Sales
and Marketing, entered into an employment agreement with NBCi. The employment
agreement provides for an annual salary of $350,000. Mr. McMenamin is also
eligible for up to $350,000 in commissions if NBCi achieves certain target sales
goals. Mr. McMenamin was eligible to receive a signing bonus of $175,000 on his
thirtieth day of employment. Should we terminate Mr. McMenamin without cause in
the first 12 months of his employment, Mr. McMenamin will receive 25,000 shares
of our Class A common stock. Mr. McMenamin was also granted options to purchase
up to 300,000 shares of Class A common stock at a per share exercise price of
$76.63. The options vest at a rate of 25% after 12 months and one forty-eighth
of the total grant per month over the next 36 months.
On November 12, 1999, Alan Braverman, NBCi's President, Business to
Business, entered into an employment agreement with NBCi. The employment
agreement provides for an annual salary of $250,000. Mr. Braverman was also
granted an option to purchase up to 800,000 shares of our Class A common stock
at a per share exercise price of $55.88. The options vest at a rate of 25% after
12 months, and one forty-eighth of the total grant per month over the next
36 months. On November 22, 1999, we granted Mr. Braverman options to purchase up
to 200,000 shares of our Class A common stock at a per share exercise price of
$72.06. The options vest on a monthly basis over 36 months.
We intend to enter into indemnification agreements with each of our
directors and officers. These indemnification agreements will require us to
indemnify these individuals to the fullest extent permitted by Delaware law.
We also have entered into various employment agreements with some of our
officers. See "Management--Employment Agreements" for a more detailed
description.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of our Class A
common stock and Class B common stock as of December 31, 1999 and as adjusted to
reflect the sale of the shares of Class A common stock in this offering by:
- each person or entity known by us to own beneficially more than five
percent of our Class A common stock;
- our chief executive officer, each of the executive officers named in the
summary compensation table and each of our directors;
- all of our executive officers and directors as a group; and
- the selling stockholders.
The beneficial ownership is calculated based on 52,223,753 shares of our
Class A common stock and Class B common stock outstanding as of December 31,
1999 and 55,873,753 shares outstanding immediately following the completion of
this offering. Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power with respect to
securities. Unless otherwise indicated, each person or entity named in the table
has sole voting power and investment power, or shares voting and investment
power with his or her spouse, with respect to all shares of capital stock listed
as owned by such person. Shares issuable upon the exercise of options that are
currently exercisable or become exercisable within sixty days of December 31,
1999 are considered outstanding for the purpose of calculating the percentage of
outstanding shares of our common stock held by the individual, but not for the
purpose of calculating the percentage of outstanding shares of our common stock
held by an other individual.
The address of each of the executive officers and directors is c/o NBC
Internet, 255 Bush Street, San Francisco, California 94104.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER THIS
NUMBER OF SHARES NUMBER OF OFFERING
BENEFICIALLY SHARES BEING ------------------------------
HELD PERCENTAGE OFFERED NUMBER PERCENTAGE
----------------- ------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
NBC(1).............................. 24,550,708 47.0% -- 24,550,708 43.9%
CNET(2)............................. 7,147,584 13.7 650,000 6,497,584 11.6
Chris Kitze(3)...................... 3,350,680 6.4 300,000 3,050,680 5.5
Edmond Sanctis(4)................... 152,219 * -- 152,219 *
John McMenamin...................... -- -- -- -- --
James J. Heffernan(5)............... 138,667 * -- 138,667 *
Jeffrey Ballowe(6).................. 34,702 * -- 34,702 *
Robert C. Harris, Jr.(7)............ 33,156 * -- 33,156 *
Philip Schlein(8)................... 20,969 * -- 20,969 *
L. Lowry Mays(9).................... 2,778 * -- 2,778 *
Michael Lynton(10).................. 2,083 * -- 2,083 *
Mark W. Begor....................... -- -- -- -- --
Gary M. Reiner...................... -- -- -- -- --
Scott M. Sassa...................... -- -- -- -- --
John F. Welch, Jr................... -- -- -- -- --
Robert C. Wright.................... 30,000 * * 30,000 *
Martin J. Yudkovitz................. -- -- -- -- --
All executive officers and directors
as a group
(19 persons)(11).................. 4,013,612 7.6% 300,000 3,713,612 6.6%
</TABLE>
- --------------------------
* Less than 1%.
(1) Represents ownership of Class B common stock. The address of NBC is 30
Rockefeller Plaza, New York, New York 10012.
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(2) The address of CNET is 150 Chestnut Street, San Francisco, California 94111.
(3) 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.
(4) Includes options to purchase 152,219 shares of our Class A common stock.
(5) Includes options to purchase 9,636 shares of NBCi Class A common stock. Also
includes 129,030 shares of Class A 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 Class A common
stock held by Sandra Heffernan, who is Mr. Heffernan's wife.
(6) Includes options to purchase 1,389 shares of our Class A common stock.
(7) Includes options to purchase 4,167 shares of our Class A common stock.
(8) Includes options to purchase 4,167 shares of our Class A common stock.
(9) Includes options to purchase 2,778 shares of our Class A common stock.
(10) Includes options to purchase 2,083 shares of our Class A common stock.
(11) Includes options to purchase 360,407 shares of our Class A common stock.
TRACES STOCKHOLDER
Pursuant to a forward purchase contract between the TRACES Trust and the
stockholder listed below, a specified number of shares of Class A common stock
may be required to be delivered to the TRACES Trust by the TRACES stockholder
upon the exchange of Automatic Common Exchange Securities. The following table
sets forth certain information by the TRACES stockholder with respect to:
- the TRACES stockholder's beneficial ownership of Class A common stock
after the offering and the percentage of common stock represented thereby;
- the maximum number of Class A common stock owned by the TRACES stockholder
that may be delivered to the TRACES Trust pursuant to the forward purchase
contract; and
- the TRACES stockholder's beneficial ownership of common stock after
delivery of the maximum number of shares of Class A common stock
represented thereby.
The TRACES stockholder's beneficial ownership of Class A common stock will
not change as a result of the offering of the Automatic Common Exchange
Securities unless, until and to the extent that the TRACES stockholder delivers
shares of Class A common stock to the TRACES Trust pursuant to the forward
purchase contract.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER DELIVERY OF
--------------------------
MAXIMUM NUMBER
OF SHARES DELIVERABLE
MAXIMUM NUMBER TO TRACES TRUST(1)(2)
AFTER THE OF SHARES DELIVERABLE --------------------------
TRACES STOCKHOLDER OFFERING PERCENTAGE TO TRACES TRUST(1)(2) NUMBER PERCENTAGE
- --------------------------------- ---------------- ----------- --------------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
CNET Investments II, Inc......... 6,497,584 11.6% 1,518,152 4,979,432 8.9%
</TABLE>
- ------------------------
(1) The 1,320,132 shares of Class A common stock deliverable to the TRACES Trust
will be delivered by CNET Investments II Inc. CNET may be required to
deliver up to an additional 198,020 shares of Class A common stock if the
underwriters' over-allotment option is exercised in respect of the Automatic
Common Exchange Securities.
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(2) Pursuant to the forward purchase contract, the shares deliverable thereunder
will be delivered to the TRACES Trust on the exchange date under the forward
purchase contract. The exchange date will occur no earlier than ,
2003. Under the forward purchase contracts, some of the shares of Class A
common stock covered by the forward purchase contracts are not mandatorily
delivered to the TRACES Trust.
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DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists 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.
OUR COMMON STOCK
As of December 31, 1999, 27,673,045 shares of our Class A common stock and
24,550,708 shares of Class B common stock were outstanding.
The holders of Class A common stock and Class B common stock have identical
economic rights except that the Class B common stock will not be publicly
traded. Except for those matters discussed below under "Governance Rights Set
Forth in Our Certificate of Incorporation and Bylaws," the holders of Class A
common stock and Class B common stock 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. Our stockholders do 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 our liquidation, dissolution or winding up,
holders of common stock are entitled to share ratably in all of our 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 our certificate of incorporation.
NBC, however, does have the right to purchase additional shares of our Class B
common stock under specific circumstances as described below under "Governance
Rights Set Forth in Our Certificate of Incorporation and Bylaws--Other
Agreements". There are no redemption or sinking fund provisions applicable to
the common stock.
PREFERRED STOCK
We have 10,000,000 shares of preferred stock authorized. As of the record
date, no shares were outstanding. Subject to the terms of its certificate of
incorporation, our 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. Our board of
directors, without stockholder approval, except as set forth below under
"Governance Rights Set Forth in Our 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 our common stock and the issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of NBCi.
WARRANT
As part of the ValueVision transaction, ValueVision agreed to purchase a
warrant for 244,004 shares of Xoom.com common stock at an exercise price of
$40.893 per share. The warrant may be exercised at any time after November 30,
1999 through September 12, 2004. We assumed this warrant on November 30, 1999
under the same terms and conditions as originally entered into by Xoom.com.
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CONVERTIBLE NOTES
In connection with the transactions which formed us, we issued two
subordinated zero coupon convertible notes due 2006. The convertible note issued
to NBC Multimedia, an affiliate of NBC, has a principal at maturity of
$39,477,953 and is convertible by NBC Multimedia into 471,031 shares of our
Class B common stock at any time after the November 30, 2000. The other
convertible note purchased by GE Investments Subsidiary has a principal at
maturity of $447,416,805 and is convertible into 5,338,357 shares of our
Class B common stock at any time after November 30, 2000. The imputed original
issue discount interest rate on both convertible notes is 4%.
Each of the notes matures on November 30, 2006 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. We may redeem
each of the notes with cash, stock or both after the November 30, 2004 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 our
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 our other indebtedness.
GOVERNANCE RIGHTS SET FORTH IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS
The following contains a summary of the governance rights of the holders of
our Class A common stock and Class B common stock contained in our certificate
of incorporation and bylaws.
NUMBER OF DIRECTORS. As long as shares of Class B common stock remain
outstanding, the number of members of our board of directors 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 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 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 our
outstanding common stock each class owns.
For so long as the outstanding shares of Class B common stock represent at
least 35% of the outstanding shares of our 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.
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After our 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 our common stock:
- the holders of the Class A common stock, voting separately as a class,
have the right to elect six Class A Directors;
- the holders of the Class B common stock, voting separately as a class,
have the right to elect seven Class B Directors; and
- the term of office of the unaffiliated director shall automatically
terminate, unless the Class B nominating committee elects to retain the
unaffiliated director as a Class B Director.
Where the outstanding shares of Class B common stock is equal to or greater
than 20% but less than 35% of the outstanding shares of our 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 of our directors.
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 our behalf 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 our behalf 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
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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 members of
our board of directors must approve the nomination. The unaffiliated director's
term automatically expires at such time as either the holders of the Class A
common stock or the holders of the Class B common stock have the right to elect
a majority of the members to the board of directors, provided that the Class A
nominating committee or the Class B nominating committee, as the case may be,
may elect to retain the unaffiliated director in lieu of appointing a new person
to the board of directors.
REMOVAL OF DIRECTORS. A Class A Director may be removed, without cause,
only by the affirmative vote of the holders of a majority of the outstanding
shares of Class A common stock. A Class B Director may be removed, without
cause, only by the affirmative vote of the holders of a majority of the
outstanding shares of Class B common stock.
The unaffiliated director may be removed, without cause, only by the
affirmative vote of the holders of at least 70% of the outstanding shares of our
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 our chief financial officer and general counsel and remove our 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. We 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 our 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 our common stock.
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VETO RIGHTS OF DIRECTORS
VETO RIGHTS OF CLASS A DIRECTORS. As long as the holders of Class B common
stock have the right to elect seven directors, the following actions require the
approval of a majority of the Class A Directors:
- any amendment to the certificate of incorporation or 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;
- the appointment of a new chief executive officer;
- the adoption of our 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, 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 us
or a change in control of any of our subsidiaries whose total assets or
gross revenues are in excess of $50,000,000;
- the sale or other disposition of our assets or any of our subsidiaries in
an amount in excess of $50,000,000 in any one transaction or series of
related transactions;
- the sale or issuance of our equity securities or any of our 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 us in which we are not the surviving entity; and
- engaging in any transaction or series of related transactions that
requires the payment in cash by us or any of our subsidiaries or the
incurrence of indebtedness by us or any of our subsidiaries in an amount
that exceeds $50,000,000.
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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 certificate of incorporation or bylaws other than an
amendment consisting solely of an increase in our authorized capital
stock; and
- the issuance of Class B common stock to any person except to NBC or its
affiliates.
In addition, the approval of the holders of a majority of the outstanding
shares of Class B common stock will be required to adopt a stockholder rights
plan or take any other action that could adversely affect in any material
respect the rights of any holder of Class B common stock by virtue of the amount
of shares held by such holder.
CORPORATE OPPORTUNITIES. In recognition that we 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 certificate of incorporation
provides:
- that NBC has the right to engage in the same or similar activities or
lines of business as us, do business with any of our potential or actual
customers or suppliers or employ or otherwise engage any of our officers
or employees;
- that to the fullest extent provided by law, neither NBC nor any of its
officers or directors shall be liable to us or our 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 our
stockholder 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 us.
In the event that one of our directors or officers 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 us and our stockholders with respect to that corporate
opportunity;
- shall not be deemed liable to us or our 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 us or our
stockholders, if such person acts in a manner consistent with the
following policy:
- a corporate opportunity offered to any person who is one of our
officers, and who is also a director but not an officer of NBC, shall
belong to us;
- a corporate opportunity offered to any person who is one of our
directors but not one of our officers, and who is also a director or
officer of NBC, shall belong to us if such opportunity is expressly
offered to such person in writing solely in his or her capacity as one
of our directors, otherwise it shall belong to NBC; and
- a corporate opportunity offered to any person who is an officer of both
us and NBC shall belong to us if such opportunity is expressly offered
to such person in writing solely in his or her capacity as one of our
officers, otherwise it shall belong to NBC.
The certificate of incorporation also provides that any corporate
opportunity that belongs to NBC or to us 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
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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.
Any amendment of the corporate opportunity provisions set forth in the
certificate of incorporation in a manner adverse to NBC requires the approval of
stockholders holding at least 80% of the outstanding shares of our common stock.
The provisions contained in our 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 our common stock, and (b) no person who is one of our
directors or officers is also a director or officer of NBC.
OTHER AGREEMENTS. The governance and investor rights agreement between us
and NBC provide for, 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 our outstanding shares common stock, NBC shall have the right to designate
nominees for election to the board of directors equal to the greater of: (A) one
or (B) 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 us as it stood immediately prior to
our issuance of the additional shares of common stock. This option will expire
when no shares of Class B common stock remain outstanding.
NBC and CNET have entered into a voting and right of first offer agreement
that requires, among other things, CNET to vote its shares of Class A common
stock 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 our
equity securities should such transaction be submitted to our 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 its Class A common stock to a
third party.
REGISTRATION RIGHTS AGREEMENT
We have entered into a registration rights agreement with NBC, GE
Investments Subsidiary, CNET, Flying Disc Investments Limited Partnership and
Chris Kitze.
SHELF REGISTRATION. Under the registration rights agreement, we 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 our
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
we effect 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;
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- 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 we request 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 us.
CNET will be entitled to exercise its initial demand right before other
parties for a period of 60 days following November 30, 1999. 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 us and Mr. Kitze.
PIGGYBACK REGISTRATION. If, at any time, we propose to register any of our
equity securities, whether for our own account or for the account of a third
party, each party may request that we 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 us, 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 us may be excluded at the reasonable
discretion of the underwriters.
In the event we file a registration statement 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 we:
- will covenant to become S-3 eligible;
- 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.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYLAWS AND DELAWARE LAW
OUR CERTIFICATE OF INCORPORATION AND BYLAWS. Our 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 our outstanding shares of common stock. The 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.
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These provisions, the provisions of our certificate of incorporation
discussed above and NBC's ownership interest in us will make it more difficult
for our Class A common 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 our 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 our
vulnerability to an unsolicited acquisition 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 our shares and,
as a consequence, may inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts. These provisions
also may have the effect of preventing changes in our management.
DELAWARE LAW. We are subject to Section 203 of the Delaware General
Corporation Law. This provision generally prohibits any Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years following the date the stockholder became an interested
stockholder, unless:
- prior to that date the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
- upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
began; or
- on or following that date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include:
- 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 certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
- any transaction involving the corporation that has 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 provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any 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 the entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A common stock 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.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of our Class A common stock after
the offering could adversely affect the market price of the Class A common stock
and could impair our ability to raise capital through the sale of equity
securities. Upon completion of the offering, we will have outstanding 31,323,045
shares of Class A common stock, based on shares outstanding as of December 31,
1999. Of these shares, a total of 21,374,778 shares, including the 4,600,000
shares sold in this offering will be freely tradable without restriction under
the Securities Act, unless they are held by "affiliates" as defined under the
Securities Act.
Of the remaining shares of Class A common stock, 6,595,063 shares are
"restricted securities" within the meaning of Rule 144 under the Securities Act,
of which 97,479 shares are not saleable under Rule 144 until, at the earliest,
November 30, 2000. The remaining 6,497,584 shares held by CNET are subject to a
lock-up agreement with Goldman, Sachs & Co. for a period of 270 days from the
date of this offering. This period will expire on , 2000. After this
date, these shares are not saleable under Rule 144 until November 30, 2000,
although CNET may exercise its registration rights prior to such time. These
restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k), 145 or
701 promulgated under the Securities Act. In addition, with limited exceptions,
Chris Kitze and our officers and directors have agreed that they will not sell,
directly or indirectly, any common stock without the prior written consent of
Goldman, Sachs & Co. for a period of 90 days from the date of this offering.
This period will expire on , 2000. Goldman, Sachs & Co. may,
however, in its sole discretion and at any time without notice, release all or
any portion of the shares subject to lock-up agreements. Subject to the
provisions of Rules 144 and 145, 3,353,204 shares will be eligible for sale on
, 2000 upon the expiration of the lock-up agreements executed in
connection with this offering.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 313,230 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice of Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 145, similar restrictions apply to the sales of common
stock after the consumation of a merger, absent the holding period requirements.
In November 1999, we filed a Form S-8 registration statement under the
Securities Act to register all shares of Class A common stock issuable pursuant
to outstanding options and all shares of common stock reserved for issuance
under our 1999 stock incentive plan. In addition, we intend to file a Form S-8
registration statement to register all shares of our Class A common stock
issuable under our 1999 employee stock purchase plan. Registration statements on
Form S-8 become effective immediately upon filing, and shares covered by such
registration statements are therefore eligible for sale in the public markets,
subject to options becoming exercisable, the lock-up agreements described above
and Rule 144 and Rule 145 limitations applicable to affiliates. As of
December 31, 1999, there were outstanding options to purchase up to 8,446,215
shares of Class A common stock that will be eligible for sale in the public
market following the offering from time to time subject to becoming exercisable
and the expiration of the lock-up agreements, and an additional 4,437,038 shares
of Class A common stock were reserved for issuance under the 1999 stock
incentive plan and 300,000 shares of Class A common stock were reserved for
issuance under the 1999 employee stock purchase plan. See "Management--Benefit
Plans."
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UNDERWRITING
NBCi, the selling stockholders and the underwriters for the offering named
below have entered into an underwriting agreement with respect to the shares
being offered. Subject to certain conditions, each underwriter has severally
agreed to purchase the number of shares indicated in the following table.
Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Hambrecht & Quist LLC, Deutsche
Bank Securities Inc. and FleetBoston Robertson Stephens Inc. are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
- ---------------------------------------------------------------------------------- --------------------
<S> <C>
Goldman, Sachs & Co...............................................................
Bear, Stearns & Co. Inc...........................................................
Hambrecht & Quist LLC.............................................................
Deutsche Bank Securities Inc......................................................
FleetBoston Robertson Stephens Inc................................................
--------------------
Total.........................................................................
====================
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from NBCi to cover such sales. They may exercise that option for 30 days.
If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by NBCi. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by NBC
Internet, Inc.
-------------------------
Full
No Exercise Exercise
----------- ------------
<S> <C> <C>
Per Share.......................................................... $ $
Total.............................................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial
price to public. If all the shares are not sold at the initial price to public,
the representatives may change the offering price and the other selling terms.
NBCi and one of the selling stockholders have agreed with the underwriters
not to dispose of or hedge any of their Class A common stock or securities
convertible into or exchangeable for shares of Class A common stock during the
period from the date of this prospectus continuing through the date 90 days
after the date of this prospectus, except with the prior written consent of the
representatives. The other selling stockholder has entered into the same
agreement with the underwriters for the period from the date of this prospectus
continuing through the date 270 days after the date of this prospectus, except
with the prior written consent of the representatives. This agreement does not
apply to any existing employee benefit plans. See "Shares Eligible for Future
Sale" for a discussion of certain transfer restrictions.
In connection with the offering, the underwriters may purchase and sell
shares of Class A common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
common stock while the offering is in progress.
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The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Class A common stock. As a result, the price of
the Class A common stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the underwriters at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
As permitted by Rule 103 under the Exchange Act, certain underwriters (and
selling group members, if any) that are market makers ("passive market makers")
in the Class A common stock may make bids for or purchases of Class A common
stock in the Nasdaq National Market until a stabilizing bid has been made.
Rule 103 generally provides: a passive market maker's net daily purchases of the
Class A common stock may not exceed 30% of its average daily trading volume in
such securities for the two full consecutive calendar months, or any
60 consecutive days ending within the 10 days, immediately preceding the filing
date of the registration statement of which this prospectus forms a part, a
passive market maker may not effect transactions or display bids for the
Class A common stock at a price that exceeds the highest independent bid for the
Class A common stock by persons who are not passive market makers, and bids made
by passive market makers must be identified as such.
NBCi and the selling stockholders estimate that their shares of the total
expenses of the offerings, excluding underwriting discounts and commissions,
will be approximately $ and $ , respectively.
Up to 1,320,132 additional shares of Class A common stock (or up to
1,518,152 shares if the applicable over-allotment option is exercised in full)
may be delivered by the TRACES Trust to holders of its Automatic Common Exchange
Securities upon exchange of the Automatic Common Exchange Securities on the
exchange date (as defined in the Trust prospectus). In lieu of delivery of some
of such shares, CNET may elect to pay cash or deliver other securities on the
exchange date for each share of Class A common stock then deliverable in the
amounts and under the procedures described in the Trust prospectus. The
Automatic Common Exchange Securities are being offered through underwriting in
the manner described in the Trust prospectus. The respective closings of the
offerings of the Class A common stock and the Automatic Common Exchange
Securities are not dependent upon one another.
NBCi and the selling stockholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
From time to time Bear, Stearns & Co. Inc. and Hambrecht & Quist LLC have
provided financial services to us and our affiliates and received customary fees
for such services.
LEGAL MATTERS
The validity of the Class A common stock offered hereby will be passed upon
for us by Morrison & Foerster LLP, San Francisco, California. Certain legal
matters in connection with the offering will be passed upon for the underwriters
by Brobeck, Phleger & Harrison LLP, San Francisco, California. As of the date of
this prospectus, partners and employees of Morrison & Foerster LLP own an
aggregate of shares of our Class A common stock.
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,
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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. The financial statements of Xoom.com, Paralogic Corporation, Global
Bridges Technologies, Inc., Pagecount, Inc., MightyMail Networks, Inc. and
Paralogic Software Corporation have been included in this prospectus and
elsewhere in the registration statement in reliance on the reports of Ernst &
Young LLP, 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.
AVAILABLE INFORMATION
We have filed with Securities and Exchange Commission in Washington, D.C. a
Registration Statement on Form S-1 under the Securities Act with respect to the
Class A common stock offered in this prospectus. This prospectus, filed as part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and its exhibits and schedules, certain portions
of which have been omitted as permitted by the rules and regulations of the SEC.
For further information about us and the Class A common stock, we refer you to
the Registration Statement and to its exhibits and schedules. Statements in this
prospectus about the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, we refer you to the copy of such
contract, agreement or document filed as an exhibit to the Registration
Statement, and each such statement being qualified in all respects by reference
to the document to which it refers. Anyone may inspect the Registration
Statement and its exhibits and schedules without charge at the public reference
facilities the SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the SEC located at 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661. You may obtain copies of all or any part of these materials
from the SEC upon the payment of certain fees prescribed by the SEC. You may
also inspect these reports and other information without charge at a Web site
maintained by the SEC. The address of this site is http://www.sec.gov.
We are subject to the informational requirements of the Exchange Act and in
accordance therewith file reports, proxy statements and other information with
the SEC. You will be able to inspect and copy these reports, proxy statements
and other information at the public reference facilities maintained by the SEC
and at the SEC's regional offices at the addresses noted above. You also will be
able to obtain copies of this material from the Public Reference Section of the
SEC as described above, or inspect them without charge at the SEC's Web site.
Our Class A common stock is quoted on the Nasdaq National Market. You may
inspect reports, proxy and information statements and other information
concerning us at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
111
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NBC Internet, Inc. Unaudited Pro Forma Condensed Combined
Financial Information F-3
Unaudited Pro Forma Condensed Combined Balance Sheets..... F-4
Unaudited Pro Forma Condensed Combined Statements of
Operations.............................................. F-5-7
Notes to Unaudited Pro Forma Condensed Combined Financial
Information............................................. F-8-10
Xoom.com, Inc.
Report of Ernst & Young LLP, Independent Auditors......... F-11
Consolidated Balance Sheets............................... F-12
Consolidated Statements of Operations..................... F-13
Consolidated Statements of Stockholders' Equity
(Deficit)............................................... F-14
Consolidated Statements of Cash Flows..................... F-15-17
Notes to Consolidated Financial Statements................ F-18-41
Snap! LLC
Independent Auditor's Report.............................. F-42
Balance Sheets............................................ F-43
Statements of Operations.................................. F-44
Statements of Members' Equity (Deficit)................... F-45
Statements of Cash Flows.................................. F-46
Notes to Financial Statements............................. F-47-58
NBC Multimedia Division
Independent Auditor's Report.............................. F-59
Combined Balance Sheets................................... F-60
Combined Statements of Operations......................... F-61
Combined Statements of Cash Flows......................... F-62
Notes to Combined Financial Statements.................... F-63-69
Financial Statements related to Companies acquired by
Xoom.com, Inc.
Paralogic Corporation
Report of Ernst & Young LLP, Independent Auditors......... F-70
Balance Sheets............................................ F-71
Statements of Operations.................................. F-72
Statements of Stockholders' Equity (Deficit).............. F-73
Statements of Cash Flows.................................. F-74
Notes to Financial Statements............................. F-75-79
Global Bridges Technologies, Inc.
Report of Ernst & Young LLP, Independent Auditors......... F-80
Balance Sheets............................................ F-81
Statements of Operations.................................. F-82
Statements of Stockholders' Equity (Deficit).............. F-83
Statements of Cash Flows.................................. F-84
Notes to Financial Statements............................. F-85-89
Pagecount, Inc.
Report of Ernst & Young LLP, Independent Auditors......... F-90
Balance Sheets............................................ F-91
Statements of Income...................................... F-92
Statements of Stockholders' Equity........................ F-93
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statements of Cash Flows.................................. F-94
Notes to Financial Statements............................. F-95-99
Paralogic Software Corporation
Report of Ernst & Young LLP, Independent Auditors......... F-100
Balance Sheets............................................ F-101
Statements of Operations.................................. F-102
Statements of Stockholders' Equity........................ F-103
Statements of Cash Flows.................................. F-104
Notes to Financial Statements............................. F-105-111
MightyMail Networks, Inc.
Report of Ernst & Young, LLP, Independent Auditors........ F-112
Balance Sheets............................................ F-113
Statements of Operations.................................. F-114
Statements of Stockholders' Equity (Deficit).............. F-115
Statements of Cash Flows.................................. F-116
Notes to Financial Statements............................. F-117-123
Liquid Market, Inc.
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................. F-124
Balance Sheets............................................ F-125
Statements of Operations.................................. F-126
Statements of Stockholders' Equity........................ F-127
Statements of Cash Flows.................................. F-128
Notes to Financial Statements............................. F-129-134
Xoom.com, Inc. Unaudited Pro Forma Condensed Combined
Financial Information
Introduction.............................................. F-135
Unaudited Pro Forma Condensed Combined Statements of
Operations.............................................. F-136-138
Notes to Unaudited Pro Forma Condensed Combined Financial
Information............................................. F-139
</TABLE>
F-2
<PAGE>
NBC INTERNET, INC.
UNAUDITED SELECTED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited selected pro forma condensed combined financial
information for NBCi gives effect to the transactions among Xoom.com, NBC and
the NBC Multimedia Division, which consists 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,
Paralogic Corporation, Global Bridges Technologies, Inc., PageCount, Inc.,
MightyMail Networks Inc., Paralogic Software Corporation and LiquidMarket,
Inc.);
- 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 contained in
this prospectus.
The unaudited pro forma condensed combined balance sheet as of
September 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 nine months ended September 30, 1998 and 1999
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 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 nine months ended September 30, 1998 and
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.
F-3
<PAGE>
NBC INTERNET, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-----------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
MULTIMEDIA COMBINATION
XOOM.COM SNAP DIVISION COMBINED ADJUSTMENTS PRO FORMA
----------- --------- ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........... $ 75,409 $ 20 $ -- $ 75,429 $ (43,300)(F) $ 32,129
Short-term investments.............. 123,516 522 -- 124,038 -- 124,038
Accounts receivable, net............ 4,032 3,926 571 8,529 -- 8,529
Note receivable from NBC............ -- -- -- -- 78,288 (D) 78,288
Inventories......................... 518 -- -- 518 -- 518
Other current assets................ 3,747 4,838 -- 8,585 -- 8,585
-------- --------- -------- --------- ---------- ----------
Total current assets.................. 207,222 9,306 571 217,099 34,988 252,087
Fixed assets, net................... 7,643 10,225 448 18,316 -- 18,316
Goodwill, net....................... 70,167 -- -- 70,167 1,567,927 (B) 1,638,094
Intangible assets, net.............. 25,370 -- -- 25,370 86,400 (B) 111,770
Investments......................... 69,780 32,607 -- 102,387 68,500 (B) 170,887
Note receivable from NBC, less
current portion................... -- -- -- -- 261,712 (D) 261,712
Other assets........................ 8,890 2,502 -- 11,392 -- 11,392
-------- --------- -------- --------- ---------- ----------
Total assets.......................... $389,072 $ 54,640 $ 1,019 $444,731 $2,019,527 $2,464,258
======== ========= ======== ========= ========== ==========
LIABILITIES, STOCKHOLDERS' EQUITY,
MEMBERS' EQUITY AND PARENT
COMPANY'S INVESTMENT AND NET
ADVANCES
Current liabilities:
Accounts payable.................... $ 5,115 $ 5,450 $ 1,751 $ 12,316 $ 23,500 (B) $ 35,816
Accrued compensation and related
expenses.......................... 1,355 5,249 240 6,844 -- 6,844
Other accrued liabilities........... 2,747 -- -- 2,747 -- 2,747
Deferred revenue.................... 2,409 4,569 17,878 24,856 (20,163)(E) 4,693
Notes payable....................... 241 -- -- 241 -- 241
Due to CNET......................... -- 1,788 -- 1,788 -- 1,788
Due to NBC.......................... -- 101 -- 101 -- 101
Capital lease obligations........... 84 -- -- 84 -- 84
Contingency accrual................. 1,000 -- -- 1,000 -- 1,000
-------- --------- -------- --------- ---------- ----------
Total current liabilities............. 12,951 17,157 19,869 49,977 3,337 53,314
Convertible notes payable to NBC and
its affiliates, less current
portion............................. -- -- -- -- 370,000 (A) 370,000
Deferred revenue, less current
portion............................. 2,380 -- -- 2,380 -- 2,380
Other notes payable, less current
portion............................. 292 -- -- 292 -- 292
Capital lease obligations, less
current portion..................... 164 -- -- 164 -- 164
Line of credit........................ -- 43,300 -- 43,300 (43,300)(F) --
Stockholders' equity, Members' equity
and Parent Company's investment and
net advances:
Common stock........................ 407,669 -- -- 407,669 1,664,823 (A) 2,072,492
Members' equity..................... -- 94,358 -- 94,358 (94,358)(C) --
Parent Company's investment and net
advances.......................... -- -- (18,850) (18,850) 18,850 (C) --
Notes receivable from
stockholders...................... (995) -- -- (995) -- (995)
Deferred compensation............... (409) (7,705) -- (8,114) 7,705 (C) (409)
Unrealized gain..................... -- 22,731 -- 22,731 (22,731)(C) --
Accumulated deficit................. (32,980) (115,201) -- (148,181) 115,201 (C) (32,980)
-------- --------- -------- --------- ---------- ----------
Total stockholders' equity, members'
equity and parent company's
investment and net advances:........ 373,285 (5,817) (18,850) 348,618 1,689,490 2,038,108
-------- --------- -------- --------- ---------- ----------
Total liabilities and stockholders'
equity, members' equity and parent
company's investment and net
advances:........................... $389,072 $ 54,640 $ 1,019 $444,731 $2,019,527 $2,464,258
======== ========= ======== ========= ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
NBC INTERNET, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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......................... $ 5,673 $ 3,310 $ 6,929 $ 15,912 $ -- $ 15,912
Cost of net revenue................. 2,263 5,613 3,513 11,389 -- 11,389
-------- -------- --------- --------- ------------- ---------
Gross profit (loss)................. 3,410 (2,303) 3,416 4,523 -- 4,523
Operating expenses:
Operating and development......... 2,695 4,231 775 7,701 -- 7,701
Sales and marketing............... 1,680 6,110 2,862 10,652 -- 10,652
General and administrative........ 2,782 3,108 3,724 9,614 -- 9,614
Purchased in-process research and
development..................... 330 -- -- 330 460 (G) 790
Amortization of deferred
compensation.................... 1,248 -- -- 1,248 -- 1,248
Amortization of goodwill and other
intangible assets............... 20,712 -- -- 20,712 182,745 (H) 203,457
Promotion and advertising provided
by NBC.......................... -- 3,484 -- 3,484 -- 3,484
-------- -------- --------- --------- ------------- ---------
Total operating expenses............ 29,447 16,933 7,361 53,741 183,205 236,946
-------- -------- --------- --------- ------------- ---------
Loss from operations................ (26,037) (19,236) (3,945) (49,218) (183,205) (232,423)
Other income (expense):
Interest and other income......... 39 36 -- 75 12,990 (I) 13,065
Interest and other expense........ (19) -- -- (19) (11,199)(J) (11,218)
-------- -------- --------- --------- ------------- ---------
Net loss............................ $(26,017) $(19,200) $ (3,945) $(49,162) $ (181,414) $(230,576)
======== ======== ========= ========= ============= =========
Basic and diluted net loss per
share............................. (K) $ (5.64)
=========
Shares used in per share
calculation--basic and diluted....
(K) 40,888
=========
</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-135 of this prospectus.
See accompanying notes.
F-5
<PAGE>
NBC INTERNET, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------
PRO FORMA
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 (loss)................. 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 -- -- 330 460 (G) 790
Amortization of deferred
compensation.................... 1,605 160 -- 1,765 -- 1,765
Amortization of goodwill and other
intangible assets............... 27,620 -- -- 27,620 243,661 (H) 271,281
Promotion and advertising provided
by NBC.......................... -- 14,060 -- 14,060 -- 14,060
-------- -------- --------- --------- ------------- ---------
Total operating expenses............ 41,164 38,904 9,416 89,484 244,121 333,605
-------- -------- --------- --------- ------------- ---------
Loss from operations................ (35,821) (39,213) (3,050) (78,084) (244,121) (322,205)
Other income (expense):
Interest and other income......... 192 -- -- 192 16,793 (I) 16,985
Interest and other expense........ (145) (75) -- (220) (14,998)(J) (15,218)
Interest expense related to
warrant......................... (1,494) -- -- (1,494) -- (1,494)
-------- -------- --------- --------- ------------- ---------
Net loss............................ $(37,268) $(39,288) $ (3,050) $(79,606) $ (242,326) $(321,932)
======== ======== ========= ========= ============= =========
Basic and diluted net loss per
share............................. (K) $ (7.74)
=========
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-135 of this prospectus.
F-6
<PAGE>
NBC INTERNET, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 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......................... $ 20,194 $ 23,000 $ 12,490 $ 55,684 $ -- $ 55,684
Cost of net revenue................. 7,657 6,878 4,574 19,109 -- 19,109
-------- -------- --------- --------- ------------- ---------
Gross profit........................ 12,537 16,122 7,916 36,575 -- 36,575
Operating expenses:
Operating and development......... 7,180 8,410 391 15,981 -- 15,981
Sales and marketing............... 13,960 20,976 1,042 35,978 -- 35,978
General and administrative........ 7,727 9,799 2,099 19,625 -- 19,625
Purchased in-process research and
development..................... -- -- -- -- 2,603 (G) 2,603
Amortization of deferred
compensation.................... 3,441 3,207 -- 6,648 -- 6,648
Amortization of goodwill and other
intangible assets............... 21,500 -- -- 21,500 182,745 (H) 204,245
Promotion and advertising provided
by NBC.......................... -- 32,950 -- 32,950 -- 32,950
-------- -------- --------- --------- ------------- ---------
Total operating expenses............ 53,808 75,342 3,532 132,682 185,348 318,030
-------- -------- --------- --------- ------------- ---------
(Loss) income from operations....... (41,271) (59,220) 4,384 (96,107) (185,348) (281,455)
Other income (expense):
Interest and other income......... 6,228 -- -- 6,228 12,990 (I) 19,218
Interest and other expense........ (93) (1,125) -- (1,218) (11,199)(J) (12,417)
-------- -------- --------- --------- ------------- ---------
Net (loss) income................... $(35,136) $(60,345) $ 4,384 $(91,097) $ (183,557) $(274,654)
======== ======== ========= ========= ============= =========
Basic and diluted net loss per
share............................. (K) $ (5.77)
=========
Shares used in per share
calculation--basic and diluted.... (K) 47,616
=========
</TABLE>
- ------------------------------
(1) Represents pro forma combination of Xoom.com, MightyMail Networks Inc.,
Paralogic Software Corporation and LiquidMarket, Inc., beginning on page
F-135 of this prospectus.
See accompanying notes.
F-7
<PAGE>
NBC INTERNET, INC.
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The total estimated purchase cost 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 November 30,
1999, the date the transaction was consummated.
The adjustments to the unaudited pro forma condensed combined balance sheet
as of September 30, 1999, have been calculated as if the transactions occurred
on September 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 $2,058,323,000. 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.
(B)(1)To reflect the additional estimated purchase price of $246,135,000 related
to (i) the assumption of Snap's options and (ii) estimated merger costs.
This additional estimated purchase price of $246,135,000 consists of the
following:
- Assumption of options to purchase 3,407,558 shares of NBCi's Class A
common stock with a fair value of $222,635,000. 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 3 to 4 years
- Expected volatility of 1.0
- Risk free interest rate of 5.96%
F-8
<PAGE>
NBC INTERNET, INC.
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION (CONTINUED)
- Expected dividend rate of 0%
- Estimated related merger costs consisting of the following:
<TABLE>
<S> <C>
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
===========
</TABLE>
(2) To allocate the total purchase price of the transaction of $2,058,323,000
and recognize the excess purchase cost of $1,722,827,000 over the fair value
of the net tangible assets acquired, which has been recorded as goodwill and
other intangible assets as follows:
<TABLE>
<S> <C>
Purchased technology $ 18,900,000
Investment in CNBC.com LLC 68,500,000
Affiliate and other contracts 31,400,000
Acquired workforce 1,900,000
License agreement to NBC brand name and content, and
other brand name 34,200,000
Goodwill 1,567,927,000
--------------
$1,722,827,000
==============
</TABLE>
(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 $340.0
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.
The adjustments to the unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999, assume that the transaction occurred as of January 1, 1998
and January 1, 1999, respectively and are as follows:
(G) To reinstate charges for in-process research and development related to
Xoom.com's acquisitions of Paralogic Corporation and Pagecount, Inc. in the
year ended December 31, 1998 and MightyMail Networks and Paralogic Software
Corporation in the nine months ended September 30, 1999.
(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.
F-9
<PAGE>
NBC INTERNET, INC.
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION (CONTINUED)
(K) Basic and diluted net loss per share has been adjusted to reflect the
issuance of (i) 7,245,063 shares of Class A common stock to CNET and an
unaffiliated third party; and (ii) 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.
F-10
<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-11
<PAGE>
XOOM.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6 $ 54,575 $ 75,409
Marketable securities..................................... -- 2,000 123,516
Accounts receivable, net of allowance for doubtful
accounts of
$49, $195, and $554 in 1997, 1998, and 1999,
respectively............................................ 173 1,368 4,032
Stock subscription receivable............................. 75 -- --
Inventories............................................... -- 322 518
Other current assets...................................... 1 308 3,747
------- -------- --------
Total current assets.................................... 255 58,573 207,222
Fixed assets, net........................................... 414 2,071 7,643
Goodwill, net............................................... -- 3,751 70,167
Purchased technology, net................................... -- 1,766 24,845
Acquired workforce, net..................................... -- -- 525
Investments................................................. -- -- 69,780
Prepaid royalties and licenses.............................. 53 216 --
Other assets................................................ 60 497 8,890
------- -------- --------
Total assets.......................................... $ 782 $ 66,874 $389,072
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 462 $ 1,229 $ 5,115
Accrued compensation and related expenses................. 38 497 1,355
Other accrued liabilities................................. 5 1,531 2,831
Deferred revenue.......................................... -- 443 2,409
Note payable to stockholder............................... 150 -- --
Notes payable............................................. -- 1,276 157
Capital lease obligations................................. -- 37 84
Contingency accrual....................................... 1,000 1,000 1,000
------- -------- --------
Total current liabilities............................... 1,655 6,013 12,951
Deferred revenue, less current portion.................... -- -- 2,380
Notes payable, less current portion....................... -- 411 292
Capital lease obligations, less current portion........... -- 117 164
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 20,461,673 in 1997, 1998 and 1999, respectively... 3,001 75,606 407,669
Notes receivable from stockholders.......................... -- -- (995)
Deferred compensation....................................... (303) (904) (409)
Accumulated deficit......................................... (3,571) (14,369) (32,980)
------- -------- --------
Total stockholders' equity (deficit).................... (873) 60,333 373,285
------- -------- --------
Total liabilities and stockholders' equity
(deficit)........................................... $ 782 $ 66,874 $389,072
======= ======== ========
</TABLE>
See accompanying notes.
