<PAGE>
As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-93487
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
---------------
SNOWBALL.COM, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7375 94-3316902
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) Identification no.)
250 Executive Park Boulevard,
Suite 4000
San Francisco, CA 94134
(415) 508-2000
</TABLE>
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
James R. Tolonen
Chief Financial Officer
Snowball.com, Inc.
250 Executive Park Boulevard, Suite 4000
San Francisco, CA 94134
(415) 508-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Laird H. Simons III, Esq. John T. Sheridan, Esq.
Robert B. Dellenbach, Esq. Anthony Kikuta, Esq.
Darren L. Nunn, Esq. WILSON SONSINI GOODRICH & ROSATI
William L. Hughes, Esq. Professional Corporation
FENWICK & WEST LLP 650 Page Mill Road
275 Battery Street Palo Alto, California 94304
San Francisco, California 94111 (650) 493-9300
(415) 875-2300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If 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, as amended (the "Securities Act"), please 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 statement 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. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated February 11, 2000.
6,250,000 Shares
[SNOWBALL LOGO APPEARS HERE]
Snowball.com, Inc.
Common Stock
----------
This is an initial public offering of shares of common stock of Snowball.com,
Inc. All of the 6,250,000 shares of common stock are being sold by Snowball.
Prior to this offering, there has been no public market for our common stock.
We anticipate that the initial public offering price will be between $10.00 and
$12.00 per share. We have applied for quotation of the common stock on the
Nasdaq National Market under the symbol "SNBL".
See "Risk Factors" beginning on page 7 to read about risks you should
consider before buying shares of the 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>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to Snowball.......................... $ $
</TABLE>
To the extent that the underwriters sell more than 6,250,000 shares of common
stock, the underwriters have the option to purchase up to an additional
937,500 shares from Snowball at the initial public offering price less the
underwriting discount.
----------
The underwriters expect to deliver the shares on , 2000.
Goldman, Sachs & Co.
Chase H&Q
Robertson Stephens
----------
Prospectus dated , 2000.
<PAGE>
[The Snowball logo is displayed on the top left corner of the inside front
cover, with the phrase "We are i" under the logo. The logos of the four
Snowball networks, and a short description of each network, are staggered
vertically down the right side of the page. The ChickClick network logo is at
the top of the page, with the phrase "Girl Sites That Don't Fake It" to the
right of the logo. The IGN network logo is beneath the ChickClick logo, with
the phrase "Entertainment & Games Network" to the left of the logo. The
InsideGuide network logo is beneath the IGN logo, with the phrase "For Students
By Students" to the right of the logo. The PowerStudents network logo is
beneath the InsideGuide logo, with the phrase "Maximize Your Student
Experience" to the left of the logo.]
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and the notes to those
statements appearing elsewhere in this prospectus. Unless otherwise indicated,
all information contained in this prospectus assumes no exercise by the
underwriters of their option to purchase additional shares of our common stock
in the offering, reflects a three-for-two stock split of our common stock
completed in October 1999, and reflects the conversion of all outstanding
shares of preferred stock into common stock upon completion of this offering.
Snowball.com, Inc.
Snowball operates a network of destination web sites that offer content,
community and commerce to the Internet generation, or Generation i. We view
Generation i as individuals between the ages of 13 and 30 who consider the
Internet to be an integral part of their daily lives. According to the United
States Census Bureau, Generation i consisted of 67.7 million individuals in
1998, and those individuals between the ages of 15 and 24 had $302.4 billion in
disposable income in the same year. We serve this group by providing its
members with current content, relevant services, a forum for interacting with
one another and carefully selected merchandise.
In addition to creating original content, we continuously work to expand the
breadth and depth of our content offerings by selectively adding affiliated web
sites to our network. Our network and affiliate business model enables us to
add content and traffic to our network rapidly and cost-effectively, while
keeping the content fresh and compatible with the evolving tastes of Generation
i. To attract and retain affiliates, we provide an integrated package of sales
and marketing services, technical support and audience development
opportunities. As of December 31, 1999, we were affiliated with more than 150
web sites and over 100 partner college destinations organized under four
networks, each targeting a specific segment of Generation i:
. ChickClick, which provides content, community and commerce features to
Generation i women;
. IGN, which provides information and entertainment to Generation i men;
. InsideGuide, which offers student-generated information concerning
individual colleges; and
. PowerStudents, which provides students at all levels with information
concerning college admissions, jobs and careers.
Our networks attract a large and segmented audience by providing extensive
information on a variety of narrowly focused subjects. By offering targeted
access to a large audience with attractive demographic characteristics, we are
able to generate marketing and advertising revenue in a variety of forms. These
include promotions and sponsorships, fees for special placement of
advertisements on our web sites (slotting) and lead-generation, and sales of
various forms of banner, button and textlink advertising. We also generate
merchandising revenue from the sale of carefully selected items within our
online store, ChickShops.
According to Media Metrix, our networks attracted over 4.5 million unique
visitors in December 1999, making us one of the 40 highest-trafficked
properties on the Internet and, we believe, one of the leading online
destinations for Generation i. Additionally, based on the same Media Metrix
data, visitors spent more time per day during that period on our network than
on all but 15 other properties among the top 50 properties. As of December 31,
1999, we had nearly three million registered users.
3
<PAGE>
The Snowball Strategy
Our goal is to be the preeminent network of content, community and commerce
sites on the Internet by, for and about Generation i, by:
. Building and developing our existing networks, while selectively adding
new networks;
. Continuing to leverage our network and affiliate business model to
achieve cost-effective and viral growth of content and traffic;
. Offering a range of value-added services to attract, retain and develop
affiliated web sites;
. Promoting affinity and community across all networks and affiliates to
increase the amount of time that visitors spend on our Networks;
. Being the premier partner for marketing, advertising and commerce
directed at Generation i; and
. Pursuing strategic alliances and acquisitions that increase content,
traffic and revenue opportunities.
Corporate Information
From our inception in January 1997 through December 1998, we operated as a
division of Imagine Media, Inc., a California corporation. We were incorporated
as an independent company in Delaware in January 1999 as Affiliation, Inc. and
changed our name to Affiliation Networks, Inc. in February 1999. We then
changed our name to Snowball.com, Inc. in September 1999. References in this
prospectus to "Snowball," "we," "our" and "us" collectively refer to
Snowball.com, Inc., a Delaware corporation, and its predecessors and
subsidiaries, and not to the underwriters. Our principal executive offices are
located at 250 Executive Park Boulevard, Suite 4000, San Francisco, California
94134 and our telephone number is (415) 508-2000. Our World Wide Web address is
"www.snowball.com." The information on our web site is not part of this
prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Snowball................ 6,250,000 shares
Common stock to be outstanding after the
offering....................................... 37,245,442 shares
Use of proceeds................................. To promote our brand, expand
sales and marketing, repay
any debt that may be incurred
under our credit facility and
for working capital and
general corporate purposes,
including network expansion
and content development,
relocation of our offices and
possible acquisitions of
affiliates. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......... "SNBL"
</TABLE>
The number of shares of common stock to be outstanding after the offering
includes:
. 5,585,547 shares outstanding as of December 31, 1999; and
. 25,409,895 shares of common stock to be issued upon the automatic
conversion of all outstanding shares of preferred stock upon completion
of this offering.
The shares of common stock to be outstanding exclude:
. 4,752,737 shares of common stock reserved for issuance under our stock
option plan and a stock option agreement, of which 2,358,368 shares at a
weighted-average exercise price of $2.02 per share were subject to
outstanding options as of December 31, 1999;
. 322,688 shares of common stock issuable upon exercise of outstanding
warrants and conversion of the shares of preferred stock underlying
those warrants as of December 31, 1999 at a weighted-average exercise
price of $7.84 per share;
. 150,000 shares of Series C preferred stock issued in January 2000; and
. shares of common stock available for future issuance under the 2000
Equity Incentive Plan and the 2000 Employee Stock Purchase Plan, as
described under "Management--Benefit Plans."
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenue........................................... $ 927 $ 3,256 $ 6,674
Cost of revenue................................... 171 1,322 4,316
------- ------- --------
Gross margin...................................... 756 1,934 2,358
Total operating expenses.......................... 2,035 5,594 37,565
------- ------- --------
Loss from operations.............................. (1,279) (3,660) (35,207)
Interest and other income, net.................... -- -- 385
------- ------- --------
Net loss.......................................... $(1,279) $(3,660) $(34,822)
======= ======= ========
Basic and diluted net loss per share.............. $(186.69)
========
Shares used in per share calculation.............. 187
========
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (1.93)
========
Shares used in pro forma per share calculation
(unaudited)...................................... 18,022
========
</TABLE>
See Note 1 of our Notes to Consolidated Financial Statements for a
description of the method that we used to compute our basic and diluted net
loss per share.
The following table presents a summary of our consolidated balance sheet data
as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of all shares
of preferred stock into common stock immediately prior to the closing of
this offering and the issuance of 150,000 shares of Series C preferred
stock in January 2000 at $10.00 per share; and
. on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of 6,250,000 shares of common stock in this
offering at an assumed initial public offering price of $11.00 per
share, after deducting the estimated underwriting discount and estimated
offering expenses payable by us. See "Capitalization."
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................... $33,489 $34,989 $ 97,627
Working capital................................. 28,263 29,763 92,401
Total assets.................................... 48,813 50,313 112,951
Long-term obligations, less current portion..... 2,036 2,036 2,036
Stockholders' equity............................ 36,756 38,256 100,894
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below and
the other information in this prospectus before deciding whether to invest in
shares of our common stock. The risks and uncertainties described below are not
the only risks we face. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial may impair our business operations.
If any of the following risks actually occurs, our business, our financial
condition and the results of our operations could be seriously harmed, the
trading price of our common stock could decline and you might lose all or part
of your investment.
Risks Related to Our Business
Because we have a limited operating history, it is difficult to evaluate our
business and prospects and the merits of investing in our stock.
We have a limited operating history upon which you can evaluate our business
and prospects and the merits of investing in our stock. Our IGN, ChickClick and
PowerStudents networks began operating as divisions of Imagine Media in March
1997, February 1998 and August 1998, respectively. We were incorporated in
January 1999, and Imagine Media contributed the IGN, ChickClick and
PowerStudents assets to us in February 1999. We launched our InsideGuide
network in September 1999. Accordingly, our prospects and the merits of
investing in our stock must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
Internet content and services. The risks, expenses and difficulties that we
expect to encounter include:
. implementing an evolving and unpredictable business model;
. building our corporate brand to attract advertisers and affiliates, and
our network brands to expand our audience;
. increasing content and service offerings on existing networks;
. developing and integrating new networks;
. diversifying our revenue sources;
. expanding our sales and marketing efforts to increase our advertiser
base and our reach within the Generation i audience;
. attracting, retaining and motivating qualified personnel; and
. responding to competitive developments.
We might not address the risks we face effectively, and the failure to do so
could harm our business and diminish the value of your investment.
Our quarterly revenue and operating results may fluctuate in future periods and
we may fail to meet expectations, which may reduce the trading price of our
common stock.
We cannot forecast our revenue and operating results with precision,
particularly because our products and services are relatively new and our
prospects uncertain. If revenue in a particular period does not meet
expectations, it is likely that we will be unable to adjust our level of
expenditures significantly for the period. If our operating results fail to
meet expectations, the trading price of our common stock would decline.
7
<PAGE>
We anticipate that the results of our operations will fluctuate significantly
in the future as a result of a variety of factors, many of which are outside
our control. Factors that may affect our quarterly results of operations
include, but are not limited to:
. the addition or loss of affiliates, or our failure to add new
affiliates;
. our ability and the ability of our affiliates to attract and retain a
large Generation i audience;
. our ability to attract and retain advertisers and sponsors;
. the long sales cycle we face selling advertising and promotions;
. seasonal trends in Internet usage, advertising placements and e-
commerce;
. the amount and timing of expenditures for expansion of our operations,
including the acquisition of new affiliates, the hiring of new
employees, capital expenditures and related costs;
. our ability to continue to enhance, maintain and support our networks
and technology and avoid system downtime;
. the introduction of new or enhanced offerings by our competitors; and
. price competition or pricing changes in Internet advertising.
We believe that our quarterly revenue, expenses and operating results will
vary significantly in the future and that period-to-period comparisons are not
meaningful and are not indicative of future performance. As a result of the
foregoing factors, it is likely that in some future quarters or years our
results of operations will fall below the expectations of securities analysts
or investors, which would cause the trading price of our common stock to
decline.
We have a history of losses and expect to incur substantial net losses for the
foreseeable future.
We have incurred net losses since the formation of our business in January
1997. At December 31, 1999, we had an accumulated deficit of approximately
$39.8 million. We plan to increase our operating expenses significantly to
expand our affiliate base, develop additional networks, expand our sales and
marketing operations, hire more salespersons, increase our marketing and
promotional activities, develop and upgrade our technology and purchase
equipment for our operations and network infrastructure. We also may incur
costs relating to the acquisition of content, other businesses or technologies.
We may not generate sufficient revenue to offset these expenditures. As a
result, we expect to incur significant operating losses on a quarterly basis
for the foreseeable future, and may never be profitable. Even if we do achieve
profitability, we might not be able to sustain profitability on a quarterly or
annual basis in the future.
Our revenue will decline if we cannot continue to anticipate and respond to
trends that develop among members of Generation i.
The interests, styles, trends and preferences of Generation i frequently
change. If we cannot continue to anticipate and respond to these changes and
offer content, services and products that appeal to this group on a timely
basis, traffic on our networks will decrease, and revenue from advertising,
sponsorships and product sales will decline.
8
<PAGE>
If we fail to maintain our relationships with affiliates, or incorporate new
affiliates into our networks on a timely basis, our revenue will decline.
We derive revenue primarily from advertisers who pay us to advertise on our
networks because our networks attract a large number of visitors. We rely upon
our affiliates to generate a significant portion of the content that attracts
visitors to our networks. If we lose these affiliates or fail to add new
affiliates to our networks, we will lose revenue. We currently share with each
affiliate a portion of the revenue generated by advertising on its web pages.
Our arrangements with our affiliates typically are for durations of between six
months and five years and automatically renew for successive terms, subject to
termination on short notice by either party. These arrangements may be
terminated, or may not be renewed with similar terms or at all. Moreover, if
affiliates, especially major affiliates, demand a greater portion of
advertising revenue or require us to make payments for access to their sites or
otherwise negotiate terms unfavorable to us, we may be unable to maintain our
relationship with these affiliates. In addition, if we lose a major affiliate
to a competitor or if an affiliate otherwise decides to operate independently
from our network, we may be unable to replace the affiliate with another
affiliate having comparable traffic patterns and user demographics on a timely
basis or at all. Some affiliates have left our network. The loss of any major
affiliate could cause our revenue to decline.
We also must continue to identify potential new affiliates to ensure that we
keep pace with the changing interests, styles, trends and preferences of
Generation i. Web sites targeting Generation i might not continue to emerge at
their current pace or at all. Moreover, we may be unable to identify potential
new affiliates as they emerge or to negotiate affiliate agreements with
potential new affiliates on a timely basis. In addition, we will likely face
increasing competition for the content and services provided by possible
affiliates. If we fail to continue to identify and enter agreements with
potential new affiliates on a timely basis, our networks may lose their
relevance to Generation i, we will lose advertising and promotional
opportunities and our revenue will decline.
If our IGN network is unsuccessful, our revenue will decline substantially.
We rely upon IGN for a substantial portion of our traffic and advertising
revenue. IGN is a network of web sites that provide information and
entertainment to Generation i men. IGN accounted for 73.2% of our consolidated
page views in December 1999, 12.2% of our registered users as of December 31,
1999 and a substantial portion of our revenue for the year ended December 31,
1999. If we are unable to anticipate changes in the interests, styles, trends
or preferences of the audience targeted by IGN, if we are unable to maintain
our relationship with affiliates of IGN or incorporate new affiliates into the
IGN network on a timely basis or if IGN otherwise loses traffic, our ability to
generate advertising revenue would be impeded to an even greater extent than if
any of those events occurred with respect to any of our other networks.
If our existing advertising and marketing arrangements are terminated or are
not renewed, or if we fail to meet minimum performance levels required under
these arrangements, our revenue will decline.
To date, we have derived a substantial portion of our revenue from a small
number of advertising and marketing customers. We expect that this will
continue during the early stages of our development and may continue
indefinitely. If our arrangements with these customers are terminated or are
not renewed, or if we fail to perform as agreed, our revenue will decline.
Many of our advertising and marketing customers enter into agreements with us
that have a term of less than six months. As a result, our customers could
cancel these agreements, change their advertising expenditures or buy
advertising from our competitors on relatively short notice and without
penalty. Because we expect to derive a large portion of our future revenue from
advertising and marketing arrangements, these short-term agreements expose us
to competitive pressures and potentially severe fluctuations in our financial
results.
9
<PAGE>
In addition, our agreements typically provide for minimum performance levels,
such as click-throughs by web users or impressions. These arrangements expose
us to potentially significant risks. If we fail to deliver these minimum
levels, we typically have to provide free advertising to the customer until the
minimum level is met, which could harm our financial results. We occasionally
guarantee the availability of advertising space in connection with promotion
arrangements and content agreements. In addition, we provide customized
advertising campaigns for advertisers and agree with certain advertisers that
we will not accept advertising from any other customer within a particular
subject matter. All of these arrangements subject us to certain risks, such as
our potential inability to meet the guarantees we make to our customers and the
possible loss of potential customers whose advertisements, sponsorships and
promotions would conflict with those of other customers. The occurrence of any
of these events could cause us to lose revenue.
We may lose advertising revenue if we are unable to measure adequately the
demographic characteristics of our user base and the delivery of advertisements
on our web sites.
It is important to our advertisers that we accurately measure the demographic
characteristics of our user base and the delivery of advertisements on our web
sites. Advertisers may choose not to advertise on our web sites or may pay less
for advertising if they do not perceive our measurements to be reliable. Either
of these consequences would cause us to lose revenue.
We depend upon third parties to provide some of the measurement services that
we offer to advertisers. If they are unable to provide these services in the
future, we would need to perform them ourselves or obtain them from another
provider. This could cause us to incur additional costs or cause interruptions
in our business during the time we are replacing these services. We are
currently implementing additional systems designed to record demographic data
on our users. If we do not implement these systems successfully, we may be
unable to evaluate accurately the demographic characteristics of our users.
If we do not continue to attract and retain users we may not be able to compete
successfully for advertisers, which would cause our revenue to decline.
We currently derive substantially all of our revenue from advertisers who pay
us to advertise on our networks, and our business model depends in part on
increasing the amount of this revenue. The market for advertising revenue is
highly competitive. We must continue to attract and retain users to compete
successfully for advertising revenue. If we fail to attract and retain more
users, our revenue will decline.
We believe that the primary competitive factors in attracting and retaining
users are:
. quality of content and services;
. brand recognition;
. user affinity and loyalty;
. demographic focus;
. variety of value-added services; and
. critical mass.
Many of our current competitors, as well as a number of potential new
competitors, have significantly greater editorial, financial, technical,
marketing, sales and other resources than we do. Our competitors may develop
content and service offerings that are superior to ours or achieve greater
market acceptance than ours. Moreover, if our content and service offerings
fail to achieve success in the short term, we could suffer an insurmountable
loss in market share and brand acceptance. See "Business--Competition" for more
detailed information about our competitors.
10
<PAGE>
If we are unable to expand our online capacity, computer systems and related
features to support increased volume on our web sites in a timely manner, we
may lose users and advertisers.
A key element of our strategy is to generate a high volume of traffic on our
web sites. However, growth in the number of users accessing our sites may
strain or exceed the capacity of our computer systems and lead to declines in
performance or systems failure. If we fail to upgrade our existing technology
or network infrastructure to accommodate increased traffic, the level of
customer service and satisfaction would decline and we would likely lose users
and advertisers.
We believe that we will need to continually improve and enhance the
functionality and performance of our content and advertisement serving, e-
commerce and other technical systems to accommodate rapid growth in user
demand. As a result, we intend to upgrade our existing systems and implement
new systems to keep pace with rapidly changing technologies and evolving
industry standards. We depend on third parties for software, systems and
related services, including many of the services we provide on our networks.
For example, we rely on Exodus Communications for our hosting infrastructure
and on DoubleClick's NetGravity ad server software for ad selection and
management. Several of the third parties that provide software, systems or
services to us have limited operating histories and are themselves dependent on
reliable delivery of services from others. If the software, systems or related
services we currently obtain from third parties do not function properly or are
not updated, we would need to purchase these items from other third-party
providers. This would require an unplanned increase in operating expenses and
could cause a disruption in our business.
Technical problems with either our internal or our outsourced computer and
communications systems could interrupt our service, resulting in decreased
customer satisfaction and the possible loss of users and advertisers.
Our operations depend on our ability to maintain our computer systems and
equipment in effective working order. Our web sites must accommodate a high
volume of traffic and deliver frequently updated information. Any sustained or
repeated system failure or interruption would reduce the attractiveness of our
web sites to customers and advertisers and could cause us to lose users and
advertisers to our competitors. In addition, interruptions in our systems could
result from the failure of our telecommunications providers to provide the
necessary data communications capacity in the time frame we require.
Unanticipated problems affecting our systems have caused from time to time in
the past, and could cause in the future, slower response times and
interruptions in our services.
Our web sites reside on computer systems located in the San Francisco Bay
area and in Columbia, South Carolina. Fire, earthquakes, hurricanes, power
loss, water damage, telecommunications failures, vandalism and other malicious
acts, and similar unexpected adverse events, may damage our computer systems
and interrupt service. Our computer system's continuing and uninterrupted
performance is critical to our success. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems.
If we lose key personnel or are unable to hire additional qualified personnel,
we will not be able to implement our business strategy or operate our business
effectively.
Our success depends upon the continued services of our senior management and
other key personnel, many of whom would be difficult to replace. The loss of
any of these individuals would adversely affect our ability to implement our
business strategy and to operate our business effectively. In particular, the
services of Mark Jung, our chief executive officer, would be difficult to
replace. None of our officers or key employees is bound by an employment
agreement for any specific term. Nor do we have "key person" life insurance
policies covering any of our officers or key employees.
11
<PAGE>
We believe that our success depends to a significant extent on the ability of
our management to operate effectively, both individually and as a group. Our
management team has only been working together since our incorporation in
January 1999. Moreover, James Tolonen, who was hired as our Chief Operating
Officer and Chief Financial Officer in October 1999, and certain other members
of our management team have only recently joined us. We therefore cannot assure
you that our management will be able to operate effectively in their respective
roles and as a team.
Our success also depends upon our ability to continue to attract, retain and
motivate skilled employees. Competition for employees in our industry is
intense, especially in the San Francisco Bay area. We believe that there are
only a limited number of persons with the requisite skills to serve in many key
positions and it is becoming increasingly difficult to hire, retain and
motivate these persons. We have in the past experienced, and we expect to
continue to experience, difficulty in hiring and retaining skilled employees
with appropriate qualifications. Competitors and others have in the past
attempted, and may in the future attempt, to recruit our employees. We believe
that we will incur increasing salaries, benefits and recruiting expenses
because of the difficulty in hiring and retaining employees.
Our failure to manage growth effectively could result in our inability to
operate our business effectively.
We have rapidly and significantly expanded our operations and anticipate that
further expansion will be required to address potential market opportunities.
If we fail to manage this expansion effectively, we will be unable to operate
our business effectively. During the year ended December 31, 1999, our business
grew from 38 employees to 260 employees. This rapid growth has placed, and we
expect it to continue to place, a significant strain on our management,
operational and financial resources. As part of this growth, we will have to
implement new operational and financial systems, procedures and controls.
Our prospects for obtaining additional financing, if required, are uncertain
and failure to obtain needed financing would limit our operations, and
additional financing could dilute our existing stockholders' ownership and the
value of their investments.
Although we believe that, following this offering, our cash reserves and any
cash flows from operations will be adequate to fund our operations at least
through the next twelve months, we do not have a long enough operating history
to know with certainty whether these funds will be sufficient to finance our
anticipated growth. We may need to raise additional funds if our estimates of
revenue or our working capital and/or capital expenditure requirements change
or prove inaccurate, if we are required to respond to unforeseen technological
or marketing hurdles or if we choose to take advantage of unanticipated
opportunities. Additional financing might not be available when required. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our then current stockholders would be reduced and the
value of their investments might decline. In addition, any new securities
issued might have rights, preferences or privileges senior to those securities
held by our stockholders. If we raise additional funds through the issuance of
debt, we might become subject to restrictive covenants. If adequate funds are
not available to satisfy either short- or long-term capital requirements, we
might be required to limit our operations significantly. Our future capital
requirements are dependent upon many factors, including:
. the rate at which we expand our sales and marketing operations;
. the amount and timing of fees paid to affiliates;
. the extent to which we expand our content and service offerings;
. the extent to which we develop and upgrade our technology and data
network infrastructure; and
. the response of competitors to our content and service offerings.
12
<PAGE>
If we are unable to identify or successfully integrate potential acquisitions
and investments, we may not grow as planned, our expenses may increase and our
management's attention may be diverted from the operation of our business.
Since our incorporation, we have acquired two businesses and the selected
assets of another business and our growth strategy includes acquiring or making
investments in complementary businesses, products, services or technologies in
the future. If we are unable to identify suitable acquisition or investment
candidates we will not grow as planned. Even if we do identify suitable
candidates, we might not be able to make acquisitions or investments on
commercially acceptable terms and on a timely basis. If we buy a business, we
could have difficulty in assimilating that company's personnel, operations,
products, services or technologies into ours.
We may have to litigate to protect our intellectual property rights, or to
defend claims that we have infringed the rights of others, which could subject
us to significant liability and be time consuming and expensive.
Our success depends significantly upon our copyrights, trademarks, service
marks, trade secrets, technology and other intellectual property rights. The
steps we have taken to protect our intellectual property may not be adequate
and third parties may infringe or misappropriate our intellectual property. If
this occurs, we may have to litigate to protect our intellectual property
rights. These difficulties could disrupt our ongoing business, increase our
expenses and distract our management's attention from the operation of our
business.
We have not applied for the registration of all of our trademarks and service
marks, and effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our content, services
and products are made available online. If we were prevented from using our
trademarks, we would need to reimplement our web sites and rebuild our brand
identity with our customers, users and affiliates. This would increase our
operating expenses substantially.
Companies frequently resort to litigation regarding intellectual property
rights. From time to time, we have received, and we may in the future receive,
notices of claims of infringement of other parties' proprietary rights. We may
have to litigate to defend claims that we have infringed the intellectual
properly rights of others. Any claims of this type could subject us to
significant liability, be time-consuming and expensive, divert management's
attention, require the change of our trademarks and the alteration of content,
require us to redesign our web sites or services or require us to pay damages
or enter into royalty or licensing agreements. These royalty or licensing
agreements, if required, might not be available on acceptable terms or at all.
If a successful claim of infringement were made against us and we could not
develop non-infringing intellectual property or license the infringed or
similar intellectual property on a timely and cost-effective basis, we might be
unable to continue operating our business as planned. See "Business--
Proprietary Rights and Licensing" for more information about our intellectual
property.
We intend to adopt anti-takeover defenses that could delay or prevent an
acquisition of our company, even an acquisition that would be beneficial to our
stockholders.
After this offering, our board of directors will have the authority to issue
up to 5,000,000 shares of preferred stock. Although this will provide us with
flexibility in connection with possible acquisitions and other corporate
purposes, issuance of the preferred stock would make it more difficult for a
third party to acquire a majority of our outstanding voting stock, even if
doing so would be beneficial to our stockholders. Moreover, without any further
vote or action on the part of the stockholders, the board of directors will
have the authority to determine the price, rights, preferences, privileges and
restrictions of the preferred stock. This preferred stock, if issued, might
have preference over and harm the rights of the holders of common stock. We
currently have no plans to issue preferred stock.
13
<PAGE>
Our certificate of incorporation, bylaws and equity compensation plans
include provisions that may deter an unsolicited offer to purchase Snowball.
These provisions, coupled with the provisions of the Delaware General
Corporation Law, may delay or impede a merger, tender offer or proxy contest
involving Snowball. Furthermore, our board of directors will be divided into
three classes, only one of which will be elected each year. Directors will only
be removable by the affirmative vote of at least 66 2/3% of all classes of
voting stock. These factors may further delay or prevent a change of control of
Snowball and may be detrimental to our stockholders. See "Description of
Capital Stock--Anti-takeover Provisions of Our Certificate of Incorporation,
Bylaws and Delaware Law."
Risks Related to Our Industry
Since our revenue is derived primarily from selling advertisements, our revenue
might decline and we might not grow if advertisers do not continue or increase
their usage of the Internet as an advertising medium.
In the past, we have derived, and we expect to continue to derive in the
future, substantially all of our revenue from selling advertisements. However,
the prospects for continued demand and market acceptance for Internet marketing
solutions are uncertain. If advertisers do not continue or increase their usage
of the Internet, our revenue might decline or we might not grow. Most
advertising agencies and potential advertisers, particularly local advertisers,
have only limited experience advertising on the Internet and may not devote a
significant portion of their advertising expenditures to Internet advertising.
Moreover, advertisers that have traditionally relied on other advertising media
may not advertise on the Internet. In addition, advertising on the Internet is
at a much earlier stage of development in international markets than it is in
the United States and may not fully develop in these markets.
As the Internet evolves, advertisers may find Internet advertising to be a
less attractive or effective means of promoting their products and services
relative to traditional methods of advertising and may not continue to allocate
funds for Internet advertising. Many historical predictions by industry
analysts and others concerning the growth of the Internet as a commercial
medium have overstated the growth of the Internet and should not be relied
upon. This growth may not occur or may occur more slowly than estimated. In
addition, if a large number of Internet users use filter software programs that
limit or remove advertising from the user's monitor, advertisers may choose not
to advertise on the Internet. Moreover, there are no widely accepted standards
for the measurement of the effectiveness of Internet advertising, and standards
may not develop sufficiently to support Internet advertising as a significant
advertising medium.
Our ability to implement our business strategy and our ultimate success depend
on continued growth in the use of the Internet and the ability of the Internet
infrastructure to support this growth.
Our business strategy depends on continued growth in the use of the Internet
and increasing the number of users who visit our networks. A decrease in the
growth of web usage, particularly usage by Generation i, would impede our
ability to implement our business strategy and our ultimate success. The
following factors could inhibit growth in web usage:
. inadequate Internet infrastructure;
. security and privacy concerns; and
. inconsistent quality of content and service.
If the Internet continues to experience significant growth in the number of
users, frequency of use and amount of data transmitted, the Internet
infrastructure might not be able to support the demands placed on it or the
performance or reliability of the Internet might be adversely affected.
14
<PAGE>
Web sites have experienced interruptions in service as a result of outages and
other delays occurring throughout the Internet network infrastructure. If these
outages or delays occur frequently in the future, Internet usage, as well as
the usage of our web sites, could grow more slowly than expected or decline.
In addition, the Internet could lose its commercial viability as a medium due
to delays in the development or adoption of new standards and protocols to
expedite increased levels of Internet activity. The infrastructure or
complementary products and services necessary to establish and maintain the
Internet as a viable commercial medium might not be developed on a timely basis
or at all. Even if they are developed, the Internet might not become a viable
commercial medium for us or our affiliates and advertisers.
We might have to expend significant capital or other resources to protect our
networks from unauthorized access, computer viruses and other disruptive
problems.
Internet and online service providers have in the past experienced, and may
in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. We might be required to expend significant capital or
other resources to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Nevertheless, security measures
that we implement might be circumvented. Eliminating computer viruses and
alleviating other security problems may also require interruptions, delays or
cessation of service to users accessing web pages that deliver our content and
services. In addition, a party who circumvents our security measures could
misappropriate proprietary information or cause interruptions in our
operations.
We may be sued regarding privacy concerns, subjecting us to significant
liability and expense.
If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal information or credit card information, we
could be subject to significant liability and expense. We may be liable for
claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Claims could also be based on
other misuses of personal information, such as unauthorized marketing purposes.
These claims could result in costly litigation.
The Federal Trade Commission and state agencies have been investigating
various Internet companies regarding their use of personal information. In
1998, the United States Congress enacted the Children's Online Privacy
Protection Act of 1998. We depend upon collecting personal information from our
customers and the regulations promulgated under this act have made it more
difficult for us to collect personal information from some of our customers. We
could incur additional expenses if new regulations regarding the use of
personal information are introduced or if our privacy practices are
investigated. Furthermore, the European Union recently adopted a directive
addressing data privacy that may limit the collection and use of information
regarding Internet users. This directive and regulations enacted by other
countries may limit our ability to target advertising or to collect and use
information internationally.
Information displayed on and communication through our networks could expose us
to significant liability and expense.
We face possible liability for defamation, negligence, copyright, patent or
trademark infringement and other claims, such as product or service liability,
based on the nature and content of the materials published on or downloaded
from our web sites. These types of claims have been brought, sometimes
successfully, against Internet companies and print publications in the past,
and the potential liability associated with these claims is significant. We
could also be subjected to claims based upon the online content that is
accessible from our web sites through links to other web sites
15
<PAGE>
or through content and materials that may be posted in chat rooms or bulletin
boards. We do not verify the accuracy of the information supplied by third-
party content providers, including affiliates. We also offer email services
which may subject us to potential risks, such as liabilities or claims
resulting from unsolicited email, lost or misdirected messages, illegal or
fraudulent use of email or interruptions or delays in email service. The law in
these areas is unclear. Accordingly, we are unable to predict the potential
extent of our liability. Our insurance may not cover potential claims of this
type, or may not be adequate to indemnify us for all liability that may be
imposed.
Changes in regulation of domain names may result in the loss or change of our
domain names, a reduction in brand awareness among our customers and a
diminished ability to attract advertisers and generate revenue.
We hold various domain names relating to our networks and brands. In the
United States, the National Science Foundation has appointed a limited number
of entities as the current exclusive registrars for the ".com," ".net" and
".org" generic top level domains. We expect future changes in the United States
to include a transition from the current system to a system controlled by a
non-profit corporation and the creation of additional top level domains.
Requirements for holding domain names also are expected to be affected. These
changes may result in the loss or change of our domain names, a reduction in
brand awareness among our customers and a diminished ability to attract
advertisers and generate revenue.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain
names that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights. In addition, we may lose our domain
names to third parties with trademarks or other proprietary rights in those
names or similar names.
Future regulation of the Internet may slow its growth, resulting in decreased
demand for our services and increased costs of doing business.
Although we are subject to regulations applicable to businesses generally,
few laws or regulations exist that specifically regulate communications and
commerce over the Internet. We expect more stringent laws and regulations
relating to the Internet to be enacted due to the increasing popularity and use
of the Internet and other online services. Future regulation of the Internet
may slow its growth, resulting in decreased demand for our services and
increased costs of doing business.
New and existing laws and regulations are likely to address a variety of
issues, including:
. user privacy and expression;
. taxation and pricing;
. the rights and safety of children;
. intellectual property; and
. information security.
Currently we may be subject to Sections 5 and 12 of the Federal Trade
Commission Act, which regulate advertising in all media, including the
Internet, and require advertisers to have substantiation for advertising claims
before disseminating advertisements. The Federal Trade Commission recently
brought several actions charging deceptive advertising via the Internet, and is
actively seeking new cases involving advertising via the Internet.
16
<PAGE>
We also may be subject to the provisions of the recently enacted
Communications Decency Act which, among other things, imposes substantial
monetary fines and/or criminal penalties on anyone who distributes or displays
certain prohibited material over the Internet or knowingly permits a
telecommunications device under its control to be used for this purpose.
In addition, several telecommunications companies and local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees. If this were to
occur, the cost of communicating on the Internet could increase substantially,
potentially decreasing the use of the Internet.
Finally, the applicability to the Internet and other online services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
Internet and other online services could also increase our costs of doing
business, discourage Internet communications and reduce demand for our
services.
We may be subject to significant liability for products sold through our web
sites.
We introduced ChickShops, our first e-commerce initiative, in December 1999
and plan to develop a range of e-commerce activities. Consumers may sue us if
any of the products sold through our web sites are defective, fail to perform
properly or injure the user. Liability claims resulting from our sale of
products could require us to spend significant time and money in litigation or
to pay significant damages.
Risks Related to this Offering
We expect to experience volatility in our stock price, which could negatively
affect your investment.
Our common stock has never been sold in a public market and an active trading
market for our stock may not develop or be sustained. If you purchase shares of
our common stock in this offering, you will pay a price that was not
established in a competitive market. Rather, you will pay a price that we
negotiated with the representatives of the underwriters. The price of our
common stock that will prevail in the market after this offering may be higher
or lower than the price you pay. See "Underwriting." The trading price of our
common stock is likely to be highly volatile in response to a number of
factors, such as:
. actual or anticipated variations in our quarterly results of operations;
. the addition or loss of affiliates;
. changes in the market valuations of other Internet content and service
companies;
. announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
. changes in financial estimates or recommendations by securities
analysts; and
. additions or departures of key personnel.
In addition, broad market and industry factors may materially and adversely
affect the market price of our common stock, regardless of our operating
performance. The Nasdaq National Market,
17
<PAGE>
and the market for Internet and technology companies in particular, has
experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of these companies.
Further, the trading prices of the stocks of many Internet and technology
companies are at or near historical highs and reflect price-earnings ratios
substantially above those in other industries. If these trading prices and
price earnings ratios are not sustained or if our stock does not trade at the
same levels as other Internet or Internet-related company stock your investment
will suffer.
Class action litigation resulting from volatility of the trading price of our
common stock would likely result in substantial costs and a diversion of
management's attention and resources.
Volatility in the trading price of our common stock could result in
securities class action litigation. Any litigation would likely result in
substantial costs and a diversion of management's attention and resources.
We may apply the proceeds of this offering to uses that do not increase our
operating results or the value of your investment.
We will have broad discretion in how we use the proceeds from this offering,
and we may spend these proceeds in ways that do not increase our operating
results or the value of your investment. You will not have the opportunity to
evaluate the economic, financial or other information on which we base our
decisions regarding how to use the proceeds from this offering. We presently
intend to use a portion of the net proceeds from this offering to promote our
brand, expand sales and marketing and repay any debt that may be incurred under
our current credit facility. The balance of the net proceeds of this offering
will be used for working capital and general corporate purposes, including
network expansion and content development, relocation of our offices and
possible acquisitions of affiliates.
Pending any of these uses, we plan to invest the proceeds of this offering in
short-term, investment-grade, interest-bearing securities. These investments
may not yield a favorable return. See "Use of Proceeds."
Should our stockholders sell a substantial number of shares of common stock in
the public market, the price of our common stock could fall.
Our current stockholders hold a substantial number of shares which they will
be able to sell in the public market in the near future. Sales of a substantial
number of shares after this offering could reduce the market price of our
common stock. Even the perception that our current stockholders might sell
shares of common stock could depress the trading price of the common stock.
These sales, and the possibility of these sales, could make it more difficult
for us to sell equity or equity-related securities in the future at a time and
price that we deem appropriate. See "Shares Available for Future Sale."
Holders of 25,559,895 shares of our common stock, which will represent
approximately 68% of our outstanding stock after completion of this offering,
have the right to require us to register their shares of common stock with the
Securities and Exchange Commission. In addition, after this offering, we intend
to register all shares of our common stock that we may issue under our stock
option plans and employee stock purchase plan. Once we register these shares,
they can be freely sold in the public market upon issuance, in some instances
subject to the lock-up agreements described above. If these holders cause a
large number of securities to be sold in the public market, the sales could
reduce the trading price of our common stock. These sales also could impede our
ability to raise needed capital.
18
<PAGE>
Our officers and directors and their affiliates will exercise significant
control over us, which could disadvantage other stockholders.
Upon completion of this offering, our executive officers and directors and
their affiliates together will own approximately 63% of our outstanding common
stock. Christopher Anderson, the chairman of our board of directors, will own
approximately 41% of our outstanding common stock alone. As a result, these
stockholders will exercise significant control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of control could
disadvantage other stockholders with interests different from those of our
officers, directors and their affiliates. For example our officers, directors
and their affiliates could delay or prevent someone from acquiring or merging
with us even if the transaction would benefit other stockholders. See
"Principal Stockholders."
Investors will experience immediate and substantial dilution in the book value
of their investment.
The initial public offering price of our common stock will be substantially
higher than the net tangible book value per share of our common stock
immediately after this offering. Therefore, if you purchase our common stock in
this offering, you will incur an immediate dilution of $8.45 in net tangible
book value per share from the price you paid, based on an assumed initial
public offering price of $11.00 per share. The exercise of outstanding options
and warrants may result in further dilution. See "Dilution."
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are not historical
facts but rather are based on current expectations, estimates and projections
about our industry, our beliefs and our assumptions. All statements, other than
statements of historical fact, included in this prospectus, regarding our
strategy, future operations, financial position, estimated revenue, projected
costs, prospects, plans and objectives of management are forward-looking
statements. Words such as "may," "will," "should," "anticipates," "projects,"
"predicts," "expects," "intends," "plans," "believes," "seeks" and "estimates,"
and variations of these words and similar expressions, are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. These statements are only predictions and are subject
to risks, uncertainties and other factors, many of which are beyond our
control, are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking
statements. These risks and uncertainties include those described in "Risk
Factors" and elsewhere in this prospectus.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, levels
of activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. Except as required by law, we undertake no
obligation to update any forward-looking statement after the date of this
prospectus, whether as a result of new information, future events or otherwise,
or to conform these statements to actual results.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock in this
offering are estimated to be $62,637,500 million, after deducting the estimated
underwriting discount and estimated offering expenses payable by us. If the
underwriters' over-allotment option is exercised in full, we estimate that net
proceeds will be $72,228,125. We presently intend to use approximately 25% of
the net proceeds from this offering to promote our brand, 25% to expand sales
and marketing and 5% to repay any debt that may be incurred under our credit
facility. The balance of the net proceeds of this offering will be used for
working capital and general corporate purposes, including network expansion and
content development, relocation of our offices and possible acquisitions of
affiliates. Pending such uses, we will invest the net proceeds of this offering
in short-term, interest-bearing, investment-grade securities.
We believe opportunities may exist to expand our business through
acquisitions of other businesses and technologies, and we may use a portion of
the proceeds for this purpose. We are not currently a party to any contracts or
letters of intent with respect to any acquisitions for which we will use the
net proceeds from this offering. We cannot assure you that any of our expansion
plans will be realized or, if realized, will prove profitable.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying cash dividends in the foreseeable future.
Payments of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into common stock immediately
prior to the closing of this offering and the sale of 150,000 shares of
Series C preferred stock in January 2000 at $10.00 per share; and
. on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of 6,250,000 shares of common stock in this
offering at an assumed initial public offering price of $11.00 per share
after deducting the estimated underwriting discount and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Long-term obligations, less current portion.... $ 2,036 $ 2,036 $ 2,036
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $0.001 par
value, actual: 20,000 shares authorized,
18,066 shares outstanding; pro forma and pro
forma as adjusted: 5,000 shares authorized,
no shares outstanding....................... 18 -- --
Common stock, $0.001 par value, actual:
37,500 shares authorized, 5,586 shares
outstanding; pro forma: 100,000 shares
authorized, 31,145 shares outstanding; pro
forma as adjusted: 100,000 shares
authorized, 37,395 shares outstanding....... 6 31 37
Additional paid-in capital................... 88,437 89,930 152,562
Notes receivable from stockholders........... (1,301) (1,301) (1,301)
Deferred stock compensation.................. (10,643) (10,643) (10,643)
Accumulated deficit.......................... (39,761) (39,761) (39,761)
-------- -------- --------
Total stockholders' equity................. 36,756 38,256 100,894
-------- -------- --------
Total capitalization....................... $ 38,792 $ 40,292 $102,930
======== ======== ========
</TABLE>
The common stock information in the table above excludes the following
shares:
. 2,358,368 shares issuable upon exercise of outstanding options at a
weighted-average exercise price of $2.02 per share as of December 31,
1999;
. 322,688 shares issuable upon exercise and conversion of outstanding
warrants at a weighted-average exercise price of $7.84 per share as of
December 31, 1999;
. 2,394,369 shares available for future issuance under our stock plans as
of December 31, 1999; and
. shares available for future issuance under the 2000 Equity Incentive
Plan and the 2000 Employee Stock Purchase Plan, subject to automatic
annual increases each January 1, as described under "Management--Benefit
Plans."
Please read this capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
with the consolidated financial statements and related notes beginning on page
F-1.
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<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma as adjusted net tangible book value per
share of our common stock immediately after completion of this offering.
Investors participating in this offering will incur immediate, substantial
dilution. Our pro forma net tangible book value as of December 31, 1999 was
$32.8 million or $1.05 per share of common stock. Pro forma net tangible book
value per share represents total tangible assets less total liabilities,
divided by the total number of shares of common stock outstanding as of
December 31, 1999 after giving effect to the conversion of all outstanding
shares of preferred stock into 25,409,895 shares of common stock and the sale
of 150,000 shares of Series C preferred stock in January 2000 at $10 per share.
After giving effect to the issuance and sale of 6,250,000 shares of common
stock in this offering at an assumed initial public offering price of
$11.00 per share and after deducting the estimated underwriting discount and
estimated offering expenses payable by us, our pro forma as adjusted net
tangible book value as of December 31, 1999 would have been $95.4 million, or
$2.55 per share of common stock. This represents an immediate increase in pro
forma net tangible book value of $1.50 per share to existing stockholders and
an immediate dilution of $8.45 per share to new investors. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $11.00
Pro forma net tangible book value per share as of December 31,
1999.......................................................... $1.05
Increase per share attributable to this offering............... 1.50
-----
Pro forma as adjusted net tangible book value per share after
this offering................................................... 2.55
------
Dilution per share to new investors.............................. $ 8.45
======
</TABLE>
The following table summarizes on a pro forma as adjusted basis, as of
December 31, 1999, after giving effect to the offering at an assumed initial
public offering price of $11.00 per share and the sale of 150,000 shares of
Series C preferred stock in January 2000 at $10 per share, the difference
between the existing stockholders and the purchasers of shares of common stock
in this offering with respect to the number of shares of common stock purchased
from us, the total consideration paid and the average price paid per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 31,145,442 83.3% $ 71,148,000 50.9% $ 2.28
New investors ................ 6,250,000 16.7 68,750,000 49.1 11.00
---------- ----- ------------ -----
Total....................... 37,395,442 100.0% $139,898,000 100.0%
========== ===== ============ =====
</TABLE>
In the preceding tables, the shares of common stock outstanding exclude:
. 2,358,368 shares issuable upon exercise of outstanding options at a
weighted-average exercise price of $2.02 per share as of December 31,
1999;
. 322,688 shares issuable upon exercise of outstanding warrants for
preferred stock at a weighted-average exercise price of $7.84 per share
as of December 31, 1999 and conversion of the preferred stock into
common stock;
. 2,394,369 shares available for future issuance under our stock plans as
of December 31, 1999; and
. shares available for future issuance under the 2000 Equity Incentive
Plan and the 2000 Employee Stock Purchase Plan, subject to automatic
annual increases each January 1, as described under "Management--Benefit
Plans."
If the outstanding options were to be exercised in full for cash, the pro
forma net tangible book value per share after the offering would be $2.52, the
increase per share attributable to new investors would be $1.40, and the
dilution per share to new investors would be $8.48. See "Capitalization,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Notes 8 and 11 of our Notes to Consolidated Financial Statements.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes included elsewhere in this prospectus. The consolidated statement
of operations data set forth below for the three years in the period ended
December 31, 1999 and the balance sheet data as of December 31, 1998 and 1999
have been derived from our audited financial statements and those of our
predecessor division of Imagine Media, Inc. included elsewhere in this
prospectus, which have been audited by Ernst & Young LLP, independent auditors.
The consolidated balance sheet data as of December 31, 1997 has been derived
from audited financial statements of our predecessor division not included in
this prospectus. The historical results are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands, except
per share data)
<S> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenue........................................... $ 927 $ 3,256 $ 6,674
Cost of revenue................................... 171 1,322 4,316
------- ------- --------
Gross margin..................................... 756 1,934 2,358
Operating expenses:
Production and content........................... 628 1,599 6,610
Engineering and development...................... 65 329 5,084
Sales and marketing.............................. 836 2,592 20,393
General and administrative....................... 506 1,074 3,486
Stock-based compensation......................... -- -- 1,521
Amortization of goodwill and intangible assets... -- -- 471
------- ------- --------
Total operating expenses...................... 2,035 5,594 37,565
------- ------- --------
Loss from operations.............................. (1,279) (3,660) (35,207)
Interest and other income, net.................... -- -- 385
------- ------- --------
Net loss.......................................... $(1,279) $(3,660) $(34,822)
======= ======= ========
Basic and diluted net loss per share.............. $(186.69)
========
Shares used in per share calculation.............. 187
========
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (1.93)
========
Shares used in pro forma per share calculation
(unaudited)...................................... 18,022
========
<CAPTION>
December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments...................................... $ -- $ -- $ 33,489
Working capital................................... 474 669 28,263
Total assets...................................... 763 1,161 48,813
Long-term debt, less current portion.............. -- -- 2,036
Stockholders' / division equity................... 502 762 36,756
</TABLE>
See Note 1 of our Notes to Consolidated Financial Statements for a
description of the method that we used to compute our basic and diluted net
loss per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
appearing elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Actual results may differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including, but not limited
to, those under "Risk Factors" and elsewhere in this prospectus.
Overview
From our inception in January 1997 through December 1998, we operated as an
independent division of Imagine Media, Inc. During this period, we focused our
operating activities primarily on the creation of our IGN, ChickClick and
PowerStudents networks, the development of relationships with affiliates to
expand our content and community offerings and the generation of revenue from
advertising sales. Separate financial statements were maintained for the period
prior to our incorporation as a separate entity in January 1999.
In February 1999, we raised $3.3 million of initial capital, part of which
was paid by a promissory note for $2.0 million, which has been paid in full.
Imagine Media contributed the IGN, ChickClick and PowerStudents assets and
related intellectual property to us, and we hired approximately 40 Imagine
Media employees. During the summer and early fall of 1999, we raised
approximately $30 million of additional capital (including equipment financing
of $2.0 million) and began an aggressive expansion program, adding new
employees to develop additional content and web sites, to recruit more third-
party web sites into our networks and to expand our sales and marketing staff.
In December 1999, we raised $33.8 million of additional capital to continue
financing our expansion.
In addition to the creation of our own web site content, our relationships
with our affiliates are an important part of our business model. By adding new
affiliates to our networks, we are able to gain new content and to increase the
consolidated page views of our networks rapidly. We typically enter into
agreements with affiliates for periods of between six months and five years
under which we offer affiliates revenue opportunities and a package of
integrated marketing services and support in exchange for the integration of
their site into our network and the use of their site for advertising,
promotions and sponsorships. Typically, we pay affiliates a portion of the
revenue generated from advertising, promotions and sponsorships run on their
pages. During 1999, we acquired the assets of several affiliates. We anticipate
that we may acquire additional affiliates and selected assets of affiliates in
the future. See Note 6 of our Notes to Consolidated Financial Statements.
Our operating activities to date have been focused on developing the quality
of our content and services; expanding our audience and the usage of our
services; establishing relationships with our advertisers, users and
affiliates; building sales momentum and marketing our network and Snowball
brands; developing our computer software and hardware infrastructure;
recruiting personnel; and raising capital.
To date, we have derived revenue principally from short-term contracts for
banner advertisements, buttons and textlinks. Under these contracts, we
guarantee advertisers a minimum number of "impressions," or that a minimum
number of users will view their advertisements, for which we receive a fixed
fee. Advertising revenue is recognized at the lesser of the ratio of
impressions delivered over total guaranteed impressions or the straight-line
basis over the term of the contract, provided that we do not have any
significant remaining obligations and collection of the resulting receivable is
probable. To the extent that minimum guaranteed impression levels or other
obligations are not met, we defer recognition of the corresponding revenue
until guaranteed levels are achieved.
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Revenue also includes fees from sponsorship, slotting and other marketing
programs under contracts in which we commit to provide customers with
promotional opportunities in addition to traditional banner advertising. These
agreements typically provide for the delivery of advertising impressions on our
web sites, exclusive placement on our networks, special content and promotional
offers, the design and development of customized sites to enhance the
promotional objectives of the advertiser and a fixed fee plus incremental
payments for traffic driven to the advertiser's site. The portion of this
revenue related to the delivery of impressions is recognized in the period in
which the advertisement is displayed, provided that no significant obligations
remain and collection of the resulting receivable is probable, at the lesser of
the ratio of impressions delivered over total guaranteed impressions or the
straight-line basis over the term of the contract. The portion of any up-front
nonrefundable fee specified in the contract related to the up-front design work
is also recognized at the lesser of the ratio of impressions delivered over
total guaranteed impressions or the straight-line basis over the term of the
contract. We anticipate that revenue from sponsorship, slotting and other
marketing programs will represent an increasing percentage of our total revenue
in the future.
In December 1999, we introduced an online store through which we sell
carefully selected products that are pertinent to the content contained on web
sites within our ChickClick network. We recognize revenue from the sale of
these products when a product is delivered.
Revenue has increased each year since our inception, although we have never
been profitable. We cannot assure you that our revenue will continue to grow or
that we will ever achieve or maintain profitability. As of December 31, 1999,
we had an accumulated deficit of $39.8 million. We anticipate that we will
incur additional operating losses at least through the fourth quarter of 2000.
Results of Operations
Revenue
Our revenue of $6.7 million for the year ended December 31, 1999 increased
over revenue of $3.3 million recorded for the year ended December 31, 1998 and
revenue of $0.9 million recorded for the year ended December 31, 1997. The
increases in revenue reflect increases in advertising sold, due to both the
expansion of our sales force and marketing efforts, as well as to increases in
our available inventory of internal and affiliated page views. One customer
accounted for over 10% of revenue in 1997. No customer accounted for over 10%
of revenue for 1998 or 1999. Snowball derives the significant majority of its
revenues from operations in the United States.
Cost of Revenue
Cost of revenue consists primarily of expenses related to hosting web sites,
the costs and license fees of content and community tools and the portion of
revenue owed to affiliates for advertisements placed on their web sites. These
costs can vary depending upon a variety of factors, primarily the mix of
advertisements and marketing programs placed on our web sites compared to those
placed on affiliate web sites. These costs can also vary from period to period
as we acquire an affiliate or selected sites from an affiliate or as we expand
the portion of our total sites that are represented by affiliates versus those
that we own and operate directly. For example, after we acquire an affiliate,
our cost of revenue will typically decrease because we no longer have to pay
that affiliate the portion of revenue that otherwise would have been owed to
the affiliate for advertisements placed on its site.
Cost of revenue of $4.3 million for the year ended December 31, 1999
increased over the cost of revenue of $1.3 million recorded for the year ended
December 31, 1998 and cost of revenue of $0.2 million recorded for the year
ended December 31, 1997. These increases reflect the increased hosting costs of
our expanding web site operations, expansion of our community tools, as well as
increases in costs owed to affiliates for increases in revenue from
advertisements placed on their web sites.
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<PAGE>
Operating Expenses
We categorize operating expenses into production and content, sales and
marketing, engineering and development, general and administrative, stock-based
compensation and amortization of intangible assets.
Production and Content. Production and content expenses consist primarily of
payroll and related expenses for editorial, artistic and production staff;
payments to freelance writers and artists; and telecommunications and computer-
related expenses for the creation of content for our web sites. These expenses
can vary from period to period as we acquire an affiliate or selected sites
from an affiliate or as we expand the portion of our total sites that are
represented by affiliates versus those that we own and operate directly. For
example, after we acquire an affiliate, our production and content expenses
typically increase because we incur costs for staff, services and equipment
associated with operating the new business.
Production and content expenses of $6.6 million for the year ended December
31, 1999 increased over expenses of $1.6 million recorded for the year ended
December 31, 1998 and expenses of $0.6 million recorded for the year ended
December 31, 1997. These increases reflect salary and related costs associated
with increases in personnel and freelance writers and artists for the creation
and production of additional content for our web sites.
Engineering and Development. Engineering and development expenses consist
primarily of personnel and related costs, consultant and outside contractor
costs, and software and hardware maintenance costs for our development and
programming efforts, including internal information services costs. To date,
all engineering and development expenses have been expensed as incurred.
Engineering and development expenses of $5.1 million for the year ended
December 31, 1999 increased over expenses of $0.3 million recorded for the year
ended December 31, 1998 and expenses of $65,000 recorded for the year ended
December 31, 1997. These increases resulted primarily from increases in salary
and related costs, consultant fees and related costs and recruiting fees
relating to expanding our development and programming efforts.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and related costs for our direct sales force, affiliate development
group and marketing staff. In addition, these expenses include the costs of
marketing programs such as advertisements, trade shows, promotional activities
and media events.
Sales and marketing expenses of $20.4 million for the year ended December 31,
1999 increased over expenses of $2.6 million recorded for the year ended
December 31, 1998 and expenses of $0.8 million recorded for the year ended
December 31, 1997. These increases reflect increases in salary and related
costs for expansion of our sales, affiliate development and marketing
personnel, as well as increases in our advertising, marketing and branding
expenses.
General and Administrative. General and administrative expenses consist
primarily of personnel and related costs for corporate functions including
accounting and finance, human resources, facilities and legal.
General and administrative expenses of $3.5 million for the year ended
December 31, 1999 increased over expenses of $1.1 million recorded for the year
ended December 31, 1998 and expenses of $0.5 million recorded for the year
ended December 31, 1997. These increases resulted primarily from increases in
salary and related costs associated with expansion of our accounting and
finance, human resources and other administrative efforts, as well as from
increased use of outside consulting services.
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<PAGE>
Stock-based Compensation. Stock-based compensation represents the aggregate
differences, at the dates of grant, between the respective exercise prices of
stock options and issuance prices of common and preferred stock and the deemed
fair values of the underlying stock. Stock-based compensation is amortized
using the graded amortization method over the vesting period of the related
options, which is generally four years. Through December 31, 1999, we recorded
stock-based compensation of $1.5 million. The total unamortized deferred stock-
based compensation recorded through December 31, 1999 is $10.6 million. This
amount will be amortized as follows: $6.1 million for the year ending December
31, 2000; $2.8 million for the year ending December 31, 2001; $1.4 million for
the year ending December 31, 2002; and $0.4 million for the year ending
December 31, 2003. Subsequent terminations of stock and option holders may
reduce future stock-based compensation. We did not grant any shares of our
common stock prior to our incorporation in January 1999.