F-12
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16,
1996
(INCEPTION) YEARS ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -------------------------
1996 1997 1998 1998 1999
------------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue:
E-commerce............................ $ -- $ 327 $ 5,582 $ 3,366 $ 10,257
Advertising........................... -- 60 2,144 953 9,527
License fees.......................... -- 454 592 546 119
------ ------- -------- ------- --------
Total net revenue................... -- 841 8,318 4,865 19,903
Cost of net revenue:
Cost of e-commerce.................... -- 171 3,542 1,965 7,458
Cost of advertising................... -- -- -- -- 183
Cost of license fees.................. -- 148 42 35 4
------ ------- -------- ------- --------
Total cost of net revenue........... -- 319 3,584 2,000 7,645
------ ------- -------- ------- --------
Gross profit............................ -- 522 4,734 2,865 12,258
Operating expenses:
Operating and development............. 266 1,150 3,841 2,558 5,708
Sales and marketing................... 23 292 2,834 1,570 13,507
General and administrative............ 150 721 3,366 2,158 6,846
Purchased in-process research and
development......................... -- -- 790 790 2,603
Amortization of deferred
compensation........................ -- 248 1,416 1,111 495
Amortization of intangible assets..... -- -- 1,843 1,087 7,836
Non-recurring charges................. -- 1,243 -- -- --
------ ------- -------- ------- --------
Total operating expenses............ 439 3,654 14,090 9,274 36,995
------ ------- -------- ------- --------
Loss from operations.................... (439) (3,132) (9,356) (6,409) (24,737)
Other income (expense):
Interest income....................... -- -- 187 37 6,213
Interest expense...................... -- -- (135) (20) (90)
Interest expense related to warrant... -- -- (1,494) -- --
------ ------- -------- ------- --------
Net loss................................ $ (439) $(3,132) $(10,798) $(6,392) $(18,614)
====== ======= ======== ======= ========
Net loss per share--basic and diluted... $(0.89) $ (0.64) $ (1.37) $ (0.89) $ (1.11)
====== ======= ======== ======= ========
Number of shares used in per share
calculation--basic and diluted........ 496 4,874 7,879 7,172 16,780
====== ======= ======== ======= ========
</TABLE>
See accompanying notes.
F-13
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
NOTES TOTAL
COMMON STOCK RECEIVABLE STOCKHOLDERS'
--------------------- FROM DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT STOCKHOLDERS COMPENSATION DEFICIT (DEFICIT)
---------- -------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders at
inception............................... 666,668 $ -- $ -- $ -- $ -- $ --
Issuance of common stock in exchange for
cancellation of notes payable to
stockholders............................ 2,666,667 1,000 -- -- -- 1,000
Net loss.................................. -- -- -- -- (439) (439)
---------- -------- ----- ------ -------- --------
Balances at December 31, 1996............... 3,333,335 1,000 -- -- (439) 561
Issuance of common stock for cash......... 1,914,452 1,223 -- -- -- 1,223
Issuance of common stock in exchange for
cancellation of notes payable to
stockholders............................ 38,889 35 -- -- -- 35
Issuance of common stock in exchange for
stock subscription receivable........... 254,691 175 -- -- -- 175
Issuance of stock options to
consultants............................. -- 17 -- -- -- 17
Deferred compensation related to grant of
stock options........................... -- 551 -- (551) -- --
Amortization of deferred compensation..... -- -- -- 248 -- 248
Net loss.................................. -- -- -- -- (3,132) (3,132)
---------- -------- ----- ------ -------- --------
Balances at December 31, 1997............... 5,541,367 3,001 -- (303) (3,571) (873)
Issuance of common stock for cash, net of
issuance costs of $139.................. 1,815,432 5,532 -- -- -- 5,532
Issuance of common stock in exchange for
Classic Media Holdings license rights... 43,292 100 -- -- -- 100
Issuance of common stock in connection
with acquisitions....................... 1,221,992 4,219 -- -- -- 4,219
Issuance of common stock in exchange for
cancellation of notes payable to
stockholders............................ 64,937 150 -- -- -- 150
Issuance of common stock in exchange for
stock subscription receivable........... 78,224 261 -- -- -- 261
Issuance of common stock to directors and
consultants in exchange for services.... 19,564 205 -- -- -- 205
Issuance of stock options to
consultants............................. -- 238 -- -- -- 238
Issuance of common stock in initial public
offering, net of offering costs of
$7,059.................................. 4,600,000 57,341 -- -- -- 57,341
Issuance of common stock upon exercise of
warrants, net of issuance costs of
$28..................................... 314,747 1,048 -- -- -- 1,048
Issuance of warrant in connection with
loan agreement.......................... -- 1,494 -- -- -- 1,494
Deferred compensation related to grant of
stock options........................... -- 2,017 -- (2,017) -- --
Amortization of deferred compensation..... -- -- -- 1,416 -- 1,416
Net loss.................................. -- -- -- -- (10,798) (10,798)
---------- -------- ----- ------ -------- --------
Balances at December 31, 1998............... 13,699,555 75,606 -- (904) (14,369) 60,333
Issuance of common stock in connection
with acquisitions (unaudited)........... 2,017,338 101,055 -- -- -- 101,055
Issuance of common stock to directors and
consultants in exchange for services
(unaudited)............................. 12,822 638 -- -- -- 638
Issuance of common stock in secondary
public offering, net of offering costs
of $8,950 (unaudited)................... 2,659,800 166,597 -- -- -- 166,597
Issuance of common stock upon exercise of
warrants (unaudited).................... 116,231 -- -- -- -- --
Issuance of common stock for cash
(unaudited)............................. 960,028 55,000 -- -- -- 55,000
Value of warrants issued in connection
with ValueVision strategic alliance..... -- 6,937 -- -- -- 6,937
Issuance of common stock upon exercise of
options (unaudited)..................... 995,899 1,836 -- -- -- 1,836
Notes receivable from stockholders
(unaudited)............................. -- -- (995) -- -- (995)
Amortization of deferred compensation
(unaudited)............................. -- -- -- 495 -- 495
Unrealized gain on investments
(unaudited)............................. -- -- -- -- 3 3
Net loss (unaudited)...................... -- -- -- -- (18,614) (18,614)
---------- -------- ----- ------ -------- --------
Balances at September 30, 1999
(unaudited)............................... 20,461,673 $407,669 $(995) $ (409) $(32,980) $373,285
========== ======== ===== ====== ======== ========
</TABLE>
See accompanying notes.
F-14
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16,
1996
(INCEPTION) YEARS ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 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) $ (6,392) $(18,614)
Adjustments to reconcile net loss to
net cash and cash equivalents used in
operating activities:
Interest expense related to
warrant............................ -- -- 1,494 -- --
Purchased in-process research and
development........................ -- -- 790 790 2,603
Depreciation and amortization........ 2 254 796 481 1,280
Amortization of intangible assets.... -- -- 1,843 1,087 7,836
Amortization of deferred
compensation....................... -- 248 1,416 1,111 495
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........................ -- 17 238 189 --
Issuance of common stock to directors
and consultants.................... -- -- 205 87 638
Changes in operating assets and
liabilities:
Accounts receivable................ -- (173) (1,167) (634) (2,517)
Inventories........................ -- -- (322) (379) (196)
Other current assets............... -- (1) (303) (116) (3,433)
Intangible assets.................. -- -- -- (24) --
Prepaid royalties and licenses..... (324) (186) (426) (282) --
Other assets....................... (19) (41) (445) (1,144) (7,577)
Accounts payable................... 136 326 762 1,047 3,886
Accrued compensation and related
expenses......................... 9 29 418 289 530
Other accrued liabilities.......... -- 5 1,403 645 (729)
Deferred revenue................... -- -- 443 -- 858
Contingency accrual................ -- 1,000 -- -- --
------- ------- -------- -------- --------
NET CASH AND CASH EQUIVALENTS USED IN
OPERATING ACTIVITIES................... (635) (1,411) (3,553) (3,145) (14,940)
CASH AND CASH EQUIVALENTS USED IN
INVESTING ACTIVITIES:
Purchases of fixed assets.............. (64) (392) (1,954) (1,099) (6,169)
Purchase of investments................ -- -- (2,000) -- (198,450)
Maturities of investments.............. -- -- -- -- 18,500
Business combinations, net of cash
acquired............................. -- -- (458) (329) (901)
Cash paid in connection with the
purchase of certain assets from
Revolutionary Software, Inc.......... -- -- (273) (20) --
------- ------- -------- -------- --------
NET CASH AND CASH EQUIVALENTS USED IN
INVESTING ACTIVITIES................. (64) (392) (4,685) (1,448) (187,020)
</TABLE>
See accompanying notes.
F-15
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16,
1996
(INCEPTION) YEARS ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -------------------------
1996 1997 1998 1998 1999
------------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS PROVIDED BY
FINANCING ACTIVITIES:
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 5,532 55,000
Proceeds from exercise of warrants..... -- -- 1,048 -- --
Proceeds from exercise of options...... -- -- -- -- 1,836
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) (2) (31)
Principal payments on notes payable.... -- -- (3,201) (311) (608)
------- ------- -------- -------- --------
NET CASH AND CASH EQUIVALENTS PROVIDED
BY FINANCING ACTIVITIES.............. 700 1,808 62,807 5,554 222,794
------- ------- -------- -------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1 5 54,569 961 20,834
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 $ 967 $ 75,409
======= ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-16
<PAGE>
XOOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16,
1996
(INCEPTION) YEARS ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -------------------------
1996 1997 1998 1998 1999
------------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
NON-CASH TRANSACTIONS:
Issuance of common stock in exchange
for stock subscriptions receivable... $ -- $ 175 $ 261 $ 261 $ 995
======= ======= ======== ======== ========
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 2,002 $ --
======= ======= ======== ======== ========
Fixed assets acquired under capital
lease obligations.................... $ -- $ -- $ 165 $ 162 $ 125
======= ======= ======== ======== ========
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 $ 3,618 $101,055
======= ======= ======== ======== ========
Issuance of notes payable in conjunction
with business and technology
acquisitions........................... $ -- $ -- $ 3,105 $ 3,025 $ --
======= ======= ======== ======== ========
Value of equity securities received in
exchange for entering into strategic
alliances.............................. $ -- $ -- $ -- $ -- $ 429
======= ======= ======== ======== ========
Value of warrant received in connection
with ValueVision Inc. strategic
alliance............................... $ -- $ -- $ -- $ -- $ 6,343
======= ======= ======== ======== ========
Value of warrant issued in connection
with ValueVision Inc. strategic
alliance $ -- $ -- $ -- $ -- $ 6,937
======= ======= ======== ======== ========
CASH FLOW INFORMATION:
Cash paid for interest................. $ -- $ -- $ 57 $ 20 $ 59
======= ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-17
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 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 September 30, 1998 and 1999, and for
the nine months ended September 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 nine months ended September 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
F-18
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fair value. The Company maintains its cash in depository accounts with three
high credit quality financial institutions.
CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade accounts receivable. The Company conducts
business with companies in various industries throughout the world and with
individuals over the Internet. The Company performs ongoing credit evaluations
of its corporate customers and generally does not require collateral. Sales to
individuals are principally paid for via credit cards. Reserves are maintained
for potential credit losses, and such losses to date have been 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 two to four 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
F-19
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
paid licenses to resell certain software. These licenses are amortized over the
estimated useful lives which are approximately one year. Amortization of prepaid
royalties and licenses, which is included in cost of e-commerce and cost of
license fee revenue, totaled $0, $213,000 and $263,000, for the period from
April 16, 1996 (inception) to December 31, 1996, and for the years ended
December 31, 1997 and 1998, respectively.
During the second quarter of 1997, the Company discontinued the sale of
certain products where royalty prepayments had been made and accordingly,
recorded a write-off of prepaid royalties included in non-recurring charges
totaling $243,000.
OTHER ASSETS
Other assets consist of non-current deposits relating to various ongoing
agreements entered into by the Company.
DEFERRED REVENUE
Deferred revenue consists of advertising and e-commerce fees to be earned in
the future under agreements existing at the balance sheet date.
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
F-20
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
contracts are recognized ratably in the period in which the advertisement is
displayed, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include the guarantee of a minimum number of "impressions" or times
that an advertisement appears in pages viewed by the users of the Company's
online properties. To the extent minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenue until the remaining
guaranteed impression levels are achieved.
LICENSE FEES
The Company licenses software under non-cancelable license agreements to
end-users and non-cancelable sub-license agreements to resellers. License fee
revenues are recognized when a non-cancelable license agreement has been signed,
the product has been delivered, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable, collection is considered
probable and all significant contractual obligations have been satisfied.
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
F-21
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(loss) divided by the weighted average number of common shares outstanding.
Diluted net income (loss) per share is computed using the weighted average
number of common shares outstanding and dilutive common stock equivalents
outstanding during the period. Common equivalent shares from stock options and
warrants (using the treasury stock method) are excluded from the calculation of
net loss per share as their effect is anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998 the Company adopted Financial Accounting Standards
Board Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
had no material components of comprehensive income 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 nine months ended September 30, 1999 was
approximately $18.6 million.
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 nine months ended
September 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.
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 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
F-22
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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 for the business acquisitions that follow 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 $3,038,000 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-23
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 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-24
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 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. 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>
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.
F-25
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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 $71.10 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 the remaining 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 stockholders.......................... 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>
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 $71.10 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
F-26
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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 an estimated fair value of $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>
LIQUIDMARKET, INC.
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 common stock at an estimated fair value of $40.70 per share,
the assumption of 54,490, 52,948, and 23,132 employee stock options at a price
per share of $40.29, $40.06, and $26.90, respectively, and acquisition costs of
approximately $300,000. In addition, 212,202 shares of the Company's common
stock were 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
F-27
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
completion of certain performance objectives, and 50% will be released in
August 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>
Cash........................................................ $ 378
Accounts receivable and other current assets................ 5
Net fixed assets............................................ 362
Purchased technology........................................ 16,700
Acquired workforce.......................................... 321
Goodwill.................................................... 21,116
Liabilities assumed......................................... (135)
-------
Total purchase consideration................................ $38,747
=======
</TABLE>
PRIVATE ONE, INC.
On August 3, 1999, the Company acquired 100% 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 common stock at an
estimated fair value of $40.70 per share and acquisition costs of approximately
$3,000. 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 purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Cash........................................................ $ 1
Net fixed assets............................................ 16
Goodwill.................................................... 2,209
Liabilities assumed......................................... (25)
------
Total purchase consideration................................ $2,201
======
</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 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
F-28
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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 September 30, 1999 are summarized as
follows (in thousands):
<TABLE>
<S> <C>
Acquired workforce.......................................... $ 578
Purchased technology........................................ 27,362
Goodwill.................................................... 77,275
-------
Intangible assets........................................... 105,215
Accumulated amortization.................................... (9,678)
-------
Intangible assets, net...................................... $95,537
=======
</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 nine months ended September 30, 1999, is summarized
below (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 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>
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 (in thousands, except for per share data):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
1997 1998 1998 1999
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma net revenue................. $ 1,371 $ 8,607 $ 5,364 $ 20,318
Pro forma loss from operations........ $(5,835) $(10,005) $(27,780) $(47,368)
Pro forma net loss.................... $(5,883) $(11,495) $(27,763) $(41,234)
Pro forma net loss per share--basic
and diluted......................... $ (1.02) $ (1.41) $ (2.59) $ (2.10)
Number of shares used in pro forma per
share calculation--basic and
diluted............................. 5,740 8,142 10,727 19,655
</TABLE>
F-29
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
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 $460,000 and $2,603,000 were excluded from the pro forma net loss and
pro forma net loss per share figures for the periods ended September 30, 1998
and 1999, respectively.
NBC INTERNET, INC.
On May 9, 1999, the Company, certain subsidiaries of the Company, Snap! LLC,
National Broadcasting Company, Inc., and certain of its affiliates and
CNET, Inc. entered into a series of definitive agreements relating to the
formation of a new company to be named NBC Internet, Inc. On each of June 11,
1999, and July 8, 1999, an amendment to one of each of the definitive agreements
was signed. The terms of the original agreement and each amendment are filed
with the Securities and Exchange Commission. On November 24, 1999 the Company
convened a meeting of the stockholders and ratified and approved the NBC
Internet Inc. related agreements.
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, 1998
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 (the "Agreement"), dated
May 15, 1998, with an outside director of the Company. 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 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.
F-30
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
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 earned 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, (UNAUDITED)
-------------------- SEPTEMBER 30,
1997 1998 1999
--------- -------- --------------
<S> <C> <C> <C>
Demand and money market instrument
accounts................................. $ 6 $ 8,731 $ 75,825
Corporate bonds and notes.................. -- 36,444 98,614
Market auction preferred stock............. -- 11,400 24,300
Equity investments......................... -- -- 183
Unrealized gain on investments............. -- -- 3
--------- -------- --------
6 56,575 198,925
Less amounts included in cash and cash
equivalents.............................. (6) (54,575) (75,409)
--------- -------- --------
Short-term investments..................... $ -- $ 2,000 $123,516
========= ======== ========
</TABLE>
Unrealized gains and losses at December 31, 1997 and 1998 and realized gains
and losses for the years then ended, were not material. The Company has made a
provision for such amounts in its September 30, 1999 consolidated balance sheet
and recorded an unrealized gain of $3,000 in 1999. The cost of securities sold
is based on the specific identification method. All available-for-sale
securities at December 31, 1998 and September 30, 1999 have maturity dates in
1999 or 2000. In addition the Company has long-term marketable securities of
$58.6 million as of September 30, 1999.
5. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
Fixed assets consist of the following (in thousands): -------- --------
<S> <C> <C>
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>
F-31
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<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
consideration 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>
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.
F-32
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
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,
-------------------
1997 1998
-------- --------
<S> <C> <C>
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>
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
F-33
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
8. COMMITMENTS (CONTINUED)
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.
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, the
amount of which is included in other assets for the period ended
September 30, 1999.
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
F-34
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
9. CONTINGENCY ACCRUAL AND OTHER MATTER (CONTINUED)
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 in
a particular period.
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 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.com"
In June 1999 the Company filed an opposition to Zoom Telephonics' motion for
preliminary injunction. A hearing on the motion 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. On November 3,
1999, Zoom Telephonics filed a motion to renew their previous motion for
preliminary injunction. On November 17, 1999, the Company filed an opposition to
Zoom Telephonics' motion to renew its previous motion for a preliminary
injunction. Although the Company believes that Zoom's claims are without merit,
such litigation could have a material adverse effect on the Company's
F-35
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
9. CONTINGENCY ACCRUAL AND OTHER MATTER (CONTINUED)
business, results of operations and financial condition, particularly if such
litigation forces the Company to make substantial changes to its name and
trademark usage.
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.
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 1999, the Board of Directors voted to increase the number of
authorized shares to 80,000,000.
FOUNDERS STOCK
Pursuant to a Common Stock Purchase Agreement dated August 26, 1996 and
following the incorporation of the Company, two of the Company's founders each
purchased 333,334 shares (666,668 shares in total) of the Company's common stock
for an aggregate of $200 in cash. Pursuant to a Common Stock Purchase Agreement
dated December 31, 1996, the founders purchased an additional 2,333,334 and
1,000,000 shares, respectively, of the Company's common stock in exchange for
the cancellation of promissory notes that the Company owed to the
stockholders/founders in the amount of $700,000 and $300,000, respectively. In
the same agreement, one of the founders contributed 666,667
F-36
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
shares of his common stock back to the Company without compensation pursuant to
an agreement between the founders.
STOCK SPLITS
In February 1998, the Company completed a one-for-two reverse stock split of
the outstanding shares of common stock. In addition, in November 1998, the
Company completed a two-for-three reverse stock split of the outstanding shares
of common stock. All share information and per share amounts in the accompanying
consolidated financial statements has been retroactively adjusted to reflect the
effect of these stock splits.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock, none
of which is issued or outstanding. The Board of Directors has the authority to
issue the preferred stock in one or more series and to fix the designations,
powers, preferences, rights, qualifications, limitations and restrictions with
respect to any series of preferred stock and to specify the number of shares of
any series of preferred stock without any further vote or action by the
stockholders.
INVESTMENT FROM NATIONAL BROADCASTING COMPANY, 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.
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.
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 Web site at www.snaptv.com. ValueVision International
Inc.'s television home shopping network, currently called ValueVision, will be
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.
F-37
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
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 fair value of the warrant
the Company received from ValueVision was deemed to be $6.3 million, and the
fair value of the warrant the Company granted to ValueVision was deemed to be
$6.9 million. The value of the warrant received by Xoom.com was recorded as a
long-term investment. The value of the warrant granted by the Company was
recorded as an addition to stockholders' equity. The difference in value was
recorded as a deferred charge, which will be charged to sales and marketing
expense over the warrant's estimated life. The warrants may be exercised after
the closing of the proposed NBCi merger agreement until September 12, 2004.
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.
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 September 30, 1999, outstanding
subscriptions receivable amounted to approximately $995,000. All amounts mature
by April 2002.
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-38
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 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>
NUMBER OF WEIGHTED-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 the accelerated method, over the vesting periods of the
individual stock options, which range from three months to four years.
F-39
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
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.
The Company's Plan was terminated by the Board of Directors in May 1999.
SHARES RESERVED FOR FUTURE ISSUANCE
As of December 31, 1998, shares of common stock reserved for future issuance
were as follows:
<TABLE>
<S> <C>
1998 stock incentive plan and options issued outside the
Plan........................................................ 3,235,224
1998 Employee Stock Purchase Plan........................... 300,000
Warrants.................................................... 183,333
---------
Total shares authorized for issuance.................. 3,718,557
=========
</TABLE>
PRO FORMA DISCLOSURE OF THE EFFECT OF STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Pro forma information regarding net income (loss) and net income
(loss) per share is required by FAS 123. This information is required to be
determined as if the Company has accounted for its employee stock options under
the fair value method of FAS 123. Under this method,
F-40
<PAGE>
XOOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
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 YEARS ENDED
APRIL 16, 1996 DECEMBER 31,
(INCEPTION) 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 YEARS 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>
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.
F-41
<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-42
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- 865 542
Accounts receivable, net of allowance for doubtful
accounts of $0 at December 31 1997, $469 at December 31,
1998, and $993 at September 30, 1999.................... 367 3,015 3,926
Due from CNET............................................. -- 655 --
Prepaid expenses and other current assets................. -- 1,778 4,838
-------- -------- --------
Total current assets.................................... 367 6,313 9,306
Property and equipment, net................................. 1,127 4,674 10,225
Investments................................................. -- 605 32,607
Deposits and other assets................................... 36 42 2,502
-------- -------- --------
Total assets............................................ $ 1,530 11,634 54,640
======== ======== ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 312 2,721 5,450
Accrued and other liabilities............................. 216 2,846 5,249
Deferred revenue.......................................... 400 553 4,569
Due to CNET............................................... -- -- 1,788
Due to NBC................................................ -- -- 101
-------- -------- --------
Total current liabilities............................... 928 6,120 17,157
Line of credit.............................................. -- 13,500 43,300
-------- -------- --------
Total liabilities....................................... 928 19,620 60,457
-------- -------- --------
Commitments
Members' equity:
Members' equity........................................... 16,170 48,972 94,358
Deferred compensation..................................... -- (2,102) (7,705)
Other accumulated comprehensive income.................... -- -- 22,731
Accumulated deficit....................................... (15,568) (54,856) (115,201)
-------- -------- --------
Total members' equity (deficit)......................... 602 (7,986) (5,817)
-------- -------- --------
Total liabilities and members' equity (deficit)......... $ 1,530 11,634 54,640
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ---------------------
1997 1998 1998 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net revenues........................................ $ 817 7,317 3,310 23,000
Cost of net revenues................................ 1,520 7,626 5,613 6,878
-------- ------- ------- -------
Gross profit (deficit).......................... (703) (309) (2,303) 16,122
Operating expenses:
Product development............................... 9,403 6,263 4,231 8,410
Sales and marketing............................... 4,090 12,482 6,110 20,976
General and administrative........................ 1,372 5,939 3,108 9,799
Amortization of deferred compensation............. -- 160 -- 3,207
Promotion and advertising provided by NBC......... -- 14,060 3,484 32,950
-------- ------- ------- -------
Total operating expenses........................ 14,865 38,904 16,933 75,342
-------- ------- ------- -------
Operating loss.................................. (15,568) (39,213) (19,236) (59,220)
Other (expense) income, net......................... -- (75) 36 (1,125)
-------- ------- ------- -------
Net loss........................................ $(15,568) (39,288) (19,200) (60,345)
======== ======= ======= =======
Other comprehensive income:
Unrealized gains on available-for-sale
securities.................................... $ -- -- -- 22,731
-------- ------- ------- -------
Comprehensive net loss.............................. $(15,568) (39,288) (19,200) (37,614)
======== ======= ======= =======
Basic and diluted net loss per unit................. $ (1.33) (2.95) (1.49) (2.60)
======== ======= ======= =======
Units used in per unit calculation.................. 11,700 13,301 12,920 14,494
======== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
MEMBER UNITS DEFERRED ACCUMULATED TOTAL
------------------- COMPENSATION COMPREHENSIVE ACCUMULATED MEMBERS'
UNITS AMOUNT EXPENSE INCOME DEFICIT EQUITY (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)................ -- 32,950 -- -- -- 32,950
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)....................... -- -- -- 22,731 -- 22,731
Amortization of deferred
compensation (unaudited).......... -- -- 3,207 -- -- 3,207
Contributed capital from NBC and
CNET, Inc (unaudited)............. -- 637 -- -- -- 637
Net loss (unaudited)................ -- -- -- -- (60,345) (60,345)
------ ------- ------ ------ -------- -------
Balances as of September 30, 1999
(unaudited)....................... 14,519 $94,358 (7,705) 22,731 (115,201) (5,817)
====== ======= ====== ====== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -----------------------
1997 1998 1998 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss................................................. $(15,568) (39,288) (19,200) (60,345)
Adjustments to reconcile net loss to net cash used in
operating activities:
Receipt of stock in exchange for services provided..... -- (605) -- (7,268)
Depreciation and amortization.......................... 329 929 469 2,456
Amortization of deferred compensation expense.......... -- 160 -- 3,207
Promotion and advertising provided by NBC.............. -- 14,060 3,484 32,950
Legal indemnification by members....................... -- -- -- 637
Changes in operating assets and liabilities:
Accounts receivable.................................. (367) (2,648) (1,454) (911)
Prepaid expenses, deposits and other assets.......... (36) (1,784) (1,768) (2,239)
Accounts payable..................................... 312 2,409 1,465 2,729
Accrued and other liabilities........................ 216 2,630 1,227 2,403
Deferred revenue..................................... 400 153 231 4,016
Due to/(from) CNET................................... -- (655) 756 2,443
Due to NBC........................................... -- -- -- 101
-------- ------- ------- -------
Net cash used in operating activities.............. (14,714) (24,639) (14,790) (19,821)
-------- ------- ------- -------
Cash flows used in investing activities:
Cash paid in connection with Global Brain transaction.... -- -- (1,300)
Investment in Net2Phone.................................. -- -- (228) (1,000)
Purchases of fixed assets................................ (1,456) (4,476) (2,983) (8,002)
-------- ------- ------- -------
Net cash used in investing activities.............. (1,456) (4,476) (3,211) (10,302)
-------- ------- ------- -------
Cash flows from financing activities:
Proceeds from line of credit............................. -- 13,500 2,300 29,800
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 18,691 29,800
-------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents....... -- 865 690 (323)
Cash and cash equivalents at beginning of the period....... -- -- -- 865
-------- ------- ------- -------
Cash and cash equivalents at end of the period............. $ -- 865 690 542
======== ======= ======= =======
Supplemental non-cash transactions:
Cash paid for interest................................... $ -- 13 -- 645
======== ======= ======= =======
Supplemental non-cash investing and financing activities:
Promotion and advertising provided by NBC................ $ -- 14,060 3,484 32,950
======== ======= ======= =======
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......... $ -- -- -- 22,731
======== ======= ======= =======
Services rendered in exchange for equity investments..... $ -- 605 -- 7,268
======== ======= ======= =======
Legal indemnification by members......................... $ -- -- -- 637
======== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 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 September 30, 1999, the Company had accumulated losses from
inception of approximately $115 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.COM/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
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 NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Company, Xoom.com, Inc., and certain of NBC's Internet assets (including
NBC.com, Videoseeker.com and NBC Interactive Neighborhood) and a 10% interest in
CNBC.com.
(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, $5,408,000 and $36,066,000 for the years
ended December 31, 1997 and 1998, and the nine months ended September 30, 1998
and 1999, respectively. These costs include the value of promotion and
advertising provided by NBC (see Note 7).
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 NINE MONTHS
ENDED SEPTEMBER 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 26% of net revenues for the year ended
December 31, 1998 and the nine-months ended September 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 nine months ended September
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
September 30, 1999, the Company had earned the release of shares valued at
approximately $1,350,000, which has been recorded as revenue in the nine months
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 September 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-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 NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally three to seven years. Property
and equipment recorded under leasehold improvements are amortized on a
straight-line basis over the shorter of the lease terms or their estimated
useful lives.
(G) INCOME TAXES
Prior to June 25, 1998 the Company's taxable losses were included in the
consolidated tax returns of CNET, Inc. The Company did not receive any benefit
from CNET Inc.'s receipt of such operating losses or research and development
credits.
Upon the incorporation as a Delaware limited liability company on June 26,
1998, the Company's net operating losses inured to the benefit of the Members.
Accordingly, no provision for income taxes is recognized in the accompanying
financial statements as the net loss generated from the Company's operations was
"passed through" to the Members.
(H) SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standard (SFAS) No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, governs
accounting for software development costs. This statement provides for
capitalization of certain software development costs once technological
feasibility has been established. The costs capitalized are then amortized on a
straight-line basis over the estimated product life, or on the ratio of current
revenue to total projected product revenues, whichever is greater. No such costs
have been capitalized to date.
(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.
F-50
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During the first nine months 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., which completed an initial public offering
during the second quarter of 1999 and an investment in Net2Phone, Inc. which
completed an initial public offering during the third quarter of 1999. The
Company's investments were recorded at market value based on the closing price
of the stock on September 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,
$541,000 and $1,591,000 for the years ended December 31, 1997 and 1998 and for
the nine months ended September 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-51
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 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, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Units issuable under unit option plan............... 986,662 2,904,832
Units issuable under option to NBC (see Note 7)..... 14,805,556 14,805,556
---------- ----------
15,792,218 17,710,388
========== ==========
</TABLE>
As of December 31, 1998 and September 30, 1999, the weighted average
exercise price of unit options was $2.47 and $23.19, respectively.
(Q) INTERIM FINANCIAL DATA
The accompanying financial statements as of September 30, 1999 and for the
nine months ended September 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-52
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Furniture, fixtures, leasehold improvements and
equipment...................................... $ 102 1,763 2,024
Purchased software............................... 159 242 1,277
Computer equipment............................... 1,195 3,927 10,633
------ ----- ------
1,456 5,932 13,934
Less accumulated depreciation and amortization... 329 1,258 3,709
------ ----- ------
$1,127 4,674 10,255
====== ===== ======
</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. The due dates on these borrowings have been
extended to between October 1, 1999 and December 7, 1999, respectively.
On September 14, 1999, the Company's revolving line of credit, guaranteed by
General Electric, was increased to $55,000,000. At September 30, 1999,
$43,300,000 was outstanding and $7,820,000 was available under the line of
credit. The outstanding balance is comprised of multiple individual borrowings,
due between October 1, 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, $1,235,000, and
$2,205,000 for the years ended December 31,
F-53
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(B) COMMITMENTS (CONTINUED)
1997 and 1998, and for the nine months ended September 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, $250,000, and
$618,000 for the years ended December 31, 1997 and 1998, and for the nine months
ended September 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
September 30, 1999 follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
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)................................. 1,976,432 30.94
Canceled (unaudited)................................ (58,262) 25.23
--------- -----
Options outstanding, September 30, 1999
(unaudited)....................................... 2,904,832 23.19
========= =====
Options exercisable, December 31, 1998.............. 31,107 7.79
Options exercisable, September 30, 1999
(unaudited)....................................... 217,891 11.02
========= =====
</TABLE>
F-54
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(6) OPTION PLAN (CONTINUED)
The following summarizes information about options outstanding as of
September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF NUMBER OF REMAINING WEIGHTED AVERAGE
EXERCISE PRICES UNITS CONTRACTUAL LIFE (YRS.) EXERCISE PRICE
--------------------- --------- ----------------------- ----------------
<S> <C> <C> <C>
$ 7.79 - $ 7.79 1,103,695 8.80 $ 7.79
30.$19 - $41.00.... 1,626,210 9.79 $30.84
42.$00 - $59.81.... 174,927 9.80 $49.17
--------- ---- ------
7.7$9 - $59.81..... 2,904,832 9.41 $23.19
========= ==== ======
</TABLE>
As of December 31, 1998 and September 30, 1999, options available for grant
under the Company's option plan totaled 618,276 and 345,168, respectively.
For the year ended December 31, 1998 and the nine months ended September 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 nine months ended September 30, 1999, $160,000 and
$3,207,000 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
F-55
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
were generally allocated 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 $3.2 million for the year ended December 31, 1998 and for the
nine months ended September 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
F-56
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
advertising and promotion expenses of approximately $14.1 million and $33.0
million for the year ended December 31, 1998 and the nine months ended September
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 $1.6 million for the year ended December 31,
1998 and for the nine months ended September 30, 1999, respectively, for amounts
due to NBC for such services.
During the years ended December 31, 1997 and 1998 and the nine months ended
September 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
F-57
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(10) LEGAL PROCEEDINGS (CONTINUED)
settlement 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, the amounts paid by NBC and CNET have been
included in the accompanying financial statements as contributed capital.
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-58
<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-59
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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 2,274,240 536,357
Other receivables..................................... 56,848 11,852 34,944
---------- ----------- -----------
Total current assets................................ 1,404,930 2,286,092 571,301
Property and equipment, net of accumulated depreciation
of $243,501 in 1997, $339,570 in 1998, and $408,984 in
1999.................................................. 916,513 622,561 447,389
---------- ----------- -----------
Total assets........................................ $2,321,443 2,908,653 1,018,690
========== =========== ===========
LIABILITIES AND PARENT COMPANY'S INVESTMENT
AND NET ADVANCES
Current liabilities:
Accounts payable...................................... $ 637,044 1,464,743 1,750,601
Accrued expenses and liabilities (note 2)............. 418,227 414,402 239,501
---------- ----------- -----------
Total current liabilities........................... 1,055,271 1,879,145 1,990,102
Deferred revenue (note 1(d))............................ 1,695,637 14,639,258 17,878,162
Parent Company's investment and net advances............ (429,465) (13,609,750) (18,849,574)
Commitments and contingencies (note 5)
---------- ----------- -----------
Total liabilities and Parent Company's investment
and net advances.................................. $2,321,443 2,908,653 1,018,690
========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-60
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN
PARENT COMPANY'S INVESTMENT AND NET ADVANCES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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 3,563,449 5,891,755
Other revenue............................ -- 4,693,300 3,365,197 6,598,175
----------- ----------- ----------- -----------
Total revenue.......................... 3,232,384 11,614,550 6,928,646 12,489,930
Cost of revenue............................ 4,398,846 5,248,928 3,512,590 4,573,624
----------- ----------- ----------- -----------
Gross (loss) profit.................... (1,166,462) 6,365,622 3,416,056 7,916,306
Operating expenses:
Operating and development.............. 677,055 938,295 775,117 390,691
Sales and marketing.................... 2,355,519 3,988,810 2,862,153 1,042,224
General and administrative............. 3,540,408 4,488,756 3,723,533 2,098,784
----------- ----------- ----------- -----------
Total operating expenses............... 6,572,982 9,415,861 7,360,803 3,531,699
----------- ----------- ----------- -----------
(Loss) income from operations.......... (7,739,444) (3,050,239) (3,944,747) 4,384,607
----------- ----------- ----------- -----------
Net (loss) income...................... (7,739,444) (3,050,239) (3,944,747) 4,384,607
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) (11,477,710) (9,624,431)
----------- ----------- ----------- -----------
Parent Company's investment and net
advances, end of period.................. $ (429,465) (13,609,750) (15,851,922) (18,849,574)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-61
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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) (3,944,747) 4,384,607
Adjustments to reconcile net (loss)
income to net cash used in operating
activities:
Provision for doubtful accounts........ 59,000 66,440 52,980 35,560
Depreciation and amortization.......... 156,995 176,287 129,489 105,694
Loss on disposal of property and
equipment............................ 109,840 220,576 220,576 109
Noncash revenue related to partner
agreements (note 1(d))............... (33,305) (5,101,895) (3,324,470) (8,644,073)
Advertising provided by NBC -- 2,015,400 1,395,500 --
Changes in operating assets and
liabilities:
Accounts receivable...................... (1,335,482) (992,598) (577,465) 1,702,323
Other receivables........................ 541,604 44,996 34,003 (23,092)
Accounts payable......................... (465,351) 827,699 1,060,493 285,858
Accrued expenses and liabilities......... 247,054 (3,825) (65,266) (174,901)
Deferred revenue......................... 1,462,499 (67,085) 75,142 (537,082)
----------- ----------- ----------- -----------
Net cash used in operating
activities......................... (6,996,590) (5,864,244) (4,943,765) (2,864,997)
----------- ----------- ----------- -----------
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 5,042,386 2,864,997
----------- ----------- ----------- -----------
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 17,915,595 12,420,060
</TABLE>
See accompanying notes to combined financial statements.
F-62
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 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.com), 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 aforementioned transactions were consummated on November 30, 1999.
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
F-63
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Allocated costs are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ---------------------
1997 1998 1998 1999
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
NBC Corporate.................................... $ 913,000 1,059,000 794,250 700,056
Rent............................................. 684,209 851,833 652,374 757,798
---------- --------- --------- ---------
$1,597,209 1,910,833 1,446,624 1,457,854
========== ========= ========= =========
</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 Web sites. 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 Web sites. 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 Web sites. These
F-64
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development fees are recognized as revenue once the related activities have been
performed. Revenues from electronic commerce revenue sharing arrangements within
the Division's Web sites are recognized upon notification from its partners of
sales attributable to the Division's site, and were insignificant in all periods
presented.
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, $709,273, and $2,795,898 in the years ended December 31, 1997, and
1998, and the nine months ended September 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,
$2,615,197, and $5,848,175 in the years ended December 31, 1997 and 1998, and
the nine months ended September 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 Web
sites. 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 nine
months ended September 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
F-65
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(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, $1,869,398 and
$288,172 for the years ended December 31, 1997 and 1998 and the nine months
ended September 30, 1998 and 1999, respectively. These costs include the value
of advertising provided by NBC of $0, $2,015,400, $1,395,500, and $0 for the
years ended December 31, 1997 and 1998 and the nine months ended September 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.
F-66
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) PRODUCT DEVELOPMENT COSTS
Product development costs consist principally of salaries and related costs,
and are charged to expense as incurred.
(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 September 30,
1999 and for the nine months ended September, 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 September 30, 1999 and the results
of the Division's operations and its cash flows for the nine months ended
September 30, 1998 and 1999. The financial data and other information disclosed
in these notes to combined financial statements related to these
F-67
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
periods are unaudited. The results for the nine months ended September 30, 1999
are not necessarily indicative of the results to be expected for the year ending
December 31, 1999.
(2) BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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) (408,984)
--------- -------- --------
$ 916,513 622,561 447,389
========= ======== ========
Accrued Expenses and Liabilities
Accrued salaries, incentive compensation and related
benefits............................................... $ 381,802 414,402 239,501
Other.................................................... 36,425 -- --
--------- -------- --------
$ 418,227 414,402 239,501
========= ======== ========
</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 nine months ended
September 30, 1998 and 1999, respectively, net advances were reduced by
$266,442, $18,112,601, $17,915,595, and $12,420,060, representing the value of
equity instruments received under partner agreements by the Division and
transferred to NBC.
F-68
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(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. 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 Web sites. 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-69
<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 the years then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Palo Alto, California
July 20, 1998
F-70
<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-71
<PAGE>
PARALOGIC CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS 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-72
<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-73
<PAGE>
PARALOGIC CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
<S> <C> <C>
1996 1997
-------- ----------
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-74
<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-75
<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 revenues 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-76
<PAGE>
PARALOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
<S> <C> <C>
1996 1997
-------- --------
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,
-------------------
<S> <C> <C>
1996 1997
------- -------
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-77
<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>
YEARS ENDED
DECEMBER 31,
-------------------
<S> <C> <C>
1996 1997
------- --------
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,
-------------------
<S> <C> <C>
1996 1997
------- --------
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 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-78
<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 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 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-79
<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' 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-80
<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' 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' 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' deficit................................. (15,350) (48,255) (58,935)
-------- -------- --------
Total liabilities and shareholders' deficit................. $ 4,116 $ 1,748 $ 942
======== ======== ========
</TABLE>
See accompanying notes.