Amortization of Goodwill and Intangible Assets. Amortization of goodwill and
intangible assets represents the non-cash charges for the expensing, over the
anticipated useful life, of intangible assets and goodwill.
Amortization of goodwill and intangible assets was $0.5 million for the year
ended December 31, 1999. $1.8 million of goodwill and intangible assets arose
from the acquisition of Extreme Interactive Media, $2.3 million arose from the
purchase of prepaid marketing and distribution rights from New Line New Media
and $1.7 million arose from the acquisition of Ameritrack and various web site
assets that we purchased during 1999. See Notes 4 and 6 of our Notes to
Consolidated Financial Statements. As of December 31, 1999, goodwill and
intangible assets of $5.5 million remained to be amortized. These assets are
being amortized over a two- or three-year life with amortization expense of
approximately $0.6 million per quarter through the third quarter of 2001 and
$0.3 million per quarter thereafter through the fourth quarter of 2002.
Interest and Other Income, Net
Interest and other income, net, of $0.4 million for the year ended December
31, 1999 consisted primarily of interest received from the proceeds of equity
financings completed during the year.
Provision for Income Taxes
No provision for federal and state income taxes was recorded through December
31, 1999 as we incurred net operating losses from inception through that date.
As of December 31, 1999, we had approximately $31.8 million of federal net
operating loss carry forwards which expire on various dates through 2019. Due
to the uncertainty regarding the ultimate use of the net operating loss carry
forwards, we have not recorded any benefit for losses and a valuation allowance
has been recorded for the entire amount of the net deferred tax asset. In
addition, certain future changes in our share ownership, as defined in the Tax
Reform Act of 1986, may further restrict our ability to use our net operating
loss carry forwards.
The net losses incurred for the years ended December 31, 1997 and 1998 are
attributable to the operations of the Company as a division of Imagine Media
and were included in the income tax returns filed by Imagine Media. Because the
Company will not receive any benefit for its historical operating losses
incurred through December 31, 1998, no income tax benefit has been reflected
for those periods.
Liquidity and Capital Resources
During 1997 and 1998, we financed our operations through contributions from
Imagine Media. Since our incorporation in January 1999, we have financed our
operations primarily through private
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<PAGE>
placements of preferred stock and borrowings under equipment lease lines and a
credit facility. Cash, cash equivalents and short-term investments were $33.5
million at December 31, 1999.
We raised $65.2 million in equity financing during 1999. During that period,
we used $26.9 million in operating activities, and $5.6 million in acquiring
property and equipment.
In April and October 1999, we entered into lease lines of credit for $5.0
million. These credit facilities have terms of three years and bear interest at
the rate of 7.5% per annum. In connection with these credit facilities, we
issued warrants to the lessors to purchase 31,595 shares of our common stock at
$3.165 per share and 21,097 shares of our common stock at $7.11 per share.
These credit facilities do not include any financial covenants.
In November 1999, we entered into a term loan agreement for up to an
aggregate of $15.2 million. In connection with this loan agreement, we issued
promissory notes, which bear interest at the rate of 11.0% per annum, and
warrants to purchase 270,000 shares of our common stock at an exercise price of
$8.44 per share. In December 1999, $12.0 million of the loan was repaid and the
note holders cancelled $3.0 million of indebtedness under the notes in exchange
for shares of our Series C preferred stock at $10.00 per share. Any outstanding
balance under the notes will become due upon consummation of this offering. The
note holders maintain a first position lien on all of our assets, excluding
fixed assets. The loan agreement does not include any financial covenants.
During 1999, we entered into several leases for our San Francisco
headquarters and our sales offices, with terms ranging from month-to-month to
three years. In connection with these short-term leases, we will make payments
of approximately $350,000 in the year ending December 31, 2000. In November
1999, we entered into a lease for our new executive offices in Brisbane,
California, which expires in 2012. In connection with the lease, we will make
payments of $1.8 million in 2000, $4.4 million per year through 2004 and a
total of $29.2 million thereafter until the expiration of the lease. In
connection with this lease, we obtained a letter of credit for $4.4 million as
a deposit for the facilities. See Note 10 of our Notes to Consolidated
Financial Statements for more information on our lease commitments.
Our capital requirements depend on numerous factors, including market
acceptance of our services, the resources we allocate to developing our
networks, our marketing and selling capabilities and our brand. We have
experienced substantial increases in our expenditures since our inception
consistent with the growth in our operations and personnel, and we anticipate
that our expenditures will continue to increase significantly for the
foreseeable future.
We will continue to evaluate possible acquisitions of, or investments in,
complementary businesses, technologies, services or products. We believe that
our available cash, cash equivalents and short-term investments and cash flows
from operations, combined with the net proceeds from this offering, will be
sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next 12 months. We may need to raise additional
funds, however, to fund expansion, including significant increases in personnel
and office facilities, to develop new or enhance existing services or products,
to respond to competitive pressures or to acquire or invest in complementary
businesses, technologies, services or products. In addition, to meet our long
term liquidity needs, we may need to raise additional funds, establish
additional credit facilities or seek other financing arrangements. Additional
funding may not be available on favorable terms, on a timely basis or at all.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. Prior to
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January 1, 2000, many people were concerned that this could result in system
failures or miscalculations, causing disruptions of operations for any company
using such computer programs or hardware, including, among other things, a
temporary inability to process transactions, send invoices or engage in normal
business activities. Most reports to date indicate that computer systems are
functioning normally and that compliance and remediation work accomplished
before the end of 1999 was effective to prevent any problems. Computer experts
have warned, however, that there still may be residual consequences. We cannot
assure you that Year 2000 problems will not disrupt our service and thereby
result in a decrease in revenue, an increase in allocation of resources to
address Year 2000 problems or an increase in litigation costs.
We designed our internal systems as well as our software, hardware and
network architecture to be Year 2000 compliant, and we believe, based on our
initial reports, that these systems are Year 2000 compliant. We have not
incurred any significant expenses, and we do not anticipate that the total
costs associated with Year 2000 remediation efforts, including both expenses
incurred and any to be incurred in the future, will be material. Furthermore,
we have not experienced any significant problems to date relating to the Year
2000 compliance of our major suppliers. It is impossible to determine with
complete certainty, however, that all Year 2000 problems that may affect us
have been identified or corrected. The number of devices that could be affected
and the interactions among these devices are simply too numerous. In addition,
no one can accurately predict how many Year 2000 problem-related failures will
occur or the severity, duration or financial consequences of these perhaps
inevitable failures. Should these failures occur, we might experience, among
other difficulties, operational inconveniences and inefficiencies that may
divert management's time and attention from ordinary business activities. Based
on our initial assessment of our Year 2000 readiness, we do not anticipate
being required to implement any material aspects of a contingency plan to
address Year 2000 readiness of our critical operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivatives and Hedging
Activities," or SFAS 133, as amended by SFAS 137, which establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. Because we
do not currently hold any derivative instruments and do not currently engage in
hedging activities, we expect that the adoption of SFAS 133, as amended, will
not have a material effect on our financial position or results of operations.
We will be required to implement SFAS 133, as amended, for fiscal year 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. SAB 101 summarizes certain areas of
the Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We believe that our current
revenue recognition principles comply with SAB 101.
Disclosures about Market Risk
Our exposure to market risk is limited to interest income sensitivity, which
is affected by changes in the general level of interest rates in the United
States, particularly since the majority of our investments are in short-term
debt securities issued by corporations or divisions of the United States
government. We place our investments with high quality issuers and limit the
amount of credit exposure to any one issuer. Due to the nature of our short-
term investments, we believe that we are not subject to any material market
risk exposure.
We do not have any foreign currency hedging or other derivative financial
instruments as of December 31, 1999.
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BUSINESS
Snowball is an Internet media company that operates a network of destination
web sites providing content, community and commerce to Generation i. We serve
this group by providing its members with current content, relevant services
such as email and instant messaging, a forum for interacting with one another
and carefully selected merchandise. In addition to creating original content,
we continuously work to expand the breadth and depth of our content offerings
by selectively adding affiliated web sites to our network. This network and
affiliate business model allows us to build our traffic and brand rapidly and
efficiently. To attract and retain affiliates, we provide an integrated package
of sales and marketing services, technical support and audience development
opportunities.
We organize both our own web sites and affiliated web sites around networks
that target different segments of the Generation i audience. Currently, our
networks are:
. ChickClick, which provides content, community and commerce features to
Generation i women;
. IGN, which provides information and entertainment to Generation i men;
. PowerStudents, which provides students at all levels with information
concerning college admissions, jobs and careers; and
. InsideGuide, which offers student-generated information concerning
individual colleges.
By offering targeted access to a large and growing audience with attractive
demographic characteristics, we are able to generate marketing and advertising
revenue in a variety of forms. These include promotions and sponsorships with
negotiated financial terms, slotting and lead-generation fees from merchants
that seek preferential placement on our sites and in our online store, and
sales of various forms of banner, button and textlink advertising, both
traditional and contextual. We also generate merchandising revenue from the
sale of carefully selected items within our online store, ChickShops.
As of December 31, 1999, we were affiliated with more than 150 web sites and
over 100 partner college destinations organized under our four networks.
According to Media Metrix, our networks attracted over 4.5 million unique
visitors in December 1999, making us one of the 40 highest-trafficked
properties on the Internet and, we believe, one of the leading online
destinations for Generation i. Additionally, based on the same Media Metrix
data, visitors spent more time per day on our networks during that period than
on all but 15 other properties among the top 50 properties. As of December 31,
1999, we had nearly three million registered users.
Industry Background
The Internet has emerged as an important new medium for communication and
commerce, providing companies with an effective channel for marketing and
selling their products and services. International Data Corporation, or IDC,
estimates that consumer e-commerce in the United States will grow from $12.4
billion in 1998 to $75.0 billion in 2003, representing a compound annual growth
rate of 43%. Because the Internet enables companies to attract specific
demographic groups to their web sites by offering focused content, services and
products, it can be an effective medium for advertisers seeking targeted access
to these groups. Furthermore, as customers interact with a company's web site,
the company can gather valuable information on consumer preferences and buying
patterns, thereby allowing advertisers and marketers to segment their audience
further and increase the effectiveness of their spending. Jupiter
Communications LLC estimates that spending on Internet advertising in the
United States will grow from $2.1 billion in 1998 to $11.5 billion in 2003.
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Consistent with this growth in Internet commerce and advertising, Internet
content is growing at a rapid pace. A primary impetus behind the proliferation
of content and the growing number of web sites has been the increasing use of
the Internet for creating, sharing and searching for relevant information. IDC
estimates that the number of web sites will grow from 925 million in 1998 to
13.1 billion in 2003. Forrester Research estimates that 1.5 million web pages
are added to the Internet each day. Online communities are also growing rapidly
as new user groups migrate from traditional media onto the Internet. IDC
estimates that the number of Internet users in the United States will grow from
approximately 63 million in 1998 to approximately 177 million by the end of
2003.
While older online users are generally accustomed to traditional media and
adapt to the Internet gradually, members of Generation i have grown up using
the Internet and view it as a primary source for information and medium for
communication. According to the United States Census Bureau, Generation i
consisted of 67.7 million individuals in 1998, and represented approximately
25% of the U.S. population. Based upon Census Bureau estimates, members of
Generation i between the ages of 15 and 24 had $302.4 billion in disposable
income in 1998. We believe that advertisers target this group because its
members have a large amount of disposable income and because advertisers
anticipate a high lifetime return on their advertising dollars.
Generation i is a large Internet audience that we believe desires community,
entertainment and content focused on their particular needs. Because this
generation is accustomed to numerous cable television channels and a wealth of
entertainment choices, we believe its members expect a wide range of
specialized content that is available on demand. In the context of the
Internet, this translates into demand for web sites containing extensive
information on a variety of specialized subjects. Major web sites offering
standard content and services often fail to reach Generation i because these
sites generally:
. are designed to appeal to a broad audience and therefore do not provide
an environment focused on the specific programming and service needs and
buying habits of Generation i;
. do not comprehensively address issues important to Generation i, such as
peer, parental and school-related pressures, or issues revolving around
friendship, sexuality and relationships;
. do not provide a targeted forum for members of Generation i to express
and share their views with one another; and
. do not provide the kind of interactivity and services that we believe
this group seeks, such as communication with their peers through instant
messaging, chat and email, as well as news, online games and
personalized home pages.
While the number of web sites that serve Generation i with targeted content
and community features continues to grow, these sites tend to be small,
independent sites in the early stages of commercial development, and the
individuals who operate these sites tend to have limited financial resources
and managerial experience. As a result, it is difficult for any one of these
sites to attract consistent traffic and premier advertisers. Furthermore,
because this group of web sites is large and fragmented, advertisers generally
have been unable to reach Generation i effectively through these individual
sites. We believe that companies must advertise and promote their products and
services in the context of demographically appropriate content rather than
through traditional broad-based advertising to market more effectively to
Generation i. Accordingly, we believe there is a need for a recognized online
destination consisting of an integrated network of content, community and
commerce targeting Generation i.
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The Snowball Solution
Snowball is a network of destination web sites providing fresh, up-to-date
content created by, for and about Generation i. These web sites are currently
organized under four networks: ChickClick, IGN, InsideGuide and PowerStudents.
Each of our networks provides creative and current content and an interactive
community for users who share similar interests and passions, such as video
games, college life or shopping. Through their integrated package of content,
community and commerce, our networks attracted over 4.5 million unique visitors
in December 1999, making us one of the 40 highest-trafficked networks on the
Internet, according to Media Metrix, and, we believe, the leading online
destination for Generation i. As a result, we believe we provide a compelling
opportunity to our affiliates and potential affiliates as well as a large,
targeted audience for advertisers.
We focus on Generation i
We provide content, community and commerce features focused on Generation i.
To address the multiple audiences and tastes of Generation i, we have developed
a network of company-owned web sites complemented by linked, third-party
affiliate web sites that provide additional content. We have organized these
sites within the overall Snowball network around individual networks targeting
specific groups within Generation i: ChickClick provides content, community and
commerce for Generation i women; IGN provides information and entertainment for
Generation i men; InsideGuide develops individual web sites and guides for
specific colleges; and PowerStudents provides high school, college and graduate
students with information on careers, college admissions and jobs. The
affiliate sites associated with these networks contribute to the amount of
information available to users on our networks and also extend the reach of the
networks to a broader audience. The content created by our editorial staff, our
affiliates and the network users is edited and organized into networks to
create a strong and consistent voice directed at Generation i.
We also seek to promote the community participation of Generation i by
encouraging members of this group to communicate with one another and with our
network editors through message boards, chat sessions, instant messaging and
email. The interactive features of our networks are designed to further enhance
the online experience, to encourage frequent visits to our web sites and to
lengthen the time users spend on our networks. For example, users can create
personalized home pages that feature, among other things, targeted content,
news feeds, horoscopes and information about television, movies and the
weather. Users also have access to special features such as calendars, diaries,
classifieds and trading services. Moreover, we have our own e-commerce
boutique, ChickShops, which is accessible from many pages on the ChickClick
network and offers hip fashion merchandise for young women. Collectively, the
content, community and commerce features of our networks are designed to
satisfy the many and varied interests of our multiple Generation i audiences.
We provide significant benefits to advertisers
Our network model of destination web sites attracts a large and segmented
audience by providing extensive information on a variety of narrowly focused
subjects. This allows advertisers and marketers to gain wide access to the
Generation i audience as well as to target narrow segments of this audience.
Additionally, the increased segmentation allows us to provide contextually
linked advertising and commerce opportunities to a variety of merchants that
want to advertise and gain preferential placement on our web sites and within
our online stores. For example, we provide EBWorld.com, a leading online game
store, with an integrated sponsorship package that includes preferential
placement on our IGN network, promotion to users within our game newsletters,
email marketing and targeted banner advertisements. In addition, we plan to
open stores across all of our networks that will offer products to our users
while providing a storefront that will attract promotional opportunities for
other merchants or advertisers targeting the hard to reach demographic sub-
groups of Generation i.
32
<PAGE>
Our model benefits us and our affiliates
Our network and affiliate business model allows us to benefit from the fresh
content and traffic of affiliated sites without the up-front costs and risks
associated with developing content for the rapidly changing tastes of
Generation i. Many members of this generation are prolific producers of content
and have a dynamic interest in sharing with the community. As a result, many of
our users create content web sites and contact us to become part of our
network. Our users also generate a stream of affiliation opportunities by
referring us to other popular web sites. A selective screening process allows
our editorial staff to identify affiliate content partners that appeal to the
changing tastes of Generation i. This enables us to add content and traffic to
our network while keeping the content fresh and compatible with the evolving
tastes of Generation i. To attract and retain identified affiliates, we offer
them a package of integrated marketing services and support. Affiliates who
join our networks often experience immediate growth in users and advertising
revenue. Our network development strategy reinforces each network's brand
identity, attracts users to our owned web sites, refers these users to
affiliate sites and leads to viral growth as users of the network share their
interests and opinions with others.
The Snowball Strategy
Our goal is to be the preeminent network of content, community and commerce
sites on the Internet by, for and about Generation i, by:
. Building and developing our existing networks, while selectively adding
new networks. We will continue to develop our four existing networks by
increasing the depth of content, services and product offerings arranged
around the appropriate focus of each network. In addition, we intend to
add new networks to appeal specifically to additional segments of
Generation i. We intend to build each network's brand through online,
offline and affiliate marketing programs with the goal of making each
network the dominant destination within its targeted content segment. By
expanding our existing networks and increasing the number of networks
within the Snowball family, we intend to broaden our appeal to the
members of Generation i and to be the leading destination on the
Internet for this demographic group.
. Continuing to leverage our network and affiliate business model to
achieve cost-effective and viral growth of content and traffic. We will
continue proactively to identify sites that meet our criteria for target
demographics, quality of content and strategic fit with existing
networks. By expanding our networks, we intend to keep our existing
users engaged with extensive, up-to-date content while quickly and
efficiently attracting new users. In cases where affiliate web sites do
not exist around relevant content areas, we will selectively offer our
services to help incubate web sites that provide the appropriate
content. We believe our affiliate-driven network growth model and our
reliance on word-of-mouth publicity within our targeted demographic
group will allow us to build our traffic and brand rapidly and
efficiently.
. Offering a range of value-added services to attract, retain and develop
affiliated web sites. We intend to continue to attract and retain select
affiliates by identifying small and developing web sites early and by
offering them a mutually beneficial agreement to increase their
marketing capabilities and to expand their reach. To maximize affiliate
retention, we have developed an integrated affiliate loyalty program
that includes education and community tools and other support services.
Additionally, we will continue to solicit and respond to affiliate and
user feedback to refine the services we provide to affiliates. These
services will assist us in incubating new web sites and networks to
supplement our content and service offerings.
33
<PAGE>
. Promoting affinity and community across all networks and affiliates to
increase the amount of time that users spend on our networks. We intend
to continue to develop the community tools and services we provide to
increase the time that users spend on our sites, as well as increase the
frequency of their visits. We will continue to incorporate services into
our networks that appeal to Generation i, such as free email, instant
messaging, chat rooms, bulletin boards, personalized home pages and
polling, to keep them actively engaged in both content and
communication.
. Being the premier partner for marketing, advertising and commerce
directed at Generation i. By creating a set of branded networks that
focus on a variety of discrete subjects, and by remaining a premier
online destination for Generation i, we intend to offer potential
advertisers and vendors valuable opportunities to reach targeted
segments of Generation i. By providing advertising banners, buttons,
textlinks, promotions and sponsorships of specific categories and
slotting opportunities, we can offer customized marketing programs for
companies wanting to address this market. Additionally, we will continue
to develop opportunities for merchants to sell selected merchandise
through our own online stores.
. Pursuing strategic alliances and acquisitions that increase content,
traffic and revenue opportunities. We intend to selectively develop
strategic alliances to incorporate relevant content on our networks, to
derive additional traffic from the resulting co-branding effects and to
drive new methods of revenue generation. For example, we have entered
into a strategic relationship with New Line Media that will provide us
with offline marketing promotions in their products. In selecting our
partners, we will strive to ensure the integrity of our own brand
identities with Generation i. Additionally, where strategically
appropriate, we intend to acquire selected web sites and affiliates that
complement our existing networks. For example, we recently acquired High
School Alumni, a former affiliate that provides various services to
alumni of registered high schools.
Networks
Snowball is currently comprised of the following four networks of web sites:
[LOGO] ChickClick is a destination for forward-thinking young women
seeking community, commerce and "life tools." The ChickClick
network consists of three channels that offer progressive
features representing the interests of three groups within the
female Generation i demographic. MissClick targets teenage girls
between the ages of 13 and 17, EstroClick targets women between
the ages of 18 and 26, and MamaClick targets Generation i
mothers. ChickClick offers content on relevant subjects such as
relationships, entertainment, style, news, sports, work and
travel. ChickClick's community features include personalized
homepages, Chickmail, chat rooms, message boards and auctions.
In addition, ChickClick recently launched ChickShops, an e-
commerce area that offers online shoppers a specialty boutique
experience.
Together with its affiliated websites, ChickClick had approximately 32
million consolidated page views in December 1999 and over 700,000 registered
users as of December 31, 1999. According to the U.S. Census Bureau, women
between the ages of 12 and 29 numbered 33.3 million in 1999. Media Metrix
estimates that 13.9 million women between the ages of 12 and 34 used the
Internet in December 1999.
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<PAGE>
The following table provides a brief description of ChickClick's affiliates
as of December 31, 1999:
<TABLE>
<CAPTION>
Web Site URL Description
- --------------------------------------------------------
<C> <C> <S>
Beatboxbetty beatboxbetty.com show business
news and reviews
BoHos flypaperpress.com BoHos comic site
Bust bust.com voice of the new
girl
Cherrysucker cherrysucker.com user-submitted
fiction
Crafty Lady getcrafty.com making art from
everyday life
Disgruntled disgruntledhousewife.com modern living
Housewife and intersex
relationships
Fametracker fametracker.com celebrity
almanac
Fashion Icon fashion-icon.com fashion news
Girlie Style girliestlye.com pertinent
female-driven
content
Greasergrrls greasergrrls.com women motor
enthusiasts
Grrlgamer grrlgamer.com news and reviews
from a girl's
point of view
Hellfire hellfire.com progressive
creative writing
Hipmama hipmama.com content and
advice for hip
moms
Hissyfit hissyfit.com political and
social essays
Lookenpeepers gmetropolis.com creative and
funny
information
</TABLE>
<TABLE>
<CAPTION>
Web Site URL Description
- --------------------------------------------------------
<C> <C> <S>
Maxi maximag.com empowerment and
information
Mighty Big TV mightybigtv.com popular TV shows
MissGirl missgirl.com teen advice and
issues
Out of order annie.newdream.net political and
social essays
Pencilbox pencilboxmag.com resource for
college women
Pop!sicle lickpopsicle.com political,
social and
comical essays
Razzberry razzberry.com teen community
Riotgrrl riotgrrl.com irreverant sassy
content
Rockrgrl rockrgrl.com women musicians
Smile and smileandactnice.com progressive
Act Nice women's content
Spacegirl spacegirl.org societal
commentary
Squiffy Ether ethernaut.com/zine irreverent
Jag fiction
Swanky swanky.com progressive
online community
Teengrrl teengrrl.com alternative teen
community
Wench wench.com feminism,
politics and
culture
Wired Woman wiredwoman.com women and
technology
Womengamers womengamers.com gaming for the
educated woman
</TABLE>
[LOGO] IGN is a leading network of web sites focusing on games and
entertainment for Generation i men. IGN provides current
editorial coverage of games, science fiction, movies and
television. IGN targets three distinct interest groups through
the following channels: IGN Games, IGN Sci-Fi and IGN for Men.
IGN Games provides reviews and previews of games for personal
computers and other video games; IGN Sci-Fi provides editorial
content on science fiction, movies, television, books and toys;
and IGN for Men offers content focusing on the lifestyles of
young men. IGN offers numerous features and services to keep its
users engaged, including free email, instant messaging, contests
and promotions, weather, horoscopes and search capabilities. IGN
also offers slots within branded commerce areas to partners
seeking to sell products and services online.
Together with its affiliated web sites, IGN had more than 170 million
consolidated page views in December 1999 and approximately 300,000 registered
users as of December 31, 1999. In July 1999, we acquired a popular former
affiliate, The Vault, which had approximately 9.0 million consolidated page
views in December 1999. According to Media Metrix, males between the ages of 12
and 34 accounted for % of all Internet users in the United States in December
1999. Media Metrix estimates that 10.6% of all 12 to 34 year old males on the
Internet and 20.1% of all 12 to 17 year old males on the Internet visited our
IGN network in December 1999.
35
<PAGE>
The following table provides a brief description of IGN's affiliates as of
December 31, 1999:
<TABLE>
<CAPTION>
Web Site URL Description
- -----------------------------------------------------------
<C> <C> <S>
3Dportal 3dportal.com coverage of 3D
games
Allprowrestling.com allprowrestling.com independent
wrestling
Anime Links animelinks.com links to anime
sites
Anime News animenewsnetwork.com Anime news
Network
Arrgh arrgh.demon.co.uk early video
games
CheatElite cheat-elite.com multi-platform
cheats and codes
CheatersGuild cheaters-guild.com cheats and codes
ComicFan comicfanmag.com comic portal
Coming Attractions corona.bc.ca coming
attractions and
reviews of
movies
Coming Soon comingsoon.net movie trailers
Daily Dementia dailydementia.com interviews with
game industry
specialists
Daily Radar dailyradar.com entertainment
and games
Dark Horizons darkhorizons.com film and TV
coverage
DC Mania dcmania.com Sega Dreamcast
coverage
DC Swirl dcswirl.com Sega Dreamcast
news and reviews
Desktop Starships desktopstarships.com sci-fi desktop
downloads
DiabloII.net diabloii.net Information on
the Diablo game
DMG Ice dmgice.com Gameboy
information
Doctor Dreamcast doctordreamcast.com Sega Dreamcast
news and reviews
Drew's script-o-rama.com movie and TV
Script-O-Rama scripts
Dukeworld dukeworld.com information on
Duke Nukem
EAGB gameboy.s-one.net.sg/ Gameboy user
information
Echostation echostation.com Star Wars
e-reality e-reality.com network of top
game specific
sites
Evergreen milpool.com The Simpsons
Terrace
EX ex.org Anime and Manga
FGN Online fgnonline.com news on the game
industry
Fusion Gaming fusion-gaming.com gaming forums
Futurama nnyc.com Futurama
Archive (animated show)
GameFAQS gamefaqs.com answers to
questions about
video games
Gamers Depot gamersdepot.com game hardware
reviews
GameSages gamesages.com codes for games
Gaming Age gaming-age.com game industry
news
</TABLE>
<TABLE>
<CAPTION>
Web Site URL Description
- ----------------------------------------------------------
<C> <C> <S>
Halflife.net halflife.net information,
news and
previews on
Halflife
IndyJones.net indyjones.net coverage on new
Indiana Jones
game
JediKnight.Net jediknight.net Star Wars
related games
LucasGames lucasgames.com coverage of all
LucasArts games
MacGameNews macgamenews.com Macintosh games
Magic Box come.to/magicbox console and
Japanese games
MeccaWorld meccaworld.com PC games
MovieBloopers moviebloopers.com movie bloopers
Moviefan Online moviefanonline.com movie news and
reviews
MovieSounds moviesounds.com movie sounds
Mr. Cranky mrcranky.com honest movie
reviews
Mr. Hats mrhatshellhole.com South Park
Hellhole
MTGnews.com mtgnews.com Magic: The
Gathering
N64 Shooters n64shooters.com reviews of
Nintendo 64
shooting games
N64-Cheats n64-cheats.com Nintendo 64
cheats and codes
NextGen Online next-generation.com new video games
Nintendo nintendoexpress.com Nintendo systems
Express
Nintendojo nintendojo.com Nintendo 64 news
and reviews
NintendojoFR nintendojofr.com French coverage
of Nintendo 64
Nintendorks nintendorks.com Nintendo 64 news
and reviews
Oh! The Humanity ohthehumanity.com coverage of bad
movies
Only Toons onlytoons.com cartoon news and
reviews
PC Accelerator pcxl.com action,
adventure and
sports games for
PCs
PC Gamer Online pcgamer.com gaming
information
PC Gameworld pcgameworld.com free demos
Playstation 2 Unicom psx2unicom.com Playstation 2
news and
information
Playstation vidgames.com Playstation
Galleria news, previews
and strategies
Pokegym pokegym.thedojo.com Pokemon
information
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Web Site URL Description
- ----------------------------------------------------
<C> <C> <S>
Pokemon411 pokemon411.com Pokemon
information
PokemonAdobe pokemonadobe.com everything
Pokemon
PSM psmonline.com unbiased
Playstation
coverage
PSX Nation psxnation.com Playstation
news, early
previews and
reviews
PSX2.com psx2.com Playstation 2
news
PSXNetwork psxnetwork.com Playstation
updates, news
and interviews
PSXtreme psxtreme.com Playstation
information
Psycomic psycomic.com comic book news
and information
RareNet rarenet.com coverage of rare
games
RivaZone rivazone.com 3D games and
hardware
Rogue Spear rsdatabase. comprehensive
Database gamenation.com Rogue Spear site
Scream-Trilogy scream-trilogy.com news and
information on
film trilogy
Segadojo segadojo.com Sega gaming
news, reviews,
cheats
SF Site analogsf.com printed sci-fi
site
SMG Fan smgfan.com Sarah Michelle
Gellar fan site
Spider-Man Hype spidermanhype.com news and
information on
upcoming
Spiderman
film(s)
Stay Tooned staytooned.com animated
entertainment
news
<CAPTION>
Web Site URL Description
- -----------------------------------------------------
<C> <C> <S>
Stomp Tokyo stomptokyo.com video reviews
Video Review
Stomped stomped.com gaming industry
information
Supercars supercars.net photos and
information
about powerful
cars
The Astounding bmonster.com B movies
B Monster
The Casual Otaku casualotaku.com Anime
The Digital Bits thedigitalbits.com DVD information
The Dojo thedojo.com Magic: The
Gathering
The Great RPG rpg-archive.com role playing
Archive game archive
The One Ring theonering.com J.R.R. Tolkien
The Turnbuckle theturnbuckle.com professional
wresting
TheForce.net jedicouncil.net Star Wars
Total RPG totalrpg.com role playing
game reviews
Total Video Games totalvideogames.com games
Yakfaces Realm yakface.com Star Wars
memorabilia
Zelda HQ zhq.com comprehensive
Zelda site
</TABLE>
[LOGO]
PowerStudents provides students with targeted content, commerce and
community features through three channels: High School, College and
Jobs. PowerStudents provides editorial content on academics, college
admissions, entertainment and student life. Community features and
services include free email, instant messaging, contests, weather,
television listings, classifieds, polls, forums, student diaries and
expert Q&A.
Together with its affiliated web sites, PowerStudents had approximately 30.0
million consolidated page views in December 1999 and approximately 1.6 million
registered users as of December 31, 1999. High School Alumni, one of our owned
sites within the PowerStudents network, accounted for 22.0 million consolidated
page views in December 1999 and 1.6 million registered users as of the same
date. According to eMarketer, 11.1 million individuals in the United States
between the ages of 13 and 17 currently use the Internet. eMarketer also
estimates that online spending by this group will increase from $160 million in
1999 to $1.4 billion in 2002.
37
<PAGE>
The following table provides a brief description of PowerStudents' affiliates
as of December 31, 1999:
<TABLE>
<CAPTION>
Web Site URL Description
- -----------------------------------------------------------
<C> <C> <S>
4Tests.com 4tests.com practice exams
Back To College back2college.com resources for
reentry students
BrainLapse.com brainlapse.com games and movies
Bschool.com bschool.com business school
resources
CampusCareerCenter campuscareercenter.com information on
jobs
CampusTours campustours.com college campus
tours
CollegeGate.com collegegate.com editing for
admissions
essays
College Recruiter collegerecruiter.com jobs and
internships
CollegeTownUSA collegetownusa.com online college
community
CollegeView collegeview.com college
information and
virtual tours
CollegeXpress collegexpress.com information for
college bound
students
FastAid fastaid.com scholarships and
financial aid
Fishnet: jayi.com college guide
The College Guide
FreSch freschinfo.com scholarship
information
GoCollege gocollege.com information on
college,
scholarships and
tests
<CAPTION>
Web Site URL Description
- ------------------------------------------------------------
<C> <C> <S>
GradView gradview.com graduate school
resources
GreekCentral greekcentral.com fraternity and
sorority life
InternshipPrograms.com internshipprogram.com internships
Interview Feedback interviewfeedback.com interviews
The Job Resource thejobresource.com college career
center
MBAjob mbajob.com MBA job searches
MBA ZoNe mbazone.com MBA resources
Oilzine oilzine.com British humour
Planet Papers planetpapers.com essays and
creative writing
Quintessential quintcareers.com career and job
Careers hunting
RealCollegelife.com realcollegelife.com college life
RealWorld rwuniversity.com real world
University advice
Study 24/7 study24/7.com college
notetaking
SuperCollege supercollege.com information on
admissions and
financial aid
TestTutor testtutor.com standardized
test preparation
Versity versity.com college
notetaking
</TABLE>
[LOGO]
InsideGuide is a national network of online college sites created by
students for students. InsideGuide offers an insider's perspective on
college life. Each site provides students at a particular college
with an independent forum for expressing their opinions and sharing
information relevant to the community, such as classes, sports,
activity groups and entertainment. InsideGuide was launched in
September 1999 and as of December 31, 1999 offered guides centered
around more than 100 individual schools, including University of
California at Berkeley, Harvard University, Northwestern University
and University of Pennsylvania.
Together with its affiliated web sites, InsideGuide had approximately 300,000
consolidated page views in December 1999. According to Jupiter Communications,
as of January 1999, 10.6 million college students in the United States used the
Internet and online spending by this group will increase from $890 million in
1999 to $2.5 billion in 2002.
Networks Under Development
We are continually expanding the content, community and commerce services
offered by our networks and evaluating opportunities for the development of new
networks to keep pace with the expanding interests of Generation i. For
example, our acquisition of High School Alumni in September 1999 will allow each
of our networks to offer its users a classmate finder tool. As of December 31,
1999, High School Alumni included
38
<PAGE>
over 28,000 high schools throughout the United States. This site enables an
alumnus of a registered high school to register, update his or her information
and search for an old classmate. This database can then be used for personal
communication as well as for organizing and sponsoring group alumni activities
such as reunions and fund-raising. High School Alumni had approximately 22
million consolidated page views in December 1999 and over 1.6 million
registered users, as of December 31, 1999. Due to its strong following and
potential, we are currently evaluating options to establish this site as a
separate network during the year 2000.
Content
We believe that the large number of Generation i users who visit our networks
do so for the compelling content contained on the web sites that make up each
network. This content is derived from two sources: our in-house editorial staff
and our affiliates. As of December 31, 1999, our in-house editorial staff
consisted of 50 professional writers, and we had more than 150 affiliate
contributors. We view the development of new content as an interactive process
and encourage our users to offer suggestions for new subject areas. Once we
identify a new subject area, we typically hire an in-house editor to develop
content and to work with our affiliate development department to identify
potential affiliates.
Our affiliate model distinguishes us from many other Internet media
companies. This model allows us to recruit independent web sites to supplement
and broaden our in-house editorial content. Our affiliate agreements generally
require affiliates to display the logo of one or more of our networks and give
us the exclusive right to sell advertising on the affiliated site in exchange
for a percentage of the advertising revenue. In addition, our agreements
generally provide for joint development of e-commerce opportunities. We believe
that this model enhances our content, increases our audience reach, builds
advertising inventory and expands our distribution at a cost to us that is
lower than would be achievable through the development of in-house editorial
content alone.
We also believe that the affiliate model enables us to adapt quickly to
emerging Internet and media trends with reduced incremental costs. For example,
when Sega released its new Dreamcast game system in September 1999, we
recruited four Dreamcast-related web sites within one month. Because our
typical affiliate agreement requires us to pay affiliates only a portion of the
revenue that we earn from the affiliate's site, the new Dreamcast affiliates
expanded our editorial coverage of the Dreamcast subject area and added new
inventory for advertising sales without significantly increasing our expenses.
We invest in marketing and technical services to increase the value of
affiliate relationships. Our affiliate relations specialists work with our
affiliate content partners to promote their sites, build their traffic and
improve the technical performance of the sites.
Revenue Sources
Our business model is designed to provide for multiple revenue streams. Our
principal sources of revenue will be (1) advertising and sponsorships and (2)
e-commerce and merchandising. For the years ended December 31, 1997, 1998 and
1999, advertising and sponsorship revenue represented approximately 100% of our
revenue.
Advertising and sponsorships
Our strategy is focused in part on generating a majority of our advertising
revenue from sponsors and merchants seeking an integrated and cost-effective
means to reach Generation i on the Internet. Our sponsorship arrangements are
designed to achieve broad marketing objectives such as brand promotion, brand
awareness, product introductions and online research. To help sponsors achieve
these goals, we develop individually tailored sponsorship programs that may
include any combination of advertising banners, buttons, textlinks, promotions,
sponsorships of specific
39
<PAGE>
categories and direct merchandise slotting opportunities. We also develop
content to support the marketing initiatives of advertisers. In addition,
sponsors may communicate with their customers on our message boards and through
chats, and may gain insights into their customers' preferences and buying
habits through polls and special events. Sponsorships allow us to cater to the
specific goals of advertisers in the areas of impressions, product research,
market research, new product launches, list development, product information,
repositioning, new account openings, lead generation and transactions. Our
sponsorship agreements provide for revenue independent from page views as the
measure of value and generally have terms of up to one year.
We also generate revenue by selling select placement of advertisements on our
web sites to merchants interested in targeting Generation i, such as
EBWorld.com, edu.com and Gloss.com. These arrangements provide merchants with
exclusive placement on our networks, exposure through banner advertising,
special content and promotional offers in exchange for which we collect a fixed
fee plus incremental payments for visitors forwarded to the advertiser's site.
In addition to helping merchants retain customers, these retailing
opportunities can be used to identify valuable purchasing trends, which in turn
can be used in future advertising and commerce and to develop additional
targeted content.
We derive a portion of our advertising revenue from banner advertisements,
buttons and textlinks that are displayed on pages throughout our networks. From
each of these, viewers can hyperlink directly to the advertiser's own web site,
thus providing the advertiser the opportunity to interact directly with an
interested customer. Under these contracts, we guarantee advertisers a minimum
number of impressions for which we receive a fixed fee.
During the year ended December 31, 1999, our five largest customers accounted
for 19% of our consolidated revenue. If we were to lose any one of these
customers, our revenue would decline.
E-commerce and merchandising
We have recently begun to generate e-commerce revenue by selling carefully
selected products. We intend to develop e-commerce stores across all of our
networks. In December 1999, we began merchandising directly to our users
through the launch of ChickShops within our ChickClick network. ChickShops
offers more than 75 products, including clothes and accessories, and was
designed to offer online users the experience of shopping in a specialty
clothing boutique similar to those found in cities like New York or San
Francisco. Online orders are taken 24 hours a day, seven days per week and
products are shipped generally within 48 hours of placement of most orders. All
product orders and fulfillment are currently handled by ShopNow.com.
Sales
As of December 31, 1999, we had a direct sales organization of 32 sales
professionals. Our sales team consults regularly with advertisers and agencies
on design and placement of advertisements, sponsorships and promotions across
our networks. We also have a group of sales professionals who concentrate
primarily on strategic sponsorships and promotions, seeking to establish
relationships with senior level executives and to develop multi-million dollar
partnership packages linking our users with the partner's brand. As of December
31, 1999, this group consisted of 12 individuals.
We also had 25 sales support, market research and advertising operations
staff who focus on market research and provide advertisers with information and
expertise that will help them market their products and services more
effectively to Generation i. We regularly conduct surveys concerning purchasing
patterns, attitudes and brand preferences of Generation i.
We have sales offices in New York City, San Francisco and Los Angeles.
40
<PAGE>
Corporate Marketing
As of December 31, 1999, we had 15 professionals in our corporate marketing
group who are complemented by marketing professionals within our four networks.
Through the efforts of these professionals, we pursue a variety of marketing
initiatives designed to build brand awareness for Snowball and its individual
networks among both the advertising community and members of Generation i. To
date, these marketing activities have included advertising in online and
offline media, attending trade shows, sponsoring events and engaging in ongoing
media relations campaigns.
We target potential advertising customers in a variety of online and offline
media, including newspapers such as The New York Times, The Wall Street
Journal, USA Today and over 200 college newspapers; print magazines such as
Advertising Age, Adweek, Wired, Industry Standard and Business 2.0; outdoor
locations such as commuter rail lines and bus tails; and online sites such as
Adage.com, Adweek.com, ClickZ and Channel 7.
Network marketing activities focus on increasing traffic to our networks and
the number of our registered users. We have engaged in major event
sponsorships, such as ChickClick's title sponsorship of the 1999 Lilith Fair
and IGN's sponsorship of Sega Dreamcast's 1999 Assault Tour. We have also
entered into a strategic relationship with New Line Cinema that will provide us
with offline marketing promotions in their products. In addition, all networks
have aggressively launched promotions and contests to increase user
registration and maintain a relationship with Microsoft's MSN Hotmail offering
free category-specific newsletters.
We engage in an ongoing media relations campaigns with business and financial
contacts and key industry analysts. Our public relations efforts are a key
component of our overall marketing and brand awareness strategy. We plan to
continue to develop a media outreach program based on market research that we
organize and conduct with third parties. Each individual network also manages
public relations activities targeted to the consumer press to encourage
publicity on new channels, affiliates, services and partners. The primary
purpose of our public relations activities is to increase our share of each
network's target audience and increase overall visibility of the Snowball
networks.
Technology
Our web site hosting infrastructure is co-located at our headquarters in San
Francisco and at Exodus Communications' Internet Data Center in Santa Clara,
California. Exodus is responsible for providing us with a high-speed, scalable,
fault-tolerant Internet connection, clean power and physical security. Packaged
software enables full text search, bulk email delivery, web serving and traffic
analysis. We developed our membership, personalization, advertising delivery
and community software using standard application servers and Oracle database
systems. Our advertising selection and management system is DoubleClick's
NetGravity. We have developed traffic analysis software to compute industry-
standard and advanced metrics. We also host a small number of our affiliates on
our servers. Our editorial infrastructure is located at our headquarters in San
Francisco. We developed our editorial and publishing software by using
Informix. We have started to migrate our editorial and publishing processes to
the same platform that we use for our dynamic services. Both our hosting and
editorial switched local area networks are fault-tolerant, scalable and
economical.
With respect to disaster recovery, all of our non-derivable data is presently
replicated between a storage array at our headquarters in San Francisco and a
storage array at Exodus Communications. We are currently studying the
advisability of locating a disaster recovery data center in New York City. Our
network operations center consists of monitoring software that is monitored by
our staff at all times.
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Competition
The market for Internet users and online advertisers is highly fragmented,
rapidly changing and characterized by thousands of competitors. With no
substantial barriers to entry, we believe that the number of Internet companies
relying on web-based advertising revenue will increase greatly in the future.
Companies or sites that are primarily focused on targeting Generation i online
include MTV.com, Warner Bros. Online (Entertaindome), iTurf Inc. and Alloy
Online, Inc. In addition to these direct competitors, we will likely face
competition in the future from:
. developers of web directories;
. search engine providers;
. content sites;
. commercial online services;
. sites maintained by Internet service providers; and
. other entities that establish a community on the Internet by developing
their own or purchasing one of our competitors.
We also could face competition in the future from traditional media
companies, a number of which, including Time Warner, Disney, CBS and NBC, have
recently combined with, made acquisitions of or investments in significant
Internet companies. Finally, we compete with traditional forms of media, such
as newspapers, magazines, radio and television, for advertisers and advertising
revenue.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical and marketing resources,
greater name recognition and larger existing customer bases than we do. These
competitors are able to undertake more extensive marketing campaigns for their
brands and services, adopt more aggressive advertising pricing policies and
make more attractive offers to potential employees, distribution partners,
commerce companies, advertisers and third-party content providers. Further,
these competitors may develop communities that are equal or superior to ours or
that achieve greater market acceptance than ours. In addition, many of our
current advertising customers and strategic partners also have established
collaborative relationships with certain of our competitors or potential
competitors and other frequently visited web sites. Accordingly, we cannot
assure you that:
. we will be able to sustain our traffic levels or retain our advertising
customers;
. competitors will not experience greater growth in traffic as a result of
strategic collaborative relationships that make their web sites more
attractive to advertisers; or
. our affiliates and strategic partners will not sever or renew their
agreements with us.
We believe that the primary competitive factors in attracting and retaining
users are:
. quality of content and services;
. brand recognition;
. user affinity and loyalty;
. demographic focus;
. variety of value-added services; and
. critical mass.
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We believe that the principal competitive factors in attracting and retaining
online advertisers are:
. the amount of traffic on a web site;
. brand recognition;
. the demographic characteristics of a site's users;
. the ability to offer targeted audiences;
. the average duration of user visits; and
. cost-effectiveness.
We cannot assure you that we will be able to compete successfully against our
current or future competitors. Competitive pressures faced by us may have a
material adverse effect on our business, our financial condition and the
results of our operations.
Proprietary Rights and Licensing
We regard our copyrights, trademarks, service marks, trade secrets,
technology and other intellectual property rights as important to our success.
In particular, we rely upon our domain names and trademarks to increase brand
awareness among our users and advertisers. We have registered approximately 300
domain names, including all names currently in use across our networks.
"Snowball," "ChickClick," "IGN," "PowerStudents" and "InsideGuide" are
trademarks of ours. Our trademarks will remain in effect indefinitely, but only
to the extent that we continue to use them in commerce. We have not applied for
the registration of all of our trademarks and service marks and may not be
successful in obtaining the trademarks and service marks that we have applied
for. We have not applied for any patents.
To protect our intellectual property rights, we rely on a combination of
copyright and trademark laws, trade secret protection, confidentiality
agreements with employees and third parties and protective contractual
provisions. Prior to entering into discussions with potential content providers
and affiliates regarding our business and technologies, we generally require
that they enter into nondisclosure agreements with us. If these discussions
result in a license or other business relationship, we also generally require
that the agreement setting forth each parties' rights and obligations include
provisions for the protection of our intellectual property rights. Licensees of
these rights may take or fail to take actions that would diminish the value of
our rights or reputation.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy aspects of our products or services or obtain and use information that
we regard as proprietary. The laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
We do not currently have any patents or patent applications pending in any
foreign country. In addition, others may be able independently to develop
substantially equivalent intellectual property. If we do not effectively
protect our intellectual property, our business could suffer.
Employees
As of December 31, 1999, we had a total of 260 full-time employees, including
102 in sales and marketing, 35 in engineering, 100 in production and content
and 23 in administration and finance. Other than as described in "Management--
Employment Arrangements, Termination of Employment Arrangements and Change of
Control Arrangements," none of these individuals is bound by an employment
agreement. None of our employees is represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We consider our relations
with our employees to be good.
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Facilities
Our principal editorial, sales, marketing, research, development and
administrative office occupies approximately 26,000 square feet in San
Francisco, California, under a month-to-month lease. In addition, we also lease
sales and service offices in Los Angeles and New York City. We recently entered
into a long-term lease for approximately 180,000 square feet to be divided
among three buildings in Brisbane, California. We intend to relocate and expand
our principal offices to this site next year. This lease will expire with
respect to approximately 55,000 square feet, 61,000 square feet and 66,000
square feet 10 years, 11 years and 12 years, respectively, after we take
occupancy. We believe that this proposed new facility will be adequate for our
needs for the foreseeable future.
Legal Proceedings
We are not a party to any material legal proceedings.
Financial Information about Geographic Areas
See Note 1 of our Notes to Consolidated Financial Statements.
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MANAGEMENT
Executive Officers and Directors
The following table presents information regarding our executive officers and
directors as of December 31, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Mark A. Jung............ 38 President, Chief Executive Officer and Director
James R. Tolonen........ 50 Chief Financial Officer, Chief Operating Officer and Director
Sandra Cavanah.......... 39 Vice President, Affiliate Marketing
Janette S. Chock........ 33 Vice President, Controller and Chief Accounting Officer
Teresa M. Crummett...... 39 Vice President, Corporate Marketing and Product Management
Kenneth H. Keller....... 42 Vice President, Engineering
Kathleen Z.
Layendecker............ 38 Vice President, Affiliate Development
Elizabeth G. Murphy..... 41 Vice President, Sales and Marketing
Christopher Anderson.... 42 Chairman of the Board and Director
Richard A. LeFurgy...... 43 Director
Michael Orsak........... 39 Director
Robert H. Reid.......... 34 Director
</TABLE>
Mark A. Jung has served as our President and Chief Executive Officer since
February 1999 and as a director since our incorporation in January 1999. Prior
to joining us, from July 1997 to January 1999, he served as an independent
industry consultant to various companies. From February 1992 to July 1997, he
co-founded and served as Chief Executive Officer, a director and, from February
1996 to July 1997, Chairman of Worldtalk Communications Corporation, an
Internet security company. Mr. Jung holds a Bachelor of Science degree in
electrical engineering from Princeton University and a Master of Business
Administration from Stanford University.
James R. Tolonen has served as our Chief Financial Officer and Chief
Operating Officer since October 1999, and as a director since November 1999.
Prior to joining us, Mr. Tolonen was on sabbatical from November 1998 to
October 1999, during which time he served intermittently as an advisor and
board member to several private companies. From August 1996 to October 1998, he
served as a director of Cybermedia, Inc., a software product service and
support company, and as its President and Chief Operating Officer from May 1998
to October 1998. From June 1989 to April 1998, he served as Senior Vice
President and Chief Financial Officer of Novell, Inc., a computer network and
software company. Mr. Tolonen holds a Bachelor of Science degree in mechanical
engineering and a Master of Business Administration from the University of
Michigan. Mr. Tolonen is also a certified public accountant.
Sandra Cavanah has served as our Vice President, Affiliate Marketing since
June 1999. Ms. Cavanah shares responsibility for affiliate related matters with
Ms. Layendecker, focusing primarily on affiliate marketing. From February 1999
to June 1999, she served as our Co-Director of Affiliate Marketing and
Development, and from January 1999 to February 1999, she served as a consultant
to us. Prior to joining us, from December 1997 to February 1999, she served as
Chief Financial Officer of Genstar Capital, L.L.C., a private-equity investment
firm. From April 1995 to November 1997, she served as an analyst at Robertson
Stephens & Co., an investment banking firm, and from December 1993 to March
1995, she served as a consultant to Pacific Telesis Group, a holding company
whose subsidiaries are communication services companies. Ms. Cavanah holds a
Bachelor of Science degree in business administration from the University of
California at Berkeley and a Master of Business Administration from Harvard
University.
Janette S. Chock has served as our Vice President, Controller and Chief
Accounting Officer since October 1999. From February 1999 to October 1999, she
served as our Controller, and from January 1999 to February 1999, she served as
a consultant to us. Prior to joining us, from August
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1998 to January 1999, she served as Controller of Fujitsu Personal Systems,
Inc., a mobile computer hardware company. Ms. Chock was between occupations
from July 1996 to October 1996. From October 1996 to July 1998, she served as
Controller of Diffusion, Inc., a corporate information delivery software
company, and from November 1993 to July 1996, she served as Controller of
Worldtalk Communications Corporation, an Internet security company. Ms. Chock
holds a Bachelor of Science degree in business administration from the
University of California at Berkeley. Ms. Chock is also a certified public
accountant.
Teresa M. Crummett has served as our Vice President, Corporate Marketing and
Product Management since March 1999. From January 1999 to March 1999, she
served as a consultant to us. Prior to joining us, from August 1997 to December
1998, she was a self-employed business consultant. She served as a Director of
Corporate Marketing at CyberCash, Inc., an electronic commerce company, from
January 1996 to August 1997. From July 1995 to December 1996, Ms. Crummett
again worked as a self-employed business consultant. From April 1994 to June
1995, she served as Vice President, Direct Marketing of Interactive Network,
Inc., an interactive television company, and from December 1993 to March 1994,
she served as a business consultant to Time Warner, a worldwide media company.
From March 1992 to November 1993, Ms. Crummett served as Director of Marketing
of Walt Disney Company, a diversified worldwide entertainment company. Ms.
Crummett holds a Bachelor of Arts degree in government from Harvard University
and a Master of Business Administration from Stanford University.
Kenneth H. Keller has served as our Vice President, Engineering since March
1999. From January 1999 to March 1999, he served as a consultant to us. Prior
to joining us, from May 1996 to December 1998, he was a self-employed business
consultant, entrepreneur and investor. From April 1995 to April 1996, he served
as Director of Development of Excite, Inc., an Internet media company. From
January 1995 to April 1995, Mr. Keller was between occupations. Mr. Keller
holds a Bachelor of Science degree in mathematics from Carnegie Mellon
University and a Master of Science degree and Ph.D. in computer science from
the University of California at Berkeley.
Kathleen Z. Layendecker has served as our Vice President, Affiliate
Development since June 1999. Ms. Layendecker shares responsibility for
affiliate related matters with Ms. Cavanah, focusing primarily on affiliate
development. From February 1999 to June 1999, she served as our Co-Director of
Affiliate Marketing and Development, and from January 1999 to February 1999,
she served as a consultant to us. Prior to joining us, from June 1998 to
January 1999, Ms. Layendecker was between occupations. From January 1997 to
June 1998, she served as an analyst for Bodri Capital Management, Inc., an
investment company, and from August 1996 to January 1997, as a consultant to
Bodri Capital Management. From May 1995 to August 1996, Ms. Layendecker was on
maternity leave. From October 1993 to May 1995, she served as Director of
Finance and Administration of Valentis Corp., a biotechnology company.
Ms. Layendecker holds a Bachelor of Arts degree in English from Stanford
University and a Master of Business Administration from the Yale School of
Management.
Elizabeth G. Murphy has served as our Vice President, Sales and Marketing
since March 1999. Prior to joining us, from April 1992 to March 1999, she was
employed by U.S. News and World Report, a publishing company, most recently as
Vice President, Associate Publisher. Ms. Murphy holds a Bachelor of Science
degree in zoology from the University of Michigan.
Christopher Anderson has served as our Chairman of the Board and a director
since our incorporation in January 1999. He founded Imagine Media, Inc., an
Internet media company, and has served as its President and as one of its
directors since October 1993. He has also served as Chairman of the Board of
Future Network plc, an Internet media company, since May 1998. Mr. Anderson
holds a Bachelor of Arts degree in politics, philosophy and economics from
Oxford University.
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Richard A. LeFurgy has served as a director since May 1999. He has been a
member of Walden Media, L.L.C., the general partner of the Walden Media &
Information Technology Fund, L.P., a venture capital firm, since August 1999.
He served as a consultant to the Walden Media & Information Technology Fund,
L.P. from October 1998 to August 1999. From June 1995 to October 1998, he
served as Senior Vice President, Advertising Sales of Starwave Corporation, an
Internet media company, and from June 1978 to May 1995, he served as Executive
Vice President, Senior Partner and a director at NW Ayer & Partners, an
advertising agency. Mr. LeFurgy holds a Bachelor of Science degree in
advertising from Syracuse University.
Michael Orsak has served as a director since May 1999. He is a founder of
Worldview Technology Partners, a venture capital firm, and has been a general
partner since September 1996. From January 1990 to September 1996, he served as
a co-manager of a fund of JAFCO America Ventures, a venture capital firm. Mr.
Orsak holds a Bachelor of Arts degree in economics and a Master of Business
Administration from Stanford University.
Robert H. Reid has served as a director since March 1999. He is a founder of
Listen.com, Inc., an Internet music company, and has served as its President
and Chief Executive Officer since February 1998. From January 1997 to December
1998, he was an associate of 21st Century Internet Venture Partners, a venture
capital firm. He authored a book from April 1996 to December 1996, and from
December 1994 to April 1996 he served as a Business Development Manager at
Silicon Graphics, Inc., a high-performance computer company. Mr. Reid holds a
Bachelor of Arts degree in international relations and a Master of Arts degree
in international policy studies from Stanford University and a Master of
Business Administration from Harvard University.
Each of our executive officers will serve in his or her office until he or
she resigns or is removed from office.
Board of Directors and Committees
We currently have six directors. We intend to amend our certificate of
incorporation immediately following the closing of this offering. The amended
certificate of incorporation will divide our board of directors into three
classes: Class I, whose term will expire at the annual meeting of stockholders
to be held in 2001, Class II, whose term will expire at the annual meeting of
stockholders to be held in 2002, and Class III, whose term will expire at the
annual meeting of stockholders to be held in 2003. At each annual meeting of
stockholders after the initial classification, the successors to directors
whose terms have expired will be elected to serve from the time of election and
qualification until the third annual meeting following election.
In addition, we intend to amend our bylaws, prior to this offering with an
effective date immediately following this offering, to provide that the
authorized number of directors may be changed only by resolution of the board
of directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the total number of
directors.
This classification of the board of directors may have the effect of delaying
or preventing changes in our control or management. See "Description of Capital
Stock--Anti-Takeover Provisions of the Certificate of Incorporation, Bylaws and
Delaware Law." There are no family relationships among any of our directors,
officers or key employees.
Our board of directors has a compensation committee and an audit committee.
Compensation Committee. The current members of our compensation committee are
Messrs. Anderson, Orsak and Reid. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation for
our officers and
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<PAGE>
employees. The compensation committee also administers our 1999 Equity
Incentive Plan and will administer our 2000 Equity Incentive Plan and 2000
Employee Stock Purchase Plan.
Audit Committee. The current members of our audit committee are Messrs.
LeFurgy and Orsak. Our audit committee reviews and monitors our financial
statements and accounting practices, makes recommendations to our board
regarding the selection of independent auditors and reviews the results and
scope of the audit and other services provided by our independent auditors.