F-81
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1996
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue................................... $ 49,153 $ 27,937 $ 8,500 $ --
Cost of net revenue........................... 38,885 23,718 7,302 --
-------- -------- -------- --------
Gross profit.................................. 10,268 4,219 1,198 --
Costs and expenses:
Operating and development................... 3,457 19,300 4,634 6,595
Sales and marketing......................... 5,991 3,841 2,836 --
General and administrative.................. 18,716 13,983 5,826 4,085
-------- -------- -------- --------
Total costs and expenses...................... 28,164 37,124 13,296 10,680
-------- -------- -------- --------
Loss before provision for income taxes........ (17,896) (32,905) (12,098) (10,680)
Provision for income taxes.................... 2,454 -- -- --
-------- -------- -------- --------
Net loss...................................... $(20,350) $(32,905) $(12,098) $(10,680)
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-82
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' 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-83
<PAGE>
GLOBAL BRIDGES TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1996
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss...................................... $(20,350) $(32,905) $(12,098) $(10,680)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Deposits.................................... (712) -- -- --
Accounts payable and accrued expenses....... 19,466 28,091 17,512 (1,426)
-------- -------- -------- --------
Net cash provided by (used in) operating
activities.................................. (1,596) (4,814) 5,414 (12,106)
INVESTING ACTIVITIES:
Cash advanced to shareholder in exchange for
note receivable............................. (3,404) -- -- --
Payment received from shareholder............. -- 3,404 -- --
-------- -------- -------- --------
Net cash provided by (used in) investing
activities.................................. (3,404) 3,404 -- --
FINANCING ACTIVITIES:
Capital contributed by founders............... 5,000 -- -- --
Proceeds from note payable to shareholder..... -- 2,446 -- 11,300
-------- -------- -------- --------
Net cash provided by financing activities..... 5,000 2,446 -- 11,300
-------- -------- -------- --------
Net change in cash............................ -- 1,036 5,414 (806)
Cash at beginning of period................... -- -- -- 1,036
-------- -------- -------- --------
Cash at end of period......................... $ -- $ 1,036 $ 5,414 $ 230
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes.................... $ -- $ -- $ 2,454 $ --
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-84
<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-85
<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' 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-86
<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-87
<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-88
<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-89
<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-90
<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-91
<PAGE>
PAGECOUNT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, JANUARY 23,
1997 1997
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenue............................................... $252,332 $111,200 $208,689
Cost of net revenue....................................... 45,634 36,075 14,314
-------- -------- --------
Gross profit.............................................. 206,698 75,125 194,375
Costs and expenses:
Sales and marketing..................................... 1,519 -- 2,371
General and administrative.............................. 178,513 58,907 184,023
-------- -------- --------
Total costs and expenses.................................. 180,032 58,907 186,394
-------- -------- --------
Income from operations.................................... 26,666 16,218 7,981
Other income.............................................. 130 -- 62
-------- -------- --------
Income 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-92
<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-93
<PAGE>
PAGECOUNT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, JANUARY 23,
1997 1997
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
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-94
<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-95
<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-96
<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>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Computer equipment................................... $19,350 $27,162
Accumulated depreciation............................. (2,689) (6,565)
------- -------
$16,661 $20,597
======= =======
</TABLE>
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-97
<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 PERIOD FROM
JANUARY 23, JANUARY 23,
1997 1997
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current:
Federal................................................. $1,808 $2,311 $1,146
State................................................... 635 811 402
------ ------ ------
2,443 3,122 1,548
------ ------ ------
Deferred:
Federal................................................. 2,281 -- --
State................................................... 761 -- --
------ ------ ------
3,042 -- --
------ ------ ------
Total provision........................................... $5,485 $3,122 $1,548
====== ====== ======
</TABLE>
A reconciliation of income taxes at the statutory federal income tax rate to
net income taxes included in the accompanying statements of income is as
follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, JANUARY 23,
1997 1997
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
U.S. federal taxes at statutory rate...................... $ 9,111 $ 5,514 $ 2,735
Impact of graduated U.S. tax at 15% statutory rate........ (5,092) (3,081) (1,589)
State income taxes, net of federal benefit................ 1,139 689 402
Other..................................................... 327 -- --
------- ------- -------
$ 5,485 $ 3,122 $ 1,548
======= ======= =======
</TABLE>
The principal source of the Company's deferred tax liabilities is the use of
accelerated depreciation methods for tax purposes.
6. SUBSEQUENT EVENT
Effective July 24, 1998, the Company entered into an asset sale agreement
under which it sold substantially all of its net assets to Xoom.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-98
<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-99
<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-100
<PAGE>
PARALOGIC SOFTWARE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
(UNAUDITED)
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-101
<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
---------------- ---------------- ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
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-102
<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-103
<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
------------ ---------------- ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
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-104
<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 Web site 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-105
<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-106
<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-107
<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-108
<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 WEIGHTED-
AVAILABLE 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-109
<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-110
<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-111
<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-112
<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-113
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- -----------------------
1997 1998 1998 1999
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
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-114
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE
-------------------- ---------------------- FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER COMPENSATION
--------- -------- --------- ---------- ----------- ------------
<S> <C> <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 -- (1,991,670)
Amortization of deferred compensation
(unaudited)............................. -- -- -- -- -- 523,603
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) $(1,468,067)
========= ======== ========= ========== ======= ===========
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
(ACCUMULATED EQUITY
DEFICIT) (DEFICIT)
------------ -------------
<S> <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)................... -- --
Amortization of deferred compensation
(unaudited)............................. -- 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)...... $(1,407,430) $ (38,377)
=========== ==========
</TABLE>
See accompanying notes.
F-115
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
-------- --------- ---------- -----------
(UNAUDITED) (UNAUDITED)
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-116
<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
F-117
<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)
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.
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.
F-118
<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)
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income, which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
had no material components of comprehensive income. The adoption of this
standard has had no impact on the Company's 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
F-119
<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)
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
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.
F-120
<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)
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>
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
--------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE OF LIFE (IN EXERCISE OF EXERCISE
PRICE SHARES YEARS) PRICE SHARES PRICE
- ------------------------- ------- ---- ----- ------- -----
$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.
F-121
<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)
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>
THREE MONTHS ENDED
MARCH 31, 1999
---------------------
<S> <C> <C>
NON-QUALIFIED ISO
------- --------
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>
F-122
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. COMMITMENTS (CONTINUED)
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.
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-123
<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-124
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
BALANCE SHEET
ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- -----------
<S> <C> <C>
(UNAUDITED)
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-125
<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
(DATE OF INCEPTION)
DECEMBER 31, THROUGH
1998 JUNE 30, 1999 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-126
<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 SERIES B
CONVERTIBLE 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-127
<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
(DATE OF INCEPTION)
DECEMBER 31, THROUGH
1998 JUNE 30, 1999 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-128
<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-129
<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
F-130
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
compensation plans at fair value. The Company has adopted the disclosure
requirements of SFAS No. 123, which involves pro forma 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 31, JUNE 30,
USEFUL LIFE 1998 1999
----------- ------------- ---------
<S> <C> <C> <C>
(UNAUDITED)
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
F-131
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES: (CONTINUED)
income of the Company, subject to certain limitations, as defined under Section
382 of the Internal Revenue Code.
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
F-132
<PAGE>
LIQUIDMARKET, INC.
(A COMPANY IN THE DEVELOPMENTAL STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CAPITALIZATION: (CONTINUED)
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 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
F-133
<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)
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.
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-134
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
for Xoom.com, Inc. 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, Inc. The
historical financial information has been derived from the respective historical
financial statements of Xoom.com, Inc., 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 were previously filed.
The MightyMail Networks, Inc., Paralogic Software Corporation and
LiquidMarket, Inc. acquisitions occurred on May 3, 1999, June 16, 1999, and
August 3, 1999, and therefore are already reflected in Xoom.com, Inc.'s
unaudited condensed consolidated balance sheet as of September 30, 1999 in the
Xoom.com, Inc. Form 10-Q. As a result, a Xoom.com, Inc. unaudited pro forma
condensed combined balance sheet as of September 30, 1999 is not needed.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1998, combines historical statements of operations for
Xoom.com, Inc., Paralogic Corporation, Global Bridges Technologies, Inc.,
Pagecount, Inc., Paralogic Software Corporation, MightyMail Networks, Inc. and
LiquidMarket, Inc. and gives 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
nine months ended September 30, 1999, combines historical statements of
operations for Xoom.com, Inc., Paralogic Software Corporation, MightyMail
Networks, Inc. and LiquidMarket, Inc., and gives effect to the mergers,
including amortization of goodwill and other intangible assets, as if they had
occurred on January 1, 1999.
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 operating results or financial position of the combined companies.
F-135
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------------------------------
PARALOGIC
CORPORATION GLOBAL
FOR THE TWO BRIDGES
MONTHS TECHNOLOGIES PAGECOUNT, INC.
ENDED FOR THE FIVE FOR THE SIX PARALOGIC
FEBRUARY MONTHS ENDED MONTHS ENDED MIGHTYMAIL SOFTWARE
XOOM.COM 28, 1998 MAY 31, 1998 JUNE 30, 1998 NETWORKS, INC. CORPORATION
---------- ----------- ------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue....................... $ 4,865 $80 $ -- $208 $ 355 $165
Cost of net revenue............... 2,000 31 -- 14 215 3
------- --- ---- ---- ------ ----
Gross margin...................... 2,865 49 -- 194 140 162
Operating expenses:
Operating and development....... 2,558 12 11 -- 47 --
Sales and marketing............. 1,570 2 -- 2 43 12
General and administrative...... 2,158 13 4 184 222 97
Purchased in-process research
and development............... 790 -- -- -- -- --
Amortization of deferred
compensation.................. 1,111 -- -- -- -- 137
Amortization of goodwill and
other intangible assets....... 1,087 -- -- -- -- --
------- --- ---- ---- ------ ----
Total operating expenses.......... 9,274 27 15 186 312 246
------- --- ---- ---- ------ ----
Income (loss) from operations..... (6,409) 22 (15) 8 (172) (84)
Other income (expense):
Interest income................. 37 -- -- 1 -- --
Interest expense................ (20) -- -- (2) 4 (1)
Interest expense related to
warrant....................... -- -- -- -- -- --
------- --- ---- ---- ------ ----
Net income (loss)................. $(6,392) 22 $(15) $ 7 $ (168) $(85)
======= === ==== ==== ====== ====
Basic and diluted net loss per
share...........................
Shares used in per share
calculation--basic and
diluted.......................
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------------
PRO FORMA
LIQUID- BUSINESS
MARKET, COMBINATION
INC. COMBINED ADJUSTMENTS PRO FORMA
-------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Net revenue....................... $ -- $ 5,673 $ -- $ 5,673
Cost of net revenue............... -- 2,263 -- 2,263
----- -------- -------- --------
Gross margin...................... -- 3,410 -- 3,410
Operating expenses:
Operating and development....... 67 2,695 -- 2,695
Sales and marketing............. 51 1,680 -- 1,680
General and administrative...... 104 2,782 -- 2,782
Purchased in-process research
and development............... -- 790 (460)(A) 330
Amortization of deferred
compensation.................. -- 1,248 -- 1,248
Amortization of goodwill and
other intangible assets....... -- 1,087 19,625 (B) 20,712
----- -------- -------- --------
Total operating expenses.......... 222 10,282 19,165 29,447
----- -------- -------- --------
Income (loss) from operations..... (222) (6,872) (19,165) (26,037)
Other income (expense):
Interest income................. 1 39 -- 39
Interest expense................ -- (19) -- (19)
Interest expense related to
warrant....................... -- -- -- --
----- -------- -------- --------
Net income (loss)................. $(221) $ (6,852) $(19,165) $(26,017)
===== ======== ======== ========
Basic and diluted net loss per
share........................... (C) $ (2.86)
========
Shares used in per share
calculation--basic and
diluted....................... (C) 9,092
========
</TABLE>
F-136
<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 GLOBAL
FOR THE TWO BRIDGES
MONTHS TECHNOLOGIES PAGECOUNT, INC.
ENDED FOR THE FIVE FOR THE SIX PARALOGIC
FEBRUARY MONTHS ENDED MONTHS ENDED MIGHTYMAIL SOFTWARE
XOOM.COM 28, 1998 MAY 31, 1998 JUNE 30, 1998 NETWORKS, INC. CORPORATION
---------- ----------- ------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue....................... $ 8,318 $80 $ -- $208 $ 355 $ 239
Cost of net revenue............... 3,584 31 -- 14 215 13
-------- --- ---- ---- ------ -----
Gross margin...................... 4,734 49 -- 194 140 226
Operating expenses:
Operating and development....... 3,841 12 11 -- 62 145
Sales and marketing............. 2,834 2 -- 2 57 73
General and administrative...... 3,366 13 4 184 297 35
Purchased in-process research
and development............... 790 -- -- -- -- --
Amortization of deferred
compensation.................. 1,416 -- -- -- -- 182
Amortization of goodwill and
other intangible assets....... 1,843 -- -- -- -- --
-------- --- ---- ---- ------ -----
Total operating expenses.......... 14,090 27 15 186 416 435
-------- --- ---- ---- ------ -----
Income (loss) from operations..... (9,356) 22 (15) 8 (276) (209)
Other income (expense):
Interest income................. 187 -- -- 1 1 --
Interest expense................ (135) -- -- (2) (6) (1)
Interest expense related to
warrant....................... (1,494) -- -- -- -- --
-------- --- ---- ---- ------ -----
Net income (loss)................. $(10,798) 22 $(15) $ 7 $ (281) $(210)
======== === ==== ==== ====== =====
Basic and diluted net loss per
share...........................
Shares used in per share
calculation--basic and
diluted.......................
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------
PRO FORMA
LIQUID- BUSINESS
MARKET, COMBINATION
INC. COMBINED ADJUSTMENTS PRO FORMA
-------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Net revenue....................... $ -- $ 9,200 $ -- $ 9,200
Cost of net revenue............... -- 3,857 -- 3,857
----- -------- -------- --------
Gross margin...................... -- 5,343 -- 5,343
Operating expenses:
Operating and development....... 268 4,339 -- 4,339
Sales and marketing............. 192 3,160 -- 3,160
General and administrative...... 211 4,110 -- 4,110
Purchased in-process research
and development............... -- 790 (460)(A) 330
Amortization of deferred
compensation.................. 7 1,605 -- 1,605
Amortization of goodwill and
other intangible assets....... -- 1,843 25,777 (B) 27,620
----- -------- -------- --------
Total operating expenses.......... 678 15,847 25,317 41,164
----- -------- -------- --------
Income (loss) from operations..... (678) (10,504) (25,317) (35,821)
Other income (expense):
Interest income................. 3 192 -- 192
Interest expense................ (1) (145) -- (145)
Interest expense related to
warrant....................... -- (1,494) -- (1,494)
----- -------- -------- --------
Net income (loss)................. $(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-137
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 F
-------------------------------------------------
XOOM.COM FOR PARALOGIC
THE NINE MIGHTYMAIL SOFTWARE
MONTHS NETWORKS, INC. CORPORATION FOR
ENDED FOR THE PERIOD THE PERIOD
SEPTEMBER 30, ENDED MAY 3, ENDED JUNE 16,
1999 1999 1999
-------------- -------------- ---------------
<S> <C> <C> <C>
Net revenue............................................. $ 19,903 $ -- $ 291
Cost of net revenue..................................... 7,645 -- 12
-------- ------- -------
Gross margin............................................ 12,258 -- 279
Operating expenses:
Operating and development............................. 5,708 634 319
Sales and marketing................................... 13,507 24 160
General and administrative............................ 6,846 296 79
Purchased in-process research and development......... 2,603 -- --
Amortization of deferred compensation................. 495 1,283 962
Amortization of goodwill and other intangible
assets.............................................. 7,836 -- --
-------- ------- -------
Total operating expenses................................ 36,995 2,237 1,520
-------- ------- -------
Loss from operations.................................... (24,737) (2,237) (1,241)
Other income (expense):
Interest income....................................... 6,213 1 2
Interest expense...................................... (90) (2) --
-------- ------- -------
Net loss................................................ $(18,614) $(2,238) $(1,239)
======== ======= =======
Basic and diluted net loss per share....................
Shares used in per share calculation--basic and
diluted...............................................
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------
LIQUID-
MARKET,
INC. FOR
THE
R PERIOD PRO FORMA
ENDED BUSINESS
AUGUST 3, COMBINATION
1999 COMBINED ADJUSTMENTS PRO FORMA
- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Net revenue............................................. $ -- $ 20,194 $ -- $ 20,194
Cost of net revenue..................................... -- 7,657 -- 7,657
------- -------- -------- --------
Gross margin............................................ -- 12,537 -- 12,537
Operating expenses:
Operating and development............................. 519 7,180 -- 7,180
Sales and marketing................................... 269 13,960 -- 13,960
General and administrative............................ 506 7,727 -- 7,727
Purchased in-process research and development......... -- 2,603 (2,603)(A) --
Amortization of deferred compensation................. 701 3,441 -- 3,441
Amortization of goodwill and other intangible
assets.............................................. -- 7,836 13,664 (B) 21,500
------- -------- -------- --------
Total operating expenses................................ 1,995 42,747 11,061 53,808
------- -------- -------- --------
Loss from operations.................................... (1,995) (30,210) (11,061) (41,271)
Other income (expense):
Interest income....................................... 12 6,228 -- 6,228
Interest expense...................................... (1) (93) -- (93)
------- -------- -------- --------
Net loss................................................ $(1,984) $(24,075) $(11,061) $(35,136)
======= ======== ======== ========
Basic and diluted net loss per share.................... (C) $ (2.09)
========
Shares used in per share calculation--basic and
diluted............................................... (C) 16,780
========
</TABLE>
F-138
<PAGE>
XOOM.COM, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The adjustments to the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1998 and the nine months ended
September 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 the MightyMail Networks, Inc. and Paralogic Software
Corporation acquisitions, respectively, have been excluded from the net
loss for the year ended December 31, 1998 and the nine months ended
September 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 were incurred in connection with 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 assumed in the merger has
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-139
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Prospectus Summary............................. 2
Risk Factors................................... 10
Special Note Regarding Forward-Looking
Statements.................................... 28
Use of Proceeds................................ 29
Dividend Policy................................ 29
Price Range of Class A Common Stock............ 29
Capitalization................................. 30
Dilution....................................... 31
NBCi Unaudited Selected Pro Forma Condensed
Combined Financial Data....................... 33
NBC Internet, Inc.'s Management's Discussion
and Analysis of Pro Forma Financial Condition
and Results of Operations..................... 35
Xoom.com Selected Consolidated Financial
Data.......................................... 43
Xoom.com's Management's Discussion and Analysis
of Financial Condition and Results of
Operations.................................... 45
Business....................................... 64
Management..................................... 83
Related Party Transactions..................... 93
Principal and Selling Stockholders............. 96
TRACES Stockholders............................ 97
Description of Capital Stock................... 99
Shares Eligible for Future Sale................ 108
Underwriting................................... 109
Legal Matters.................................. 110
Experts........................................ 110
Available Information.......................... 111
Index to Consolidated Financial Statements..... F-1
</TABLE>
----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Shares
NBC INTERNET, INC.
Class A common stock
------------------------------
[NBC Internet LOGO]
------------------------------
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
CHASE H & Q
DEUTSCHE BANC ALEX. BROWN
ROBERTSON STEPHENS
Representatives of the Underwriters
<PAGE>
[ALTERNATE PAGE]
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[ALTERNATE PAGE]
SUBJECT TO COMPLETION. DATED JANUARY 14, 2000.
[NBC Internet LOGO]
Shares
NBC INTERNET, INC.
Class A Common Stock
-------------
This prospectus relates to up to 1,320,132 shares (or up to 1,518,152 shares
if the underwriter's over-allotment option is exercised in full) of Class A
Common Stock of NBC Internet, Inc. beneficially owned by one of our stockholders
that may be delivered by the NBCi Automatic Common Exchange Security Trust (the
"TRACES Trust") to holders of Automatic Common Exchange Securities of the TRACES
Trust upon exchange of such securities on the Exchange Date as defined in the
attached prospectus of the TRACES Trust (the "TRUST Prospectus"). The Automatic
Common Exchange Securities are being sold by the TRACES Trust in an offering
described in the attached Trust Prospectus.
We will not receive any proceeds from the sales of the Automatic Common
Exchange Securities.
Our Class A Common Stock vote as a single class on all matters, except as
otherwise required by law, with each share of Class A Common Stock entitling its
holder to one vote.
NBC Internet's Class A Common Stock is traded on the Nasdaq National Market
under the symbol "NBCi." On January 12, 2000, the last reported sales price for
our Class A Common Stock was $75.75 per share.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
GOLDMAN, SACHS & CO. SALOMON SMITH BARNEY
------------
Prospectus dated _____________
<PAGE>
[ALTERNATE PAGE]
USE OF PROCEEDS
We will not receive any proceeds from the sales of the Automatic Common
Exchange Securities. All of the shares of Class A Common Stock deliverable upon
exchange of the Automatic Common Exchange Securities are beneficially owned by
TRACES Trust.
<PAGE>
[ALTERNATE PAGE]
TRACES STOCKHOLDER
Pursuant to a forward purchase contract (the "Purchase Contract") between
the TRACES Trust and the stockholder listed below (the "TRACES Stockholder"), a
specified number of shares of Class A Common Stock may be required to be
delivered to the TRACES Trust by the TRACES Stockholder upon exchange of
Automatic Common Exchange Securities. The following table sets forth certain
information for the TRACES Stockholder with respect to (i) the TRACES
Stockholder's beneficial ownership of Class A Common Stock and Class B Common
Stock as of the date of this prospectus and the percentage of total voting power
represented thereby and (ii) the maximum number of shares of Class A Common
Stock of the TRACES Stockholder that may be delivered to the TRACES Trust
pursuant to the Purchase Contract (without taking into account the underwriter's
over-allotment option in respect of the Automatic Common Exchange Trust). The
TRACES Stockholder's beneficial ownership of Class A Common Stock will not
change as a result of the offering of Automatic Common Exchange Securities
unless, until and to the extent that the TRACES Stockholder delivers shares of
Class A Common Stock to the TRACES Trust pursuant to the Purchase Contract.
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
SHARES OF CLASS A
COMMON STOCK
DELIVERABLE TO TRACES
COMMON STOCK PERCENTAGE OF TOTAL TRUST PURSUANT TO THE
DELIVERING STOCKHOLDER BENEFICIALLY OWNED VOTING POWER PURCHASE CONTRACT
- ---------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
The Automatic Common Exchange Securities will be distributed as described in
the Trust Prospectus under the caption "Underwriting". The underwriter and
certain of its affiliates have provided, are currently providing, and expect to
provide in the future, commercial and investment banking services to us for
which such underwriter or its affiliates have received and will receive fees and
commissions.
<PAGE>
[ALTERNATE PAGE]
TRUST PROSPECTUS
The Automatic Common Exchange Securities are being offered pursuant to the
Trust Prospectus. This prospectus related only to the Class A Common Stock that
may be delivered upon exchange of the Automatic Common Exchange Securities. We
take no responsibility for any information included in or omitted from the Trust
Prospectus. The Trust Prospectus does not constitute a part of this prospectus
nor is it incorporated by reference herein.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
---------
<S> <C>
Securities and Exchange Commission Filing Fee................................... $ 136,150
NASD Filing Fee................................................................. 30,500
Nasdaq National Market Listing Fee for Additional Shares........................ 17,500
Accounting Fees and Expenses.................................................... 100,000
Blue Sky Fees and Expenses...................................................... 3,000
Legal Fees and Expenses......................................................... 300,000
Transfer Agent and Registrar Fees and Expenses.................................. 15,000
Printing Expenses............................................................... 200,000
Miscellaneous Expenses.......................................................... 197,850
Total..................................................................... $1,000,000
</TABLE>
- ------------------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to officers,
directors and other corporate agents under certain circumstances and subject to
certain limitations. Our certificate of incorporation and bylaws provide that we
shall indemnify our directors, officers, employees and agents to the full extent
permitted by Delaware General Corporation Law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, we intend to enter into separate indemnification agreements with our
directors, officers and certain employees which would require us, among other
things, to indemnify them against certain liabilities which may arise by reason
of their status as directors, officers or certain other employees. We also
intend to maintain director and officer liability insurance, if available on
reasonable terms.
These indemnification provisions and the indemnification agreement to be
entered into between us and our officers and directors may be sufficiently broad
to permit indemnification of our officers and directors for liabilities,
including reimbursement of expenses incurred, arising under the Securities Act.
The underwriting agreement filed as Exhibit 1.1 to this registration
statement provides for indemnification by the underwriters of us and our
officers and directors for certain liabilities arising under the Securities Act,
or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On November 29, 1999, CNET, Inc. and Global BrainNet, Inc. contributed their
ownership interests in Snap! LLC to us in exchange for 7,147,584 and 97,479
shares of our Class A common stock, respectively, in accordance with the terms
and provisions of the agreement and plan of contribution and merger dated
May 9, 1999, as amended on October 20, 1999. In addition, upon the merger of our
wholly-owned subsidiary with and into Xoom.com, an affiliate of NBC received
960,028 shares of our Class A common stock which were automatically converted
into shares of our Class B common stock on November 30, 1999. The shares of our
Class A common stock were issued in reliance upon the exemption provided by
Section 4(2) of the Securities Act.
II-1
<PAGE>
On November 30, 1999, in accordance with the terms and provisions of the
agreement and plan of contribution, investment and merger dated July 8, 1999, as
amended on October 20, 1999: (1) Neon Media Corporation, was merged with and
into us in exchange for 12,173,111 shares of our Class B common stock issued to
NBC Multimedia; (2) NBC Multimedia received 11,417,569 shares of our Class B
common stock in exchange for its ownership interests in Snap; (3) NBC Multimedia
transferred the business related to VideoSeeker.com to us in exchange for our
$39,477,953 subordinated zero coupon convertible note due 2006; and (4) GE
Investments Subsidiary purchased our $447,416,805 subordinated zero coupon
convertible note due 2006 in exchange for an assignment of a $340 million note
issued by NBC. The shares of our Class B common stock and the convertible notes
were issued in reliance upon the exemption provided by Section 4(2) of the
Securities Act.
ITEM 16. 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>
Independent Auditor's Report on Schedule............................................... S-1
Schedule II--Snap Valuation and Qualifying Accounts.................................... S-2
Schedule II--Xoom.com Valuation and Qualifying Accounts................................ S-3
</TABLE>
Schedules other than those listed above have been omitted since they are not
required or are not applicable or the required information is shown in the
financial statements or related notes.
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses incurred or paid by one of our directors, officers
or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NBC Internet,
Inc. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San Francisco, State
of California on the 13th day of January, 2000.
<TABLE>
<S> <C> <C>
NBC INTERNET, INC.
By: /s/ CHRIS KITZE
-----------------------------------------
Chris Kitze
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Chris Kitze and John Harbottle, and each of them,
as their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for them and in their name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement, and to sign any
registration statement for the same offering covered by the registration
statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933 and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ROBERT C. WRIGHT
- ------------------------------ Chairman of the Board and January 13, 2000
Robert C. Wright Director
/s/ CHRIS KITZE Chief Executive Officer
- ------------------------------ (Principal Executive January 13, 2000
Chris Kitze Officer)
- ------------------------------ President and Chief January , 2000
Edmond P. Sanctis Operating Officer
Chief Financial Officer,
Executive Vice
/s/ JOHN HARBOTTLE President, Secretary and
- ------------------------------ Treasurer (Principal January 13, 2000
John Harbottle Financial and Accounting
Officer)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JEFFREY BALLOWE
- ------------------------------ Director January 13, 2000
Jeffrey Ballowe
- ------------------------------ Director January , 2000
Robert C. Harris, Jr.
/s/ JAMES HEFFERNAN
- ------------------------------ Director January 13, 2000
James Heffernan
/s/ MICHAEL M. LYNTON
- ------------------------------ Director January 13, 2000
Michael M. Lynton
/s/ L. LOWRY MAYS
- ------------------------------ Director January 13, 2000
L. Lowry Mays
- ------------------------------ Director January , 2000
Philip Schlein
/s/ MARK W. BEGOR
- ------------------------------ Director January 13, 2000
Mark W. Begor
/s/ GARY M. REINER
- ------------------------------ Director January 13, 2000
Gary M. Reiner
/s/ SCOTT M. SASSA
- ------------------------------ Director January 13, 2000
Scott M. Sassa
/s/ JOHN F. WELCH, JR.
- ------------------------------ Director January 13, 2000
John F. Welch, Jr.
- ------------------------------ Director January , 2000
Martin J. Yudkovitz
</TABLE>
II-4
<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 ADDITIONS-- BALANCE AT
BEGINNING OF CHARGED TO COSTS DEDUCTIONS-- END OF
FISCAL YEAR AND EXPENSES WRITEOFFS FISCAL 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>
XOOM.COM
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<TABLE>
<CAPTION>
ADDITIONS-
BALANCES AT CHARGED TO BALANCES AT
BEGINNING COSTS AND DEDUCTIONS END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Period from April 16, 1996 (inception) through December 31,
1996........................................................ $ -- $ -- $ -- $ --
========= ========= ========= =========
Year ended December 31, 1997.................................. $ -- $ 49 $ -- $ 49
========= ========= ========= =========
Year ended December 31, 1998.................................. $ 49 $ 269 $ (123) $ 195
========= ========= ========= =========
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement(*)
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.(1)
2.2 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.(1)
2.3 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.(1)
2.4 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.(1)
3.1 Restated Certificate of Incorporation of the Registrant(2)
3.2 Amended and Restated Bylaws of the Registrant(2)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen Stock Certificate of the Registrant(1)
5.1 Opinion of Morrison & Foerster LLP as to the legality of the Class A common stock(*)
10.1 Form of Indemnification Agreement between the Registrant and each of its executive officers and
directors(1)
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 Governance and Investor Rights Agreement between the Registrant and National Broadcasting Company, Inc.
10.6 Standstill Agreement between the Registrant and CNET, Inc.
10.7 Brand Integration and License Agreement between NBC Multimedia, Inc. and National Broadcasting Company,
Inc., dated May 8, 1999(1)
10.8 Stock Option Agreement between Xoom.com, Inc. and National Broadcasting Company, Inc., dated May 9,
1999(1)
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(1)
10.10 Voting and Right of First Offer Agreement between National Broadcasting Company, Inc. and CNET, Inc.
10.11 Loan Agreement between Xoom.com, Inc. and Sand Hill Capital, LLC, dated as of November 3, 1998(1)
10.12 Amended and Restated Letter Agreement between Bank of America National Trust and Savings Association and
Snap! LLC, dated September 14, 1999(1)
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(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
--------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.18 1999 Stock Incentive Plan(1)
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 C. Harris, Jr. 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 Advertising Agreement between the Registrant and National Broadcasting Company, Inc.
10.26 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
10.27 $39,477,953 Subordinated Zero Coupon Convertible Debenture due 2006
10.28 $447,416,805 Subordinated Zero Coupon Convertible Debenture due 2006
10.29 $340,000,000 Term Note
10.30 Office Lease for 225 Bush Street, San Francisco, California between OAIC Bush Street, LLC and Xoom.com,
Inc. dated August 13, 1999(1)
10.31 Letter Agreement by and between Xoom.com, Inc. and Edmond Sanctis, dated October 19, 1999
10.32 Web Site International and Linkage Agreement between Clear Channel Broadcasting, Inc., Snap! LLC and
Xoom.com, Inc. dated June 30, 1999.*
10.33 Second Amended and Restated Investors' Rights Agreement by and among Telocity, Inc. ("Telocity"), the
Purchasers of Series C Preferred Stock of Telocity, the existing holders of Investors Rights of
Telocity, and Parties to that certain Amended and Restated Investors' Rights Agreement dated
February 16, 1999.*
10.34 Series C Preferred Stock Purchase Agreement by and among Telocity, Inc. and the Shareholders listed on
Exhibit A of that Agreement.*
10.35 Amended and Restated Limited Liability Company Agreement of CNBC.com LLC dated November 30, 1999
10.36 Interactive Promotion Agreement between Snap! LLC, Xoom.com, Inc., and ValueVision International, Inc.,
dated September 13, 1999.*
10.37 Trademark License Agreement between Snap! LLC and ValueVision International, Inc., dated September 13,
1999.*
10.38 Letter Agreement by and between Xoom.com, Inc. and Alan Braverman, dated November 12, 1999.*
10.39 Letter Agreement by and between Xoom.com, Inc. and John McMenamin, dated November 17, 1999.*
21.1 Subsidiaries of the Registrant(1)
23.1 Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of KPMG LLP, Independent Auditors
23.4 Consent of KPMG LLP, Independent Auditors
23.5 Consent of PricewaterhouseCoopers LLP, Independent Accountants
27.1 Financial Data Schedule of Xoom.com, Inc.
27.2 Financial Data Schedule of NBC Multimedia, Inc.
27.3 Financial Data Schedule of Snap! LLC
</TABLE>
- ------------------------
(*)To be filed by amendment
<PAGE>
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-4 (Registration No. 333-82639) on July 12, 1999
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333-91715) on November 29, 1999.
<PAGE>
Exhibit 10.5
---------------------------
NBC INTERNET, INC.
GOVERNANCE AND INVESTOR RIGHTS AGREEMENT
between
NBC INTERNET, INC.
and
NATIONAL BROADCASTING COMPANY, INC.
---------------------------
Dated as of November 30, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
ARTICLE I CERTAIN DEFINITIONS.....................................................................................1
ARTICLE II STANDSTILL PROVISIONS..................................................................................6
Section 2.1 Restrictions on NBC's Activities Regarding the Company and its Stock............................6
Section 2.2 Purchases by NBC Parent.........................................................................7
Section 2.3 Disapplication of Standstill Limit..............................................................7
ARTICLE III TRANSFERS BY NBC......................................................................................8
Section 3.1 Restrictions on Transfer........................................................................8
Section 3.2 Endorsement of Certificates.....................................................................9
Section 3.3 Stock Purchase Rights...........................................................................9
ARTICLE IV OTHER COVENANTS.......................................................................................11
Section 4.1 FCC Matters....................................................................................11
Section 4.2 Corporate Integrity Policy.....................................................................12
Section 4.3 Listing on Nasdaq or Securities Exchange.......................................................12
ARTICLE V BOARD ACTION...........................................................................................12
Section 5.1 Board Representation Rights....................................................................12
ARTICLE VI MISCELLANEOUS.........................................................................................13
Section 6.1 Successors and Assigns.........................................................................13
Section 6.2 Amendment; Waiver of Compliances; Conflicts....................................................13
Section 6.3 Notices........................................................................................13
Section 6.4 Entire Agreement: Governing Law................................................................14
Section 6.5 Injunctive Relief..............................................................................15
Section 6.6 Expenses.......................................................................................15
Section 6.7 Headings.......................................................................................15
Section 6.8 Severability...................................................................................15
Section 6.9 Recapitalizations, Exchanges, Etc. Affecting the Shares........................................15
Section 6.10 Counterparts...................................................................................15
</TABLE>
ii
<PAGE>
GOVERNANCE AND INVESTOR RIGHTS AGREEMENT
THIS GOVERNANCE AND INVESTOR RIGHTS AGREEMENT (this "Agreement"), dated
as of November 30, 1999, is made and entered into by and between NBC Internet,
Inc., a Delaware corporation (the "Company"), and National Broadcasting Company,
Inc., a Delaware corporation ("NBC").
W I T N E S S E T H:
WHEREAS, the Company and NBC have entered into that certain Second
Amended and Restated Agreement and Plan of Contribution, Investment and Merger
(the "Merger Agreement"), dated July 8, 1999, as amended on October 20, 1999,
and into certain other agreements referred to in, or transactions contemplated
by, the Merger Agreement (the "Transactions");
WHEREAS, the Company and NBC desire, in connection with the
Transactions, to make certain covenants and agreements with one another pursuant
to this Agreement;
WHEREAS, it is a condition to the consummation of the Transactions that
the parties enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Affiliate" shall mean (i) with respect to the Company, the Company's
Subsidiaries, (ii) with respect to NBC, except as provided in Section 2.2 below,
NBC's Subsidiaries and the holders of the Company Convertible Notes and (iii)
with respect to NBC Parent, NBC Parent's Subsidiaries other than NBC and its
Affiliates; PROVIDED, HOWEVER, that for purposes of this Agreement, the Company
and its Affiliates on the one hand, and either NBC and its Affiliates or NBC
Parent and its Affiliates on the other hand, shall not be deemed to be
"Affiliates" of one another.
"Beneficially Own" or "Beneficial Ownership" shall have the meaning set
forth in Rule 13d-3 of the rules and regulations promulgated under the Exchange
Act. Without limiting the foregoing, the holders of the Company Convertible
Notes will be deemed to Beneficially Own the shares of Common Stock issuable
upon conversion thereof; PROVIDED that for all purposes under this Agreement,
NBC and its Affiliates shall not be
<PAGE>
deemed to beneficially own any Voting Securities beneficially owned by NBC
Parent or its Affiliates and NBC Parent and its Affiliates shall not be deemed
to beneficially own any Voting Securities beneficially owned by NBC and its
Affiliates, in each such case unless and until NBC Parent or its Affiliates
shall have become Restricted Parties.
"Board of Directors" shall mean the Board of Directors of the Company
as from time to time hereafter constituted.
"Certificate of Incorporation" shall mean the Amended and Restated
Certificate of Incorporation of the Company as in effect on the date hereof,
substantially in the form of Exhibit A hereto, and as hereafter from time to
time amended, modified, supplemented or restated in accordance with the terms
hereof and pursuant to applicable law.
"Change in Control of the Company" shall mean any of the following: (i)
a merger, consolidation or other business combination or transaction to which
the Company is a party if the stockholders of the Company immediately prior to
the effective date of such merger, consolidation or other business combination
or transaction, as a result of such merger, consolidation or other business
combination or transaction, do not have Beneficial Ownership of Voting
Securities representing 50% or more of the Total Current Voting Power of the
surviving corporation (or its parent) following such merger, consolidation or
other business combination or transaction; (ii) any Person or 13D Group, shall
have Beneficial Ownership of 20% or more of the outstanding shares of Class A
Common Stock at a time when the holders of the Class B Common Stock do not elect
a majority of the Board of Directors; (iii) a sale of all or substantially all
the consolidated assets of the Company to any Person or Persons (other than a
Restricted Party or any 13D Group to which any Restricted Party is a member); or
(iv) a liquidation or dissolution of the Company.
"Class A Directors" shall have the meaning set forth in the Company's
Certificate of Incorporation.
"Class A Common Stock" shall have the meaning set forth in the
Company's Certificate of Incorporation.
"Class B Directors" shall have the meaning set forth in the Company's
Certificate of Incorporation.
"Class B Common Stock" shall have the meaning set forth in the
Company's Certificate of Incorporation.
"Commission" shall mean the Securities and Exchange Commission and any
successor commission or agency having similar powers.
"Company Competitor" shall have the meaning ascribed to the term "Newco
Competitor" in that certain License Agreement (as defined in the Merger
Agreement).
2
<PAGE>
"Common Stock" shall mean the Company's Class A Common Stock and the
Class B Common Stock.
"Eligible Purchaser" shall mean any Person (other than the Company or
any Person that is or becomes a Restricted Party) that is not a Company
Competitor.
"Effective Time" shall have the meaning set forth in the Merger
Agreement.
"Exchange Act" shall mean, as of any date, the Securities Exchange Act
of 1934, as amended, or any similar federal statute then in effect and
superseding such act, and any reference to a particular section thereof shall
include a reference to the comparable section, if any, of such similar federal
statute, and the rules and regulations thereunder.
"NBC Parent" shall mean the ultimate parent corporation of NBC (if
any), which as of today is General Electric Company, a New York corporation.
"NBC Tender Offer" shall mean a bona fide public tender offer subject
to the provisions of Regulation 14d under the Exchange Act by a Restricted Party
(or any 13D Group that includes a Restricted Party) to purchase or exchange for
cash or other consideration any Voting Securities.
"Company Convertible Notes" shall mean the Convertible Note #1 and
Convertible Note #2, both as defined in the Merger Agreement.
"Person" shall mean an individual or a corporation, association,
partnership, limited liability company, joint venture, organization, business,
trust or any other entity or organization, including a government or any
subdivision or agency thereof.
"Restricted Parties" shall mean (i) NBC, (ii) NBC's Affiliates and
(iii) from and after the time NBC Parent or any of its Affiliates shall convert
any shares of Class A Common Stock into shares of Class B Common Stock pursuant
to Section 2.2 of this Agreement, NBC Parent and its Affiliates.
"Securities Act" shall mean, as of any date, the Securities Act of
1933, as amended, or any similar federal statute then in effect and superseding
such act, and any reference to a particular section thereof shall include a
reference to the comparable section, if any, of any such similar federal
statute, and the rules and regulations thereunder.
"Shares" shall mean any shares of Voting Securities that are
Beneficially Owned by any Restricted Party or any 13D Group of which any
Restricted Party is a member.
"Standstill Limit" shall mean the percentage of the Total Current
Voting Power of the Company that would be held by NBC and its Affiliates on
October 20, 1999 if the transactions contemplated by the Merger Agreement had
been consummated on such
3
<PAGE>
date, assuming that the Company Convertible Notes had been converted at such
time into shares of Class B Common Stock.
"Standstill Period" shall mean the period beginning on the Closing Date
(as defined in the Merger Agreement) and ending on the occurrence of a
Standstill Termination Event; PROVIDED that the Standstill Period shall
recommence immediately upon the occurrence of a Standstill Reinstatement Event .