Compensation Committee Interlocks and Insider Participation
Before June 1999, our board of directors did not have a compensation
committee and all compensation decisions were made by the full board of
directors. In June 1999, we formed a compensation committee consisting of
Richard LeFurgy, Michael Orsak and Mark Jung. Mr. Jung served as our President
and Chief Executive Officer while he was a member of the compensation
committee. In December 1999, we replaced the membership of our compensation
committee with our current compensation committee membership. No interlocking
relationship exists between our board of directors or compensation committee
and the board of directors or compensation committee of any other company, nor
has an interlocking relationship existed in the past. Mr. Jung has not
participated in discussions by our board of directors or the compensation
committee with respect to his compensation. None of our executive officers
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.
Preferred Stock Financings. In February 1999, Christopher Anderson, our
Chairman of the Board and one of our directors, and Mark Jung, our President
and Chief Executive Officer and one of our directors, purchased 12,857,143 and
989,011 shares, respectively, of Series A preferred stock at $0.2333 per share
in February 1999. In May 1999, Richard LeFurgy, one of our directors, purchased
35,545 shares of Series B-1 preferred stock at $4.22 per share, and in October
1999, the James R. Tolonen and Ginger Tolonen Family Trust dated 9/26/96 and
the James R. Tolonen Grantor Retained Annuity Trust purchased 120,000 and
30,000 shares, respectively, of Series B-1 preferred stock at $4.22 per share.
In addition, entities associated with Worldview Technology Partners and Walden
Media & Information Technology Fund, L.P., purchased 1,540,284 and 1,220,378
shares, respectively, of Series B-1 preferred stock at $4.22 per share in May
1999. In December 1999, these same individuals and entities purchased shares of
Series C preferred stock at $10.00 per share in the following amounts: 700,000
shares by Mr. Anderson; 50,000 shares by Mr. Jung and 10,000 by the Jung-
Murdock Children's Trust U/A 11/23/93, Susan Murdock TTEE, a trust for the
benefit of Mr. Jung's children; 3,400 shares by Mr LeFurgy; 117,800 shares by
entities associated with Walden Media & Information Technology Fund, L.P.; and
148,700 shares by entities associated with Worldview Technology Partners.
Michael Orsak, one of our directors, is a general partner of Worldview
Technology Partners and Richard LeFurgy is a member of Walden Media, L.L.C.,
the general partner of Walden Media & Information Technology Fund, L.P., and
each may be deemed to own beneficially the shares held by the entities with
whom they are associated.
Loan to Christopher Anderson. In February 1999, we loaned an aggregate of
$2.0 million to Mr. Anderson, our Chairman of the Board and one of our
directors, in connection with his purchase of 12,857,143 shares of our Series A
preferred stock. The loan was secured by a full recourse promissory note and a
stock pledge agreement. The note accrued interest at a rate of 4.57% per year
and was due and payable with respect to $1.0 million of principal, plus
interest, on or before March 1, 1999 and with respect to the remaining $1.0
million of principal, and any remaining interest, on or before April 1, 1999.
The note has been repaid in full.
Sale of Common Stock and Loan to Mark Jung. In February 1999, we loaned an
aggregate of $92,300 to Mark Jung, our President and Chief Executive Officer
and one of our directors, in
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connection with his purchase of 1,978,021 shares of our common stock at
$0.04667 per share. The loan is secured by a full recourse promissory note and
a stock pledge agreement. The note accrues interest at a rate of 4.64% per
year, payable annually, and is due and payable on or before February 1, 2003.
We are forgiving the principal and accrued interest ratably over a 48-month
period that began on December 1998. In the event that Mr. Jung's employment
with us is terminated for any reason, then all remaining unpaid principal and
interest will become due and payable within 90 days after termination, unless
we agree to a longer period.
Sale of Preferred Stock and Loan to Trusts Associated with James Tolonen. In
October 1999, we loaned an aggregate of $333,000 to the James R. Tolonen and
Ginger Tolonen Family Trust dated 9/26/96 in connection with its purchase of
120,000 shares of our Series B-1 preferred stock at $4.22 per share. The loan
is secured by a full recourse promissory note and a stock pledge agreement. The
note accrues interest at a rate of 5.86% per year, payable annually, and is due
and payable in full on or before October 20, 2003. We will forgive the
principal and accrued interest ratably over a 48-month period that began in
October 1999. At this time, the James R. Tolonen 1999 Grantor Retained Annuity
Trust also purchased 30,000 shares of our Series B-1 preferred stock.
Sale of Common Stock and Loan to James Tolonen. In November 1999, we loaned
an aggregate of $600,000 to Mr. Tolonen, our Chief Financial Officer and Chief
Operating Offer and one of our directors, in connection with his purchase of
350,000 shares of our common stock at $2.00 per share. The loan is secured by a
full recourse promissory note and a stock pledge agreement. The note accrues
interest at a rate of 6.08% per year, payable annually, and is due and payable
in full on or before November 30, 2003. At this time, Mr. Tolonen purchased
another 50,000 shares of our common stock pursuant to an option exercise.
The promissory notes for Mr. Jung and the trust associated with Mr. Tolonen
provide that all remaining unpaid principal and interest will become due and
payable if the borrower's position as a director or officer is terminated.
Director Compensation
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses in attending board
and board committee meetings.
Assuming the proposed form of the 2000 Equity Incentive Plan is adopted by
our board, each eligible director who is not our employee and who is or becomes
a member of our board on or after the effective date of the registration
statement, of which this prospectus forms a part, will be granted an option to
purchase 20,000 shares of common stock under our 2000 Equity Incentive Plan,
unless that director has previously received an option grant in that amount
before the effective date. Immediately following each annual meeting of our
stockholders, each eligible director will automatically be granted an
additional option to purchase 5,000 shares under the plan if the director has
served continuously as a member of the board for at least one year. The options
will have ten-year terms and will terminate three months following the date the
director ceases to be one of our directors or consultants, 12 months if the
termination is due to death or disability, or one month if the termination is
for cause. All options granted under the plan will vest over four years from
the date of grant, with 25% of the shares vesting on the first anniversary of
the date of grant and the remainder vesting ratably over a 36-month period
thereafter.
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Executive Compensation
The following table presents compensation information for 1999 with regard to
compensation paid to or accrued for our chief executive officer and each of our
four other most highly compensated executive officers. None of our officers was
compensated in 1998. The restricted stock value is calculated based upon a
$0.04667 per share purchase price and assumes that the estimated fair market
value on the date of grant is equal to the assumed initial public offering
price of $11.00 per share. On December 31, 1999, Mr. Jung held 1,978,021 shares
of our common stock pursuant to a restricted stock award of $21,665,917 subject
to our right to repurchase these shares upon termination of his employment. Our
repurchase right expires ratably over a 48-month period that began in December
1998. If declared by the board, dividends will be paid on Mr. Jung's restricted
stock.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term Compensation
Compensation Awards
---------------- ----------------------
Securities
Name and Principal Restricted Underlying All Other
Positions Salary Bonus Stock Award Options Compensation
------------------ -------- ------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Mark A. Jung.............. $230,770 $ -- $21,665,917 -- $20,000
President and Chief
Executive Officer
Elizabeth G. Murphy....... 160,000 59,250 -- 300,000 --
Vice President, Sales and
Marketing
Kenneth H. Keller......... 148,077 -- -- 450,000 38,000
Vice President,
Engineering
Teresa M. Crummett........ 119,616 22,500 -- 198,000 48,500
Vice President, Corporate
Marketing and Product
Management
Janette S. Chock.......... 123,462 -- -- 147,500 5,000
Vice President,
Controller and Chief
Accounting Officer
</TABLE>
The amounts listed in the column captioned "All Other Compensation" represent
payments made on our behalf by Imagine Media in January and February 1999.
James Tolonen, our Chief Financial Officer and Chief Operating Officer, was
hired in October 1999 and, had he been employed for the entire year, would have
earned a salary of $225,000. Mr. Tolonen was granted two options to purchase an
aggregate of 600,000 shares of common stock and trusts associated with Mr.
Tolonen purchased an aggregate of 150,000 shares of Series B-1 preferred stock.
Option Grants in 1999
The following table presents the grants of stock options under our 1999
Equity Incentive Plan during 1999 to our chief executive officer, our chief
financial officer and each of our four other most highly compensated executive
officers in 1999.
Options granted under the 1999 Equity Incentive Plan are either incentive
stock options or nonqualified stock options and generally become exercisable
with respect to 25% of the shares subject to the option on the first
anniversary of the date of grant and with respect to an additional 2.0833% of
these shares each month thereafter, subject to acceleration in some instances
upon certain changes in our control. Stock option grants in excess of 25,000
shares are generally immediately exercisable and subject to acceleration in
some instances upon certain changes in our control or termination by us in
certain circumstances. We have a right to repurchase these shares upon
termination of the optionee's employment with us. This right generally lapses
as to 25% of the
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shares subject to the option on the first anniversary of the date of grant and
as to 2.083% of the shares each month thereafter. Options expire ten years from
the date of grant. Options were granted at an exercise price equal to the fair
market value of our common stock, as determined by our board on the date of
grant. As of December 31, 1999, we had granted to our employees options to
purchase a total of 3,907,437 shares of common stock under the 1999 Equity
Incentive Plan and an additional 550,000 shares of common stock outside the
plan.
The 5% and 10% assumed annual rates of stock price appreciation are required
by the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future common stock prices. The potential realizable
values at 5% and 10% appreciation are calculated by assuming that the estimated
fair market value on the date of grant, based upon an assumed initial public
offering price of $11.00 per share, appreciates at the indicated rate for the
entire term of the option and that the option is exercised at the exercise
price and sold on the last day of its term at the appreciated price.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
---------------------------------------- ----------------------
Percent
of
Total
Number of Options
Securities Granted Exercise
Underlying to Price
Options Employees Per Expiration
Name Granted in 1999 Share Date 5% 10%
---- ---------- --------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Jung............ -- --% $ -- -- $ -- $ --
Elizabeth G. Murphy..... 300,000 4.78 0.04667 3/15/09 5,361,351 8,545,349
Kenneth H. Keller....... 450,000 7.17 0.04667 3/15/09 8,042,027 12,818,024
Teresa M. Crummett...... 198,000 3.16 0.04667 3/15/09 3,538,492 5,639,930
Janette S. Chock........ 99,000 1.58 0.04667 2/24/09 1,769,246 2,819,965
13,500 0.22 0.04667 3/15/09 241,261 384,541
35,000 0.56 2.00 10/4/09 557,124 928,591
James R. Tolonen........ 600,000 9.56 2.00 10/20/09 9,550,705 15,918,700
</TABLE>
51
<PAGE>
Aggregated Option Exercises in 1999 and Values at December 31, 1999
The following table presents the number of shares acquired and the value
realized upon exercise of stock options for the year ended December 31, 1999
and the number of shares of common stock subject to "exercisable" and
"unexercisable" stock options held as of December 31, 1999 by our chief
executive officer, chief financial officer and each of our four other most
highly compensated executive officers. All options were granted under our 1999
Equity Incentive Plan. Each of these options was immediately exercisable upon
grant, but is subject to our right to repurchase the option shares at the
exercise price upon termination of the optionee's employment. Our right to
repurchase the shares lapses either (1) as to 25% of the shares subject to the
option on the first anniversary of the date of grant and the remainder ratably
over a 36-month period thereafter or (2) as to 12.5% of the shares subject to
the option on the six month anniversary of the date of grant and the remainder
ratably over a 42-month period thereafter. In the table below, the heading
"exercisable" refers to shares as to which our right of repurchase has lapsed.
The heading "unexercisable" refers to shares that we still have the right to
repurchase upon termination of the optionee's employment. Also presented are
values of "in-the-money" options, which represent the positive difference
between the exercise price of each outstanding stock option and an assumed
initial public offering price of $11.00 per share.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options at
Shares Options at December 31, 1999 December 31, 1999
Acquired on Value -------------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Jung............ -- $ -- -- -- $ -- $ --
Elizabeth G. Murphy..... -- -- -- 300,000 -- 3,285,999
Kenneth H. Keller....... -- -- 126,250 323,750 1,382,858 3,546,141
Teresa M. Crummett...... -- -- 45,375 152,625 497,007 1,671,752
Janette S. Chock........ -- -- 23,156 124,344 253,635 1,293,614
James R. Tolonen........ -- -- 25,000 575,000 225,000 5,175,000
</TABLE>
Benefit Plans
1999 Equity Incentive Plan
As of December 31, 1999, options to purchase 2,158,368 shares of common stock
were outstanding under the 1999 Equity Incentive Plan and 2,394,369 shares of
common stock remained available for issuance upon the exercise of options that
may be granted in the future. The options that were outstanding as of that date
had a weighted average exercise price of $2.03 per share. This plan will
terminate upon this offering and no options will be granted under this plan
after this offering. However, termination will not affect any outstanding
options, all of which will remain outstanding until exercise or until they
terminate or expire by their terms. Options granted under this plan are subject
to terms substantially similar to those described below with respect to options
granted under the 2000 Equity Incentive Plan.
2000 Equity Incentive Plan
The Board is considering a proposal to adopt the 2000 Equity Incentive Plan
and to reserve shares of common stock to be issued under this
plan. On each January 1, beginning in 2001, the aggregate number of shares
reserved for issuance under this plan will increase automatically by a number
of shares equal to 5% of our outstanding shares of capital stock on December 31
of the preceding year.
52
<PAGE>
The following shares will be available for grant and issuance under the
equity incentive plan:
. shares under the 2000 Equity Incentive Plan not issued or subject to
outstanding grants on the date of this prospectus;
. shares that are subject to issuance upon exercise of an option granted
under the equity incentive plan that cease to be subject to the option
for any reason other than exercise of the option including by the
expiration of the option or the option's becoming unexercisable for any
reason without having been exercised in full;
. shares that have been issued upon the exercise of an option granted
under the equity incentive plan that are subsequently forfeited, or
repurchased by us at the original purchase price;
. shares that are subject to an award granted pursuant to a restricted
stock purchase agreement under the equity incentive plan that are
subsequently forfeited, or repurchased by us at the original issue
price; or
. shares that are subject to stock bonuses granted under the equity
incentive plan that terminate without shares being issued.
This plan will become effective on the consummation of this offering and will
terminate ten years following adoption, unless it is terminated earlier by our
board. The plan authorizes the award of options, restricted stock awards and
stock bonuses. No person will be eligible to receive more than 1,500,000 shares
in any calendar year under the plan other than a new employee. A new employee
will be eligible to receive no more than 3,000,000 shares in the calendar year
in which the employee commences employment.
The plan will be administered by our compensation committee, all of the
members of which are "non-employee directors" under applicable federal
securities laws and "outside directors" as defined under applicable federal tax
laws. The compensation committee will have the authority to construe and
interpret the plan, grant awards and make all other determinations necessary or
advisable for the administration of the plan. Also, non-employee directors are
entitled to receive automatic annual grants of options to purchase shares of
our common stock, as described under "Management--Director Compensation."
The plan will provide for the grant of both incentive stock options that
qualify under Section 422 of the Internal Revenue Code and nonqualified stock
options. Incentive stock options may be granted only to our employees or
employees of our parent or subsidiary, if any. All awards other than incentive
stock options may be granted to employees, officers, directors, consultants,
independent contractors and advisors of ours or our parent or subsidiary, if
any, provided that, in the case of the consultants, independent contractors and
advisors, they render bona fide services not in connection with the offer and
sale of securities in a capital-raising transaction. The exercise price of
incentive stock options must be at least equal to the fair market value of our
common stock on the date of grant. The exercise price of incentive stock
options granted to 10% stockholders must be at least equal to 110% of that
value. The exercise price of non-qualified stock options must be at least equal
to 85% of the fair market value of our common stock on the date of grant.
Options may be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options and the shares issued pursuant
to immediately exercisable options will vest over a four-year period. The
maximum term of options granted under the plan is ten years.
Awards granted under the plan may not be transferred in any manner other than
by will or by the laws of descent and distribution. They may be exercised
during the lifetime of the optionee only by
53
<PAGE>
the optionee. The compensation committee could determine otherwise and provide
for these provisions in the award agreement, but only with respect to awards
that are not incentive stock options. Options granted under the plan generally
may be exercised for a period of time after the termination of the optionee's
service to us or to our parent or subsidiary, if any. Options will generally
terminate one month after termination of employment for cause.
The purchase price for restricted stock will be determined by our
compensation committee. Stock bonuses may be issued for past services or may be
awarded upon the completion of certain services or performance goals.
If we are dissolved or liquidated or have a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. In the discretion of the compensation committee, the vesting of these
awards may accelerate upon one of these transactions.
2000 Employee Stock Purchase Plan
The board is considering a proposal to adopt the 2000 Employee Stock Purchase
Plan and to reserve 500,000 shares of common stock under this plan. The plan
will become effective on the first business day on which price quotations for
our common stock are available on the Nasdaq National Market. On each January
1, beginning in 2001, the aggregate number of shares reserved for issuance
under this plan will increase automatically by a number of shares equal to
1% of our outstanding shares on December 31 of the preceding year. The
aggregate number of shares reserved for issuance under the plan may not exceed
5,000,000 shares. The plan will be administered by our compensation committee,
which will have the authority to construe and interpret the plan.
Employees generally will be eligible to participate in the plan if:
. they are employed before the beginning of an offering period;
. they are customarily employed by us, or our parent or any subsidiaries
that we designate, for more than 20 hours per week and more than five
months in a calendar year; and
. are not, and would not become as a result of being granted an option
under the plan, 5% stockholders of us or our designated parent or
subsidiaries.
Under the plan, eligible employees will be permitted to acquire shares of our
common stock through payroll deductions. Eligible employees may select a rate
of payroll deduction between 1% and 10% of their compensation, subject to
maximum purchase limitations. Participation in the plan will end automatically
upon termination of employment for any reason.
Each offering period under the plan will be for two years and will consist of
four six-month purchase periods. The first offering period is expected to begin
on the first business day on which price quotations for our common stock are
available on the Nasdaq National Market. Additional offering periods and
purchase periods will begin on February 1 and August 1 of each year. Because
the first day on which price quotations for our common stock may be available
on the Nasdaq National Market may not be February 1 or August 1, the length of
the first offering period will be more than two years, and the length of the
first purchase period may be more than six months.
The plan will provide that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event will continue for the duration of the offering period, provided
that the compensation committee may fix a different date for termination of the
plan. The purchase price for our common stock purchased under the plan is 85%
of the lesser of the fair market value of our common stock on the first or last
day of the applicable offering period.
54
<PAGE>
The compensation committee will have the power to change the offering dates,
purchase dates and duration of offering periods or purchase periods without
stockholder approval, if the change is announced prior to the relevant offering
period, or prior to such other time period as is specified by the compensation
committee.
The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. Rights granted under the plan will
not be transferable by a participant other than by will or the laws of descent
and distribution.
The plan will terminate in February 2010, unless it is terminated earlier
under its terms. The board will have the authority to amend, terminate or
extend the term of the plan, except that no action may adversely affect any
outstanding options previously granted under the plan. Except for the automatic
annual increase of shares described above, stockholder approval is required to
increase the number of shares that may be issued or to change the terms of
eligibility under the plan. The board may make amendments to the plan as it
determines to be advisable if the financial accounting treatment for the plan
is different from the financial accounting treatment in effect on the date the
plan was adopted by the board.
401(k) Plan. We sponsor a defined contribution plan intended to qualify under
Section 401 of the Internal Revenue Code, or a 401(k) plan. Employees are
generally eligible to participate and may enter the plan as of the first day of
the month coinciding with or next following the date on which the employee met
the requirements. Participants may make pre-tax contributions to the plan of up
to 20% of their eligible earnings, subject to a statutorily prescribed annual
limit. Each participant is fully vested in his or her contributions and the
investment earnings. Contributions to the plan by the participants or by us,
and the income earned on these contributions, are generally not taxable to the
participants until withdrawn. Participant and company contributions are held in
trust as required by law. Individual participants may direct the trustee to
invest their accounts in authorized investment alternatives.
Employment Arrangements, Termination of Employment Arrangements
and Change of Control Arrangements
Mark Jung's offer letter, dated February 1, 1999, provides for an initial
annual salary of $250,000 commencing on February 1, 1999. Pursuant to the offer
letter, Mr. Jung purchased 1,978,021 shares of our common stock at $0.04667 per
share. The shares purchased by him are subject to our right to repurchase these
shares upon termination of his employment. Our right to repurchase his shares
at the original price upon his termination lapses ratably over a 48-month
period that began in December 1998. The repurchase right will expire as to half
of the shares of common stock subject to repurchase if Mr. Jung is terminated
by us without cause or if he terminates his employment under some
circumstances. In connection with this stock purchase, we agreed to loan Mr.
Jung the entire purchase price. See "Management--Compensation Committee
Interlocks and Insider Participation."
James Tolonen's offer letter, dated October 18, 1999, provides for an initial
annual salary of $225,000 commencing on October 1, 1999. Pursuant to the offer
letter, the James R. Tolonen and Ginger Tolonen Family Trust dated 9/26/96 and
the James R. Tolonen Grantor Retained Annuity Trust purchased 120,000 and
30,000 shares, respectively, of our Series B-1 preferred stock at a purchase
price of $4.22 per share. In connection with this stock purchase, we loaned the
James R. Tolonen and Ginger Tolonen Family Trust dated 9/26/96 $333,000,
pursuant to a full recourse promissory note representing part of the purchase
price for its shares. The principal amount of the loan is due on October 20,
2003 or earlier in the event of Mr. Tolonen's termination for cause or if he
terminates his employment under some circumstances, and bears interest at the
rate of 5.86% per
55
<PAGE>
year. Mr. Tolonen's offer letter provides that the note and any accrued
interest will be forgiven in full if he is terminated without cause or if he
terminates his employment under some circumstances. See "Management--
Compensation Committee Interlocks and Insider Participation." Pursuant to the
offer letter, Mr. Tolonen was granted options to purchase 600,000 shares of our
common stock at an exercise price of $2.00 per share, of which 50,000 shares
were granted under the 1999 Equity Incentive Plan and 550,000 shares were
granted outside the 1999 Equity Incentive Plan, which upon exercise will be
subject to our right to repurchase all of the shares of common stock for which
our repurchase right has not lapsed upon termination of his employment. In
November 1999, he exercised options to purchase 400,000 shares of our common
stock at an exercise price of $2.00 per share. Our right to repurchase these
shares lapses ratably over a 48-month period that began in October 1999. In
addition, our repurchase right lapses as to 75,000 shares of common stock if
Mr. Tolonen is terminated by us without cause or if he terminates his
employment under some circumstances, unless termination happens 60 days before,
or within one year after, we are acquired or merge with another company, in
which case our right to repurchase these shares lapses as to 150,000 shares.
Janette Chock's offer letter, dated January 18, 1999, provides for an initial
annual salary of $120,000 commencing on February 1, 1999. Pursuant to the offer
letter, Ms. Chock purchased 99,000 shares of our common stock at an exercise
price of $0.04667 per share under the 1999 Equity Incentive Plan. Upon
termination of her employment, we have the right to repurchase at the exercise
price all of the shares of common stock for which our repurchase right has not
lapsed. Our right to repurchase her shares at the original price upon
termination lapsed as to 12,375 shares on August 1, 1999 and lapses as to
approximately 2,062 shares each month thereafter.
Teresa Crummett's offer letter, dated March 15, 1999, provides for an initial
annual salary of $140,000 commencing on March 15, 1999, and an incentive bonus
of up to $7,500 per quarter commencing in the quarter ended June 30, 1999.
Pursuant to the offer letter, Ms. Crummett purchased 198,000 shares of our
common stock at an exercise price of $0.04667 per share under the 1999 Equity
Incentive Plan. Upon termination of her employment, we have the right to
repurchase at the exercise price all of the shares of common stock for which
our repurchase right has not lapsed. Our right to repurchase her shares lapsed
as to 24,750 shares on July 1, 1999 and lapses as to 4,125 shares each month
thereafter.
Kenneth Keller's offer letter, dated March 15, 1999, provides for an initial
annual salary of $175,000 commencing on March 15, 1999. Pursuant to the offer
letter, Mr. Keller purchased 450,000 shares of our common stock at an exercise
price of $0.04667 per share under the 1999 Equity Incentive Plan. Upon
termination of his employment, we have the right to repurchase at the exercise
price all of the shares of common stock for which our repurchase right has not
lapsed. Our right to repurchase his shares lapsed as to 28,125 shares on March
22, 1999 and lapses as to approximately 9,375 shares each month thereafter. The
repurchase right will expire as to 112,500 shares of the common stock subject
to repurchase if Mr. Keller is terminated by us without cause or if he
terminates his employment under some circumstances.
Elizabeth Murphy's offer letter, dated March 4, 1999, provides for an initial
annual salary of $200,000 commencing on March 17, 1999 and an incentive bonus
of up to $75,000, of which $36,500 is guaranteed in the first year of her
employment. In addition, her offer letter provides that we will pay her
$100,000 if she is terminated by us without cause, or if she terminates her
employment under some circumstances. Pursuant to the offer letter, Ms. Murphy
purchased 300,000 shares of our common stock, of which 75,000 shares will vest
on March 15, 2000 and the remainder will vest ratably over a 36-month period
thereafter, at an exercise price of $0.04667 per share under the 1999 Equity
Incentive Plan. Upon termination of her employment, we have the right to
repurchase at the exercise price all of the shares of common stock for which
our repurchase right
56
<PAGE>
has not lapsed. Our repurchase right will expire as to 75,000 shares of the
common stock subject to repurchase if Ms. Murphy is terminated by us without
cause or if she terminates her employment under some circumstances.
Unless otherwise stated above, if we merge with or are acquired by another
company and the surviving company does not assume the employment contracts
between our executive officers and us, our executive officers may terminate
their employment at their own election and our repurchase right will expire as
to 25% of the number of shares purchased pursuant to the offer letter.
Limitation of Liability and Indemnification
Our certificate of incorporation, as we propose to amend it, includes a
provision that eliminates the personal liability of our directors for monetary
damages resulting from breach of fiduciary duty as a director, except liability
for:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful dividends and stock repurchases or redemptions under section
174 of the Delaware General Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our bylaws, as we propose to amend them, provide that:
. we must indemnify our directors and executive officers to the fullest
extent permitted by Delaware law or any other applicable law, subject to
very limited exceptions;
. we may indemnify our other employees and agents to the same extent that
we indemnify our directors and executive officers, unless otherwise
required by law, our certificate of incorporation, our bylaws or
agreements; and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers to give them additional contractual assurances regarding the scope of
the indemnification provided in our certificate of incorporation and bylaws and
to provide additional procedural protections. Presently, there is no pending
litigation or proceeding involving any of our directors, executive officers or
employees for which indemnification is sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.
We have liability insurance for our directors and officers and intend to
obtain a rider to extend that coverage for public securities matters.
57
<PAGE>
RELATED PARTY TRANSACTIONS
Other than the employment agreements described in "Management," and the
transactions described below, since we were formed there has not been nor is
there currently proposed, any transaction or series of similar transactions to
which we were or will be a party:
. in which the amount involved exceeds or will exceed $60,000, and
. in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
Sales of Securities
Christopher Anderson. On February 1, 1999, we sold 12,857,143 shares our
Series A preferred stock to Christopher Anderson, our Chairman of the Board and
a director, at a purchase price of $0.2333 per share. On December 20, 1999, we
sold 700,000 shares of Series C preferred stock to Mr. Anderson at a purchase
price of $10.00 per share. Mr. Anderson is the President and a director of
Imagine Media.
Imagine Media. On February 1, 1999, we issued to Imagine Media 989,011
shares of Series A preferred stock and 7,500,000 shares of Series B preferred
stock in exchange for certain of its assets. In connection with this issuance
of Series B preferred stock, we entered into a Services and Support Agreement
with Imagine Media dated as of January 1999. This agreement was intended to
assist us in our organizational and start-up phases by providing support
services to us and by permitting us to occupy space in Imagine Media's
premises. The agreement terminated on October 1, 1999 and we are currently
discussing its renewal. Imagine Media's shares of Series B preferred stock were
converted to 414,691 shares of Series B-1 preferred stock on May 11, 1999 for
no additional consideration. On June 14, 1999, we sold 260,664 shares of Series
B-1 preferred stock to Imagine Media at a purchase price of $4.22 per share. On
December 20, 1999, we sold 100,000 shares of Series C preferred stock to
Imagine Media at a purchase price of $10.00 per share.
Mark Jung. On February 1, 1999, we sold 989,011 shares our Series A
preferred stock to Mark Jung, our President and Chief Executive Officer and one
of our directors, at a purchase price of $0.2333 per share. Mr. Jung also
purchased 1,978,021 shares of common stock from us at a purchase price of
$0.04667 per share on February 1, 1999. On December 20, 1999, we sold 50,000
and 10,000 shares of Series C preferred stock to Mr. Jung and the Jung-Murdock
Children's Trust U/A 11/23/93 at a purchase price of $10.00 per share.
Michael Orsak. On May 11, 1999, we sold an aggregate of 1,540,284 shares of
Series B-1 preferred stock to entities associated with Worldview Technology
Partners at a purchase price of $4.22 per share. On December 20, 1999, we sold
148,700 shares of Series C preferred stock to entities associated with
Worldview Technology Partners at a purchase price of $10.00 per share.
Mr. Orsak, one of our directors, is a general partner of Worldview Technology
Partners and its affiliated entities.
Richard LeFurgy. On April 23, 1999, we sold 108,000 shares of common stock
to Richard LeFurgy, one of our directors, at a purchase price of $0.0467 per
share. Mr. LeFurgy also purchased 35,545 shares of Series B-1 preferred stock
from us at a purchase price of $4.22 per share on May 11, 1999. On December 20,
1999, he purchased 3,400 shares of our Series C preferred stock at a purchase
price of $10.00 per share.
On May 11, 1999, we sold an aggregate of 1,220,378 shares of Series B-1
preferred stock to entities associated with the Walden Media & Information
Technology Fund at a purchase price of $4.22 per share. On December 20, 1999,
we sold 117,800 shares of Series C preferred stock to entities associated with
the Walden Media & Information Technology Fund at a purchase price of
58
<PAGE>
$10.00 per share. Mr. LeFurgy is a member of Walden Media, L.L.C., the general
partner of the Walden Media & Information Technology Fund and its affiliated
entities.
Kenneth Keller. On March 15, 1999, we sold 150,000 shares of Series A
preferred stock to Kenneth Keller, our Vice President, Engineering, at a
purchase price of $0.2333 per share. On December 20, 1999, we sold 14,500
shares of Series C preferred stock to Mr. Keller at a purchase price of $10.00
per share.
Trusts Associated with James Tolonen. On October 22, 1999, we sold 120,000
and 30,000 shares of Series B-1 preferred stock to the James R. Tolonen and
Ginger Tolonen Family Trust dated 9/26/96 and the James R. Tolonen Grantor
Retained Annuity Trust, respectively, at a purchase price of $4.22 per share.
Mr. Tolonen, our Chief Financial Officer and Chief Operating Officer and one of
our directors, is a trustee of both these trusts.
Indemnification
We have entered into an indemnification agreement with Richard LeFurgy. Under
that agreement, we will indemnify Mr. LeFurgy for liabilities incurred by him
in connection with the possible recruitment of employees or consultants from a
particular company.
We intend to enter into indemnification agreements with each of our executive
officers and directors. Those indemnification agreements will require us to
indemnify our officers and directors to the fullest extent permitted by
Delaware law. See "Description of Capital Stock--Indemnification of Directors
and Executive Officers and Limitation of Liability."
Registration Rights
Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock--Registration Rights."
Loans to and other Arrangements with Officers and Directors
Loan to Christopher Anderson. We loaned $2.0 million to Christopher
Anderson, our Chairman of the Board and one of our directors, in connection
with his purchase of shares of our Series A preferred stock.
Loan to Mark Jung. We loaned $92,300 to Mark Jung, our President and Chief
Executive Officer, in connection with his purchase of our common stock.
Loan to James Tolonen. We loaned $600,000 to James Tolonen, our Chief
Financial Officer, Chief Operating Officer and director, in connection with his
purchase of 350,000 shares of our common stock.
Loan to Trust Associated with James Tolonen. We loaned $333,000 to the James
R. Tolonen and Ginger Tolonen Family Trust dated 9/26/96 in connection with its
purchase of our Series B-1 preferred stock.
Please refer to "Management--Compensation Committee Interlocks and Insider
Participation" for a description of the loans to Messrs. Anderson, Jung and
Tolonen and the trust associated with Mr. Tolonen, and "Management--Employment
Arrangements, Termination of Employment Arrangements and Change of Control
Arrangements" for a description of stock option grants to officers and
directors.
We believe that all transactions between us and our officers, directors,
principal stockholders and other affiliates have been and will be on terms no
less favorable to us than could be obtained from unaffiliated third parties.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of December 31, 1999 and as adjusted to reflect the sale of
the common stock in this offering by
. each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
. each of our directors;
. each executive officer listed in the Summary Compensation Table above;
and
. all directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
------------------------
Number of Shares Prior to After the
Name of Beneficial Owner Beneficially Owned Offering Offering
------------------------ ------------------ ---------- ----------
<S> <C> <C> <C>
Christopher Anderson(1)......... 15,321,509 49.2% 41.0%
Mark A. Jung(2)................. 3,027,032 9.7 8.1
Imagine Media, Inc.(3)
150 North Hill Drive
Brisbane, California 94005..... 1,764,366 5.7 4.7
Michael Orsak(4)
Worldview Technology Partners
entities
435 Tasso Street, Suite 120
Palo Alto, California 94301.... 1,688,984 5.4 4.5
Weiss Peck & Greer Venture
Partners entities(5)
555 California Street, Suite
3130
San Francisco, California 94104
Attn: Christopher J. Schaepe... 1,688,983 5.4 4.5
Richard A. LeFurgy(6)
Walden Media & Information
Technology Fund, L.P. entities
750 Battery St., 7th Floor
San Francisco, California
94111.......................... 1,485,123 4.8 4.0
James R. Tolonen(7)............. 750,000 2.4 2.0
Kenneth H. Keller(8)............ 614,500 2.0 1.6
Elizabeth G. Murphy(9).......... 300,000 * *
Teresa M. Crummett(10).......... 198,000 * *
Robert H. Reid(11).............. 150,000 * *
Janette S. Chock(12)............ 147,500 * *
All 12 directors and executive
officers as a group(13)........ 23,682,648 75.6% 63.0%
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Based on information provided to us by Mr. Anderson and Imagine Media,
Inc. indicating that Mr. Anderson has sole voting and dispositive power
with respect to 13,557,143 shares and shares voting and dispositive power
with respect to 1,764,366 shares held by Imagine Media, Inc. described in
footnote 3. Mr. Anderson disclaims beneficial ownership with respect to
the shares held by Imagine Media, Inc.
(2) Includes 10,000 shares of common stock held by the Jung-Murdock Children's
Trust U/A 11/23/93, Susan Murdock TTEE. Mr. Jung disclaims beneficial
ownership with respect to the shares held by the Jung-Murdock Children's
Trust. Includes 1,401,098 shares of common stock subject to our repurchase
right within 60 days of December 31, 1999.
(3) Mr. Anderson, one of our directors, is the President and a director of
Imagine Media, Inc. Based on information provided to us by Mr. Anderson
and Imagine Media, Inc., Mr. Anderson shares voting and dispositive power
with respect to the shares held by Imagine Media, Inc. Mr. Anderson
disclaims beneficial ownership with respect to the shares held by Imagine
Media, Inc.
(4) Represents 1,252,425 shares held by Worldview Technology Partners II,
L.P., 383,395 shares held by Worldview Technology International II, L.P.
and 53,164 shares held by Worldview Strategic Partners II, L.P. Mr. Orsak
is a general partner of the Worldview Technology Partner entities. Mr.
Orsak disclaims beneficial ownership of shares held by the Worldview
Technology Partner entities except to the extent of his pecuniary interest
in this venture capital firm.
(5) Represents 1,163,600 shares held by Weiss, Peck & Greer Venture
Associates V, L.L.C., 11,829 shares held by Weiss, Peck & Greer Venture
Associates V-A, L.L.C., 253,687 shares held by Weiss, Peck & Greer
Venture Associates V Cayman, L.P. and 259,867 shares held by Discovery
Ventures III, LLC. Christopher J. Schaepe is a managing member
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<PAGE>
of WPG VC Fund Adviser II, L.L.C., the fund investment advisory member of
Weiss, Peck & Greer Venture Associates V, L.L.C. and Weiss, Peck & Greer
Venture Associates V-A, L.L.C., and the fund investment advisory partner of
Weiss, Peck & Greer Venture Associates V Cayman, L.P. Mr. Schaepe shares
voting and dispositive power with respect to the shares held by Weiss, Peck
& Greer Venture Associates V, L.L.C., Weiss, Peck & Greer Venture Associates
V-A, L.L.C. and Weiss, Peck & Greer Venture Associates V Cayman, L.P. Based
on information provided to us by Weiss, Peck & Greer, L.L.C., Weiss, Peck &
Greer, L.L.C. is a member of Discovery III Management, LLC, the fund
investment advisory member of Discovery Ventures III, LLC, and is a class A
non-managing member of WPG VC Fund Adviser II, L.L.C. Weiss, Peck & Greer,
L.L.C. and Mr. Schaepe disclaim beneficial ownership with respect to the
shares held by Weiss, Peck & Greer Venture Associates V, L.L.C., Weiss, Peck
& Greer Venture Associates V-A, L.L.C., Weiss, Peck & Greer Venture
Associates V Cayman, L.P. and Discovery Ventures III, LLC, except to the
extent of their pecuniary interests in these entities.
(6) Includes 26,007 shares held by Infotech Ventures Ltd., 26,007 shares held
by Walden EDB Partners, L.P., 11,848 shares held by Walden Japan Partners,
L.P. and 1,274,316 shares held by Walden Media & Information Technology
Fund, L.P. Mr. LeFurgy, one of our directors, is a member of Walden Media,
L.L.C., the general partner of Walden Media & Information Technology Fund,
L.P., and an affiliate of Walden Japan Partners, L.P., Walden EDB
Partners, L.P. and Infotech Partners Ltd. Mr. LeFurgy disclaims beneficial
ownership of the shares held by Walden Media & Technology Fund, L.P.,
Walden Japan Partners, L.P., Walden EDB Partners, L.P. and Infotech
Partners Ltd., except to the extent of his proportionate ownership
therein. Includes 85,500 shares of common stock subject to our repurchase
right within 60 days of December 31, 1999.
(7) Includes 120,000 shares of common stock held by the James R. Tolonen and
Ginger Tolonen Family Trust dated 9/26/96, Ginger and James Tolonen
trustees, and 30,000 shares of common stock held by James R. Tolonen,
trustee of the James R. Tolonen 1999 Grantor Retained Annuity Trust.
Includes 550,000 shares of common stock subject to our repurchase right
within 60 days of December 31, 1999, 200,000 shares of which are issuable
upon exercise of options exercisable within 60 days of December 31, 1999.
(8) Includes 323,750 shares of common stock subject to our repurchase right
within 60 days of December 31, 1999.
(9) Includes 300,000 shares of common stock subject to our repurchase right
within 60 days of December 31, 1999.
(10) Includes 144,375 shares of common stock subject to our repurchase right
within 60 days of December 31, 1999.
(11) Includes 115,625 shares of common stock subject to our repurchase right
within 60 days of December 31, 1999.
(12) Includes 119,656 shares of common stock subject to our repurchase right
within 60 days of December 31, 1999.
(13) Includes 3,040,004 shares of common stock subject to our repurchase right
within 60 days of December 31, 1999 and 200,000 shares of common stock
issuable upon exercise of options exercisable within 60 days of
December 31, 1999.
The percentage of shares beneficially owned prior to the offering is based on
31,145,442 shares of common stock outstanding as of December 31, 1999 after
giving effect to the issuance of 150,000 shares of Series C preferred stock in
January 2000, assuming that all outstanding preferred stock has been converted
into common stock. The percentage of shares beneficially owned after this
offering is based on a denominator that includes the 6,250,000 shares of common
stock being offered but does not include the shares which are subject to the
underwriters' over-allotment option. Percentage ownership figures after the
offering do not include shares that may be purchased by each person in this
offering.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated above, the persons and entities named
in the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
Shares of common stock subject to options and warrants that are currently
exercisable or exercisable within 60 days of December 31, 1999 are deemed to be
outstanding and to be beneficially owned by the person holding the options or
warrants for the purpose of computing the percentage ownership of that person
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Unless indicated above, the address for each
listed stockholder is c/o Snowball.com, Inc., 250 Executive Park Boulevard,
Suite 4000, San Francisco, California 94134.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 100,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of preferred stock, $0.001 par value per share. As
of December 31, 1999, and assuming the conversion of all outstanding preferred
stock into common stock upon the closing of this offering, there were
outstanding 30,995,442 shares of common stock held of record by approximately
110 stockholders, options to purchase 2,358,368 shares of common stock and
warrants to purchase 322,688 shares of common stock.
We are incorporated in the state of Delaware. Following the closing of this
offering, we intend to amend and restate our certificate of incorporation. Our
amended and restated certificate of incorporation, restated bylaws and
investors' rights agreement, described below, are included as exhibits to the
registration statement of which this prospectus forms a part.
Common Stock
Status. Each outstanding share of common stock is, and all shares of common
stock to be outstanding upon completion of this offering will be, fully paid
and nonassessable.
Dividend Rights. Subject to preferences that may apply to shares of preferred
stock outstanding at the time, the holders of outstanding shares of common
stock are entitled to receive dividends out of assets legally available at the
times and in the amounts that our board may from time to time determine.
Voting Rights. Each common stockholder is entitled to one vote for each share
of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
No preemptive or similar rights. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of Snowball, the assets legally available for distribution to
stockholders would be distributable ratably among the holders of the common
stock and any participating preferred stock outstanding at that time after
payment of liquidation preferences, if any, on any outstanding preferred stock
and payment of other claims of creditors.
Preferred Stock
Upon the closing of this offering, the outstanding shares of preferred stock,
including 150,000 shares of Series C preferred stock issued in January 2000,
will be converted into 25,559,895 shares of common stock. See note 8 of our
Notes to Consolidated Financial Statements for a description of this preferred
stock.
Following this offering, we will be authorized, subject to the limits imposed
by Delaware law, to issue preferred stock in one or more series, to establish
from time to time the number of shares to be included in each series and to fix
the rights, preferences and privileges of the shares of each wholly unissued
series and any of its qualifications, limitations or restrictions. The board
can also increase or decrease the number of shares of any series, but not below
the number of shares of that series then outstanding, without any further vote
or action by the stockholders.
The board may authorize the issuance of preferred stock with voting,
dividend, liquidation or conversion rights that could adversely affect the
voting power or other rights of the holders of the
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<PAGE>
common stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could,
among other things, have the effect of delaying, deferring or preventing a
change in control of Snowball and might adversely affect the market price of
the common stock and the voting and other rights of the holders of common
stock. We have no current plan to issue any shares of preferred stock.
Warrants
As of December 31, 1999, we had outstanding the following warrants to
purchase our stock:
<TABLE>
<S> <C> <C> <C>
Total number of
shares subject Exercise price
Type of stock to Warrants per share Expiration date
-------------------------- --------------- -------------- -------------------------
Series B-1 preferred stock 154,804 $8.44 November 8, 2002
Series B-1 preferred stock 115,192 8.44 180 days following this
offering
Series B-1 preferred stock 31,595 3.165 Upon consummation of this
offering
Series B-1 preferred stock 21,097 7.11 Upon consummation of this
offering
</TABLE>
After the closing of this offering, the warrants that survive the
consummation of the offering will become exercisable for a like number of
shares of common stock.
Registration Rights
The holders of approximately 25,559,895 shares of common stock will have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
Right to demand registration
At any time more than six months after this offering, these stockholders can
request that we file a registration statement so they can publicly sell their
shares. The underwriters of any underwritten offering will have the right to
limit the number of shares to be so included in a registration statement.
Who may make a demand. The holders of at least 30% of the shares with
registration rights have the right to demand that we file a registration
statement on a form other than Form S-3 covering at least a majority of the
shares with registration rights (or a lesser amount if the offering price
exceeds $10,000,000 (net of underwriting discounts and commissions)). If we are
eligible to file a registration statement on Form S-3, the holders with the
registration rights above also have the right to demand that we file a
registration statement on Form S-3, so long as the amount of securities to be
sold in that registration exceeds $10,000,000.
Number of times holders can make demands. We will not be required to file
more than two registration statements on a form other than Form S-3. If we are
eligible to file a registration statement on Form S-3, we are not required to
file more than two registration statements during any 12-month period.
Postponement. We may postpone the filing of a registration statement for up
to 90 days once in a 12-month period if we determine that the filing would be
seriously detrimental to us or our stockholders.
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<PAGE>
Piggyback registration rights
If we register any securities for public sale, the stockholders with
registration rights above, as well as the holders of any shares issued upon
exercise of outstanding warrants to purchase 269,996 shares of our Series B-1
preferred stock, will have the right to include their shares in the
registration statement. The underwriters of any underwritten offering will have
the right to limit the number of shares to be so included in a registration
statement.
Expenses of registration
We will pay all of the expenses (other than underwriting discounts and
commissions) relating to any demand or piggyback registration. However, we will
not pay for any expenses of any demand registration if the request is
subsequently withdrawn by the holders of a majority of the shares having
registration rights, subject to very limited exceptions.
Expiration of registration rights
The registration rights described above will expire five years after this
offering is completed. The registration rights will terminate earlier with
respect to a particular stockholder if that holder can resell all of its
securities in a 90-day period under Rule 144 of the Securities Act.
Anti-Takeover Provisions of our Certificate of Incorporation, Bylaws and
Delaware Law
The provisions of Delaware law, our certificate of incorporation and our
bylaws, each as we intend to amend them, described below may have the effect of
delaying, deferring or discouraging another person from acquiring control of
our company.
Delaware Law
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under limited circumstances, in a
"business combination," with an "interested stockholder" for a period of three
years following the date the person became an interested stockholder unless:
. the board approves either the business combination or the transaction
that resulted in the stockholder becoming an interested director prior
to the date the "interested stockholder" attained that status;
. upon the closing of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
. on or subsequent to the date, the business combination is approved by
the board and authorized at an annual or special meeting of stockholders
by at least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
A "business combination" generally includes a merger, asset or stock sale or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to
determination of interested stockholder status did own, 15% or more of a
corporation's voting stock.
A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not "opted out" of this provision. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts and,
accordingly, might discourage attempts to acquire us.
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<PAGE>
Charter and Bylaw Provisions
Our amended and restated certificate of incorporation to be filed upon the
closing of this offering will provide for a classified board divided into three
classes. The directors in each class will serve for a three-year term, with our
stockholders electing one class each year. The affirmative vote of at least 66
2/3% of all classes of voting stock is required to remove any director. For
more information on the classification of our board, please see "Management--
Board of Directors and Committees." This system of electing and removing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of us, because it generally makes it
more difficult for stockholders to replace a majority of the directors.
Our bylaws, as we intend to amend them, provide that any action required or
permitted to be taken by our stockholders at an annual meeting or a special
meeting of the stockholders may be taken only if it is properly brought before
the meeting. Our stockholders may not take any action by written consent. Our
certificate of incorporation, as we intend to amend it, provides that our board
of directors may issue preferred stock with voting or other rights without
stockholder action. Our bylaws and certificate of incorporation, as we intend
to amend them, provide that special meetings of the stockholders may only be
called by our board, the chairman of our board, our chief executive officer or
our president.
Our bylaws, as we intend to amend them, provide that we will indemnify
officers and directors against losses that they may incur in investigations and
legal proceedings resulting from their services to us, which may include
services in connection with takeover defense measures. These provisions may
have the effect of preventing changes in our management.
Indemnification of Directors and Executive Officers and Limitation of Liability
Our certificate of incorporation, as we intend to amend it, limits the
liability of directors to the fullest extent permitted by Delaware law. In
addition, our certificate of incorporation and bylaws provide that we will
indemnify our directors and officers to the fullest extent permitted by
Delaware law. We intend to enter into separate indemnification agreements with
our directors and executive officers that provide them indemnification
protection in the event the certificate of incorporation is subsequently
amended.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers against losses that they may incur in
investigations and legal proceedings resulting from their services to us, which
may include services in connection with takeover defense measures. These
provisions may have the effect of preventing changes in our management.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C. The address of our transfer agent and registrar is
85 Challenger Road, Ridgefield Park, New Jersey 07660.
Listing
We have applied for our common stock to be quoted on the Nasdaq National
Market under the trading symbol "SNBL."
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<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding warrants or options, in the public market after
this offering could adversely affect market prices prevailing from time to time
and could impair our ability to raise capital through the sale of our equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering due to limited contractual
restrictions on resale. Sales of substantial amounts of our common stock in the
public market after these restrictions lapse or are released could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering, based on shares outstanding as of December
31, 1999 and giving effect to the issuance of 150,000 shares of Series C
preferred stock in January 2000, we will have outstanding 37,395,442 shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants. Of these shares, the shares
sold in this offering plus any shares issued upon exercise of the underwriters'
over-allotment option will be freely tradable without restriction under the
Securities Act unless purchased by our "affiliates," as that term is defined in
Rule 144 under the Securities Act. In general, affiliates include officers,
directors and 10% stockholders. The remaining shares will become eligible for
public sale as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<C> <S>
21,182,467 After 180 days from the date of this prospectus, the 180 day lock-
up terminates and these shares are saleable under Rule 144 (subject
in some cases to volume limitations) or Rule 144(k)
1,654,464 After 180 days from the date of this prospectus, the 180 day lock-
up is released and these shares are saleable under Rule 701
(subject in some cases to a right of repurchase by the Company)
8,308,511 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not yet
saleable under Rule 144
</TABLE>
Lock-Up Agreements
All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements under which they have agreed not to sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock without the prior written consent of Goldman, Sachs
& Co. for a period of 180 days after the date of this prospectus.
Goldman, Sachs & Co. may choose to release some of these shares from these
restrictions prior to the expiration of this 180-day period, though it has no
current intention to do so.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, 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 373,954 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 on Form 144 with respect to the sale.
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<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, these shares may be sold immediately upon the completion of this
offering.
Rule 701
Any of our employees, officers, directors or consultants who purchased his or
her shares under a written compensatory plan or contract may be entitled to
sell his or her shares in reliance on Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell these shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling those shares. However, all
shares issued under Rule 701 are subject to lock-up agreements and will only
become eligible for sale when the 180-day lock-up agreements expire.
Registration Rights
Upon completion of this offering and assuming all warrants to purchase shares
of Series B-1 preferred stock are exercised, the holders of 25,882,583 shares
of common stock, or their transferees, will be entitled to certain rights with
respect to the registration of those shares under the Securities Act. For a
discussion of these rights please see "Description of Capital Stock--
Registration Rights." After these shares are registered, they will be freely
tradable without restriction under the Securities Act.
Stock Options
As of December 31, 1999, options to purchase 2,358,368 shares of common stock
were issued and outstanding. Upon the expiration of the lock-up agreements
described above, at least 941,585 shares of common stock will be subject to
vested options, based on options outstanding as of December 31, 1999.
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering shares of common stock reserved for issuance
under our stock option and employee stock purchase plans. This registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of this offering. Accordingly, shares registered under
this registration statement will, subject to vesting provisions and Rule 144
volume limitation manner of sale, notice and public information requirements
applicable to our affiliates, be available for sale in the open market
immediately after the 180-day lock-up agreements expire.
Warrants
As of December 31, 1999, we had outstanding warrants to purchase 322,688
shares of common stock. When these warrants are exercised and the exercise
price is paid in cash, the shares must be held for one year before they can be
sold under Rule 144. However, each of these warrants contains "net exercise
provisions." These provisions allow a holder to exercise the warrant for a
lesser number of shares of common stock in lieu of paying cash. The number of
shares that would be issued in this case would be based upon the market price
of the common stock at the time of the net exercise. If the warrant had been
held for at least one year, the shares of common stock could be publicly sold
under Rule 144. After the lock-up agreements described above expire, these
warrants will have expired or have been exercised.
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<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of the
issuance of the shares of common stock offered by this prospectus. Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California,
will pass upon certain legal matters in connection with this offering for the
underwriters. An investment fund associated with Fenwick & West LLP owns 12,948
shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1999, and for each of the three
years in the period ended December 31, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
J.W. Hunt and Company, LLP, independent auditors, have audited the financial
statements of Ameritrack, Inc. (a development stage company) at August 31, 1999
and for the period from the commencement of operations on or about August 14,
1998 through August 31, 1998, as set forth in their report. We have included
the financial statements of Ameritrack, Inc. (a development stage company) in
the prospectus and elsewhere in the registration statement in reliance on J.W.
Hunt and Company, LLP's report, given on their authority as experts in
accounting and auditing.
Hamilton & Associates, Inc., independent auditors, have audited the financial
statements of Extreme Interactive Media, Inc. as of December 31, 1998 and
September 30, 1999, and for the year ended December 31, 1998 and the nine
months ended September 30, 1999 as set forth in their report. We have included
the financial statements of Extreme Interactive Media, Inc. in the prospectus
and elsewhere in the registration statement in reliance on Hamilton &
Associates, Inc.'s report, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common
stock. This prospectus does not contain all of the information set forth in the
registration statement and the exhibits to the registration statement. For
further information with respect to us and our common stock, we refer you to
the registration statement and the exhibits filed as a part of the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or any other document are not necessarily complete. If a contract
or document has been filed as an exhibit to the registration statement, we
refer you to the copy of the contract or document that has been filed. Each
statement in this prospectus relating to a contract or document filed as an
exhibit is qualified in all respects by the filed exhibit. The registration
statement, including exhibits, may be inspected without charge at the
Securities and Exchange Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part of it may be
obtained from that office after payment of fees prescribed by the Securities
and Exchange Commission. The public may obtain information on the operation of
the Public Reference Room by calling 1-800-732-0330. The Securities and
Exchange Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission at
http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial data for the first three
quarters of each year.
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<PAGE>
Snowball.com, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Snowball.com, Inc. Consolidated Financial Statements: Page
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statement of Stockholders'/Division Equity................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
Ameritrack, Inc. (a development stage company) Financial Statements:
Independent Auditors' Report........................................... F-24
Balance Sheet.......................................................... F-25
Statement of Income and Expense........................................ F-26
Statement of Changes in Stockholders' Equity........................... F-27
Statement of Cash Flows................................................ F-28
Notes to Financial Statements.......................................... F-29
Extreme Interactive Media, Inc. Financial Statements:
Independent Auditors' Report........................................... F-31
Balance Sheets......................................................... F-32
Statements of Operations and Accumulated Deficit....................... F-33
Statements of Cash Flows............................................... F-34
Notes to Financial Statements.......................................... F-35
Unaudited Pro Forma Condensed Combined Financial Information:
Unaudited Pro Forma Condensed Combined Financial Information........... F-37
Pro Forma Condensed Combined Statements of Operations.................. F-38
Notes to the Unaudited Pro Forma Condensed Combined Financial
Information........................................................... F-40
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Snowball.com, Inc.
We have audited the accompanying consolidated balance sheets of Snowball.com,
Inc. and its predecessor division of Imagine Media, Inc. at December 31, 1998
and 1999, and the related consolidated statements of operations,
stockholders'/division equity, and cash flows for each of the three years in
the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 financial position of
Snowball.com, Inc. and its predecessor division of Imagine Media, Inc. at
December 31, 1998 and 1999, and the results of operations and cash flows of
Snowball.com, Inc. and its predecessor division of Imagine Media, Inc. for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
January 28, 2000
F-2
<PAGE>
Snowball.com, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro forma
Stockholders'
December 31, Equity at
----------------- December 31,
1998(1) 1999(2) 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................... $ -- $ 25,489
Short-term investments....................... -- 8,000
Accounts receivable, less allowance of $99
and $528 at December 31, 1998 and 1999,
respectively................................ 920 2,560
Prepaid expenses and other current assets.... 148 2,235
------- --------
Total current assets....................... 1,068 38,284
Goodwill and intangible assets, net........... -- 5,450
Fixed assets, net............................. 93 4,368
Other assets.................................. -- 711
------- --------
Total assets............................... $ 1,161 $ 48,813
======= ========
Liabilities and stockholders'/division equity
Current liabilities:
Accounts payable............................. $ 301 $ 4,757
Accrued liabilities.......................... 50 3,081
Deferred revenue............................. 48 702
Notes payable................................ -- 250
Current portion of term loan ................ -- 150
Current equipment financing obligations...... -- 1,081
------- --------
Total current liabilities.................. 399 10,021
Long-term equipment financing obligations..... -- 2,036
Commitments
Stockholders'/division equity:
Convertible preferred stock, $0.001 par
value, issuable in series: no shares
authorized at December 31, 1998;
20,000,000 shares authorized at December
31, 1999, 18,066,269 shares issued and
outstanding (5,000,000 shares authorized,
no shares outstanding pro forma)............ -- 18 $ --
Common stock, $0.001 par value: no shares
authorized at December 31, 1998; 37,500,000
shares authorized at December 31, 1999,
5,585,547 shares issued and outstanding
(100,000,000 shares authorized and
30,995,442 shares issued and outstanding
pro forma).................................. -- 6 31
Net contribution from Imagine
Media/Additional paid-in capital............ 5,701 88,437 88,430
Notes receivable from stockholders........... -- (1,301) (1,301)
Deferred stock compensation.................. -- (10,643) (10,643)
Accumulated/division deficit................. (4,939) (39,761) (39,761)
------- -------- --------
Total stockholders'/division equity........ 762 36,756 $ 36,756
------- -------- ========
Total liabilities and stockholders'/division
equity....................................... $ 1,161 $ 48,813
======= ========
</TABLE>
- --------
(1) Through December 31, 1998, our activities were included in the operations
of Imagine Media, Inc. Our financial statements for these periods have been
prepared on a carve-out basis.
(2) From January 1999, we have operated as a separate legal entity.
See accompanying notes.
F-3
<PAGE>
Snowball.com, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1997(1) 1998(1) 1999(2)
------- ------- ---------
<S> <C> <C> <C>
Revenue.......................................... $ 927 $ 3,256 $ 6,674
Cost of revenue.................................. 171 1,322 4,316
------- ------- ---------
Gross margin..................................... 756 1,934 2,358
Operating expenses:
Production and content......................... 628 1,599 6,610
Engineering and development.................... 65 329 5,084
Sales and marketing............................ 836 2,592 20,393
General and administrative..................... 506 1,074 3,486
Stock-based compensation....................... -- -- 1,521
Amortization of goodwill and intangible
assets........................................ -- -- 471
------- ------- ---------
Total operating expenses..................... 2,035 5,594 37,565
------- ------- ---------
Loss from operations............................. (1,279) (3,660) (35,207)
Interest income, net............................. -- -- 265
Other income..................................... -- -- 120
------- ------- ---------
Net loss......................................... $(1,279) $(3,660) $ (34,822)
======= ======= =========
Basic and diluted net loss per share............. $ (186.69)
=========
Shares used in per share calculation............. 187
=========
Pro forma basic and diluted net loss per share
(unaudited)..................................... $ (1.93)
=========
Shares used in pro forma per share calculation
(unaudited)..................................... 18,022
=========
</TABLE>
- --------
(1) Through December 31, 1998, our activities were included in the operations
of Imagine Media, Inc. Our financial statements for these periods have been
prepared on a carve-out basis.
(2)From January 1999, we have operated as a separate legal entity.
See accompanying notes.
F-4
<PAGE>
Snowball.com, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS'/DIVISION EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Convertible Net Contribution Notes Total
Preferred Stock Common Stock From Imagine Receivable Deferred Accumulated/ Stockholders'/
----------------- ---------------- Media/Additional From Stock Division Division
Shares Amount Shares Amount Paid-In Capital Stockholders Compensation Deficit Equity
---------- ------ --------- ------ ---------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1997............ -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Net and
comprehensive
loss for the
period.......... -- -- -- -- -- -- -- (1,279) (1,279)
Contribution
from Imagine
Media........... -- -- -- -- 1,781 -- -- -- 1,781
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1997............ -- -- -- -- 1,781 -- -- (1,279) 502
Net and
comprehensive
loss for the
period.......... -- -- -- -- -- -- -- (3,660) (3,660)
Contribution
from Imagine
Media........... -- -- -- -- 3,920 -- -- -- 3,920
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1998............ -- -- -- -- 5,701 -- -- (4,939) 762
Issuance of
common stock to
founders and
employees for
cash and notes
receivable...... -- -- 3,812,297 4 377 (302) -- -- 79
Issuance of
Series A
preferred stock
at $0.35 per
share for cash,
notes receivable
and assets
transferred from
Imagine Media... 9,990,111 10 -- -- 3,257 (2,000) -- -- 1,267
Issuance of
Series B and B-1
preferred stock
for cash and
assets
transferred from
Imagine Media at
$6.33 per
share........... 4,028,437 4 -- -- 23,746 -- -- -- 23,750
Issuance of
Series B-1
preferred stock
at $6.33 per
share to
strategic
partner and
officer for cash
and marketing
rights.......... 668,721 1 -- -- 6,571 -- -- -- 6,572
Issuance of
common stock to
employees upon
exercise of
stock options,
net of
repurchases..... -- -- 1,668,250 2 1,107 (1,044) -- -- 65
Issuance of
warrants to
purchase Series
B-1 preferred
stock in
connection with
lease financing
and term loan... -- -- -- -- 948 -- -- -- 948
Issuance of
Series C
preferred stock
at $10.00 per
share for cash
and conversion
of $3.0 million
term loan....... 3,379,000 3 -- -- 33,786 -- -- -- 33,789
Payments
received on
promissory
notes........... -- -- -- -- -- 2,045 -- -- 2,045
Issuance of
common stock in
connection with
Ameritrack and
Extreme
Interactive
Media
acquisitions.... -- -- 105,000 -- 780 -- -- -- 780
Deferred
compensation.... -- -- -- -- 12,164 -- (12,164) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- 1,521 -- 1,521
Net and
comprehensive
loss for the
period.......... -- -- -- -- -- -- -- (34,822) (34,822)
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1999............ 18,066,269 $ 18 5,585,547 $ 6 $88,437 $(1,301) $(10,643) $(39,761) $ 36,756
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
Snowball.com, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997(1) 1998(1) 1999(2)
------- ------- --------
<S> <C> <C> <C>
Operating activities
Net loss.......................................... $(1,279) $(3,660) $(34,822)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................... 20 40 1,769
Stock-based compensation......................... -- -- 1,521
Other noncash expenses........................... -- -- 948
Changes in assets and liabilities:
Accounts receivable............................. (653) (272) (1,640)
Prepaid expenses and other assets............... (82) (61) (2,798)
Accounts payable and accrued liabilities........ 250 102 7,487
Deferred revenue................................ 11 37 654
------- ------- --------
Net cash used in operating activities.......... (1,733) (3,814) (26,881)
------- ------- --------
Investing activities
Purchases of short-term investments............... -- -- (8,000)
Purchases of intangible assets.................... -- -- (2,550)
Purchases of fixed assets......................... (48) (106) (5,575)
------- ------- --------
Net cash used in investing activities.......... (48) (106) (16,125)
------- ------- --------
Financing activities
Proceeds from equipment financing obligations..... -- -- 3,117
Proceeds from issuance of common and preferred
stock............................................ -- -- 62,228
Proceeds from borrowings under term loan.......... -- -- 15,150
Payment of borrowings under term loan............. -- -- (12,000)
Contributions from Imagine Media.................. 1,781 3,920 --
------- ------- --------
Net cash provided by financing activities...... 1,781 3,920 68,495
------- ------- --------
Net increase in cash and cash equivalents......... -- -- 25,489
Cash and cash equivalents at beginning of
period........................................... -- -- --
------- ------- --------
Cash and cash equivalents at end of period........ $ -- $ -- $ 25,489
======= ======= ========
Schedule of noncash investing and financing
activities
Conversion of term loan debt to Series C
preferred stock.................................. $ -- $ -- $ 3,000
======= ======= ========
Common stock issued for goodwill and intangible
assets........................................... $ -- $ -- $ 3,119
======= ======= ========
Common stock issued for notes receivable.......... $ -- $ -- $ 3,346
======= ======= ========
Deferred stock compensation ...................... $ -- $ -- $ 12,164
======= ======= ========
</TABLE>
- --------
(1) Through December 31, 1998, our activities were included in the operations
of Imagine Media, Inc. Our financial statements for these periods have been
prepared on a carve-out basis.
(2) From January 1999, we have operated as a separate legal entity.
See accompanying notes.
F-6
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Company and Summary of Significant Accounting Policies
Description of Company
Snowball.com, Inc. ("Snowball") was incorporated as Affiliation, Inc. in the
state of Delaware on January 6, 1999, and commenced operations as a separate
legal entity at that time. From its inception in January 1997 through January
5, 1999, Snowball operated as a division of Imagine Media, Inc. ("Imagine
Media"). Snowball is an Internet media company that operates a network of
destination web sites providing content, community and commerce to the Internet
generation, or Generation i. Snowball views Generation i as individuals between
the ages of 13 and 30 who consider the Internet to be an integral part of their
daily lives. Snowball serves the members of this community by providing them
with opinionated, current content, relevant services such as email and instant
messaging, a forum for interacting with one another and carefully selected
merchandise within its online store. Snowball provides its advertisers with
targeted access to Generation i and supplies its content partners with an
integrated package of marketing services and audience-development
opportunities.
Snowball has sustained net losses and negative cash flows from operations
since inception. Snowball's ability to meet obligations in the ordinary course
of business is dependent upon its ability to establish profitable operations
and raise additional financing through public or private equity financings,
collaborative or other arrangements with corporate sources, or other sources of
financing. In the year ended December 31, 1999, Snowball has received financing
of approximately $65 million through the issuance of common stock and Series A,
B1 and C convertible preferred stock (see Notes 7 and 8). Management believes
that these funds will be sufficient to enable Snowball to meet planned
expenditures through at least December 31, 2000. If anticipated operating
results are not achieved, management intends to delay or reduce expenditures so
as not to require additional financial resources, if these resources are not
available on terms acceptable to Snowball.
The divisional statements of operations for each of the two years in the
period ended December 31, 1998 include all revenue and expenses directly
attributable to Snowball, including a corporate allocation of the costs of
facilities, salaries, and employee benefits based on relative headcount.
Additionally, incremental corporate administration, finance, and management
costs have been allocated to Snowball (see Note 5).
All of the allocations reflected in 1997 and 1998 in the financial statements
are based on assumptions that management believes are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs that would have resulted if Snowball had been operated
on a stand-alone basis in 1997 and 1998. From incorporation on January 6, 1999
through September 30, 1999, there was a service and support agreement in place
between Snowball and Imagine Media which specified the terms of certain
services to be provided by Imagine Media. Under that agreement, Imagine Media
provided certain management, personnel and technology and information services
support and rental space in return for cash payments based upon divisional
allocations and the actual costs of providing such services. The agreement
terminated on October 1, 1999 and Snowball is currently discussing its renewal.
Principles of Consolidation
The consolidated financial statements include the accounts of Snowball and
its wholly-owned subsidiaries. All significant inter-company balances and
transactions have been eliminated.
F-7
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Basis of Presentation
The accompanying financial statements include the operations of Snowball as
part of Imagine Media (on a carved-out basis as discussed below) from its
inception as a division of Imagine Media in January 1997 through December 31,
1998 (the "divisional statements") and as a separate legal entity from its
incorporation on January 6, 1999. The balance sheet at December 31, 1998
represents the assets, liabilities, and divisional equity of Snowball as a part
of Imagine Media and at December 31, 1999, represents the balance sheet of
Snowball as a separate legal entity. The divisional financial statements have
been derived from the historical books and records of Imagine Media. The
balance sheet at December 31, 1998 includes all assets and liabilities
specifically identifiable and directly attributable to Snowball, which are
derived from historical cost information of Imagine Media. Imagine Media's
corporate accounting systems were not designed to track cash receipts and
payments and liabilities on a division-specific basis.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reported period. Actual results
could differ materially from those estimates.
Certain Risks and Concentrations
Snowball has a limited operating history and its prospects are subject to the
risks, expenses, and difficulties frequently encountered by companies in their
early stages of development, particularly companies in new and rapidly evolving
markets such as Internet services. These risks include the failure to develop
and extend online service brands, the rejection of services by Web consumers,
vendors, and/or advertisers, the inability of Snowball to maintain and increase
the level of traffic to the Snowball networks from online services, as well as
other risks and uncertainties. In the event that Snowball does not successfully
implement its business plan, certain assets may not be recoverable.
Snowball's revenue is principally derived from the sale of online
advertising, the market for which is highly competitive and rapidly changing.
Significant changes in the industry or changes in customer buying behavior
could adversely affect operating results.
For the years ended December 31, 1997, 1998, and 1999, revenue from
Snowball's five largest advertisers accounted for approximately 36%, 31%, and
19%, respectively, of total revenue. One customer accounted for over 10% of
revenue in 1997. No customer accounted for over 10% of revenue for 1998 or
1999. Snowball generally does not require collateral and maintains allowances
for potential credit losses. These losses have been immaterial to date.
Revenue Recognition
Revenue is derived principally from short-term advertising contracts in which
Snowball guarantees a minimum number of impressions (a view of an advertisement
by a consumer), for a fixed fee. Advertising revenue is recognized at the
lesser of the ratio of impressions delivered over total guaranteed impressions
or the straight-line basis over the term of the contract, if specified,
provided that Snowball does not have any significant remaining obligations and
collection of the
F-8
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
resulting receivable is probable. To the extent that minimum guaranteed
impression levels or other obligations are not being met, Snowball defers
recognition of the corresponding revenue until guaranteed levels are being
achieved.
Revenue also includes sponsorship revenue under contracts in which Snowball
commits to provide sponsors with a variety of promotional opportunities in
addition to traditional banner advertising. Typically, sponsorship agreements
provide for the delivery of impressions on Snowball's Web sites through banner,
button or text link advertising, exclusive placement on Snowball's Web sites,
the licensing of trademarks and other copyrighted material and the design and
development of customized Web sites designed to enhance the promotional
objective of the sponsor. The portion of sponsorship revenue related to the
delivery of impressions is recognized in the period in which the advertisement
is displayed, provided that no significant obligations remain and the
collection of the resulting receivable is probable, at the lesser of the ratio
of impressions delivered over total guaranteed impressions or the straight-line
basis over the term of the contract. The portion of any up-front nonrefundable
fee specified in the contract related to the up-front customized design work
and the licensing of trademarks and other copyrighted material is also
recognized at the lesser of the ratio of impressions delivered over total
guaranteed impressions or the straight-line basis over the term of the
contract. Revenue from sales of product through Snowball's online store was
insignificant through December 31, 1999.
Snowball has not recognized any revenue related to the nonmonetary exchange
of advertising for advertising as such exchanges were not objectively
determinable based on the criteria set forth in Accounting Principles Board
Opinion No. 29, "Accounting for Nonmonetary Transactions."
Advertising Expenses
Advertising is expensed as incurred. The costs of producing advertising are
incurred and expensed during production. The costs of communicating advertising
are incurred and expensed as the advertisement is broadcast in accordance with
Statement of Position No. 93-7 "Reporting on Advertising Costs." Advertising
expenses were not significant for the years ended December 31, 1997 and 1998,
and were approximately $7,954,000 for the year ended December 31, 1999.
Cash Equivalents and Short-term Investments
Snowball considers all highly liquid investments with an original maturity
from the date of purchase of three months or less to be cash equivalents. As of
December 31, 1999, cash equivalents and short-term investments consist
primarily of investments in money market funds, certificates of deposit and
corporate commercial paper. To date, Snowball has not experienced losses on any
of its investments. Through December 31, 1998, Snowball's net cash requirements
were funded by Imagine Media.
Fixed Assets
Fixed assets are presented at cost less accumulated depreciation.
Depreciation and amortization of fixed assets is computed using the straight-
line method over the estimated useful lives of the assets (two to five years).
F-9
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodwill and Intangible Assets
Goodwill and intangible assets consist of the excess of purchase price paid
over identified tangible net assets and trademarks. Goodwill and intangible
assets are amortized using the straight-line method over the period of expected
benefit, generally two to three years. Management assesses the recoverability
of goodwill and intangible assets by determining whether the amortization of
the unamortized balance over its remaining life can be recovered through
forecasted cash flows. If undiscounted forecasted cash flows indicate that the
unamortized amounts will not be recovered, an adjustment will be made to reduce
the net amounts to an amount consistent with forecasted future cash flows
discounted at Snowball's incremental borrowing rate. Cash flow forecasts are
based on trends of historical performance and management's estimate of future
performance, giving consideration to existing and anticipated competitive and
economic conditions. Snowball has not identified any such impairment losses.
Fair Value of Financial Instruments
The carrying amounts of Snowball's financial instruments, including cash and
cash equivalents, short-term investments, accounts receivable, accounts
payable, and accrued liabilities approximate fair value because of their short
maturities. The carrying amounts of Snowball's capital lease obligations, notes
payable and term loan approximate the fair value of these instruments based
upon management's best estimate of interest rates that would be available for
similar debt obligations at December 31, 1999.
Net Loss Per Share
Basic net loss per share and diluted net loss per share is presented in
conformity with the Financial Accounting Standards Board's ("FASB") Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
Pursuant to Securities and Exchange Commission ("SEC") Accounting Bulletin No.
98, common stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of basic and diluted net loss per
share as if they had been outstanding for all periods presented. To date,
Snowball has not had any issuances or grants for nominal consideration.
F-10
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less the weighted-average number of shares of
common stock issued to founders, investors, and employees that are subject to
repurchase as these shares must be returned to Snowball if specified conditions
are not met. Pro forma basic and diluted net loss per share, as presented in
the statements of operations, has been computed as described above and also
gives effect, under SEC guidance, to the conversion of the convertible
preferred stock (using the if-converted method) from the original date of
issuance. Snowball commenced operations as a separate legal entity in
January 1999 and issued common stock in February 1999. Accordingly, historical
earnings per share have been presented only for the year ended December 31,
1999. The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except share and per
share data):
<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
<S> <C>
Net loss....................................................... $ (34,822)
===========
Basic and diluted:
Weighted-average shares of common stock outstanding.......... 4,134,882
Less: weighted-average shares subject to repurchase.......... (3,948,354)
-----------
Weighted-average shares used in computing basic and diluted
net loss per share.......................................... 186,528
===========
Basic and diluted net loss per share........................... $ (186.69)
===========
Pro forma:
Shares used above............................................ 186,528
Pro forma adjustment to reflect weighted effect of assumed
conversion of convertible preferred stock (unaudited)....... 17,835,566
-----------
Shares used in computing pro forma basic and diluted net loss
per share (unaudited)....................................... 18,022,094
===========
Pro forma basic and diluted net loss per share (unaudited)..... $ (1.93)
===========
</TABLE>
Snowball has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options and shares subject to
repurchase from the calculation of diluted loss per share because all these
securities are antidilutive for all periods presented. If the offering
contemplated by this prospectus is consummated, all of the convertible
preferred stock outstanding will automatically be converted into common stock.
Unaudited pro forma stockholders' equity at December 31, 1999, as adjusted for
the assumed conversion of convertible preferred stock based on the shares of
convertible preferred stock outstanding at December 31, 1999, is disclosed on
the balance sheet.
F-11
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The total number of shares excluded from the calculation of diluted net loss
per share was as follows (on an as-converted-to-common basis as of December 31,
1999):
<TABLE>
<CAPTION>
Total
Shares
----------
<S> <C>
Common stock, subject to repurchase............................... 6,567,429
Preferred stock................................................... 25,409,895
Common stock options outstanding.................................. 2,358,368
Warrants to purchase preferred stock.............................. 322,688
</TABLE>
Income Taxes
Through December 31, 1998, Snowball was not a separate taxable entity for
federal, state, or local income tax purposes, and its operations were included
in the tax returns of Imagine Media.
Since incorporation, Snowball has recognized income taxes under the liability
method. Deferred income taxes are recognized for differences between the
financial statement and tax basis of assets and liabilities at enacted
statutory tax rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. In
addition, valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
Stock-Based Compensation
As permitted by the FASB Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), Snowball accounts for
employee stock-based compensation in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
and related interpretations in accounting for its stock-based compensation
plans. Under APB 25, when the exercise price of Snowball's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized. Stock compensation related to non-
employees is based on the fair value of the related stock or options in
accordance with SFAS 123 and its interpretations.
Comprehensive Loss
Snowball has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
comprehensive loss and its components in the financial statements. To date,
Snowball's comprehensive loss has equaled its net loss.
Segment Information
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
which established standards for reporting information about operating segments
in annual financial statements. Snowball identifies its operating segments
based on business activities, management responsibility, and geographical
location. Currently, Snowball has organized its operations into a single
operating segment, the development of programming content material for
distribution on the Internet. Snowball derives the significant majority of its
revenues from operations in the United States.
F-12
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Recent Accounting Pronouncements
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
establishes the accounting for costs of software products developed or
purchased for internal use, including when these costs should be capitalized.
The adoption of this pronouncement did not materially impact Snowball's results
of operations for the year ended December 31, 1999.
In April 1998, AcSEC issued Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that the costs of
start-up activities, including organizational costs, be expensed as incurred.
The adoption of this pronouncement did not materially impact Snowball's results
of operations for the year ended December 31, 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133, as amended by SFAS 137, requires Snowball to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through the Statement of Operations. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative are either offset against the change in fair value
of assets, liabilities, or firm commitments through the Statement of Operations
or recognized in other comprehensive income until the hedged item is recognized
in the Statement of Operations. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. SFAS 133, as
amended, is effective for years beginning after June 15, 2000. Snowball does
not currently hold any derivatives and does not expect this pronouncement to
materially impact the results of its operations.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of
the Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Snowball believes that its current
revenue recognition principles comply with SAB 101.
2. Cash and Cash Equivalents
Cash, cash equivalents, and short-term investments consist of the following
(in thousands):
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Cash and cash equivalents:
Cash.......................................................... $ 818
Money market funds............................................ 15,976
Corporate commercial paper.................................... 3,979
Certificate of deposit........................................ 4,716
-------
25,489
-------
Short-term investments:
Certificate of deposit........................................ 1,000
Municipal bonds............................................... 7,000
-------
8,000
-------
Cash, cash equivalents, and short-term
investments.................................................... $33,489
=======
</TABLE>
F-13
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Through December 31, 1999, the difference between the fair value and the
amortized cost of available-for-sale securities was not significant; therefore,
no unrealized gains or losses have been recorded in stockholders' equity. At
December 31, 1999, the contractual maturity of Snowball's short-term
investments was one year or less.
3. Balance Sheet Detail
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
---- -------
(in
thousands)
<S> <C> <C>
Fixed assets:
Computers and equipment..................................... $153 $ 3,762
Furniture and fixtures...................................... -- 602
Software.................................................... -- 1,364
---- -------
153 5,728
Less accumulated depreciation and amortization.............. (60) (1,360)
---- -------
$ 93 $ 4,368
==== =======
Accrued liabilities:
Accrued compensation........................................ $ 50 $ 957
Accrued legal and accounting................................ -- 503
Accrued marketing and advertising........................... -- 47
Other accrued expenses...................................... -- 1,575
---- -------
$ 50 $ 3,082
==== =======
4. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
<CAPTION>
December 31,
-------------
1998 1999
---- -------
(in
thousands)
<S> <C> <C>
Prepaid marketing and distribution rights..................... $ -- $ 2,339
Goodwill and other intangible assets.......................... -- 3,582
---- -------
-- 5,921
Less accumulated amortization............................... -- (471)
---- -------
$ -- $ 5,450
==== =======
</TABLE>
F-14
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Related Party Transactions
Funding Prior to Incorporation
Through December 31, 1998, Snowball utilized Imagine Media's centralized cash
management services and processes related to receivables, payables, payroll,
and other activities. Through December 31, 1998, Snowball's net cash
requirements were funded by Imagine Media. Net financing provided by Imagine
Media to Snowball in 1997 and 1998 was approximately $1,781,000 and $3,920,000,
respectively, including funding related to expenditures for operations and
investing activities and corporate services provided, as described below. There
were no intercompany transfers and no amounts were paid to Imagine Media by
Snowball in repayment of the financing during these periods and through the
incorporation of Snowball. These amounts were included in division equity.
Amounts financed by Imagine Media did not bear interest.
Corporate Services
In accordance with the Staff Accounting Bulletin No. 55, prior to the
incorporation of Snowball, allocations have been reflected in these financial
statements for 1997 and 1998. These expenses include corporate communications,
management compensation and benefits administration, payroll, accounts payable,
income tax compliance, and other administration and finance overhead.
Allocations and charges were based on either a direct cost pass-through for
incremental corporate administration, finance and management costs and a
percentage allocation of costs for other services provided based on factors
such as headcount and relative expenditure levels. Such allocations and charges
totaled approximately $718,000, $1,851,000, and $757,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Management believes that the basis used for allocating corporate services is
reasonable. However, the terms of these transactions may differ from those that
would have resulted from transactions among unrelated parties.
Asset Contribution
Among the assets transferred to Snowball from Imagine Media, upon the
incorporation of Snowball on January 6, 1999, were a number of cohosting and
technology agreements to which Imagine Media was a party, revenue from
advertising agreements involving Snowball and ownership rights in patent
applications. The assets transferred from Imagine Media have been recorded at
historical cost. No liabilities were transferred to Snowball, except for those
directly resulting from the assets transferred.
The Chairman of Snowball's board of directors is a principal stockholder and
the Chief Executive Officer of Imagine Media. Accordingly, Imagine Media is
considered a related party for the period subsequent to incorporation. As of
December 31, 1999, Imagine Media owns approximately 5.6% of the outstanding
voting shares of Snowball.
6. Business and Asset Acquisitions
Ameritrack, Inc.
On September 28, 1999, Snowball acquired all of the outstanding stock of
Ameritrack, Inc., an Internet content provider doing business as High School
Alumni, in exchange for approximately
F-15
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$1,000,000 in cash and 30,000 shares of common stock valued at $180,000. The
cost of the acquisition was allocated to the assets and liabilities assumed
based upon their estimated fair values as follows:
<TABLE>
<S> <C>
Working capital (deficit)....................................... $ (3,381)
Equipment....................................................... 21,060
Goodwill and purchased intangibles.............................. 1,162,321
----------
$1,180,000
==========
</TABLE>
The financial results of Ameritrack, Inc. were insignificant and, therefore,
no pro forma information reflecting the acquisition has been presented.
Asset Purchase
In July 1999, Snowball entered into an asset purchase agreement with Vault
Networks, an Internet content producer, under which Snowball acquired certain
intangible rights such as trademarks, intellectual property rights, certain
registered Internet locations, and a small amount of computer hardware. The
total purchase price for these assets was $550,000 in cash. This purchase price
has been included within goodwill and purchased intangibles.
Extreme Interactive Media, Inc.
On December 17, 1999, Snowball completed the acquisition of Extreme
Interactive Media, Inc. ("Extreme"), an Internet community site. Snowball
acquired all of the outstanding capital stock of Extreme in exchange for 75,000
shares of Snowball common stock, valued at $600,000, $1.0 million in cash and
$250,000 in unsecured promissory notes. The purchase price may be increased by
up to $3.5 million of additional cash consideration based upon the attainment
of certain economic milestones by Extreme.
The cost of the acquisition was allocated to the assets and liabilities
assumed based upon their estimated fair values as follows:
<TABLE>
<S> <C>
Working capital.................................................. $ 1,885
Equipment........................................................ 27,361
Goodwill and purchased intangibles............................... 1,820,754
----------
$1,850,000
==========
</TABLE>
7. Term Loan
In November 1999, Snowball entered into a term loan agreement for up to $15.2
million. In connection with this loan agreement, Snowball issued a promissory
note, which bears interest at the rate of 11.0% per annum, and warrants to
purchase 180,000 shares of Series B-1 preferred stock. In November and December
of 1999, Snowball drew down $15.2 million under the term loan. On December 20,
1999, $3.0 million of this loan was converted into Series C preferred stock. An
additional $12.0 million was repaid in cash raised through the Series C
preferred stock issuance. At December 31, 1999, $150,000 remained payable under
the term loan. The note holder maintains a first position lien on all of
Snowball's assets, excluding fixed assets.
F-16
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Stockholders' Equity
Convertible Preferred Stock
<TABLE>
<CAPTION>
Shares issued and
Shares outstanding at
authorized December 31, 1999
---------- -----------------
<S> <C> <C>
Series A........................................ 9,990,111 9,990,111
Series B-1...................................... 4,912,285 4,697,158
Series C........................................ 4,500,000 3,379,000
Undesignated.................................... 597,604 --
---------- ----------
Total convertible preferred stock............. 20,000,000 18,066,269
========== ==========
</TABLE>
Holders of Snowball's preferred stock are entitled to one vote for each share
of common stock into which the preferred stock is convertible. Holders of
Snowball's preferred stock are also entitled to vote separately as a class with
regard to customary protective provisions.
The holders of Series A, B-1 and C preferred stock are entitled to annual
noncumulative dividends per share of $0.028, $0.51 and $0.80 respectively, when
and if declared by the board of directors. Under the terms of certain financing
arrangements, Snowball is prohibited from declaring or paying any dividends on
its capital stock. In the event of any voluntary or involuntary liquidation of
Snowball, Series C stockholders are entitled to a liquidation preference of
$10.00 per share, plus any declared but unpaid dividends. After payment of the
Series C preference, Series A and B-1 stockholders are entitled to a
liquidation preference of $0.35 and $6.33 per share, respectively, plus any
declared but unpaid dividends, all in preference to the holders of the common
stock. After payment to the Series A, B-1 and C stockholders of these
preferential amounts in the event of a liquidation, the holders of the Series
B-1 and C preferred stock and the holders of the common stock will receive any
and all remaining assets of Snowball. However, the rights of the holders of
Series B-1 and C preferred stock terminates when the aggregate per share
distribution to such holders exceeds $0.70 and $12.66 per share, respectively.
The holders of Series A, B-1 and C preferred stock have the right at any time
to convert their shares into common stock. Each share of Series A and B-1
preferred stock is convertible into 1.5 shares of common stock. Each share of
Series C preferred stock is convertible into 1 share of common stock. Each
share of preferred stock will be automatically converted into common stock upon
the closing of the issuance of shares following the effectiveness of a
registration statement under the Securities Act of 1933, pursuant to a firm
commitment public offering of Snowball's common stock with aggregate proceeds
in excess of $20,000,000.
Warrants
In April 1999 and October 1999 Snowball issued warrants to purchase 21,063
and 14,064 shares of Series B-1 preferred stock (52,692 shares of common stock
as converted) in connection with lease financing. In accordance with SFAS 123,
Snowball valued the warrants using the Black-Scholes option pricing model at
$2.48 and $6.03 per share respectively. The following assumptions were used in
the option pricing model: stock price of $4.22 and $10.00, exercise price of
$3.165 and $7.11, option term of five years, risk-free rate of interest of 6%,
50% volatility, and a dividend yield of 0%. The cost of the warrants
(approximately $206,000) is being expensed as additional interest expense over
the three-year life of the lease arrangement.
F-17
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In November 1999, Snowball issued a series of warrants to purchase 180,000
shares of Series B-1 preferred stock (269,996 shares of common stock as
converted), in connection with entering into a term loan agreement. In
accordance with SFAS 123, Snowball valued the warrants using the Black-Scholes
option pricing model at $2.40-$3.01 per share. The following assumptions were
used in the option pricing model: stock price of $8.00, exercise price of
$8.44, option term of 2 to 3 years, risk free rate of interest of 6%, 50%
volatility and a dividend yield of 0%. The cost of the warrants (approximately
$742,000) is being expensed as additional interest over the one year life of
the debt agreement.
Notes Receivable from Stockholders
In February 1999, Snowball loaned an aggregate of $2,000,000 to its Chairman,
secured by a full recourse promissory note and a stock pledge agreement, in
connection with his purchase of 8,571,429 shares of Series A preferred stock at
$0.35 per share. The note accrued interest at a rate of 4.57% per year and was
due and payable with respect to $1,000,000 of principal, plus interest, on or
before March 1, 1999 and with respect to the remaining $1,000,000 of principal,
and any remaining interest, on or before April 1, 1999. The note has been
repaid in full.
In February 1999, Snowball loaned an aggregate of $92,300 to an officer,
secured by a full recourse promissory note and a stock pledge agreement, in
connection with his purchase of 1,978,021 shares of common stock at $0.05 per
share. The note accrues interest at a rate of 4.64% per year, payable annually,
and the principal amount of the note is due and payable on or before February
1, 2003. Snowball is forgiving the principal and accrued interest at a rate of
$1,667 per month. In the event that the officer's employment is terminated for
any reason, then all remaining unpaid principal and interest will become due
and payable within 90 days after termination, unless Snowball agrees to a
longer period.
In March 1999, Snowball loaned an aggregate of $7,000 to one of its
directors, secured by a full recourse promissory note and a stock pledge
agreement, in connection with his purchase of 150,000 shares of common stock at
$0.05 per share. The note accrues interest at a rate of 4.67% per year, payable
annually, and is due and payable in full on or before March 11, 2001.
In October and November 1999, Snowball loaned an aggregate of $933,000 to an
officer secured by full recourse promissory notes and stock pledge agreements
in connection with his purchase of 100,000 shares of Series B-1 preferred stock
at $6.33 per share and the exercise of options for a total of 350,000 shares of
common stock at $2.00 per share. The notes accrue interest at 5.86% and 6.08%,
payable annually, and are due and payable on October 20, 2003 and November 20,
2003, respectively. The promissory note of $333,000 attributable to the
purchase of Series B-1 preferred stock is being forgiven at the rate of $6,938
per month.
In addition, the Company has issued full recourse promissory notes to
employees.
Common Stock
Outside of the Company's 1999 Equity Incentive Plan, Snowball issued shares
of common stock to founders and employees. Generally, these shares were sold
pursuant to restricted stock purchase or option agreements containing
provisions established by the board of directors. These provisions give
Snowball the right to repurchase the shares at the original sales price. The
rights generally
F-18
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
expire at the rate of 25% of the shares after one year and 2.0833% per month
thereafter or ratably over four years. A total of 2,614,272 shares or shares
underlying options were granted in 1999 and, at December 31, 1999, 1,855,652 of
these shares issued outside of the 1999 Equity Incentive Plan remained subject
to repurchase.
As of December 31, 1999 shares of common stock reserved for future issuance
consisted of the following:
<TABLE>
<S> <C>
Stock options..................................................... 4,552,737
Series B-1 warrants (assuming conversion)......................... 322,688
Series A, B-1 and C convertible preferred stock................... 25,409,895
----------
30,285,320
==========
</TABLE>
Equity Incentive Plan
In February 1999, the board of directors approved the 1999 Equity Incentive
Plan (the "Plan"). Under the Plan, Snowball reserved 7,815,812 shares for
issuance to eligible participants. The Plan provides for option grants at an
option price no less than 85% of the fair market value of the stock subject to
the option on the date the option is granted. The options must vest at a rate
of at least 20% per year over five years from the date the option was granted.
However, in the case of options granted to officers, directors, or consultants,
the options may vest at any time established by Snowball. All options under the
Plan expire ten years after their grant. The Plan also provides for restricted
stock awards. The purchase price of restricted stock under these awards can not
be less than 85% of the fair market value of the stock on the date the award is
made or at the time the purchase is consummated. At December 31, 1999,
4,711,777 shares of stock issued under these awards remained subject to
repurchase.
Aggregate activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Options outstanding
-------------------------------------
Shares Weighted-
available Number of Price per average
for grant shares share exercise price
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Authorized February
1999.................... 7,815,812 -- -- --
Restricted stock
granted................. (1,815,525) -- -- --
Options granted.......... (3,907,437) 3,907,437 $0.05-8.00 $1.28
Options canceled......... 301,519 (301,519) $0.05-2.00 $0.76
Options exercised........ -- (1,447,550) $0.05-3.00 $0.28
---------- ----------
Balance at December 31,
1999.................... 2,394,369 2,158,368 $0.05-8.00 $2.03
========== ==========
</TABLE>
F-19
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information regarding options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
Number Weighted average
outstanding average remaining
and exercise contractual
Exercise Prices exercisable price age (years)
--------------- ----------- -------- -----------
<S> <C> <C> <C>
$0.05....................................... 495,267 $0.05 9.22
0.67....................................... 459,000 0.67 9.55
1.33....................................... 318,300 1.33 9.65
2.00....................................... 277,101 2.00 9.47
3.00....................................... 261,250 3.00 9.87
4.50....................................... 142,200 4.50 9.94
8.00....................................... 205,250 8.00 9.97
---------
2,158,368 $2.03 9.58
=========
</TABLE>
In 1999, Snowball recorded deferred compensation expense of approximately
$11.7 million representing the difference between the exercise prices and the
deemed fair values of Snowball's common stock on the dates these shares and
stock options were granted. In October 1999 Snowball sold and issued 100,000
shares of Series B-1 preferred stock to an officer for $633,000 in cash.
Snowball has recorded compensation expense of approximately $417,000,
representing the difference between the price at which the stock was granted
and the deemed fair value of Snowball's common stock on the date the stock was
granted. The total deferred stock compensation of $12.2 million is included as
a reduction to stockholders' equity and is being amortized by charges to
operations on a graded vesting method over four years. Snowball recorded
amortization of deferred compensation expense of approximately $1.5 million for
the year ended December 31, 1999. At December 31, 1999, Snowball had a total of
$10.6 million remaining to be amortized over the corresponding vesting period
of each respective option, generally four years. The amortization expense
relates to options awarded to employees in all operating expense categories.
This amount has not been separately allocated to these categories.
The remaining deferred stock compensation at December 31, 1999 will be
amortized as follows: $6.1 million for the year ending December 31, 2000, $2.8
million for the year ending December 31, 2001, $1.4 million for the year ending
December 31, 2002 and $0.4 million for the year ending December 31, 2003.
Subsequent terminations of stock and option holders may reduce future stock-
based compensation. Stock-based compensation expense relates to stock options
awarded to individuals in all cost and expense categories.
F-20
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
Snowball has elected to follow APB 25 and related interpretations in
accounting for its employee stock-based compensation plans. Because the
exercise price of Snowball's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is generally
recognized. Pro forma information regarding net loss has been determined as if
Snowball had accounted for its employee stock options under the fair value
method prescribed by SFAS 123. The resulting effect on pro forma net loss
disclosed is not likely to be representative of the effects on net loss on a
pro forma basis in future years, due to additional grants and years of vesting
in subsequent years. The fair value of each option granted through December 31,
1999 was estimated on the date of grant using the minimum value method with the
following weighted-average assumptions:
<TABLE>
<S> <C>
Dividend yield...................................................... 0
Risk-free interest rate............................................. 6%
Volatility factor................................................... 50%
Expected life....................................................... 4 years
Weighted-average fair value of options granted...................... $ 0.585
</TABLE>
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to pro forma expense over the options' vesting period, and
results in a pro forma net loss of approximately $34,927,000 for the year ended
December 31, 1999 and pro forma basic and diluted net loss per share of
$(187.25).
Stock Split
On October 12, 1999, Snowball effected a three-for-two stock split of its
common stock. All share and per share information included in these financial
statements has been retroactively adjusted to reflect this stock split.
Snowball also changed the conversion rate of its Series A and B-1 preferred
stock. Preferred Series A and B-1 will convert at a rate of 1.5 shares of
common stock for each share of preferred stock.
9. Provision for Income Taxes
As of December 31, 1999, Snowball had federal net operating loss
carryforwards of approximately $31,800,000. The net operating loss
carryforwards will expire at various dates through 2019 if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to substantial annual limitations due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
net operating loss and tax credit carryforwards before utilization.
The net losses incurred for the years ended December 31, 1997 and 1998 are
attributable to the operations of the Company as a division of Imagine Media
and were included in the income tax returns filed by Imagine Media. Because the
Company will not receive any benefit for its historical operating losses
incurred through December 31, 1998, no income tax benefit has been reflected
for those periods.
Snowball has provided a full valuation allowance against its deferred tax
assets based on its history of losses.
F-21
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of net deferred tax assets at December 31, 1999
consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Net operating loss carryforward................................. $ 12,700
Other........................................................... 500
--------
Total deferred tax assets....................................... 13,200
Valuation allowance............................................. (13,200)
--------
Net deferred tax assets......................................... $ --
========
</TABLE>
10. Commitments
At December 31, 1999, Snowball's aggregate commitments under noncancelable
lease arrangements for office space and computer equipment were as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ---------
(in thousands)
<S> <C> <C>
Year ending December 31,
2000.................................................... $ 1,266 $ 2,169
2001.................................................... 1,266 4,399
2002.................................................... 903 4,399
2003.................................................... -- 4,399
2004.................................................... -- 4,399
Thereafter.............................................. -- 29,219
------- -------
Total minimum payments required........................... 3,435 $48,984
=======
Less amount representing interest......................... (318)
-------
Present value of future payments.......................... 3,117
Less current portion...................................... (1,081)
-------
Long-term portion......................................... $ 2,036
=======
</TABLE>
The cost of assets under capital lease arrangements was $3,413,000 at
December 31, 1999 (none at December 31, 1998) and the related accumulated
depreciation was $573,000 at December 31, 1999 (none at December 31, 1998).
Rent expense, principally for leased office space under operating lease
commitments, was approximately $514,000 for the year ended December 31, 1999
(approximately $73,000 and $176,000 for the years ended December 31, 1997 and
1998, respectively). Snowball has issued a letter of credit for approximately
$4,399,000 in conjunction with the operating lease.
F-22
<PAGE>
Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Subsequent Events (unaudited)
In January 2000, Snowball issued 150,000 shares of Series C preferred stock
at $10 per share.
On January 14, 2000, 113,500 shares of restricted common stock or shares
underlying options to purchase common stock were granted at $8.50 per share. On
February 3, 2000, 1,039,750 shares of restricted common stock or shares
underlying options to purchase common stock were granted at $9.35 per share.
Deferred compensation expense of approximately $57,000 has been recorded in
January 2000 representing the difference between the exercise price and the
deemed fair value of the shares.
Proposed Acquisition
On January 20, 2000, Snowball signed a letter of intent to acquire all of the
assets of one of its affiliates, an Internet content provider, in exchange for
approximately $4.8 million in cash (of which $500,000 will be placed in escrow
to secure certain obligations). The financial results of this entity were
insignificant and, therefore, no pro forma information reflecting this proposed
acquisition has been presented. The closing of the proposed acquisition is
subject to due diligence and is anticipated to occur in the first quarter of
2000.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Ameritrack, Inc.
Columbia, South Carolina
We have audited the accompanying balance sheet of Ameritrack, Inc. (a
development stage company) as of August 31, 1999 and the related statement of
income and expense, changes in stockholders' equity and cash flows from the
commencement of operations on or about August 14, 1998 through August 31, 1999.
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 Ameritrack, Inc. (a
development stage company) as of August 31, 1999, and the results of its
operations and cash flows from the commencement of operations on or about
August 14, 1998 through August 31, 1999, in conformity with generally accepted
accounting principles.
/s/ J. W. Hunt and Company, L.L.P.
Columbia, South Carolina
October 8, 1999
F-24
<PAGE>
AMERITRACK, INC.
(a development stage company)
BALANCE SHEET
<TABLE>
<CAPTION>
August 31, 1999
---------------
<S> <C>
Assets
Current assets:
Cash......................................................... $ 5,075
Accounts receivable.......................................... 2,111
---------
Total current assets....................................... 7,186
Equipment--at cost, less accumulated depreciation of $2,162.... 21,060
---------
Total assets............................................... $ 28,246
=========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................................. $ 8,480
Loans from stockholders...................................... 2,087
---------
Total current liabilities.................................. 10,567
Stockholders' equity:
Common stock, no par value; 1,000,000 shares authorized,
580,100 shares issued and outstanding....................... 174,025
Additional paid in capital...................................
Deficit accumulated during the development stage............. (156,346)
---------
Total stockholders' equity................................. 17,679
---------
Total liabilities and stockholders' equity................. $ 28,246
=========
</TABLE>
See accompanying notes.
F-25
<PAGE>
AMERITRACK, INC.
(a development stage company)
STATEMENT OF INCOME AND EXPENSE
From the commencement of operations
on or about August 14, 1998 through August 31, 1999
<TABLE>
<S> <C>
Revenues:
Advertising income................................................ $ 8,349
Other income...................................................... 514
---------
Total income.................................................... 8,863
Expenses:
Operating expenses................................................ 17,761
Research and development costs.................................... 147,448
---------
Total expenses.................................................. 165,209
---------
Net loss............................................................ $(156,346)
=========
</TABLE>
See accompanying notes.
F-26
<PAGE>
AMERITRACK, INC.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From the commencement of operations
on or about August 14, 1998 through August 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Number of Development
Shares Common Stock Stage Total
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Common stock issued pursuant to:
Sales of stock:
August 14, 1998................ 5,000 $ 1,500 $ -- $ 1,500
February 23, 1999.............. 5,000 1,500 -- 1,500
April 19, 1999................. 5,000 1,500 -- 1,500
May 28, 1999................... 55,000 16,500 -- 16,500
June 16, 1999.................. 8,350 2,500 -- 2,500
July 6, 1999................... 16,750 5,025 -- 5,025
Stock-based compensation:
Initial issue.................. 325,000 97,500 -- 97,500
June 14, 1999.................. 160,000 48,000 -- 48,000
Net loss......................... -- -- (156,346) (156,346)
------- -------- --------- ---------
Ending balance................... 580,100 $174,025 $(156,346) $ 17,679
======= ======== ========= =========
</TABLE>
See accompanying notes.
F-27
<PAGE>
AMERITRACK, INC.
(a development stage company)
STATEMENT OF CASH FLOWS
From the commencement of operations
on or about August 14, 1998 through August 31, 1999
<TABLE>
<S> <C>
Operating activities
Net Loss .......................................................... $(156,346)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation expense............................................. 2,162
Increase in accounts receivable.................................. (2,111)
Increase in accounts payable..................................... 6,880
Stock-based compensation......................................... 145,500
---------
Net cash used by operating activities.............................. (3,915)
---------
Investing activities
Purchase of equipment.............................................. (21,621)
Financing activities
Proceeds from loans from stockholders.............................. 2,510
Repayment of loans from stockholders............................... (424)
Proceeds from issuance of stock.................................... 28,525
---------
Net cash provided by financing activities.......................... 30,611
---------
Net increase in cash............................................... 5,075
Cash at beginning of period........................................ --
---------
Cash at end of period.............................................. $ 5,075
=========
</TABLE>
See accompanying notes.
F-28
<PAGE>
AMERITRACK, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
Ameritrack, Inc. (the "Company") was formed to develop an Internet web site
that would provide information to assist individuals in locating high school
classmates and provide web site development assistance. The web site is
available internationally.
Advertising
The Company expenses advertising costs as they are incurred. Advertising
expenses totaled $517 for the period.
Equipment and Depreciation
Computer equipment is valued at cost. Maintenance and repairs are charged to
expenses as incurred. Depreciation is computed on the straight-line method,
based on an estimated useful life of five years.
Income Taxes
The financial statements do not include a provision for income taxes because
the Company made an S Corporation election for federal and state income tax
purposes. The Company's earnings will be included in the stockholders' personal
income tax returns.
Research and Development Costs
Research and development costs related to both future and present web site
development are charged to expenses as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that directly affect the results of reported assets, liabilities,
revenue and expenses. Actual results may differ from those estimates.
2. Development Stage Operations
The Company was incorporated and began operations in mid August 1998.
Initially, there was one stockholder. Operations through August 31, 1999 were
devoted primarily to development of the web site, raising capital,
investigating other means of obtaining financing and administrative functions.
As of August 31, 1999, the Company had ten stockholders who acquired stock
through purchase and by providing services to the Company. The basis for
valuing the shares issued for services was determined by reference to the cash
price for the shares acquired by purchase.
These notes are an integral part of the accompanying financial statements.
F-29
<PAGE>
AMERITRACK, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Related Party Transactions
During the period, two stockholders advanced operating funds to the Company.
These loans were of a short-term nature and were noninterest bearing. The
highest amount outstanding during the period was $2,262.
4. Subsequent Events
Subsequent to August 31, 1999, the Company signed a letter of intent to sell
all of its outstanding stock for cash and shares of stock in Snowball.com,
Inc., unrelated privately held company. This sale closed on September 28, 1999
with 25% of the cash and 50% of stock being held in escrow pending the
completion of this audit and certain other matters.
The Company was assisted in negotiating this sale by an investment banking
firm. This firm agreed to take its fee for services by acquiring a stock
warrant entitling it to acquire 30,532 shares in the Company. This warrant was
exercised subsequent to August 31, 1999. Upon this exercise, the Company's S
Corporation status was automatically revoked and the Company became a
C Corporation.
These notes are an integral part of the accompanying financial statements.
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
of Extreme Interactive Media, Inc.
We have audited the accompanying balance sheets of Extreme Interactive Media,
Inc. (an Oklahoma "S" corporation) as of December 31, 1998 and September 30,
1999, and the related statements of operations and accumulated deficit, and
cash flows for the periods 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 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 Extreme Interactive Media,
Inc. as of December 31, 1998 and September 30, 1999, and the results of its
operations and its cash flows for the periods then ended, in conformity with
generally accepted accounting principles.
/s/ Hamilton & Associates, Inc.
Oklahoma City, Oklahoma
December 9, 1999
F-31
<PAGE>
EXTREME INTERACTIVE MEDIA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents......................... $217,798 $ 20,032
Notes receivable.................................. 50,000 --
Accounts receivable............................... 31,675 75,856
Prepaid expenses.................................. 2,760 1,885
-------- --------
Total current assets............................ 302,233 97,773
Property and equipment:
Computer equipment................................ 56,682 70,441
Furniture......................................... 1,622 1,401
-------- --------
58,304 71,842
Less: accumulated depreciation.................... (3,288) (15,358)
-------- --------
Net property and equipment...................... 55,016 56,484
-------- --------
Other assets:
Intangible assets................................. 263,472 269,089
Organization cost................................. 458 383
Deposit........................................... 1,885 1,885
-------- --------
Total other assets.............................. 265,815 271,357
-------- --------
Total assets.................................. $623,064 $425,614
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable.................................. $ 20,165 $ 7,284
Other accrued taxes............................... 2,820 --
-------- --------
Total current liabilities....................... 22,985 7,284
Stockholders' equity:
Common stock, $.10 par value, 500,000 shares
authorized, 100,000 shares issued................ 10,000 10,000
Paid in capital in excess of par.................. 759,000 759,000
Accumulated deficit............................... (168,921) (350,670)
-------- --------
Total stockholders' equity...................... 600,079 418,330
Total liabilities and stockholders' equity.... $623,064 $425,614
======== ========
</TABLE>
See accompanying notes and auditor's report.
F-32
<PAGE>
EXTREME INTERACTIVE MEDIA, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Revenue:
Advertising income................................. $ -- $ 143,565
Other income....................................... 34,147 14,566
--------- ---------
Total revenue.................................... 34,147 158,131
--------- ---------
Operating expenses:
Amortization....................................... 7,570 14,458
Depreciation....................................... 3,288 12,071
Salaries........................................... 82,077 153,917
Professional services.............................. 32,175 48,258
Payroll taxes...................................... 10,513 12,677
Media.............................................. 9,792 1,260
Legal and accounting............................... 25,269 13,351
Rent............................................... 7,323 14,645
Office............................................. 2,994 12,293
Telephone.......................................... 3,052 13,438
Travel............................................. 8,351 6,972
Other.............................................. 14,752 26,867
Promotional........................................ -- 14,120
--------- ---------
Total operating expenses......................... 207,156 344,327
--------- ---------
Loss from operations................................. (173,009) (186,196)
Interest Income...................................... 4,088 4,447
--------- ---------
Net loss............................................. $(168,921) $(181,749)
Accumulated deficit, beginning of the period......... -- (168,921)
--------- ---------
Accumulated deficit, end of the period............... $(168,921) $(350,670)
========= =========
</TABLE>
See accompanying notes and auditor's report.
F-33
<PAGE>
EXTREME INTERACTIVE MEDIA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
Cash flows from operating activities:
<S> <C> <C>
Net loss............................................ $(168,921) $(181,749)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation...................................... 3,288 12,070
Amortization...................................... 7,570 14,458
(Increase) decrease in:
Accounts receivable............................... (31,675) (44,181)
Notes receivable.................................. (50,000) 50,000
Prepaid expenses.................................. (2,760) 875
Other assets...................................... (273,385) (20,000)
Increase (decrease) in:
Accounts payable.................................. 20,165 (12,881)
Accrued taxes..................................... 2,820 (2,820)
--------- ---------
Net cash provided (used) by operating activities.... (492,898) (184,228)
Cash flows from investing activities:
Purchases of property and equipment............... (58,304) (13,538)
Cash flows from financing activities:
Increase from sale of stock....................... 769,000 --
--------- ---------
Net change in cash and cash equivalents............. 217,798 (197,766)
Cash and cash equivalents at beginning of period.... -- 217,798
--------- ---------
Cash and cash equivalents at end of period.......... $ 217,798 $ 20,032
========= =========
</TABLE>
See accompanying notes and auditor's report.
F-34
<PAGE>
EXTREME INTERACTIVE MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Property and Equipment
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is computed on the declining balance
or straight-line method for financial reporting purposes and on the modified
accelerated cost recovery system method for income tax purposes. Depreciation
expense for the period ended September 30, 1999 was $12,071 and $3,288 for the
year ended December 31, 1998.
Income Taxes
Extreme Interactive Media, Inc., (the "Company"), with the consent of its
shareholders, has elected to be taxed as an S Corporation under Section 1372 of
the Internal Revenue Code, which provides that, in lieu of corporate income
taxes, the stockholders are taxed on their proportionate share of the Company
taxable income.
Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit, and all highly liquid debt instruments with
original maturities of three months or less.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management must make estimates based on future events
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities as of the date of the financial statements,
and revenue and expenses during the reporting period. Actual results could
differ from these estimates.
Intangible Assets
Intangible assets associated with the purchase of websites and organizational
costs are being amortized on the straight-line method over a period of five to
15 years. Amortization expense for the period ended September 30, 1999, was
$14,458 and $7,570 for the year ended December 31, 1998.
2. Accumulated Depreciation
Accumulated depreciation and net book value of property and equipment is as
follows:
<TABLE>
<CAPTION>
September 30,
1999 December 31, 1998
----------------- -----------------
Amount Net Basis Amount Net Basis
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Computer equipment......................... $70,441 $55,389 $56,682 $53,475
Furniture and fixtures..................... 1,401 1,095 1,622 1,541
------- ------- ------- -------
$71,842 $56,484 $58,304 $55,016
======= ======= ======= =======
</TABLE>
3. Compensated Absences
Employees of the Company are entitled to paid vacation, paid sick days and
personal days off, depending on job classification, length of service, and
other factors. The Company does not account for the amount of compensation for
future absences and the amount would be immaterial, and
F-35
<PAGE>
EXTREME INTERACTIVE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accordingly, no liability has been recorded in the accompanying financial
statements. The Company's policy is to recognize the costs of compensated
absences when actually paid to employees.
4. RELATED PARTY TRANSACTIONS
The Company paid legal fees of $6,653 (December 31, 1998 $23,895) to a law
firm in which two of its stockholders are partners.
The Company paid rent of $1,250 (December 31, 1998 $725) to a company owned
by one of its stockholders.
Extreme Interactive Media, Inc. paid accounting fees of $2,525 to a firm that
is owned by one of its stockholders.
F-36
<PAGE>
Snowball.com, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
gives effect to the acquisition of Extreme Interactive Media, Inc. using the
purchase accounting method, based on allocations of the purchase price. The
historical information has been derived from the respective historical
financial information of Snowball and Extreme Interactive Media and should be
read in conjunction with their financial statements and the related notes
included in this prospectus.
The unaudited pro forma condensed combined statements of operations combine
Snowball's and Extreme Interactive Media's historical statements of operations
and give effect to the acquisition, including the amortization of goodwill and
other intangible assets resulting from the acquisition, as if the acquisition
occurred on January 1, 1998 for the year ended December 31, 1998 and on
January 1, 1999 for the year ended December 31, 1999.
The total purchase price of Extreme Interactive Media has been allocated to
assets and liabilities based on management's estimates of their fair values
with the excess cost over the net assets acquired allocated to goodwill and
other intangible assets.
The unaudited pro forma condensed combined financial information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would actually occur if the
acquisition had been consummated as of the dates indicated, nor is it
necessarily indicative of the future operating results or financial position of
the combined company. The pro forma adjustments are based on the information
available at the time of the filing of this prospectus.
F-37
<PAGE>
Snowball.com, Inc.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Extreme
Snowball.com, Interactive Pro Forma Pro Forma
Inc. Media, Inc. Adjustments Combined
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue....................... $ 3,256 $ 34 $ -- $ 3,290
Cost of revenue............... 1,322 -- -- 1,322
------- ----- ----- -------
Gross margin.................. 1,934 34 -- 1,968
Operating Expenses
Production and content....... 1,599 -- -- 1,599
Engineering and development.. 329 -- -- 329
Sales and marketing.......... 2,592 18 -- 2,610
General and administration... 1,074 189 -- 1,263
Amortization of intangible
assets...................... -- -- 477 (A) 477
------- ----- ----- -------
Total operating expenses.... 5,594 207 477 6,278
------- ----- ----- -------
Loss from operations.......... (3,660) (173) (477) (4,310)
Interest income, net.......... -- 4 -- 4
------- ----- ----- -------
Net loss...................... $(3,660) $(169) $(477) $(4,306)
======= ===== ===== =======
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
F-38
<PAGE>
Snowball.com, Inc.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands except per share data)
For the year ended December 31, 1999(1)
<TABLE>
<CAPTION>
Extreme
Interactive
Media, Inc.
to
Snowball.com, December 17, Pro Forma Pro Forma
Inc. 1999 Adjustments Combined
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue...................... $ 6,674 $ 203 $ -- $ 6,877
Cost of revenue.............. 4,316 -- -- 4,316
-------- ----- ----- --------
Gross margin................. 2,358 203 -- 2,561
Operating expenses
Production and content...... 6,610 -- -- 6,610
Engineering and develop-
ment....................... 5,084 -- -- 5,084
Sales and marketing......... 20,393 24 -- 20,417
General and administrative.. 3,486 442 -- 3,928
Stock-based compensation.... 1,521 -- -- 1,521
Amortization of goodwill and
intangible assets.......... 471 4 358 (A) 833
-------- ----- ----- --------
Total operating expenses... 37,565 470 358 38,393
-------- ----- ----- --------
Loss from operations......... (35,207) (267) (358) (35,832)
Interest income, net......... 265 13 -- 278
Other income................. 120 (49) -- 71
-------- ----- ----- --------
Net loss..................... $(34,822) $(303) $(358) $(35,483)
======== ===== ===== ========
Basic and diluted net loss
per share (B)............... $(186.69) $(135.43)
======== ========
Shares used in per share
calculation................. 187 75 262
======== ===== ========
Pro forma basic and diluted
net loss
per share (B)(unaudited).... $ (1.93) $ (1.96)
======== ========
Shares used in pro forma per
share calculation
(unaudited)................. 18,022 75 18,097
======== ===== ========
</TABLE>
- --------
(1) Extreme Interactive Media's results are for the period from January 1, 1999
through the date of acquisition (December 17, 1999).
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
F-39
<PAGE>
Snowball.com, Inc.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
The total estimated purchase price of the transaction has been allocated to
assets and liabilities based on management's estimate of their fair values with
the excess cost over the net assets acquired allocated to goodwill and other
intangible assets.
The adjustments to the unaudited pro forma condensed combined statements of
operations for the years ended December 31, 1999 and December 31, 1998, assume
the merger occurred as of January 1, 1999 and January 1, 1998, respectively,
and are as follows:
(A) To reflect the amortization of goodwill and other intangible assets
resulting from the merger. The goodwill and other intangible assets are
being amortized over periods of approximately three years. Based upon the
nature of Extreme Interactive Media's operations, management does not
anticipate that any significant value will be attributed to purchased in-
process research and development.
(B) Pro forma basic and diluted net loss per share has been adjusted to
reflect the issuance of 75,000 shares of Snowball common stock, as if the
shares had been outstanding for the entire period presented.