"Standstill Reinstatement Event" shall mean that the Standstill Period
has terminated pursuant to clause (iii) of the definition of "Standstill
Termination Event" and such Third Party Tender Offer is withdrawn or terminated
(without having been consummated). Notwithstanding the foregoing, a Standstill
Reinstatement Event will not occur if prior to the occurrence of the event
specified in the preceding sentence that would otherwise result in a Standstill
Reinstatement Event, another Standstill Termination Event occurs for which there
has not been a related Standstill Reinstatement Event.
"Standstill Revised Limit" shall mean the percentage of the Total
Current Voting Power represented by all shares of Voting Securities Beneficially
Owned by the Restricted Parties as of the occurrence of a Standstill
Reinstatement Event.
"Standstill Termination Event" shall mean the earliest to occur of (i)
the third anniversary of the date of this Agreement, (ii) the first anniversary
of the date on which the Restricted Parties or any 13D Group of which they are a
member no longer Beneficially Own any shares of Class B Common Stock (including
as a result of their automatic conversion to Class A Common Stock in accordance
with the Company's Certificate of Incorporation), (iii) a Third Party Tender
Offer, (iv) the date the Company enters into an agreement relating to a
transaction that if consummated will result in a Change in Control of the
Company or (v) any Change in Control of the Company occurs; PROVIDED, that the
Standstill Period will be immediately reinstated upon the occurrence of a
Standstill Reinstatement Event; PROVIDED FURTHER that, upon a Standstill
Reinstatement Event, if the Standstill Revised Limit is greater than the
Standstill Limit, then the Standstill Revised Limit and not the Standstill Limit
shall thereafter be deemed the Standstill Limit for all purposes hereunder.
"Subsidiary" shall mean, as to any Person, another Person of which
outstanding securities having the power to elect a majority of the members of
the board of directors (or comparable body or authority performing similar
functions) of such other Person are at the time owned, directly or indirectly
through one or more intermediaries, or both, by such first Person.
"Takeover Transaction" means (i) the direct or indirect acquisition or
purchase of 50% or more of the assets (based on the fair market value thereof)
of the Company and its Affiliates, taken as a whole, or of 50% or more of any
class of equity securities of the Company or any of its Affiliates or any tender
offer or exchange offer (including by the
4
<PAGE>
Company or its Affiliates) that if consummated would result in any person
Beneficially Owning 50% or more of any class of equity securities of the Company
or any of its Affiliates, (ii) a sale of all or substantially all of the assets
of the Company and its Affiliates or (iii) a merger or consolidation of the
Company as a result of which the stockholders of the Company immediately prior
to such transaction would not Beneficially Own immediately after such
transaction 50% or more of the resulting or surviving entity (or the parent
thereof).
"Third Party Tender Offer" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14D under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), when first commenced within the meaning
of Rule 14d-2 of the rules and regulations under the Exchange Act by a Person or
13D Group (which is not made by and does not include any of the Company or any
Affiliate or a Restricted Party or any 13D Group that includes the Company or an
Affiliate or a Restricted Party) to purchase or exchange for cash or other
consideration any Voting Securities and which consists of an offer to acquire
20% or more of the then Total Current Voting Power of the Company.
"Total Current Voting Power" shall mean, with respect to any
corporation, the total number of votes which may be cast in the election of
members of the Board of Directors of such corporation if all securities entitled
to vote in the election of such directors are present and voted; PROVIDED that,
for purposes of this definition, the Class A Common Stock and the Class B Common
Stock shall be considered as a single class.
"Voting Securities" shall mean shares of Common Stock and any other
securities of the Company entitled to vote generally in the election of members
of the Board of Directors or any other securities (including, without
limitation, rights and options) convertible into, exchangeable for or
exercisable for, any of the foregoing (whether or not presently convertible,
exchangeable or exercisable).
"13D Group" shall mean any group of persons formed for the purpose of
acquiring, holding, voting or disposing of Voting Securities of a corporation
which would be required under Section 13(d) of the Exchange Act, and the rules
and regulations promulgated thereunder, to file a statement on Schedule 13D
pursuant to Rule 13d-1(a) or Schedule 13G pursuant to rule 13d-1(c) with the
Commission as a "person" within the meaning of Section 13(d)(3) of the Exchange
Act if such group Beneficially Owned Voting Securities representing more than 5%
of any class of Voting Securities then outstanding; PROVIDED, HOWEVER, that for
all purposes under this Agreement, NBC and its Affiliates shall not be deemed to
have formed, joined, participated in or be a member of any 13D Group which
includes NBC Parent and its Affiliates unless and until NBC Parent or its
Affiliates shall have become Restricted Parties.
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ARTICLE II
STANDSTILL PROVISIONS
Section 2.1 RESTRICTIONS ON NBC'S ACTIVITIES REGARDING THE COMPANY AND
ITS STOCK. NBC agrees that during the Standstill Period, without first obtaining
the prior approval of the Class A Directors of the Company, specifically
expressed in a resolution adopted by a majority of the Class A Directors of the
Company, NBC will not, and NBC will cause each Restricted Party, each 13D Group
of which a Restricted Party is a member, and shall use its best efforts to cause
each of their respective agents, representatives, employees, directors, and
officers (in such capacity) not to, directly or indirectly (nor to solicit,
initiate, assist or encourage NBC Parent or its Affiliates to, directly or
indirectly):
(a) acquire, offer or propose to acquire, or agree to acquire, directly
or indirectly, whether by purchase, tender or exchange offer, through the
acquisition of control of another Person, by joining a partnership, limited
partnership, syndicate or other "group" (within the meaning of Section 13(d)(3)
of the Exchange Act) or otherwise, any Voting Securities, if after giving effect
to such acquisition the Total Current Voting Power represented by the Voting
Securities Beneficially Owned by the Restricted Parties exceeds the Standstill
Limit; PROVIDED, HOWEVER, that if at any time during the Standstill Period, (x)
any Person other than any Restricted Party or any 13D Group of which a
Restricted Party is a member has made any written proposal or offer relating to
a Takeover Transaction or Change in Control of the Company which has not been
rejected within 10 business days by the Board of Directors, (y) the Board of
Directors has determined to pursue a Takeover Transaction or Change in Control
of the Company and the Board of Directors has not resolved to stop pursuing such
Takeover Transaction or Change in Control of the Company, or (z) the Board of
Directors or the Company has engaged in any discussions or negotiations with, or
provided any information to, any Person other than any Restricted Party, or any
13D Group of which any Restricted Party is a member, with respect to a Takeover
Transaction or Change in Control of the Company and the Board of Directors has
not resolved to terminate all such discussions, negotiations and provision of
information, then, for so long as such condition continues to apply, the
limitation on the actions described above in this clause (a) shall not be
applicable to any Restricted Party;
(b) make, or in any way participate, directly or indirectly, in any
"solicitation" (as such term is used in the proxy rules of the Commission as in
effect on the date hereof) of proxies or consents in connection with an
amendment to the Certificate of Incorporation that requires a separate class
vote of the Class A Common Stock pursuant to the Certificate of Incorporation or
the election of Class A Directors, in each case at a time when any Restricted
Party is the Beneficial Owner of Class B Common Stock; PROVIDED, HOWEVER, that
the limitation contained in this clause (b) shall not apply to any Takeover
Transaction to be voted on by the Company's shareholders that is not instituted
or proposed by any Restricted Party or any 13D Group of which any Restricted
Party is a member; or
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(c) act, whether alone or in concert with others, to seek to propose to
the holders of the Class A Common Stock any merger, business combination or
similar transaction with any Restricted Party or any 13D Group of which any
Restricted Party is a member; PROVIDED, HOWEVER, that if at any time during the
Standstill Period, (x) any Person other than any Restricted Party or any 13D
Group of which a Restricted Party is a member has made any written proposal or
offer relating to a Takeover Transaction or Change in Control of the Company
which has not been rejected within 10 business days by the Board of Directors,
(y) the Board of Directors has determined to pursue a Takeover Transaction or
Change in Control of the Company and the Board of Directors has not resolved to
stop pursuing such Takeover Transaction or Change in Control of the Company, or
(z) the Board of Directors or the Company has engaged in any discussions or
negotiations with, or provided any information to, any Person other than any
Restricted Party, or any 13D Group of which any Restricted Party is a member,
with respect to a Takeover Transaction or Change in Control of the Company and
the Board of Directors has not resolved to terminate all such discussions,
negotiations and provision of information, then, for so long as such condition
continues to apply, the limitation on the actions described above in this clause
(c) shall not be applicable to any Restricted Party;
Section 2.2 PURCHASES BY NBC PARENT. So long as the Beneficial
Ownership of the Restricted Parties would not thereafter exceed the Standstill
Limit, if such purchaser or any of its Subsidiaries shall purchase any of the
Class A Common Stock, the Company shall permit NBC Parent and its Affiliates,
upon request, to convert any or all of their shares of Class A Common Stock into
shares of Class B Common Stock, subject to such purchaser's agreeing to be bound
by the terms and conditions of this Agreement to the same extent and as if it
were NBC.
Section 2.3 DISAPPLICATION OF STANDSTILL LIMIT.
Notwithstanding anything in this Agreement to the contrary,
(a) this Article II shall not prohibit or restrict any of the
following: (i) any action specifically permitted or required to be taken by any
Restricted Party pursuant to the Certificate of Incorporation, (ii) actions
taken by any Class B Director or, after there is no longer any Class B Director,
any member of the Board of Directors or any officer of the Company, in each case
who was nominated or designated by any Restricted Party acting in such capacity
and (iii) the exercise by the Restricted Parties of their voting rights with
respect to any shares of Voting Securities they Beneficially Own.
(b) no Restricted Party shall be deemed to have violated any provision
of this Article II by virtue of any increase in the aggregate percentage of the
Total Current Voting Power of the Company represented by Shares if such increase
is the result of a recapitalization of the Company, a repurchase of securities
by the Company or other actions taken by the Company or any of its Affiliates
that have the effect of reducing the Total Current Voting Power.
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(c) nothing in this Agreement shall prohibit (i) the acquisition or
holding of securities or rights in the ordinary course of business by any
employee benefit plan whose trustees, investment managers or similar advisors
are not Restricted Parties, (ii) the consummation of any transaction expressly
provided for in the Merger Agreement or the Implementing Agreements, (iii)
directors, officers and employees of the Restricted Parties from communicating
with directors, officers and employees of the Company or its Affiliates on
matters related to or governed by the Merger Agreement, the Implementing
Agreements or other operational matters, (iv) the Restricted Parties from
communicating with any member of the Board of Directors or any officer of the
Company who was nominated or designated by any Restricted Party or (v) the
Restricted Parties from communicating with the other members of the Board of
Directors, the Chairman of the Board of Directors or the Chief Executive Officer
of the Company, so long as such communication is conveyed in confidence and does
not require public disclosure by the Restricted Parties or, in the reasonable
belief of the Restricted Party making such communication, by the Company.
ARTICLE III
TRANSFERS BY NBC
Section 3.1 RESTRICTIONS ON TRANSFER. Unless NBC and its Affiliates
Beneficially Own in the aggregate less than 5% of the Total Current Voting Power
of the Company, or until the Restricted Parties Beneficially Own in the
aggregate at least 90% of the Total Current Voting Power, NBC agrees that from
the date of this Agreement until the earlier of (x) the fifth anniversary of the
date of this Agreement, or (y) the occurrence of a Standstill Termination Event
specified in clause (iv) or (v) of the definition thereof, without first
obtaining the prior approval of the Class A Directors of the Company,
specifically expressed in a resolution adopted by a majority of the Class A
Directors of the Company, NBC will not, and NBC will cause each Person that is
or becomes a Restricted Party and each 13D Group of which any Restricted Party
is a member not to, directly or indirectly, sell, transfer, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise dispose of (or
make any exchange, gift, assignment or pledge of) (collectively, a "transfer")
any of its Shares, except as and to the extent permitted under the Securities
Act and other applicable securities laws to: (i) the Company, (ii) another
Person that is or becomes a Restricted Party so long as such transferee shall
execute an agreement in form and substance reasonably satisfactory to the
Company providing that such transferee shall be bound by and shall fully comply
with the terms of this Agreement in the same manner and to the same extent as
applicable to NBC, and agrees to transfer such Shares to another Restricted
Party if it ceases to be a Restricted Party, (iii) pursuant to a Third Party
Tender Offer, (iv) pursuant to a merger, consolidation or reorganization to
which the Company is a party, (v) in a BONA FIDE public distribution or bona
fide underwritten public offering, (vi) pursuant to Rule 144 of the Securities
Act to any one or more Persons that, to the best knowledge of the Restricted
Parties after due and careful inquiry, are not Company Competitors or (vii) to
an Eligible Purchaser in a private sale or pursuant to Rule 144A of the
Securities Act; PROVIDED,
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HOWEVER, that, in the case of any transfer pursuant to clause (vii), such
transfer does not result in, to the best knowledge of the Restricted Parties
after due and careful inquiry, any Person other than an Eligible Purchaser
acquiring, after giving effect to such transfer, Beneficial Ownership,
individually or in the aggregate with any of its Affiliates or any 13D Group of
which the Eligible Purchaser or any of its Affiliates is a member, 19.9% or more
of the Total Current Voting Power of the Company. For as long as the transfer
restrictions in the immediately preceding sentence remain in effect, of the
30,360,096 shares of Common Stock Beneficially Owned by the Restricted Parties
on the date hereof (the "Restricted Shares"), the Restricted Parties will not
transfer pursuant to clauses (v), (vi) and (vii) more than an aggregate of (1)
2,500,000 Restricted Shares on or prior to the one year anniversary of the date
hereof, (2) 5,000,000 Restricted Shares on or prior to the two year anniversary
of the date hereof, or (3) 7,200,000 Restricted Shares on or prior to the three
year anniversary of the date hereof (it being understood that the restrictions
contained in this sentence will not apply to any shares of Common Stock first
acquired by the Restricted Parties after the date hereof). Any transfer or
attempted transfer which is not in compliance with this Agreement shall be null
and void AB INITIO and neither the Company nor any transfer agent of such
securities shall give any effect thereto in its stock records.
Section 3.2 ENDORSEMENT OF CERTIFICATES. Upon the execution of this
Agreement, in addition to any other legend that is required pursuant to the
Merger Agreement and the transactions contemplated thereby or that the Company
may deem advisable under the Securities Act and certain state securities laws,
all certificates representing Shares shall be endorsed at all times as follows:
"SUCH SHARES MAY ONLY BE TRANSFERRED PURSUANT TO THE PROVISIONS OF THE
GOVERNANCE AND INVESTOR RIGHTS AGREEMENT DATED AS OF NOVEMBER 30, 1999
BETWEEN NATIONAL BROADCASTING COMPANY, INC. AND THE COMPANY, COPIES OF
WHICH AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
Section 3.3 STOCK PURCHASE RIGHTS.
(A) NEW ISSUANCES. If at any time after the date hereof the Company
shall issue any New Securities (as defined below in this subsection (a)), at the
time of any such issuance, for so long as there shall be outstanding shares of
Class B Common Stock of the Company, NBC shall have the option (the "Option") to
purchase that number of New Securities (the "Option Securities") in an amount
sufficient for NBC and its Affiliates to maintain in the aggregate their then
Proportionate Percentage (as defined below in this subsection (a)) at that time.
The Option may be exercised by NBC or, at NBC's discretion, may be transferred
to or exercised by any Person that is or becomes a Restricted Party, so long as
such transferee or such Person exercising shall execute an agreement in form and
substance reasonably satisfactory to the Company providing that such transferee
or such Person exercising shall be bound by and shall fully comply with the
terms of this Agreement in the same manner and to the same extent as applicable
to
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NBC, and agrees to transfer the rights hereunder to another Restricted Party if
it ceases to be a Restricted Party, but the Option may not be transferred to or
exercised by any other Person. If the New Securities are additional shares of
Class A Common Stock, then the Option Securities shall be additional shares of
Class B Common Stock. The purchase price for the Option Securities shall be paid
in immediately available United States funds and shall be equal to (i) the per
share price at which the Company is selling the New Securities, if the
consideration for such sale is cash, or (ii) the Fair Market Value of the New
Securities, if the consideration for such sale is not cash.
For purposes of this Agreement, the terms set forth below shall have
the following meanings:
"Fair Market Value" shall mean, with respect to the Class A Common
Stock or other New Securities, the following: where there exists a public market
for the Class A Common Stock or other New Securities, the Fair Market Value
shall be (A) the closing price for a share of Class A Common Stock or other New
Securities, as the case may be, for the last market trading day prior to the
time of the determination (or, if no closing price was reported on that date, on
the last trading date on which a closing price was reported) on the stock
exchange determined by the Board of Directors to be the primary market for the
Class A Common Stock or other New Securities, as the case may be, or the Nasdaq
National Market, whichever is applicable, or (B) if the Class A Common Stock or
other New Securities, as the case may be, is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
share of Class A Common Stock or other New Securities, as the case may be, on
the Nasdaq Small Cap Market for the day prior to the time of the issuance (or,
if no such prices were reported on that date, on the last date on which such
prices were reported), in each case, as reported in THE WALL STREET JOURNAL or
such other source as the Board of Directors deems reliable. In the absence of an
established market of the type described in the preceding sentence for the Class
A Common Stock or in the absence of an established market of similar type for
any other New Securities, the Fair Market Value thereof shall be determined in
good faith by the Board of Directors. For purposes of this Section 3.3, the Fair
Market Value of Class B Common Stock shall be equivalent to the Fair Market
Value of Class A Common Stock.
"New Securities" shall mean any authorized but unissued shares and any
treasury shares of Common Stock, any new class of common stock or preferred
stock (if and only if such preferred stock either votes generally with the
common stock for the election of directors or does not have dividends that are
limited to a specific dividend vote) and all rights, options, or warrants to
purchase Common Stock or any new class of common stock or such preferred stock
and securities of any type whatsoever that are, or may become, exercisable for
or convertible into Common Stock or any new class of common stock or such
preferred stock; PROVIDED, HOWEVER, that the term "New Securities" does not
include: (i) the grant or issue now or hereafter of any options to purchase
shares of Common Stock or securities convertible into shares of Common Stock
pursuant to any employee option plan or other employee benefit but does include
any shares of Common
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Stock or securities convertible into shares of Common Stock issued upon exercise
of any such options; (ii) securities outstanding as of the date hereof; or (iii)
shares of Common Stock issued pursuant to any reclassification, stock split or
stock dividend.
"Proportionate Percentage" shall mean a percentage equal to a fraction,
the numerator of which is the aggregate number of shares of Common Stock
Beneficially Owned by NBC and its Affiliates and the denominator of which is the
total number of outstanding shares of Common Stock of the Company immediately
prior to the issuance of New Securities.
(b) FRACTIONAL SHARES. No fractional shares of Option Securities shall
be issued upon exercise of the Option. In lieu of fractional shares, the Company
shall round the number of Option Securities to be purchased to the nearest whole
number and adjust the purchase price for the Option Securities accordingly.
(c) EXERCISE OF OPTION. The Company shall use reasonable effort to give
notice (the "Option Notice") to NBC as soon as reasonably practicable either
before or after the issuance of the New Securities, specifying the amount and
type of securities to be issued and the price per share and all other material
terms of the issuance; PROVIDED, HOWEVER, that any Option Notice given by the
Company, with respect to securities issued pursuant to the exercise of options
to purchase shares of Common Stock or securities convertible into shares of
Common Stock, shall be given only on an annual basis within 90 days after the
end of the fiscal year in which such securities were issued and as to the
aggregate number of securities issued during such period in respect of such
options. If NBC desires to exercise the Option, then it shall give written
notice (the "Exercise Notice") to the Company within 30 days after delivery of
the Option Notice by the Company specifying the amount of securities that it
desires and is entitled to purchase. The closing for the purchase and sale of
the Option Securities shall occur at a place and on a date mutually agreed upon
by the Company and NBC, which date shall be within fifteen days following the
date of delivery of the Exercise Notice. If NBC does not deliver the Exercise
Notice in accordance with the 30 day period specified in this subsection (c) of
Section 3.3, then the rights of NBC to exercise the Option with respect to that
issuance of New Securities shall terminate.
ARTICLE IV
OTHER COVENANTS
Section 4.1 FCC MATTERS. The Company agrees that, except with the prior
written consent of NBC, the Company and its Affiliates shall not, directly or
indirectly, take any action that would cause any ownership interest in any of
the following to be attributable to NBC or its Affiliates for purposes of FCC
regulations: (i) a U.S. broadcast radio or television station, (ii) a U.S. cable
television system, (iii) a U.S. "daily newspaper" (as such term is defined in
Section 73.3555 of the rules and regulations of the Federal Communications
Commission, as the same may be amended from time to time), (iv) any U.S.
communications facility operated pursuant to a license granted by the
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Federal Communications Commission ("FCC") and subject to the provisions of
Section 310(b) of the Communications Act of 1934, as amended, or (v) any other
business which is subject to FCC regulations under which the ownership of a
Person may be subject to limitation or restriction as a result of the interest
in such business being attributed to such Person.
Section 4.2 CORPORATE INTEGRITY POLICY. The Company shall adopt the
Corporate Integrity Policy of NBC.
Section 4.3 LISTING ON NASDAQ OR SECURITIES EXCHANGE. The Company shall
list any shares of Class A Common Stock issuable upon conversion of the Class B
Common Stock or the Company Convertible Notes on Nasdaq or on such other
national securities exchange on which shares of Common Stock are then listed.
The Company will at its expense cause all shares of Class A Common Stock issued
upon conversion of the Class B Common Stock or the Company Convertible Notes to
be listed at the time of such issuance on Nasdaq and/or such other securities
exchange shares of Class A Common Stock are then listed on and shall maintain
such listing.
ARTICLE V
BOARD ACTION
Section 5.1 BOARD REPRESENTATION RIGHTS. If all of the Class B Common
Stock has been converted into Class A Common Stock, so long as NBC or its
Affiliates Beneficially Own in the aggregate at least 5% of the Total Current
Voting Power of the Company, NBC shall have the right to designate as nominees
for election to the Board of Directors, commencing with the first meeting of
stockholders following the conversion of the shares of Class B Common Stock of
the Company into shares of Class A Common Stock of the Company pursuant to the
Certificate of Incorporation, that number of persons equal to the greater of (i)
one, or (ii) that number determined by multiplying the then current number of
directors of the Company by the percentage of Total Current Voting Power then
owned by NBC and its Affiliates, but which number shall at all times be less
than a majority of the total number of members of the Board of Directors of the
Company unless NBC and its Affiliates Beneficially Own a majority of the Total
Current Voting Power of the Company. If the calculation set forth in clause (ii)
of the preceding sentence results in other than a whole number, NBC shall be
permitted to designate the nearest whole number of person(s) as designee(s). The
Company shall, subject to the fiduciary duties of the directors of the Company,
include in the slate of nominees recommended by the Company's management to
stockholders for election as directors of the Company such designee(s) of NBC.
The Company shall use its best efforts to cause its directors and management to
vote pursuant to this Section 5.1 hereof all shares for which the Company's
directors and management hold proxies or are otherwise entitled to vote in favor
of the election of such designee(s) of NBC. The Company shall give the same
scope and degree of support and use the same efforts to encourage the
stockholders to vote in favor of such designee(s) of NBC as it gives and uses
with respect to the designees of management.
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ARTICLE VI
MISCELLANEOUS
Section 6.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, shall inure to the benefit of and shall be enforceable by the respective
successors and assigns of the parties hereto. Except as set forth herein, NBC
may not assign any of its rights hereunder to any Person other than by operation
of law, in which case the assignee shall be subject to all of the provisions of
this Agreement. The Company may not assign any of its rights hereunder to any
other Person, other than by operation of law, in which case the assignee shall
be subject to all of the provisions of this Agreement.
Section 6.2 AMENDMENT; WAIVER OF COMPLIANCES; CONFLICTS.
(a) This Agreement may be amended only by a written instrument duly
executed by NBC and the Company, having first obtained the prior approval of the
Class A Directors of the Company, specifically expressed in a resolution adopted
by a majority of the Class A Directors of the Company.
(b) Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
(c) In the event of any conflict between the provisions of this
Agreement and the provisions of any other agreement, the provisions of this
Agreement shall govern and prevail.
Section 6.3 NOTICES. All notices and other communications provided for
hereunder shall be in writing and delivered by hand or sent by first class mail
or sent by telecopy (with such telecopy to be confirmed promptly in writing sent
by first class mail), sent as follows:
(i) If to NBC, addressed to:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10012
Attention: Thomas Rogers
Telecopy: (212) 664-3915
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
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New York, New York 10017-3954
Attention: Richard Capelouto, Esq.
Telecopy: (212) 455-2502
(ii) If to the Company, addressed to:
NBC Internet, Inc.
300 Montgomery Street, Suite 300
San Francisco, California 94104
Attention: Chris Kitze
Telecopy: (415) 288-2578
with a copy to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105-2482
Attention: Bruce Alan Mann, Esq.
Telecopy: (415) 268-7522
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Allen L. Weingarten, Esq.
Telecopy: (212) 468-7900
or to such other address or addresses or telecopy number or numbers as any of
the parties hereto may most recently have designated in writing to the other
parties hereto by such notice. All such communications shall be deemed to have
been given or made when so delivered by hand or sent by telecopy, or three
business days after being so mailed.
Section 6.4 ENTIRE AGREEMENT: GOVERNING LAW.
(a) This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire agreement
among the parties hereto with respect to the subject transactions contemplated
hereby and supersede all prior oral and written agreements and memoranda and
undertakings among the parties hereto with regard to this subject matter.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PRINCIPLES THEREOF).
Section 6.5 INJUNCTIVE RELIEF. The parties acknowledge that a violation
of any of the terms of this Agreement will cause the other irreparable injury
for which an adequate remedy at law is not available. Therefore, the parties
agree that each party shall
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be entitled to an injunction, restraining order or other equitable relief from
any court of competent jurisdiction, restraining the other from committing any
violations of the provisions of this Agreement.
Section 6.6 EXPENSES. The Company and NBC shall bear their own expenses
incurred with respect to this Agreement and the transactions contemplated
hereby.
Section 6.7 HEADINGS. The Section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 6.8 SEVERABILITY. In the event that any of the provisions of
this Agreement are held to be unenforceable or invalid by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions will
not be affected thereby.
Section 6.9 RECAPITALIZATIONS, EXCHANGES, ETC. AFFECTING THE SHARES.
The provisions of this Agreement shall apply, to the full extent set forth
herein with respect to the Shares and to any and all securities of the Company
or any successor or assignee of the Company (whether by merger, consolidation,
sale of assets, or otherwise) which may be issued in respect of, in exchange
for, or in substitution of, such securities and shall be appropriately adjusted
for any stock dividends, splits, reverse splits, combinations,
reclassifications, recapitalizations, reorganizations and the like occurring
after the date hereof.
Section 6.10 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
NBC INTERNET, INC.
By: /s/ Chris Kitze
------------------------------
Name: CHRIS KITZE
Title: Chief Executive Officer
NATIONAL BROADCASTING
COMPANY, INC.
By: /s/ Mark Begor
------------------------------
Name: Mark Begor
Title: Executive Vice President
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Exhibit 10.6
STANDSTILL AGREEMENT
STANDSTILL AGREEMENT, dated as of November 30, 1999,
between NBC Internet, Inc., formerly known as Xenon 2, Inc., a Delaware
corporation (together with its successors, the "COMPANY"), and CNET, Inc., a
Delaware corporation (together with its successors, "CNET").
W I T N E S S E T H :
WHEREAS, CNET, Xoom.com, Inc., a Delaware corporation
("XOOM"), the Company and Xenon 3, a Delaware corporation, have entered into
that certain Agreement and Plan of Contribution and Merger, dated as of May
9, 1999, as amended (the "MERGER AGREEMENT"), pursuant to which CNET will
become a holder of shares of the Class A common stock, $.0001 par value, of
the Company (the "COMMON STOCK"); capitalized terms not otherwise defined
herein shall bear the meaning given to them in the Merger Agreement;
WHEREAS, the Company and CNET desire, in connection with
CNET's investment in the Company pursuant to the Merger Agreement, to make
certain covenants and agreements with one another pursuant to this Agreement;
and
WHEREAS, it is a condition to the execution of the Merger
Agreement and the closing of the transactions contemplated thereby that the
parties enter into this Agreement.
NOW THEREFORE, in consideration of the mutual agreements
and understandings set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth below:
"AFFILIATE" shall mean, with respect to any Person, any other
Person that directly or indirectly controls, is controlled by, or is
under common control with, such Person. As used in this definition,
"control" (including its correlative meanings, "controlled by" and
"under common control with") shall mean the possession, directly or
indirectly, of power to direct or cause the direction of
<PAGE>
management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"AGREEMENT" shall mean this Agreement as in effect on the date
hereof and as hereafter from time to time amended, modified or
supplemented in accordance with the terms hereof.
"BENEFICIALLY OWN" shall have the meaning set forth in Rule
13d-3 under the Exchange Act, except that a Person shall be deemed to
"Beneficially Own" all securities that such Person has a right to
acquire, whether such right is exercisable immediately or only after
the passage of time.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company as from time to time hereafter constituted.
"CNET" shall have the meaning set forth in the preamble hereto
"COMMON STOCK" shall mean the Class A common stock, par value
$0.0001 per share, of the Company and any securities of the Company
into which such Common Stock may be reclassified, exchanged or
converted.
"COMPANY" shall have the meaning set forth in the preamble
hereto.
"DISINTERESTED STOCKHOLDERS" shall mean any stockholder of the
Company who is not a Restricted Party.
"EXCHANGE ACT" shall mean, as of any date, the Securities
Exchange Act of 1934, as amended, or any similar federal statute then
in effect and superseding such act, and any reference to a particular
section thereof shall include a reference to the comparable section, if
any, of such similar federal statute, and the rules and regulations
thereunder.
"NBC" shall mean National Broadcasting Company, a Delaware
corporation, together with its successors.
"NBC VOTING AGREEMENT" shall mean the Voting Agreement, dated
as of the date hereof, between CNET and NBC, as the same may be
amended, supplemented or otherwise modified form time to time.
"PERSON" shall mean an individual or a corporation,
association, partnership, limited liability company, joint venture,
organization, business, trust or any other entity or organization,
including a government or any subdivision or agency thereof.
"REPRESENTATIVES" shall mean, with respect to any Person, such
Person's directors, officers, employees, agents and other
representatives acting in such capacity.
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<PAGE>
"RESTRICTED PARTIES" shall mean each of CNET and its
Subsidiaries.
"SEC" shall mean the United States Securities and Exchange
Commission.
"SECURITIES ACT" shall mean, as of any date, the Securities
Act of 1933, as amended, or any similar federal statute then in effect
and superseding such act, and any reference to a particular section
thereof shall include a reference to the comparable section, if any, of
any such similar federal statute, and the rules and regulations
thereunder.
"STANDSTILL PERIOD" shall mean the period beginning on the
date hereof and ending on the earlier of (i) the fifth anniversary of
the date hereof and (ii) the first date after the date hereof on which
the Restricted Parties do not Beneficially Own in the aggregate 5% or
more of the outstanding Common Stock.
"SUBSIDIARY" shall mean, as to any Person, another Person of
which outstanding securities having the power to elect a majority of
the members of the board of directors (or comparable body or authority
performing similar functions) of such other Person are at the time
owned, directly or indirectly through one or more intermediaries, or
both, by such first Person.
"THIRD PARTY TENDER OFFER" shall mean a bona fide public
tender offer subject to the provisions of Regulation 14D under the
Exchange Act, when first commenced within the meaning of Rule 14d-2 of
the Exchange Act by a Person 13D Group (which is not made by and does
not include any of the Company or any Affiliate or a Restricted Party
or any 13D Group that includes the Company or an Affiliate or a
Restricted Party) to purchase or exchange for cash or other
consideration any Voting Stock and which consists of an offer to
acquire 50% or more of the then outstanding Voting Stock of the
Company.
"13D GROUP" means any "group" (within the meaning of Section
13(d) of the Exchange Act) formed for the purpose of acquiring,
holding, voting or disposing of Voting Stock.
"TRANSFER" shall have the meaning set forth in Section 2.2.
"VOTING STOCK" shall mean shares of the Common Stock and any
other securities of the Company or its Subsidiaries having the ordinary
power to vote in the election of members of the Board of Directors or
the board of directors of any Subsidiary of the Company.
ARTICLE II
STANDSTILL AGREEMENTS
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<PAGE>
Section 2.1 STANDSTILL AGREEMENT.
CNET covenants and agrees as follows:
(a) During the Standstill Period no Restricted Party will,
directly or indirectly, nor will it authorize or direct any of its
Representatives to (and will take appropriate action against such
Representatives to discourage), in each case unless specifically requested to
do so in writing in advance by the Board of Directors:
(i) acquire or agree, offer, seek or propose to acquire, or
cause to be acquired, ownership of any assets or businesses of the
Company or any of its Subsidiaries having a fair market value in excess
of 5% of the fair market value of all of the Company's and its
Subsidiaries' assets, or any rights or options to acquire any such
ownership (including from a third party);
(ii) acquire or agree, offer, seek or propose to acquire, or
cause to be acquired, Beneficial Ownership of any Voting Stock of the
Company or any of its Subsidiaries, or any options, warrants or other
rights (including, without limitation, any convertible or exchangeable
securities) to acquire any such Voting Stock, in any case other than
the Common Stock Beneficially Owned by the Restricted Parties on the
date hereof.
(iii) make, or in any way participate in, any "solicitation"
of "proxies" (as such terms are used in the proxy rules of the SEC)
with respect to the voting of any securities of the Company or any of
its Subsidiaries, except pursuant to the NBC Voting Agreement;
(iv) deposit any securities of the Company or any of its
Subsidiaries in a voting trust or subject any such securities to any
arrangement or agreement with any Person (other than one or more
Restricted Parties and/or NBC and/or any Affiliate of NBC);
(v) form, join, or in any way become a member of a 13D Group
with respect to any voting securities of the Company or any of its
Subsidiaries (other than a "group" consisting solely of Restricted
Parties and/or NBC and/or any Affiliate of NBC);
(vi) arrange any financing for, or provide any financing
commitment for, the purchase of any voting securities or securities
convertible or exchangeable into or exercisable for any voting
securities or assets of the Company or any of its Subsidiaries, except
for such assets as are then being offered for sale by the Company or
such Subsidiary;
(vii) except pursuant to the NBC Voting Agreement, otherwise
act, whether alone or in concert with others, to seek to propose to the
Company any tender or exchange offer, merger, business combination,
restructuring, liquidation, recapitalization
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<PAGE>
or similar transaction involving the Company or any of its
Subsidiaries, or nominate any person as a director of the Company,
or propose any matter to be voted upon by the stockholders of the
Company; PROVIDED that the provisions of this clause (vii) will not
prohibit or restrict any Restricted Party from entering into any
agreement, arrangement or understanding relating to the Transfer of
any securities in accordance with Section 2.2 or engaging in any
discussion or negotiations relating to any potential Transfer of any
securities in accordance with Section 2.2;
(viii) nominate any person for election as director of the
Company; or
(viii) publicly announce or disclose any intention, plan or
arrangement inconsistent with the foregoing.
(b) In addition, during the Standstill Period no Restricted
Party will, nor will they authorize or direct any of their respective
Representatives to, take any action that would require the Company to make a
public announcement regarding any of the matters set forth in Section 2.1(a).
Section 2.2 TRANSFER RESTRICTIONS.
CNET covenants and agrees as follows:
(a) During the Standstill Period, the Restricted Parties
shall not, directly or indirectly, sell, transfer or otherwise dispose of
(collectively, "TRANSFER") any shares of Common Stock Beneficially Owned by
such Persons, except for Transfers: (i) to Restricted Parties or to
Affiliates who agree to be Restricted Parties bound by the provisions of this
Agreement, (ii) which have been consented to by the Company, (iii) pursuant
to a Third Party Tender Offer, (iv) pursuant to a merger, consolidation or
reorganization to which the Company is a party, (v) in a BONA FIDE public
distribution, bona fide underwritten public offering or open market sales
through a resale or otherwise, (vi) pursuant to Rule 144 of the Securities
Act, (vii) in a private sale or pursuant to Rule 144A of the Securities Act
or (viii) to NBC or any Affiliate of NBC. Notwithstanding anything herein to
the contrary, nothing herein shall prohibit or restrict the Restricted
Parties in any way from (i) pledging or hypothecating any shares of Common
Stock Beneficially Owned by the Restricted Parties to a financial institution
in a bona fide financing transaction so long as the Restricted Parties
control the voting of such Common Stock prior to the occurrence of a default
or (ii) entering into hedging strategies or transactions such as, for
example, the purchase and sale of puts, calls, options, straddles and other
hedging mechanisms with respect to such shares so long as the aggregate
hedging transactions of any time outstanding with any Person and its
Affiliates do not relate to an aggregate number of shares of Common Stock and
Class B Common Stock of the Company in excess of 5% of the outstanding shares
of Common Stock at the time such transactions were entered into (or an
equivalent position).
(b) Subject to the provisions of Section 2.2(a), if any
Restricted Party decides to dispose of any of the Common Stock, each
Restricted Party understands and agrees that it may do so only pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption from registration under the Securities Act. Each Restricted Party
agrees to the
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<PAGE>
imprinting, so long as appropriate, of substantially the following legends on
certificates representing any of the securities referenced in the preceding
sentence:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION FROM REGISTRATION
IS AVAILABLE AND THE COMPANY IS FURNISHED WITH AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THAT EFFECT. IN ADDITION,
SUCH SHARES MAY ONLY BE TRANSFERRED PURSUANT TO THE PROVISIONS OF THE
STANDSTILL AGREEMENT, DATED AS OF ______ ___, 1999, BETWEEN THE COMPANY
AND CNET, INC. AS THE SAME MAY BE AMENDED FROM TIME TO TIME, COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
The legend set forth above shall be removed if and when (i)
the securities represented by such certificate are disposed of pursuant to an
effective registration statement under the Securities Act or (ii) CNET
delivers to the Company an opinion of counsel reasonably acceptable to the
Company to the effect that such legends are no longer necessary.
ARTICLE III
MISCELLANEOUS
Section 3.1 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered personally, by telecopier or sent by overnight courier as follows:
(a) If to CNET, to:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attn: Douglas N. Woodrum
Facsimile: (415) 395-9205
with copies to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: R. Clayton Mulford
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<PAGE>
Facsimile: (214) 939-5849 CNET, Inc.
(b) If to the Company, to:
NBC Internet, Inc.
300 Montgomery Street
Suite 300
San Francisco, California 94104
Attn.: General Counsel
Facsimile: (415) 288-2580
with copies to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Attn.: Bruce Alan Mann
Facsimile: (415) 268-7522
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attn.: Allen L. Weingarten
Facsimile: (212) 468-7900
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
Section 3.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement
sets forth the entire agreement between the parties hereto with respect to
the transactions contemplated by this Agreement. Any provision of this
Agreement may be amended or modified in whole or in part at any time by an
agreement in writing between the parties hereto executed in the same manner
as this Agreement. No failure on the part of any party to exercise, and no
delay in exercising, any right shall operate as a waiver thereof nor shall
any single or partial exercise by any party of any right preclude any other
or future exercise thereof or the exercise of any other right.
Section 3.3 SEVERABILITY. In the event that any one or more
of the provisions contained in this Agreement or in any other instrument
referred to herein, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
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<PAGE>
Section 3.4 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the same
document.
Section 3.5 GOVERNING LAW; JURISDICTION; WAIVER OF JURY
TRIAL . This Agreement shall be governed and construed in accordance with the
laws of the State of Delaware applicable to contracts executed and performed
within such state.
Section 3.6 SUCCESSORS AND ASSIGNS; THIRD PARTY
BENEFICIARIES. Neither party to this Agreement may assign any of its rights
or delegate any of its duties under this Agreement to any other Person
without the prior written consent of the other party to this Agreement. Any
purported assignment in violation of this Section shall be void. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any Person other than CNET and the Company and their respective
successors, any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision herein contained. This Agreement and all
conditions and provisions hereof are intended to be for the sole and
exclusive benefit of CNET and the Company and their respective successors,
and for the benefit of no other Person.
Section 3.7 SPECIFIC PERFORMANCE. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions of
this Agreement in addition to any other remedy to which they are entitled at
law or in equity.
Section 3.8 HEADINGS, CAPTIONS AND TABLE OF CONTENTS. The
section headings, captions and table of contents contained in this Agreement
are for reference purposes only, are not part of this Agreement and shall not
affect the meaning or interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto or by their respective duly authorized representatives, all as of the
date first above written.
NBC INTERNET, INC.
By: /s/ John Harbottle
-----------------------------------
Name: John Harbottle
Title: EVP Finance and CFO
CNET, INC.
By: /s/ Douglas N. Woodrum
-----------------------------------
Name: Douglas N. Woodrum
Title: CFO
<PAGE>
Exhibit 10.10
VOTING AND RIGHT OF FIRST OFFER AGREEMENT
VOTING AND RIGHT OF FIRST OFFER AGREEMENT, dated as of November 30,
1999 (the "AGREEMENT"), between National Broadcasting Company, a Delaware
corporation ("NBC"), and CNET, Inc., a Delaware corporation (together with
its successors and permitted assigns, "CNET").
WHEREAS, CNET, Xoom.com, Inc., a Delaware corporation ("XOOM"),
Xenon 2, Inc., a Delaware corporation ("XENON 2"), and Xenon 3, Inc., a
Delaware corporation, have entered into an Agreement and Plan of
Contribution, Investment and Merger, dated as of May 9, 1999, as amended (the
"XENON 2 MERGER AGREEMENT", capitalized terms not otherwise defined herein
shall have the meaning given to them in the Xenon 2 Merger Agreement; and
pursuant to which CNET will become a holder of shares of the Class A common
stock, $.0001 par value, of Xenon 2 (the "COMPANY COMMON STOCK");
WHEREAS, NBC, Neon Media Corporation, a Delaware corporation
("NMC"), Xenon 2 and Xoom have entered into an Agreement and Plan of
Contribution, Investment and Merger, dated as of May 9, 1999, as amended (the
"NMC MERGER AGREEMENT"), pursuant to which NMC will merge with and into
Xenon 2; and
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Xenon 2 Merger Agreement and the NMC Merger Agreement
that NBC and CNET enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein and intending to be legally bound hereby, the
parties agree as follows:
AGREEMENT
1. REPRESENTATIONS AND WARRANTIES OF CNET. CNET represents and
warrants to NBC as follows:
(a) OWNERSHIP OF SECURITIES. Upon consummation of the
transactions contemplated by the Xenon 2 Merger Agreement and the NMC Merger
Agreement at the Effective Time, CNET will be the record and beneficial owner
of, and have good and marketable title to, the number of shares of Company
Common Stock (the "CLOSING DATE SECURITIES") (together with any shares of
Company Common Stock hereafter acquired by CNET (including through the
exercise of options or similar instruments), the "SUBJECT SECURITIES") set
forth on the signature page to this Agreement. CNET does not own of record
or beneficially any shares of capital stock of the Company on the date hereof
other than the Closing Date Securities. CNET has sole voting power and sole
power to issue instructions with respect to the voting of the Closing Date
Securities and sole power of disposition of the Closing Date Securities..
(b) POWER; BINDING AGREEMENT. CNET has full power and authority to
enter into and perform all of its obligations under this Agreement. This
Agreement has been duly and validly executed and delivered by CNET and
constitutes a valid and binding agreement of
<PAGE>
2
CNET, enforceable against CNET in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally, by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
(c) NO CONFLICTS. No filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or authority
or any other person or entity is necessary for the execution of this
Agreement by CNET and the consummation by CNET of the transactions
contemplated hereby, other than pursuant to the HSR Act or any filing,
permit, authorization, consent or approval, the failure of which to obtain
would not reasonably be expected to prevent CNET from performing its
obligations under this Agreement, and neither the execution and delivery of
this Agreement by CNET nor the consummation by CNET of the transactions
contemplated hereby nor compliance by CNET with any of the provisions hereof
will conflict with or result in any breach of any applicable organizational
documents or instruments applicable to CNET, result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any third-party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which CNET is a party or by which the Subject
Securities may be bound or violate any order, writ, injunction, decree,
judgment, statute, rule or regulation applicable to CNET as of the date
hereof, other than such violations, breaches or defaults that would not
reasonably be expected to prevent CNET from performing its obligations under
this Agreement.
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders
of the Company called with respect to any Takeover Proposal, Material
Transaction Proposal or transaction or occurrence which if publicly proposed
and offered to the Company and its stockholders (or any of them) would be the
subject of a Takeover Proposal or Material Transaction Proposal
(collectively, a "SUBJECT PROPOSAL"), and at every adjournment of any such
meeting, and on every action or approval by written consent of the
stockholders of the Company with respect to any Subject Proposal, CNET
irrevocably agrees that it shall vote (or cause to be voted) all the Subject
Securities that it beneficially owns on the record date of any such vote or
action to ratify, approve and adopt any and all actions adopted or approved
by NBC, and against any and all actions voted against by NBC. CNET shall not
commit or agree to take any action inconsistent with the foregoing. As used
herein, "MATERIAL TRANSACTION PROPOSAL" means any inquiry, proposal or offer
from any Person relating to (i) the direct or indirect acquisition or
purchase of 5% or more of the assets (based on the fair market value thereof)
of Xenon 2 and its Subsidiaries, taken as a whole, or of 5% or more of any
class of equity securities of Xenon 2 or any of its Subsidiaries or any
tender offer or exchange offer (including by Xenon 2 or its Subsidiaries)
that if consummated would result in any person beneficially owning 5% or more
of any class of equity securities of Xenon 2 or any of its Subsidiaries, or
(ii) any merger, consolidation, business combination, sale of all or
substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving Xenon 2 or any of its Subsidiaries. As used
herein, "TAKEOVER PROPOSAL" means any inquiry, proposal or offer from any
Person relating to (A) any of the matters set forth in clause (i) of the
definition of Material Transaction Proposal
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3
but replacing "5%" with "50%" each place "5%" is used in such definition, (B)
a sale of all or substantially all of the assets of Xenon 2 and its
Subsidiaries or (C) a merger or consolidation of Xenon 2 as a result of which
the stockholders of Xenon 2 immediately prior to such transaction would not
beneficially own immediately after such transaction 50% or more of the
resulting or surviving entity (or the parent thereof)
3. IRREVOCABLE PROXY. CNET hereby grants to, and appoints NBC and
the President and Treasurer of NBC and the Secretary of NBC, in their
respective capacities as officers of NBC, and any individual who shall
hereafter succeed to any such office of NBC, and any other designee of NBC,
each of them individually, CNET's proxy and attorney-in-fact (with full power
of substitution) to vote or act by written consent with respect to the
Subject Securities in accordance with Section 2 hereof. This proxy is
coupled with an interest and shall be irrevocable, and CNET will take such
further action or execute such other instruments as may be necessary to
effectuate the intent of this proxy and hereby revokes any proxy previously
granted by it with respect to the Subject Securities; provided that this
proxy shall be automatically revoked without any further action on the part
of NBC and CNET upon the termination of this Agreement pursuant to Section 14
hereof.
4. REPRESENTATIONS AND WARRANTIES OF NBC. NBC represents and
warrants, to CNET as follows:
(a) POWER; BINDING AGREEMENT. NBC has full power and authority
to enter into and perform all of its obligations under this Agreement. This
Agreement has been duly and validly executed and delivered by NBC and
constitutes a valid and binding agreement of NBC, enforceable against NBC in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating
to or affecting creditors generally, by general equity principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law) or by an implied covenant of good faith and fair dealing.
(b) NO CONFLICTS. No filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or authority or
any other person or entity is necessary for the execution of this Agreement by
NBC and the consummation by NBC of the transactions contemplated hereby, other
than pursuant to the HSR Act or any filing, permit, authorization, consent or
approval, the failure of which to obtain would not reasonably be expected to
prevent NBC from performing its obligations under this Agreement, and neither
the execution and delivery of this Agreement by NBC nor the consummation by NBC
of the transactions contemplated hereby nor compliance by NBC with any of the
provisions hereof will conflict with or result in any breach of any
organizational documents or instruments applicable to NBC, result in a violation
or breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third-party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which NBC is a party or by which NBC's respective
properties or assets may be bound or violate any order, writ, injunction,
decree, judgment, statute, rule or regulation applicable to NBC as of the date
hereof, other than such
<PAGE>
4
violations, breaches or defaults that would not reasonably be expected to
prevent NBC from performing its respective obligations under this Agreement.
.
5. COVENANTS OF CNET. CNET hereby agrees and covenants that:
(a) NO SOLICITATION. CNET shall not, and shall not authorize its
affiliates, partners, investment bankers, attorneys, agents or other advisors
or representatives to, directly or indirectly, solicit, knowingly encourage
(including by way of providing confidential information or data) or have any
discussion or negotiate with any person or entity (other than NBC or any
affiliate of NBC) concerning any proposal by such person or entity with
respect to the Company that constitutes or could reasonably be expected to
lead to a Subject Proposal. CNET will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore by or on its behalf with respect to any of the
foregoing.
(b) RESTRICTION ON TRANSFER, PROXIES AND NONINTERFERENCE. CNET
shall not, and shall not authorize any of its affiliates, partners,
investment bankers, attorneys, agents or other advisors or representatives
to, directly or indirectly: (i) offer for sale, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of (including by gift), or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of the Subject
Securities (or any interest therein), other than in accordance with the
provisions of this Agreement and the Standstill Agreement, dated as of the
date hereof, between CNET and Xenon 2; (ii) except as contemplated hereby,
grant any proxies or powers of attorney, deposit any such Subject Securities
into a voting trust or enter into a voting agreement with respect to any of
the Subject Securities; (iii) take any action that would have the effect of
preventing or disabling CNET from performing its obligations under this
Agreement; or (iv) commit or agree to take any of the foregoing actions.
CNET will not sell, transfer or otherwise dispose of any of the Subject
Securities to any affiliate of CNET unless such agrees to be bound by the
terms of this Agreement with respect to such Subject Securities as if it were
CNET and delivers a written agreement to NBC to such effect.
(c) FURTHER ASSURANCES. CNET will, from time to time, execute
and deliver, or cause to be executed and delivered, without further
consideration, such additional or further consents, documents and other
instruments and take all such further actions as NBC may reasonably request
for the purpose of effectuating the matters covered by this Agreement in the
most expeditious manner practicable.
6. RIGHTS OF FIRST OFFER AND REOFFER.
(a) If CNET at any time intends to transfer, sell, assign,
exchange, mortgage, pledge, hypothecate or otherwise dispose of any Company
Common Stock or any interest therein (other than pursuant to a merger,
consolidation or reorganization to which the Company is a party or a tender
offer approved by the Board of Directors of the Company) ("TRANSFER") to any
Person other than NBC and its affiliates (a "THIRD PARTY"), CNET shall first
give written notice (a "SELLER'S NOTICE") to NBC, stating CNET's intention to
make such Transfer, the name of the proposed Third Party transferee (if the
Transfer is to occur in a privately negotiated transaction),
<PAGE>
5
the number of shares of Company Common Stock to be transferred (the "OFFERED
SHARES"), the price or other consideration per share which CNET proposes to
be paid for the Offered Shares by the Third Party (the "FIRST OFFER PRICE")
and the other material terms upon which such Transfer is proposed. It being
expressly understood that, with respect to proposed open market sales and
sales pursuant to bona fide underwritten public offerings, CNET may indicate
as the price in the Seller's Notice as the "then current market price" and
such indication shall be sufficient for such notice. If the Seller's notice
specifies the "then current market price" or that the sale will be made for
non-cash consideration, then the First Offer Price will be the closing price
for shares of Company Common Stock on the NASDAQ Stock Market on the day
immediately preceding NBC's acceptance of CNET's offer. CNET will not include
in any Seller's Notice more shares of Company Common Stock than the number of
shares it anticipates it will sell during the next 60 days.
(b) Upon receipt of the Seller's Notice (the "FIRST
OFFER"), NBC shall have an irrevocable, non-transferable (other than to
Affiliates) option to purchase all or any number of the Offered Shares at the
First Offer Price. The option of NBC under this Section 6(b) shall be
exercisable by written notice to CNET given within 7 days from receipt of the
Seller's Notice. NBC may assign its rights under this Section 6 in whole or
in part to the Company.
(c) If NBC determines not to exercise its option to
purchase the Offered Shares at the First Offer Price or determines to
exercise its option to purchase less than all the Offered Shares, then CNET
shall be free, for a period of 60 days from the earlier of (i) the expiration
of the option period with respect to such First Offer pursuant to Section
6(b) and (ii) the date CNET shall have received written notice from NBC
stating that NBC intends not to exercise the option granted to it under the
foregoing provisions of this Section 6 with respect to all the Offered
Shares, to sell the Offered Shares as to which such options are not exercised
to the Third Party transferee at a price equal to or greater than the First
Offer Price and on substantially similar material terms as were contained in
the First Offer, PROVIDED that the Transfer complies with the provisions of
Section 5(b).
(d) In the event the proposed purchase price of a Third Party
transferee for the Offered Shares is less than the First Offer Price (other than
a reduction in the purchase price due to decreases in the market value of the
Company Common Stock if the Offered Shares are proposed to be sold in the open
market or pursuant to an underwritten offering) or is otherwise on terms that
are different in any material respect from those set forth in the Seller's
Notice, CNET shall not sell or otherwise transfer any of the Offered Shares
unless CNET shall first reoffer the Offered Shares at such lesser price to NBC
(the "REOFFER") by giving written notice (the "REOFFER NOTICE") to NBC, stating
the items required to be included in the Seller's Notice, including CNET's
intention to make such transfer at such lower price or on such different terms
(the "REOFFER PRICE"). NBC shall then have an irrevocable, non-transferable
(other than to Affiliates) option to purchase all or part of the Offered Shares
at the Reoffer Price, exercisable in the same manner as provided in Section
6(b). In the event that NBC does not then elect to purchase all the remaining
Offered Shares, or NBC elects to purchase less than all the remaining Offered
Shares, the Offered Shares not so purchased may be sold by CNET within 60 days
following the earlier of (i) the expiration of the option period with respect to
the Reoffer pursuant to Section 6(b) or (ii) the date on which CNET shall have
received written notice from NBC
<PAGE>
6
stating that NBC intends not to exercise the option granted to it in this
Section 6(d) with respect to all of the remaining Offered Shares, at a price
equal to or greater than the Reoffer Price, PROVIDED that the Transfer
complies with the provisions of Section 5(b).
(e) In the event that NBC does not exercise its option to
purchase any or all of the Offered Shares at the First Offer Price or at the
Reoffer Price, and CNET shall not have sold the remaining Offered Shares to a
Third Party transferee for any reason before the expiration of the 30-day
period described in Section 6(d) in the event of a Reoffer, or, if no Reoffer
Notice is given, the 60-day period described in Section 6(c), then all of the
provisions of this Section 6 shall again become applicable to any sales or
transfers of Company Common Stock by CNET.
(f) If NBC exercises its rights of first offer or reoffer
hereunder, the closing of the purchase of the Offered Shares with respect to
which such right has been exercised shall take place on the tenth day after
the later of (i) the date NBC gives notice of such exercise and (ii) the
expiration of such time as NBC may reasonably require in order to comply with
applicable United States federal and state laws and regulations, which in no
event shall be more than 30 days after the date specified in clause (i).
Upon exercise by NBC of its rights of first offer and reoffer under this
Section 6, NBC and CNET shall be legally obligated to consummate the
purchase contemplated thereby and shall use their best efforts to secure any
approvals required, and to comply as soon as practicable with all applicable
United States federal and state laws and regulations in connection
therewith.
(g) Notwithstanding anything herein to the contrary, (i) nothing
herein shall prohibit or restrict CNET in any way from (A) pledging or
hypothecating any Subject Securities to a financial institution in a bona
fide financing transaction so long as CNET controls the voting of such
Subject Securities prior to the occurrence of a default or (B) entering into
hedging strategies or transactions such as, for example, the purchase and
sale of puts, calls, options, straddles and other hedging mechanisms with
respect to Subject Securities so long as the aggregate hedging transaction at
any time outstanding with any Person and its affiliates do not relate to an
aggregate number of shares of Common Stock in excess of 5% of the outstanding
shares of Common Stock and Class B Common Stock of the Company at the time
such transactions were entered into (or an equivalent position) and (ii) the
transactions described in clause (i) shall not be a Transfer and shall not be
subject to the Right of First Offer set forth in this Section 6.
7. ENTIRE AGREEMENT; ASSIGNMENT; BENEFITS. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supercedes all other prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof. Except as provided in the last sentence of Section
5(b), this Agreement may not be assigned by any party hereto without the
prior written consent of the other party. This Agreement shall be binding
upon, and shall inure to the benefit of, each of NBC and CNET and their
respective successors and permitted assigns.
8. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if and when
<PAGE>
7
delivered personally or by overnight courier or sent by electronic
transmission, with confirmation received, to the telecopy numbers specified
below:
If to NBC:
National Broadcasting Company
30 Rockefeller Plaza
New York, New York 10012
Attention: Marty Yudkovitz
Telecopy: (212) 661-5561
With copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard Capelouto
Telecopy: (212) 455-2502
If to CNET:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attention: Douglas N. Woodrum
Telecopy: (415) 395-9205
with copies to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: R. Clayton Mulford
Telecopy: (214) 939-5849
or to such other address or telecopy number as any party may have furnished
to the other parties in writing in accordance herewith.
<PAGE>
8
9. NOTICE OF LITIGATION. CNET shall promptly notify NBC of any
pending or, to its knowledge, threatened action or proceeding challenging the
validity or enforceability of this Agreement or the ability of CNET to
perform its obligations hereunder.
10. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable harm would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
11. AMENDMENT. This Agreement may not be amended or modified,
except by an instrument in writing signed by or on behalf of each of the
parties hereto. This Agreement may not be waived by any party hereto, except
by an instrument in writing signed by or on behalf of the party granting such
waiver.
12. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law.
13. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
14. TERMINATION. This Agreement shall terminate upon the date on
which CNET and its affiliates do not beneficially own (as determined pursuant
to Rule 13d-3 under the Exchange Act) in the aggregate at least 5% of the
Company Common Stock outstanding. Upon any termination of this Agreement,
this Agreement shall thereupon become void and of no further force and
effect, and there shall be no liability in respect of this Agreement or of
any transactions contemplated hereby on the part of any party hereto or any
of its directors, officers, partners, stockholders, employees, agents,
advisors, representatives or affiliates; PROVIDED, HOWEVER, that nothing
herein shall relieve any party from any liability for such party's wilful
breach of any of its material agreements contained in this Agreement; and
PROVIDED FURTHER that nothing herein shall limit, restrict, impair, amend or
otherwise modify the rights, remedies, obligations or liabilities of any
person under any other contract or agreement.
15. SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability and shall not render invalid or unenforceable the remaining
terms and provisions of this Agreement or affect the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
<PAGE>
9
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf
of each of the parties hereto, all as of the date first above written.
NATIONAL BROADCASTING COMPANY
By: /s/ Mark Begor
-------------------------------------
Name: Mark Begor
Title: Executive Vice President
CNET, INC.
By: /s/ Douglas N. Woodrum
-------------------------------------
Name: Douglas N. Woodrum
Title: CFO
<PAGE>
Exhibit 10.25
November 30, 1999
NBC Internet, Inc.
433 California Avenue
Suite 910
San Francisco, CA 94104
Attn: Chris Kitze
Re: NBC ADVERTISING PURCHASE
Dear Chris:
This letter ("Letter Agreement") sets forth the agreement between the
National Broadcasting Company, Inc. ("NBC"), and NBC Internet, Inc.
("Advertiser") with respect to the Advertiser's purchase of certain
advertising inventory on NBC Network Television, NBC owned and operated
television stations and, to the extent applicable, any other standard (ie,
over-the-air broadcast) television network programmed or controlled by NBC
(all of the foregoing are hereafter collectively referred to as "NBC TV") and
on non-standard television channels owned and operated by NBC, which are
currently MSNBC and CNBC (all such non-standard television channels are
hereafter collectively referred to as "NBC Cable"). The terms and conditions
shall be as follows:
1. GENERAL TERMS. (a) NBC shall provide Advertiser with the use of
fifteen (15), thirty (30), and sixty (60) second advertising spots (each, a
"Spot") to be telecast on NBC TV and NBC Cable as requested by Advertiser
reasonably spread over 48 months commencing on September 27, 1999 (the
"Commencement Date").
(b) Any co-branding or reselling of the Spots shall be subject to the
approval of NBC, which approval shall not be unreasonably withheld or
delayed. For purposes of this paragraph 1(b), any determination or consent of
NBC may only be given by NBC's account manager for this Letter Agreement, who
shall initially be Melvin Berning and requests for any such determination or
consent may only be requested by Advertiser's account manager for this Letter
Agreement, who shall initially be Bertina Ceccarelli and shall thereafter be
a designee of the Class A Directors of Advertiser (as such term is defined in
the Certificate of Incorporation of Advertiser) (the "Class A Directors").
<PAGE>
2
(c) All such Spots run by Advertiser shall be, at all times, subject
to NBC TV or NBC Cable's standard terms and conditions for such advertising
which, for NBC TV, are described in the "Participating Sponsorship Agreement"
attached as Exhibit A hereto (the "Standard Terms") and for MSNBC and CNBC
are described in the "Standard Terms and Conditions for the Telecast of
Commercial Advertising" and the "Commercial Continuity Guidelines" attached
as Exhibit B hereto (the "MSNBC/CNBC Standard Terms"), respectively;
PROVIDED, HOWEVER, that in the case of a conflict between the terms of this
Letter Agreement and the terms of the Standard Terms and/or the MSNBC/CNBC
Standard Terms, the terms of this Letter Agreement shall govern. For
purposes of the Standard Terms, Advertiser shall be both the "Advertiser" and
the "Agency" as such terms are used therein. Advertiser acknowledges that if
it fails to deliver any of the material required by NBC to air Advertiser's
Spots during any particular Program pursuant to the procedures in the
Standard Terms, then NBC TV or such NBC Cable channel shall be deemed to have
telecast such Spot during the relevant Program for purposes hereof even if
such Spot is not actually shown when the Program is telecast; PROVIDED,
HOWEVER, that if Advertiser supplies any new commercial material to NBC,
Advertiser instructs NBC to use such new material in lieu of the commercial
material previously delivered to NBC, and such new material complies with the
standards described in the Standard Terms, including NBC Advertising
Standards, then NBC will make reasonable commercial efforts to telecast such
new material on all Spots and will telecast such new material commencing no
more than 72 hours after receipt of such new material by NBC.
2. VALUE OF SPOTS. (a) NBC and Advertiser agree that Advertiser's Spots
telecast during the term of this Letter Agreement shall have an aggregate
value of $405,000,000, of which (i) not less than $45 million shall be
purchased during the fourth calendar quarter of 1999; (ii) not less than $20
million shall be purchased in each of the next eleven calendar quarters;
(iii) not less than $105 million shall be purchased in the first year
following the Commencement Date; and (iv) not less than $89 million shall be
purchased in each of the next two years. The value of each Spot for purposes
of this Letter Agreement shall be 85% of the gross market rate charged by NBC
TV or an NBC Cable channel, where market rate is defined as the actual
current rate, whether on or off any rate cards, and as adjusted for any
applicable frequency discounts, early payment discounts, rebates, and other
discounts, charged by NBC TV or such NBC Cable channel to an advertiser
purchasing Spots valued at the same amount as Advertiser actually purchases
in any given broadcast year on NBC TV or such NBC Cable channel. The value
of each Spot shall be calculated at the actual current rate in effect at the
time such Spot is ordered - ie, (1) where the Spot will be telecast by the
NBC Television Network and is ordered before or during the upfront market, in
accordance with Section 3(b) below, the actual current rate will be based on
the upfront rate for such Spot, (2) where the Spot will be telecast by the
NBC Television Network and is ordered after the upfront market, the actual
current rate will be based on the scatter market rate for such Spot, and (3)
where the Spot will be telecast by a television station owned and operated by
NBC or on an NBC Cable channel, the actual current rate will be based on the
rate for such Spot charged by such television station or such NBC Cable
channel.
(b) Ninety (90) days prior to the fourth anniversary of the
Commencement Date, Advertiser and NBC agree to negotiate concerning the
purchase by Advertiser over a six year period beginning at the end of the
term of this Letter Agreement of up to an additional
<PAGE>
3
$500,000,000 of Spots on NBC TV, at a price and subject to terms and
conditions to be mutually agreed upon by Advertiser and NBC. Any decision by
the parties for Advertiser to purchase such additional Spots shall be subject
to the approval of a majority of the Class A Directors of Advertiser.
(c) NBC and each NBC Cable channel shall provide Advertiser with a
written report within 5 business days after the end of each calendar month
following the date hereof setting forth the aggregate value of the Spots
telecast by NBC or such NBC Cable channel in the preceding month (each, a
"Monthly Report"). Neither NBC nor any NBC Cable channel shall include in
the amount for the aggregate value of the Spots in the Monthly Report, and
therefore shall not charge Advertiser, for Spots not actually telecast or
deemed telecast. Within ten (10) business days after receiving each Monthly
Report, absent manifest error, Advertiser shall pay NBC or such NBC Cable
channel in cash for the amount set forth in such Monthly Report; PROVIDED,
HOWEVER, that no payment shall be required until January 15, 2000. NBC's
obligations under this Letter Agreement are conditioned upon full payment by
Advertiser of all obligations to NBC and each NBC Cable channel that arise
solely under this Letter Agreement.
3. SPOT PLACEMENT AND TERMS. (a) NBC and Advertiser shall use their good
faith efforts to prepare and mutually agree as provided in Section 3(b) upon
a written schedule (the "Schedule") for the telecast of the Spots during such
broadcast year representing approximately $70 million in value as determined
herein on the Dates, Days and Times, adjacent to specific programming
(including special events and major sports events), adjacent to other
advertisers' spots, with the audience delivery or demographics, and otherwise
as based upon Advertiser's written proposal provided to NBC in accordance
with Section 3(b) below. In no event shall Advertiser have less control and
direction over the frequency and other timing of Spots; less control and
direction over placement adjacent to or in conjunction with programming and
other advertisers' spots; and less choice of spots (including spots for
special events) than any other advertiser purchasing a similar aggregate
market value of Spots (as calculated on an annual basis) from NBC.
(b) Immediately after NBC's announcement of its prime-time schedule
for the upcoming broadcast year (i.e., the opening of the upfront
marketplace), Advertiser shall provide NBC with a written proposal for the
Schedule for the upcoming broadcast year. Promptly thereafter, the parties
shall use their good faith efforts to expeditiously agree on the Schedule.
The Schedule for each broadcast year after the initial year shall be subject
to the review and approval of a single person, who shall either be a member
of senior management of Advertiser or a Class A Director, which person may be
appointed by, and may be removed by, a majority of the Class A Directors, but
de minimis amendments to the Schedule may be agreed by Advertiser's account
manager for this Letter Agreement without any further approval by such
person. NBC's obligation to provide Spots on the Schedule for NBC Cable in
each broadcast year shall be limited to providing Spots valued hereunder in
an amount ranging from ten percent (10%) to twenty percent (20%) of the
aggregate value of the Schedule.
(c) In addition to the Spots to be telecast pursuant to the Schedule,
Advertiser may negotiate directly with NBC Cable and NBC's owned and operated
television stations to place some or all of Spots valued at $20 million per
year to be telecast by NBC Cable and/or such
<PAGE>
4
television stations. To the extent that, following such good faith
discussions, Advertiser, NBC, NBC Cable and such television stations cannot
agree on the placement of such Spots, then NBC may place and telecast any of
such Spots that Advertiser is unable to place with NBC Cable or such
television stations or in the Schedule on a "run of schedule" basis (ie, as
and to the extent that time is available on NBC TV) in any daypart (other
than overnight) on NBC TV and in accordance with the audience delivery or
demographics reasonably requested by Advertiser. NBC may charge Advertiser
for the value of such Spots in accordance with the last sentence of Section
2(a) above.
(d) In no event shall Advertiser have less access to ratings, audience
delivery, demographic and other information in the control of NBC than any
other advertiser purchasing a similar aggregate market value of Spots (as
calculated on an annual basis) from NBC TV or any NBC Cable channel, as the
case may be. In the event that Advertiser determines, in its reasonable
discretion, that the mechanism for determining the Schedule has resulted in
Advertiser's receiving less control and direction over the frequency and
other timing of Spots; less control and direction over placement adjacent to
or in conjunction with programming and other advertisers' spots; and less
choice of spots (including spots for special events) than any other
advertiser purchasing a similar aggregate market value of Spots (as
calculated on an annual basis) from NBC TV for the 2000/2001 broadcast year,
then Advertiser may request that the procedure for determining the Schedule
be revised to provide Advertiser with such rights. Following such request,
Advertiser and NBC shall use their good faith efforts to revise such
procedure accordingly.
(e) The parties agree that no agency fees or other expenses may be
deducted by Advertiser in any way in connection with determining the amount
of cash to be paid to NBC or any NBC Cable channel pursuant hereto at any
time.
4. PREEMPTION. NBC shall be able to preempt any of the Spots only in the
event of programs of public importance, news reports, political programs,
sports events, special programs, or special events and not solely for another
advertiser. In the event NBC fails to present over its network facilities
any telecast hereunder because of preemption as provided herein;
unavailability of technical facilities; defect or breakdown of equipment or
transmission facilities; labor dispute; government action; the unforeseen
absence of a principal performance; force majeure; act of God; or any other
cause beyond the control of NBC, whether of a similar or dissimilar nature,
NBC's liability therefor shall be limited solely to, at the option of NBC,
(a) cancellation or a pro rata rebate, as applicable, of all charges for the
Spots not telecast to Advertiser or (b) the provision of a mutually
acceptable make good for such affected telecast and such failure to telecast
shall not constitute a breach of this Letter Agreement.
5. REPRESENTATIONS AND WARRANTIES. NBC and Advertiser each represent and
warrant that this Letter Agreement has been duly authorized, executed and
delivered by such party and that this Letter Agreement constitutes the legal,
valid and binding obligations of such party, enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally
or by general principles of equity.
<PAGE>
5
6. TERMINATION. (a) Notwithstanding any other remedy available to NBC,
in the event that:
(i) NBC notifies Advertiser in writing (with specificity) that Advertiser
has materially breached this Letter Agreement and Advertiser has not cured
such alleged breach within thirty (30) days of its receipt of such notice; or
(ii) upon the occurrence of a Change of Control (as hereinafter defined) of
Advertiser; or
(iii) Advertiser admits in writing its inability to pay its debts generally;
makes a general assignment for the benefit of creditors; has any proceeding
instituted by or against it seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of Advertiser or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief
of debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee, or similar official for it or any substantial part of
its property; PROVIDED, in the case where such proceeding is involuntarily
instituted against Advertiser, such proceeding remains undismissed after
thirty (30) days,
then, in any such case, NBC shall have the right, but not the obligation, to
terminate this Letter Agreement, without prejudice to the rights of the
parties hereunder and thereunder, and require Advertiser to immediately pay
NBC a cash amount equal to the value of the advertising already telecast by
NBC as of such termination.
(b) Notwithstanding any other remedy available to Advertiser, in the
event that:
(i) Advertiser notifies NBC in writing (with specificity) that NBC has
materially breached this Letter Agreement and NBC has not cured such alleged
breach within thirty (30) days of its receipt of such notice; or
(ii) NBC admits in writing its inability to pay its debts generally; makes a
general assignment for the benefit of creditors; has any proceeding
instituted by or against it seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of NBC or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or similar official for it or any substantial part of its
property; PROVIDED, in the case where such proceeding is involuntarily
instituted against NBC, such proceeding remains undismissed after thirty (30)
days,
then, in any such case, Advertiser shall have the right, but not the
obligation, to terminate this Letter Agreement, without prejudice to the
rights of the parties hereunder and thereunder.
(c) Notwithstanding the foregoing, the terms contained in Sections 5,
6, 7 and 8 shall survive the termination hereof. Any such termination right
in connection with a Change in Control shall be exercisable no later than the
later to occur of (x) twenty (20) days prior to the
<PAGE>
6
consummation of the transaction resulting in such Change of Control and (y)
ten (10) business days after receipt by NBC of notice (which notice shall
identify the acquiror of Advertiser, be in writing, explicitly state that it
is being delivered in accordance with this Section 6 and provide NBC with
such additional information as has been provided to the other stockholders of
Advertiser of such Change of Control. For purposes of this Section 6, "Change
of Control" shall have the meaning set forth in that Brand Integration and
License Agreement between Advertiser and NBC Multimedia, Inc. dated as of May
8, 1999.
7. MISCELLANEOUS. This Letter Agreement constitutes the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations, and
understandings between the parties, both oral and written relating to the
subject matter hereof. No waiver or modification of any provision of this
Letter Agreement shall be effective unless in writing and signed by NBC and
Advertiser and, to the extent that such waiver or modification constitutes a
material change in this Letter Agreement, a majority of Class A Directors of
Advertiser (as such term is defined in the Certificate of Incorporation of
Advertiser). Any waiver by either party of any provision of this Letter
Agreement shall not be construed as a waiver of any other provision of this
Letter Agreement, nor shall such waiver operate as or be construed as a
waiver of such provision respecting any future event or circumstance. The
terms of this Letter Agreement shall apply to parties hereto and any of their
successors or assigns; PROVIDED that this Letter Agreement may not be
transferred or assigned by either party, without the prior written consent of
the other party . This Letter Agreement may be executed in counterparts, each
of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
8. GOVERNING LAW AND JURISDICTION. This Letter Agreement shall be
governed by and construed under the laws of the State of New York applicable
to contracts fully performed in New York, without regard to New York
conflicts law. The parties hereto irrevocably consent to and submit to the
exclusive jurisdiction of the federal and state courts located in the County
of New York. The parties hereto irrevocably waive any and all rights to
trial by jury in any proceeding arising out of or relating to this Letter
Agreement.
<PAGE>
7
If you are in agreement with the above terms and conditions, please
indicate your acceptance by signing in the space provided below, and return one
original to me.
Very truly yours,
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ Mark W. Begor
-----------------------------
Name: Mark W. Begor
Title: Executive Vice President
ACCEPTED AND AGREED:
NBC INTERNET, INC.
By: /s/ John Harbottle
-------------------------------
Name: John Harbottle
Title: EVP Finance & CFO
<PAGE>
Exhibit 10.26
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Registration Rights Agreement
among
National Broadcasting Company, Inc.
GE Investments Subsidiary, Inc.
CNET, Inc.
Flying Disc Investments Limited Partnership
Mr. Chris Kitze
and
NBC Internet, Inc.
(formerly known as "Xenon 2, Inc.")
Dated: November 30, 1999
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
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TABLE OF CONTENTS
<S> <C>
Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2. SHELF REGISTRATION OF RESALES. . . . . . . . . . . . . . . . . . . . . .3
(a) SHELF REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . .3
(b) MAINTENANCE OF EFFECTIVENESS . . . . . . . . . . . . . . . . . . . . .3
(c) OFFERINGS AND SALES. . . . . . . . . . . . . . . . . . . . . . . . . .4
(d) POSTPONEMENT OF SHELF REGISTRATION . . . . . . . . . . . . . . . . . .4
Section 3. DEMAND REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . .4
(a) REQUESTS FOR REGISTRATION BY HOLDERS . . . . . . . . . . . . . . . . .4
(b) FILING AND EFFECTIVENESS . . . . . . . . . . . . . . . . . . . . . . .5
(c) PRIORITY ON DEMAND REGISTRATION. . . . . . . . . . . . . . . . . . . .6
(d) POSTPONEMENT OF DEMAND REGISTRATION. . . . . . . . . . . . . . . . . .8
Section 4. PIGGYBACK REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . .8
(a) RIGHT TO PIGGYBACK . . . . . . . . . . . . . . . . . . . . . . . . . .8
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. . . . . . . . . . . . . . . . . .8
Section 5. REGISTRATION PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . .9
Section 6. INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7. SUSPENSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8. REGISTRATION EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) INDEMNIFICATION BY NBCI. . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
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(b) INDEMNIFICATION BY HOLDERS . . . . . . . . . . . . . . . . . . . . . 16
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS . . . . . . . . . . . . . . . 16
(d) CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 10. UNDERWRITTEN REGISTRATIONS. . . . . . . . . . . . . . . . . . . . . . 18
(a) INITIAL CNET DEMAND. . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) OTHER DEMAND REGISTRATIONS . . . . . . . . . . . . . . . . . . . . . 18
Section 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . 19
(c) NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(e) SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . 21
(f) COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(g) HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(h) GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(k) ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of November 30, 1999, by and among NBC Internet, Inc., a
Delaware corporation (formerly known as Xenon 2, Inc., and together with is
successors and assigns, "NBCI"), National Broadcasting Company, Inc., a
Delaware corporation (together with its successors and assigns, "NBC"), GE
Investments Subsidiary, Inc., a Delaware corporation ("GE SUB"), CNET, Inc.
(together with its successors and assigns, "CNET"), Flying Disc Investments
Limited Partnership, a Nevada limited partnership ("DISC"), Mr. Chris Kitze
("KITZE") and each other person who becomes a holder hereunder (collectively,
with NBC, GE Sub, CNET, Disc and Kitze, the "HOLDERS").
RECITALS
WHEREAS, Xoom.com, Inc., a Delaware corporation ("XOOM"), NBCi,
Xenon 3, Inc., a Delaware corporation ("XENON 3"), Snap! LLC, a Delaware
limited liability company ("SNAP"), and CNET, are parties to an Agreement and
Plan of Contribution and Merger, dated as of May 9, 1999, as amended (the
"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, par
value $0.0001 per share, of Xoom (the "COMMON STOCK") will be converted into
the right to receive one share of Class A common stock, par value $0.0001 per
share, of NBCi (the "CLASS A COMMON STOCK") and (ii) CNET will contribute its
ownership interest in Snap to NBCi in exchange for 7,147,584 shares of Class
A Common Stock;
WHEREAS, Xoom, NBCi, NBC, Neon Media Corporation, a Delaware
corporation ("NMC"), and GE Sub, are parties to a Second Amended and Restated
Agreement and Plan of Contribution, Investment and Merger, dated as of July
8, 1999, as amended (the "CONTRIBUTION AGREEMENT" and together with the
Merger Agreement, the "MERGER AGREEMENTS"), pursuant to which, among other
things, the parties thereto have agreed that (i) NMC will merge with and into
NBCi, with NBCi as the surviving corporation and each share of NMC common
stock will be converted into one share of Class B Common Stock of NBCi (the
"CLASS B COMMON STOCK") which will result in the issuance of 12,173,111
shares of Class B Common Stock to NBC Multimedia Inc., a wholly owned
subsidiary of NBC, (ii) a subsidiary of NBC will transfer its ownership
interest in Snap and certain other assets to NBCi in exchange for 11,417,569
shares of Class B Common Stock and a convertible note from NBCi which will be
convertible into 471,031 shares of Class B Common Stock and (iii) an
affiliate of NBC will purchase a convertible note from NBCi, which will be
convertible into 5,338,357 shares of Class B Common Stock, in exchange for
the assignment to NBCi of a note issued by NBC; and
WHEREAS, the execution and delivery of this Agreement by the
parties hereto is a condition to the closing of the transactions contemplated
by the Merger Agreements.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein and in the Merger Agreements, and other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto hereby agree as follows:
Section 1. DEFINITIONS. For purposes of this Agreement, the following
capitalized terms have the following meanings:
"INITIAL CNET DEMAND": A Demand Notice delivered by CNET pursuant
to Section 3(a)(iv) or 3(a)(v).
"INITIAL HOLDERS": NBC, GE Sub, CNET, Disc and Kitze.
"PROSPECTUS": The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments
and supplements to such prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such prospectus.
"REGISTRABLE SECURITIES": All shares of Class A Common Stock (i)
held by the Initial Holders from time to time, (ii) held by transferees of
the Initial Holders, but only with respect to securities transferred in
accordance with Section 11(e); (iii) issuable by NBCi or (iv) issued or
issuable upon the conversion of Class B Common Stock, including shares of
Class B Common Stock issuable to NBC or its affiliates upon conversion of the
convertible notes held on the date hereof, into Class A Common Stock,
excluding in each case shares of Class A Common Stock that have been disposed
of pursuant to a Registration Statement relating to the sale thereof that has
become effective under the Securities Act or pursuant to Rule 144 or Rule 145
under the Securities Act. Registrable Securities shall also include any
shares of Class A Common Stock or other securities (or shares of Class A
Common Stock underlying such other securities) that may be received by the
Holders (x) as a result of a stock dividend on or stock split of Registrable
Securities or Class B Common Stock or (y) on account of Registrable
Securities or Class B Common Stock in a recapitalization of or other
transaction involving NBCi.
"REGISTRATION STATEMENT": Any registration statement of NBCi
under the Securities Act that covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the related
Prospectus, any preliminary prospectus, all amendments and supplements to
such registration statement (including post-effective amendments), all
exhibits and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"SEC": The Securities and Exchange Commission.
"SECURITIES ACT": The Securities Act of 1933, as amended.
"UNDERWRITTEN OFFERING": A distribution, registered pursuant to
the Securities Act, in which securities of NBCi are sold to the public
through one or more underwriters.
<PAGE>
"VOTING AGREEMENT": means the Voting Agreement dated as of May 9,
1999, among Xoom, certain holders of the capital stock of NBCi, NBC and CNET,
as the same may be amended, supplemented or otherwise modified from time to
time.
Section 2. SHELF REGISTRATION OF RESALES.
(a) SHELF REGISTRATION STATEMENT. Within 45 days of receipt by
NBCi of a written notice as described in Section 3(a) which is requested to
be effected as a shelf registration pursuant to Rule 415 under the Securities
Act (such Demand Registration, a "SHELF REGISTRATION") (which request shall
not be made at any time prior to the later of the twelve month anniversary of
the date hereof or the date on which NBCi first becomes eligible to file a
registration statement on Form S-3), NBCi shall file with the SEC a
registration statement for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act (a "SHELF REGISTRATION
STATEMENT") covering all of the Registrable Securities of the requesting
Holder included in the Demand Notice and any additional Registrable
Securities requested to be included by the other Holders pursuant to the
terms of Sections 3(c) and 4(b) (collectively, in such capacity, the
"REGISTERING HOLDERS"). The Shelf Registration Statement shall be on the
appropriate form and shall comply as to form in all material respects with
the requirements of the Securities Act and the sales and regulations
promulgated thereunder, permitting registration of such Registrable
Securities for resale by the Registering Holders in the manner designated by
them (including, without limitation, one or more Underwritten Offerings).
NBCi shall use all commercially reasonable efforts to cause the Shelf
Registration Statement to be declared effective by the SEC as promptly as
practicable. NBCi will notify the Registering Holders in writing when such
Shelf Registration Statement becomes effective.