These notes are an integral part of the accompanying financial statements.
F-40
<PAGE>
UNDERWRITING
Snowball 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 set forth in the underwriting agreement, each underwriter
has severally agreed to purchase the number of shares indicated in the
following table. Goldman, Sachs & Co., Chase Securities, Inc. and FleetBoston
Robertson Stephens Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co. ..............................................
Chase 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 937,500
shares from Snowball to cover such sales. They may exercise that option for 30
days. If any shares are purchased under 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 Snowball. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Snowball
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price 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 public offering price. 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 public offering price. If all of the shares are not sold at
the initial public offering price, the representatives may change the offering
price and the other selling terms.
Snowball and its officers, directors and substantially all of its
securityholders have agreed with the underwriters not to dispose of or hedge
any of their common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of Goldman, Sachs & Co. See "Shares Available
for Future Sale" for a discussion of certain transfer restrictions.
U-1
<PAGE>
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Snowball and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Snowball's historical performance, estimates of Snowball's
business potential and earnings prospects, an assessment of Snowball's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
We intend to apply to have our common stock listed on the Nasdaq National
Market under the symbol "SNBL".
In connection with the offering, the underwriters may purchase and sell
shares of 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 common
stock while the offering is in progress.
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-sale covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
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.
The underwriters do not expect sales to discretionary accounts to exceed five
percent of the total number of shares offered.
At our request, the underwriters have reserved up to 312,500 shares of common
stock for sale at the initial public offering price to directors, officers,
friends and family members of employees, and other friends of Snowball, through
a directed share program. The number of shares of common stock available for
sale to the general public in the public offering will be reduced to the extent
these persons purchase these reserved shares. There can be no assurance that
any of the reserved shares will be so purchased. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
basis as other shares offered hereby.
Snowball estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Snowball has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
[The image of a hip, adolescent girl is displayed on the top half of the
inside back cover, with the phrase "Who am i?" positioned at the top of the
page. Beneath the image of the girl are the statements "i am the internet
generation," "i am a vast community" and " And, i am here." Displayed
horizontally beneath these statements are the logos of the four Snowball
networks. Beneath the network logos is the Snowball logo, with the phrase "We
are i" under the logo.]
<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....................................................... 3
Risk Factors............................................................. 7
Cautionary Note on Forward-Looking Statements............................ 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 30
Management............................................................... 45
Related Party Transactions............................................... 58
Principal Stockholders................................................... 60
Description of Capital Stock............................................. 62
Shares Available for Future Sale......................................... 66
Legal Matters............................................................ 68
Experts.................................................................. 68
Where You Can Find Additional Information................................ 68
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
---------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6,250,000 Shares
Snowball.com, Inc.
Common Stock
---------------
[LOGO]
---------------
Goldman, Sachs & Co.
Chase H&Q
Robertson Stephens
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 22,770
NASD filing fee.................................................. 9,125
Nasdaq National Market filing fee................................ 95,000
Accounting fees and expenses..................................... 300,000
Legal fees and expenses.......................................... 400,000
Road show expenses............................................... 35,000
Printing and engraving expenses.................................. 250,000
Blue sky fees and expenses....................................... 10,000
Transfer agent and registrar fees and expenses................... 10,000
Miscellaneous.................................................... 168,105
----------
Total...................................................... $1,300,000
==========
</TABLE>
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 directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors 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 Registrant or
its stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases); or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's Bylaws
provide that:
. the Registrant is required to indemnify its directors and officers to
the fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions;
. the Registrant may indemnify its other employees and agents as set forth
in the Delaware General Corporation Law;
. the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions; and
. the rights conferred in the Bylaws are not exclusive.
II-1
<PAGE>
The Registrant intends to enter into Indemnity Agreements with each of its
current directors and executive officers to give such directors and executive
officers additional contractual assurances regarding the scope of the
indemnification set forth in the Registrant's Certificate of Incorporation and
to provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section 8 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnity
Agreements entered into between the Registrant and each of its directors and
executive officers may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act.
The Registrant maintains directors' and officers' liability insurance and
expects to obtain a rider to such coverage for securities matters.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit Document Number
---------------- ------
<S> <C>
Form of Underwriting Agreement...................................... 1.01
Registrant's Amended and Restated Certificate of Incorporation...... 3.01
Registrant's Restated Bylaws........................................ 3.03
Amended and Restated Investor Rights Agreement, dated as of December
20, 1999........................................................... 4.02
Form of Indemnity Agreement......................................... 10.01
</TABLE>
Item 15. Recent Sales of Unregistered Securities.
1. We granted stock options to purchase 3,907,437 shares of our common
stock at exercise prices ranging from $0.0467 to $8.00 per share to our
employees, consultants, directors, and other service providers under our
1999 Equity Incentive Plan, and stock options to purchase 550,000 shares of
our common stock with an exercise price of $2.00 per share to our Chief
Financial Officer and Chief Operating Officer, James Tolonen, outside of
our 1999 Equity Incentive Plan. Through December 31, 1999, we issued and
sold an aggregate of 3,613,075 shares of our common stock to employees,
consultants, directors, and other service providers at prices ranging from
$0.0467 to $4.50 per share under direct issuances or exercises of options
granted under our 1999 Equity Incentive Plan or exercises of options
granted outside of our 1999 Equity Incentive Plan. All shares purchased
under our 1999 Equity Incentive Plan are subject to our right to repurchase
such shares at their original exercise price. The repurchase feature
generally expires for 25% of the shares after the first year of service and
then expires ratably over the next 36 months. All sales of common stock
made pursuant to the exercise of stock options were made in reliance on
Section 4(2) of the Securities Act and/or on Rule 701 or Rule 506
promulgated under the Securities Act. Aggregate sales made in reliance on
Rule 701 from January 1999 to April 1999 did not exceed 15% of our
outstanding securities. Aggregate sales made in reliance on Rule 701 from
May 1999 to December 1999 did not exceed 15% of our total assets.
2. On February 1, 1999, we issued and sold 1,978,021 shares of our common
stock to our President and Chief Executive Officer, Mark Jung, for a
purchase price of $92,307.67. This sale was made in reliance on Section
4(2) of the Securities Act and/or Rule 506 promulgated under
II-2
<PAGE>
the Securities Act and was made without general solicitation or
advertising. Mr. Jung is an accredited investor and has access to all
relevant information to evaluate the investment and represented to us that
the shares were being acquired for investment.
3. On February 1, 1999, we issued and sold an aggregate of 989,011 shares
of our Series A preferred stock to certain of our officers and directors
and Imagine Media for an aggregate purchase price of $3,230,770 plus
certain assets of Imagine Media. On March 15, 1999, we issued and sold an
additional 100,000 shares of our Series A preferred stock to one of our
officers for a purchase price of $35,000. Collectively, these shares are
convertible into 14,985,165 shares of our common stock. Both sales were
made in reliance on Section 4(2) of the Securities Act and/or Rule 506
promulgated under the Securities Act and were made without general
solicitation or advertising. Each purchaser is a sophisticated investor and
had access to all relevant information necessary to evaluate the investment
and represented to us that the shares were being acquired for investment.
4. On February 1, 1999, we issued and sold an aggregate of 5,000,000
shares of Series B preferred stock to Imagine Media in exchange for certain
assets of that company. These shares were converted into 276,461 shares of
Series B-1 preferred stock on May 11, 1999 for no additional consideration.
The Series B-1 shares are convertible into 414,691 shares of our common
stock. This sale was made in reliance on Section 4(2) of the Securities Act
and/or Rule 506 promulgated under the Securities Act and was made without
general solicitation or advertising. Imagine Media is an accredited
investor and had access to all relevant information necessary to evaluate
the investment and represented to us that the shares were being acquired
for investment.
5. On April 30, 1999, we issued warrants to purchase 21,063 shares of our
Series B-1 preferred stock to Comdisco in connection with a Master Lease
Agreement between Comdisco and us. These shares are convertible into 31,595
shares of our common stock. This sale was made in reliance on Section 4(2)
of the Securities Act and/or Rule 506 promulgated under the Securities Act
and was made without general solicitation or advertising. Comdisco is an
accredited investor and had access to all relevant information necessary to
evaluate the investment and represented to us that the shares were being
acquired for investment.
6. On May 11, 1999, we issued and sold an aggregate of 3,530,806 shares
of our Series B-1 preferred stock to private investors and one of our
directors for an aggregate purchase price of $22,350,002. On June 14, 1999,
we issued and sold an additional 221,170 shares of Series B-1 preferred
stock to private investors for an aggregate purchase price of $1,400,007.
On the 20th and 22nd of October 1999, we issued and sold an additional
100,000 shares and 7,899 shares of Series B-1 preferred stock to trusts
associated with one of our directors and a private investor for an
aggregate purchase price of $683,000. Collectively, these shares are
convertible into 5,789,807 shares of our common stock. All sales were made
in reliance on Section 4(2) of the Securities Act and/or Rule 506
promulgated under the Securities Act and were made without general
solicitation or advertising. Each purchaser is an accredited investor and
had access to all relevant information necessary to evaluate the investment
and represented to us that the shares were being acquired for investment.
7. On July 9, 1999, we issued 57,500 shares of our common stock to
certain former members of Vault Networks in connection with their
employment by Snowball. These shares represent 86,250 shares of our common
stock after adjustment for the 3-for-2 stock split of our common stock.
These sales were made in reliance on Section 4(2) of the Securities Act
and/or Rule 504 promulgated under the Securities Act and were made without
general solicitation or advertising. Each purchaser represented to us that
the shares were being acquired without an intent to distribute. We
disclosed to each purchaser that the shares were not registered under the
Securities Act and could not be resold unless registered under or exempt
from the registration requirements of the Securities Act.
II-3
<PAGE>
8. On September 28, 1999, we issued 30,000 shares of our common stock to
certain stockholders of AmeriTrack in exchange for their shares of that
company. These shares represent 45,000 shares of our common stock after
adjustment for the 3-for-2 stock split of our common stock. These sales
were made in reliance on Section 4(2) of the Securities Act and/or Rule 504
promulgated under the Securities Act and were made without general
solicitation or advertising. Each purchaser represented to us that the
shares were being acquired without an intent to distribute. We disclosed to
each purchaser that the shares were not registered under the Securities Act
and could not be resold unless registered under or exempt from the
registration requirements of the Securities Act.
9. On October 31, 1999, we issued warrants to purchase 14,064 shares of
our Series B-1 preferred stock to Comdisco in connection with a Master
Lease Agreement between Comdisco and us. These shares are convertible into
21,097 shares of our common stock. This sale was made in reliance on
Section 4(2) of the Securities Act and/or Rule 506 promulgated under the
Securities Act and was made without general solicitation or advertising.
Comdisco is an accredited investor and had access to all relevant
information necessary to evaluate the investment and represented to us that
the shares were being acquired for investment.
10. On October 15, 1999, we issued and sold 560,822 shares of Series B-1
preferred stock to New Line New Media in connection with a commercial
transaction, for an aggregate purchase price of $3,550,000. These shares
are convertible into 841,233 shares of our common stock. This sale was made
in reliance on Section 4(2) of the Securities Act and/or Rule 506
promulgated under the Securities Act and was made without general
solicitation or advertising. New Line New Media is an accredited investor
and had access to all relevant information necessary to evaluate the
investment and represented to us that the shares were being acquired for
investment.
11. On November 8, 1999, we issued warrants to purchase 180,000 shares of
Series B-1 preferred stock to several creditors in connection with a Loan
and Security Agreement between Sand Hill Capital and us. These shares are
convertible into 269,996 shares of our common stock. These sales were made
in reliance on Section 4(2) of the Securities Act and/or Rule 506
promulgated under the Securities Act and were made without general
solicitation or advertising. Each purchaser is an accredited investor and
had access to all relevant information necessary to evaluate the investment
and represented to us that the shares were being acquired for investment.
12. On December 17, 1999, we issued 75,000 shares of our common stock to
certain stockholders of Extreme Interactive Media in exchange for their
shares of that company. These sales were made in reliance on Section 4(2)
of the Securities Act and/or Rule 504 promulgated under the Securities Act
and were made without general solicitation or advertising. Each purchaser
represented to us that the shares were being acquired without an intent to
distribute. We disclosed to each purchaser that the shares were not
registered under the Securities Act and could not be resold unless
registered under or exempt from the registration requirements of the
Securities Act.
13. On December 20, 1999, we sold an aggregate of 3,529,000 shares of our
Series C preferred stock, of which 3,379,000 shares were issued on December
20, 1999 and 150,000 shares were issued on January 5, 2000, to private
investors for an aggregate purchase price of approximately $32.3 million in
cash and $3.0 million in debt conversion. Collectively, these shares are
convertible into 3,529,000 shares of our common stock. These sales were
made in reliance on Section 4(2) of the Securities Act and/or Rule 506
promulgated under the Securities Act and were made without general
solicitation or advertising. Each purchaser is a sophisticated investor and
had access to all relevant information necessary to evaluate the investment
and represented to us that the shares were being acquired for investment.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.01* Form of Underwriting Agreement.
2.01* Stock Exchange Agreement among Registrant, Ameritrack, Inc. and the
security holders of Ameritrack, Inc., dated as of September 28, 1999.
2.02 Stock Purchase and Exchange Agreement among Registrant, Extreme
Interactive Media, Inc. and all of the security holders of Extreme
Interactive Media, Inc., dated as of December 17, 1999.
3.01* Registrant's Amended and Restated Certificate of Incorporation.
3.02** Registrant's Amended and Restated Certificate of Incorporation (to be
filed immediately after the closing of this offering).
3.03* Registrant's Bylaws.
3.04** Registrant's Restated Bylaws (to be adopted prior to the closing of
this offering with an effective date immediately following this
offering).
4.01** Form of Specimen Certificate for Registrant's common stock.
4.02* Amended and Restated Investor Rights Agreement, dated as of December
20, 1999.
5.01** Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
10.01* Form of Indemnity Agreement between Registrant and each of its
directors and executive officers.
10.02* 1999 Equity Incentive Plan and related agreements.
10.03* Proposed form of 2000 Equity Incentive Plan and forms of stock option
agreements and stock option exercise agreements.
10.04* Proposed form of 2000 Employee Stock Purchase Plan and forms of
related agreements.
10.05* Adoption Agreement for Pan American Life Insurance Standardized 401(k)
Profit Sharing Plan and Trust dated April 1, 1999, and related
agreements.
10.06* Offer Letter dated February 1, 1999 from Registrant to Mark A. Jung.
10.07* Offer Letter dated January 18, 1999 from Registrant to Janette S.
Chock.
10.08* Offer Letter dated March 4, 1999 from Registrant to Elizabeth G.
Murphy.
10.09* Offer Letter dated March 15, 1999 from Registrant to Teresa M.
Crummett.
10.10* Offer Letter dated March 15, 1999 from Registrant to Kenneth H.
Keller.
10.11* Offer Letter dated October 18, 1999 from Registrant to James R.
Tolonen.
10.12* Secured Promissory Note between Registrant and Mark A. Jung, dated as
of February 1, 1999.
10.13* Secured Promissory Note between Registrant and Christopher Anderson,
dated as of February 1, 1999.
10.14* Secured Promissory Note between Registrant and James R. Tolonen and
Ginger Tolonen Family Trust dated 9/26/96, dated as of October 20,
1999.
10.15 Secured Promissory Note between Registrant and James R. Tolonen, dated
as of November 30, 1999.
10.16* Series A Preferred Stock and Series B Preferred Stock Purchase
Agreement, dated as of January 7, 1999.
10.17* Services and Support Agreement between Registrant and Imagine Media,
Inc., dated as of January 7, 1999.
10.18* Brisbane Technology Park Lease dated November 29, 1999, between
Registrant and GAL-Brisbane, L.P.
10.19* Sublease Agreement dated as of May 1, 1999, between Registrant and
Imagine Media, Inc.
10.20* Loan and Security Agreement dated November 8, 1999, between Registrant
and Sand Hill Capital II, L.P.
10.21* Indemnity Agreement dated as of June 1, 1999, between Registrant and
Richard LeFurgy.
10.22+ Desktop.com Letter Agreement dated as of December 29, 1999 between the
Registrant and Desktop.com, Inc.
10.23+ eCommerce and Content Agreement dated as of January 1, 2000 between
the Registrant and EBWorld.com, Inc.
10.24+ eCommerce Agreement dated as of October 15, 1999 between the
Registrant and edu.com, inc.
10.25+ Content Agreement dated as of September 29, 1999 between the
Registrant and Gloss.com, Inc.
10.26+ eCommerce Agreement dated as of December 23, 1999 between the
Registrant and Kabang.com, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.27+ Services and Promotion Agreement dated as of December 22, 1999 between
the Registrant and Riffage.com, Inc.
10.28+ Services and Promotion Agreement dated as of December 22, 1999 between
the Registrant and X-drive, Inc.
10.29+ Webcourier Provider Agreement dated as of November 29, 1999 between
the Registrant and Microsoft Corporation.
10.30+ Webcourier Provider Agreement dated as of October 28, 1999 between the
Registrant and Microsoft Corporation.
10.31+ Webcourier Provider Agreement dated as of October 25, 1999 between the
Registrant and Microsoft Corporation.
21.01 Subsidiaries of Registrant
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP, independent auditors.
23.03 Consent of Hamilton & Associates, Inc., independent auditors.
23.04 Consent of J.W. Hunt and Company LLP, independent auditors.
24.01 Power of Attorney.
27.01* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
+ Portions of this exhibit have been omitted pursuant to an application for
confidential treatment.
(b) Financial statement schedules are omitted because the information called
for is not required or is shown either in the financial statements or the
notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San Francisco, State
of California, on this 11th day of February, 2000.
SNOWBALL.COM, INC.
/s/ James R. Tolonen
By: _________________________________
James R. Tolonen Chief Financial
Officer and Chief Operating
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive February 11, 2000
______________________________________ Officer and a director
Mark A. Jung (Principal Executive
Officer)
/s/ James R. Tolonen Chief Financial Officer and February 11, 2000
______________________________________ Chief Operating Officer
James R. Tolonen (Principal Financial
Officer)
* Controller and Chief February 11, 2000
______________________________________ Accounting Officer
Janette S. Chock (Principal Accounting
Officer)
* Director February 11, 2000
______________________________________
Christopher Anderson
* Director February 11, 2000
______________________________________
Richard A. LeFurgy
* Director February 11, 2000
______________________________________
Michael Orsak
* Director February 11, 2000
______________________________________
Robert H. Reid
*By: /s/ James R. Tolonen
_________________________________
James R. Tolonen
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
2.02 Stock Purchase and Exchange Agreement among Registrant, Extreme
Interactive Media, Inc. and all of the security holders of Extreme
Interactive Media, Inc., dated as of December 17, 1999.
10.15 Secured Promissory Note between Registrant and James R. Tolonen, dated
as of November 30, 1999.
10.22+ Desktop.com Letter Agreement dated as of December 29, 1999 between the
Registrant and Desktop.com, Inc.
10.23+ eCommerce and Content Agreement dated as of January 1, 2000 between
the Registrant and EBWorld.com, Inc.
10.24+ eCommerce Agreement dated as of October 15, 1999 between the
Registrant and edu.com, inc.
10.25+ Content Agreement dated as of September 29, 1999 between the
Registrant and Gloss.com, Inc.
10.26+ eCommerce Agreement dated as of December 23, 1999 between the
Registrant and Kabang.com, Inc.
10.27+ Services and Promotion Agreement dated as of December 22, 1999 between
the Registrant and Riffage.com, Inc.
10.28+ Services and Promotion Agreement dated as of December 22, 1999 between
the Registrant and X-drive, Inc.
10.29+ Webcourier Provider Agreement dated as of November 29, 1999 between
the Registrant and Microsoft Corporation.
10.30+ Webcourier Provider Agreement dated as of October 28, 1999 between the
Registrant and Microsoft Corporation.
10.31+ Webcourier Provider Agreement dated as of October 25, 1999 between the
Registrant and Microsoft Corporation.
21.01 Subsidiaries of Registrant
23.02 Consent of Ernst & Young LLP, independent auditors.
23.03 Consent of Hamilton & Associates, Inc., independent auditors.
23.04 Consent of J.W. Hunt and Company LLP, independent auditors.
</TABLE>
- --------
+ Portions of this exhibit have been omitted pursuant to an application for
confidential treatment.
<PAGE>
EXHIBIT 2.02
STOCK PURCHASE AND EXCHANGE AGREEMENT
This Stock Purchase and Exchange Agreement (this "Agreement") is made and
entered into as of December 17, 1999 (the "Agreement Date") by and among
SNOWBALL.COM, INC., a Delaware corporation ("Snowball"), EXTREME INTERACTIVE
MEDIA, INC., an Oklahoma corporation ("Extreme") and all of the security holders
of Extreme (each a "Shareholder," and collectively, the "Shareholders"), and
only for the purposes of Sections 6 and 7, James U. White, Jr. (the "Shareholder
Representative"). The names and addresses of each Shareholder, and the shares of
Extreme Stock (as defined below) owned by each Shareholder, are set forth on
Exhibit A attached hereto.
- ---------
RECITALS
A. The Shareholders now own, and will own as of the Closing Date (as
defined below) all of the Extreme Stock.
B. The parties intend that, subject to the terms and conditions of this
Agreement, Snowball will purchase all of the Extreme Stock from the Shareholders
in exchange for the consideration described herein so that Snowball shall
acquire and own, as of the Closing Date, all of the issued and outstanding
securities of Extreme.
C. The representations and warranties of Extreme and the Shareholders
herein are a material inducement to Snowball to enter into this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms will have the meanings
set forth below. Other defined terms are set forth in context in the text.
1.1 "Cash Consideration" shall mean $1 million in cash.
1.2 "Contingent Amount" shall mean up to $3.5 million in cash,
subject to adjustment pursuant to Section 2.4.
1.3 "Earn-Out Period" means the twelve-month period beginning on
February 1, 2000 and ending on January 31, 2001.
1.4 "Earned Amount" means the Earned Amount reflected on Exhibit D
---------
with regard to a particular Page View Milestone.
1.5 "Extreme Ancillary Agreements" means, collectively, each
agreement, certificate or document (other than this Agreement) which Extreme is
to enter into as a party thereto, or is to otherwise execute and deliver,
pursuant to or in connection with this Agreement.
<PAGE>
1.6 "Extreme Derivative Securities" means, collectively: (a) any
warrant, option, right or other security that entitles the holder thereof to
purchase or otherwise acquire any shares of the share capital of Extreme
(collectively, "Extreme Stock Rights"); (b) any note, debenture, evidence of
indebtedness, stock or other security of Extreme that is convertible into or
exchangeable for any shares of the share capital of Extreme of any class or
series or any Extreme Stock Rights (each, an "Extreme Convertible Security");
and (c) any warrant, option, right, note, evidence of indebtedness, stock or
other security that entitles the holder thereof to purchase or otherwise acquire
any Extreme Stock Rights or any Extreme Convertible Security.
1.7 "Extreme Stock" means all of the issued and outstanding shares of
the share capital of Extreme.
1.8 "Page View" means a single access by a user to any page on any of
the Sites but only if such page generates a third-party ad banner served.
1.9 "Page View Milestones" means those levels of aggregate monthly
Page Views of the IGN Wrestling Channel (excluding present or future IGN
wrestling affiliates) and the Sites set forth on Exhibit D; provided, however,
--------- -------- -------
that in each case Page Views will be counted in assessing achievement of a
particular Page View Milestone only to the extent that the Page Views for the
applicable month are derived at least sixty-six and two-thirds percent (66 2/3%)
from Sites operated by Snowball constituting the IGN Wrestling Channel and Sites
owned by Extreme and not from Sites owned by Extreme's Permitted Affiliates or
by present or future IGN wrestling affiliates.
1.10 A Shareholder's "Percentage Interest" means, with respect to each
Shareholder, the percentage of the total amount of Extreme Stock owned by all
the Shareholders that is owned by such Shareholder. Each Shareholder's
Percentage Interest is set forth opposite such Shareholder's name on Exhibit A
---------
under the column titled "Percentage Interest". For purposes of computing the
Percentage Interest of Robert L. Gruenewald and Matt B. Myers, assignees of
certain Shareholders of consideration to be received pursuant to this Agreement
in exchange for termination of their options to acquire Extreme Stock, the
assigned consideration shall be included on Exhibit A, and otherwise Messrs.
---------
Gruenewald and Myers shall each be treated for all purposes under this Agreement
as Shareholders.
1.11 "Permitted Affiliate" means any entity listed on Exhibit C which
---------
is on the Closing Date (or by close of business on December 24th, 1999, such
unsigned affiliates being notated as such) a party to an affiliate agreement
with Extreme specifying that Extreme may count such traffic to such affiliate's
site in a consolidation or other similar measurement of Internet or website
traffic to such site.
1.12 "Promissory Notes" means a series of promissory notes of
Snowball, each in substantially the form attached hereto as Exhibit H, which
---------
together have an original aggregate principal amount of $250,000.
1.13 "Purchase Price" means, collectively: (a) the Snowball Shares;
(b) the Cash Consideration; (c) the Contingent Amount and (d) the Promissory
Notes.
2
<PAGE>
1.14 "Shareholder Ancillary Agreements" means, collectively, the
certificates representing the outstanding shares of Extreme Stock together with
the Stock Powers related thereto, IRS Form W-8 or Form W-9 and each other
agreement, certificate or document (other than this Agreement) which a
Shareholder is to enter into as a party thereto, or is to otherwise execute and
deliver, pursuant to or in connection with this Agreement.
1.15 "Sites" means those sites on the World Wide Web owned by Extreme
on the Closing Date or by each Permitted Affiliate and those sites owned by
Snowball constituting the IGN Wrestling channel, excluding all present and
future wrestling related sites of affiliates of Snowball (other than Extreme).
1.16 "Snowball Shares" means 75,000 shares of Common Stock $0.001 par
value per share, of Snowball, subject to adjustment as provided in Section 2.5.
1.17 "Snowball Derivative Securities" means, collectively: (a) any
warrant, option, right or other security that entitles the holder thereof to
purchase or otherwise acquire any shares of the share capital of Snowball
(collectively, "Snowball Stock Rights"); (b) any note, debenture, evidence of
indebtedness, stock or other security of Snowball that is convertible into or
exchangeable for any shares of the share capital of Snowball of any class or
series or any Snowball Stock Rights (each, a "Snowball Convertible Security");
and (c) any warrant, option, right, note, evidence of indebtedness, stock or
other security that entitles the holder thereof to purchase or otherwise acquire
any Snowball Stock Rights or any Snowball Convertible Security.
1.18 "Validated Milestone" means with regard to a particular Page
View Milestone, a Page View Milestone which is achieved in any particular month
and either (a) the monthly Page Views for the immediately prior month are no
less than 95% of the monthly Page Views for such month or (b) the monthly Page
Views for any subsequent month are no less than 95% of the monthly Page Views
for such month, provided, that, with regard to each month mentioned in clauses
-------- ----
(a) and (b), Page Views will be counted in assessing validation of a particular
Page View Milestone only to the extent that the Page Views for the applicable
month are derived at least sixty-six and two-thirds percent (66 2/3%) from Sites
operated by Snowball constituting the IGN Wrestling Channel and Sites owned by
Extreme and not from Sites owned by Extreme's Permitted Affiliates or by present
or future IGN wrestling affiliates
2. SALE AND PURCHASE OF THE EXTREME STOCK
2.1 Sale and Delivery of the Extreme Stock. Subject to the terms and
--------------------------------------
conditions of this Agreement, at the Closing, each of the Shareholders hereby
agrees to sell, assign, transfer and convey to Snowball, and Snowball agrees to
purchase, all Extreme Stock owned by such Shareholder as of the Closing and all
right, title and interest thereto, including without limitation any cause of
action arising out of the acquisition or ownership by such Shareholder of such
Extreme Stock, in exchange for Snowball's payment to such Shareholder of each
such Shareholder's respective portion of the consideration specified in Section
2.2 below. Each Shareholder agrees to deliver to Snowball at the Closing all
the share certificates and any other documents representing the Extreme Stock
("Extreme Certificates") owned by such Shareholder at the Closing, accompanied
by a stock power for each such Extreme Certificate,
3
<PAGE>
duly executed in blank, in substantially the form of Exhibit B attached hereto
---------
(the "Stock Power"). The sale by the Shareholders and Snowball's purchase of the
Extreme Stock pursuant to this Agreement is sometimes referred to as the
"Purchase Transaction".
2.2 Payment of the Purchase Price.
-----------------------------
(a) Total Amounts Payable at Closing. Subject to the terms and
--------------------------------
conditions of this Agreement, Snowball hereby agrees to pay (or deliver, in the
case of the Promissory Notes) to the Shareholders in the aggregate at the
Closing a total amount equal to the Purchase Price minus the Contingent Amount
-----
minus the Snowball Shares (such total net amount delivered at Closing being
- -----
referred to herein as the "Closing Payment").
(b) Payments to Each Shareholder at Closing. The Closing Payment
---------------------------------------
shall be allocated among and paid (or delivered) to each of the Shareholders as
set forth on Exhibit A. A portion of the closing payment totalling $350,000 for
Al Isaacs, Barbara Bistrowitz, and Remigio Arteaga shall be paid directly to
said individuals via wire transfer. The remaining portion of the closing payment
($650,000) for all remaining shareholders shall be paid to the trust account of
White, Coffey, Galt and Fite, P.C. via wire transfer for distribution to the
remaining shareholders.
2.3 The Closing. The consummation of the Purchase Transaction
-----------
pursuant to this Agreement (the "Closing") will take place at the offices of
Fenwick & West LLP, 275 Battery Street, Suite 1500, San Francisco, CA 94111 on
December 17, 1999, at 10:00 a.m. local time, or at such other place or on such
other date and/or time as Snowball and Extreme shall agree in writing (such
date, the "Closing Date"). The parties agree that facsimile signatures will be
deemed the same as original signatures with respect to all documents delivered
at the Closing.
2.4 Contingent Amount.
-----------------
(a) Earning of Validated Milestone Payments. On and after the
---------------------------------------
Closing, subject to the terms and conditions of this Section 2.4, Snowball shall
pay to each Shareholder in accordance with their Percentage Interest that
portion of the Contingent Amount related to each level of Validated Milestones
when, if and as earned during the Earn-Out Period according to the following
provisions:
(i) beginning with February 2000 and continuing monthly
through the Earn-Out Period (unless all Contingent Amounts are earned earlier),
Snowball will cause to be audited by an independent third-party the Page Views
for each Site during the preceding month (or subsequent month, as the case may
be pursuant to Section 1.18 hereof) and deliver a report to the Shareholder
Representative, certified by the independent auditor, within thirty (30) days
after the end of such month.. Within ten (10) days after delivery of each audit
showing the achievement of a Validated Milestone, Snowball shall pay the Earned
Amount reflected on Exhibit A in connection with such Validated Milestone (or
---------
the entire remaining Contingent Amount, if less than the Earned Amount with
regard to such Validated Milestone).
4
<PAGE>
(ii) upon the achievement of each Validated Milestone, all
Page View Milestones related to Page View levels less than that related to such
Validated Milestone shall be considered Validated Milestones and all Earned
Amounts attributable to such other deemed Validated Milestones shall, to the
extent they have not already been paid, be payable in accordance with Section
2.4(a)(i). Each Page View Milestone may become a Validated Milestone (and the
corresponding Earned Amount related to such Validated Milestone paid) only once.
(b) Restrictions on Disaffiliations. In connection with
-------------------------------
Extreme's Permitted Affiliates, from and after the Closing during the term of
each affiliate agreement between Extreme and a Permitted Affiliate, Snowball
agrees that it will not cause any affiliate agreement between a Permitted
Affiliate and Extreme (or its permitted assignee) to terminate or cause any
Permitted Affiliate to cease to perform its obligations thereunder, whether or
not the affiliate agreement between Extreme and such Permitted Affiliate is
terminable at will (with or without the giving of advance notice), unless such
Permitted Affiliate has committed a material breach of the affiliate agreement
which remains uncured for thirty (30) days after notice thereof from Extreme or
Snowball to such Permitted Affiliate.
2.5 Verification of Page View Rates; Adjustment to Snowball Shares.
--------------------------------------------------------------
(a) Snowball shall withhold the Snowball Shares from delivery at
the Closing as security for any shortfall in the period beginning January 9,
2000 at 12:00 am and ending February 7, 2000 at 11:59pm, in the aggregate number
of Page Views for all Sites owned by Extreme on the Closing Date (and for this
purpose, no Site shall be considered which is either the site of an affiliate of
Extreme or the IGN Wrestling site operated by Snowball) below nine million eight
hundred thousand (9,800,000). After verification of the aggregate number of Page
Views for such Sites from January 9, 2000 through February 7, 2000, Snowball
shall deliver to each Shareholder that portion of the Snowball Shares, if any,
as determined in accordance with this Section 2.5 within five (5) business days
of the delivery of the January Report set forth below. Any Snowball Shares to be
delivered in accordance with this Section 2.5 shall be allocated among the
Shareholders in accordance with each Shareholder's Percentage Interest and
evidenced by certificates in the name of such Shareholders evidencing in each
case the Shareholder's Percentage Interest in the Snowball Shares actually
deliverable, provided, that Snowball shall not issue any fractional shares in
--------
connection with such deliveries but shall, instead, deliver a check to each
Shareholder for each Shareholder who would otherwise be entitled to a fractional
Snowball Share equal to the product of such fractional share multiplied by
Thirty Dollars ($30.00).
(b) Within thirty (30) business days after the end of the period
from January 9, 2000 through February 7, 2000, Snowball shall determine the
actual aggregate number of actual Page Views for all Sites owned by Extreme on
the Closing Date (and for this purpose, no Site shall be considered which is
either the site of an affiliate of Extreme or the IGN Wrestling site operated by
Snowball) and report in a certificate verified by an officer of Snowball and
delivered to the Shareholder Representative the actual aggregate number of Page
Views for the period from January 9, 2000 through February 7, 2000 for such
Sites (the "January Report").
5
<PAGE>
(i) If the January Report reveals that the actual aggregate
number of Page Views for such Sites equals or exceeds nine million eight hundred
thousand (9,800,000) Page Views, then all Snowball Shares shall be delivered to
the Shareholder Representative for distribution to the Shareholders as set forth
in Section 2.5(a).
(ii) If the January Report reveals that the aggregate number
of Page Views for such Sites is less than nine million eight hundred thousand
(9,800,000) Page Views, then the number of Snowball Shares shall be reduced by
subtracting therefrom a quotient (rounded up to the nearest whole number), (1)
the numerator of which is (x) the difference between nine million eight hundred
thousand (9,800,000) and the actual aggregate number of Page Views for such
Sites from the period of January 9, 2000 through February 7, 2000, multiplied by
-------------
(y) thirty-five cents ($0.35) and (2) the denominator of which is Thirty Dollars
($30.00), and Snowball shall deliver the remaining Snowball Shares after such
reduction to the Shareholder Representative for distribution to the Shareholders
as set forth in Section 2.5(a).
2.6 Marketing Support. Following the Closing and for a period ending
-----------------
January 31, 2001, Snowball will provide marketing and promotional services and
support to the Sites consistent with Snowball's support for other IGN
properties.
2.7 Further Assurances. If, at any time after the Closing, Snowball
------------------
considers or is advised that any further instruments, deeds, assignments or
assurances are reasonably necessary to consummate or perfect the Purchase
Transaction as contemplated hereby or any of the other transactions contemplated
hereby or to carry out the purposes and intent of this Agreement, then Snowball,
Extreme and their respective officers and directors may, and each Shareholder
requested to do so by Snowball shall, promptly execute and deliver all such
proper instruments, deeds, assignments and assurances and do all other things
reasonably necessary to consummate or perfect the sale and transfer of the
Extreme Stock to Snowball as contemplated hereby and any of the other
transactions contemplated hereby and to carry out the purposes and intent of
this Agreement, in the name of Extreme or otherwise.
2.8 Waiver and Release. Each of the Shareholders hereby disclaims,
------------------
waives and releases all right, title and interest in and to (of record or
beneficially), and any claims (legal or equitable) to, any and all Extreme Stock
and any and all Extreme Derivative Securities, other than to the shares of
----- ----
Extreme Stock listed opposite such Shareholder's name on Exhibit A. Each of the
---------
Shareholders hereby releases Snowball and Extreme from any and all debts,
liabilities, obligations, other than Purchase Price, claims and causes of
----- ----
action, other than claims or causes of action based on, related to or arising
----- ----
from a breach by Snowball of this Agreement or any Shareholder's Ancillary
Agreements or Snowball Ancillary Agreements, which such Shareholder now has,
ever has had, or ever claims to have had, that are based on, related to or
arising from (a) ownership of any right, title and interest in and to any
Extreme Stock or any Extreme Derivative Securities, (b) rights to equity
ownership of Extreme or equity interests in Extreme; (c) rights to equity based
appreciation in the value of Extreme; (d) any other legal, economic or
beneficial interest in Extreme or its business; (e) any right such Shareholder
may have had to exercise any preemptive right, right of first refusal or similar
rights, voting rights or registration rights of any kind; and/or (f) any
promises, covenants, contracts or representations with respect to
6
<PAGE>
the matters referred to in clauses (a), (b), (c), (d) or (e) above, other than
----- ----
the shares Extreme Stock listed opposite such Shareholder's name on Exhibit A.
---------
2.9 Financial Statements Consent; Audited Interim Financial
-------------------------------------------------------
Statements. In connection with the Closing, Extreme (or within three (3)
- ----------
business days after the Closing, the Shareholder Representative) will cause
Extreme's public accountants to deliver a consent to Snowball for its benefit in
compliance with applicable Regulations of the Securities and Exchange Commission
(the "Commission") authorizing Snowball to incorporate its opinion with regard
to Extreme's audited Financial Statements referred to in Section 4.10 hereof in
registration statements which Snowball may file with the Commission. In
addition, on or before January 15, 2000, the Shareholder Representative shall
cause such public accountants to prepare and deliver to Extreme an audited
balance sheet dated as of the Closing Date, and an audited income statement of
Extreme from October 1, 1999 through the Closing Date.
3. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE SHAREHOLDERS
Each of the Shareholders hereby represents and warrants to Snowball
that all the statements set forth below in this Section 3 are true, correct and
complete as of the Agreement Date and will be true, correct and complete as of
the Closing Date:
3.1 Organization of Certain Shareholders. If such Shareholder is a
------------------------------------
corporation, partnership, limited liability company, trust or other entity, such
Shareholder is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation and the individual signing this
Agreement and/or any of the Shareholder Ancillary Agreements on behalf of such
Shareholder is a duly authorized representative of such Shareholder who has
valid authority to execute and deliver this Agreement and such Shareholder
Ancillary Agreements on behalf of such Shareholder.
3.2 Authorization of Transactions. Such Shareholder has full power,
-----------------------------
capacity and authority to execute and deliver this Agreement and the Shareholder
Ancillary Agreements, and to perform its obligations hereunder and thereunder.
This Agreement and the Shareholder Ancillary Agreements are, or when executed by
the Shareholder will be, valid and binding obligations of such Shareholder,
enforceable against such Shareholder in accordance with their respective terms,
subject to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies.
3.3 Extreme Stock. Such Shareholder owns of record and beneficially,
-------------
and has good, valid and marketable title to, all of the shares of Extreme Stock
set forth opposite such Shareholder's name on Exhibit A, free and clear of any
---------
restrictions on transfer (other than restrictions imposed by applicable
securities laws, if any), taxes, security interests, liens, pledges, mortgages,
charges, encumbrances, options, warrants, purchase rights, contracts,
commitments, calls, equities, claims and demands. Such Shareholder does not own,
of record or beneficially, any Extreme Stock except as specified in Exhibit A
---------
or any Extreme Derivative Securities. Such Shareholder is not a party to any
voting trust, proxy or other agreement or understanding with
7
<PAGE>
respect to the voting of any share capital of Extreme or the registration of any
shares of share capital of Extreme.
3.4 Disclosure of Information. Such Shareholder has received or has
-------------------------
had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Snowball Common Stock
to be acquired by such Shareholder under this Agreement (the "Snowball
Securities"). Such Shareholder further has had an opportunity to ask questions
and receive answers from Snowball, the Purchaser Representative, Extreme and
Extreme's management regarding the terms and conditions of the Purchase
Transaction and to obtain additional information (to the extent Snowball
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to such Shareholder or to
which such Shareholder had access.
3.5 Investment Experience. Such Shareholder understands that the
---------------------
acquisition of the Snowball Securities involves substantial risk. Such
Shareholder individually or together with his or her Purchaser Representative
has experience as an investor in securities of companies in the development
stage and acknowledges that such Shareholder is able to fend for itself, can
bear the economic risk of such Shareholder's investment in the Snowball
Securities and individually or together with his or her Purchaser Representative
has such knowledge and experience in financial or business matters that such
Shareholder is capable of evaluating the merits and risks of this investment in
the Snowball Securities and protecting its own interests in connection with this
investment. The Purchaser Representative has received no remuneration from
Snowball in connection with such advice.
3.6 Investment Representations. Each Shareholder hereby agrees,
--------------------------
represents and warrants as follows:
(a) Acquisition for Own Account. The Snowball Securities to be
---------------------------
acquired by such Shareholder hereunder will be acquired for investment for such
Shareholder's own account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), and such Shareholder has no present
intention of selling, granting any participation in, or otherwise distributing
the same. If not an individual, such Shareholder also represents that such
Shareholder has not been formed for the specific purpose of acquiring Snowball
Securities.
(b) Rule 504. Each Shareholder understands and agrees that the
--------
Snowball Shares are being issued by Snowball in reliance on Rule 504 of
Regulations D promulgated under the Securities Act and that it is the intention
of Snowball that the Snowball Shares not be restricted securities as defined
under the Securities Act. Each Shareholder understands the provisions of Rule
504, after having sought and obtained such legal advice as Shareholder deemed
necessary. Shareholder further understands and agrees that the availability of
resale of any Snowball Shares without registration under the Securities Act is
subject to the continued availability of Rule 504. Such availability is subject
to a number of factors, some of which may arise after the Closing Date,
including without limitation, issuance of additional securities by Snowball
under Section 3(b) of the Securities Act which together with this issuance of
the Snowball Shares may exceed limits contained in Regulation D. Each
Shareholder further
8
<PAGE>
understands that Snowball is under no obligation to refrain from issuing
additional shares of its capital stock pursuant to Section 3(b) or Regulation D.
(c) Restricted Securities. Each Shareholder understands that if
---------------------
Rule 504 is not available for the issuance of the Snowball Shares, such shares
will be characterized as "restricted securities" under the Securities Act
inasmuch as they are being acquired from Snowball in a transaction not involving
a public offering and that under the Securities Act and applicable regulations
thereunder such securities would be able to be resold without registration under
the Securities Act only in certain limited circumstances. In this connection,
such Shareholder represents that such Shareholder is familiar with Rule 144 of
the U.S. Securities and Exchange Commission, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
Such Shareholder understands that Snowball is under no obligation to register
any of the Snowball Securities acquired hereunder. Such Shareholder understands
that no public market now exists for any of the Snowball Securities and that it
is uncertain whether a public market will ever exist for the Snowball
Securities.
(d) Further Limitations on Disposition. Without in any way
----------------------------------
limiting the representations set forth above, such Shareholder further agrees
not to make any disposition of all or any portion of the Snowball Securities
unless and until: (i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or (ii) such Shareholder shall
have notified Snowball of the proposed disposition and shall have furnished
Snowball with a statement of the circumstances surrounding the proposed
disposition, and if Snowball shall indicate that the Snowball Shares are
"restricted securities" under the Securities Act in response to such notice,
Shareholder shall also furnish to Snowball, at the expense of such Shareholder
or its transferee, an opinion of counsel, reasonably satisfactory to Snowball,
that such disposition will not require registration of such securities under the
Securities Act.
(e) Legends. Each Shareholder understands and agrees that the
-------
certificates evidencing the Snowball Securities will bear the legend set forth
below and any legend required by state securities laws, in addition to any
legend required by the Certificate of Incorporation or Bylaws of Snowball and by
any agreement between the issuer and the holder thereof:
The securities represented hereby have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or under the securities laws of certain states.
These securities may be subject to restrictions on
transferability and resale and may not be transferred or
resold except as permitted under the Act and the applicable
state securities laws, pursuant to registration or exemption
therefrom. investors should be aware that they may be
required to bear the financial risks of this investment for
an indefinite period of time. The issuer of these securities
may require an opinion of counsel in form and substance
satisfactory to the issuer to the effect that any proposed
transfer or resale is in compliance with the Act and any
applicable state securities laws.
9
<PAGE>
The legend set forth above shall be removed by Snowball from any certificate
evidencing Snowball Securities; and no opinion of counsel will be required in
connection with the transfer of Snowball Securities: (i) to the extent that
Snowball reasonably determines, at the time of request for transfer of the
Snowball Securities that such securities are not "restricted securities" under
the Securities Act; or (ii) except as set forth in clause (i), (A) to the extent
that such Snowball Securities are held by nonaffiliates of Snowball and may, in
Snowball's reasonable opinion, all be sold within a three month period in
accordance with Rule 144 promulgated under the Act; or (B) upon delivery to
Snowball of an opinion by counsel, reasonably satisfactory to Snowball, that a
registration statement under the Securities Act is at that time in effect with
respect to the legended security or that such security can be freely transferred
in a public sale without such a registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which Snowball issued the Snowball Securities.
(f) Market Standoff. Each Shareholder agrees that such
---------------
Shareholder shall not sell, transfer, make any short sale of, grant any option
for the purchase of, or enter into any hedging or similar transaction with the
same economic effect as a sale, any Snowball Securities for a period specified
by the representative of the underwriters of Common Stock (or other securities)
of the Company not to exceed one hundred eighty (180) days following the
effective date of a registration statement of Snowball filed under the
Securities Act; provided that (i) such agreement shall apply only to the
--------
Company's initial public offering of its Common Stock pursuant to an effective
registration statement under the Securities Act, and (ii) all officers and
directors of Snowball enter into similar agreements. Each Shareholder agrees to
execute and deliver such other agreements as may be reasonably requested by
Snowball or the underwriter which are consistent with the foregoing or which are
necessary to give further effect thereto.
4. REPRESENTATIONS AND WARRANTIES OF EXTREME
Extreme hereby represents and warrants to Snowball that the statements
set forth below in this Section 4 are true, correct and complete as of the
Agreement Date and will be true, correct and complete as of the Closing Date,
except as is otherwise expressly set forth in the Extreme Disclosure Schedule
attached as Exhibit E hereto (the "Extreme Disclosure Schedule"), which
---------
statements in such Extreme Disclosure Schedule shall be deemed to be
representations and warranties made by Extreme under this Section 4:
4.1 Organization and Good Standing. Extreme is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of Oklahoma.
Extreme has the power and authority to own, operate and lease its respective
properties and to carry on its business as now conducted and as proposed to be
conducted, and is duly qualified to transact business as a foreign corporation
in each jurisdiction in which such qualification is required.
4.2 Power, Authorization and Validity. Extreme has the right, power,
---------------------------------
legal capacity and authority to enter into, execute, deliver and perform its
obligations under this Agreement and all Extreme Ancillary Agreements and
Extreme has all requisite power and authority to consummate all of the
transactions contemplated by this Agreement and by all Extreme Ancillary
Agreements. The execution, delivery and performance of this Agreement and each
of the Extreme Ancillary Agreements by Extreme have been duly and validly
approved and
10
<PAGE>
authorized by all necessary action on the part of Extreme's board of directors
and shareholders. This Agreement and the Extreme Ancillary Agreements are, or
when executed by Extreme will be, valid and binding obligations of Extreme
enforceable in accordance with their respective terms, subject to the effect, if
any, of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies.
4.3 Capitalization of Extreme.
-------------------------
4.3.1 Outstanding Stock. The authorized share capital of Extreme
-----------------
consists entirely of 500,000 shares of Common Stock, $0.10 par value per share,
of which 100,000 shares are issued and outstanding, and now owned and held (and
all of which shares will at the Closing be owned and held) only by the
Shareholders listed on Exhibit A. No other whole or fractional shares of
---------
capital stock of Extreme are (or will at Closing be) authorized, issued or
outstanding. All issued and outstanding shares of Extreme Stock have been duly
authorized and validly issued, are fully paid and nonassessable, are not subject
to any claim, lien, preemptive right, or right of rescission, and have been
offered, issued, sold and delivered by Extreme (and, if applicable, transferred)
in compliance with all requirements of applicable law (including federal and
state securities laws), Extreme's Articles of Incorporation and Bylaws and all
agreements to which Extreme is a party. Extreme has no liability for any
dividends declared or accrued but unpaid.
4.3.2 No Options, Warrants or Rights. As of the Agreement Date,
------------------------------
there are (and as of the Closing Date there will be) no Extreme Derivative
Securities outstanding. No shares of Extreme Stock are reserved for issuance
under any stock purchase, stock option or other benefit plan.
4.3.3 No Voting or Other Arrangements. Upon Closing, there will
-------------------------------
be no voting agreements, voting trusts, rights of repurchase, rights of first
refusal or other restrictions applicable to any of Extreme's outstanding
securities or to the sale of any shares of Extreme Stock to Snowball hereunder.
4.4 Subsidiaries. Extreme has no subsidiaries and no interest,
------------
direct or indirect, in any corporation, partnership, limited liability company,
joint venture or other business entity.
4.5 No Violations. Neither the execution and delivery of this
-------------
Agreement or any Extreme Ancillary Agreement, nor the consummation of the
Purchase Transaction or any of the other transactions contemplated hereby or
thereby, will conflict with, or (with or without notice or lapse of time, or
both) result in a termination, breach, impairment or violation of: (i) any
provision of the Articles of Incorporation or Bylaws of Extreme as currently in
effect; (ii) to Extreme's knowledge, any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to Extreme
or the assets or properties of Extreme; or (iii) any Extreme Agreement (as
defined in Section 4.11).
11
<PAGE>
4.6 Litigation. There is no action, suit, arbitration, mediation,
----------
proceeding, claim or investigation pending against Extreme (or against any
officer or director of Extreme) before any court, administrative agency or
arbitrator, nor, to the best of Extreme's knowledge, has any such action, suit,
proceeding, arbitration, mediation, claim or investigation been threatened, nor
to the best of Extreme's knowledge is there any basis for any person, firm,
corporation or other entity, to assert a claim against Extreme. There is no
judgment, decree, injunction, rule or order of any governmental entity or
agency, court or arbitrator outstanding against Extreme.
4.7 Taxes. Extreme has: (a) timely filed all national, state, local
-----
and foreign tax returns required to be filed by it; (b) timely paid all taxes
required by such tax returns to be paid by it in respect of all periods for
which returns have been filed; (c) has timely withheld and paid to the
appropriate taxing authorities all taxes and other payments required to be
withheld by it from salaries and other compensatory payments paid or payable by
it to employees or other service providers paid or payable by it; (d) timely
made all necessary estimated tax payments; and (e) no material liability for
taxes. Extreme has not received any notification that any issues have been
raised (and are currently pending) by any taxing authority (including but not
limited to any income, franchise, sales or use tax authority) regarding Extreme.
4.8 Liabilities. Extreme has no debt, liability or obligation of any
-----------
nature (whether intercompany or owed to third parties), whether accrued,
absolute, contingent or otherwise, and whether due or to become due, except for
those shown on the Financial Statements (as defined in Section 4.10), or in
excess of $10,000 alone as set forth on Section 4.8 to the Extreme Disclosure
-----------
Schedule.
4.9 Assets.
------
4.9.1 Assets Generally. Section 4.9 to the Extreme Disclosure
---------------- -----------
Schedule lists all of the tangible and intangible assets of Extreme, including
without limitation all Extreme IP Rights and each URL (collectively, the
"Assets"). Extreme has good and marketable title to the Assets, free and clear
of all liens, mortgages, security interests, claims, charges, restrictions or
encumbrances. All tangible Assets are in good condition and repair, normal wear
and tear excepted, and all leases of real or personal property to which Extreme
is a party are fully effective and afford Extreme peaceful and undisturbed
possession of the real or personal property, as the case may be, that is the
subject of the lease. Extreme does not own any real property. Extreme will,
prior to the Closing, assign to a liquidating trustee all cash and accounts
receivable of Extreme arising before the Closing and certain tangible property
as designated on Section 4.9 of the Extreme Disclosure Schedule.
-----------
4.9.2 Database. In addition, the hardware and software which
--------
relate to the operation of the Sites owned by Extreme are in good working order
as currently configured and will be operable, without anything other than minor
maintenance, for a period of ninety (90) days following the Closing; provided,
--------
however, Extreme makes no representation or warranty regarding any modifications
- -------
or other changes to any such Site or such hardware or software implemented by
Snowball or its agents or independent contractors after the Closing Date, or the
12
<PAGE>
continued operation of such Sites following the Closing as a result of such
modifications or other changes during such ninety (90) day period.
4.10 Financial Statements; Absence of Certain Changes.
------------------------------------------------
(a) Attached to this Agreement as Exhibit F is an audited
---------
balance sheet of Extreme dated September 30, 1999, and an audited income
statement of Extreme from inception (July 2, 1998) through September 30, 1999
("Balance Sheet Date") (all such financial statements being collectively
referred to herein as the "Financial Statements"). The Financial Statements (i)
are in accordance with the books and records of Extreme, (ii) are true, correct
and complete and present fairly in all material respects the financial condition
of Extreme at the date or dates therein indicated and the results of operations
for the period or periods therein specified, and (iii) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved.
(b) Since the Balance Sheet Date, there has not been with
respect to Extreme: (i) any material adverse change in the condition (financial
or otherwise), properties, assets, liabilities, businesses, operations, results
of operations or prospects of Extreme; (ii) material damage, destruction or loss
of any Asset, whether or not covered by insurance; or (iii) agreement or
arrangement made by Extreme to take any action which, if taken prior to the
Agreement Date, would have made any representation or warranty of Extreme or the
Shareholders set forth in this Agreement untrue or incorrect.
4.11 Contracts and Commitments. Section 4.11 to the Extreme Disclosure
------------------------- ------------
Schedule sets forth a list of each of the written or oral contracts, agreements,
commitments or other instruments to which Extreme is a party or to which Extreme
or any of its assets or properties is bound (collectively, the "Extreme
Agreements"). A copy of each such agreement or document has been delivered to
Snowball. Except as provided in Section 4.11 of the Extreme Disclosure Schedule,
------------
no consent or approval of any third party is required to ensure that following
the Closing each Extreme Agreement shall continue to be in full force and effect
without any breach or violation thereof caused by virtue of the transactions
contemplated hereby, and each affiliate agreement between Extreme and an
affiliate is assignable by Extreme without the consent of such affiliate.
Extreme is not in breach or default of, and has not breached or been in default
of, any Extreme Agreement and Extreme has not received any notice from any other
party to an Extreme Agreement alleging such breach or default.
4.12 Intellectual Property.
---------------------
4.12.1 Extreme owns, or has the irrevocable right to use, sell or
license all Intellectual Property Rights (as defined below) necessary or
required for the conduct of its business as presently conducted and as presently
proposed to be conducted (such Intellectual Property Rights being hereinafter
collectively referred to as the "Extreme IP Rights"). Extreme is the legal and
beneficial owner of all rights, including all Intellectual Property Rights, in
and to the Assets.
13
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4.12.2 Extreme has not violated, and the conduct of its business
and use, marketing, sale or distribution of any Asset does not violate, any
license or agreement between Extreme and any third party or infringe or
misappropriate any Intellectual Property Right of any third party. Extreme has
not received any notice asserting any such violation, infringement or
misappropriation or any conflict with the rights of any other party, and, to the
best knowledge of Extreme, there is no basis for any such assertion. To the best
knowledge of Extreme, no employee or agent of or consultant to Extreme is in
violation of any term of any third party employment, nondisclosure,
noncompetition or similar contract or agreement with respect to the performance
of services for Extreme.
4.12.3 Extreme has taken reasonable and practicable steps, in
accordance with prevailing industry standards, designed to protect, preserve and
maintain the secrecy and confidentiality of all material Extreme IP Rights. All
officers, employees, and consultants of Extreme have executed and delivered to
Extreme an agreement regarding the protection of such proprietary information
and the assignment of inventions to Extreme, in the form provided to Snowball
and copies of all such agreements executed by all such persons have been
delivered to Snowball.
4.12.4 Section 4.12 to the Extreme Disclosure Schedule contains a
------------
list of all worldwide applications, registrations, filings and other formal
actions made or taken pursuant to federal, state and foreign laws by Extreme to
secure, perfect or protect its interest in Extreme IP Rights.
4.12.5 As used herein, the term "Intellectual Property Rights"
means, collectively, all worldwide industrial and intellectual property rights,
including, without limitation, patents, trademarks, trade dress rights, trade
names, service marks, Internet domain names, copyrights, and all applications,
registrations and rights pertaining thereto, "moral rights", inventions, trade
secrets, know-how, customer lists, software source code and object code,
algorithms, architecture, structure, display screens, layouts, development tools
and all documentation and media constituting, describing or relating to the
above.
4.13 Compliance with Laws. To the best of Extreme's knowledge has
--------------------
complied, and is now and at the Closing Date will be in compliance, in all
material respects, with all applicable national, state, local or foreign laws,
ordinances, regulations, and rules, and all orders, writs, injunctions, awards,
judgments, and decrees applicable to it or to its assets, properties and
business, including without limitation all environmental, zoning and labor laws
and regulations. Extreme holds all permits, licenses and approvals from, and has
made all filings with, third parties, including government agencies and
authorities, that are necessary in connection with its present business.
4.14 Employment. To Extreme's knowledge, Extreme is in compliance in
----------
all material respects with all applicable laws, agreements and contracts
relating to employment, employment practices, wages, hours, and terms and
conditions of employment, including, but not limited to, employee compensation
matters in each of the jurisdictions in which it conducts business. Section
-------
4.14 to the Extreme Disclosure Schedule lists each employee of Extreme and each
- ----
employment, severance or other similar contract, arrangement or policy, each
employee
14
<PAGE>
benefit plan (if any) and each plan or arrangement providing for compensation or
benefits for employees, consultants or directors which is entered into,
maintained or contributed to by Extreme and covers any employee or former
employee or consultant or former consultant of Extreme.