(b) MAINTENANCE OF EFFECTIVENESS. NBCi agrees to use commercially
reasonable efforts to keep the Shelf Registration Statement (including the
preparation and filing of any amendments and supplements necessary for that
purpose) continuously effective until the earlier of (a) the date on which
the Registering Holders (or distributees or transferees of such Registering
Holders) no longer hold any Registrable Securities or (b) the date on which
all the Registrable Securities of the Registering Holders are eligible for
sale pursuant to Rule 144(k) (or any successor provision) or in one day
without registration pursuant to Rule 144(e) (or any successor provision)
under the Securities Act (such period, the "EFFECTIVE PERIOD"). Each
Registering Holder seeking to offer and sell Registrable Securities upon
exercise of the rights hereunder agrees to provide information to NBCi in a
timely manner regarding the proposed distribution by such Registering Holder
of the Registrable Securities and such other information reasonably requested
by NBCi in connection with the preparation of the Shelf Registration
Statement. If the Shelf Registration Statement ceases to be effective for
any reason or at any time during the Effective Period (other than because of
the sale of all the securities registered thereunder), NBCi shall use
commercially reasonable efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof. Upon written request from a
Registering Holder during the Effective Period, NBCi shall, subject to the
other provisions of this Agreement, promptly supplement the Shelf
Registration Statement to reflect resales of Class A Common
3
<PAGE>
Stock by any distributees or other transferees of any Holder who received
their Class A Common Stock in accordance with this Agreement and who have
been identified in writing to NBCi.
(c) OFFERINGS AND SALES. At any time during the Effective Period,
any Registering Holder may exercise its Shelf Registration rights hereunder
with respect to the Registrable Securities. If any Registering Holder
desires to offer and sell Registrable Securities under the Shelf Registration
Statement pursuant to an underwritten public offering, such Registering
Holder shall deliver a written notice (the "REGISTRATION NOTICE") to NBCi at
least 20 days prior to the date on which such Registering Holder desires to
consummate the sale of Registrable Securities. Any Registration Notice shall
be subject to revocation by the Registering Holder initiating the request by
delivery of a subsequent written notice to NBCi no later than the fifth
business day prior to the contemplated offering commencement date.
Upon receipt of a Registration Notice, NBCi shall, within 30 days
of receipt thereof, give written notice to the other Registering Holders of
NBCi's receipt thereof. Within 15 days of receipt of such a notice from
NBCi, any other Registering Holder desiring to offer and sell any Registrable
Securities in the subject offering shall give written notice to NBCi, the
Registering Holder who delivered the Registration Notice to NBCi, and the
lead managing underwriter, if any, which notice shall specify the number of
shares of Registrable Securities such Registering Holder desires to offer for
sale. NBCi shall not be permitted to participate in such an offering without
the written consent of the Registering Holder initiating the offering (which
consent shall not be unreasonably withheld). In the event the Registrable
Securities requested to be included by the Registering Holders in the
aggregate exceeds the number of Registrable Securities to be included in the
Underwritten Offering, priority will be determined in accordance with Section
3(c).
(d) POSTPONEMENT OF SHELF REGISTRATION. NBCi will be entitled to
postpone the obligation to file any Shelf Registration Statement for a
reasonable period not in excess of 90 calendar days if NBCi's Board of
Directors determines, in the good faith exercise of its business judgment,
that such registration and offering would materially interfere with BONA FIDE
financing plans or strategic acquisition, disposition or alliance of NBCi
that would require disclosure of information, the premature disclosure of
which could materially and adversely affect NBCi. Notwithstanding the
foregoing, in no event shall the aggregate number of days during any period
of 12 consecutive months during which the Registering Holders are subject to
(i) postponement pursuant to this Section 2(d), (ii) postponement pursuant to
Section 3(d) and (iii) Black-Out pursuant to Section 7 exceed 90 days. If
NBCi postpones the filing of a Shelf Registration Statement, it will promptly
notify the Holders in writing (i) when the events or circumstances permitting
such postponement have ended and (ii) that the decision to postpone was made
by the Board of Directors of NBCi in accordance with this Section 2(d).
Section 3. DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION BY HOLDERS. At any time and from time
to time during which there is no Shelf Registration Statement that is effective
under the Securities Act so as to permit the offer and sale of all Registrable
Securities thereunder, subject to the conditions
4
<PAGE>
set forth in this Agreement one or more Holders will have the right, by
written notice delivered to NBCi (a "DEMAND NOTICE"), to require NBCi to
register Registrable Securities under and in accordance with the provisions
of the Securities Act (a "DEMAND REGISTRATION"), PROVIDED that effective on
the date of this Agreement and subject to the conditions set forth herein (i)
NBC, on behalf of NBC or GE Sub, may not make more than four (4) Demand
Registrations in total, one of which can be made on Form S-1 and one of which
can be for a Shelf Registration, and CNET and Kitze, on behalf of Kitze or
Disc (for Registrable Securities held by Disc on the date hereof), may not
make more than three (3) Demand Registrations each, of which, in the case of
each of CNET and Kitze, one of which can be for a Shelf Registration and of
which two (2) can be made on Form S-1 in the case of CNET and its
transferees, and one (1) can be made on Form S-1 in the case of Kitze, Disc
and their respective transferees, (ii) no Demand Notice may be given prior to
six (6) months after the effective date of the immediately preceding Demand
Registration, (iii) no such Demand Registration may be required unless the
Holders requesting such Demand Registration provide to NBCi a certificate
(the "AUTHORIZING CERTIFICATE"), seeking to include Registrable Securities in
such Demand Registration with a market value of at least $25,000,000 (or
$50,000,000 in the case of a Demand Notice for a Shelf Registration)
(calculated based on the average closing sale price of such securities on the
principal securities exchange or quotation system where such securities are
listed on the five business days immediately preceding the date of the Demand
Notice) as of the date the Demand Notice is given, (iv) if a Demand Notice is
delivered to NBCi during the 60 day period commencing on the closing date of
the Contribution Agreement by CNET, such Demand Notice will be given priority
over any Demand Registrations or Shelf Registrations of Registrable
Securities until such registration for CNET is effected, (v) if a Demand
Notice is delivered to NBCi during the 60 day period commencing on the
closing date of the Contribution Agreement from a Holder other than CNET,
NBCi will provide CNET with the opportunity to deliver a Demand Notice, which
Demand Notice by CNET will be given priority over the previously delivered
Demand Notice and any other Demand Notice until such registration for CNET is
effected, (vi) if a Demand Notice is delivered to NBCi during the 12 month
period commencing on the closing date of the Contribution Agreement, such
Demand Registration shall be an Underwritten Offering in accordance with
Section 10, and (vii) in any Underwritten Offering, shares may be excluded by
the underwriters based on market conditions and marketing factors. The
Authorizing Certificate shall set forth (A) the name of each Holder signing
such Authorizing Certificate, (B) the number of Registrable Securities held
by each such Holder, and, if different, the number of Registrable Securities
such Holder has elected to have registered, and (C) the intended methods of
disposition of the Registrable Securities. Notwithstanding the foregoing, a
good faith decision by a Holder to withdraw Registrable Securities from
registration will not affect NBCi's obligations under this Section 3(a)
unless the amount remaining to be registered has a market value of less than
$25,000,000 (or $50,000,000 in the case of a Shelf Registration) (calculated
as aforesaid).
(b) FILING AND EFFECTIVENESS. NBCi will file a Registration
Statement relating to any Demand Registration as soon as practicable but in
no event later than 45 days following the date on which the Demand Notice is
given, or 90 days in the case of the first Demand Registration, and will use
its best efforts to cause the same to be declared effective by the SEC as
soon as practicable thereafter. If any Demand Registration is requested to be
effected as a Shelf
5
<PAGE>
Registration by the Holders demanding such Demand Registration, NBCi will
keep the Registration Statement filed in respect thereof effective for the
Effective Period.
Within ten (10) business days after receipt of such Demand Notice,
NBCi will serve written notice thereof (the "NOTICE") to all other Holders
and will, subject to the provisions of Section 3(c), include in such
registration all Registrable Securities with respect to which NBCi receives
written requests for inclusion therein ("REQUEST FOR INCLUSION") within ten
(10) business days after receipt of the Notice by the applicable Holder. In
the event that any other Holder has the right to request a Demand
Registration pursuant to the provisions of Section 3(a), and PROVIDED that
more than 60 days have elapsed since the closing date of the Contribution
Agreement, if such Request for Inclusion includes a Demand Notice on behalf
of such Holder, such Holder will be treated as an initiating Holder for
purposes of the Demand Registration. Any Holder will be permitted to
withdraw in good faith all or part of the Registrable Securities from a
Demand Registration at any time prior to the effective date of such Demand
Registration, in which event NBCi will promptly amend or, if applicable,
withdraw the related Registration Statement. In the event the withdrawing
Holder is the sole initiating Holder of such Demand Registration pursuant to
Section 3(a), such demand will count as a Demand Registration of such Holder
unless the withdrawing Holder pays all registration expenses in connection
with such withdrawn registration as described in Section 8; PROVIDED that in
the event there has been a Material Adverse Change in the business or
financial condition of NBCi between the date of the Demand Notice relating to
such Demand Registration and the date of the withdrawal, NBCi shall pay all
registration expenses and such registration shall not be counted as a Demand
Registration to which such Holder is entitled pursuant to Section 3(a)
hereof. In the event all of the initiating Holders withdraw, such demand
will count as a Demand Registration of each such Holder unless, in the case
of each such Holder, such Holder pays its pro rata portion of all
registration expenses in connection with such withdrawn registration as
described in Section 8; PROVIDED that in the event there has been a Material
Adverse Change in the business or financial condition of NBCi between the
date of the Demand Notice relating to such Demand Registration and the date
of the withdrawal, NBCi shall pay all registration expenses and such
registration shall not be counted as a Demand Registration to which such
Holders are entitled pursuant to Section 3(a) hereof. For the purpose of
this Section 3(b), "Material Adverse Change" shall mean any change that,
individually or in the aggregate with all other changes, is materially
adverse to the business, financial condition or results of operation of NBCi
and its subsidiaries taken as a whole other than any change or circumstance
arising from a decrease of less than 25% of the closing price of NBCi on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or the National Market System of Nasdaq from the date of the
Demand Notice or the Request for Inclusion, as the case may be.
(c) PRIORITY ON DEMAND REGISTRATION. Subject to the provisions set
forth in Sections 3(a)(iv) and (v) and Section 3(b) regarding CNET's
priority, if Registrable Securities are to be registered pursuant to a Demand
Registration, NBCi shall provide written notice to the other Holders and will
permit all such Holders who request to be included in the Demand Registration
to include any or all Registrable Securities held by such Holders in such
Demand Registration. In connection with any Demand Registration, NBCi may
include securities for its own account and/or for the account of other
holders of NBCi's securities in such registration to
6
<PAGE>
the extent agreed to by the underwriters. If the managing underwriter or
underwriters of an Underwritten Offering to which such Demand Registration
relates advises the Holders that the total amount of Registrable Securities
that such Holders intend to include in such Demand Registration is in the
aggregate such as to materially and adversely affect the success of such
offering, then the number of Registrable Securities to be included in such
Demand Registration will, if necessary, be reduced and there will be included
in such Underwritten Offering the number of Registrable Securities that, in
the opinion of such managing underwriter or underwriters, can be sold without
materially and adversely affecting the success of such Underwritten Offering,
the Registrable Securities of the Holder or Holders initiating the Demand
Registration and NBCi shall receive priority in such Underwritten Offering to
the full extent of the Registrable Securities such Holder or Holders
(including NBCi) desire to sell, PROVIDED that, in the event the Registrable
Securities requested to be included by the initiating Holders and NBCi in the
aggregate exceeds the number of Registrable Securities to be included in the
Underwritten Offering, then:
(i) Registrable Securities requested to be included by CNET in
the Initial CNET Demand will comprise the lesser of (A) at least 50%
of the Registrable Securities included in such offering or (B) all of
the Registrable Securities requested to be included by CNET, with the
remainder of the Registrable Securities in such offering being
allocated to NBCi and Kitze as a direct holder or as the beneficial
owner of Registrable Securities held by Disc as determined in good
faith by the mutual agreement of NBCi and Kitze, it being understood
that the current intention of such parties is that Kitze's allocation
will be in the range of 10% - 15% of the Underwritten Offering;
(ii) if any Registration Statement is proposed to be filed by
NBCi whether or not for sale for NBCi's own account during the six
month period after the Effective Date of the Initial CNET Demand,
Registrable Securities requested to be included by CNET will comprise
the lesser of (A) at least 25% of the Registrable Securities included
in such offering or (B) all of the Registrable Securities requested to
be included by CNET; PROVIDED that in no event will CNET be entitled
to include more than 1,000,000 Registrable Securities in such
offering; PROVIDED FURTHER that, (A) if the number of shares included
by CNET is 500,000 or less, then such inclusion shall be in addition
to the rights contained in this Section 3 and shall not be deemed the
exercise by CNET of one of its Demand Registrations and (B) if the
number of shares included by CNET is more than 500,000, then such
inclusion shall be deemed the exercise by CNET of one of its Demand
Registrations pursuant to this Section 3; and
(iii) except as provided in 3(c)(ii) above, following the Initial
CNET Demand, or, if no such demand is made, following the 60 day
period commencing on the closing date of the Contribution Agreement,
(A) Registrable Securities requested to be included by NBCi will
comprise the lesser of (1) at least 50% of the Registrable Securities
included in such offering or (2) all of the Registrable Securities
requested to be included by NBCi and (B) of the remaining securities
to
7
<PAGE>
be included in such Underwriting Offering, Registrable Securities
of each initiating Holder will be included PRO RATA on the basis of
the amount of Registrable Securities requested to be included therein
by each such Holder. Any remaining allocation available for sale
shall be allocated PRO RATA among the other Holders on the basis of
the amount of Registrable Securities requested to be included therein
by each such Holder.
(d) POSTPONEMENT OF DEMAND REGISTRATION. NBCi will be entitled to
postpone the obligation to file any Demand Registration for a reasonable
period of time not exceeding 90 calendar days (other than the Demand
Registration for the Initial CNET Demand which may be postponed for a
reasonable period of time not exceeding 60 calendar days, PROVIDED that NBCi
will file the Demand Registration for the Initial CNET Demand no later than
120 days following the date on which the Demand Notice is given, and the
Initial CNET Demand will not be subject to any additional Black-Out period
pursuant to Section 7) if NBCi's Board of Directors determines, in the good
faith exercise of its business judgment, that such registration and offering
would materially interfere with BONA FIDE financing plans or strategic
acquisition, disposition or alliance of NBCi that would require disclosure of
information, the premature disclosure of which could materially and adversely
affect NBCi. Notwithstanding the foregoing, in no event shall the aggregate
number of days during any period of 12 consecutive months during which the
Registering Holders are subject to (i) postponement pursuant to this Section
3(d), (ii) postponement pursuant to Section 2(d) and (iii) Black-Out pursuant
to Section 7 exceed 90 days ; PROVIDED, HOWEVER, that any postponement with
respect to an Initial CNET Demand shall be disregarded in determining the
aggregate number of days during any 12-month period. If NBCi postpones the
filing of a Registration Statement, it will promptly notify the Holders in
writing (i) when the events or circumstances permitting such postponement
have ended and (ii) that the decision to postpone was made by the Board of
Directors of NBCi in accordance with this Section 3(d).
Section 4. PIGGYBACK REGISTRATION.
(a) RIGHT TO PIGGYBACK. If at any time NBCi proposes to file a
Registration Statement whether or not for sale for NBCi's own account, on a
form and in a manner that would also permit registration of Registrable
Securities, including, without limitation, pursuant to Sections 2 and 3
hereof, NBCi shall give to Holders holding Registrable Securities, written
notice of such proposed filing at least thirty (30) days before the
anticipated filing. The notice referred to in the preceding sentence shall
offer Holders the opportunity to register such amount of Registrable
Securities as each Holder may request (a "PIGGYBACK REGISTRATION"). Subject
to Section 4(b), NBCi will include in each such Piggyback Registration all
Registrable Securities with respect to which NBCi has received written
requests for inclusion therein. The Holders will be permitted to withdraw
all or part of the Registrable Securities from a Piggyback Registration at
any time prior to the effective date of such Piggyback Registration.
NBCi will not be obligated to effect any registration of
Registrable Securities under this Section 4 as a result of the registration
of any of its securities in connection with mergers, acquisitions, exchange
offers, dividend reinvestment, transfers of assets,
8
<PAGE>
reclassifications and share purchase plans offered solely to current holders
of Class A Common Stock, rights offerings or option or other employee benefit
plans.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. NBCi will cause the
managing underwriter or underwriters of a proposed Underwritten Offering on
behalf of NBCi to permit Holders to include therein all such Registrable
Securities requested to be so included on the same terms and conditions as
any securities of NBCi included therein. Notwithstanding the foregoing, if
the managing underwriter or underwriters of such Underwritten Offering
delivers an opinion to the Holders to the effect that (i) the total amount of
securities that such Holders and NBCi propose to include in such Underwritten
Offering or (ii) the effect of the potential withdrawal of any Registrable
Securities by any Holder (except any Holder who has theretofore waived such
Holder's right to withdraw all or part of its Registrable Securities pursuant
to Section 4(a)) prior to the effective date of the Registration Statement
relating to such Underwritten Offering, is such as to materially and
adversely affect the success of such offering, then the amount of securities
to be included therein for the account of Holders will, if necessary, be
reduced and there will be included in such Underwritten Offering the number
of Registrable Securities that, in the opinion of such managing underwriter
or underwriters, can be sold without materially and adversely affecting the
success of such Underwritten Offering. The securities of any Holder or
Holders of securities initiating the registration and NBCi shall receive
priority in such Underwritten Offering to the full extent of the Registrable
Securities such Holder or Holders and NBCi desire to sell and the remaining
allocation available for sale, if any, shall be allocated PRO RATA among the
other Holders on the basis of the amount of Registrable Securities requested
to be included therein by each such Holder; PROVIDED, HOWEVER, if any
Registration Statement is proposed to be filed by NBCi whether or not for
sale for NBCi's own account during the six month period after the Effective
Date of the Initial CNET Demand, Registrable Securities requested to be
included by CNET will comprise the lesser of (A) at least 25% of the
Registrable Securities included in such offering or (B) all of the
Registrable Securities requested to be included by CNET; PROVIDED that in no
event will CNET be entitled to include more than 1,000,000 Registrable
Securities in such offering; PROVIDED FURTHER that, (A) if the number of
shares included by CNET is 500,000 or less, then such inclusion shall be in
addition to the rights contained in this Section 3 and shall not be deemed
the exercise by CNET of one of its Demand Registrations and (B) if the number
of shares included by CNET is more than 500,000, then such inclusion shall be
deemed the exercise by CNET of one of its Demand Registrations pursuant to
this Section 3. The managing underwriter or underwriters, applying the same
standard, may also exclude entirely from such offering all Registrable
Securities proposed to be included in such offering to the extent the
Registrable Securities are not of the same class as securities of NBCi
included in such offering.
Section 5. REGISTRATION PROCEDURES. In connection with NBCi's
registration obligations pursuant to Sections 2, 3 and 4, NBCi will effect
such registrations to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto NBCi will as soon as practicable, but in no event later than
45 days after delivery of the Demand Notice, or 90 days in the case of the
initial Demand Registration, and in each case to the extent applicable:
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(a) prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the Holders thereof
in accordance with the intended method or methods of distribution thereof,
and use its best efforts to cause each such Registration Statement to become
effective and remain effective as provided herein; PROVIDED, HOWEVER, that
before filing a Registration Statement or Prospectus or any amendments or
supplements thereto (including documents that would be incorporated or deemed
to be incorporated therein by reference) NBCi will furnish to the Holders
copies of all such documents proposed to be filed (but excluding schedules,
documents to be incorporated or deemed incorporated therein by reference and
exhibits, unless requested in writing by such Holders or their counsel),
which documents will be subject to the review of such Holders and any
underwriters, and NBCi will not file any such Registration Statement or
amendment thereto or any Prospectus or any supplement thereto (including such
documents that, upon filing, will be incorporated or deemed to be
incorporated by reference therein) to which any Holder of the Registrable
Securities covered by such Registration Statement or the managing
underwriter, if any, shall reasonably object on a timely basis;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary
to keep such Registration Statement effective as provided herein; cause the
related Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement as so amended or in such
Prospectus as so supplemented;
(c) notify the selling Holders and the managing underwriters, if
any, promptly, and (if requested by any such person) confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or
any post-effective amendment, when the same has become effective, (ii) of any
request by the SEC or any other federal or state governmental authority for
amendments or supplements to a Registration Statement or related Prospectus
or for additional information, (iii) of the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if at any time the representations and
warranties of NBCi contained in any agreement contemplated by Section 5(n)
(including any underwriting agreement) cease to be true and correct in any
material respect, (v) of the receipt by NBCi of any notification with respect
to the suspension of the qualification or exemption from qualification of any
of the Registrable Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose and (vi) of the occurrence
of any event that makes any statement made in such Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the
making of any changes in a Registration Statement, Prospectus or any such
document so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact
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or omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading and, in the case of the
Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(d) use every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest possible moment;
(e) if requested by the managing underwriters, if any, or any
Holder of the Registrable Securities being registered, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such Holders agree
should be included therein as may be required by applicable law and (ii) make
all required filings of such Prospectus supplement or such post-effective
amendment as soon as practicable after NBCi have received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; PROVIDED, HOWEVER, that NBCi will not be required to take any
actions under this Section 5(e) that are not, in the opinion of counsel for
NBCi, in compliance with applicable law;
(f) furnish to each selling Holder and each managing underwriter,
if any, without charge, at least one conformed copy of the Registration
Statement and any post-effective amendment thereto, including financial
statements (but excluding schedules, all documents incorporated or deemed
incorporated therein by reference and all exhibits, unless requested in
writing by such Holder, such Holder's counsel or such underwriter);
(g) deliver to each selling Holder and the underwriters, if any,
without charge as many copies of the Prospectus or Prospectuses relating to
such Registrable Securities (including each preliminary prospectus) and any
amendment or supplement thereto as such persons may reasonably request; and
NBCi hereby consents to the use of such Prospectus or each amendment or
supplement thereto by each of the selling Holders and the underwriters, if
any, in connection with the offering and sale of the Registrable Securities
covered by such Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the selling Holders, the underwriters,
if any, and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or blue sky
laws of such jurisdictions within the United States as any seller or
underwriter reasonably requests in writing; use all reasonable efforts to
keep such registration or qualification (or exemption therefrom) effective
during the period the applicable Registration Statement is required to be
kept effective and do any and all other acts or things necessary or advisable
to enable the disposition in each such jurisdiction of the Registrable
Securities covered by the applicable Registration Statement; PROVIDED,
HOWEVER, that NBCi will not be required to (i)
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qualify to do business in any jurisdiction where it is not then so qualified
or (ii) take any action that would subject it to service of process in any
such jurisdiction where it is not then so subject;
(i) cooperate with the selling Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and enable such
Registrable Securities to be in such denominations and registered in such
names as the managing underwriters, if any, shall request at least two
business days prior to any sale of Registrable Securities to the underwriters;
(j) use all reasonable efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities within the United
States except as may be required solely as a consequence of the nature of any
selling Holder's business, in which case NBCi will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities;
(k) upon the occurrence of any event contemplated by Section
5(c)(vi), prepare a supplement or post-effective amendment to each
Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(l) use its best efforts to cause all Registrable Securities
covered by such Registration Statement to be either (i) listed on each
securities exchange, if any, on which similar securities issued by NBCi are
then listed or, if no similar securities issued by NBCi are then so listed,
on the New York Stock Exchange or another national securities exchange if the
securities qualify to be so listed or (ii) authorized to be quoted on Nasdaq
or the National Market System of Nasdaq, if the securities qualify to be so
quoted;
(m) as needed, (i) engage an appropriate transfer agent and provide
the transfer agent with printed certificates for the Registrable Securities
in a form eligible for deposit with The Depository Trust Company and (ii)
provide a CUSIP number for the Registrable Securities;
(n) enter into such customary agreements (including, in the event
of an Underwritten Offering, an underwriting agreement in form, scope and
substance as is customary in underwritten offerings) and take all such other
commercially reasonable and customary actions in connection therewith
(including, without limitation, entering into and causing its officers,
directors and affiliates to enter into customary lock-up agreements and
taking other actions reasonably requested by the initiating Holder or, if
none, the Holders holding a majority of the Registrable Securities being sold
or, in the event of an Underwritten Offering, those reasonably requested by
the managing underwriters) in order to expedite or facilitate the disposition
of such Registrable Securities and in such connection, whether or not an
underwriting agreement is
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entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties to the selling
Holders holding such Registrable Securities and the underwriters, if any,
with respect to the businesses of NBCi and its subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference therein, if any, in each case, in form, substance
and scope as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested; (ii) obtain opinions of
counsel to NBCi and updates thereof, which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the initiating Holder or, if none, the Holders
holding a majority of the Registrable Securities being sold, addressed to
such selling Holder and each of the underwriters, if any, covering the
matters customarily covered in opinions requested in underwritten offerings
and such other matters as may be reasonably requested by such Holders and
underwriters; (iii) use reasonable efforts to obtain "comfort" letters and
updates thereof from the independent certified public accountants of NBCi
(and, if necessary, any other certified public accountants of any subsidiary
of NBCi or of any business acquired by NBCi for which financial statements
and financial data is, or is required to be, included in the Registration
Statement), addressed to each selling Holder and each of the underwriters, if
any, such letters to be in customary form and covering matters of the type
customarily covered in "comfort" letters in connection with underwritten
offerings; and (iv) deliver such documents and certificates as may be
reasonably requested by the initiating Holder or, if none, the Holders
holding a majority of the Registrable Securities being sold, and the managing
underwriters, if any, to evidence the continued validity of the
representations and warranties of NBCi and its subsidiaries made pursuant to
clause (i) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or similar agreement entered into by
NBCi. The foregoing actions will be taken in connection with each closing
under such underwriting or similar agreement as and to the extent required
thereunder;
(o) make available for reasonable inspection during normal business
hours by a representative of the Holders holding Registrable Securities being
sold, any underwriter participating in any disposition of Registrable
Securities, and any attorney or accountant retained by such selling Holders
or underwriter, all financial and other records, pertinent corporate
documents and properties of NBCi and its subsidiaries, and cause the
officers, directors and employees of NBCi and its subsidiaries to supply all
information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with such Registration Statement;
PROVIDED, HOWEVER, that any records, information or documents that are
designated by NBCi in writing as confidential at the time of delivery of such
records, information or documents will be kept confidential by such persons
unless (i) such records, information or documents are in the public domain or
otherwise publicly available, (ii) disclosure of such records, information or
documents is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, or (iii) disclosure of such
records, information or documents, upon advice of counsel to such person, is
otherwise required by law (including, without limitation, pursuant to the
requirements of the Securities Act); PROVIDED FURTHER however that in the
case of (ii) or (iii) NBCi shall only be required to disclose that portion
which counsel advises NBCi is legally required and the Holders shall use
their commercially reasonable efforts (at NBCi's expense) to preserve the
confidentiality of such documents including, without limitation, by
cooperating with
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NBCi to obtain an appropriate protective order or other reliable assurance
that confidentiality will be accorded and maintained to the maximum extent
possible;
(p) comply with all applicable rules and regulations of the SEC and
make generally available to its security holders earning statements
satisfying the provisions of Section 1l(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no
later than 45 calendar days after the end of any 12-month period (or 90
calendar days after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
Underwritten Offering, or (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of NBCi,
after the effective date of a Registration Statement, which statements shall
cover said 12-month period;
(q) take any and all actions necessary to become eligible, and use
all reasonable efforts to remain eligible to file registration statements on
Form S-3 and do any and all other acts or things necessary or advisable to
comply with applicable rules and regulations regarding Form S-3, including,
but not limited to, making all filings required by the SEC and complying with
any and all time limits in connection therewith;
(r) use all reasonable efforts to file the reports required to be
filed by it under the Securities Act and the Exchange Act in a timely manner
and, if at any time NBCi is not required to file such reports, it will, upon
the request of any of the Holders of the Registrable Securities, make
publicly available other information so long as necessary to permit sales of
Registrable Securities pursuant to Rule 144 and 144A; will take such further
action as any Holder of the Registrable Securities may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rules 144 and 144A; and upon the
request of any Holder shall deliver to the such Holder a written statement as
to whether it has complied with this paragraph (r); and
(s) in connection with any Underwritten Offering, cause
appropriate members of management, including, without limitation, NBCi's
Chief Executive Officer, to cooperate and participate on a reasonable basis
in the underwriters' "road show" conferences related to such offering.
Section 6. INFORMATION. NBCi may require each selling Holder of
Registrable Securities as to which any registration is being effected
pursuant to Section 2, 3 or 4 to furnish to NBCi such information regarding
the distribution of such Registrable Securities as NBCi may, from time to
time, reasonably request in writing and NBCi may exclude from such
registration the Registrable Securities of any selling Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each such selling Holder promptly will notify NBCi of
the occurrence of any event that makes any of such information untrue in any
material respect or that requires making a change in such information so that
it will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated or
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necessary to make the statement therein, in light of the circumstances under
which they were made, not misleading.
Section 7. SUSPENSION. Each Holder will be deemed to have agreed by
virtue of its acquisition of Registrable Securities that, in connection with
any registrations of Registrable Securities effected pursuant to Section 2, 3
or 4, upon receipt of any notice from NBCi of the occurrence of any event of
the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(v) or 5(c)(vi)
("SUSPENSION NOTICE"), NBCi's obligation to cause any Registration Statement
to become effective or to amend or supplement such Registration Statement
shall be suspended and such Holder will forthwith discontinue disposition of
such Registrable Securities covered by such Registration Statement or
Prospectus (a "BLACK-OUT") until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k), or until it
is advised in writing (the "ADVICE") by NBCi that the use of the applicable
Prospectus may be resumed, and such Holder has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus. Except as expressly provided
herein, there shall be no limitation with regard to the number of Suspension
Notices that NBCi is entitled to give hereunder; PROVIDED, HOWEVER, that in
no event shall the aggregate number of days during any period of 12
consecutive months during which the Holders are subject to (i) postponement
pursuant to Section 2(d), (ii) postponement pursuant to Section 3(d) and
(iii) Black-Out pursuant to this Section 7 exceed 90 days ; PROVIDED,
FURTHER, that any postponement with respect to an Initial CNET Demand shall
be disregarded in determining the aggregate number of days during any
12-month period. In the event NBCi shall give a Suspension Notice, the time
period prescribed in Section 2 or Section 3 will be extended by the number of
days during the time period from and including the date of the giving of such
notice to and including the date when each seller of Registrable Securities
covered by such Registration Statement shall have received (x) the copies of
the supplemented or amended Prospectus contemplated by Section 5(k) or (y)
the Advice.
Section 8. REGISTRATION EXPENSES. Except as described in Section 3(b),
all fees and expenses incident to the performance of or compliance with this
Agreement by NBCi will be borne by NBCi whether or not any of the
Registration Statements become effective. Such fees and expenses will
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses for compliance with securities or "blue
sky" laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities in a form eligible for
deposit with The Depository Trust Company and of printing a reasonable number
of prospectuses if the printing of such prospectuses is requested by any
Holder of Registrable Securities included in any Registration Statement),
(iii) messenger, telephone and delivery expenses incurred by NBCi, (iv) fees
and disbursements of counsel for NBCi incurred by NBCi, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(n)(iii) (including the expenses of any special audit and "comfort"
letter required by or incident to such performance) incurred by NBCi, (vi)
Securities Act liability insurance, if any, if customarily incurred and (vii)
reasonable fees and expenses of one counsel retained by the Holders in
connection with the registration and sale of their Registrable Securities
(which counsel will be selected by the Holders of a majority of the
Registrable Securities being sold). In addition, NBCi will pay internal
expenses (including
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without limitation all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities
to be registered on any securities exchange or quotation system on which
similar securities issued by NBCi are then listed and the fees and expenses
of any person, including special experts, retained by NBCi. In no event,
however, will NBCi be responsible for any underwriting discount or selling
commission with respect to any sale of Registrable Securities pursuant to
this Agreement.
Section 9. INDEMNIFICATION.
(a) INDEMNIFICATION BY NBCI. NBCi will, without limitation as to
time, indemnify and hold harmless, to the fullest extent permitted by law,
each Holder holding Registrable Securities registered pursuant to this
Agreement, the officers, directors and agents and employees of each of them,
each person who controls such a Holder (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of any such controlling person, from and
against all losses, claims, damages, liabilities, costs (including without
limitation the costs of investigation and attorneys' fees) and expenses
(collectively, "LOSSES"), as incurred, arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are based upon information furnished
in writing to NBCi by such Holder expressly for use therein.
(b) INDEMNIFICATION BY HOLDERS. In connection with any
Registration Statement in which a Holder is participating, such Holder will
furnish to NBCi in writing such information as NBCi reasonably requests for
use in connection with any Registration Statement, Prospectus or preliminary
prospectus and will indemnify, to the fullest extent permitted by law, NBCi,
its directors and officers, agents and employees, each person who controls
NBCi (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, agents or employees of
such controlling persons, from and against all Losses, as incurred, arising
out of or based upon any untrue or alleged untrue statement of a material
fact contained in any Registration Statement, Prospectus or form of
Prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged omission
to state therein of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in
any information so furnished in writing by such Holder to NBCi expressly for
use in such Registration Statement, Prospectus or preliminary prospectus and
was used by NBCi in the preparation of such Registration Statement,
Prospectus or preliminary prospectus. In no event will the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the
proceeds (net of payment of all expenses) received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
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(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any person shall
become entitled to indemnity hereunder (an "INDEMNIFIED PARTY"), such
indemnified party shall give prompt notice to the party from which such
indemnity is sought (the "INDEMNIFYING PARTY") of any claim or of the
commencement of any action or proceeding with respect to which such
indemnified party seeks indemnification or contribution pursuant hereto;
PROVIDED, HOWEVER, that the failure to so notify the indemnifying party will
not relieve the indemnifying party from any obligation or liability except to
the extent that the indemnifying party has been prejudiced materially by such
failure. The indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interest between such indemnified party and any
other party represented by such counsel in such proceeding. All fees and
expenses (including any fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) will be paid
to the indemnified party, as incurred, within five calendar days of written
notice thereof to the indemnifying party (regardless of whether it is
ultimately determined that an indemnified party is not entitled to
indemnification hereunder). The indemnifying party will not consent to entry
of any judgment or enter into any settlement or otherwise seek to terminate
any action or proceeding in which any indemnified party is or could be a
party and as to which indemnification or contribution could be sought by such
indemnified party under this Section 9, unless such judgment, settlement or
other termination includes as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release, in form and
substance satisfactory to the indemnified party, from all liability in
respect of such claim or litigation for which such indemnified party would be
entitled to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 9 is unavailable to an indemnified party under Section 9(a) or 9(b)
in respect of any Losses or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, will, severally but not jointly, contribute to the
amount paid or payable by such indemnified party as a result of such Losses,
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party or indemnifying parties, on the one hand, and such
indemnified party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party or indemnifying parties, on the one hand, and such indemnified party,
on the other hand, will be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or related to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses will be deemed to include any legal or other fees or
expenses incurred by such party in connection with any action or proceeding.
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The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 9(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 9(d), an
indemnifying party that is a selling Holder will not be required to
contribute any amount in excess of the amount by which the net proceeds which
the Registrable Securities sold by such indemnifying party and distributed to
the public were offered to the public exceeds the amount of any damages that
such indemnifying party has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
1l(f) of the Securities Act) will be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations
of NBCi hereunder will be in addition to any liability NBCi may otherwise
have hereunder or otherwise. The provisions of this Section 9 will survive
so long as Registrable Securities remain outstanding, notwithstanding any
permitted transfer of the Registrable Securities by any Holder thereof or any
termination of this Agreement.
Section 10. UNDERWRITTEN REGISTRATIONS.
(a) INITIAL CNET DEMAND. For the Demand Registration effecting the
Initial CNET Demand, CNET shall have the right to appoint the investment
banker or manager to act as lead underwriter for the Underwritten Offering,
PROVIDED that (i) such underwriter is a first-class, nationally recognized
underwriter who is prepared to underwrite the offering and (ii) NBCi has
given its prior written consent to the appointment, which consent shall not
be unreasonably withheld; PROVIDED that an underwriter's lack of commitment
to provide customary market-making and research support services to NBCi
following the offering would constitute a reasonable ground for NBCi to
withhold its consent. For the Demand Registration effecting the Initial CNET
Demand, NBCi shall have the right to appoint the investment banker or manager
to act as co-lead underwriter for the Underwritten Offering, PROVIDED that
such underwriter is a first-class, nationally recognized underwriter who is
prepared to underwrite the offering. The co-lead underwriters for the Demand
Registration effecting the Initial CNET Demand shall be treated equally in
terms of percentage of the gross underwriting spread. Further, CNET and NBCi
may each appoint one investment banker to act as co-manager for the
Underwritten Offering PROVIDED that (i) such manager is a first-class,
nationally recognized manager who is prepared to manage the offering and (ii)
NBCi has given its prior written consent to the appointment of the co-manager
by CNET, which consent shall not be unreasonably withheld; PROVIDED that a
co-manager's lack of commitment to provide customary market-making and
research support services to NBCi following the offering would constitute a
reasonable ground for NBCi to withhold its consent.
(b) OTHER DEMAND REGISTRATIONS. If any of the Registrable Securities
included in any Demand Registration other than the Initial CNET Demand are to be
sold in an Underwritten Offering, the Holders holding a majority of the
Registrable Securities included in the Demand Notice may select an investment
banker or investment bankers and manager or managers to
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manage the Underwritten Offering. If any Piggyback Registration is an
Underwritten Offering, NBCi will have the exclusive right to select the
investment banker or investment bankers and managers to administer the
offering. Each party hereto agrees that, in connection with any Underwritten
Offering hereunder, it shall undertake to offer customary indemnification to
the participating underwriters. No Holder of Registrable Securities shall be
entitled to participate in an Underwritten Offering unless such Holder enters
into, and performs its obligations under, one or more underwriting agreements
and any related agreements and documents in the form that such Holder shall
agree to with the lead managing underwriter of the transaction. If any
Holder disapproves of the terms of any underwriting, it may elect, prior to
the execution of any underwriting agreement, to withdraw therefrom by written
notice to NBCi and the lead managing underwriter.
Section 11. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by any party of its
obligations under this Agreement, each party, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Each
party agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of any provision of this Agreement
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it will waive the defense that a
remedy at law would be adequate.
(b) AMENDMENTS AND WAIVERS. The provisions of Section 2 of this
Agreement may only be amended, modified or supplemented with the prior
written consent of each of NBCi, NBC, CNET and Kitze, and each of their
respective transferees permitted under this Agreement, so long as such Holder
holds Registrable Securities with a market value of at least $50,000,000.
The provisions of Section 3 of this Agreement may only be amended, modified
or supplemented with the prior written consent of each of NBCi, NBC, CNET and
Kitze, and each of their respective transferees permitted under this
Agreement, so long as such Holder holds Registrable Securities with a market
value of at least $25,000,000. The provisions of Sections 1 and 4 through 11
of this Agreement may only be amended, modified or supplemented with the
prior written consent of each of NBCi, NBC, CNET and Kitze, and each of their
respective transferees, so long as such Holder holds Registrable Securities
with a market value of at least $5,000,000. Upon the effectuation of each
such amendment or waiver, NBCi shall as soon as reasonably practicable give
written notice thereof to the Holders who have not previously consented
thereto in writing.
(c) NOTICES. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
telex or telecopier, registered or certified mail (return receipt requested),
postage prepaid or courier or overnight delivery service to NBCi and each
Holder, respectively, at the following addresses (or at such other address
for any party as shall be specified by like notice, PROVIDED that notices of
a change of address shall be effective only upon receipt thereof):
19
<PAGE>
<TABLE>
<S> <C>
If to NBCi: NBC Internet, Inc.
300 Montgomery Street
Suite 300
San Francisco, California 94104
Attn.: General Counsel
Telecopy: (415) 288-2578
With copies to: Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Attn.: Bruce Alan Mann
Telecopy: (415) 268-7522
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
Attn.: Allen L. Weingarten
Telecopy: (212) 468-7900
If to CNET: CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attn.: Douglas N. Woodrum, Chief Financial Officer
Telecopy: (415) 395-9330
With a copies to: CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attn.: Sharon Le Duy, General Counsel
Telecopy: (415) 395-9330
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn.: R. Clayton Mulford
Telecopy: (214) 939-5849
If to Disc or Kitze: Chris Kitze
300 Montgomery Street
Suite 300
San Francisco, California 94104
Telecopy: (415) 288-2580
20
<PAGE>
<S> <C>
If to NBC or GE Sub: National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, NY 10022
Attn.: Marty Yudkovitz
Telecopy: (212) 664-5561
With a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn.: Richard Capelouto, Esq.
Telecopy: (212) 455-2502
</TABLE>
(d) MERGER OR CONSOLIDATION OF NBCI. If NBCi is a party to any
merger or consolidation pursuant to which the Registrable Securities are
converted into or exchanged for securities or the right to receive securities
of any other person ("CONVERSION SECURITIES"), the issuer of such Conversion
Securities shall assume (in a writing delivered to all Holders) all
obligations of NBCi hereunder. NBCi will not effect any merger or
consolidation described in the immediately preceding sentence unless the
issuer of the Conversion Securities complies with this Section 11(d).
(e) SUCCESSORS AND ASSIGNS. Any Holder may assign, in whole or in
part, any of its rights and obligations hereunder to any person who acquires
from such Holder at least $5 million worth of such Holder's Registrable
Securities (calculated based on the average closing price of such securities
on the principal securities exchange or quotation system where such
securities are listed on the five business days immediately preceding the
date of such assignment); PROVIDED, HOWEVER, that any rights pursuant to
Section 2 of this Agreement can only be assigned to (i) a person who acquires
at least $50 million of such Holder's Registrable Securities (calculated as
aforesaid), (ii) a person, in whole and not in part, and (iii) a person who
is not a Newco Competitor, as such term is defined in the Brand Integration
and License Agreement, dated as of May 8, 1999, between NBC Multimedia, Inc.
and NBC or, with respect to an assignment by CNET, a person (including a
Newco Competitor) who has acquired all or substantially all of the stock or
assets of CNET through merger, stock purchase, asset sale or otherwise;
PROVIDED that in the event of such an assignment by CNET, (i) such assignee
shall not have the right to cause an Initial CNET Demand, and (ii) the number
of days for which a Shelf Registration that registers only such assignee's
shares (and/or shares issuable by NBCi) may be postponed or Blacked-Out shall
be increased from 90 days to 180 days. Any transferee of all or a portion of
the Registrable Securities shall assume all of the rights and obligations of
a Holder hereunder to the extent it agrees in writing, to be bound by all of
the provisions applicable hereunder to the transferring Holder (such
acknowledgment being evidenced by execution of a Counterpart and
Acknowledgment substantially in the form of EXHIBIT A). Subject to the
requirements of this Section 11(e), this Agreement shall inure to the benefit
of and be binding upon the successors and assigns of the parties hereto.
21
<PAGE>
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed will be deemed to be an original and all of which
taken together will constitute one and the same instrument.
(g) HEADINGS. The headings in this Agreement are for convenience
of reference only and will not limit or otherwise affect the meaning.
(h) GOVERNING LAW. This agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts executed and performed within such State.
(i) SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein will remain in full force and effect and will
in no way be affected, impaired or invalidated, and the parties hereto will
use their best efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to
be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
which may be hereafter declared invalid, void or unenforceable.
(j) TERMINATION. This Agreement shall terminate with respect to
each Holder and transferee permitted under this Agreement, including, without
limitation, any rights of such Holder or transferee pursuant to Section
11(b), on the date upon which such Holder or transferee shall be able to
dispose of all of their remaining Registrable Securities in one day without
registration pursuant to Rules 144 or 145 of the Securities Act.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein, with respect to such subject matter. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
[SIGNATURE PAGE FOLLOWS]
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
NBC Internet, Inc.
By: /s/ Chris Kitze
--------------------------------
Name: Chris Kitze
Title: Chief Executive Officer
National Broadcasting Company, Inc.
By: /s/ Mark W. Begor
--------------------------------
Name: Mark W. Begor
Title: Executive Vice President
GE Investments Subsidiary, Inc.
By: /s/ Robert E. Healing
--------------------------------
Name: Robert E. Healing
Title: Vice President
CNET, Inc.
By: /s/ Douglas N. Woodrum
--------------------------------
Name: Douglas N. Woodrum
Title: Executive Vice President
and Chief Financial Officer
23
<PAGE>
Flying Disc Investments Limited Partnership
By: /s/ Chris Kitze
--------------------------------------
Name: Chris Kitze
Title: General Manager
/s/ Chris Kitze
- -----------------------------------------
Chris Kitze
24
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
COUNTERPART AND ACKNOWLEDGMENT
TO: NBC Internet, Inc.
RE: The Registration Rights Agreement (the "Agreement") dated as of
November 30, 1999, by and among NBCi and the Holders (as defined
in the Agreement)
The undersigned hereby agrees to be bound by the terms of the
Agreement as a party to the Agreement, and shall be entitled to all benefits
of the Holders (as defined in the Agreement) and shall be subject to all
obligations and restrictions of the Holders pursuant to the Agreement, as
fully and effectively as though the undersigned had executed a counterpart of
the Agreement together with the other parties to the Agreement. The
undersigned hereby acknowledges having received and reviewed a copy of the
Agreement.
DATED this _____ day of ____________, _____
-----------------------------------------------
By:
-------------------------------------------
Title:
-----------------------------------------
Number of
Shares of
Registrable Securities:
-------------------
25
<PAGE>
Exhibit 10.27
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: $30,000,000
ORIGINAL ISSUE DISCOUNT: $240.082 PER $1,000 OF PRINCIPAL AMOUNT
TOTAL AMOUNT OF ORIGINAL ISSUE DISCOUNT: $9,477,953
YIELD TO MATURITY: 4.0% per annum
ISSUE DATE: November 30, 1999
SUBORDINATED ZERO COUPON
CONVERTIBLE DEBENTURE due 2006
representing up to
$39,477,953
No. 1. November 30, 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 NBC Multimedia,
Inc. (or an affiliate thereof) or the subsequent registered owner of this
Note ("Payee"), in the manner hereinafter provided, the principal amount
of Thirty Nine Million Four Hundred Seventy Seven Thousand Nine Hundred
Fifty-Three Dollars ($39,477,953) on November 30, 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 November 30, 1999) 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"
<PAGE>
2
means the principal amount of this Note less the Original Issue
Discount stated on the face 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, as amended (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 November 30, 2004 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 568,118 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 November 30, 2000, to convert all (but not less than all) of the
principal of this Note into an aggregate of 471,031 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 the adjustment or readjustment and show in
reasonable
<PAGE>
4
detail the facts on which that adjustment or readjustment is
based. Maker further 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 $447,416,805 issued by Maker to GE Investments
Subsidiary, Inc., Payee shall have the
<PAGE>
5
right to elect one additional director to the Board of Directors of
Maker pursuant to the Certificate of Incorporation of Maker.
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
<PAGE>
6
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 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
<PAGE>
7
stature and authority within the U.S. accounting profession). The provisions
of this Section 6 shall not apply to conversions pursuant to Section 2.
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
<PAGE>
8
IN WITNESS WHEREOF, Maker has caused this Note to be duly
issued as of the date first above written.
NBC INTERNET, INC.
By: /s/ John Harbottle
---------------------------------
Name: John Harbottle
Title: EVP Finance & CFO
ACKNOWLEDGED AND AGREED:
NBC MULTIMEDIA, INC.
By: /s/ Martin J. Yudkovitch
-------------------------------
Name: Martin J. Yudkovitch
Title: President
<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: November 30, 1999
SUBORDINATED ZERO COUPON
CONVERTIBLE DEBENTURE due 2006
representing up to
$447,416,805
No. 2. November 30, 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 November 30, 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 November 30, 1999) 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, as amended (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 November 30, 2004 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
November 30, 2000, 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.
(ii) RECLASSIFICATION, EXCHANGE, SUBSTITUTION AND IN-KIND
DISTRIBUTION. If the Common Stock issuable on conversion of this Note
shall be changed into the
<PAGE>
3
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 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.
<PAGE>
4
(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 Payee had exercised its rights under Section 2 immediately
prior to such Event of Default or (ii)
<PAGE>
6
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: /s/ John Harbottle
-----------------------------------
Name: John Harbottle
Title: EVP Finance & CFO
<PAGE>
8
ACKNOWLEDGED AND AGREED:
GE INVESTMENTS SUBSIDIARY, INC.
By: /s/ Robert E. Healing
-----------------------------------------
Name: Robert E. Healing
Title: Vice President
<PAGE>
Exhibit 10.29
PROMISSORY NOTE
New York, New York
US$340,000,000 November 30, 1999
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE REOFFERED OR
SOLD UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
FOR VALUE RECEIVED, NATIONAL BROADCASTING COMPANY, INC., a Delaware
corporation ("MAKER"), by this promissory note (the "NOTE") unconditionally
promises to pay to the order of GE INVESTMENTS SUBSIDIARY, INC., a Delaware
corporation (the "HOLDER"), the principal sum of Three Hundred Forty Million
United States Dollars (US$340,000,000), together with interest at the rate of
five percent (5.4%) per annum on the unpaid principal balance from the date
hereof to the date such principal balance is paid in full, as set forth in
paragraph 2 below. The principal amount, plus interest thereon, shall be due
and payable in sixteen (16) equal installments of $23,770,121 each, payable on
each February 30, May 30, August 30 and November 30 thereafter (each, a "PAYMENT
DATE"), until November 30, 2003. Any principal, interest or any other amount
hereunder which is not paid when due (whether as stated, by acceleration or
otherwise) shall, to the extent permitted by law, thereafter bear interest at
the rate per annum 2% above the rate described above.
TERMS AND PROVISIONS
1. PAYMENTS. All payments to be made hereunder by the Maker shall be
made without set-off or counterclaim, in United States dollars in immediately
available funds at such place as may be designated by the Holder in writing
from time to time. The Holder is hereby authorized to record the date and
amount of each payment of principal and interest, and other information with
respect thereto, consistent with customary practices, and following each such
recordation to provide the Maker with written notification of such
recordation, and any such recordation and written notification shall
constitute PRIMA FACIE evidence, absent manifest error, of the accuracy of
the information so recorded and notified; PROVIDED, HOWEVER, that the failure
to make a notation or the inaccuracy of any notation shall not limit or
otherwise affect the obligations of the Maker under this Note. Whenever any
payment hereunder shall be stated to be due on a day that is not a Business
Day, such payment shall be made on the succeeding Business Day. "BUSINESS
DAY" shall mean a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to close.
2. INTEREST. Interest shall be computed on the basis of a year of 365
days for actual days elapsed and shall be payable from the date hereof on
each Payment Date until maturity (whether as stated, by acceleration or
otherwise), on demand in respect of any past due amount and upon payment in
full of this Note. Interest shall accrue and be paid by the Maker in arrears
on each
<PAGE>
2
Payment Date until maturity. Anything in this Note to the contrary
notwithstanding, the Holder shall not be permitted to charge or receive, and
the Maker shall not be obligated to pay, interest in excess of the maximum
rate from time to time permitted by applicable law.
3. PREPAYMENT. The Maker shall have the right to prepay this Note in
whole or in part at any time, without premium or penalty, provided such
prepayment is accompanied by the payment of all unpaid interest accrued to
the date of prepayment and any other amounts then due under this Note, and
any such partial prepayment will trigger a recalculation by the Holder of the
amount of the installment owed on the remaining payment dates, provided that
the remaining installments shall be in equal amounts.
4. REPRESENTATIONS AND WARRANTIES OF THE MAKER. The Maker hereby
represents and warrants to the Holder that: (a) the 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 the 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 the Note and to authorize the
borrowing hereunder, and this Note has been duly executed and delivered on
behalf of the Maker; (b) this Note constitutes a legal, valid and binding
obligation of the 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 the 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.
5. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Holder hereby
represents and warrants to the Maker that: (a) the Holder is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, has the full power and authority, and legal right, to make the
loan to the 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 by the Holder; (b) the Holder is an "accredited investor"
within the meaning of Regulation D of 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) the Holder understands and
acknowledges that this Note has not been registered pursuant to the
provisions of 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 the
Maker is not required to register this Note; and (d) the Holder has had
access to such financial and other information concerning the Maker as it
deemed necessary in connection with the issuance of this Note.
6. EVENTS OF DEFAULT. If (a) the Maker fails to pay when due any
principal of or interest on this Note or any other amount payable hereunder;
or (b) the Maker admits in writing its inability to pay its debts generally;
makes a general assignment for the benefit of creditors; has
<PAGE>
3
any proceeding instituted by or against it seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of the Maker or
its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or similar official for it or any
substantial part of its property; provided, in the case where such proceeding
is involuntarily instituted against the Maker, such proceeding remains
undismissed after 30 days; or (c) any representation or warranty made by the
Maker in this Note is false or misleading in any material respect; then, and
in any such event (each, an "Event of Default"), the Holder may, by notice of
default given to the Maker in writing or by facsimile transmission, declare
unpaid principal, accrued interest and all other amounts payable under this
Note to be immediately due and payable without presentment, demand, protest
or other notice of any kind, each of which is hereby expressly waived by the
Maker.
7. NO WAIVER. No action or omission by the Holder shall constitute a
waiver of any rights or remedies of the Holder hereunder. Such rights and
remedies are cumulative and not exclusive of any rights or remedies provided
by law.
8. AMENDMENT; ASSIGNMENT. The terms of this Note may be amended,
supplemented or modified only with the written consent of the Maker and the
Holder. This Note shall be binding upon and inure to the benefit of the
Maker, the Holder and their respective successors and assigns, except that
neither the Holder nor the 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 the Holder (including
any assignment or transfer to NBC Internet, Inc.) with the prior written
consent of the Maker, the Maker shall, upon the request of the transferee and
receipt of this Note from transferee, reissue this Note in the name of the
transferee.
9. 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 the Holder 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.
10. MUTILATED, DESTROYED OR MISSING NOTES. If any mutilated Note is
surrendered to the Maker or the Maker receives evidence to its satisfaction
of the destruction, loss or theft of the Note, the Maker shall issue a
replacement Note. If required by the Maker, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the maker to
protect the Maker from any loss it may suffer if the Note is replaced. The
Maker may charge for any expenses in replacing the Note.
<PAGE>
4
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ Mark W. Begor
------------------------------------
Name: Mark W. Begor
Title: Executive Vice President and
Chief Financial Officer
ACKNOWLEDGED AND ACCEPTED:
NBC INTERNET, INC.
By: /s/ John Harbottle
---------------------------
Name: John Harbottle
Title: EVP Finance & CFO
<PAGE>
ASSIGNMENT OF PROMISSORY NOTE
GE Investments Subsidiary, Inc. ("GE Sub") hereby assigns the promissory note
from National Broadcasting Company, Inc. ("NBC") in the principal amount of
$340,000,000, attached as Exhibit A hereto, to NBC Internet, Inc. (f/k/a
Xenon 2, Inc.), a Delaware corporation ("NBCi"), and NBCi hereby accepts this
promissory note from GE Sub, in accordance with Section 2.4 of the Agreement
and Plan of Contribution, Investment and Merger, dated as of May 9, 1999, as
amended and restated as of July 8, 1999, as amended, among NBC, GE Sub, NBCi,
Neon Media Corporation and Xoom.com, Inc. pursuant to which NBCi is selling,
and GE Sub is purchasing, shares of Class B common stock of NBCi.
Dated: November 30, 1999
GE INVESTMENTS SUBSIDIARY, INC.
By: /s/ Robert E. Healing
----------------------------
Name: Robert E. Healing
Title: Vice President
NBC INTERNET, INC.
By: /s/ John Harbottle
----------------------------
Name: John Harbottle
Title: EVP Finance & CFO
NBC hereby consents to the above-referenced assignment of the attached
promissory note by GE Sub to NBCi and agrees to issue a new note, in replacement
of such promissory note, in the name of NBCi.
Dated: November 30, 1999 NATIONAL BROADCASTING COMPANY, INC.
By: /s/ Mark W. Begor
----------------------------
Name: Mark W. Begor
Title: Executive Vice President
<PAGE>
EXHIBIT 10.31
October 22, 1999
Edmond Sanctis
Dear Edmond,
We're delighted to offer you a position with NBC Internet, Inc. ("NBCi")
effective upon the closing of the merger of, Xoom.com, Inc. and Snap! LLC to
form NBCi (the "Merger"). The following outlines your compensation and benefit
package and other terms of your employment:
POSITION: You will serve as the President & Chief Operating Officer of NBCi
reporting directly to me.
SALARY: Your salary will be $15,385 per pay period, which equates to
$400,000 annually.
BONUS: Upon your acceptance of this offer you will be paid a bonus equal to
$200,000. For 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 NBCi's compensation
committee (the "Compensation Committee").
Beginning in plan year 2000, based upon achievement of certain
performance goals to be agreed upon by you and NBCi, 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 NBCi.
START DATE: Upon the closing of the Merger
STOCK
OPTIONS: You will be granted an option to purchase 500,000 shares of Class A
Common Stock of NBCi at an exercise price equal to not less than 85%
of the closing price on the last trading day prior to the date such
options are granted by the Board of Directors of NBCi or the
Compensation Committee. 20,000 of these options will vest upon grant
and the remaining shall vest monthly over a three-year period
beginning on the date of grant.
BENEFITS: Following the closing of the Merger you will be entitled to the
benefits granted to senior executives of NBCi.
PTO: As an employee of NBCi you will be entitled to 15 days paid time
off.
EMPLOYMENT: Your employment relationship with NBCi 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.
NON-
DISCLOSURE: Your employment with NBCi subject to NBCi's Confidential Information
and Proprietary Rights Agreement.
IRCA: Your employment at NBCi 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 NBCi to inspect original documents that
establish that you are authorized to work.
This letter includes all promises and agreements between you and NBCi pertaining
to your compensation, benefits and your at-will employment relationship.
<PAGE>
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
CEO
NBC Internet, Inc.
I have read, understand, and agree to the foregoing terms.
/s/Edmond Sanctis 10/22/99
- ------------------------ --------------
Edmond Sanctis Date
* Upon signature, please return signed original to Human Resources.
<PAGE>
Exhibit 10.35
_________________________________________________________________
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
CNBC.com LLC
A DELAWARE LIMITED LIABILITY COMPANY
Dated as of November 30, 1999
_________________________________________________________________
<PAGE>
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (the
"AGREEMENT") is made as of the 30th day of November, 1999, by and between
CNBC.com Holding, Inc., a Delaware corporation (together with its successors
and assigns, "NBC") which is a wholly-owned direct subsidiary of National
Broadcasting Company, Inc. ("PARENT") and NBC Internet, Inc., a Delaware
corporation formerly known as Xenon 2, Inc. (together with its successors and
assigns, "NBC INTERNET").
W I T N E S S E T H:
WHEREAS, a Certificate of Formation for this limited liability
company was filed on November 12, 1999 pursuant to the provisions of the
Delaware Limited Liability Company Act;
WHEREAS, a Limited Liability Company Agreement for this limited
liability company was duly adopted by Parent pursuant to and in accordance
with the Delaware Limited Liability Company Act on November 26, 1999 (the
"ORIGINAL AGREEMENT");
WHEREAS, on November 26, 1999, Parent acquired all of the
outstanding interests in this limited liability company;
WHEREAS, on November 30, 1999 Parent contributed a 10%
membership interest in this limited liability company to NBC Multimedia, Inc.
("NBC MULTIMEDIA") and a 90% membership interest in this limited liability
company to NBC;
WHEREAS, NBC Multimedia contributed such membership interest to
Neon Media Corporation, a Delaware corporation ("NMC"), and NMC subsequently
merged with and into NBC Internet;
WHEREAS, NBC and NBC Internet wish to ratify such assignments
and transfers and to amend and restate in its entirety the Original Agreement
in accordance with the further provisions of this Agreement;
NOW, THEREFORE, NBC and NBC Internet hereby duly adopt this
Agreement pursuant to and in accordance with the Delaware Limited Liability
Company Act and in consideration of the premises and of the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
NBC and NBC Internet hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms shall have the
following meanings:
<PAGE>
2
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of
the end of the relevant Fiscal Year, after giving effect to the following
adjustments: (i) credit to such Capital Account any amounts which such Member
is obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) debit to such Capital
Account the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6). The foregoing
definition of Adjusted Capital Account Deficit is intended to comply with the
provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
"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, or as trustee or executor, 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. Notwithstanding the foregoing, (a) MSNBC
Interactive News, LLC, MSNBC Cable LLC and their respective successors and
assigns shall not be considered "Affiliates" of NBC or NBC's Affiliates for
purposes of this Agreement, (b) NBC Internet, its direct and indirect
Subsidiaries and their respective successors and assigns shall not be
considered "Affiliates" of NBC or NBC's Affiliates for purposes of this
Agreement and (c) NBC and its Affiliates (other than NBC Internet and its
direct and indirect Subsidiaries) and their respective successors and
assigns shall not be considered "Affiliates" of NBC Internet or NBC
Internet's Affiliates for purposes of this Agreement.
"AVAILABLE CASH FLOW" means, with respect to any Fiscal Year or
other period, the sum of all cash receipts of the LLC from any and all
sources, less all cash disbursements (including loan repayments, capital
improvements and replacements) and a reasonable allowance for Reserves,
contingencies and anticipated obligations as determined by the Managers.
"BUSINESS DAY" means a day that is not a Saturday or Sunday or
day on which commercial banks are authorized by law to close in New York City
or San Francisco.
"CAPITAL CONTRIBUTION" means the total amount of cash and the
agreed fair market value (net of liabilities) contributed to the LLC by a
Member.
"CERTIFICATE OF FORMATION" means the certificate of formation
filed with the Secretary of State for the purpose of forming the LLC.
"CLASS" means the classes of Units into which the membership
interests in the LLC may be classified or divided from time to time pursuant
to the provisions of this Agreement.
"CNBC.com BUSINESS" means the (i) design, creation, operation,
maintenance and marketing of the CNBC.com Site to provide a comprehensive,
real-time financial programming service delivered all or substantially all
over the Internet that includes a combination of all or substantially all of
the following: analytic tools, stock quotes, portfolios, business and stock
news and analysis, personal financial information, chat rooms and message
boards, (ii) the design,
<PAGE>
3
creation, operation, maintenance and marketing of customized versions of the
Site developed for third party distribution partners, (iii) marketing and
sale of advertising or other promotional content for transmission on the
CNBC.com Site, (iv) the provision of CNBC.com-branded financial programming
and content to third parties for display on third party web sites; and (v)
all business activities incidental to or deemed by the Board of Managers to
be advisable in connection with the foregoing.
"CNBC.com SITE" means the Internet site currently accessible
from the World Wide Web at http://www.cnbc.com and any co-branded edition of
such site developed for CNBC.com distribution partners.
"CODE" means the Internal Revenue Code of 1986, as amended (or
any corresponding provision or provisions of any succeeding law).
"DISSOLUTION" means the date upon which the LLC is dissolved
under Section 9.1.
"FISCAL YEAR" means (i) each 12-month period (or such shorter
period in the case of 1999) ending on December 31, or (ii) if after the date
of this Agreement the taxable year is required by the Code to be a period
other than the period described in clause (i), then each 12-month period
which is the taxable year of the LLC determined in accordance with the
requirements of the Code; (iii) the period from the day after the end of the
most recently ended Fiscal Year until the date the term of the LLC ends, and
(iv) for purposes of making allocations of Net Profit and Net Loss, Fiscal
Year means any portion of a taxable year of the LLC to the extent required to
comply with Section 706 of the Code.
"GE" means General Electric Company, a New York corporation,
together with its successors.
"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.
"INDEBTEDNESS" of any Person means all obligations of such
Person for borrowed money, including guarantees, and all reimbursement
obligations in respect of outstanding letters of credit (measured assuming
such letters of credit are drawn in full).
"INITIAL PUBLIC OFFERING" means the initial offer for sale of
Securities pursuant to an effective registration statement filed under the
Securities Act which results in an active trading market in such Securities
(it being understood that such an active trading market shall be deemed to
exist if, among other things, such Securities are listed on the NASDAQ
National Market or another national securities exchange).
"INTEREST" or "LLC INTEREST" means a limited liability company
interest in the LLC as provided in this Agreement and under the Statute and
includes any and all rights and benefits to which the holder of such Interest
may be provided under this Agreement, together with all
<PAGE>
4
obligations of such Person to comply with the terms and provisions of this
Agreement. Interests shall be expressed as a number of Units.
"LLC" means CNBC.com LLC, a Delaware limited liability company.
"LIENS" shall mean any claim, lien (statutory or other),
pledge, option, charge, easement, security interest, right-of-way,
encroachment, encumbrance, mortgage or other rights of third parties.
"MEMBER" means a Person (a) (i) who is an Initial Member, (ii)
who is a transferee of an Interest in accordance with the provisions of
Article VII or (iii) to whom a new Interest is issued pursuant to Section 3.3
and (b) who has not resigned or withdrawn as a Member or been dissolved.
Reference to a "Member" shall be to any one of the Members.
"NBC HOLDER" means (i) NBC and its Permitted Transferees and
(ii) any Member not described in clause (i) who holds Units originally issued
to a Person described in clause (i) hereof. Any Member described in clause
(ii) hereof who holds (x) Units originally issued to a Person described in
clause (i) hereof and (y) Units originally issued to any Person not described
in clause (i) hereof will be a "NBC Holder" only with respect to the Units
described in clause (x).
"NBC INTERNET HOLDER" means (i) NBC Internet and its Permitted
Transferees and (ii) any Member not described in clause (i) who holds Units
originally issued to a Person described in clause (i) hereof. Any Member
described in clause (ii) hereof who holds (x) Units originally issued to a
Person described in clause (i) hereof and (y) Units originally issued to any
Person not described in clause (i) hereof will be a "NBC Internet Holder"
only with respect to the Units described in clause (x).
"NET PROFITS" and "NET LOSS" mean, for each Fiscal Year or
other period, an amount equal to the LLC's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the LLC that is exempt from Federal income
tax and not otherwise taken into account in computing Net Profits or Net
Loss shall be added to such taxable income or loss;
(ii) Any expenditures of the LLC described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise
taken into account in computing Net Profits or Net Loss shall be
subtracted from such taxable income or loss; and
(iii) pursuant to Article IV, any items of income, gain, loss or
deduction which are specifically allocated pursuant to Sections 4.1(c),
4.2, 4.3 or 4.4 shall not be taken into account in computing Net Profits
or Net Loss.
<PAGE>
5
Notwithstanding anything to contrary contained in this definition, (a)
income, gain or loss resulting from the disposition of, distribution to a
Member of, or depreciation, amortization or other cost recovery deductions
with respect to, any LLC asset shall be computed by reference to the book
value of the asset disposed of (as determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)), distributed or depreciated, amortized or
otherwise recovered, notwithstanding that the adjusted tax basis of such
asset differs from its book value, and (b) any adjustment to the book value
of any asset of the LLC hereunder in accordance with Regulations Section
1.704-1(b)(2)(iv)(f) shall be treated as an item of Net Profits or Net Loss
in an amount equal to such adjustment.
"PERCENTAGE INTERESTS" means, with respect to any Member, such
Member's Interest expressed as a percentage of all Interests of all Members,
determined by dividing the number of Units owned by such Member by the total
number of Units then outstanding. The Percentage Interests of the Members at
any time will be determined by reference to Schedule 1.1.
"PERMITTED TRANSFER" means any Transfer by a Member of a
portion of or all of its Interest, provided that such Transfer otherwise
complies with the conditions and restrictions of this Agreement.
"PERMITTED TRANSFEREE" means (a) with respect to either NBC or
NBC Internet and their respective Permitted Transferees, (x) NBC, (y) any
Subsidiary of NBC and (z) any wholly-owned Subsidiary of GE and (b) with
respect to NBC Internet and its Permitted Transferees, (i) NBC Internet and
(ii) any Subsidiary of NBC Internet.
"PERSON" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended), trust, association or entity or
government, political subdivision, agency or instrumentality of a government.
"PROPERTY" means the assets of the LLC and its Subsidiaries,
both tangible and intangible.
"REGULATIONS" means the federal income tax regulations
promulgated by the Treasury Department under the Code, as such regulations
may be amended from time to time. All references herein to a specific
section of the Regulations shall be deemed also to refer to any corresponding
provisions of succeeding Regulations.
"RESERVES" means funds set aside from Capital Contributions or
gross cash revenues as reserves. Such Reserves shall be maintained in
amounts reasonably deemed sufficient by the Managers for working capital and
the payment of taxes (other than income taxes), insurance, debt service,
repairs, replacements, renewals, or other costs or expenses incident to the
Business of the LLC, or in the alternative, the Dissolution of the LLC.
"SECRETARY OF STATE" means the Secretary of State of the State
of Delaware.
<PAGE>
6
"SECURITIES" means shares of common stock or other securities
other than debt of a corporation into which the LLC is converted, merged,
consolidated or exchanged at a future date.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder, as the same may be
amended from time to time.
"STATUTE" means the Delaware Limited Liability Company Act (6
Del.C. Section 18-101, et seq.), as amended from time to time (or any
corresponding provision or provisions of any succeeding law).
"SUBSIDIARY" 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
or has the right to acquire, directly or indirectly, 50% or more of the
stock, membership interests or other equity interests the holder of which is
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity.
"UNIT" means a fractional, undivided share of the Interests of
all Members. The number and type of Units outstanding and the holders
thereof are set forth on Exhibit 1.1, as such Exhibit may be amended from
time to time pursuant to Sections 3.3 and 7.1(a). If determined by the Board
of Managers, the ownership of Units shall be evidenced by a certificate in a
form approved by the Board of Managers.
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>
5% Interest 3.8
Additional Members 3.6
Business of the LLC 2.5
Capital Account 3.4(c)
Indemnitee 10.1
Majority Members 7.4
Managers 6.1(a)
Officers 6.2(a)
Other Members 7.3(a)
Section 3.8 Securities 3.8
Tax Matters Partner 8.4
Third-Party Sale 7.4
Transfer 7.1(b)
Transferee 7.1(b)
Transferring Member 7.3(a)
</TABLE>
<PAGE>
7
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 FORMATION OF LLC; NAME. Parent has formed the LLC pursuant to
the provisions of the Statute by filing the Certificate of Formation with the
Secretary of State and, subsequently (i) 10% of the Interests of the LLC were
issued to NBC Multimedia, which Interests were thereafter acquired by NBC
Internet and (ii) 90% of the Interests of the LLC were issued to NBC. The
name of the LLC is "CNBC.com LLC", a Delaware limited liability company. The
LLC may conduct business under such names(s) as may be selected by the
Managers.
2.2 PRINCIPAL OFFICE. The LLC shall maintain its principal place
of business at 2200 Fletcher Avenue, New Jersey, or any other location as may
be selected by the Managers.
2.3 AGENT FOR SERVICE OF PROCESS. The LLC shall continuously
maintain a registered office and a designated and duly qualified agent for
service of process on the LLC in the State of Delaware. The name and address
of the LLC's agent for service of process is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware or such
other agent as the Managers designate in accordance with the Statute.
2.4 DURATION. The existence of the LLC shall be perpetual after
the date of the filing of the Certificate of Formation with the Secretary of
State, unless the LLC is terminated or dissolved sooner in accordance with
the provisions of this Agreement.
2.5 BUSINESS AND PURPOSE OF THE LLC. The purpose of the LLC is to
operate and pursue, and the LLC shall operate and pursue, the CNBC.com
Business, directly or indirectly through Subsidiaries, and to expand its
activities as management and the Board of Managers deem necessary or
appropriate to advance its business or value as an Internet Financial Service
(as such term will be defined in the Brand Integration and License Agreement
among NBC, CNBC, Inc. and the LLC), including without limitation by (i)
adding additional product features; (ii) expanding into international
markets; (iii) expanding into alternate platforms and delivery technologies
(e.g., WebTV, consumer devices, etc.); and (iv) forming alliances with or
pursuing acquisitions of content providers, distributions, technology
providers, competitors and others, and related businesses (collectively, the
"BUSINESS OF THE LLC").
2.6 EFFECTIVE DATE OF AGREEMENT. This Agreement shall be effective
as of the date first written above.
ARTICLE III
CAPITAL CONTRIBUTIONS AND ISSUANCES OF UNITS
<PAGE>
8
3.1 INITIAL CONTRIBUTIONS. On the date hereof, Parent has
contributed certain assets and obligations necessary to conduct the Business
of the LLC to the LLC pursuant to the terms of the Assignment and Assumption
Agreement, dated as of November 30, 1999, between the LLC and Parent. NBC
represents and warrants that prior to the date hereof, Parent has conducted
the Business of the LLC in the ordinary course in all material respects and
in the same manner as the Business of the LLC would have been conducted if
the LLC would have been formed and the contributions made as of May 9, 1999.
3.2 ADDITIONAL CONTRIBUTIONS. Except as expressly set forth herein
or as otherwise required by law, no Member shall be required to (a) make any
additional Capital Contributions, (b) make any loan, (c) cause to be loaned
any money or other assets to the LLC or (d) guarantee any obligations of the
LLC.
3.3 ISSUANCE OF ADDITIONAL UNITS. Subject to Section 3.6 and Section
3.8, the Board of Managers is hereby authorized to cause the LLC to issue to
Members or other Persons (including, without limitation, in connection with the
contribution of property to the LLC) on such terms as the Board of Managers
shall determine, additional Units representing additional LLC Interests, which
Units may be of a same or different Class than those Units which are outstanding
prior to such issuance. Subject to the foregoing, the Board of Managers shall
have sole and complete discretion to cause the LLC to issue one or more new
Classes of Units, from time to time in one or more Classes or one or more series
of such Classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, as shall be
fixed by the Board of Managers in the exercise of its sole and complete
discretion, including, without limitation, (i) the allocation of items of LLC
income, gain, loss, deduction and credit to each such Class or series of Units;
(ii) the rights of each such Class or series of Units upon dissolution and
liquidation of the LLC; (iii) the price at which and the terms and conditions,
if any, upon which each such Class or series of Units of the LLC may be redeemed
by the LLC; (iv) the rate at which and the terms and conditions upon which each
such Class or series of Units may be converted into another Class or series of
Units of the LLC; (v) the terms and conditions upon which each such Class or
series of Units will be issued, subject to repurchase, and assigned or
transferred; and (vi) the right of each such Class or series of Units to vote on
LLC matters, including matters relating to the relative rights, preferences and
privileges of each such Class or series. Upon or prior to the issuance of any
Class or series of Units which shall not be identical to any Class or series of
Units issued to the Members as of the date of this Agreement, the Board of
Managers may amend any provision of this Agreement and any authorized person may
execute, swear to, acknowledge, deliver, file, publish and/or record such
amendments and other documents as the Board of Managers may in its sole
discretion determine to be necessary or appropriate in connection therewith in
order to reflect the authorization and issuance of each such Class or series of
Units and the relative rights and preferences thereof. Any issuance of
additional Units to a Person who is not a Member shall be conditioned on such
Person executing and delivering to the LLC a written agreement in form and
substance satisfactory to the Board of Managers whereby such Person agrees to be
bound by the terms of
<PAGE>
9
this Agreement. Upon the issuance of any additional Units pursuant to this
Section 3.3, Schedule 1.1 will be amended to reflect such issuance.
3.4 RIGHTS WITH RESPECT TO CAPITAL. (a) No Member shall have the
right to withdraw, or receive any return of, its Capital Contribution, and no
Capital Contribution may be returned in the form of property other than cash
except as specifically provided herein.
(b) Except as expressly provided in this Agreement, no Capital
Contribution of any Member shall bear any interest or otherwise entitle the
contributing Member to any compensation for use of the contributed capital.
(c) A separate capital account ("CAPITAL ACCOUNT") shall be
maintained for each Member in accordance with Section 3.5.
(d) In the event a Member transfers an Interest in accordance
with the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
Interest.
3.5 RULES OF ADJUSTMENT OF CAPITAL ACCOUNTS. (a) The Capital
Account of each Member shall be increased by:
(i) such Member's cash contributions to the LLC;
(ii) the agreed fair market value of property contributed by
such Member (net of liabilities secured by such contributed property that
the LLC is considered to assume or take subject to under Code Section
752);
(iii) Net Profits allocated to such Member pursuant to Article IV
or other provisions of this Agreement; and
(iv) other items of income and gain of the LLC not included in
the definition of Net Profits allocated to such Member pursuant to
Article IV or other provisions of this Agreement.
(b) The Capital Account of each Member shall be decreased by:
(i) the amount of cash distributed to such Member;
(ii) the agreed fair market value of all actual and deemed
distributions of property made to such Member pursuant to this Agreement
(net of liabilities secured by such distributed property that the Member
is considered to assume or take subject to under Code Section 752);
(iii) Net Loss allocated to such Member pursuant to Article IV or
other provisions of this Agreement; and
<PAGE>
10
(iv) other items of loss and deduction of the LLC not included
in the definition of Net Loss allocated to such Member pursuant to
Article IV or other provisions of this Agreement.
(c) The provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulations Section
1.704-1(b)(2)(iv), and shall be interpreted and applied in a manner
consistent with such Regulations Section. To the extent such provisions are
inconsistent with such Regulations Section or are incomplete with respect
thereto, Capital Accounts shall be maintained in accordance with such
Regulations Section.
3.6 ADMISSION OF ADDITIONAL MEMBERS. The Board of Managers may
admit one or more Persons as additional Members ("ADDITIONAL MEMBERS"). Each
Additional Member shall: (i) agree to be bound by the provisions of this
Agreement; (ii) execute and deliver such documents as the Board of Managers
deems appropriate in connection therewith; (iii) contribute to the LLC the
agreed upon Capital Contribution in exchange for Units and (iv) not receive
any rights preferential to existing Members, unless the existing Members are
provided with pre-emptive rights to purchase such rights, in accordance with
Section 3.8 hereof.
3.7 REVALUATION. At the election of a majority of the Board of
Managers, the LLC shall revalue the LLC property upon the occurrence of any
of the events identified in Regulations Section 1.704-1(b)(2)(iv)(f)(5),
including a contribution of more than a de minimis amount of money or
property to the LLC by a new or existing Member as consideration for an
interest in the LLC or the liquidation of the LLC or a distribution or more
than a de minimis amount of money or other property by the LLC to a retiring
or continuing Member as consideration for an interest in the LLC, and the LLC
shall take all steps necessary to accomplish such revaluation, including, but
not limited to, the maintenance of appropriate books and records, the
adjustment of Capital Accounts in accordance with Regulations Section
1.704-1(b)(2)(iv)(g), and the determination of allocations for income tax
purposes in accordance with Regulations Section 1.704-1(b)(2)(iv)(f)(4).
3.8 PRE-EMPTIVE RIGHTS. The LLC hereby grants to each Member, as
long as such Member holds at least 5% of the Interests of the LLC ("5%
INTEREST"), a pre-emptive right to purchase for cash consideration only, a
pro rata portion of any New Securities (as defined in Section 3.8(a) below)
that LLC, from time to time, may propose to sell and issue. Notwithstanding
the foregoing, in calculating the 5% Interest, Section 3.8 Securities that
are not New Securities will be excluded; PROVIDED, FURTHER, that in no event
shall a Member holding less than 2% of all of the Interests of the LLC
(including Section 3.8 Securities that are not New Securities) be entitled to
pre-emptive rights pursuant to this Section 3.8. Each Member's pro rata
share of the New Securities will be the ratio of (i) the number of Units of
the LLC then held by such Member as of the date of the Rights Notice (as
defined below) to (ii) the total number of Units of the LLC plus the total
number of Units of the LLC issuable upon exercise of all then-outstanding
options, warrants and rights issued by the LLC. This pre-emptive right will
be subject to the following provisions:
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(a) "NEW SECURITIES" will mean any Units of any kind of the LLC,
whether now or hereafter authorized; rights, options, or warrants to purchase
said Units and securities carrying any such right, option or warrant; and
securities of any type whatsoever that are, or may become, convertible into
said Units (collectively, "SECTION 3.8 SECURITIES"), provided that "New
Securities" will not include: (i) Section 3.8 Securities issued to officers,
directors or employees of, or consultants, advisers and others who provide
services to the LLC and its subsidiaries pursuant to any equity option or
purchase plan or similar arrangement approved by the Board of Managers; (ii)
Section 3.8 Securities issued in connection with the formation of a strategic
business relationship with a third party approved by the Board of Managers
other than issuances to Parent or affiliates (as such term is defined in Rule
405 of the Securities Act) of Parent; (iii) Securities issued in connection
with the acquisition of another business or entity other than issuances to
Parent or affiliates (as such term is defined in Rule 405 of the Securities
Act) of Parent by the LLC by merger, consolidation, purchase of substantially
all of the assets, or other reorganization as a result of which the LLC owns
more than fifty percent (50%) of the voting power of such business or entity;
(iv) Section 3.8 Securities issued to banks, financial institutions or
leasing companies associated with the provision of debt or lease financings
approved by the Board of Managers; (v) Units issued in connection with any
stock split, stock dividend, recapitalization, reclassification or similar
event; or (vi) Units issued upon exercise or conversion of any Section 3.8
Securities whose issuance was either subject to this Section 3.8 or which
were not New Securities by operation of the definition thereof.
(b) If the LLC proposes to issue New Securities, it will give each
Member that holds a 5% Interest written notice (the "RIGHTS NOTICE") of the
LLC's intention to do so, describing the New Securities, the price, and the
general terms upon which the LLC proposes to issue them. Each such Member
will have 15 days from the date of delivery of the Rights Notice to agree to
purchase its pro rata share of such New Securities for the price and upon the
general terms specified in the Rights Notice by giving written notice to the
LLC setting forth the quantity of New Securities to be purchased.
(c) If any Member fails to exercise in full its rights of first
refusal hereunder, the LLC will have 90 days after the date of delivery of
the Rights Notice to sell the New Securities that were not purchased by the
Investor, at a price and upon general terms no more favorable to the
purchasers thereof than the price and general terms specified in the Rights
Notice. If the LLC does not sell the New Securities within said 90 day
period as provided in the preceding sentence, the Company will not LLC issue
or sell any of such New Securities without complying with the provisions of
Section 3.8(b) above.
(d) TERMINATION. The pre-emptive rights granted in this Section
3.8 shall not apply to, and shall terminate upon the earlier of (i) the
closing of an Initial Public Offering or (ii) a sale of all or substantially
all of the assets of the LLC or a merger or consolidation of the LLC with or
into any other corporation or corporations in which the Members of the LLC
immediately prior to such event retain less than a fifty percent (50%)
interest in the surviving entity.
(e) TRANSFER OF RIGHT. The pre-emptive rights of each Member under
this Section 3.8 may not be transferred or assigned without the prior written
consent of the LLC.