4.15 No Brokers. Neither Extreme nor any of the Shareholders is under
----------
any obligation for the payment of any fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with the transactions contemplated hereby.
4.16 Page View Levels. Exhibit C sets forth the URL and the amount of
---------------- ---------
Page Views for each Site, on a Site-by-Site basis, in each of the three (3)
completed calendar months preceding the Closing Date. The information regarding
those Sites owned by Extreme set forth on Exhibit C is true and complete in all
---------
respects and, to the knowledge of Extreme, the information concerning those
Sites owned by Permitted Affiliates on the Closing Date is true and complete in
all respects. In each of the three (3) completed months preceding the Agreement
Date, at least sixty-six and two-thirds percent (66 2/3%) of the aggregate
amount of Page Views for such month for all Sites have been generated by Sites
owned by Extreme and not by its affiliates.
4.17 Disclosure. To Extreme's knowledge, neither this Agreement, the
----------
Extreme Disclosure Schedule nor any of the certificates or documents to be
delivered by Extreme and/or the Shareholders to Snowball under this Agreement,
taken together, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which such statements
were made, not misleading.
5. REPRESENTATIONS AND WARRANTIES OF SNOWBALL
Snowball hereby represents and warrants to Extreme that the statements
set forth below in this Section 5 are true, correct and complete as of the
Agreement Date and will be correct and complete as of the Closing Date:
5.1 Organization and Good Standing. Snowball is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted.
5.2 Power, Authorization and Validity.
---------------------------------
5.2.1 Snowball has the right, power and authority to enter into,
execute and perform its obligations under this Agreement and the Snowball
Ancillary Agreements. The execution, delivery and performance of this Agreement
and the Snowball Ancillary Agreements by Snowball have been duly and validly
approved and authorized by all necessary corporate action on the part of
Snowball.
15
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5.2.2 This Agreement and the Snowball Ancillary Agreements are,
or when executed by Snowball will be, valid and binding obligations of Snowball,
enforceable in accordance with their respective terms, subject to the effect, if
any, of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies.
5.3 Capitalization of Snowball. The authorized share capital of
--------------------------
Snowball consists entirely of 35,000,000 shares of Common Stock, $0.001 par
value, and 15,000,000 shares of Preferred Stock, $0.001 par value, of which
9,990,110 are designated Series A Preferred Stock and 5,000,0000 are designated
Series B-1 Preferred Stock. As of the Agreement Date, Snowball had 32,092,054
shares of Common Stock (i) issued and outstanding; (ii) subject to options or
warrants to purchase shares of Snowball Common Stock; (iii) issuable upon
conversion of shares of outstanding Series A Preferred Stock and Series B
Preferred Stock; and (iv) reserved for issuance under Snowball's 1999 Equity
Incentive Plan. No other shares of the share capital of Snowball are (or will at
Closing be) authorized, issued or outstanding. Except as set forth above and
except for the right of first refusal held by certain holders of Snowball's
Preferred Stock, there are no Snowball Derivative Securities outstanding.
5.4 No Violations. Neither the execution and delivery of this
-------------
Agreement or any Snowball Ancillary Agreement, nor the consummation of the
Purchase Transaction or any of the other transactions contemplated hereby or
thereby, nor Snowball's discussion or negotiation with Extreme of the Purchase
Transaction or any of the other transactions contemplated hereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of: (i) any provision of the
Certificate of Incorporation or Bylaws of Snowball as currently in effect; (ii)
to Snowball's knowledge, any federal, state, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to Snowball or the assets
or properties of Snowball; or (iii) any agreement, contract, commitment or
instrument that is material to the business of Snowball.
5.5 Litigation. There is no action, suit, arbitration, mediation,
----------
proceeding, claim or investigation pending against Snowball (or against any
officer or director of Snowball) before any court, administrative agency or
arbitrator, nor, to the best of Snowball's knowledge, has any such action, suit,
proceeding, arbitration, mediation, claim or investigation been threatened. To
Snowball's knowledge, there is no basis for any person, firm, corporation or
other entity, to assert a claim against Snowball based upon Snowball's entering
into this Agreement or consummating the transactions contemplated hereby. There
is no judgment, decree, injunction, rule or order of any governmental entity or
agency, court or arbitrator outstanding against Snowball.
5.6 Financial Statements. Attached as Exhibit F are the following
-------------------- ---------
financial statements of Snowball, which financial statements shall be delivered
within one week of the close of this transaction: the audited balance sheet of
Snowball at September 30, 1999 (the "Snowball Balance Sheet") and the audited
income statements of Snowball for the period ended September 30, 1999
(collectively, the "Snowball Financial Statements"). The Snowball Financial
Statements are (a) in accordance with and accurately reflect the books and
records of Snowball, (b) are true, correct and complete and fairly present the
financial condition of Snowball at the date or date therein indicated and the
results of operations for the period or
16
<PAGE>
periods therein specified; and (c) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved.
5.7 Disclosure of Information. Snowball has received or has had full
-------------------------
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Extreme Stock to be acquired by
Snowball under this Agreement. Snowball further has had an opportunity to ask
questions and receive answers from Extreme and its officers and directors
regarding the terms and conditions of the Purchase Transaction and to obtain
additional information (to the extent Extreme possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to Snowball or to which Snowball had access.
5.8 Investment Experience. Snowball understands that the acquisition
---------------------
of the Extreme Stock involves substantial risk. Snowball has experience as an
investor in securities of companies in the development stage and acknowledges
that it is able to fend for itself, can bear the economic risk of its investment
in the Extreme Stock and has such knowledge and experience in financial or
business matters that Snowball is capable of evaluating the merits and risks of
this investment in the Extreme Stock and protecting its own interests in
connection with this investment.
5.9 Investment Representations. Snowball hereby agrees, represents
--------------------------
and warrants as follows:
(a) Acquisition for Own Account. The Extreme Stock to be
---------------------------
acquired by Snowball hereunder will be acquired only for investment for
Snowball's own account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the Securities Act,
and Snowball has no present intention of selling, granting any participation in,
or otherwise distributing the same. Snowball has not been formed for the
specific purpose of acquiring the Extreme Stock.
(b) Restricted Securities. Snowball understands that the shares
---------------------
of the Extreme Stock are characterized as "restricted securities" under the
Securities Act inasmuch as they are being acquired directly or indirectly from
the issuer or an affiliate of the issuer in a transaction or chain of
transactions not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances.
(c) Legends. Snowball understands and agrees that the
-------
certificates evidencing the Extreme Stock will bear the legend set forth below
and any legend required by state securities laws, in addition to any legend
required by the Articles of Incorporation or Bylaws of Extreme and by any
agreement between the issuer and the holder thereof:
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE
DISPOSED OF EXCEPT IN
17
<PAGE>
ACCORDANCE WITH SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAW.
5.10 No Brokers. Snowball is not under any obligation for the payment
----------
of any fees or expenses of any investment banker, broker or finder in connection
with the origin, negotiation or execution of this Agreement or in connection
with the transactions contemplated hereby.
5.11 Disclosure. To Snowball's knowledge, neither this Agreement nor
----------
any of the certificates or documents to be delivered by Snowball under this
Agreement, taken together, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
6. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
6.1 Survival of Representations. Subject to Section 6.2(b) below,
--------------------------- --------------
all representations, warranties and covenants of Extreme, Snowball and the
Shareholders contained in this Agreement shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
party, only until that date which is one (1) year following the Closing Date,
provided that there shall be no limit with respect to claims arising out of a
- --------
representation or warranty that a Shareholder knew at the Closing Date was false
or a Shareholder's fraud, or and claims arising under Sections 3.3, 4.7, 4.9,
------------ --- ---
and 4.12.
----
6.2 Agreements to Indemnify. Each of the Shareholders hereby agrees
-----------------------
to indemnify and hold harmless Snowball and its officers, directors, agents and
employees and each person, if any, who controls or may control Snowball within
the meaning of the Securities Act (hereinafter referred to collectively as
"Indemnified Persons") from and against any and all Indemnified Losses. For
purposes of this Agreement, "Indemnified Losses" means all claims, demands,
actions, causes of actions, losses, costs, damages, liabilities and expenses
including, without limitation, reasonable legal fees:
(a) Arising out of any misrepresentation or breach of or default
in connection with any of the representations or warranties given or made by
such Shareholder in Section 3 of this Agreement or any certificate, instrument,
or agreement delivered at Closing by or on behalf of such Shareholder pursuant
hereto; or
(b) Resulting from any failure of any such Shareholder to have
good, valid and marketable title to the issued and outstanding Extreme Stock
held by such Shareholder, free and clear of all liens, claims, pledges, options,
adverse claims, assessments or charges of any nature whatsoever; or
(c) Arising out of any misrepresentation or breach of or default
in connection with any of the representations, warranties and covenants given or
made by Extreme in this Agreement or any certificate, instrument, or agreement
delivered at Closing by or on behalf of Extreme pursuant hereto (other than with
respect to changes in the truth or accuracy of
18
<PAGE>
the representations and warranties under this Agreement after the date hereof if
Extreme has advised Snowball of such changes in an update to the Extreme
Disclosure Schedule delivered prior to the Closing and Snowball has nonetheless
proceeded with the Closing).
The liability of the Shareholders under clauses (a) and (b) above will be
several and not joint. The liability of the Shareholders under clause (c) above
will be joint and several.
6.3 Limitations on Indemnification. Anything contained in this
------------------------------
Agreement to the contrary notwithstanding: (a) Shareholders shall not be liable
for any claim for indemnification asserted by any Indemnified Person or by any
party pursuant to any provision of this Agreement after the first (1st)
anniversary date of the Closing; (b) Shareholders' aggregate liability for such
indemnification claims under this Agreement shall not exceed the aggregate
Purchase Price received or receivable by such Shareholder (and Snowball may, in
addition to all other remedies, set off any amounts due from any Shareholder on
account of an Indemnified Loss against the unpaid balance of such Shareholder's
Promissory Note and unpaid share of the Contingent Amount); and (c) Shareholders
shall not become liable for any such indemnification claims under this Agreement
unless and until the aggregate of all such claims exceeds Fifty Thousand Dollars
($50,000.00), and then only to the extent of such excess over $50,000.00 and up
to the amount limitation in Section 6.3(b) above in the aggregate. The
--------------
limitations of this Section 6.3 shall apply to all claims for indemnification
-----------
under this Agreement except: (x) claims arising out of a representation or
warranty that a Shareholder knew at the Closing Date was false or a
Shareholder's fraud; and (y) claims arising under Sections 3.3, 4.7, 4.9, and
------------ --- ---
4.12.
- ----
6.4 Exclusive Remedies. Anything contained in this Agreement to the
------------------
contrary notwithstanding, the indemnification rights set forth in this Article
-------
6, all of which are subject to the terms, limitations, and restrictions of this
Article 6, shall be the exclusive remedy after Closing for monetary damages
- ---------
sustained by the Indemnified Persons as a result of a breach of a
representation, warranty, covenant, or agreement under this Agreement.
6.5 Notice of Claim.
---------------
(a) As used herein, the term "Claim" means a claim for
indemnification under Section 6.2 hereof made by Snowball or any Indemnified
Person against any Shareholder based upon any alleged Indemnified Loss
including, without limitation, an Indemnified Loss related to a Third-Party
Claim. The term "Third-Party Claim" means a written claim, written demand or
other formal or informal written complaint, whether or not perfected, made by a
third party against Snowball or any Indemnified Person causing or threatening
such person with liability which would give rise to an Indemnified Loss.
(b) Promptly upon becoming aware of any Claim, Snowball will
give the Shareholder Representative written notice of such Claim hereof (the
"Notice of Claim"), containing the following information: (i) a brief
description in reasonable detail of the facts of the Claim, including the
identity and address of any third-party who has asserted a Third-Party Claim
against Snowball (if known to Snowball) and copies of any demand or complaint
asserting such Third-Party Claim; and (ii) Snowball's statement of the amount of
damages claimed, and if in connection with a Third-Party Claim, based on facts
alleged in such Third-Party Claim which,
19
<PAGE>
if true, would give rise to damages as an Indemnified Loss or Snowball's good
faith estimate thereof ("Alleged Damages"). Snowball may give a Notice of Claim
at any time on or prior to the close of the period specified in Section 6.3(a),
and no Notice of Claim may be given after the close of such period. No delay on
the part of Snowball or any Indemnified Person in giving the Shareholder
Representative a Notice of Claim prior to the close of such period shall relieve
any Shareholder from the indemnity obligations under this Section 6 unless (and
then only to the extent) that such Shareholder is materially prejudiced by such
delay.
6.6 Allowance and Payment of Claims. If, within thirty (30) days of
-------------------------------
receipt of a Notice of Claim, the Shareholder Representative does not object to
the Notice of Claim in writing delivered to Snowball, then the Notice of Claim
shall be deemed an "Allowed Claim" and Snowball may obtain payment of the
Alleged Damages stated therein, first by setting off against any outstanding
-----
balances on the Promissory Notes, second, by setting off against any then earned
------
but unpaid Contingent Amount or against any Contingent Amount which thereafter
becomes an earned Contingent Amount as provided in Section 2.4 hereof, and
lastly, against the Shareholders to the extent permitted in Section 6.3. If
Snowball sets off against the outstanding balance of outstanding Promissory
Notes as set forth in this Section 6.6, Snowball shall promptly send a notice to
the Shareholders of such set-offs, and Snowball not be required thereafter to
deliver for the account of any Shareholder any additional Conditional Amount or
other Purchase Price amount earned under this Agreement until such time as such
Shareholder's Promissory Note the Promissory Notes have been returned by such
Shareholder and, if any remaining balance is outstanding thereon, reissued to
reflect such set-off.
6.7 Resolution of Disputed Claims. If the Shareholder Representative
-----------------------------
does object to the Notice of Claim within the time allowed in Section 6.6, the
Shareholder Representative and Snowball shall resolve the dispute regarding
allowance and payment of the Claim, if not earlier settled between them, by
means of binding arbitration in San Francisco, California pursuant to the rules
and regulations of the American Arbitration Association then in effect. The
arbitration may be demanded at any time after the expiration of the thirty-day
period referred to in Section 6.6 by either Snowball or the Shareholder
Representative and shall be conducted before a panel of three (3) arbitrators
having experience in commercial disputes involving technology companies, one (1)
of which shall be appointed by Snowball, one (1) of which shall be appointed by
the Shareholder Representative and the third of which shall be appointed by the
other two arbitrators. The parties shall work cooperatively with the arbitrators
to resolve the dispute in an expeditious manner. The arbitrators shall (i)
establish procedures so that the hearing on the merits of the dispute shall be
concluded within ninety (90) days of the demand of either party for arbitration,
unless Snowball and the Shareholder Representative otherwise agree, (ii) permit
and reasonably limit the scope of discovery to be conducted by the parties in
preparing for the hearing on the merits, (iii) follow the substantive law chosen
by the parties in Section 7.1 of this Agreement for the interpretation of this
agreement and the resolution of disputes arising under it and (iv) render their
decision in writing, within sixty (60) days after completion of the hearing on
the merits of the dispute. Costs of arbitration (but not attorneys fees or costs
for the Shareholders or the Shareholder Representative) shall be paid initially
by Snowball, but the arbitrators shall award to the prevailing party both the
costs of arbitration and the attorneys fees and costs reasonably incurred by the
prevailing party in the arbitration. Judgment upon any award rendered by the
arbitrators may be entered in and enforced before any
20
<PAGE>
court having jurisdiction. Notwithstanding any other provision of this
Agreement, if any timely filed Claim involves a Third-Party Claim in which
litigation or arbitration is pending between Indemnified Parties and the third-
party, resolution of the Claim may await resolution of such litigation and
Snowball may withhold payment on the Promissory Notes or payment of earned
Contingent Amount until such time as such underlying litigation is resolved and
the Claim against the Shareholders by the Indemnified Person(s), if then
disputed, is thereafter resolved as provided in this Section 6.7.
6.8 Shareholder Representative; Limitation Of Liability.
---------------------------------------------------
(a) Each Shareholder hereby consents to and approves of the
appointment of James U. White, Jr. his or her agent and attorney-in-fact to give
and receive notices and communications including, without limitation, Notices of
Claims, to agree to, negotiate, enter into settlements and compromises of, and
demand arbitration and to comply with orders of courts and awards of arbitrators
with respect to such Claims, and to take all actions necessary or appropriate in
the judgment of the Shareholder Representative for the accomplishment of the
provisions of this Article 6. Such agency may be changed from time to time upon
not less than ten (10) days' prior written notice to Snowball by the
Shareholders. Notwithstanding anything to the contrary in the foregoing, Remy
Arteaga, Barbara Bistrowitz or Al Isaacs may revoke upon not less than 10 days
prior written notice his or her appointment of the Shareholder Representative as
his or her attorney in fact. The Shareholder Representative may resign upon
thirty (30) days notice to the parties to this Agreement. No bond shall be
required of the Shareholder Representative, and the Shareholder Representative
shall not receive compensation for his services, but shall be reimbursed by the
Shareholders for reasonable expenses in performing his duties hereunder. Notices
or communications to or from the Shareholder Representative delivered in
accordance with Section 7.8 hereof shall constitute notice to or from each of
the Shareholders.
(b) The Shareholder Representative shall not be liable for any
act done or omitted hereunder as Shareholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Shareholders shall
severally indemnify the Shareholder Representative and hold him harmless against
any loss, liability or expense incurred without gross negligence or bad faith on
the part of the Shareholder Representative and arising out of or in connection
with the acceptance or administration of his duties hereunder.
7. MISCELLANEOUS
7.1 Governing Law. The internal laws of the State of California
-------------
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto. Except as set forth in Section
6.7 with regard to resolution of disputes concerning Claims to indemnity under
Article 6 hereof, any dispute arising under or in relation to this Agreement
shall be resolved in federal or California State court located in San Francisco,
California having subject-matter jurisdiction over the dispute, and each party
to this Agreement irrevocably consents to the personal jurisdiction in such
court and waives any objection to venue and any argument of forum non conveniens
or similar doctrine with regard to such venue; provided
21
<PAGE>
however, that in the event that litigation is instituted against the
Shareholders, such litigation shall only be instituted in the United States
District Court, Western District of Oklahoma; and provided further however, that
once litigation is commenced as set forth above, counter-claims or cross-claims
may be instituted, at the option of the counter-claimant or cross-claimant, in
the court in which such litigation is pending. The internal laws of the State of
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
7.2 Assignment; Binding Upon Successors and Assigns. No party hereto
-----------------------------------------------
may assign any of its rights or obligations hereunder without the prior written
consent of the other parties hereto. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
7.3 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
7.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument.
7.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
7.6 Amendment and Waivers. Any term or provision of this Agreement
---------------------
may be amended prior to the Closing by the written consent of Snowball, Extreme
and those Shareholders collectively holding at least seventy-five percent (75%)
of the then outstanding Extreme Stock, and, after the Closing by Snowball and
the Shareholders (or their successors in interest) who immediately prior to the
Closing held a majority of the Extreme Stock. Notwithstanding the foregoing, the
consent of a Shareholder shall be required for any amendment or waiver of this
Agreement which materially increases either such Shareholder's obligations or
diminishes such Shareholder's rights under this Agreement (other than on a pro
rata basis). The observance of any term, condition or provision of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a writing signed by the party to be
bound thereby or for whose benefit such condition was provided except that a
waiver on behalf of the Shareholders need be signed by the Shareholders
collectively holding at least a majority of the then outstanding Extreme Stock.
In addition, at any time prior to the Closing, the Shareholders (acting by
written consent of the holders of a majority of the Extreme Stock) and each of
Extreme and Snowball (by action taken by its respective Board of Directors) may,
to the extent legally allowed: (i) extend the time for the performance of any of
the obligations or other acts of the other; (ii)
22
<PAGE>
waive any inaccuracies in the representations and warranties made to it
contained herein or in any document delivered pursuant hereto; and (iii) waive
compliance with any of the agreements or conditions for its benefit contained
herein. The failure of any party to enforce any of the provisions hereof will
not be construed to be a waiver of the right of such party thereafter to enforce
such provisions or any other provisions.
7.7 Expenses. Each party hereto will pay its respective fees and
--------
expenses of its own attorneys, accountants, investment bankers, advisors and
other professionals incurred in connection with this Agreement and the
transactions contemplated hereby.
7.8 Notices. All notices and other communications required or
-------
permitted under this Agreement will be in writing and will be either hand
delivered in person, sent by telecopier, sent by certified or registered first
class mail, postage pre-paid, or sent by internationally recognized express
courier service. Such notices and other communications will be effective (i)
upon receipt if hand delivered or sent by telecopier, (ii) five (5) days after
mailing if sent by mail, and (iii) one (1) business day after dispatch if sent
by express courier, to the following addresses, or to such other addresses or
fax number as any party may notify the other parties in accordance with this
Section 7.8:
(i) If to Snowball:
--------------
Snowball.com, Inc.
250 Executive Park Boulevard, Suite 4000
San Francisco, CA 94134
Attention: President
Fax Number: 415-508-2001
with a copy to:
--------------
Fenwick & West LLP
875 Battery Street, Suite 1500
San Francisco, CA 94111
Attention: Robert B. Dellenbach, Esq.
Fax Number: (415) 281-1350
(ii) If to a Shareholder: to such Shareholder's address on
-------------------
Exhibit A:
---------
(iii) If to the Shareholder Representative:
------------------------------------
James U. White, Jr., Esq.
White, Coffey, Galt & Fite, P.C.,
6520 North Western, Suite 300
Oklahoma City, Oklahoma 73116
Fax Number: (405) 840-9890
with a copy to:
--------------
Mr. Matthew Myers
23
<PAGE>
4444 N. Classen
Oklahoma City, OK 73118
Fax Number: 405-557-1171
and
---
Mr. Robert Gruenewald
4444 N. Classen
Oklahoma City, OK 73118
Fax Number: 405-557-1171
and
Mr. Remy Arteaga
401 2nd Ave. Apt. 25B
New York, NY 10010
Fax Number: 212-779-2126
7.9 Construction of Agreement. This Agreement has been negotiated by
-------------------------
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against any party.
7.10 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner, employee, agent, consultant or any
party hereto or any other person or entity unless otherwise specifically
provided otherwise herein, and, except as so provided, all provisions hereof
will be personal solely among the parties to this Agreement; provided that
Indemnified Persons may be third party beneficiaries solely with respect to the
provisions of Article 6 of this Agreement.
---------
7.11 Public Announcement. At a time consistent with Snowball's
-------------------
corporate policy, and in any event no later than thirty (30) days after the
Closing, Snowball may issue a press release, which is approved by the
Shareholder Representative (which approval shall not be unreasonable withheld)
announcing the purchase and sale of stock contemplated hereby. Thereafter,
Snowball may issue such press releases, and make such other disclosures
regarding the transactions contemplated hereby, as it determines are required
under applicable securities laws or regulatory rules. Prior to the publication
of the press release issued upon execution of this Agreement (unless this
Agreement has been terminated), no party hereto shall make any public
announcement relating to this Agreement or the transactions contemplated hereby.
7.12 Entire Agreement. This Agreement, the Exhibits and Schedules
----------------
hereto, the Extreme Disclosure Schedule, the Extreme Ancillary Agreements, the
Shareholders Ancillary Agreements and the Snowball Ancillary Agreements
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions, express
or implied, written or oral, between the parties with respect hereto.
24
<PAGE>
[Remainder of Page Intentionally Left Blank]
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SNOWBALL.COM, INC. EXTREME INTERACTIVE MEDIA, INC.
By: /s/ Mark Jung By: /s/ Matt B. Myers
---------------------------------- ----------------------------------
Mark Jung, Chief Executive Officer Matt B. Myers, President
SHAREHOLDER (for entities)
______________________________________
(print Shareholder name)
By: __________________________________
Name: ________________________________
Title: _______________________________
SHAREHOLDER (for individuals)
______________________________________
(print Shareholder name)
______________________________________
(Shareholder signature)
Only for the purposes of Section SHAREHOLDER REPRESENTATIVE
6 and 7:
______________________________________
[SIGNATURE PAGE TO STOCK PURCHASE AND EXCHANGE AGREEMENT]
<PAGE>
LIST OF EXHIBITS
TO
STOCK PURCHASE AND EXCHANGE AGREEMENT
Exhibit A List of the Shareholders and their Ownership of Extreme Stock
Exhibit B Stock Power
Exhibit C Permitted Affiliates and Recent or Estimated Page Views
Exhibit D Contingent Payments
Exhibit E Extreme Disclosure Schedule
Exhibit F Snowball Financial Statements
Exhibit G Form of Opinion of Counsel to Extreme
Exhibit H Form of Promissory Note
<PAGE>
EXHIBIT 10.15
FULL RECOURSE PROMISSORY NOTE
$600,000.00 November 30, 1999
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay
to the order of SNOWBALL.COM, INC. (the "Company"), at 250 Executive Park Blvd.,
Suite 4000, San Francisco, CA 94134, or at such other place as the holder hereof
may designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Six Hundred Thousand Dollars
($600,000.00) together with interest accrued from the date hereof on the unpaid
principal at the rate of 6.08% per annum compounded monthly, or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
1. PRINCIPAL REPAYMENT. The outstanding principal amount and any accrued
interest hereunder shall be due and payable in full on November 30, 2003.
2. INTEREST PAYMENTS. Interest shall be payable annually in arrears and
shall be calculated monthly beginning November 30, 1999 on the basis of a 360-
day year for the actual number of days elapsed.
3. PREPAYMENT. This Note may be prepaid at any time without penalty. All
money paid toward the satisfaction of this Note shall be applied first to the
payment of interest as required hereunder and then to the retirement of the
principal.
4. SECURITY. The full amount of this Note is secured by a pledge of
shares of common stock of the Company, and is subject to all of the terms and
provisions of the Stock Pledge Agreement, dated of even date herewith between
the undersigned and the Company. Upon any default of the undersigned under this
Note, the Company shall have, in addition to its rights and remedies under the
Stock Pledge Agreement, full recourse against any real, personal, tangible or
intangible assets of the undersigned.
5. NATURE OF DEBT. The undersigned hereby represents and agrees that the
amounts due under this Note are not consumer debt, and are not incurred
primarily for personal, family or household purposes, but are for business and
commercial purposes only.
6. WAIVER. The undersigned hereby waives presentment, protest and notice
of protest, demand for payment, notice of dishonor and all other notices or
demands in connection with the delivery, acceptance, performance, default or
endorsement of this Note.
7. COSTS AND EXPENSES. The holder hereof shall be entitled to recover,
and the undersigned agrees to pay when incurred, all costs and expenses of
collection of this Note, including without limitation, reasonable attorneys'
fees.
<PAGE>
8. GOVERNING LAW. This Note shall be governed by, and construed, enforced
and interpreted in accordance with, the laws of the State of California,
excluding conflict of laws principles that would cause the application of laws
of any other jurisdiction.
Signed: /s/ Jim Tolonen
-------------------------------------
Jim Tolonen
<PAGE>
EXHIBIT 10.22
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the
CERTAIN PORTIONS OF THIS information contained within the
DOCUMENT "[**]" markings. Such marked portions
have been omitted from this filing and
have been filed separately with the
Securities and Exchange Commission
December 29,1999
Mr. Mike Seidenberg
Business Development
Desktop com
275 Ninth Street
San Francisco, CA 94103
Re: Desktop.com Letter Agreement
----------------------------
Dear Mike:
This letter agreement is intended to constitute our binding agreement as
to its terms, for the foundation for a business alliance between Desktop.com and
snowball.com.
Snowball.com desires to make Desktop.com's services available to users of
the snowball.com sites, which include IGN.com, ChickClick.com,
PowerStudents.com/InsideGuide.com and the Snowball.com affiliates Desktop.com
desires to top into snowball.com's 2.6 million registered users and 4.4 million
unique visitors (Media Metrix 11/99) and convert snowball.com users into
registered users of Desktop.com. The parties intend, therefore, to jointly
develop a "Customer Acquisition Program" to be implemented on the snowball.com
sites. It is the intention of the parties to generate registered users for
Desktop.com through snowball.com's provision of a series of links, buttons,
banners, e-mail blasts and other promotional efforts on the snowball.com sites.
The terms set forth below will constitute the entire agreement between
the parties.
We agree as follows:
- -------------------
. parties acknowledge that the Affiliate Commerce Portal may not be
fully operational on February 1, 2000. In that event buttons, banners,
or mutually approved alternative advertising vehicle will be used to
generate the guaranteed impressions until such time as the Affiliate
Commerce Portal is launched.
. snowball.com will allocate the guaranteed impressions evenly over the
term of this agreement.
. snowball.com's obligation and Desktop.com's sole right in the event
that snowball.com. fails to deliver the above-listed number of
guaranteed impressions will be for snowball.com to deliver any
deficiency, as soon as practicable in subsequent months.
<PAGE>
. Desktop.com will control the distribution of the guaranteed
impressions across the snowball.com-sites. Desktop.com shall provide
snowball.com with an initial requested distribution prior to the
commencement of this agreement on February 1, 2000. Desktop.com may
change the requested allocation at any time upon reasonable notice to
snowball.com; provided that, Desktop.com acknowledges snowball.com may
not be able to make a requested reallocation in any given month due to
inventory constraints. snowball.com will provide Desktop.com notice of
such constraints within a reasonable time of receiving a request to
change the allocation of impressions.
E-mail Promotions:
- ------------------
. Desktop.com will receive a text-ink within the "E-mail Blasts" that
snowball.com sends out each month. snowball.com will guarantee
delivery of [**] emails to snowball.com registered users pursuant to
the delivery schedule specified to snowball.com users at the time of
registration.
. Desktop.com and Snowball.com will jointly develop the text of the
message to accompany the text link to be delivered with snowball.com,
E-mail Blasts. snowball.com will provide Desktop.com with an
opportunity to review the message prior to distribution of the message
to snowball.com registered users.
Additional Marketing Opportunities:
- -----------------------------------
. snowball.com agrees to include Desktop.com in mutually pre-approved
press releases.
Support:
- --------
. snowball.com will assign a dedicated Client Services Manager to
monitor and maximize use of Desktop.com content and services by
snowball.com users.
. The Client Services Manager will provide Desktop.com with regular
reports in electronic format of current impressions and performance
under this agreement.
. Desktop.com will be able to change creative throughout this agreement
and will not be limited to a defined number of changes.
Term:
- -----
. The term of this Agreement will be [**], commencing February 1, 2000.
However, should the start date (i.e. the date on which snowball.com.
begins serving Desktop.com's ads), be delayed for more than 30 days,
then the term will automatically be renegotiated in good faith by the
parties. However, any change in the term will be subject to the
parties' written agreement.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission
2
<PAGE>
Compensation:
- -------------
. Desktop.com will pay snowball.com a [**] partnership fee, with [**]
payable up front upon signing and [**] additional payments of [**] per
month to complete payment. Late payments will bear interest at the
rate of [**] per month, or the highest rate permitted by applicable
laws, whichever is lower.
Performance Benchmark:
- ---------------------
The Goal of this program is for snowball.com to deliver users to the
Desktop.com site for registration and grow the membership database for
Desktop.com.
. After two months, snowball.com and Desktop.com will meet to review
and reform the partnership program, if needed, in order to maximize
performance. This review will include a review of the effectiveness
of the marketing and promotional activities set forth in this
Agreement in delivering users to the Desktop.com site and services.
. Provided that [**] of the impressions for which snowball.com has
guaranteed delivery [**] have been delivered by the end of the second
month after the effective date, if less than [**] snowball.com users
have clicked-through a banner, button, button link, or e-mail provided
link to a Desktop.com site or service ("Click-Throughs") at the end of
the second month after the effective date, then Desktop.com shall have
a right to commence a one month probationary period upon written
notice to snowball.com
. The probationary period shall run from the end of the second
month after the effective date to the end of the third month
after the effective date.
. At the beginning of the probationary period, the parties will
meet and mutually agree to an increased number of banners,
buttons, e-mail blasts, and other promotional efforts, over the
average monthly impressions delivered in the prior two months,
that will be likely to achieve a total of [**] ClickThroughs by
the end of the probationary period, and snowball.com will deliver
the agreed increased number of impressions during the
probationary period. The impressions guaranteed, during the
probationary period are not to exceed twice the initially
guaranteed impression level for that period [**]. The number of
impressions delivered during the probationary period over the
average monthly impressions delivered in the prior two months
will not count toward the guaranteed annual impressions set forth
in this Agreement,
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
3
<PAGE>
. If at the end of the probationary period fewer than [**]
snowball.com users have clicked through to a Desktop.com site or
service, Desktop.com shall have the right to terminate the
agreement upon written notice effective at the end of the
probationary period, unless the parties mutually agree to extend
the probationary period and the heightened promotional efforts
agreed to during the probationary period. If this agreement is
terminated pursuant to this section, Desktop.com's payment
obligation under the agreement shall be [**].
. If less than [**] of the impressions guaranteed to be
delivered over the term of the Agreement [**], have been
delivered by the end of the second month after the effective
date, the Performance Benchmark and probation provisions above
shall have full effect, provided that, the numbers [**] and [**]
shall be reduced proportionally by the number of impressions
actually delivered over [**] of the guaranteed impressions [**].
Limits on Marketing Relationships with Desktop.com Competitors
. For the purposes of this letter agreement it shall be understood that
"Desktop.com Competitors" means (a) [**], (b) [**], (c) [**],
(d) [**], (e) [**], (f) [**], and (g) [**].
. During the term of this agreement, (a) snowball.com may accept banner
advertisements from Desktop.com Competitors; provided, that such
banner advertisements in the aggregate are no greater than [**]
([**]) of the number of impressions guaranteed to Desktop.com,
herein; (b) snowball.com will not provide placement within any
Affiliate Commerce Portal for any Desktop.com Competitor; and (c)
snowball.com may issue press releases with Desktop.com Competitors;
provided that, no press release may be issued that promotes a
partnership between snowball.com and a Desktop.com Competitor that is
similar in scope or purpose to the partnership set forth herein.
Cooperation and Miscellaneous Terms
. Desktop.com acknowledges that snowball.com's performance of this
Agreement is dependent upon Desktop.com's full performance and
cooperation. Accordingly, the parties agree that Desktop.com's
obligations under this agreement are subject to such performance and
cooperation.
. Desktop.com and snowball.com agree that the provisions set forth as
Exhibit A attached are incorporated herein by this reference.
. Desktop.com acknowledges that it has received, read and understands
the terms and conditions of this letter of agreement.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
4
<PAGE>
IN WITNESS WHEREOF the parties have entered into this Agreement.
snowball.com Desktop.com
/s/ James R. Tolonen /s/ Kathleen C. Burke
By: _________________________ By: __________________________
James R. Tolonen Kathleen C. Burke
Name:________________________ Name: ________________________
COO/CFO CEO
Title:_______________________ Title: _______________________
1/07/00 12/30/99
Date:________________________ Date: ________________________
5
<PAGE>
EXHIBIT 10.23
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the information
CERTAIN PORTIONS OF THIS contained within the "[**]" markings.
DOCUMENT Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission.
eCommerce and Content Agreement
This eCommerce and Content Agreement (this "Agreement") is made as of
January 1, 2000 (the "Effective Date"), by and between IGN.com, a division of
Snowball.com, Inc., a Delaware corporation with principal offices at 250
Executive Park Boulevard, Suite 4000, San Francisco, CA 94134 ("Snowball" or
"IGN") and EBWorld.com, Inc., a Nevada corporation with principal offices
at 770 Pilot Rd. Suite F, Las Vegas, NV 89119 ("EBWorld.com").
Background
Snowball owns and operates five sites featuring editorial content about
games, movies, tv, science fiction, and entertainment issues for young men (as
further described in Exhibit A, the "IGN Sites"). The IGN Sites connect to a
---------
network of affiliates sites (the "IGN Affiliate Sites") to provide a greater
breadth and depth of entertainment content. The IGN Sites and the IGN Affiliate
Sites are sometimes referred to, collectively, in this Agreement as the "IGN
Network."
Snowball also owns and operates three other networks: the "ChickClick
Network," targeted at young women (the hub site for which is located at
www.ChickClick.com) and the "PS/IG Network," targeted at college students (the
hub sites for which are located at www.Powerstudents.com and
www.InsideGuide.com). The ChickClick Network and PS/IG Network are referred to,
collectively, as the "Other Snowball Networks."
EBWorld.com sells computer games for play on a variety of platforms
(including related merchandise, the "Games") and provides content about gaming,
through its World Wide Web site located at www.EBWorld.com (the "EBWorld.com
Site").
EBWorld.com wishes to be the exclusive Games retailer on the IGN Sites and
to have links established from the IGN Sites to the EBWorld.com Site (each, a
"EBWorld.com Link"). IGN has agreed to establish those links on the IGN Sites
and to establish a program to encourage IGN Affiliates to place similar links on
each of the IGN Affiliates Sites (the "EBWorld.com Program"), subject to the
terms and conditions of this Agreement.
Now Therefore, the parties agree as follows:
1. Promotion. Subject to the terms and conditions of this Agreement,
---------
(a) Links and Banner Advertisements. IGN will develop, implement and
-------------------------------
maintain EBWorld.com logo branded "buy if" links on all IGN site reviews,
previews, and game specific pages. At least two links will appear on each page,
'one above the fold' and one below the content. The EBWorld.com marketing box
(currently search box) will appear on the hub page for each IGN site at least
[**] of the total display time for each hub page and will be displayed in the
top 30% of the page. The "Gamestore" link will appear on all IGN site pages at
least [**] of the total display time for each page and will be displayed "above
the fold." Participating IGN affiliates will carry EBWorld.com links on not less
than [**] of available page impressions. Except in the case of "Gamestore" or
"New Games" links found on the navigation bar, each EBWorld.com link will be
indicated by, and in the form of, one of the logos or other trademarks attached
hereto as Exhibit B (the "EBWorld.com Marks"). IGN will also implement banner
---------
advertisement promoting EBWorld.com that will appear on a rotating basis on the
IGN sites and IGN Affiliate sites. In total, EBWorld.com will be represented by
the following creative units - marketing boxes, navigational links, "Buy It Now"
buttons, Game Page links, text linked email messages, and banner advertisements.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission.
<PAGE>
(b) Opt-In Registration. IGN will establish an "opt-in" feature on the IGN
-------------------
Sites, allowing users of the IGN Sites to sign up to receive information and
promotional materials about the Games provided to IGN by EBWorld.com. Each user
that signs up to receive information as described in this Section is referred to
in this Agreement as a "Registered User;" the data obtained from each Registered
User through the "opt-in" registration process is referred to as the
"Registration Data."
(c) Microsite. IGN will develop and maintain a co-branded content section
---------
(the "Microsite") that highlights new Games, based on information delivered to
IGN by EBWorld.com. The Microsite will contain links to the eCommerce Pages
described in Section 3 to allow visitors to purchase the featured Games. IGN
will promote the Microsite through navigational links on the IGN Network. The
navigational links to this section will live below the "Gamestore" links on the
navigational bar and reside on at least [**] of the hub pages.
(d) Email Blasts/Newsletters. IGN will include an EBWorld.com Link and
------------------------
text up to forty words in the newsletter IGN currently sends to its registered
users each business day. In addition, IGN will include an EBWorld.com Link and
text up to forty words in the newsletters sent to subscribers through
Microsoft's Hotmail service, subject to the terms and conditions of IGN's
related agreement with Microsoft. IGN will also include an EBWorld.com Link and
text up to forty words in commerce-related email messages sent to the users of
the IGN Sites.
(e) Press Releases. The parties will jointly issue a press release
--------------
describing the relationship established under this Agreement within thirty days
of the Effective Date. IGN may issue other press releases describing the
relationship with EBWorld.com established under this Agreement, subject to
EBWorld.com's reasonable approval.
(f) PC Gamer Magazine. EBWorld.com will be entitled to place one full page
-----------------
advertisement monthly in PC Gamer Magazine during the initial term of this
Agreement.
(g) Co-Marketing. If either party ("Originating Party") wishes to engage
------------
with any third party to sponsor or co-market any promotion or special event
relating to computer games (each, a "Game Promotion"), and where that
promotion or event is open to other sponsors than the Originating Party, then
the Originating Party will first notify the other party ("Proposed Co-
Sponsor") with a description of the proposed Game Promotion. If the Proposed
Co-Sponsor expresses interest in negotiating the terms of its participation
within five days of its receipt of the Originating Party's notice, then the
parties will negotiate in good faith for a period of 72 hours. If a verbal or
written agreement is not reached within the 72 hour period after notification,
the originating party will be free to enter into an agreement with a third
party to sponsor a game promotion.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
(h) Account Manager. IGN will appoint a dedicated account manager to act
---------------
as primary contact for EBWorld.com and to facilitate any requests for
information or assistance made by EBWorld.com with respect to the activities
described in this Section. IGN will notify EBWorld.com of the dedicated account
manager's name and contact information as soon as practicable.
(i) Text and Information. EBWorld.com will provide IGN with all of the
--------------------
text and other information described in this Section in the form and format, and
in accordance with the delivery schedule, requested by IGN.
2. (This needs to be a separate agreement. It should be the insertion order
that was signed)
3. e-Commerce.
----------
(a) Definitions. "Impression" means each view of a page containing an
-----------
EBWorld.com Mark or EBWorld.com Link. "Clickthrough" means a link made using an
EBWorld.com Link from a site on the IGN Network or Other Snowball Networks.
(b) eCommerce Pages. EBWorld.com will implement and maintain co-branded
---------------
pages on the EBWorld.com Site (the "eCommerce Pages") where visitors who link to
the eCommerce Pages from any site on the IGN Network or Other Snowball Networks
(each, a "Customer") can purchase Games. EBWorld.com will be solely responsible
for tracking the volume and number of sales of Games to Customers. EBWorld.com
will provide IGN with all such information, as well as the names, email
addresses and descriptions of the specific purchases made by each Customer
(collectively, the "Purchasing Data") on a weekly basis. The purchasing data
will only be used by IGN for auditing purposes. The eCommerce Pages will not
link, directly or indirectly, to any other pages through which Customers can
purchase Games, so that any Games purchased from EBWorld.com by a Customer will
be made through the eCommerce Pages, with the following exception: IGN will be
listed along with other partners on a hyper-linked EBWorld.com partner list that
may appear on the co-branded home page.
(c) Links to and from IGN Sites. IGN will implement and maintain links
---------------------------
from the IGN Sites and IGN participating affiliates to the eCommerce Pages
("eCommerce Links") and will promote the eCommerce Pages using banner
advertisements displayed on a rotating basis on the IGN Network and Other
Snowball Network. IGN will provide EBWorld.com with a report of the number
Clickthroughs from the IGN Network and the Other Snowball Networks to the
eCommerce Pages on a weekly basis. EBWorld.com will implement and maintain links
from the "check-out" pages of the eCommerce Pages to the IGN Sites, as mutually
agreed by the parties. Each link to the IGN Site will be indicated by, and in
the form of, one of the logos or other trademarks attached hereto as Exhibit B
---------
(the "IGN Marks").
<PAGE>
(d) Orders. EBWorld.com will be solely responsible for processing orders
------
placed by Customers on the eCommerce Pages, including order entry, payment
processing, shipping, cancellations, returns, and related customer service.
EBWorld.com will establish all prices for the Games, in its discretion.
(e) Account Manager. EBWorld.com will appoint a dedicated account manager
---------------
to act as primary contact for IGN and to facilitate any requests for information
or assistance made by IGN with respect to the eCommerce Pages. EBWorld.com will
notify IGN of the dedicated account manager's name and contact information as
soon as practicable.
4. Other Content.
-------------
(a) IGN Content. IGN will provide EBWorld.com with certain Game reviews,
-----------
previews, news and downloadable product samples (collectively, the "IGN
Content") for inclusion on the EBWorld.com Site. EBWorld.com will incorporate
the IGN Content into the EBWorld.com Site and will indicate such content with
the display of an IGN Mark and provide links from that content back to the IGN
site. Content will be in a form mutually agreed on and delivered on a schedule
determined by mutual agreements by both parties.
(b) EBWorld.com Content. EBWorld.com will provide IGN with any release
-------------------
dates and other release information concerning new Games in EBWorld.com's
possession for use by IGN on the IGN Sites and related promotional materials.
When displaying release information, IGN will hyperlink each product to the
respective EBWorld.com product page.
5. Exclusivity. Subject to the terms and conditions of this Agreement, IGN
-----------
will identify EBWorld.com as IGN's "exclusive electronics games retailer" on
each IGN Site (including, without limitation, the Tour Pages). IGN will not,
during the term of this Agreement, enter into any agreement with respect
Notwithstanding the foregoing, IGN will be free to display advertisements that
promote other companies that distribute computer games. Competitive
advertisements will be limited to [**] or less of the total inventory available
on IGN and IGN Affiliate Properties. The exclusivity described in this Section
applies to the sale of Games only and expressly does not apply to rental of
games, direct delivery of games via electronic means for home use or to
merchandise related to Games generally. In addition,EBWorld.com acknowledges
that IGN may incorporate or link to an auction function and that the sale of
games by third parties through an auction function will not be a breach of IGN's
obligations under this Section. EBWorld.com will have right of first refusal
during the initial 21-day period that IGN is considering partners for all game
rental, ESD, auction, and game related merchandise opportunities. Other than the
competitive banner inventory allowed in this section, IGN will not sell or link
advertising or commerce partnerships that will allow users to be within one
click of any electronic game commerce offers as defined in this section.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
merchandise related to Games generally. In addition, EBWorld.com acknowledges
that IGN may incorporate or link to an auction function and that the sale of
games by third parties through an auction function will not be a breach of IGN's
obligations under this Section.
6. Impressions.
-----------
(a) Delivery. IGN will, through the promotions and other obligations
--------
described in this Agreement, provide to EBWorld.com the following minimum number
of Impressions on a monthly basis: (1) [**] Impressions on the IGN Network; (2)
[**] Impressions on the PS/IG Network; and (3) [**] Impressions on the
ChickClick Network. These impressions will be in the 468x60 banner format and
will be served 'above the fold.'
(c) Remedy. In the event IGN fails to deliver the minimum number of
------
Impressions described in this Section, EBWorld.com's sole and exclusive remedy,
and IGN's sole and exclusive obligation, shall be to continue to deliver
Impressions until that minimum number of Impressions is meet.
7. EBWorld.com Program.
-------------------
(a) EBWorld.com Program. Each IGN Affiliate will be offered the
-------------------
opportunity by IGN to participate in the EBWorld.com Program and to market
EBWorld.com as its "exclusive games retailer." For each IGN Affiliate that
chooses to participate, IGN and the IGN Affiliate will enter into an agreement
that provides the terms and conditions of the IGN Affiliate's participation.
IGN will make reasonable efforts to maximize the affiliate participation in this
agreement. EBWorld.com acknowledges that each participating IGN Affiliate will
be free to place links to the EBWorld.com Site, in its discretion. EBWorld.com
and IGN agree that there is no limit on the number of IGN Affiliates that may
join the program.
(b) No Solicitation. EBWorld.com will not, for the term of this Agreement,
---------------
solicit any IGN Affiliate that has chosen to participate in the EBWorld.com
Program to engage in any kind of business relationship directly with
EBWorld.com.
8. Payment.
-------
(a) Flat Fee. EBWorld.com will pay IGN a flat fee of [**], minus the SEGA
--------
ASSAULT TOUR dated 10-14-99 [**] EBWorld.com will pay the fee described in this
Section in equal monthly of [**] installments payable on the first day of each
calendar month during the [**] term of this Agreement.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
(b) Taxes. All amounts payable under this Agreement are exclusive of all
-----
sales, use, value-added, withholding, and other taxes and duties. EBWorld.com
will pay all taxes and duties assessed in connection with this Agreement and its
performance by any authority within or outside of the U.S., except for taxes
payable on IGN's net income. IGN will be promptly reimbursed by EBWorld.com for
any and all taxes or duties that IGN may be required to pay in connection with
this Agreement or its performance.
(c) Records and Audit Rights. EBWorld.com will keep all records relating
------------------------
to all Purchasing Data for a period of three years after such sale/impression
record period. An independent certified public accountant selected by IGN may,
no more than once per year and upon at least twenty-four hours notice, inspect
such records during normal business hours. If, upon performing such audit, it
is determined that EBWorld.com has underpaid IGN by an amount greater than 5% of
the payments due IGN in the period being audited, EBWorld.com will bear all
reasonable expenses and costs of such audit in addition to its obligation to
make full payment under this Section.
9. Licenses and Other. Subject to the terms and conditions of this Agreement,
------------------
(a) IGN Content License. Subject to the terms and conditions of this
-------------------
Agreement, IGN hereby grants to EBWorld.com a non-exclusive, non-transferable
license (without the right to sublicense) to copy and publicly display the IGN
Content solely for the purposes described in Section 4(a). EBWorld.com may re-
format the IGN Content for the purpose of incorporating it into the EBWorld.com
Site. EBWorld.com will not modify, use, copy or distribute the IGN Content,
except as expressly provided in this Agreement.
(b) EBWorld.com Content License. Subject to the terms and conditions of this
---------------------------
Agreement, EBWorld.com hereby grants to IGN a non-exclusive, non-transferable
license (without the right to sublicense) to copy and publicly display the
EBWorld.com Content solely for the purposes described in Section 4(b). IGN may
re-format the EBWorld.com Content for the purpose of incorporating it into the
IGN Sites. IGN will
<PAGE>
not modify, use, copy or distribute the EBWorld.com Content, except as expressly
provided in this Agreement.
(c) IGN Trademark License. IGN hereby grants the other party a non-
---------------------
exclusive, revocable, worldwide license to use the IGN Marks solely in
conjunction with the links described in Section 3(c) and Section 4(a) of this
Agreement. Any use of the IGN Marks must comply with IGN's trademark guidelines
and will inure to IGN's benefit. Nothing contained in this Agreement gives
EBWorld.com any right, title or interest in the IGN Marks, except as expressly
provided in this Section and EBWorld.com shall not take any action inconsistent
with the IGN's ownership rights. EBWorld.com will cease all use and display of
the IGN Marks upon written notice from IGN and, in any event, upon termination
of this Agreement.
(d) EBWorld.com Trademark License. EBWorld.com hereby grants the other
-----------------------------
party a non-exclusive, revocable, worldwide license to use the EBWorld.com Marks
solely in conjunction with the EBWorld.com Links and the promotional activities
expressly described in this Agreement. Any use of the EBWorld.com Marks must
comply with EBWorld.com's trademark guidelines and will inure to EBWorld.com's
benefit. Nothing contained in this Agreement gives IGN.com any right, title or
interest in the EBWorld.com Marks, except as expressly provided in this Section
and IGN.com shall not take any action inconsistent with the EBWorld.com's
ownership rights. IGN.com will cease all use and display of the EBWorld.com
Marks upon written notice from EBWorld.com and, in any event, upon termination
of this Agreement.
(e) Ownership. Subject to the rights expressly granted in this Agreement,
---------
IGN will retain all right, title and interest in and to the IGN Networks and the
Other Snowball Networks (and all related sites), the IGN Marks and the IGN
Content and EBWorld.com will retain all right title and interest in and to the
EBWorld.com Site, the EBWorld.com Marks and the EBWorld.com Content.
(f) IGN Discretion. Unless expressly provided in this Agreement, the form,
--------------
format and position of any EBWorld.com Link or advertisement described in this
Agreement, and date of placement, will be determined by IGN in its discretion.
IGN may, upon written notice to EBWorld.com, reject any content provided by
EBWorld.com under this Agreement if it fails to comply with IGN's reasonable
requirements or is otherwise inappropriate for the users of the IGN Sites.
Nothing in this Agreement will be construed to limit IGN's right to modify any
of the content or any aspect of structure of the IGN Sites, or to rename or
reposition the IGN Sites, in its discretion; provided that, in the event any
such change affects IGN's ability to perform any obligation described in this
Agreement, IGN will provide reasonable alternative performance.
(g) EBWorld.com Site Information. EBWorld.com will provide IGN with any
----------------------------
information reasonably required to implement the EBWorld.com Links. EBWorld.com
will give IGN reasonable advance notice in the event EBWorld.com changes its
universal record locator (URL) for the EBWorld.com Site.
<PAGE>
10. Confidential Information.
------------------------
(a) Obligations. Each party ("Receiving Party") agrees to treat as
-----------
confidential all proprietary information disclosed to it by the other party
("Disclosing Party") including marketing information, customer data, any data
described in Section 3.1 above and the terms of this Agreement ("Confidential
Information"). Receiving Party agrees not to publish or disclose the Disclosing
Party's Confidential Information to others except to those employees and
subcontractors to whom disclosure is necessary in order to carry out the
purposes of this Agreement. All tangible materials embodying such Confidential
Information will remain the sole property of Disclosing Party and will be
delivered to Disclosing Party by Receiving Party upon Disclosing Party's
request. Receiving Party will inform all its employees and subcontractors who
receive Confidential Information of the confidential nature of such Confidential
information and of their obligation to keep same confidential and not to use it
other than as permitted hereunder.
(b) Exceptions. Neither party will have any obligation with respect to any
----------
Confidential Information which: (1) was rightfully known to Receiving Party
prior to receipt of such Confidential Information from Disclosing Party; (2) is
lawfully obtained by Receiving Party from a third party under no obligation of
confidentiality; (3) is or becomes generally known or available without any act
or failure to act by Receiving Party; (d) is developed independently by
Receiving Party. Either party may disclose the Confidential Information of the
Disclosing Party if required by court order or legal requirement and the party
subject to the order has given the other party a reasonable opportunity (and has
cooperated fully) to contest or limit the scope of such required disclosure
(including application for a protective order).
11. User Data.
---------
(a) Ownership. Subject to the restrictions in this Section and any rights
---------
to use the applicable data granted under this Agreement, IGN will own the
Registration Data and EBWorld.com will own the Purchasing Data.
(b) Treatment of Individually Identifiable User Data. Neither party shall
------------------------------------------------
sell, disclose, transfer, or rent any user data obtained by it from the other
party which data identifies, or can be used to identify, a specific individual
("Individually Identifiable User Data") to any third party or use any
Individually Identifiable User Data on behalf of any third party, without the
express permission of the applicable user specifically approving such use. Each
of IGN and EBWorld.com will only use Individually Identifiable User Data in
accordance with the Terms of Service and Privacy Policy posted on the IGN and
EBWorld.com sites, as such may be amended from time to time by IGN and
EBWorld.com. In those cases where permission for disclosure of Individually
Identifiable User Data has been obtained from the applicable user, each party
shall use all reasonable efforts to implement an "opt out" feature on its own
behalf, and an include and enforce through its agreements with third parties a
requirement for the inclusion of an "opt out" feature in all e-mail
communications generated by, or on behalf of, third party users of the
Individually Identifiable User Data.
<PAGE>
(c) Aggregate Data. Notwithstanding the restrictions above, the parties
--------------
retain the right to use, sell, disclose, transfer, or rent any user data as long
as such user data is in an aggregate form that does not include any Individually
Identifiable User Data.
12. Term and Termination.
--------------------
(a) Term. This Agreement will commence on the Effective Date and remain in
----
effect until [**] (the "Initial Term"), unless terminated earlier under this
Section 12. If so requested by either party by written notice to the other party
within thirty (30) days of the end of the Initial Term, the parties will
negotiate in good faith to renew the term of this Agreement, subject to any
changes to the terms and conditions of this Agreement agreed to by the parties.
(b) Termination for Breach or Insolvency. Either party may terminate this
------------------------------------
Agreement at any time prior to the expiration of its stated term in the event
that: the other party breaches any term or condition of this Agreement and
fails to cure such breach within thirty (30) days of written notice; or either
party becomes the subject of a voluntary petition in bankruptcy or any voluntary
proceeding relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors; or either party becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing.
(c) Effect of Termination. EBWorld.com's payment obligations hereunder, as
---------------------
well as the provisions of this Section and the following Sections will survive
any termination of this Agreement: Section 8 (Payment), Section 9(e)
(Ownership), Section 10 (Confidential Information), Section 11 (User Data),
Section 13 (Limitation of Liability), Section 14 (Indemnification) and Section
15 (General).
13. Limitation of Liability. EXCEPT WITH RESPECT TO ITS OBLIGATIONS UNDER
-----------------------
SECTION 10 AND SECTION 11, NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY
INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, OR ANY LOSS OR REVENUE, PROFITS,
OR DATA, ARISING IN CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
14. Indemnification.
---------------
(a) IGN Obligations. IGN hereby agrees to defend, indemnify and hold
---------------
harmless EBWorld.com, and its directors, officers and employees against any and
all claims, actions, losses, damages, costs, and expenses (including reasonable
attorneys' fees, "Losses") arising out of or based on any claim related to the
IGN Content or the IGN Network and Other Snowball Networks other than those
claims described in Section 14(b) below. IGN's obligations under this Section
are hereby expressly conditioned on the following: (1) EBWorld.com provides IGN
with prompt notice of any such claim; (2)
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
EBWorld.com permits IGN to assume and control the defense of such action, with
counsel chosen by IGN (who will be reasonably acceptable to EBWorld.com); and
(3) EBWorld.com provides IGN with any information or assistance requested by
IGN, at IGN's expense.
(b) EBWorld.com's Obligations. EBWorld.com hereby agrees to defend,
-------------------------
indemnify and hold harmless IGN, and its directors, officers and employees
against any and all Losses arising out of or based on any claim related to the
EBWorld.com Site, the Games, EBWorld.com's activities (or omissions) with
respect to any Customer or any content, information or other materials provided
to IGN under this Agreement. EBWorld.com's obligations under this Section are
hereby expressly conditioned on the following: (1) IGN provides EBWorld.com with
prompt notice of any such claim; (2) IGN permits EBWorld.com to assume and
control the defense of such action, with counsel chosen by EBWorld.com (who will
be reasonably acceptable to IGN); and (3) IGN provides EBWorld.com with any
information or assistance requested by EBWorld.com, at EBWorld.com's expense.
15. General.
-------
(a) Waivers/Modifications. Any waiver modification or amendment to any
---------------------
provision of this Agreement will be effective only if in writing and executed by
both parties. The waiver by either party of any default or breach of this
Agreement will not constitute a waiver of any other or subsequent default or
breach.
(b) Notices. All notices required to be given under this Agreement will be
-------
deemed given when delivered personally or sent by confirmed facsimile or U.S.
certified mail, return receipt requested, to the address shown in the preamble
above, or as may otherwise be specified by either party to the other in writing.
(c) Severability. If any provision of this Agreement is found illegal or
------------
unenforceable, it will be enforced to the maximum extent permissible, and the
legality and enforceability of the other provisions of this Agreement will
remain in full force and effect.
(d) Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the State of California applicable to agreements
entered into, and to be performed entirely, within California between California
residents.
(e) No Partnership. The relationship of the parties hereto is solely that
--------------
of independent contractors, and not partners, joint venturers or agents.
Neither party has any authority to bind the other in connection with this
Agreement.
(f) Entire Agreement. This Agreement, including any exhibits attached
----------------
hereto, is the complete and exclusive agreement between the parties with respect
to the subject matter hereof, and supersedes and replaces any and all prior or
contemporaneous agreements regarding such subject matter. The parties agree
that the letter agreement,
<PAGE>
dated as of January 28, 1999, between the parties is hereby terminated and
replaced in its entirety by this Agreement.
(g) No Assignment. Neither party may assign this Agreement without the
-------------
other party's written consent except in the event of a reorganization, merger,
consolidation or sale of all or substantially all of its assets. Any assignment
in violation of this Section will be null and void.
In Witness Whereof, the parties have entered into this Agreement as of the
Effective Date.
EBWORLD.COM. SNOWBALL, INC.
By: /s/ SETH P. LEVY By: /S/ JAMES R. TOLONEN
----------------------- ---------------------------
Name: SETH P. LEVY Name: JAMES R. TOLONEN
--------------------- -------------------------
Title: President Title: COO/ CFO
-------------------- ------------------------
12/17/99
<PAGE>
EXHIBIT A
IGN SITES
http://scifi.ign.com
http://moviesformen.ign.com
http://tvformen.ign.com
http://formen.ign.com
http://my.ign.com
<PAGE>
EXHIBIT 10.24
CONFIDENTIAL TREATMENT HAS **Confidential treatment has been
BEEN REQUESTED FOR CERTAIN requested with respect to the information
PORTIONS OF THIS DOCUMENT contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
eCommerce Agreement
This eCommerce Agreement (this "Agreement") is made as of October 15, 1999
(the "Effective Date"), by and between Snowball.com, Inc., a Delaware
corporation with principal offices at 250 Executive Park Boulevard, Suite 4000,
San Francisco, CA 94134 ("Snowball") and edu.com, inc., a Delaware corporation
with principal offices at 125 Lincoln Street, Boston, MA 02111 ("edu.com").
Background
Snowball owns and operates a network of World Wide Web sites (the "Snowball
Network"), including the sties located at IGN.com, ChickClick.com,
InsideGuide.com and Powerstudents.com ("Powerstudents Site"). InsideGuide.com
and Powerstudents.com are sometimes referred to in this Agreement, collectively,
as the "PSN/IG Sites."
edu.com offers online shopping services to students, providing brand name
products and services (collectively, the "Products") at discounts through its
World Wide Web site, located at www.edu.com (the "edu.com Site").
edu.com wishes to establish links from the Powerstudents Site to co-branded
pages through which edu.com can offer Products (collectively, the "Co-Branded
eCommerce Pages"). edu.com also wishes to obtain certain advertising,
promotional and user registration services from Snowball.
Snowball has agreed to develop and maintain the Co-Branded eCommerce Pages
and related links and to provide certain advertising, promotional and user
registration services to edu.com, subject to the terms and conditions of this
Agreement.
Now Therefore, the parties agree as follows:
1. Promotion.
---------
1.1 Snowball Obligations. Subject to the terms and conditions of this
--------------------
Agreement:
a. Co-Registration. Users of the PSN/IG Sites will be given
---------------
multiple opportunities to register for the PSN/IG Sites by completing a
registration form. The registration form will request submission of personal
information about the user, including their first name, last name, mailing
address, email address, gender, school name, major, graduation year and student
identification number (collectively, and as further defined in subsection (g)
below, the "User Data"). Prior to the commencement of the registration process,
the user will be informed that the User Data will also be submitted to edu.com
for registration on the edu.com Site. Snowball will make all User Data for
those users that have provided all of the information requested on the
registration form available to edu.com electronically, on a weekly basis and in
a form and format reasonably requested by edu.com. Snowball reserves the right
to add new information
<PAGE>
fields to its registration forms and the data received by Snowball from those
fields will not be included in the User Data.
b. edu.com Links. Snowball will develop, implement and maintain
-------------
links to the edu.com Site (each, an "edu.com Link") from the PSN/IG Sites, as
mutually agreed by the parties. Each edu.com Link will be indicated by, and in
the form of, one of the logos or other trademarks attached hereto as Exhibit A
---------
(the "edu.com Marks").
c. Banner Advertisements. Snowball will, at its expense, run co-
---------------------
branded banner advertisements "Banner Advertisements" that promote edu.com
across the Snowball Network. Each Banner Advertisement will include an edu.com
Link.
d. Co-Branded eCommerce Pages. Snowball shall, at its expense,
--------------------------
develop, implement and maintain the Co-Branded eCommerce Pages, and links to the
Co-Branded eCommerce Pages from the Powerstudents Site, as mutually agreed by
the parties. edu.com shall pay Snowball for each placement of a third party
logo or other promotion or advertising ("Third Party Placement") on the Co-
Branded eCommerce Pages (including any Banner Advertisements that will appear on
the Co-Branded Pages), as set forth in Exhibit B. Notwithstanding the
---------
foregoing, edu.com will not be required to pay Snowball for use of third party
logos in Banner Advertisements on the Co-Branded eCommerce Pages as long as such
Banner Advertisements promote the availability of specific goods and services on
the edu.com Site and are co-branded with edu.com.
e. Power Products Review. Snowball will develop and maintain a
---------------------
content section on the PSN/IG Sites focusing on various product reviews (the
"Product Reviews"). The Product Reviews will feature information about the
Products and other content delivered to Snowball by edu.com. Snowball will
include a link in the navigational bar of the PSN/IG Sites to enable visitors to
link to the Product Reviews.
f. E-Mail Blasts. Snowball will send at least [**] emails to
-------------
Converted Users ("Email Blasts") on a monthly basis containing information about
the Products and other content delivered to Snowball by edu.com, among other
material. The each email will include an edu.com Link.
g. Registered Users. Each user who completes the Snowball
----------------
registration process described in subsection (a) or who completes edu.com's
registration process on a visit to the edu.com Site through any edu.com Link is
referred to in this Agreement as a "Registered User." On a weekly basis,
edu.com will deliver to Snowball all registration information provided to
edu.com by users that complete the edu.com registration process on a visit to
the edu.com Site through any edu.com Link. All such information shall be deemed
"User Data" for purposes of this Agreement.
h. Verification. Upon receipt of the User Data from Snowball,
------------
edu.com will use diligent efforts to verify each such Registered User's status
as a student at the institution named by the Registered User. edu.com will make
reasonable efforts to complete its verification no later than fifteen (15)
business days after its receipt of the
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
User Data from Snowball. On a weekly basis, edu.com will notify Snowball, in a
manner and format reasonably requested by Snowball, of the name of each
Registered User whose User Data was received by edu.com and but whose status as
a student could not be verified within the fifteen-day period described above.
At that time, edu.com will also provide the name of each Registered User who was
already registered with the edu.com Site at the time of the verification.
edu.com shall be entitled to send one (1) email to each Registered User whose
status could not be verified as described in this Section to confirm the
applicable User Data. Each Registered User whose status as a student is verified
by edu.com and who is not already a registered user of the edu.com Site at the
time of such verification is referred to in this Agreement as a "Converted
User." The User Data for those Converted Users is referred to in this Agreement
as "Converted User Data."
1.2 Other Promotions. Snowball and edu.com will work together to develop
----------------
and implement co-marketing opportunities to promote the products and services
each party offers to users (and prospective users) of the Snowball Network and
the edu.com Site. The parties intend that, during the term of this Agreement,
the parties will each enjoy comparable marketing opportunities under this
Section, at no additional cost unless otherwise agreed by the parties.
1.3 Delivery. Any information and other content delivered by edu.com to
--------
Snowball under this Section 1 shall meet Snowball's reasonable requirements with
respect to length, format and delivery schedule, as applicable.
2. Converted Users.
---------------
2.1 Termination Right.
-----------------
a. First Trigger. In the event that the number of Converted Users
-------------
does not exceed [**] in the period beginning the Effective Date and ending on
[**], then edu.com will be entitled to terminate this Agreement without further
obligation to Snowball (except as described in this Section 2.1) by giving
Snowball written notice of its election to terminate by [**]. Such termination
will be effective as of [**].
b. Second Trigger. In the event the number of Converted Users does
--------------
not exceed [**] in the period beginning the Effective Date and ending on [**],
then edu.com will be entitled to terminate this Agreement without further
obligation to Snowball (except as described in this Section) by giving Snowball
written notice of its election to terminate by [**]. Such termination will be
effective as of [**], provided that, edu.com will not be required to make the
final payment described in Section 1 of Exhibit B.
----------------------
c. Related Terms. If edu.com does not send written notice of its
-------------
election to terminate under this Section 2.1 by the dates set forth herein, then
this Agreement will continue in full force and effect until the end of its term.
In the event of any termination under this Section 2.1, the provisions of
Section 8.3 (Effect of
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
Termination) will apply. If edu.com exercises its rights under this Section,
Snowball shall, upon two business days written notice to edu.com, be entitled to
review the records of edu.com concerning the verification of the status of each
Registered User as a student (as described Section 1.1 of this Agreement). If
such audit reveals that edu.com did not have the right to terminate this
Agreement under this Section 2.1, then this Agreement will continue in full
force and effect until the end of its term.
2.2 User Data.
---------
a. Jointly Owned. Subject to the restrictions in this Section, the
-------------
Converted User Data shall be deemed to be the property of both of the parties
and each party shall be free to license or otherwise exploit such information
with no duty of accounting to the other party. All other data collected by
Snowball or edu.com shall be deemed to be the property of the collecting party.
Both parties acknowledge that any data concerning Converted Users that a party
has gathered independent of this Agreement shall not be covered by this
Agreement. edu.com acknowledges that the User Data that is not part of the
Converted User Data is the sole and exclusive property of Snowball.
b. Treatment of Individually Identifiable User Data. Both parties
------------------------------------------------
agree that they will not sell, disclose, transfer, or rent any Converted User
Data which identifies, or can be used to identify a specific individual
("Individually Identifiable User Data") to any third party or use any
Individually Identifiable User Data on behalf of any third party, without the
express permission of the applicable Converted User specifically approving such
use. Both parties further agree that they will only use Individually
Identifiable User Data themselves in accordance with their respective Terms of
Service and Privacy Policies, as posted on the PSN/IG Sites (as amended from
time to time) or the edu.com Site (as amended from time to time), as the case
may be. In those cases where permission for disclosure of Individually
Identifiable User Data has been obtained from the applicable Converted User,
both parties shall use all reasonable efforts to implement an "opt out" feature
on its own behalf, and an include and enforce through its agreements with third
parties a requirement for the inclusion of an "opt out" feature in all e-mail
communications generated by, or on behalf of, third party users of the
Individually Identifiable User Data.
c. Aggregate Data. Notwithstanding the restrictions above, the
--------------
parties retain the right to use, sell, disclose, transfer, or rent any Converted
User Data as long as such Converted User Data is in an aggregate form that does
not include any Individually Identifiable User Data.
3. Impressions.
-----------
3.1 Delivery. Snowball shall deliver Impressions (as defined below)
--------
during the term of this Agreement, as follows:
a. Co-Branded eCommerce Pages. Snowball will deliver a minimum of
--------------------------
[**] Impressions of links on the Snowball Network to the Co-Branded eCommerce
Pages and of the Co-branded eCommerce Pages themselves. edu.com acknowledges
that Snowball will not specifically track the number of
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
Impressions of links but instead will reasonably estimate that number for
purposes of its performance under this subsection.
b. Banner Advertisements. Snowball will deliver a minimum of [**]
---------------------
Impressions of the Banner Advertisements.
c. Product Reviews. Snowball will deliver a minimum of [**]
---------------
Impressions of the Product Reviews.
d. Email. In conjunction with the Email Blasts, Snowball will
-----
deliver a minimum of [**] Impressions through the Email Blasts.
e. Definition of Impression. For purposes of this Agreement,
------------------------
"Impression" means the display during a page view of a edu.com Mark or a branded
text link (e.g. in banner advertisement or email promotion) which enables the
user to link to a Co-branded eCommerce Page or to the edu.com Site.
3.2 Remedy. If Snowball fails to provide the minimum number of
------
Impressions set forth in this Section 3, edu.com's sole and exclusive remedy and
Snowball's sole and exclusive obligation shall be to continue delivering
Impressions until it delivers the total number of promised Impressions.
3.3 Information Rights. Snowball will provide edu.com with a monthly
------------------
report of the Impressions delivered under this Section, in a format to be
mutually agreed to by the parties. Snowball will, within five (5) days of
written request by edu.com, provide edu.com with documentation supporting the
calculation of the number of Impressions set forth in the most recent two
reports provided to edu.com under this Section.
4. edu.com's Obligations.
---------------------
4.1 Orders. edu.com will be solely responsible for processing orders
------
placed by customers (each, a "Customer") on the edu.com Site. edu.com will be
solely responsible for order entry, payment processing, shipping, cancellations,
returns, and related customer service for every order placed by a Customer on
the edu.com Site. edu.com will establish all prices for the sale of its
Products, in its discretion.
4.2 edu.com Site Information. edu.com will provide Snowball with any
------------------------
information reasonably required to implement any links to the edu.com Site
contained in the Co-Branded eCommerce Pages. edu.com will give Snowball
reasonable advance notice in the event edu.com changes its universal record
locator (URL) for the edu.com Site.
5. Payment.
-------
5.1 Payment. edu.com shall pay Snowball the amounts described in Exhibit
------- -------
B (Payments) on the payment terms also described in Exhibit B. Payments made
- - ---------
under this
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
Agreement after the applicable due date will incur interest at a rate equal to
[**] per month or the highest rate permitted by applicable law, whichever is
lower.
5.2 Taxes. All amounts payable under this Agreement are exclusive of all
-----
sales, use, value-added, withholding, and other taxes and duties.
6. Trademark and Other.
-------------------
6.1 Trademark License. edu.com hereby grants Snowball, for the term of
-----------------
this Agreement, a non-exclusive license to use, reproduce, display, and
distribute materials including, the edu.com Marks in conjunction with Snowball's
activities under this Agreement. All goodwill attributed to the edu.com Marks
will inure to the benefit of edu.com exclusively. Any use of the edu.com Marks
by Snowball will be pursuant to and in compliance with edu.com's guidelines for
trademark usage, as provided to Snowball from time to time.
6.2 Ownership. Snowball will retain all right, title and interest in and
---------
to the PSN/IG Sites. edu.com will retain all right title and interest in and to
the edu.com Site, the Products and the edu.com Marks, subject to the express
license granted herein.
7. Confidential Information.
------------------------
7.1 Obligations. Each party ("Receiving Party") agrees to treat as
-----------
confidential all proprietary information disclosed to it by the other party
("Disclosing Party") including marketing information, customer data, any data
described in Section 3.1 above and the terms of this Agreement ("Confidential
Information"). Receiving Party agrees not to publish or disclose the Disclosing
Party's Confidential Information to others except to those employees and
subcontractors to whom disclosure is necessary in order to carry out the
purposes of this Agreement. All tangible materials embodying such Confidential
Information will remain the sole property of Disclosing Party and will be
delivered to Disclosing Party by Receiving Party upon Disclosing Party's
request. Receiving Party will inform all its employees and subcontractors who
receive Confidential Information of the confidential nature of such Confidential
information and of their obligation to keep same confidential and not to use it
other than as permitted hereunder. For purposes of this Agreement, the reports
provided to edu.com under Section 3.3 and the User Data not included in the
Converted User Data will be the Confidential Information of Snowball.
7.2 Exceptions. Neither party will have any obligation with respect to
----------
any Confidential Information which: (a) was rightfully known to Receiving Party
prior to receipt of such Confidential Information from Disclosing Party; (b) is
lawfully obtained by Receiving Party from a third party under no obligation of
confidentiality; (c) is or becomes generally known or available without any act
or failure to act by Receiving Party; (d) is developed independently by
Receiving Party. The Receiving Party may disclose the Confidential Information
of the Disclosing Party if required by court order or by any other statutory or
regulatory requirement; provided that, the Receiving Party has
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
given the Disclosing Party reasonable notice of such order or requirement to
allow the Disclosing Party to contest or limit the scope of such required
disclosure (including application for a protective order).
8. Term and Termination.
--------------------
8.1 Term. This Agreement will commence on the Effective Date and remain
----
in effect until [**], unless terminated earlier under Section 2.1 (Termination
Right) or this Section 8.
8.2 Termination for Breach or Insolvency. Either party may terminate this
------------------------------------
Agreement at any time prior to the expiration of its stated term in the event
that: the other party materially breaches any term or condition of this
Agreement, including without limitation the provisions of Section 2.2 (User
Data) and Section 7 (Confidential Information), and fails to cure such breach
within thirty (30) days of written notice; or either party becomes the subject
of a voluntary petition in bankruptcy or any voluntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors; or either party becomes the subject of an involuntary petition in
bankruptcy or any involuntary proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors, if such petition or
proceeding is not dismissed within sixty (60) days of filing.
8.3 Effect of Termination. If edu.com properly terminates this Agreement
---------------------
as provided in this Section and Section 2.1, then edu.com will pay any amounts
due and payable to Snowball prior to such termination and will have no further
payment obligations under this Agreement. In any event, the following
provisions shall survive any termination of this Agreement: Section 2.2 (User
Data), Section 6.1 (Ownership), Section 7 (Confidential Information), Section
8.3 (Effect of Termination), Section 9 (Limitation of Liability), Section 10
(Indemnification) and Section 11 (General). Any proper termination of this
Agreement by Snowball under Section 8.2 will not limit the accrual of damages
under Section 5 (Payment) hereof; provided, however, that, nothing herein shall
be deemed to limit or waive edu.com's rights of counterclaim regarding the
satisfactory of provision of services by Snowball as described in this
Agreement.
9. Limitation of Liability. EXCEPT WITH RESPECT TO EACH PARTY'S
-----------------------
INDEMNIFICATION OBLIGATIONS AS SET FORTH IN SECTION 10: (A) NEITHER PARTY WILL
BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, OR
ANY LOSS OR REVENUE, PROFITS, OR DATA, ARISING IN CONNECTION WITH THIS
AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES; (B) SNOWBALL WILL NOT BE LIABLE TO EDU.COM UNDER ANY THEORY OF LAW FOR
COSTS, EXPENSES, DAMAGES OR OTHER LOSSES IN EXCESS OF THE AMOUNTS ACTUALLY
RECEIVED BY SNOWBALL FROM EDU.COM HEREUNDER; AND (C) EDU.COM WILL NOT BE LIABLE
TO SNOWBALL UNDER ANY THEORY OF LAW FOR COSTS, EXPENSES, DAMAGES OR OTHER LOSSES
IN EXCESS OF THE AMOUNTS PAYABLE BY
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
EDU.COM HEREUNDER (INCLUDING AMOUNTS PAYABLE UNDER SECTION 11.6).
10. Indemnification.
---------------
10.1 Snowball Obligations. Snowball hereby agrees to defend, indemnify and
--------------------
hold harmless edu.com and its subsidiaries, and their directors, officers,
employees, and agents against any and all claims, actions, losses, damages,
costs, and expenses (including reasonable attorneys' fees) (any or all of the
foregoing hereinafter referred to as "Losses") arising out of or based on any
claim related to the PSN/IG Sites other than those claims described in Section
10.2 below. Snowball's obligations under this Section are hereby expressly
conditioned on the following: (a) edu.com provides Snowball with prompt notice
of any such claim; (b) edu.com permits Snowball to assume and control the
defense of such action, with counsel chosen by Snowball (who will be reasonably
acceptable to edu.com); and (c) edu.com provides Snowball with any information
or assistance requested by Snowball, at Snowball's expense.
10.2 edu.com's Obligations. edu.com hereby agrees to defend, indemnify and
---------------------
hold harmless Snowball and its subsidiaries, and their directors, officers,
employees, and agents against any and all Losses arising out of or based on any
claim related to the edu.com Site, the Products, any content or Product
information provided to Snowball by edu.com or edu.com's activities (or
omissions) with respect to any Customer. edu.com's obligations under this
Section are hereby expressly conditioned on the following: (a) Snowball provides
edu.com with prompt notice of any such claim; (b) Snowball permits edu.com to
assume and control the defense of such action, with counsel chosen by edu.com
(who will be reasonably acceptable to Snowball); and (c) Snowball provides
edu.com with any information or assistance requested by edu.com, at edu.com's
expense.
11. General.
-------
11.1 Content. Snowball shall retain editorial control of the PSN/IG Sites.
-------
Any content submitted to Snowball by edu.com for inclusion in the Co-Branded
eCommerce Pages, Banner Advertising or any part PSN/IG Sites or the Snowball
Network shall not include any content that is misleading, obscene, derogatory,
libelous, or otherwise offensive or that infringes the rights of any third
party. Snowball may reject any content that it reasonably believes fails to
comply with the provisions of this Section or is otherwise inappropriate for the
users of the Snowball Network upon written notice to edu.com.
11.2 Press Release. Either party may issue a press release(s) describing
-------------
the ecommerce relationship with edu.com established under this Agreement, with
prior consent of the other party, which will not be unreasonably withheld.
11.3 Waivers/Modifications. Any waiver modification or amendment to any
---------------------
provision of this Agreement will be effective only if in writing and executed by
both
<PAGE>
parties. The waiver by either party of any default or breach of this Agreement
will not constitute a waiver of any other or subsequent default or breach.
11.4 Notices. All notices required to be given under this Agreement will
-------
be deemed given when delivered personally or sent by confirmed facsimile or U.S.
certified mail, return receipt requested, to the address shown in the preamble
above, or as may otherwise be specified by either party to the other in writing.
11.5 Severability. If any provision of this Agreement is found illegal or
------------
unenforceable, it will be enforced to the maximum extent permissible, and the
legality and enforceability of the other provisions of this Agreement will
remain in full force and effect.
11.6 Governing Law/Attorneys' Fees. This Agreement will be governed by and
-----------------------------
construed in accordance with the laws of the State of California applicable to
agreements entered into, and to be performed entirely, within California between
California residents. In the event that any action or proceeding is brought in
connection with this Agreement, the prevailing party in such action or
proceeding shall be entitled to recover its costs and reasonable attorneys'
fees.
11.7 No Partnership. The relationship of the parties hereto is solely that
--------------
of independent contractors, and not partners, joint venturers or agents.
Neither party has any authority to bind the other in connection with this
Agreement.
11.8 Entire Agreement. This Agreement, including any exhibits attached
----------------
hereto, is the complete and exclusive agreement between the parties with respect
to the subject matter hereof, and supersedes and replaces any and all prior or
contemporaneous agreements regarding such subject matter.
11.9 No Assignment. Neither party may assign this Agreement without the
-------------
other party's written consent except in the event of a reorganization, merger,
consolidation or sale of all or substantially all of its assets. Any assignment
in violation of this Section shall be null and void.
In Witness Whereof, the parties have entered into this Agreement as of the
Effective Date.
EDU.COM,INC. SNOWBALL INC.
By: /s/ Jennifer Christensen By:____________________________
-------------------------
Name: Jennifer Christensen Name:__________________________
-----------------------
Title: Rewards Director Title:_________________________
----------------------
<PAGE>
EXHIBIT A
EDU.COM MARKS
<PAGE>
EXHIBIT B
PAYMENT
1. Minimum Payments
----------------
edu.com shall make the following non-refundable payments to Snowball on or
before the indicated dates:
Payment Date Payment Amount
[**] [**]
[**] [**]
[**] [**]
[**] [**]
[**] [**]
[**] [**]
[**] [**]
2. Additional Payments
-------------------
Each month edu.com shall pay Snowball the amounts shown for each Converted
User as follows:
Converted Users Payment/Converted User
[**] [**]
[**] [**]
[**] [**]
[**] [**]
Payments under this Section 2 shall be made within thirty (30) days of the
last day of each calendar month for each Converted User acquired during that
applicable calendar month.
3. Third Party Placements.
----------------------
edu.com shall pay Snowball [**] for each Third Party Placement provided to
Snowball for inclusion in the Co-Branded eCommerce Pages. Payments under this
Section 3 shall be made within thirty (30) days of the last day of each calendar
month for each Third Party Placement included in the Co-Branded eCommerce Pages
during that applicable calendar month.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
EXHIBIT 10.25
<TABLE>
<S> <C>
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the
CERTAIN PORTIONS OF THIS information contained within the
DOCUMENT "[**]" markings. Such marked portions
have been omitted from this filing and
have been filed separately with the
Securities and Exchange Commission
</TABLE>
Content Agreement
This Content Agreement (this "Agreement") is made as of September 29, 1999 (the
"Effective Date"), by and between ChickClick.com or any successor site, a
division of Snowball.com, Inc., a California corporation with principal offices
at 250 Executive Park Boulevard, Suite 4000, San Francisco, CA 94134
("ChickClick") and Gloss.com, a Delaware corporation, with principal offices at
1550 Bryant St., Suite 575, San Francisco, CA 94103 ("Gloss.com").
Background
ChickClick operates a network of World Wide Web sites featuring content for
young women. ChickClick has developed a site currently located at
www.chickclick.com (the "ChickClick Site"), which connects to a network of
affiliates sites to provide a greater breadth and depth of content.
Gloss.com sells prestige beauty and accessory products and provides information
about personal care and beauty online, through its World Wide Web site, located
at www.Gloss.com or successor sites (the "Gloss.com Site").
Gloss.com wishes to have links established from the ChickClick Site to the
Gloss.com Site (each, a "Gloss.com Link") and to co-brand certain areas and
activities on the ChickClick Site.
ChickClick has agreed to establish those links and to co-brand certain areas on
the ChickClick Site, subject to the terms and conditions of this Agreement.
Now therefore, the parties agree as follows:
1. Links/Sponsorship/Promotion. Subject to the terms and conditions of this
Agreement,
1.1 Text Links. ChickClick will develop, implement and maintain a
Gloss.com Link from each of the pages located at www.chickclick.com and
www.estronet.com (the "Home Pages") to the Gloss.com Site, as described in this
Section (mock up attached as Exhibit A). Each of the Gloss.com Links described
in this Section will consist of up to thirty five characters of text and will
have an "editorial" look and feel (the "Link Text"). The initial content of the
Link Text will be provided to ChickClick by Gloss.com and updates to the Link
Text will be provided by Gloss.com at least every five days during the term of
this Agreement. ChickClick will provide reasonable editorial assistance to
Gloss.com to help ensure that the Link Text has an editorial tone appropriate
for the ChickClick Site. The Link Text will not include any content that is
obscene, derogatory, libelous or otherwise offensive or that infringes the
rights of any third party. ChickClick may reject any Link Text that it
reasonably believes fails to comply with the provisions of this Section or is
otherwise inappropriate for the users of the ChickClick Site with reasonable
notice to Gloss.com. Gloss.com will ensure that each Gloss.com
<PAGE>
Link described in this Section will link to an area on the Gloss.com Site that
displays content only and does not offer products or services for sale. For the
purposes of this section, providing further links to product pages, whether
imbedded in banner ads, sponsorship placement or other content on such Gloss.com
Site pages, will not constitute an offer for sale.
1.2 Beauty Polls. Twice in each calendar month, ChickClick will develop
and display a "Beauty Poll" for participation by the users of the ChickClick
Site (mock up attached as Exhibit B). The subject matter of the Beauty Poll will
be developed by ChickClick with the assistance of Gloss.com. Gloss.com must
approve the contents of Beauty Poll in writing, such approval not to be
unreasonably withheld. The Beauty Poll area will include a statement that the
Beauty Poll is co-presented by ChickClick and Gloss.com and will include a
Gloss.com Link. Each Beauty Poll will be displayed on one or more Home Pages
until a mutually agreed upon impression level is met.
1.3 Cool Product. Beginning on the first Monday of October and ending the
last Sunday in October, Gloss.com will be entitled to present Gloss.com Products
in the "Cool Product of the Week" area of the Home Pages (the "Cool Product
Area") (mock up attached as Exhibit A). During each [**] the Cool Product Area
will be displayed beginning [**] and ending [**]. The Cool Product Area will
be at least 120x90 pixels, with the entire Cool Product Area appearing above the
fold and will include a Gloss.com Link containing a Gloss.com Mark. Gloss may
make daily changes to the Cool Product Area, provided, however, that Gloss.com
supplies the creative elements necessary to implement the change requested [**]
prior to the change.
1.4 ChickClick Boutique. Throughout the term of this Agreement, a
Gloss.com Link will be included in the navigational bar of the jump page to the
e-commerce area of the ChickClick Site (the "ChickClick Boutique") (mock up
attached as Exhibit C). The "jump page" (mock up attached as Exhibit D)will
reside between the ChickClick Boutique home page and Gloss.com. The location and
description on the Gloss.com link is subject to Gloss.com approval, such
approval not to be unreasonably withheld. In addition, [**] of all banner
advertisements displayed on the ChickClick Site to promote the ChickClick
Boutique will include a Gloss.com Mark (as defined in Section 6.1). These banner
advertisements will not count towards the Impression guarantees set forth in
Section 2.1.
1.5 ChickClick Registration Area. ChickClick will provide the opportunity
for ChickClick users to register on the Gloss.com Site when they register for
the ChickClick Site ("Co-Registration") (mock up attached as Exhibit E). The Co-
Registration option will appear as a default option on the ChickClick
registration page every time the ChickClick registration page is displayed and
will permit users to "opt out" of the registration selection. The Co-
Registration process will require that a registrant agree to receive email from
Gloss.com as a condition to registration for the Gloss.com Site. ChickClick and
Gloss.com will jointly own any information collected by Chickclick through the
Co-Registration process. The information will be delivered to Gloss.com on
2
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
a weekly basis (or on a more frequent basis if mutually agreed to by the
parties) in a mutually agreed upon format. Gloss.com may only use the user
information to market or sell Gloss.com products or services and will not make
such information available to any third party.
1.6 Contests. ChickClick will produce and administer contests (the
"Contests") to promote the ChickClick Registration area described in Section 1.5
(mock up attached as Exhibit F). Gloss.com will be identified as a co-sponsor of
the Contests and will, [**], provide a prize with a fair market value of at
least Five Hundred Dollars or more to be distributed to winners of the Contests.
1.7 Emails. ChickClick will include a Gloss.com Link and Gloss.com
information in emails to registered users of ChickClick who have agreed to
receive product information by email ("Product Emails") (mock up attached as
Exhibit G). ChickClick will send at least [**] of such emails per month. The
Gloss.com listing in the Product E-mails will be no longer than 350 characters
for the Gloss.com information in addition to the Gloss.com URL. Gloss.com will
be no lower than the second advertiser listed in the Product Emails in which
they participate.
1.8 Banner ads. ChickClick will publish banner and/or sponsorship buttons
supplied by Gloss.com (the "Gloss.com Advertisements") on the ChickClick Site.
Gloss.com will deliver all Gloss.com Advertisements at least one week prior to
commencement of the delivery of the Gloss.com Advertisements on the ChickClick
Site. The Gloss.com Advertisements will not include any content that is obscene,
derogatory, libelous or otherwise offensive or that infringes the rights of any
third party. ChickClick may reject any Gloss.com Advertisement that it
reasonably believes fails to comply with the provisions of this Section or is
otherwise inappropriate for the users of the ChickClick Site. If the
advertisement is rejected by Chickclick, Chickclick will provide appropriate
notice to Gloss.com of the rejection as well as reasons supporting the
rejection.
1.9 Holiday Pages. ChickClick will develop with Gloss.com co-branded pages
for the 1999 holiday season (the "Holiday Pages") for inclusion in the
Chickclick Site (mock up attached as Exhibit H). The Holiday Pages will include
a link to the ChickClick Site as well as to www.IGN.com ("IGN") and
www.PowerStudents.com ("PS") (two sites owned by Snowball.com, Inc.) and will
include content chosen by ChickClick. Snowball.com will serve [**] impressions
to drive traffic to the Holiday Pages using the network of Snowball.com sites,
including, but not limited to, the ChickClick, IGN and PS web sites, from
November 22, 1999 to December 23, 1999. These impressions will include 468x60
banners, 120x90 Margin spots, 144x50 Sponsor buttons, and 200x200 Interstitials
1.10 Gen Art Event. The parties will co-sponsor a live event, as mutually
agreed by the parties. The live event will provide at least [**] "offline
impressions," including the number of invitations and actual attendance for the
event.
2. Impressions.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
3
<PAGE>
2.1 Delivery. ChickClick shall provide [**] Impressions ("Impression
Guarantee") through the course of this agreement. The following minimum number
of Impressions (as defined below) will be provided on a monthly basis :
a. Beauty Poll. In conjunction with each Beauty Poll, ChickClick
will deliver a minimum of [**] Impressions.
b. Contests. In conjunction with the Contests, ChickClick will
deliver a minimum of [**] Impressions.
c. Email. In conjunction with the Product Emails, ChickClick will
deliver a minimum of [**] Impressions.
d. Banner Advertisements. In conjunction with the Gloss.com
Advertisements, ChickClick will deliver a minimum of [**] Impressions.
e. Holiday Pages. In conjunction with the Holiday Pages, ChickClick
will serve a minimum of [**] Impressions over the life of the Holiday Pages
microsite using the network of Snowball.com sites, including, but not limited
to, the ChickClick, IGN and PS web sites.
f. Cool Product. In conjunction with the Cool Product Pages, ChickClick
will deliver a minimum of [**] on a weekly basis and [**] impressions for the
month of October.
g. ChickClick Boutique. In conjunction with the ChickClick Boutique,
ChickClick will deliver a minimum of [**] Impressions per month
h. Text Links. In conjunction with the Text Links, ChickClick will
deliver a minimum of [**] Impressions per month.
j. Definition of Impression. For purposes of this Agreement,
"Impression" means the display during a page view of a Gloss.com-branded text
link, graphical button, box, banner advertisement or email promotion which
enables the
user to link to a page designated by Gloss.com or provides a direct link to the
Gloss.com website. No more than [**] impressions shall be displayed on a
single web page. If Gloss.com finds that more than [**] impressions are being
delivered on a single page, Gloss.com will cache the page for later retrieval
and will provide a copy of the page along with notice of the same to Chickclick.
ChickClick will make whatever changes are necessary to comply with the section.
2.2 Remedy. If ChickClick fails to deliver at least [**]
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
4
<PAGE>
Impressions which represents [**] of the Impression Guarantee upon the six
(6) months anniversary of this Agreement, Gloss.com will suspend payment under
Section 5.1 for the next three (3) months or until such number has been
achieved, whichever comes first. If this number has not been achieved upon the
nine (9) month anniversary of this Agreement, at its discretion, Gloss.com may
elect to either: (a) terminate this Agreement or (b) continue to suspend
payments until such traffic has been achieved, at which time payments from
Gloss.com to ChickClick will be resumed. In either case, ChickClick must still
deliver to Gloss.com an amount of traffic equivalent to the amount paid for by
Gloss.com ("Traffic Overpayment"). Traffic Overpayment shall be calculated as
the total amount of all Monthly Fees paid by Gloss.com divided by the "Deal CPM"
[**] Upon termination of this Agreement under (a) above or under Section 8, if
the aggregate number of Impressions actually delivered by ChickClick under this
Agreement (other than the impressions expressly excluded herefrom) exceeds the
number of Impressions paid for by Gloss.com under Section 5.1 as of the
effective date of termination (as measured by dividing the total amounts paid by
Gloss.com by the Deal CPM ("Unpaid Impressions"), then Gloss.com will pay within
thirty (30) days following such effective date an amount equivalent to the
number of Unpaid Impressions multiplied by the Deal CPM , up to a maximum of the
monthly fees (or prorated portion thereof) payable under Section 5.1 for the
number of months (or portion thereof) elapsed prior to the effective date of
termination. In addition, if Gloss.com continues to suspend payment under (b)
above, then at such time as the aggregate number of Impressions actually
delivered by ChickClick under this Agreement (other than the impressions
expressly excluded herefrom) equals the amount paid by Gloss.com under Section
5.1 prior to such time, then Gloss.com will resume payment of fees under Section
5.1 in accordance with the payment schedule set forth in Section 5.4, prorating
the monthly fees for portions of months then remaining. If ChickClick fails to
provide the minimum number of Impressions set forth in any Section of this
Agreement, Gloss.com's sole and exclusive remedy and ChickClick's sole and
exclusive obligation shall be to continue delivering Impressions until it
delivers the total number of promised Impressions.
3. Exclusivity. Gloss.com shall be the exclusive Third Party Online Beauty
Retailer featured, promoted, advertised or displayed on the Chickclick home
page, Estronet home page, Cool Products area and ChickClick Boutique, and, in
consideration for the payments made under Section 5.2 and so long as the terms
of Section 1.5 are in effect pursuant to Section 5.2, the Co-Registration
process. "Third Party Online Beauty Retailer" shall be defined as any entity
whose primary business is the sale of beauty products from various
manufacturers, but, for clarity, does not include any manufacturer of beauty
products, such as Revlon or Clinique, it being understood that the exclusivity
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
5
<PAGE>
under this Section does not apply to any manufacturer-direct sales and service.
Except as provided in this Section, however, ChickClick shall be free to
feature, promote, advertise, or sponsor (or display advertisements of) and link
to any Third Party Online Beauty Retailer that may sell or otherwise distribute
beauty products and services online.
4. Other Terms.
4.1 Press Release. ChickClick.com and Gloss.com will create and issue a
mutually agreeable press release. Except as provided in this Section, each party
agrees that it will not issue any press release or promotional material
concerning this Agreement without the prior written consent of the other party.
4.2 Account Manager. Both parties will appoint a dedicated account manager
to act as primary contact and to facilitate any requests for information or
assistance made by the other party. Each party will notify the other party of
the dedicated account manager's name and contact information on or before the
Effective Date. Each party may change account manager with written notice to the
other party.
4.3 Gloss.com Site Information. Gloss.com will provide ChickClick with any
information reasonably required to implement the Gloss.com Links. Gloss.com will
give ChickClick reasonable advance notice in the event Gloss.com changes its
universal record locator (URL) for the Gloss.com Site.
4.4 Orders. Gloss.com will be solely responsible for processing orders,
payment processing, shipping, cancellations, returns, and related customer
service for every order placed by a customer on the Gloss.com Site.
5. Payment.
5.1 Monthly Fee. Gloss.com will pay ChickClick a monthly fee of [**]
commencing on the Effective Date.
5.2 Registration Fee. Gloss.com shall receive the first [**] registered names
as detailed in Section 1.5 at no additional fee. From registrant [**], Gloss.com
will pay ChickClick [**] per registrant. From registrant [**], Gloss.com will
pay ChickClick [**] per registrant. After [**] registered users, ChickClick will
remove Gloss.com from the Co-Registration process, effectively terminating
Section 1.5 of the contract. Gloss.com may elect to continue Section 1.5 for the
remainder of the contract to continue the registration process after the [**]
registrant from ChickClick by providing written notice to ChickClick. If
Gloss.com elects to continue receiving registrants after the [**] registrant in
Section 1.5, Gloss.com will pay ChickClick [**] per user from user [**] until
the end of the term of the Agreement. ChickClick will invoice Gloss.com monthly
for fees due under this Section 5.2. Such invoice will include a report of the
number of new registrants for which payment is due under this Section 5.2.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
6
<PAGE>
5.3 New Customer Fee. In the event the number of NewCustomers (as defined
below) from the ChickClick Site to the Gloss.com Site exceeds an aggregate of
[**] during the term of this Agreement, Gloss.com will pay ChickClick [**]
within thirty (30) days of the end of the calendar month in which that number of
New Customers is achieved. "New Customers" means any person who enters the
Gloss.com site directly from a link from ChickClick and makes a purchase for the
first time during their visit to Gloss.com.
5.4 Payment Terms. Gloss.com will make all payments to ChickClick due
under Section 5.1 within thirty (30) days of the Effective Date and on monthly
anniversaries of the Effective Date thereafter. Gloss.com will make all payments
to ChickClick due under Section 5.2 within thirty (30) days following receipt of
the invoice specified in Section 5.2. Payments made under this Agreement after
the date such payments are due will incur interest at a rate equal to 1.5% per
month or the highest rate permitted by applicable law, whichever is lower.
5.5 Reports. Each payment by Gloss.com will include a report setting
forth the number of New Customers and new registrants, as applicable, for the
applicable monthly period.
5.6 Taxes. All amounts payable under this Agreement are exclusive of all
sales, use, value-added, withholding, and other taxes and duties. Gloss.com will
pay all taxes and duties assessed in connection with this Agreement and its
performance by any authority within or outside of the U.S., except for taxes
payable on ChickClick's net income. ChickClick will be promptly reimbursed by
Gloss.com for any and all taxes or duties that ChickClick may be required to pay
in connection with this Agreement or its performance.
5.7 Records and Audit Rights. Each party will keep all records relating
to New Customers and registrants for a period of two years after the expiration
of the term of this Agreement. In the event of any discrepancy between new
registrants or New Customers reported by ChickClick and those reported by
Gloss.com, the parties will cooperate and share such information as is
reasonably requested in order to resolve the discrepancy. In addition, each
party may audit such records of the other party during normal business hours ,
at its own expense (except as set forth below), using an independent certified
public accountant. If, upon performing such audit, it is determined that
ChickClick has been underpaid by more than 5% of the total fee due under this
Agreement, Gloss.com will bear all reasonable expenses and costs of such audit
in addition to its obligation to make full payment hereunder, and if ChickClick
has been underpaid by 5% or less, Gloss.com will pay the deficiency and
ChickClick will bear all reasonable expenses and costs of such audit, and if
Gloss.com has overpaid, , ChickClick will bear all reasonable expenses and costs
of such audit, and ChickClick will promptly reimburse Gloss.com for any
overpayment.
6. Trademark and Other.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
7
<PAGE>
6.1 Trademark Use and License. Unless otherwise stated in this Agreement, each
Gloss.com Link will be indicated by, and in the form of, one of the logos or
other trademarks attached hereto as Exhibit I (the "Gloss.com Marks"). Gloss.com
hereby grants ChickClick, for the term of this Agreement, a non-exclusive
license to use, reproduce, display, and distribute materials including, the
Gloss.com Marks in conjunction with ChickClick's activities under this
Agreement. Gloss.com reserves the right to update the Gloss.com Marks, wherein
the update shall be provided to Chickclick in the form of a new Exhibit A. . In
the event that Gloss.com determines that ChickClick's use of the Gloss.com Marks
is inconsistent with Gloss.com's quality and usage standards, then following
Gloss.com's written request, ChickClick will within thirty (30) days, conform
the use of the applicable Gloss.com Mark(s) to comply with the appropriate
standards. If ChickClick fails to conform the use of the Gloss.com Mark(s)
within such period, then Gloss.com may revoke ChickClick's right to use the
Gloss.com Marks under the terms of this Agreement.
6.2 Ownership. ChickClick will retain all right, title and interest in
and to the ChickClick Site. Gloss.com will retain all right title and interest
in and to the Gloss.com Site and the Gloss.com Marks, subject to the express
license granted herein.
7. Confidential Information.
7.1 Obligations. Each party ("Receiving Party") agrees to treat as
confidential all proprietary information disclosed to it by the other party
("Disclosing Party") including marketing information, customer data, and the
terms of this Agreement ("Confidential Information"). Receiving Party agrees not
to publish or disclose the Disclosing Party's Confidential Information to others
except to those employees and subcontractors to whom disclosure is necessary in
order to carry out the purposes of this Agreement. All tangible materials
embodying such Confidential Information will remain the sole property of
Disclosing Party and will be delivered to Disclosing Party by Receiving Party
upon Disclosing Party's request. Receiving Party will inform all its employees
and subcontractors who receive Confidential Information of the confidential
nature of such Confidential information and of their obligation to keep same
confidential and not to use it other than as permitted hereunder. Gloss.com
agrees that the user information provided to it under Section 1.6 is
ChickClick's Confidential Information. ChickClick agrees that the New Customer
information provided under Section 5.3 is Gloss.com's Confidential Information.
7.2 Exceptions. Neither party will have any obligation with respect to
any Confidential Information which: (a) was rightfully known to Receiving Party
prior to receipt of such Confidential Information from Disclosing Party; (b) is
lawfully obtained by Receiving Party from a third party under no obligation of
confidentiality; (c) is or becomes generally known or available without any act
or failure to act by Receiving Party; (d) is developed independently by
Receiving Party. Either party may disclose the Confidential Information of the
Disclosing Party if required by court order or legal requirement and the party
subject to the order has given the other party a reasonable opportunity (and has
provided reasonable cooperation based on advice of counsel,) to
8
<PAGE>
contest or limit the scope of such required disclosure (including application
for a protective order).
8. Term and Termination.
8.1 Term. This Agreement will commence on the Effective Date and remain
in effect for [**] (the "Initial Term"), unless terminated earlier under
this Section 8. The parties may renew this Agreement for yearly periods after
the Initial Term by mutual agreement.
8.2 Termination for Breach or Insolvency. Either party may terminate this
Agreement at any time prior to the expiration of its stated term in the event
that: the other party breaches any material term or condition of this Agreement
and fails to cure such breach within thirty (30) days of written notice; or
either party becomes the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or either party becomes the subject of
an involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within sixty (60)
days of filing.
8.3 Effect of Termination. The provisions of Sections 2.2 (Impressions:
Remedy); 5 (Payment), to the extent obligations have accrued as of the
expiration or termination of this Agreement, 7 (Confidential Information), 9
(Limitation of Liability), 10 (Indemnification) and 11 (General) will survive
any expiration or termination of this Agreement. If ChickClick terminates this
Agreement due to Gloss.com's material breach within the first 90 days of this
Agreement, Gloss.com agrees to reimburse Snowball.com for the cost of developing
the pages as described in this agreement for an amount not to exceed [**]. If
the contract is terminated due to the material breach of ChickClick, Gloss.com
will receive an Impression delivery equal to the total amount of money paid
under Section 5.1, divided by the agreed upon CPM of [**] less any Impressions
already delivered to that point under this Agreement (e.g. [**] Impressions,
less the actual number of Impressions delivered to date).
9. Limitation of Liability. EXCEPT WITH RESPECT TO ITS OBLIGATIONS UNDER
SECTION 10, NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES, OR ANY LOSS OR REVENUE, PROFITS, OR DATA,
ARISING IN CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
10. Indemnification.
10.1 ChickClick Obligations. ChickClick hereby agrees to defend, indemnify
and hold harmless Gloss.com and its subsidiaries, and their directors, officers,
employees,
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
9
<PAGE>
and agents against any and all claims, actions, losses, damages, costs, and
expenses (including reasonable attorneys' fees) (any or all of the foregoing
hereinafter referred to as "Losses") arising out of or based on any claim
related to the ChickClick Site or arising from any materials on the ChickClick
site including, without limitation, ad banners, Contests, or Beauty Polls, or
arising from ChickClick products or activities (or omissions) other than those
claims described in Section 10.2 below. ChickClick's obligations under this
Section are hereby expressly conditioned on the following: (a) Gloss.com
provides ChickClick with prompt notice of any such claim; (b) Gloss.com permits
ChickClick to assume and control the defense of such action, with counsel chosen
by ChickClick (who will be reasonably acceptable to Gloss.com); and (c)
Gloss.com provides ChickClick with any information or assistance requested by
ChickClick, at ChickClick's expense. ChickClick agrees not to settle a claim
that adversely affects Gloss.com's rights without prior written approval from
Gloss.com, which will not be unreasonably withheld or delayed.
10.2 Gloss.com's Obligations. Gloss.com hereby agrees to defend, indemnify
and hold harmless ChickClick and its subsidiaries, and their directors,
officers, employees, and agents against any and all Losses arising out of or
based on any claim related to the Gloss.com Site, Gloss.com's products or
activities (or omissions) with respect to any customer of Gloss.com, or the
content of the Gloss.com Advertisements or Link Text. Gloss.com's obligations
under this Section are hereby expressly conditioned on the following: (a)
ChickClick provides Gloss.com with prompt notice of any such claim;
(b)ChickClick permits Gloss.com to assume and control the defense of such
action, with counsel chosen by Gloss.com (who will be reasonably acceptable to
ChickClick); and (c) ChickClick provides Gloss.com with any information or
assistance requested by Gloss.com, at Gloss.com's expense. Gloss.com agrees not
to settle a claim that adversely affects Chickclick's rights without prior
written approval from ChickClick or Snowball.com, which will not be unreasonably
withheld or delayed.
11. General.
11.1 Waivers/Modifications. Any waiver modification or amendment to any
provision of this Agreement will be effective only if in writing and executed by
both parties. The waiver by either party of any default or breach of this
Agreement will not constitute a waiver of any other or subsequent default or
breach.
11.2 Notices. All notices required to be given under this Agreement will
be deemed given when delivered personally or sent by confirmed facsimile or U.S.
certified mail, return receipt requested, to the address shown in the preamble
above, or as may otherwise be specified by either party to the other in writing.
11.3 Severability. If any provision of this Agreement is found illegal or
unenforceable, it will be enforced to the maximum extent permissible, and the
legality and enforceability of the other provisions of this Agreement will
remain in full force and effect.
10
<PAGE>
11.4 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California applicable to agreements
entered into, and to be performed entirely, within California between California
residents.
11.5 No Partnership. The relationship of the parties hereto is solely that
of independent contractors, and not partners, joint venturers or agents. Neither
party has any authority to bind the other in connection with this Agreement.
11.6 Entire Agreement. This Agreement, including any exhibits attached
hereto, is the complete and exclusive agreement between the parties with respect
to the subject matter hereof, and supersedes and replaces any and all prior or
contemporaneous agreements regarding such subject matter.
11.7 No Assignment. Neither party may assign this Agreement without the
other party's written consent except in the event of a reorganization, merger,
consolidation or sale of all or substantially all of its assets. Any assignment
in violation of this Section will be null and void.
In Witness Whereof, the parties have entered into this Agreement as of the
Effective Date.
Gloss.com.com: Snowball.com, Inc.
By: /s/ Jeffrey A. Shardell By: /s/ Timothy Armstrong
-------------------------- ----------------------
Name: Jeffrey A. Shardell Name: Timothy Armstrong
------------------------- ----------------------
Title: VP Business Development Title: VP, Sales 9/29/99
----------------------- -----------------------
11
<PAGE>
EXHIBIT
SPECIFICATIONS
12
<PAGE>
Exhibit 10.26
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the
CERTAIN PORTIONS OF THIS information contained within the
DOCUMENT "[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission
eCommerce Agreement
Between
snowball.com and Kabang.com
This eCommerce and Content Agreement (this "Agreement") is made as of
December 23, 1999 (the "Effective Date"), by and between IGN.com, a division of
snowball.com, Inc., a Delaware corporation with principal offices at 250
Executive Park Boulevard, Suite 4000, San Francisco, CA 94134 ("Snowball") and
Kabang.com, Inc., a Delaware corporation with principal offices at 2459
208/th/ Street, Suite 200, Torrance, California 90501 ("Kabang.com").
Background
Snowball owns and operates five sites featuring editorial content about
games, movies, tv, science fiction, and entertainment issues for young men (the
"IGN Sites"). The IGN Sites connect to a network of affiliates sites (the "IGN
Affiliate Sites") to provide a greater breadth and depth of entertainment
content. The IGN Sites and the IGN Affiliate Sites are sometimes referred to,
collectively, in this Agreement as the "IGN Network."
Snowball also owns and operates three other networks: the "ChickClick
Network," targeted at young women (the hub site for which is located at
www.ChickClick.com) and the "PS/IG Network," targeted at college students (the
hub sites for which are located at www.Powerstudents.com and
www.InsideGuide.com).
The IGN Network, ChickClick Network and PS/IG Network are collectively
referred to in this Agreement as the "snowball Network(s). The IGN Affiliate
Sites and participating sites of the affiliates of the ChickClick network and
PS/IG Network are collectively referred to in this Agreement as the "snowball
Affiliates".
Kabang.com sells CDs (including related merchandise) and provides content
about CD music, through its World Wide Web site located at www.Kabang.com (the
"Kabang.com Site").
Kabang.com wishes to be the exclusive CD retailer on the snowball Networks
and to have links established from the snowball network hub sites to the
Kabang.com Site (each, a "Kabang.com Link"). Snowball has agreed to establish
those links on the snowball Network hub sites and to establish a program to
encourage snowball Affiliates to place similar links on each of the snowball
Affiliates sites (the "Kabang.com Program"), subject to the terms and conditions
of this Agreement.
Now Therefore, the parties agree as follows:
1. Exclusivity. Subject to the terms and conditions of this Agreement,
-----------
snowball will identify Kabang.com as snowball.com's "exclusive CD retailer" on
each snowball
<PAGE>
Network. snowball.com will not, during the term of this Agreement, enter into
any agreement to promote a website operator as a recommended retailer of CDs or
to establish a promotional program for snowball Affiliates similar to the
Kabang.com Program. The exclusivity described in this section applies to the
sale of CDs only and expressly does not apply to rental of CDs, electronic
direct delivery of music whether or not recordable on read/write or other CDs
for home use, nor does it apply to merchandise related to CDs generally. In
addition, Kabang.com acknowledges that snowball.com may incorporate or link to
Web and other auctionfacilities and that the sale of CDs by third parties
through such facilities will not be a breach of snowball.com's obligations under
this section.
2. Promotion and eCommerce. Subject to the terms and conditions of this
-----------------------
Agreement:
2.1 Registration.
------------
(a) New Registrations. snowball.com will make available the
-----------------
opportunity to each user registering with a snowball Network the simultaneous
opportunity of an "opt out" registration for Kabang.com. For purposes of this
paragraph, "opt out" registration means an automatic functionality for dual
registration of the user on both the snowball Network and on Kabang.com unless
the user opts, using an offered functional indicator, not to register with
Kabang.com
(b) Existing Registered Users. snowball.com will send each
-------------------------
snowball.com Network user registered as of the Effective Date an email message
describing Kabang.com's various offers and services, as well as informing them
of the relationship between snowball.com and Kabang.com under this Agreement.
Such email message will include a link allowing users to add their email
addresses to the Kabang.com database of snowball Network users.
(c) Reporting. snowball.com will provide to Kabang.com a monthly
---------
report of all registration data for each snowball.com Network user who registers
in that month with Kabang.com through the "opt out" registration described
above.
2.2 "My Page" Integration.
--------------------
(a) New Users. snowball.com will integrate content from the
--------
Kabang.com site into snowball.com's customizable "My Page" sections developed
for new users. snowball.com will work with Kabang.com to find ways to provide
custom content from Kabang.com to snowball.com users.
(b) Existing Users. For existing registered snowball Network users,
--------------
snowball.com will include a Kabang.com listing in the "My Page" profile update
page, permitting users to choose to receive content from Kabang.com.
<PAGE>
2.3 Integrated Content. snowball.com will integrate Kabang.com branding
------------------
and links into entertainment content pages on snowball Network hub site pages
that snowball.com reasonably deems to be contextually appropriate for such
branding and links (i.e. deemed appropriate for promoting CD sales).
2.4 Co-Branded Music Stores. snowball.com and Kabang.com will work
-----------------------
together to develop co-branded music retailing functionality ("Music Stores") to
be hosted and served by snowball.com on each snowball Network hub site. The
Music Stores will each include co-branded commerce pages and will feature CDs
that can be purchased at Kabang.com. Kabang.com will be solely responsible for
pricing and fulfilling orders placed with such music stores. The look and feel,
as well as the specific functionalities of the Music Stores, will be developed
jointly by the parties and subject to the agreement of both parties, which
agreement will not be unreasonably withheld.
2.5 Web Page Advertising and Links.
------------------------------
(a) Banner Impressions. snowball.com will work to ensure that at
------------------
least [**] banner impressions promoting Kabang.com appear on
snowball Network pages delivered each month, with such impressions to have an
approximate configuration of at least 468 x 60 pixels.
(b) Button Impressions. snowball.com will deliver on snowball
------------------
Network pages served an average of [**] guaranteed button impressions per month
promoting Kabang.com.
(c) Portal Link. snowball.com will provide (during the term of this
-----------
Agreement) a permanent hyperlink to the Kabang.com site on snowball.com's its
"Affiliate Commerce portal", which snowball.com will encourage snowball
Affiliates to place on all snowball.com Affiliate site commerce pages (estimated
to provide [**] impressions per month).
(d) Navigation Bar Link Impressions. snowball.com will work to
-------------------------------
ensure that a button promoting Kabang.com will be incorporated into the
navigation bar on all snowball Network hub site pages (estimated by the parties
to be a minimum of [**] impressions per month).
(e) Generally. snowball.com and Kabang.com agree promotional
---------
banners and buttons may be used to promote any merchandise sold by Kabang.com
and are not intended to be limited to promoting CDS or other music product
sales.
(f) Sole Remedy for any Deficiency. snowball.com's obligation and
------------------------------
Kabang.com's sole right in the event that snowball.com fails to deliver the
above listed numbers for banner, button, and navigation bar link impressions
will be for snowball.com to deliver any deficiency, as soon as practicable in
subsequent months.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing
and have been filed separately with
the Securities and Exchange Commission
<PAGE>
2.6 Email Promotions. snowball.com will transmit a 40-word text link
----------------
contained within its monthly emailing to snowball Network registered users
(estimated by the parties to be transmitted to [**]one million users).
3. Additional Marketing Opportunities.
----------------------------------
3.1 snowball CD Promotions. snowball.com will provide Kabang.com with a
----------------------
first right of negotiation for any snowball.com on-line and off-line CD
marketing programs and promotional events. Accordingly, snowball.com will
provide Kabang.com with notice reasonable under the circumstances of such
pending programs and events and, if requested by Kabang.com, negotiate in good
faith to provide Kabang.com the opportunity to participate as the exclusive
retailer in such programs and events.