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ARTICLE IV
ALLOCATIONS
4.1 ALLOCATION OF NET PROFITS AND LOSSES. Except as otherwise
provided in this Article IV, Net Profits and Net Loss of the LLC in each
Fiscal Year shall be allocated among the Members in accordance with the
following:
(a) Net Profits shall be allocated among the Members as follows:
(i) first, to each of the Members until the cumulative Net
Profits allocated to such Member pursuant to this Section 4.1(a) is equal
to the cumulative Net Loss allocated to the Member pursuant to this
Article IV for any prior period (pro rata in proportion to their shares
of Net Loss being offset);
(ii) thereafter, to the Members in accordance with their
respective Percentage Interests.
(b) Except as otherwise provided in this Article IV, Net Loss shall be
allocated among the Members as follows:
(i) first, to offset any Net Profits allocated pursuant to
Section 4.1(a) hereof not otherwise reduced by a prior allocation of Net
Loss (pro rata in proportion to their shares of Net Profits being
offset); and
(ii) thereafter to the Members in accordance with their
respective Percentage Interests.
(c) If a Member would at any time receive, but for this Section
4.1(c), an allocation of deduction, loss, or expenditure that would cause or
increase an Adjusted Capital Account Deficit with respect to such Member's
Capital Account, then the portion of such allocation that would cause or
increase such Adjusted Capital Account Deficit shall be specially allocated
to the other Members, if any, with positive Capital Account balances in
proportion to such balances. If a Member would at any time receive, but for
this Section 4.1(c), an allocation of loss that, as a result of Section
704(d) of the Code, would not be deductible in full by the Member in
determining its federal income tax liability for the taxable year within
which ends the LLC Fiscal Year with respect to which such allocation would be
made, then the portion of such allocation that would be non-deductible as a
result of Section 704(d) of the Code shall be specially allocated to the
other Members, if any, for which Section 704(d) of the Code would not prevent
deduction of such loss, in proportion to their relative Percentage Interests.
4.2 QUALIFIED INCOME OFFSET. If in any Fiscal Year a Member receives
an adjustment, allocation or distribution described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6),
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13
items of LLC income and gain shall be specially allocated to each such Member
in an amount and manner sufficient to eliminate, to the extent required by
the Regulations, any Adjusted Capital Account Deficit with respect to such
Member's Capital Account as quickly as possible provided that an allocation
pursuant to this Section 4.2 shall be made only if and to the extent that
such Member would have a Capital Account deficit after all other allocations
provided for in this Article IV have been tentatively made as if this Section
4.2 were not in the Agreement. This Section 4.2 is intended to qualify and
be construed as a "qualified income offset" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
4.3 NONRECOURSE DEBT. Notwithstanding the foregoing, if the LLC
incurs nonrecourse debt, as defined in the Regulations, the allocations set
forth herein shall be modified to the minimum extent necessary to comply with
such Regulations.
4.4 SPECIAL ALLOCATIONS. Any special allocations of items of Net
Profits or Net Loss pursuant to Sections 4.1(c), 4.2, and 4.3 shall be taken
into account in computing subsequent allocations of Net Profits or Net Loss
pursuant to Section 4.1, so that the net amount of any items so allocated and
the gain, loss and any other item allocated to each Member pursuant to
Section 4.1 shall, to the extent possible, be equal to the net amount that
would have been allocated to each such Member pursuant to the provisions of
this Article if such special allocations had not occurred.
4.5 FEES TO MEMBERS OR AFFILIATES. Notwithstanding the provisions
of Section 4.1, in the event that any fees, interest, or other amounts paid
to any Member or any Affiliate thereof pursuant to this Agreement or any
other agreement between the LLC and any Member or Affiliate thereof providing
for the payment of such amount, and deducted by the LLC in reliance on
Section 707(a) and/or 707(c) of the Code, are disallowed as deductions to the
LLC on its federal income tax return and are treated as LLC distributions,
then:
(a) the Net Profits or Net Loss, as the case may be, for the Fiscal
Year in which such fees, interest, or other amounts were paid shall be
increased or decreased, as the case may be, by the amount of such fees,
interest, or other amounts that are treated as LLC distributions; and
(b) there shall be allocated to the Member to which (or to whose
Affiliate) such fees, interest, or other amounts were paid, prior to the
allocations pursuant to Section 4.1, an amount of gross income for the Fiscal
Year equal to the amount of such fees, interest, or other amounts that are
treated as LLC distributions.
4.6 SECTION 704(c) ALLOCATION. If any LLC property is subject to Code
Section 704(c) or is reflected in the Capital Accounts of the Members and on the
books of the LLC at a value that differs from the adjusted tax basis of such
property, then the tax items with respect to such property shall, in accordance
with the requirements of Treasury Regulations Section 1.704-1(b)(4)(i), be
shared among the Members in a manner that takes account of the variation between
the adjusted tax basis of the applicable property and its value in the same
manner as variations between the adjusted tax basis and fair market value of
property contributed to the
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Company are taken into account in determining the Members' share of tax items
under Code Section 704(c).
4.7 SECTION 754 ELECTION. At the request of any Member (or
Members) holding not less than five percent (5%) of the Interests, the LLC
shall elect, pursuant to Section 754 of the Code, to adjust the basis of LLC
property as permitted and provided in Sections 734 and 743 of the Code, in
which case Capital Accounts shall be maintained and allocations shall be made
in accordance with Regulations Section 1.704-1(b)(2)(iv)(m).
ARTICLE V
DISTRIBUTIONS OF AVAILABLE CASH FLOW
5.1 AVAILABLE CASH FLOW. The timing and amount of all
distributions of Available Cash Flow of the LLC shall be determined by the
Managers. All distributions of Available Cash Flow shall be made to the
Members pro rata in accordance with their respective Percentage Interests at
the time of the distribution, subject to the provisions of Sections 9.2 and
9.3.
ARTICLE VI
MANAGEMENT
6.1 MANAGERS. (a) The LLC shall be managed by a Board of Managers
consisting of three (3) Managers (individually a "MANAGER" or collectively,
the "MANAGERS") or such other number (but in no event fewer than three) as
may be established by NBC. The Managers shall be appointed by a vote or
written consent of Members holding a majority of the membership interests.
The initial Managers shall be Robert C. Wright, Mark Begor and Martin
Yudkovitz. The Managers shall appoint by majority vote one of the Managers
to preside at meetings of the Board of Managers.
(b) The Board of Managers has, subject to the control of the
Members, general supervision, direction and control of the business of the
LLC. The Board of Managers shall have the general powers and duties
typically vested in the board of directors of a corporation and all other
powers and duties over the LLC and its business except as expressly provided
elsewhere in this Agreement. The Managers shall comply with applicable law
and their fiduciary obligations to the LLC and the Members. Pursuant to
their discretion to do so under this Section 6.1, the Members hereby delegate
to each of the Managers the nonexclusive power and authority to act as an
agent of the LLC and, in such capacity, to bind the LLC in the ordinary
course of the LLC's business and to execute any and all documents to be
signed by the LLC.
(c) Except as otherwise set forth in this Agreement, an action or
decision of the Board of Managers shall require the consent or vote of a
majority of the Managers. A majority of the
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15
total number of incumbent Managers shall be necessary to constitute a quorum
for the transaction of business at any meeting of the Board of Managers, and
except as otherwise provided in this Agreement or by the Statute, the action
of a majority of the Managers present at any meeting at which there is a
quorum, when duly assembled, is valid. A meeting at which a quorum is
initially present may continue to transact business, notwithstanding the
withdrawal of Managers, if any action taken is approved by a majority of the
required quorum for such meeting. No Member, acting solely in its capacity
as a Member, shall have the power and authority to act for and bind the LLC
unless such matter has been approved by the Managers as set forth herein.
(d) Meetings of the Board of Managers shall be held at the
principal office of NBC or the LLC, unless some other place is designated in
the notice of the meeting. Any Manager may participate in a meeting through
use of a conference telephone, video conference or similar communication
equipment so long as all Managers participating in such a meeting can hear
one another. Accurate minutes of any meeting of the Board of Managers shall
be maintained by the Officer designated by the Board of Managers for that
purpose.
(e) Special meetings of the Board of Managers for any purpose may
be called at any time by the person selected to preside at meetings of the
Board of Managers. Unless waived by the Board of Managers, at least three
business days notice of the time and place of any meeting of the Board of
Managers shall be delivered personally to each of the Managers or personally
communicated to them by an officer of the LLC by telephone, and confirmed in
writing by facsimile, or communicated by Federal Express or other comparable
overnight courier service (receipt requested). Notice shall be transmitted
to the last known facsimile number or address of the Manager as shown on the
records of the LLC. Such notice as above provided shall be considered due,
legal and personal notice to such Manager. With respect to a special meeting
which has not been duly called or noticed pursuant to the foregoing
provisions, all transactions carried out at the meeting are as valid as if
had at a meeting regularly called and noticed if: (i) all Managers are
present at the meeting, and sign a written consent to the holding of such
meeting, (ii) if a majority of the Managers are present and if those not
present sign a waiver of notice of such meeting or a consent to holding the
meeting or an approval of the minutes thereof, whether prior to or after the
holding of such meeting, which waiver, consent or approval shall be filed
with the other records of the LLC or (iii) if a Manager attends a meeting
without notice and does not protest prior to the meeting or at its
commencement that notice was not given to him or her.
(f) Any action required or permitted to be taken by the Managers
may be taken without a meeting and will have the same force and effect as if
taken by a vote of Managers at a meeting properly called and noticed, if
authorized by a writing signed individually or collectively by all, but not
less than all, the Managers. Such consent shall be filed with the records of
the LLC.
(g) Copies of any notices of meetings of the Board of Managers and
copies of any resolutions passed at any such meetings pursuant to this
Section 6.1 shall be provided to the NBC Internet Holders as soon as
reasonably practicable following the date of such notices or resolutions.
Copies of the Manager's materials relating to any issuances of the type
described in Section 3.8(a)(i) shall be provided to the NBC Internet Holders
as soon as reasonably practicable
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following the date of such materials. Notice of any issuances of the type
described in Sections 3.8(a)(ii) through 3.8(a)(vi) shall be provided to the
NBC Internet Holders as soon as reasonably practicable following the date of
such issuances.
6.2 OFFICERS. (a) The officers of the LLC (the "OFFICERS") shall
include a chief executive officer and such other officers as the Board of
Managers in its discretion appoint or whom may be appointed by the other
Officers if specifically authorized to do so by the Board of Managers, all of
whom shall be considered "Officers" for all purposes of this Agreement.
(b) The chief executive officer of the LLC shall, subject to the
general direction and control of the Board of Managers, have overall
responsibility for the management of the day-to-day operations of the LLC and
will be empowered to and will engage in all appropriate and necessary
activities to accomplish the purposes of the LLC as set forth herein.
(c) Each of the Officers are hereby each designated as an
authorized person, within the meaning of the Act, to execute, deliver and
file the certificate of formation of the LLC (and any amendments and/or
restatements thereof) and any other certificates (and any amendments and/or
restatements thereof) necessary for the LLC to qualify to do business in a
jurisdiction in which the LLC may wish to conduct business. Pursuant to
their discretion to do so, the Members hereby delegate to each of the
Officers the nonexclusive power and authority to act as an agent of the LLC
and, in such capacity, to bind the LLC in the ordinary course of the LLC's
business and to execute any and all documents to be signed by the LLC.
6.3 BUDGET. The budget for the LLC shall be determined by the
Board of Managers. Not less than 90 days prior to the end of each fiscal
year, the Officers shall submit to the Board of Managers a proposed budget
for the next fiscal year. NBC represents and warrants, and the Members
acknowledge that all funds required to operate the LLC since September 30,
1999 and through the date hereof have been provided by a loan from Parent on
terms no less favorable to the LLC than available on an arm's length basis
from a third party. The Members acknowledge that they currently anticipate
that additional financing required by the LLC may be funded by Indebtedness
and that NBC may, in its sole and absolute discretion, a guarantee such
Indebtedness in form and substance reasonably satisfactory to NBC or loan
such funds to the LLC. The Members acknowledge and agree that, unless
otherwise agreed to by NBC in its sole discretion, any such guarantees shall
terminate (and NBC shall have no further obligations or liabilities
thereunder) and any loans made by it shall become due upon the closing of an
Initial Public Offering. The provisions of this Section 6.4 are solely for
the benefit of the LLC and no creditor of the LLC shall have any rights
arising out of NBC's obligations to the LLC hereunder. In addition, the LLC
and each Member acknowledges and agrees that NBC and its Affiliates will not
have any obligations or liabilities arising out of or relating to any
Indebtedness of the LLC except as expressly provided herein.
6.4 RELATIONSHIP WITH MEMBERS. (a) Except as provided in this
Agreement or any other written agreement, the LLC shall pay no compensation
to any Member for their services to the LLC except services provided by
Members who are individuals in their capacities as bona fide employees of the
LLC.
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(b) Except as provided in the Intercompany Services Agreement,
which shall be on a reasonable cost plus basis, and issuances of New
Securities pursuant to and in accordance with Section 3.8, the LLC will not
enter into any transaction with NBC or any Affiliate of NBC (other than any
Controlled Affiliate of the LLC) unless (i) such transaction is on terms no
less favorable to the LLC than it would obtain in a comparable arm's length
transaction with a third party that is not NBC or an Affiliate of NBC, (ii)
such transaction is for aggregate consideration of less than $1,000,000 per
year or (iii) such transaction is approved by NBC Internet, such approval to
not be unreasonably withheld. In addition, the LLC will not enter into any
transaction with NBC Internet or any Affiliate of NBC Internet unless (A)
such transaction is on terms no less favorable to the LLC than it would
obtain in a comparable arm's length transaction with a third party that is
not NBC Internet or an Affiliate of NBC Internet, (B) such transaction is for
aggregate consideration of less than $1,000,000 per year or (C) such
transaction is approved by NBC, such approval to not be unreasonably withheld.
6.5 EXPENSE REIMBURSEMENT. The LLC shall, subject to Section 6.4
hereof, reimburse the Members for all reasonable expenses paid by them on
behalf of the LLC as approved from time to time by the Managers, including
all costs and expenses of operating and conducting the Business of the LLC
including, without limitation, payments to the LLC's attorneys, auditors,
consultants and other outside advisors; expenses associated with the LLC's
financial statements and reports and any required tax returns, statements and
filings; premiums in connection with liability insurance for the LLC and any
other Persons managing the LLC; and reasonable costs and expenses associated
with the Dissolution of the LLC. The LLC shall promptly reimburse the
Members, the Tax Matters Partner and any of their respective Affiliates to
the extent that any such expenses have been paid by such entities. Anything
in this Section 6.6 to the contrary notwithstanding, this Section 6.6 will
not apply to expenses incurred by Members in their capacities as employees of
the LLC, which expenses will be reimbursed to the extent provided by, and in
accordance with, the LLC's policies with respect to employees.
6.6 MEMBERS MEETINGS. Meetings of the Members may be called at any
time by any Member or Members with an aggregate Percentage Interest of not
less than fifty percent (50%). Each Member shall have a number of votes
equal to the number of Units held by such Member, provided that if, pursuant
to the Statute or the terms of this Agreement, a Member is not entitled to
vote on a specific matter, then such Member's number of votes and Units shall
not be considered for purposes of determining whether approval of the Members
has been obtained, in respect of such specific matter. A vote of a majority
of the outstanding Units is required to approve any matter unless another
vote is expressly provided for in this Agreement or by Statute. Any action
which may be taken at any meeting of Members may be taken without a meeting
and without prior notice if a consent in writing, setting forth the action so
taken shall be signed by Members holding in the aggregate the number of Units
equal to or greater than the number required to approve such actions.
6.7 CONDUCT OF BUSINESS. The LLC shall adopt and maintain at all
times policies that correspond to GE's integrity policies as notified in
writing to the LLC from time to time.
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ARTICLE VII
TRANSFERS OF INTEREST AND CONVERSION
7.1 GENERAL; RESTRICTIONS ON TRANSFERS. (a) All Transfers of
Interests shall be effected by a Transfer of the Unit(s) evidencing such
Interests. The transferring Member will provide written notice of such
Transfer to the LLC and upon receipt of such notice Schedule 1.1 shall be
amended to reflect any Transfer effected in accordance with this Agreement.
(b) No Member shall sell, transfer, hypothecate, encumber or assign
("TRANSFER"), directly or indirectly, all or any of its Units to any Person
(a "TRANSFEREE") other than to a Permitted Transferee or a Person approved by
the Majority Members or pursuant to Section 7.3 or Section 7.4. In addition,
no Member shall Transfer all or any of its Units: (i) without delivering to
the LLC a written agreement in form and substance reasonably satisfactory to
the Board of Managers executed by the Transferee (including any Permitted
Transferee or third party that is not already bound by the terms of this
Agreement) to be bound by the terms of this Agreement, (ii) except in
compliance with all applicable federal and state securities laws, (iii) if
such Transfer would terminate the LLC for federal income tax purposes and
(iv) to the extent prohibited under this Section 7.1.
(c) Any Transfer or attempted Transfer by a Member in violation of
this Section 7.1 shall be null and void from its inception and of no force or
effect whatever. Each Member hereby further agrees to hold the LLC and each
Member wholly and completely harmless from any cost, liability, or damage
(including liabilities for income taxes and costs of enforcing this
indemnity) incurred by any of such indemnified Persons as a result of a
Transfer or an attempted Transfer in violation of this Agreement.
7.2 DISTRIBUTION AMONG MEMBERS. Upon the occurrence of a Permitted
Transfer of an Interest during any Fiscal Year, Profits, Losses, each item
thereof, and all other items attributable to such Interest for such Fiscal
Year shall be divided and allocated between the transferor and the transferee
by taking into account their varying interests during the Fiscal Year in
accordance with Code Section 706(d), using any conventions permitted by law
and selected by the Chief Financial Officer of the LLC. All distributions on
or before the date of a Permitted Transfer shall be made to the transferor,
and all distributions thereafter shall be made to the transferee. Solely for
purposes of making such allocations and distributions, the LLC shall
recognize a Permitted Transfer upon the Chief Financial Officer's receipt of
(i) written notice stating the date such Interest was transferred and such
other information as the Chief Financial Officer may reasonably require and
(ii) the written agreement to be executed by the Transferee agreeing to be
bound by the terms of this Agreement pursuant to the requirements of Section
7.1 hereof. The Chief Financial Officer and the LLC shall incur no liability
for making allocations and distributions in accordance with the provisions of
this Section 7.2 whether or not the Chief Financial Officer or the LLC has
knowledge of any Transfer of ownership of any Interest.
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7.3 TAG-ALONG RIGHTS. (a) If at any time prior to an Initial
Public Offering, (i) one or more of the Members propose to Transfer to a
Person (other than to one or more Permitted Transferees) a majority of the
LLC Interests or (ii) Parent proposes to make a direct sale of a majority of
the capital stock of NBC (the sellers in the case of (i) or (ii) above being
hereinafter referred to as the "TRANSFERRING MEMBERS"), the Transferring
Members shall have the obligation, and each NBC Internet Holder, if the
Transferring Members are NBC Holders, or each NBC Holder if the Transferring
Members are NBC Internet Holders (the "OTHER MEMBER"), who is not then in
breach of this Agreement, shall have the right, to require the proposed
transferee to purchase from each such Other Member the number of Units equal
to the product (rounded to the nearest whole number) of (x) the Percentage
Interest of such Other Member and (y) the number of Units or shares of
capital stock proposed to be sold in the contemplated sale, and at the same
price per Unit or per share and upon the same terms and conditions as to be
paid and given to the Transferring Member, provided that in order to be
entitled to exercise their right to sell Units to the proposed transferee
pursuant to this Section 7.6, the Other Member must agree to make
substantially the same representations, warranties, covenants and indemnities
and other similar agreements as the Transferring Members agree to make in
connection with the proposed transfer of Units of the Transferring Member
(other than with respect to representations, warranties, covenants and
indemnities relating to the conduct of the CNBC.com Business). Each
Transferring Member shall give notice to the Other Member of each proposed
Transfer giving rise to the rights of the Other Member set forth in the first
sentence of this Section 7.3 at least 20 days prior to the proposed
consummation of such Transfer, setting forth the name of the Transferring
Member, the number of Units proposed to be so transferred, the name and
address of the proposed transferee, the proposed amount of consideration
therefor and terms and conditions agreed to by the proposed transferee, the
number of Units the Other Member may sell to such proposed transferee (in
accordance with the first sentence of this Section 7.3), and a representation
that the proposed transferee has been informed of the "tag-along" rights
provided for in this Section 7.3 and has agreed to purchase Units in
accordance with the terms hereof.
(b) The tag-along rights provided by this Section 7.3 must be
exercised by the Other Member within 15 days following receipt of the notice
required by the preceding sentence, by delivery of a written irrevocable
notice to the Transferring Member indicating the Other Member's exercise of
its rights and specifying the amount of Units (up to the maximum amount of
Units owned by the Other Member required to be purchased by the proposed
transferee pursuant to the first sentence of this Section 7.3) it desires to
sell. The Transferring Members shall be entitled under this Section 7.3 to
transfer to the proposed transferee the amount of Units equal to the
difference between the number referred to in this subsection (b) and the
aggregate amount of Units set forth in the written notices, if any, delivered
by the Other Member pursuant to the preceding sentence. If the proposed
transferee fails to purchase Units from the Other Member that has properly
exercised its tag-along rights, then the Transferring Member shall not be
permitted to make the proposed Transfer, and any such attempted Transfer
shall be void and of no effect.
(c) If the Other Member exercises its rights under Section
7.3(a), the closing of the purchase of the Units with respect to which such
rights have been exercised shall take place concurrently with the closing of
the sale of the Transferring Member's LLC Interests.
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(d) If Parent is the Transferring Member pursuant to Section
7.3(a)(ii) hereof and Parent fails to offer tag-along rights to the NBC
Internet Holders in accordance with the terms of this Section 7.3, the NBC
Internet Holders shall have the right to put to NBC, and NBC shall be
obligated to purchase, all or any portion of the Interests of the NBC
Internet Holders on the same terms and conditions that the NBC Internet
Holders would have obtained if they had been afforded tag-along rights
pursuant to this Section 7.3. In this event, NBC shall provide the NBC
Internet Holders with written notice of the terms of such Transfer by Parent,
and shall not record such Transfer by Parent in its stockholder register,
unless it is able to provide, and actually does provide, such written notice
to the NBC Internet Holders.
7.4 DRAG ALONG RIGHTS. (a) If at any time prior to an Initial
Public Offering, (i) NBC or any of its successors, assigns or Permitted
Transferees owning, individually or collectively, a majority of the
membership interests (the "MAJORITY MEMBERS") enter into an agreement to
consummate a transaction constituting a sale of all of their Units to a
Person other than NBC, any of its successors, assigns or Permitted
Transferees or any of their respective Affiliates or (ii) Parent proposes to
make a direct sale of a majority of the capital stock of NBC (the
transactions described in (i) or (ii) above being hereinafter referred to as
a "THIRD-PARTY SALE"), then upon the written demand of the Majority Members,
in the case of the transactions described in subparagraph (i) above, or
Parent, in the case of the transactions described in subparagraph (ii) above,
the remaining Members shall agree to sell their Units in the Third Party Sale
on the same terms and conditions as agreed to by the Majority Members, in the
case of the transactions described in subparagraph (i) above, or Parent, in
the case of the transactions described in subparagraph (ii) above (other than
with respect to obligations relating to the conduct of the CNBC.com
Business), and each Member shall consent to and raise no objections to the
proposed transaction and will take all other actions necessary or desirable
to cause the consummation of such Third-Party Sale on the terms proposed by
the Majority Members or Parent, as applicable. Such actions shall include
voting all LLC Interests in favor of any action of the LLC relating to such
Third-Party Sale.
(b) The drag along rights provided by this Section 7.4 must be
exercised by the Majority Member at least 15 days prior to the consummation
of a Third-Party Sale by delivery of a written irrevocable notice to the
remaining Members indicating the Majority Members' exercise of their rights.
7.5 CONVERSION TO CORPORATE FORM, MERGER, CONSOLIDATION OR
REORGANIZATION. (a) In the event that the Board of Managers shall determine
that the business of the LLC should be conducted in the form of a corporation
rather than a limited liability company or in the event of any merger,
consolidation or reorganization of the LLC with any other entity, the
Managers shall have the power to convert the LLC into a corporation pursuant
to Section 265 of the Delaware General Corporation Law, or effect such
merger, consolidation or reorganization, or take such other action as it may
deem advisable in light of such changed conditions, including, without
limitation, requiring each Member to Transfer its Interests and related Units
to a newly formed corporation or creating one or more Subsidiaries of the LLC
and contributing to such Subsidiaries any or all of the assets and
liabilities of the LLC and distributing the capital stock of
<PAGE>
21
such Subsidiary or Subsidiaries pro rata to the Members in accordance with
their respective Percentage Interests. Notwithstanding the provisions of
Section 9.2, in connection with any such conversion, merger, consolidation or
reorganization of the LLC, the Members shall receive, in exchange for their
Interests and related Units, shares of capital stock of such corporation or
other entity or its Subsidiaries in proportion to their Percentage Interests,
subject in each case to modifications to the provisions of Section 6.1 to
conform to the provisions relating to actions of shareholders and a board of
directors set forth in the Delaware General Corporation Law. At the time of
such conversion, merger, consolidation or reorganization, the Members shall
enter into a shareholders agreement providing for (i) rights substantially
equivalent to the rights of the Members set forth in this Agreement and (ii)
restrictions on transfer and tag-along and drag-along rights set forth in
Sections 7.1 through 7.4 hereof; provided that such restrictions shall not
apply to sales in an Initial Public Offering or in another broadly
disseminated public offering.
(b) Prior to taking such action to incorporate the LLC, the
Managers shall submit to the Members, and the Members agree to approve in the
form approved by the Board of Managers, the proposed forms of a certificate
or articles of incorporation, by-laws, stockholders' agreement and any other
governing documents proposed to be established for such corporation and its
Subsidiaries, if any. In addition, each of the Members agrees to take all
action necessary with respect to their Units and Interests in order to
approve any conversion to corporate form in accordance with this Section 7.5.
(c) The Members hereby acknowledge that the NBC Holders may grant
themselves any registration rights that they deem appropriate, and, in the
event that the NBC Holders or any third party is granted any registration
rights, the NBC Internet Holders will receive customary piggyback
registration rights in connection therewith.
7.6 REPURCHASE AND REDEMPTION. Any repurchase or redemption by the
LLC of LLC Interests held by the NBC Internet Holders, other than a
repurchase or redemption on a pro rata basis with the NBC Holders, will
require the approval of a majority of the NBC Internet Holders.
ARTICLE VIII
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
8.1 BOOKS AND RECORDS; AUDIT. The LLC shall cause books and
records of the LLC to be maintained in accordance with generally accepted
accounting principles, and shall give reports to the Members in accordance
with prudent business practices and the Statute. The Members shall have
reasonable access to the books and records of the LLC during normal business
hours. There shall be kept at the principal office of the LLC, as well as at
the office of record of the LLC, if different, all information required to be
maintained by the LLC pursuant to the Statute.
8.2 ACCOUNTING. (a) Within 45 days after the end of each fiscal
quarter and within 90 days after the close of each Fiscal Year of the LLC,
the LLC shall cause to be prepared and submitted to each Member (i) the
balance sheet as of the end of such period and a statement of
<PAGE>
22
income or loss and a statement of cash flows for such period and (ii) in the
case of any Fiscal Year, an opinion of a nationally recognized accounting
firm based upon their audit of the financial statements referred to in the
preceding clause (i). Within 120 days after the end of each Fiscal Year, the
LLC shall provide to the Members all information necessary for them to
complete federal and state income tax returns.
(b) For financial reporting purposes, the books and records of the
LLC shall be kept on the accrual method of accounting applied in a consistent
manner and shall reflect all transactions of the LLC and be appropriate and
adequate for the purposes of the LLC.
(c) To the extent permitted by the Code, the Regulations or other
applicable law and regulations, the LLC may elect to use a method of
accounting that permits accelerated deductions.
8.3 BANK ACCOUNTS. The bank accounts of the LLC shall be
maintained in such banking institutions as the Managers or the authorized
Officers shall determine.
8.4 TAX MATTERS. (a) NBC shall be designated as "Tax Matters
Partner" (as defined in Code section 6231) (the "TAX MATTERS PARTNER"), to
represent the LLC (at the LLC's expense) in connection with all examination
of the LLC's affairs by tax authorities, including resulting judicial and
administrative proceedings, and to expend LLC funds for professional services
and costs associated therewith. In its capacity as Tax Matters Partner, the
designated Person shall oversee the LLC tax affairs in the overall best
interests of the LLC as he may reasonably determine.
(b) The Tax Matters Partner on behalf of the LLC may make all
elections for federal income tax purposes.
(c) The Members are aware of the income tax consequences of the
allocations made by this Agreement and hereby agree to be bound by the
provisions of this Section 8.4 in reporting their shares of the LLC income
and loss for income tax purposes.
ARTICLE IX
TERMINATION AND DISSOLUTION
9.1 DISSOLUTION. (a) The LLC shall be dissolved upon the occurrence
of:
(i) the determination of the Board of Managers to dissolve the
LLC; or
(ii) the written approval to dissolve the LLC by Members holding
a majority of the outstanding Units, provided that, except in the event
of a dissolution pursuant to the dropping down of the LLC Assets to a C
corporation and the subsequent distribution of
<PAGE>
23
the capital stock of the C corporation to the LLC Members, (a) for as
long as NBC Internet and its Permitted Transferees hold in the
aggregate at least 5% of the outstanding Units the approval of NBC
Internet will also be required and (b) for as long as NBC and its
Permitted Transferees hold in the aggregate at least 5% of the
outstanding Units the approval of NBC will also be required; or
(iii) the earlier of (a) the date upon which the LLC is
terminated under the Statute, or any similar provision enacted in lieu
thereof or (b) the LLC ceases to be a going concern.
Notwithstanding the foregoing, the withdrawal, resignation, expulsion,
bankruptcy or dissolution of a Member or the occurrence of any other event
which terminated the Member's continued membership in the LLC shall not
result in the dissolution of the LLC.
(b) As soon as possible after the occurrence of any of the events
specified in Section 9.1(a) above, the LLC shall make any filings required by
the Statute and shall cease to carry on its business, except insofar as may
be necessary for the winding-up of its business, but the LLC's separate
existence shall continue until the certificate of cancellation of the
Certificate of Formation has been filed with the Secretary of State or until
a decree dissolving the LLC has been entered by a court of competent
jurisdiction.
9.2 DISTRIBUTION OF NET PROCEEDS. During the winding-up period,
the Members shall continue to divide Net Profits and Losses and Available
Cash Flow in the same manner and the same priorities as provided for in
Articles IV and V hereof. The proceeds from the liquidation of Property
shall be applied in the following order:
(i) to the payment of creditors (including expenses of winding
up and payments to any present or former Members who have made loans or
advances to the LLC) in the order of priority as provided by law;
(ii) to the Members in accordance with the positive balance in
their respective Capital Accounts after adjustments for all allocations
of Net Profits and Net Loss during the Fiscal Year in which dissolution
of the LLC occurs. Notwithstanding the provisions of Section 4.1 of the
Agreement, Net Profits and Net Loss of the LLC resulting from the sale or
other disposition of all or substantially all of the LLC assets or
otherwise associated with the liquidation of the LLC shall be allocated
in a manner designed, to the extent possible, to cause the Capital
Account balance of each Member to equal the amount that would be
distributed to such Member if all of the LLC Assets were distributed to
the Members in accordance with their respective Percentage Interests at
the time of the distribution.
9.3 DISTRIBUTION OF PROPERTY. Distributions of LLC assets other than
cash pursuant to Section 9.2 shall be treated as a distribution of cash equal to
the fair market value of the Property as of the date of distribution, less any
liabilities to which the Property is subject or which the distributee Member
assumes upon distribution. Capital Accounts will be credited with a deemed
<PAGE>
24
allocable share of gain or loss upon distribution pursuant to Section 4.1
hereof. The amount of the deemed gain shall equal the difference between the
fair market value of the Property distributed and the adjusted tax basis of
the Property as determined for federal income tax purposes.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION OF THE MEMBERS. The LLC shall indemnify and
hold harmless the Managers, the Officers, the Members, their Affiliates and
their respective officers, directors, employees and agents and the heirs,
executors, successors and assigns of each of the foregoing (individually, an
"INDEMNITEE") from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
reasonable attorneys' fees and disbursements), judgments, fines, settlements
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in
which the Indemnitee was involved or may be involved, or threatened to be
involved, as a party or otherwise, arising out of or in connection with the
business of the LLC, regardless of whether the Indemnitee continues to be an
Officer, a Member, an Affiliate, or an officer, director, employee or agent
of the Member at the time any such liability or expense is paid or incurred,
to the fullest extent permitted by the Statute and all other applicable laws;
provided, that an Indemnitee shall be entitled to indemnification hereunder
only to the extent that such Indemnitee's conduct did not constitute bad
faith, willful misconduct, gross negligence or a material breach of this
Agreement. The termination of any proceeding by settlement, judgment, order,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that such Indemnitee's conduct constituted bad
faith, willful misconduct, gross negligence or a material breach of this
Agreement. The right of any Indemnitee to the indemnification provided
herein shall be cumulative of, and in addition to, any and all rights to
which such Indemnitee may otherwise be entitled by contract or as a matter of
law or equity and shall extend to such Indemnitee's successors, assigns and
legal representatives. The provisions of this Article X shall in no way
alter, amend or limit the indemnification obligations of the Members under
the Contribution Agreement.
10.2 EXPENSES. Expenses incurred by an Indemnitee in defending any
claim, demand, action, suit or proceeding subject to Section 10.1 shall, from
time to time, be advanced by the LLC prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the LLC of an
undertaking reasonably acceptable in form and substance to the Board of
Managers by or on behalf of the Indemnitee to repay such amount if it shall
be determined that such Person is not entitled to be indemnified as
authorized in Section 10.1.
10.3 INDEMNIFICATION RIGHTS NON-EXCLUSIVE. The Indemnification
provided by Section 10.1 shall be in addition to any other rights to which those
indemnified may be entitled under any agreement, vote of the Members holding
Interests, as a matter of law or equity or otherwise, both
<PAGE>
25
as to action in the Indemnitee's capacity as a Member, as an Affiliate or as
an officer, director, employee or agent of a Member and as to any action in
another capacity, and shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
10.4 ASSETS OF THE LLC. Any indemnification under Section 10.1
shall be satisfied solely out of the assets of the LLC. No Member shall be
subject to personal liability or required to fund or cause to be funded any
obligation by reason of these indemnification provisions.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 INTEGRATION; AMENDMENTS. This Agreement contains the entire
agreement of the Members, and supersedes all prior written and oral
agreement's understandings and negotiations, with regard to the matters
contained herein.
11.2 AMENDMENTS. This Agreement may be adopted, altered, amended or
repealed and a new limited liability company agreement may be adopted by the
Members who hold, in the aggregate, a majority of the outstanding Units;
provided that any such amendment shall require the approval of the holders of
a majority of the Units owned by the NBC Internet Holders if such action
would (i) result in any Units issued to NBC Internet on the date hereof being
entitled to different distributions than any Unit held by NBC on the date
hereof, (ii) materially and adversely affect the rights of an NBC Internet
Holder (it being understood that the issuance of additional Units in
accordance with the terms of this Agreement shall not be deemed to adversely
affect such rights).
11.3 SURVIVAL; BINDING EFFECT. Each Member's 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, without the prior written consent of the other
Members, except to their Affiliates, provided that no such assignment will
relieve the assigning party of any of its obligations hereunder, and provided
further that the foregoing restriction shall not apply to any assignment by
operation of law to any successor Person in any merger or consolidation.
This Agreement shall be binding upon, and inure to the benefit of, all the
parties and their respective successors, legal representatives and assigns
permitted in accordance with this Section 11.3.
11.4 SEVERABILITY. In the event any Section, or any sentence within
any Section, is declared by a court of competent jurisdiction to be void or
unenforceable, such sentence or Section shall be deemed severed from the
remainder of this Agreement and the balance of this Agreement shall remain in
full force and effect.
<PAGE>
26
11.5 NOTIFICATION OR NOTICES. Except for notices to be given under
Article VI for purposes of meetings of Members, 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 on 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 and a hard copy is
mailed also to the recipient; 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:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10112
Attn.: Martin Yudkovitz, President, NBC Interactive Media
Facsimile: (212) 664-5561
with a copy to:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10112
Attn.: Vice President, Law, Corporate Transactions Group
Facsimile: (212) 977-7165
If to NBC Internet:
NBC Internet, Inc.
300 Montgomery Street, Suite 300
San Francisco, CA 94104
Attention: President
Facsimile: (415) 288-2578
If to any other Member, to the address set forth for such Member on the books
and records of the LLC.
11.6 SECTION HEADINGS. The captions of the Articles or Sections in
this Agreement are for convenience only and in no way define, limit, extend
or describe the scope or intent of any of the provisions hereof, shall not be
deemed part of this Agreement and shall not be used in construing or
interpreting this Agreement.
11.7 GOVERNING LAW; SUBMISSION TO JURISDICTION: WAIVER OF JURY TRIAL .
THIS AGREEMENT AND ALL COLLATERAL MATTERS RELATING HERETO SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
<PAGE>
27
YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. In addition, each of
the parties hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this agreement, to the non-exclusive general
jurisdiction of the Courts of the State of New York in New York County,
the Courts of the United States of America for the Southern District of
New York in New York County, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought
in such courts, and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same to the extent permitted by
applicable law;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the party, as the case may be, at its address set forth in
Section 11.5 or at such other address of which the other party shall have
been notified pursuant thereto;
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction for recognition and
enforcement of any judgment or if jurisdiction in the courts referenced
in paragraph (i) hereof is not available despite the intentions of the
parties hereto; and
(v) waives trial by jury in any litigation in any court with
respect to, in connection with, or arising out of this Agreement, or any
other instrument or document delivered pursuant hereto, or any other
claim or dispute howsoever arising, to which the parties are party. This
waiver is informed and freely made.
11.8 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 specific performance of the terms hereof, in addition to
any other remedy at law or in equity.
11.9 FURTHER ACTIONS. Each of the Members agrees to execute,
acknowledge and deliver such additional documents, and take such further
actions, as may reasonably be required from time to time to carry out each of
the provisions, and the intent, of this Agreement, and every agreement or
document relating hereto, or entered into in connection herewith.
11.10 WAIVER. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this agreement
or to exercise any right or remedy
<PAGE>
28
consequent upon a breach thereof shall constitute a waiver of any such breach
or any other covenant, duty, agreement or condition.
11.11 PARTITION. The Members agree that the Property that the LLC
may own or have an interest in is not suitable for partition. Each of the
Members hereby irrevocably waives any and all rights that it may have to
maintain any action for partition of any Property the LLC may at any time
have an interest in.
11.12 THIRD PARTY BENEFICIARIES. There are no third party
beneficiaries of this Agreement except any Persons as may be entitled to the
benefits of Section 10.1 hereof.
11.13 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all counterparts so executed shall constitute one
Agreement, binding on all of the parties hereto, notwithstanding that all of
the parties are not signatories to the original or the same counterpart.
<PAGE>
29
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement as of the date first written above.
CNBC.com HOLDING, INC.
By /s/ Pamela Thomas-Graham
------------------------------
Name: Pamela Thomas-Graham
Title: President and CEO
NBC INTERNET, INC.
By /s/ Chris Kitze
------------------------------
Name: Chris Kitze
Title: CEO
<PAGE>
Schedule 1.1
Percentage Interests of the Members
NBC Internet, Inc. 10%
CNBC.com Holding, Inc. 90%
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports
pertaining to Xoom.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, in the Registration Statement (Form S-1) and
related Prospectus of NBC Internet, Inc. for the registration of 6,808,152
shares of its Class A common stock.
Our audits also included the financial statement schedule of Xoom.com, Inc.
for the period April 16, 1996 (inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998 listed in item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, 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/ ERNST & YOUNG LLP
Palo Alto, California
January 12, 2000
<PAGE>
EXHIBIT 23.3
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
heading "Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
January 12, 2000
<PAGE>
EXHIBIT 23.4
The Board of Managers
Snap! LLC:
We consent to the use of our report 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 our report dated June 18,
1999 on the related financial statement schedule, which reports are included
herein, and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
San Francisco, California
January 12, 2000
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 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 references to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
January 12, 2000
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<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 SEP-30-1999
<CASH> 0 865 542
<SECURITIES> 0 0 0
<RECEIVABLES> 367 3,484 4,919
<ALLOWANCES> 0 (469) (993)
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 367 6,313 9,306
<PP&E> 1,456 5,932 13,934
<DEPRECIATION> (329) (1,258) (3,709)
<TOTAL-ASSETS> 1,530 11,634 54,640
<CURRENT-LIABILITIES> 928 6,120 17,157
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 16,170 48,972 94,358
<OTHER-SE> 0 (2,102) (7,705)
<TOTAL-LIABILITY-AND-EQUITY> 1,530 11,634 54,640
<SALES> 817 7,317 23,000
<TOTAL-REVENUES> 817 7,317 23,000
<CGS> 1,520 7,626 6,878
<TOTAL-COSTS> 14,865 38,904 75,342
<OTHER-EXPENSES> 0 (75) (1,125)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (15,568) (39,288) (37,614)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (15,568) (39,288) (37,614)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (15,568) (39,288) (37,614)
<EPS-BASIC> (1.33) (2.95) (2.60)
<EPS-DILUTED> (1.33) (2.95) (2.60)
</TABLE>