3.2 Kabang CD Promotions. Kabang.com will provide snowball.com with a
--------------------
first right of negotiation for any snowball.com on-line and off-line CD
marketing programs and promotional events. Accordingly, Kabang.com will provide
snowball.com with notice reasonable under the circumstances of such pending
programs and events and, if requested by snowball.com, will negotiate in good
faith to provide snowball.com the opportunity to participate as the exclusive
membership web content network operator in such programs and events.
3.3 snowball.com Press Releases. snowball.com agrees to mention
---------------------------
Kabang.com in press releases snowball.com reasonably deems relevant to music
retailing.
3.4 Kabang.com Press Releases. Kabang.com agrees to mention snowball.com
-------------------------
in press releases Kabang.com reasonably deems relevant to snowball.com's target
market of adolescents and young adults.
4. Organizational Support. snowball.com will allocate resources and use
----------------------
diligent efforts to provide competent and effective administrative and technical
support to encourage snowball Network users to receive Kabang.com site content
and services.
5. Additional Strategic Opportunities. Kabang.com will explore, consider in
----------------------------------
good faith opportunities and cooperate to implement strategic business
relationships involving eCommerce, web content and related format and technology
advances that are mutually beneficial among Kabang.com, snowball.com and others
that the parties agree upon.
6. Compensation.
------------
6.1 Payment Terms. On or before December 31, 1999, the parties will
-------------
negotiate, set forth as Exhibit A and attach to this Agreement payment terms and
---------
conditions under which Kabang.com will compensate snowball.com for performing
this Agreement. Payments not made when due will bear interest at the rate of
[**] per month on the unpaid balance, or the highest rate permitted by
applicable laws, whichever is lower. Payments will be made in U.S. Dollars.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing
and have been filed separately with
the Securities and Exchange Commission
<PAGE>
6.2 Taxes. All amounts payable under this Agreement are exclusive of all
-----
sales, use, value-added, withholding, and other taxes and duties. Kabang.com
will pay all taxes and duties assessed in connection with this Agreement and its
performance by any authority within or outside of the U.S., except for taxes
payable on snowball.com's net income. snowball.com will be promptly reimbursed
by Kabang.com for any and all taxes or duties that snowball.com may be required
to pay in connection with this Agreement or its performance.
6.3 Records and Audit Rights. Kabang.com will keep all records relating
------------------------
to all purchasing data relevant to this Agreement for a period of three (3)
years after such sale/impression record period. An independent certified public
accountant selected by snowball.com and reasonably acceptable to Kabang.com may,
no more than once per year and upon at least twenty-four (24) hours notice,
inspect such records during normal business hours. If, upon performing such
audit, it is determined that Kabang.com has underpaid snowball.com by an amount
greater than five percent (5%) of the payments due snowball.com in the period
being audited, Kabang.com will bear all reasonable expenses and costs of such
audit in addition to its obligation to make full payment under this section.
6.4 Reporting. During the term of this Agreement, Kabang.com will provide
---------
monthly reports to snowball.com setting forth all relevant purchasing data
regarding purchases made by snowball Network users and the number and identity
of snowball Network users who register with Kabang.com through the snowball
Networks.
7. Licenses, Other Proprietary Rights and Related Matters. Subject to the
------------------------------------------------------
terms and conditions of this Agreement:
7.1 Kabang.com Content License. Kabang.com hereby grants to snowball.com
--------------------------
a nonexclusive, nontransferable license (without the right to sublicense) to
copy and publicly display on the snowball Networks content from the Kabang.com
site ("Kabang Content") solely to promote Kabang.com and its site and otherwise
perform this Agreement. snowball.com may reformat the Kabang.com Content for
the purpose of incorporating it into the snowball Network sites. snowball.com
will not modify, use, copy or distribute the Kabang.com Content, except as
expressly provided in this Agreement.
7.2 snowball Trademark License. snowball.com hereby grants Kabang.com a
--------------------------
nonexclusive, revocable, worldwide license to use the snowball's trademarks,
service marks and logos ("snowball Marks") solely in conjunction with the links
described in this Agreement. Any use of the snowball Marks must comply with
snowball.com's approvals, requirements and any trademark guidelines communicated
by snowball.com. Any such use and will inure to snowball.com's benefit.
Nothing contained in this Agreement gives Kabang.com any right, title or
interest in the snowball Marks or goodwill therein and thereto, except as
expressly provided in this section. Kabang.com will not take any action
inconsistent with the snowball's ownership rights. Kabang.com
<PAGE>
will cease all use and display of the snowball Marks upon written notice from
snowball.com and, in any event, upon termination of this Agreement.
7.3 Kabang.com Trademark License. Kabang.com hereby grants snowball.com a
----------------------------
nonexclusive, revocable, worldwide license to use Kabang.com's trademarks,
service marks and logos ("Kabang.com Marks") solely in conjunction with the
links described in this Agreement. Any use of the Kabang.com Marks must comply
with Kabang.com's approvals, requirements and any trademark guidelines
communicated by Kabang.com. Any such use and will inure to Kabang.com's benefit.
Nothing contained in this Agreement gives snowball.com any right, title or
interest in the Kaban.com Marks or goodwill therein and thereto, except as
expressly provided in this section. snowball.com will not take any action
inconsistent with the snowball's ownership rights. snowball.com will cease all
use and display of the Kabang.com Marks upon written notice from Kabang.com and,
in any event, upon termination of this Agreement.
7.4 Ownership. Subject to the rights expressly granted in this Agreement,
---------
snowball.com will retain all right, title and interest in and to the snowball
Networks and (and all related sites), the snowball Marks and the snowball
Content. Kabang.com will retain all right title and interest in and to the
Kabang.com Site, the Kabang.com Marks and the Kabang.com Content.
7.5 snowball.com Discretion. Unless expressly provided in this Agreement,
-----------------------
the form, format and position of any Kabang.com link or advertisement described
in this Agreement, and date of placement, will be determined by snowball.com in
its discretion. snowball.com may, upon written notice to Kabang.com, reject any
content provided by Kabang.com under this Agreement if it fails to comply with
snowball.com's reasonable requirements or is otherwise inappropriate for the
users of the snowball.com Network sites. Nothing in this Agreement will be
construed to limit snowball.com's right to modify any of the content or any
aspect of structure of the snowball.com Network sites, or to rename or
reposition the snowball.com Network sites, in its discretion; provided that, in
the event any such change affects snowball.com's ability to perform any
obligation described in this Agreement, snowball.com will provide reasonable
alternative performance.
7.6 Kabang.com Site Information. Kabang.com will provide snowball.com
---------------------------
with any information reasonably required to implement links from the snowball
Networks to the Kabang.com site. Kabang.com will give snowball.com reasonable
advance notice in the event Kabang.com changes its universal record locator
(URL) for the Kabang.com site.
8. Confidential Information.
------------------------
8.1 Obligations. Each party ("Receiving Party") agrees to treat as
-----------
confidential all proprietary information disclosed to it by the other party
("Disclosing Party") including marketing information, customer data, any data
described herein and the terms
<PAGE>
of this Agreement ("Confidential Information"). Receiving Party agrees not to
publish or disclose the Disclosing Party's Confidential Information to others
except to those employees and subcontractors to whom disclosure is necessary in
order to carry out the purposes of this Agreement. All tangible materials
embodying such Confidential Information will remain the sole property of
Disclosing Party and will be delivered to Disclosing Party by Receiving Party
upon Disclosing Party's request. Receiving Party will inform all its employees
and subcontractors who receive Confidential Information of the confidential
nature of such Confidential information and of their obligation to keep same
confidential and not to use it other than as permitted hereunder.
8.2 Exceptions. Neither party will have any obligation with respect to
----------
any Confidential Information which: (1) was rightfully known to Receiving Party
prior to receipt of such Confidential Information from Disclosing Party; (2) is
lawfully obtained by Receiving Party from a third party under no obligation of
confidentiality; (3) is or becomes generally known or available without any act
or failure to act by Receiving Party; (d) is developed independently by
Receiving Party. Either party may disclose the Confidential Information of the
Disclosing Party if required by court order or legal requirement and the party
subject to the order has given the other party a reasonable opportunity (and has
cooperated fully) to contest or limit the scope of such required disclosure
(including application for a protective order).
9. User Data.
---------
9.1 Ownership. Subject to the restrictions in this section and any rights
---------
to use the applicable data granted under this Agreement, snowball.com will own
snowball Network user registration data, and Kabang.com will own Kabang.com user
registration data and Kabang.com sales data.
9.2 Treatment of Individually Identifiable User Data. Neither party will
------------------------------------------------
sell, disclose, transfer, or rent any user data obtained by it from the other
party which data identifies, or can be used to identify, a specific individual
("Individually Identifiable User Data") to any third party or use any
Individually Identifiable User Data on behalf of any third party, without the
express permission of the applicable user specifically approving such use. Each
of snowball.com and Kabang.com will only use Individually Identifiable User Data
in accordance with the Terms of Service and Privacy Policy posted on the
snowball Network sites, as they may be amended from time to time by
snowball.com. In those cases where permission for disclosure of Individually
Identifiable User Data has been obtained from the applicable user, each party
will use all reasonable efforts to implement an "opt out" feature on its own
behalf, and will include and enforce through its agreements with third parties a
requirement for the inclusion of an "opt out" feature in all e-mail
communications generated by, or on behalf of, third party users of the
Individually Identifiable User Data.
9.3 Aggregate Data. Notwithstanding the restrictions above, the parties
--------------
retain the right to use, sell, disclose, transfer, or rent any user data as long
as such user data is in an aggregate form that does not include any Individually
Identifiable User Data.
<PAGE>
10. Term and Termination.
--------------------
10.1 Term. This Agreement will commence on the Effective Date and remain
----
in effect for a period of [**] after the Start Date (the "Initial
Term"), unless terminated earlier under this Section 10. For purposes of this
Agreement, the Start Date shall be February 1, 2000.The parties recognize that
certain elements of the Kabang.com promotional program described in this
Agreement may not be fully integrated by the Start Date, and have adjusted the
monthly billing set forth in Exhibit A to reflect that fact. If so requested by
either party by written notice to the other party within thirty (30) days of the
end of the Initial Term, the parties will negotiate in good faith to renew the
term of this Agreement, subject to any changes to the terms and conditions of
this Agreement required by one or both of the parties.
10.2 Termination for Benchmark Performance Failure. Kabang.com may
---------------------------------------------
terminate this Agreement upon thirty (30) days written notice to snowball.com in
the event that by [**] after the Start Date Kabang.com has not received through
the snowball Networks [**] or more user registrations, or made [**] or more
sales of (one or more) CDs to snowball Network users.
10.3 Termination for Breach or Insolvency. Either party may terminate this
------------------------------------
Agreement at any time prior to the expiration of its stated term in the event
that: the other party breaches any term or condition of this Agreement and
fails to cure such breach within thirty (30) days of written notice; or either
party becomes the subject of a voluntary petition in bankruptcy or any voluntary
proceeding relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors; or either party becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing.
10.4 Effect of Termination. Kabang.com's payment obligations hereunder, as
---------------------
well as the provisions of this Section and the following Sections will survive
any termination of this Agreement: Section 6 (Compensation), Section 7.5
(Ownership), Section 8 (Confidential Information), Section 9 (User Data),
Section 11 (Limitation of Liability), Section 12 (Indemnification) and Section
13 (General).
11. Limitation of Liability. EXCEPT WITH RESPECT TO ITS OBLIGATIONS UNDER
-----------------------
SECTION 8 AND SECTION 9, NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY
INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, OR ANY LOSS OR REVENUE, PROFITS,
OR DATA, ARISING IN CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
12. Indemnification.
---------------
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing
and have been filed separately with
the Securities and Exchange Commission
<PAGE>
12.1 snowball.com Obligations. snowball.com hereby agrees to defend,
------------------------
indemnify and hold harmless Kabang.com, and its directors, officers and
employees against any and all claims, actions, losses, damages, costs, and
expenses (including reasonable attorneys' fees, "Losses") arising out of or
based on any claim related to the snowball.com Content or the snowball Networks
other than those claims described in Section 12(b) below. snowball.com's
obligations under this section are hereby expressly conditioned on the
following: (1) Kabang.com provides snowball.com with prompt notice of any such
claim; (2) Kabang.com permits snowball.com to assume and control the defense of
such action, with counsel chosen by snowball.com (who will be reasonably
acceptable to Kabang.com); and (3) Kabang.com provides snowball.com with any
information or assistance requested by snowball.com, at snowball.com's expense.
12.2 Kabang.com's Obligations. Kabang.com hereby agrees to defend,
------------------------
indemnify and hold harmless snowball.com, and its directors, officers and
employees against any and all Losses arising out of or based on any claim
related to the Kabang.com site, any CDs, Kabang.com's activities (or omissions)
with respect to any Customer or any content, information or other materials
provided to snowball.com under this Agreement. Kabang.com's obligations under
this section are hereby expressly conditioned on the following: (1) snowball.com
provides Kabang.com with prompt notice of any such claim; (2) snowball.com
permits Kabang.com to assume and control the defense of such action, with
counsel chosen by Kabang.com (who will be reasonably acceptable to
snowball.com); and (3) snowball.com provides Kabang.com with any information or
assistance requested by Kabang.com, at Kabang.com's expense.
13. General.
-------
13.1 Waivers/Modifications. Any waiver modification or amendment to any
---------------------
provision of this Agreement will be effective only if in writing and executed by
both parties. The waiver by either party of any default or breach of this
Agreement will not constitute a waiver of any other or subsequent default or
breach.
13.2 Notices. All notices required to be given under this Agreement will
-------
be deemed given when delivered personally or sent by confirmed facsimile or U.S.
certified mail, return receipt requested, to the address shown in the preamble
above, or as may otherwise be specified by either party to the other in writing.
13.3 Severability. If any provision of this Agreement is found illegal or
------------
unenforceable, it will be enforced to the maximum extent permissible, and the
legality and enforceability of the other provisions of this Agreement will
remain in full force and effect.
13.4 Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the State of California applicable to agreements
entered into, and to be performed entirely, within California between California
residents.
<PAGE>
13.5 No Partnership. The relationship of the parties hereto is solely that
--------------
of independent contractors, and not partners, joint venturers or agents.
Neither party has any authority to bind the other in connection with this
Agreement.
13.6 Entire Agreement. This Agreement, including any exhibits attached
----------------
hereto, is the complete and exclusive agreement between the parties with respect
to the subject matter hereof, and supersedes and replaces any and all prior or
contemporaneous agreements regarding such subject matter. The parties agree
that the letter of intent, dated as of December 9, 1999, between the parties is
hereby terminated and replaced in its entirety by this Agreement.
13.7 Force Majeure. Neither party will be liable to the other party as a
-------------
result of its failure to perform any obligation or duty under this Agreement,
other than the obligation to pay money, to the extent that such failure is cause
by flood, war, riot, civil insurrection, labor or material shortages, failure of
contractors to perform their obligations, or other events that are not
reasonably foreseeable or are beyond the reasonable control of the party.
13.8 No Assignment. Neither party may assign this Agreement without the
-------------
other party's written consent except in the event of a reorganization, merger,
consolidation or sale of all or substantially all of its assets related to this
Agreement. Such consent will not be unreasonably withheld. Any assignment in
violation of this section will be null and void.
<PAGE>
13.9 Consolidated URL Listing. Kabang.com hereby grants snowball.com
------------------------
permission to include all of the URLs related to the pages served to CD
customers through the snowball.com Networks together with other snowball.com-
related URLs in a consolidated listing assembled by third-party measurement
companies, including but not limited to Media Metrix, NetRatings or another
similar measuring service selected by snowball.com. Kabang.com agrees that the
rights granted under this section are exclusive to snowball.com and that
Kabang.com will not grant the same or similar rights to any other party.
In Witness Whereof, the parties have entered into this Agreement as of the
Effective Date.
Kabang.com, Inc. snowball.com, inc.
By: /s/ Peter Newton-John By: /s/ James R. Tolonen
--------------------- -----------------------
Name: Peter Newton-John Name: James R. Tolonen
------------------- ----------------------
Title: President & CEO Title: COO/CFO
------------------ -----------------------
<PAGE>
EXHIBIT A
PAYMENT TERMS
Kabang.com will pay snowball.com a total participation fee of [**]. The
participation fee will be payable in [**] installments, due and payable as set
forth below: [**]
In addition to the participation fee set forth above, in the event that
Kabang.com generates more than [**] new purchasers through performance of this
Agreement, Kabang.com will pay Snowball a [**] new purchaser fee for each new
purchaser in excess of [**]. Payment for new purchasers will be due monthly on
the fifteenth day of the month immediately following the month in which the new
purchaser first purchases any products from Kabang.com.
Snowball.com Kabang.com
By: /s/ James R. Tolonen By: /s/ Peter Newton-John
-------------------- ---------------------
Name (Print): James R. Tolonen Name (Print): Peter Newton-John
---------------- -----------------
Title: COO/CFO Title President & CEO
----------------------- --------------------------
Date: 1-3-00 Date: 12-23-99
------------------------- ---------------------------
**Confidential treatment has been requested
with respect to the information contained
within the "[**]" markings. Such marked
portions have been omitted from this filing
and have been filed separately with the
Securities and Exchange Commission.
<PAGE>
Exhibit 10.27
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the
CERTAIN PORTIONS OF THIS information contained within the
DOCUMENT "[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission
Services and Promotion Agreement
This Services and Promotion Agreement (this "Agreement") is made as of
December 22, 1999 (the "Effective Date"), by and between Snowball.com, Inc., a
Delaware corporation with principal offices at 250 Executive Park Boulevard,
Suite 4000, San Francisco, CA 94134 ("Snowball") and Riffage.com, Inc., a
Delaware corporation with principal offices at 4301 Hillview Avenue, Building B,
Suite 101, Palo Alto, CA 94304 ("Riffage").
Background
Snowball owns and operates a network of sites on the World Wide Web,
including four hub sites located at IGN.com ("IGN"), Chickclick.com
("Chickclick"), PowerStudents.com ("PS") and InsideGuide.com ("IS")
(individually, a "Snowball Site" and collectively, the "Snowball Sites"). The
Snowball Sites connect to a network of affiliates sites (the "Affiliate Sites")
operated by Snowball's affiliates (collectively, "Snowball Affiliates") to
provide a greater breadth and depth of entertainment content. The Snowball
Sites and the Affiliate Sites are sometimes referred to, collectively, in this
Agreement as the "Snowball Network."
Riffage, among other things, provides a music service that allows
users to search for music and artists, receive personalized music
recommendations, rate and review songs and playlists, create their own music
files and playlists and share them with other users of the service (the "Riffage
Service"). Riffage currently provides the Riffage Service through its World
Wide Web site located at www.riffage.com (the "Riffage Site").
Riffage wishes to provide the Riffage Service to users of the Snowball
Sites. Snowball wishes to have Riffage provide the Riffage Service to its
users, subject to the terms and conditions of this Agreement.
Now Therefore, the parties agree as follows:
1. Riffage Service.
---------------
(a) Provision of Service. Each Snowball User of a Snowball Site
--------------------
(each, a "Snowball User") will be provided access, at no charge, to a personal
Riffage Service account (each, a "Service Account"). Subject to the provisions
of Section 9 (User Data), when a Snowball User activates its Service Account,
Snowball will provide Riffage with certain data concerning such Snowball User
(to the extent provided by the Snowball User) as further described in Exhibit A
---------
(the "Registration Data") to enable Riffage to provide the Riffage Service.
Upon receipt of the Registration Data, Riffage will immediately activate the
Service Account for the applicable Snowball User. Riffage shall provide the
Riffage Service to all Snowball Users who activate their Service Accounts
throughout the term of this Agreement. Snowball Users who activate their
Service Accounts are referred to in this Agreement as "Registered Users."
Snowball acknowledges that the use of Service Accounts by Registered Users will
be subject to Riffage's standard terms of service
<PAGE>
(including its privacy policy); provided that, [**]. Riffage will prepared to
implement the Riffage Service on at least one Snowball Site within [**] days of
the Effective Date and on all of the remaining Snowball Sites within [**] days
of the Effective Date. The specific implementation schedules for each Snowball
Site shall be mutually agreed by the parties.
(b) Right of First Offer/Refusal.
----------------------------
(1) Right of First Offer. For the term of this Agreement, in the
--------------------
event Snowball develops and implements any additional hub site (each, an
"Additional Site"), Snowball will send a notice (the "Initial Notice") to
Riffage generally describing such Additional Site at least [**] days prior to
its implementation. At such time, the parties will negotiate in good faith to
include the Riffage Service on the Additional Site, on terms and conditions to
be agreed to by the parties at that time. If the parties do not reach such an
agreement within [**] days of the Initial Notice, Snowball will be free to
negotiate with any other third party to provide a service similar to the Riffage
Service, subject to the terms and conditions of this Section.
(2) Right of First Refusal. Snowball will send a notice ("Second
----------------------
Notice") to Riffage at least [**] business [**] days prior to entering into any
agreement with a third party to provide a service similar to the Riffage Service
on any Additional Site, including a summary of the material terms and conditions
of such agreement (although not including the name of the third party or the
relevant service). Upon written notice to Snowball, which must be given within
the [**] business day period commencing with Riffage's receipt of the Second
Notice, Riffage will be entitled to elect to provide the Riffage Service on such
Additional Site on the same terms and conditions as those set forth in the
Second Notice. If Riffage does not exercise its rights under this subsection
with respect to any Second Notice within the [**] business day period described
above, Snowball will be free to complete the transaction described in the Second
Notice.
(c) Development of Log-In Page. Snowball will develop, host and
--------------------------
maintain a co-branded page on each of the Snowball Sites through which Snowball
Users will be able to register with the Snowball Network ("Log-In Page").
Snowball will develop the content provided on the Log-In Page, with Riffage's
reasonable assistance and approval. The Log-In Page will link to the Jump Page
described in subsection (c) below.
(d) Development of Jump Page. Snowball will develop, host and
------------------------
maintain a co-branded page on each of the Snowball Sites through which Snowball
Users will be able to activate and access their respective Service Accounts
("Jump Page"). Snowball will develop the content provided on the Jump Page,
with Riffage's reasonable assistance and approval. The Jump Page will link to
the Riffage Service Pages described in subsection (d) below.
(e) Development of Riffage Service Pages. Riffage will develop,
------------------------------------
host and maintain co-branded pages through which the Riffage Service will be
provided (the "Riffage Service Pages"). Riffage will develop the content
provided on the Service Pages, based on the existing pages of the Riffage Site.
Riffage will implement and maintain links from the Riffage Service Pages
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
2
<PAGE>
to the Snowball Site from which the applicable Snowball User has linked. Each
link to the Snowball Site will be indicated by, and in the form of, one of the
logos or other trademarks attached hereto as Exhibit C (the "Snowball Marks").
---------
In the event Snowball reasonably objects to the content contained in any of the
Riffage Service Pages, Snowball will send a notice to Riffage containing a
detailed description of the offending content. Within a week period, Riffage
will replace the offending content or work with Snowball to modify the content
to address Snowball's concerns.
(f) Content and Mock-ups. Any content provided to Riffage by Snowball
--------------------
under this Agreement is hereinafter referred to as "Snowball Content." Any
content provided by Riffage under this Agreement is hereinafter referred to as
the "Riffage Content." By [**], the parties will have developed and
mutually approved mock-ups of the Log-In Page, the Jump Page and the Riffage
Service Pages. Such mock-ups will be attached to this Agreement as Exhibit B1-
----------
B3. The parties agree to implement the Log-In Page, the Jump Page and the
- --
Riffage Service Pages in substantially the same form shown in the mock-ups.
Each party agrees to notify the other if it intends to make any significant
changes to the look and feel of any of the Log-In Page, Jump Page or Riffage
Service Pages and to provide a new mock-up of such modified pages for the other
party's reasonable prior approval.
(g) Sales. Snowball shall be entitled to sell advertising or other
-----
promotions appearing on the Log-In Page and the Snowball Sites. Riffage will be
entitled to sell advertising and other promotions appearing on the Riffage
Service Pages. Neither party will have any obligation under this Agreement to
share any revenues derived from such sales.
2. Promotion. Subject to the terms and conditions of this Agreement,
---------
(a) Links and Copy. Snowball will develop, implement and maintain
--------------
links to the Log-In Page and Jump Page (collectively, the "Links") that will
appear in conjunction with text and graphics that promote the Riffage Service.
The Links will appear on the "My Page" pages on each Snowball Site (the "My
Pages"). Snowball acknowledges that the third party links placed on the My
Pages are generally placed by Snowball in chronological order, unless otherwise
agreed by Snowball. The Links will also appear on the pages that feature MP3
music listings on each of the Snowball Sites (the "Music Listing Pages"). A
mock-up of the Links and their appearance on the My Pages and the Music Listing
Pages will be mutually agreed to by the parties and attached to this Agreement
as Exhibit B-4 along with the other mock-ups described in Section 1(f).
-----------
Snowball will be entitled to change the content and look and feel of the My
Pages and the Music Listing Pages and the placement of the Links in its
discretion, provided that, any such changes do not disproportionately materially
adversely affect Riffage as compared to any other sponsor on those pages.
Snowball will use commercially reasonable efforts to notify Riffage of any such
changes prior to the implementation thereof.
(b) Navigational Links. Snowball will develop, implement and maintain
------------------
navigational links ("Navigation Links") to the My Pages and the Music Listing
Pages. A mock-up of the Links and their appearance on the My Pages and the
Music Listing Pages is attached hereto as Exhibit B-4.
-----------
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
3
<PAGE>
(c) Banner Advertisements. Snowball will implement and serve co-
---------------------
branded banner advertisements promoting the Riffage Service as provided through
the Snowball Network that will appear on a rotating basis on the Snowball Sites
and Affiliate Sites.
(d) Newsletters. Snowball will, on a rotating basis, include a link
-----------
to My Pages and text promoting the Riffage Service in the newsletter Snowball
currently sends to its Snowball Users. In addition, Snowball will, on a
rotating basis, include a link to My Pages and text describing the Riffage
Service in the newsletters sent to subscribers through Microsoft's Hotmail
service, subject to the terms and conditions of Snowball's related agreement
with Microsoft. Snowball will provide any descriptions of the Riffage Service
that it intends to include in the newsletters described in this Section to
Riffage for Riffage's reasonable prior approval. Riffage will review such
descriptions and provide its approval or any reasonably requested changes with
five (5) days of its receipt of the descriptions from Snowball. If Riffage does
not respond to the descriptions within the five (5) day period, the descriptions
will be deemed approved by Riffage.
(e) Press Releases. The parties will jointly issue a mutually
--------------
approved press release describing the relationship established under this
Agreement within thirty days of the Effective Date. Either party may issue
other press releases describing the relationship established under this
Agreement, subject to the other party's reasonable approval.
3. Other Obligations.
-----------------
(a) Exclusivity. Within three days of the Effective Date, Riffage
-----------
will provide Snowball with a list of companies (each, a [**]). Subject to the
terms and conditions of this Agreement, Snowball will not, during the
term of this Agreement, enter into any agreement with respect to any [**] to
provide a service similar to the Riffage Service on the Snowball Sites. The list
of [**] may be augmented during the term of this Agreement by mutual
agreement of the parties. Notwithstanding the foregoing, except as provided in
subsection 3(b), Snowball will be free to display advertisements (including
links) on the Snowball Network that promote other companies that provide
services similar to the Riffage Service and to include such advertisements in
emails or newsletters distributed by Snowball.
(b) Right of First Refusal. Within three days of the Effective Date,
----------------------
Riffage will provide snowball with a list of companies [each, a "[**]"). For the
term of this Agreement, in the event any [**] wishes to purchase advertising
inventory on the Snowball Sites, Snowball will notify Riffage of any prospective
sale of advertising inventory to a [**] including the amount of inventory
proposed to be sold, the price and any other relevant terms and conditions
("Sale Notice"). Upon written notice to Snowball, Riffage will be entitled to
purchase such inventory at the lesser of the price offered to such [**] or
$[**]/CPM and on other the terms and conditions contained in the Sale Notice,
provided that Riffage's notice is received by Snowball within three (3) business
days of the date of the Sale Notice. If Riffage exercises its rights to purchase
under this subsection, Snowball will not sell the inventory identified in the
Sale Notice to the applicable [**]. If Riffage does not exercise its rights
under this subsection with respect to a particular Sale Notice within the time
frames described herein, Snowball will be free to complete the transaction
described in that Sale Notice.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
4
<PAGE>
(c) Account Managers. Each party will appoint a dedicated account
----------------
manager to act as primary contact between the parties and to facilitate any
requests for information or assistance made by a party hereunder. Each party
will notify the other of the dedicated account manager's name and contact
information on or before the Effective Date.
(d) Reasonable Assistance. Each party will provide the other with any
---------------------
information or assistance reasonably required to implement the Riffage Service
as contemplated by this Agreement. Each party will give the other party
reasonable advance notice in the event it changes any relevant universal record
locators (URLs).
4. Impressions. Snowball will, through the promotions and other
-----------
obligations described in this Agreement, provide to Riffage the minimum number
of Impressions on the applicable Snowball Network, as further described in
Exhibit E. Snowball will provide Riffage with monthly, detailed reports
- ---------
describing the Impressions delivered during such month. Upon reasonable notice
to Snowball, during the term of this Agreement and for two years thereafter
Riffage will be entitled to review Snowball's records concerning the calculation
of the number of Impressions delivered hereunder. Any information disclosed to
Riffage during any such audit will be deemed Snowball's Confidential
Information, as further described in Section 7. IN THE EVENT SNOWBALL FAILS TO
DELIVER THE MINIMUM NUMBER OF IMPRESSIONS DESCRIBED IN THIS SECTION, AS
RIFFAGE'S SOLE AND EXCLUSIVE REMEDY AND SNOWBALL'S SOLE AND EXCLUSIVE
OBLIGATION, SNOWBALL WILL CONTINUE TO DELIVER IMPRESSIONS IN THE FORMS DESCRIBED
IN EXHIBIT E, UNTIL THE MINIMUM NUMBER OF IMPRESSIONS PROMISED HEREUNDER IS
---------
DELIVERED.
5. Payment.
-------
(a) Definitions. Achieving "Implementation" with respect to any of
-----------
the Snowball Sites means either: (a) Snowball has actually provided access to
the Riffage Service on the applicable Snowball Site or (b) Snowball would have
been able to provide access to the Riffage Service on the applicable Snowball
Site were it not for Riffage's failure to deliver any technical information,
content or other materials within the time periods reasonably requested by
Snowball or to otherwise perform its obligations under this Agreement.
"Implementation Date" means the date of Implementation on the applicable
Snowball Site. Snowball will notify Riffage of the actual date that constitutes
the Implementation Date for each Snowball Site at least fourteen (14) days prior
to such date. "Initial Implementation Date" means the first Implementation Date
to occur among the Snowball Sites.
(b) Flat Fee. Riffage will pay Snowball [**] payable as [**] as
--------
provided in this Section. The first payment shall be due in advance of
Implementation and must be paid by Riffage within ten (10) days of the Effective
Date. The remaining payments will be due each monthly anniversary of the Initial
Implementation Date (e.g. if the Initial Implementation Date is January 10/th/,
2000, Riffage will pay Snowball
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
5
<PAGE>
[**] on February 10/th/ and each subsequent payment will be
due on the 10/th/ day of the applicable calendar month).
(c) Registered Users. In addition to the flat fee described above,
----------------
Riffage will pay Snowball, on a quarterly basis, the amounts described in
Exhibit F. Riffage will make all payments to Snowball due under this Section
- ---------
within thirty (30) days of the end of the applicable calendar quarter.
(d) Other Payment Terms. Each payment will include a report setting
-------------------
forth all of the information needed to calculate the fees payable for that
period. Payments made under this Agreement after the applicable due date will
incur interest at a rate equal to [**] per month or the highest rate permitted
by applicable law, whichever is lower; provided that, such interest will not
begin to accrue until Snowball notifies Riffage that it has not received the
applicable overdue payment.
(e) Taxes. All amounts payable under this Agreement are exclusive of
-----
all sales, use, value-added, withholding, and other taxes and duties, all of
which shall be Snowball's obligation.
6. Licenses and Other.
------------------
(a) Riffage Trademark License. Subject to the terms and conditions of
-------------------------
this Agreement, Riffage hereby grants Snowball a non-exclusive, revocable,
worldwide license to use the Riffage logos and trademarks (collectively, the
"Riffage Marks") solely in conjunction with the co-branding and promotional
activities described in this Agreement. Any use of the Riffage Marks must
comply with Riffage's trademark guidelines and will inure to Riffage's benefit.
Nothing contained in this Agreement gives Snowball.com any right, title or
interest in the Riffage Marks, except the license expressly provided in this
Section and Snowball shall not take any action inconsistent with the Riffage's
ownership rights. Snowball will cease all use and display of the Riffage Marks
upon termination of this Agreement.
(b) Snowball Trademark License. Subject to the terms and conditions
--------------------------
of this Agreement, Snowball hereby grants Riffage a non-exclusive, revocable,
worldwide license to use the Snowball Marks solely in conjunction with the co-
branding and promotional activities described in this Agreement. Any use of the
Snowball Marks must comply with Snowball's trademark guidelines and will inure
to Snowball's benefit. Nothing contained in this Agreement gives Riffage any
right, title or interest in the Snowball Marks, except the license expressly
provided in this Section and Riffage shall not take any action inconsistent with
the Snowball's ownership rights. Riffage will cease all use and display of the
Snowball Marks upon termination of this Agreement.
(c) Ownership. Subject to the rights expressly granted in this
---------
Agreement, as between the parties, Snowball will retain all right, title and
interest in and to the Snowball Network, the Snowball Content and the Snowball
Marks and Riffage will retain all right title and interest in and to the Riffage
Site, the Riffage Service, the Riffage Marks and the Riffage Content.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
6
<PAGE>
(d) Snowball Discretion. Unless expressly provided in this Agreement,
-------------------
the form, format and position of any link or advertisement on the Snowball
Network as described in this Agreement, and date of placement, will be
determined by Snowball in its discretion. Snowball may, upon written notice to
Riffage, reject any content provided by Riffage under this Agreement if it fails
to comply with Snowball's reasonable requirements or is otherwise inappropriate
for the users of the Snowball Sites, in Snowball's good faith business judgment.
Nothing in this Agreement will be construed to limit Snowball's right to modify
any of the content or any aspect of structure of the Snowball Sites, or to
rename or reposition the Snowball Sites, in its discretion; provided that, in
the event any such change affects Snowball's ability to perform any obligation
described in this Agreement, Snowball will use its best efforts to provide
reasonable alternative performance. Nothing in this Agreement or otherwise
grants to Snowball the right to edit, modify or otherwise change any of the
Riffage Content.
7. Confidential Information.
------------------------
(a) Obligations. Each party ("Receiving Party") agrees to treat as
-----------
confidential all proprietary information disclosed to it by the other party
("Disclosing Party") that is labeled as "confidential" or "proprietary,"
including marketing information, customer data, and the terms of this Agreement
("Confidential Information"). Receiving Party agrees not to publish or disclose
the Disclosing Party's Confidential Information to others except to those
employees and subcontractors to whom disclosure is necessary in order to carry
out the purposes of this Agreement. All tangible materials embodying such
Confidential Information will remain the sole property of Disclosing Party and
will be delivered to Disclosing Party by Receiving Party upon Disclosing Party's
request. Receiving Party will inform all its employees and subcontractors who
receive Confidential Information of the confidential nature of such Confidential
information and of their obligation to keep same confidential and not to use it
other than as permitted hereunder. The Receiving Party may disclose the terms
and conditions of this Agreement for due diligence purposes as reasonably
required by any financing or potential acquisition. For purposes of this
Agreement, the Registration Data shall be deemed the Confidential Information of
Snowball and Riffage. All of the information contained in Exhibit D shall be
---------
deemed the Confidential Information of Riffage. Throughout the term of this
Agreement, each party shall use the same level of care to protect the
confidentiality of the Registration Data that such party uses to protect the
data of its other users, which in no event will be less than reasonable care.
Each party acknowledges that the Non-Disclosure Agreement executed by the
parties as of November 23, 1999 shall remain in full force and effect,
notwithstanding the provisions of this Section.
(b) Exceptions. Neither party will have any obligation with respect
----------
to any Confidential Information which: (1) was rightfully known to Receiving
Party prior to receipt of such Confidential Information from Disclosing Party;
(2) is lawfully obtained by Receiving Party from a third party under no
obligation of confidentiality; (3) is or becomes generally known or available
without any act or failure to act by Receiving Party; (4) is developed
independently by Receiving Party. Either party may disclose the Confidential
Information of the Disclosing Party if required by court order or legal
requirement and the party subject to the order has given the other party a
7
<PAGE>
reasonable opportunity (and has cooperated fully) to contest or limit the scope
of such required disclosure (including application for a protective order).
Each party agrees to request confidential treatment of the material terms of
this Agreement in any government filings it is required or elects to make.
8. User Data.
---------
(a) Treatment of Individually Identifiable User Data. Neither party
------------------------------------------------
shall sell, disclose, transfer, or rent any user data obtained by it from the
other party which data identifies, or can be used to identify, a specific
individual ("Individually Identifiable User Data") to any third party or use any
Individually Identifiable User Data on behalf of any third party, without the
express permission of the applicable user specifically approving such use. In
those cases where permission for disclosure of Individually Identifiable User
Data has been obtained from the applicable user, each party shall use all
reasonable efforts to implement an "opt out" feature on its own behalf, and an
include and enforce through its agreements with third parties a requirement for
the inclusion of an "opt out" feature in all e-mail communications generated by,
or on behalf of, third party users of the Individually Identifiable User Data.
Riffage will not send any email or other correspondence to any Registered User
that has not opted-in to receive information from Riffage.
(b) Aggregate Data. Except as restricted by the obligations set forth
--------------
in Section 7, notwithstanding the restrictions above, the parties retain the
right to use, disclose or transfer any user data as long as such user data is in
an aggregate form that does not include any Individually Identifiable User Data;
provided that, neither party will identify the other party as the source of such
aggregate data.
9. Term and Termination.
--------------------
(a) Term. This Agreement will commence on the Effective Date and
----
will, with respect to each Snowball Site, remain in effect until [**] for such
Snowball Site, unless extended or terminated under this Section 9.
(b) Target. Except as provided in this Section, in the event the
------
number of Registered Users delivered to Riffage during the initial term of this
Agreement does not exceed [**] (the "Target"), then the term of this Agreement
with respect to each Snowball Site will extend until the earlier to occur of the
following events: (a) the date that Snowball reaches the Target or (b) [**] for
the applicable Snowball Site. Riffage will not be entitled to any extension of
the initial term as described in this subsection (b) if Riffage is not
technically or administratively prepared to provide the Riffage Service to
Snowball Users within time periods described in Section 1(a).
(c) Renewal of Term. If so requested by either party by written
---------------
notice to the other party within sixty (60) days of the end of the term, the
parties will negotiate in good faith to renew the term of this Agreement,
subject to any changes to the terms and conditions of this Agreement agreed to
by the parties.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
8
<PAGE>
(d) Termination for Breach or Insolvency. Either party may terminate
------------------------------------
this Agreement at any time prior to the expiration of its stated term in the
event that: the other party breaches any term or condition of this Agreement
and fails to cure such breach within thirty (30) days of written notice; or
either party becomes the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or either party becomes the subject of
an involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within sixty (60)
days of filing.
(e) Effect of Termination. The following Sections will survive any
---------------------
termination of this Agreement: Section 4 (Impressions), Section 6(c)
(Ownership), Section 7 (Confidential Information), Section 8 (User Data),
Section 10 (Limitation of Liability), Section 11 (Indemnification) and Section
12 (General). Any proper termination of this Agreement by Snowball under
Section 9(d) will not limit the accrual of damages under Section 5 (Payment)
hereof; provided, however, that, nothing herein shall be deemed to limit or
waive Riffage's rights of counterclaim regarding the satisfactory of provision
of services by Snowball as described in this Agreement.
10. Limitation of Liability. EXCEPT WITH RESPECT TO ITS OBLIGATIONS UNDER
-----------------------
SECTION 7, SECTION 8 AND SECTION 11: (A) NEITHER PARTY WILL BE LIABLE TO THE
OTHER FOR ANY INDIRECT, EXEMPLARY, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL
DAMAGES, OR ANY LOSS OR REVENUE, PROFITS, OR DATA, ARISING IN CONNECTION WITH
THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES; (B) RIFFAGE'S AGGREGATE LIABILTY UNDER THIS AGREEMENT WILL NOT EXCEED
[**] BY RIFFAGE HEREUNDER AND (C) SNOWBALL'S AGGREGATE LIABILITY
WILL NOT EXCEED THE AMOUNTS ACTUALLY RECEIVED BY SNOWBALL HEREUNDER.
11. Indemnification.
---------------
(a) Snowball Obligations. Snowball hereby agrees to defend, indemnify
--------------------
and hold harmless Riffage, and its directors, officers and employees against any
and all claims, actions, losses, damages, costs, and expenses (including
reasonable attorneys' fees, "Losses") arising out of or based on any claim
related to the Snowball Sites other than those claims described in Section 11(b)
below. Snowball's obligations under this Section are hereby expressly
conditioned on the following: (1) Riffage provides Snowball with prompt notice
of any such claim; (2) Riffage permits Snowball to assume and control the
defense of such action, with counsel chosen by Snowball (who will be reasonably
acceptable to Riffage); and (3) Riffage provides Snowball with any information
or assistance requested by Snowball, at Snowball's expense.
(b) Riffage's Obligations. Riffage hereby agrees to defend, indemnify
---------------------
and hold harmless Snowball, and its directors, officers and employees against
any and all Losses arising out of or based on any claim related to the Riffage
Site or the Riffage Service or any content, information or other materials
provided to Snowball under this Agreement. Riffage's obligations under this
Section are hereby expressly conditioned on the following: (1) Snowball provides
Riffage with prompt notice of
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
9
<PAGE>
any such claim; (2) Snowball permits Riffage to assume and control the defense
of such action, with counsel chosen by Riffage (who will be reasonably
acceptable to Snowball); and (3) Snowball provides Riffage with any information
or assistance requested by Riffage, at Riffage's expense.
12. General.
-------
(a) Waivers/Modifications. Any waiver modification or amendment to
---------------------
any provision of this Agreement will be effective only if in writing and
executed by both parties. The waiver by either party of any default or breach
of this Agreement will not constitute a waiver of any other or subsequent
default or breach.
(b) Notices. All notices required to be given under this Agreement
-------
will be deemed given when delivered personally or sent by confirmed facsimile or
U.S. certified mail, return receipt requested, to the address shown in the
preamble above, or as may otherwise be specified by either party to the other in
writing.
(c) Severability. If any provision of this Agreement is found illegal
------------
or unenforceable, it will be enforced to the maximum extent permissible, and the
legality and enforceability of the other provisions of this Agreement will
remain in full force and effect.
(d) Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the laws of the State of California applicable to agreements
entered into, and to be performed entirely, within California between California
residents.
(e) No Partnership. The relationship of the parties hereto is solely
--------------
that of independent contractors, and not partners, joint venturers or agents.
Neither party has any authority to bind the other in connection with this
Agreement.
(f) Entire Agreement. This Agreement, including any exhibits attached
----------------
hereto, is the complete and exclusive agreement between the parties with respect
to the subject matter hereof, and supersedes and replaces any and all prior or
contemporaneous agreements regarding such subject matter.
(g) No Assignment. Neither party may assign this Agreement without
-------------
the other party's written consent except in the event of a Change of Control (as
defined below). Any assignment in violation of this Section will be null and
void. "Change of Control" means, with respect to a party: (A) the direct or
indirect acquisition of either (i) the majority of voting stock of such party or
(ii) all or substantially all of the assets of such party, by another entity in
a single transaction or a series of transactions; or (B) such party is merged
with, or into, another entity.
10
<PAGE>
In Witness Whereof, the parties have entered into this Agreement as of the
Effective Date.
RIFFAGE.COM, Inc. Snowball.com, Inc.
By: /s/ Elizabeth S-Wilkerson By: /s/ James R Tolonen
------------------------- -------------------
Name: Elizabeth S-Wilkerson Name: James R Tolonen
--------------------- ------------------
Title: VP, Business Development Title: COO/CFO
------------------------ -----------------
11
<PAGE>
EXHIBIT A
REGISTRATION DATA
Snowball User's legal name (first name and surname), zip code, user name,
password (and reminder) and email address, gender, such Snowball User's favorite
music genres (as indicated by the Snowball User) and any opt-in request to
receive Riffage correspondence (as indicated by the Snowball User).
12
<PAGE>
EXHIBIT B
MOCK-UPS
Please see attached
13
<PAGE>
EXHIBIT C
RIFFAGE MARKS AND SNOWBALL MARKS
14
<PAGE>
EXHIBIT D
INTENTIONALLY LEFT BLANK
15
<PAGE>
EXHIBIT E
IMPRESSIONS
Snowball will provide the Impressions described below on an average monthly
basis, during the term of this Agreement. For purposes of this Agreement, the
term "Impression"* means a view of any of the promotional links described in
this Agreement, Riffage Marks or other promotion of Riffage or the Riffage
Service.
1. Log-In Page: [**] Impressions
2. Navigation Links and Links: [**] Impressions
3. Banner Ads**: [**] Impressions
4. Buttons***: [**] Impressions
5. Newsletters: [**] Impressions
* Riffage acknowledges that Snowball is not currently able to track the
precise number of Impressions derived from the delivery of newsletters to users;
Snowball will use reasonable estimates to measure the number of email
Impressions obtained for purposes of this Agreement.
** no smaller than 468x60 pixels
*** no smaller than 120x90 pixels
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
16
<PAGE>
EXHIBIT F
PAYMENTS
For each Registered User, Riffage will make the following payments:
- ---------------------------------------------------------------------
Number Fee Per User
- ---------------------------------------------------------------------
[**] [**]
- ---------------------------------------------------------------------
[**] [**]
- ---------------------------------------------------------------------
[**] [**]
- ---------------------------------------------------------------------
[**] [**]
- ---------------------------------------------------------------------
[**] [**]
- ---------------------------------------------------------------------
[**] [**]
- ---------------------------------------------------------------------
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
17
<PAGE>
12/22/99
Dear Sir/Madam:
Reference is made to the Services and Promotion Agreement entered into between
Snowball.com Inc. and Riffage.com, Inc. on December 22, 1999 (the "Agreement").
To follow are the entities Riffage is designating as its [**] and [**] as more
fully described in the Agreement:
For purposes of Subsection 3(a), the following companies and their subsidiaries,
affiliates and successors, are [**]:
[**]
For purposes of Subsection 3(b), the following companies and their subsidiaries,
affiliates and successors, are [**]:
[**]
Best regards,
/s/ Elizabeth S-Wilkerson
Elizabeth S-Wilkerson
Vice President, Business Development
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
<PAGE>
EXHIBIT 10.28
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the
CERTAIN PORTIONS OF THIS information contained within the
DOCUMENT "[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission
Services and Promotion Agreement
This Services and Promotion Agreement (this "Agreement") is made as of
December 22, 1999 (the "Effective Date"), by and between Snowball.com, Inc., a
Delaware corporation with principal offices at 250 Executive Park Boulevard,
Suite 4000, San Francisco, CA 94134 ("Snowball") and X-drive, Inc., a Delaware
corporation with principal offices at 3002 Pennsylvania Avenue, Santa Monica,
CA, 90404 ("X:drive").
Background
Snowball owns and operates a network of sites on the World Wide Web,
including four hub sites located at IGN.com ("IGN"), Chickclick.com
("Chickclick"), PowerStudents.com ("PS") and InsideGuide.com ("IS") (each, a
"Snowball Site" and collectively, the "Snowball Sites"). The Snowball Sites
connect to a network of affiliates sites (the "Affiliate Sites") operated by
Snowball's affiliates (collectively, "Snowball Affiliates") to provide a greater
breadth and depth of entertainment content. The Snowball Sites and the
Affiliate Sites are sometimes referred to, collectively, in this Agreement as
the "Snowball Network."
X:drive provides a Web-based file hosting and file management solution
that allows users to store and access information through an on-line account
with X:drive as easily as if that information were stored locally (the "X:drive
Service"). X:drive currently provides the X:drive Service through its World
Wide Web site located at www.xdrive.com (the "X:drive Site").
X:drive wishes to be the exclusive provider of Web-based file hosting
and file management solutions on the Snowball Sites and to provide the X:drive
Service to users of the Snowball Sites. Snowball wishes to have X:drive provide
the X:drive Service to its users and has agreed to promote X:drive as the
exclusive provider of file hosting and file management solutions on the Snowball
Sites. Snowball has also agreed to establish a program to encourage Snowball
Affiliates to place similar links on each of the Snowball Affiliates Sites (the
"X:drive Program"), subject to the terms and conditions of this Agreement.
Now Therefore, the parties agree as follows:
1. X:drive Service.
---------------
(a) Provision of Service. Each registered user of a Snowball Site
--------------------
(each, a "Registered User") will be provided access, at no charge, to a personal
X:drive Service account (each, a "Service Account"), through which the
Registered User will be entitled to store and access data using the X:drive
Service. Subject to the provisions of Section 9 (User Data), when a Registered
User activates its Service Account, Snowball will provide X:drive with certain
data concerning such Registered User as further described in Exhibit A (the
---------
"Registration Data") for X:drive's own internal use. Upon receipt of the
Registration Data, X:drive will immediately activate the Service Account for the
applicable Registered User. X:drive shall provide the X:drive Service to
<PAGE>
all Registered Users who activate their Service Accounts throughout the term of
this Agreement.
(b) Development of Snowball Features. X:drive will implement a
--------------------------------
dedicated folder for each Snowball Site in the storage menu of the X:drive
Service (the "Folders"), as further described in this subsection. The
applicable Snowball Site's Folder will appear to the Registered Users from that
Snowball Site. If requested by Snowball, each Folder will contain information
and promotions to be provided by Snowball specific to the Snowball Site used by
the applicable Registered User. For example, if the Registered User accesses
her Service Account from ChickClick.com, the Folder that appears will be named
in a manner specific to ChickClick.com and will contain information and
promotions specific to the users of ChickClick.com (if such materials are
provided to X:Drive by Snowball). All of the content and names of each of the
Folders shall be provided by Snowball and shall be subject to the terms and
conditions of Section 7(f). X:drive's activities under this subsection will be
mutually agreed to by the parties and described in a specification to be
attached to this Agreement as Exhibit B.
---------
(c) Development of Log-In Page. Snowball will develop, host and
--------------------------
maintain a page through which Registered Users will be able to activate and
access their respective Service Accounts ("Log-In Page"). The Log-In Page will
link to the Service Page as described in subsection (d) below.
(d) Service Page. X:drive will develop, host and maintain the co-
------------
branded service page through which a Registered User can activate their Service
Account (the "Service Page"), at its expense and as further described in this
subsection. A mock-up of the Service Page is attached hereto as Exhibit C-1.
-----------
Any content other than the Snowball Marks appearing on the In-Box Page is
hereinafter referred to as the "X:drive Content." X:drive will implement and
maintain links from the Service Page to the Snowball Site from which the
applicable Registered User has linked. Each link to the Snowball Site will be
indicated by, and in the form of, one of the logos or other trademarks attached
hereto as Exhibit D (the "Snowball Marks"). X:drive will implement certain
---------
tracking images provided to X:drive by Snowball to enable Snowball to measure
impressions and click-throughs with respect to the Service Page. Subject to the
provisions of Section 9 (User Data), for each Registered User that activates its
Service Account, X:drive will provide Snowball with the information further
described in Exhibit A for Snowball's own internal use ("X:drive Data").
---------
(e) Sales. Snowball shall be entitled to sell advertising or other
-----
promotions that will appear on the Service Page or in the Folders accessible by
each Registered User through the X:drive Service (collectively, "Folder Sales").
Snowball will serve all of the banner advertisements to the Service Page in
accordance with the mock-up set forth in Exhibit C-1, as such may be modified by
-----------
the parties from time to time. X:drive will cooperate with Snowball to
implement the delivery of any such advertising or promotion, as reasonably
requested by Snowball. X:drive will deliver any advertising and promotions to
the Folders, as reasonably requested by Snowball. Revenues from the Folder
Sales will be shared by the parties as set forth in Section 6(c).
2
<PAGE>
2. Promotion. Subject to the terms and conditions of this Agreement,
---------
(a) Links and Banner Advertisements. Snowball will develop, implement
-------------------------------
and maintain links to the Service Page and Log-In Page ("Service Links") that
will appear on the home page of each of the Snowball Sites. A mock-up of the
Service Links and their appearance on the home pages of the Snowball Sites is
attached hereto as Exhibit C-2. Snowball will be entitled to change the content
-----------
and look and feel of the home pages of the Snowball Sites and the placement of
the Service Links in its discretion, provided that any such changes do not
disproportionately materially adversely affect X:drive as compared to X:drive's
position prior to Snowball's changes. Snowball will also implement banner
advertisements promoting the X:drive Service that will appear on a rotating
basis on the Snowball Sites and Affiliate Sites in accordance with Exhibit F.
---------
(b) Email Blasts. Snowball will include a Service Link and text up to
------------
forty words provided to Snowball by X:drive in an X:drive dedicated email
message sent to every Registered Snowball Network User. This email shall be
sent to the original email address of the Registered User that was entered when
registering for one of the Snowball Sites. These emails shall be sent out at
least [**] for the duration of this agreement and [**] X:drive may elect not to
include any content (or any Service Link) in any such Email Blast upon fifteen
(15) days written notice to Snowball.
(c) Skip-the-Download Implementation. Over the term of this
--------------------------------
Agreement, commencing no later than ninety (90) days after the Effective Date,
Snowball will implement X:drive's "skip-the-download" feature ("Skip-the-
Download") for certain of its downloadable content throughout the Snowball
Sites. A mock-up of such implementation is attached hereto as Exhibit C-3.
-----------
Snowball will be entitled to change the content provided for and placement of
the Skip-the-Download feature as long as Snowball provides reasonable
alternative content and placement of the feature.
(d) Skip-the-Download Promotion. Snowball will promote Skip-the-
---------------------------
Download throughout the Snowball Network, through rotating advertisements and
other promotions, as further described in Exhibit F. Snowball's obligations
---------
under this subsection include the development and maintenance of customized
content about the X:drive Service to be displayed on each of the Snowball Sites
and/or delivered to Registered Users through the Folders.
(e) Press Releases. The parties will jointly issue a press release
--------------
describing the relationship established under this Agreement within thirty days
of the Effective Date. Snowball may issue other press releases describing the
relationship with X:drive established under this Agreement, subject to X:drive's
reasonable approval.
(f) Co-Marketing. The parties will work together in good faith to
------------
develop and implement co-marketing activities to promote the X:drive Service and
the Snowball Network, as mutually agreed by the parties.
(g) Reasonable Assistance. X:drive will provide Snowball with any
---------------------
information or assistance reasonably required to implement the Service Links and
to provide the X:drive Service
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
3
<PAGE>
to Registered Users. X:drive will give Snowball reasonable advance notice in the
event X:drive changes its universal record locator (URL) for the X:drive Site.
Provided that Snowball has provided the Snowball Marks to X:drive, the Service
Page, Folders and the X:drive Service will be ready for implementation no later
than the date Snowball completes the Log-In Page and related links.
(h) Registered Users. Snowball hereby represents and warrants that,
----------------
as of November 15, 1999, the Snowball Sites had [**] Registered Users, which
constitutes [**] of the overall number of users of the Snowball Network
(calculated based on the aggregate number of users of the Snowball Network
reported by Media Metrix in its October, 1999 usage reports).
3. Exclusivity.
-----------
(a) Standback. Subject to the terms and conditions of this Agreement,
---------
Snowball will identify X:drive as Snowball's "exclusive file hosting and file
management provider" (or other identification as agreed to by the parties) on
each Snowball Site. Snowball will not, during the term of this Agreement, enter
into any agreement with respect to any of the sites described on Exhibit E
---------
(each, a "X:drive Competitor") to promote such X:drive Competitor as a Snowball
recommended provider of Web-based file hosting and file management services or
to establish a promotional program for Snowball Affiliates similar to the
X:drive Program. Exhibit E may be augmented during the term of this Agreement
---------
by mutual agreement of the parties. Notwithstanding the foregoing, Snowball
will be free to display advertisements (including links) on the Snowball Network
that promote other companies that provide services similar to the X:drive
Service and to include such advertisements in emails or newsletters distributed
by Snowball.
(b) Right of First Refusal. For the term of this Agreement, in the
----------------------
event any X:drive Competitor wishes to purchase advertising inventory on the
Snowball Sites, Snowball may sell up to [**] of its available advertising
inventory to such X:drive Competitor at Snowball's then-effective rates, subject
to the terms and conditions of this subsection. Snowball will notify X:drive of
any prospective sale of advertising inventory to a X:drive Competitor including
the amount of inventory proposed to be sold, the price and any other relevant
terms and conditions ("Sale Notice"). Upon written notice to Snowball, X:drive
will be entitled to purchase such inventory on the terms and conditions
contained in the Sale Notice, provided that X:drive's notice is received by
Snowball within 2 business days of the date of the Sale Notice. If X:drive
exercises its rights to purchase under this subsection, Snowball will not sell
the inventory identified in the Sale Notice to the applicable X:drive
Competitor. If X:drive does not exercise its rights under this subsection with
respect to a particular Sale Notice within the time frames described herein,
Snowball will be free to complete the transaction described in that Sale Notice.
4. Impressions. Snowball will, through the promotions and other
-----------
obligations described in this Agreement, provide to X:drive the minimum number
of Impressions on the applicable Snowball Network, as further described in
Exhibit F. In the event Snowball fails to deliver the minimum number of
- ---------
Impressions described in this Section, as X:drive's sole and exclusive remedy
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
4
<PAGE>
and Snowball's sole and exclusive obligation, this Agreement will continue in
effect until that minimum number of Impressions is met.
5. X:drive Program.
---------------
(a) X:drive Program. Each Snowball Affiliate will be offered the
---------------
opportunity by Snowball to participate in the X:drive Program and to market
X:drive as its "exclusive file hosting and file management solution." For each
Snowball Affiliate that chooses to participate, Snowball and the Snowball
Affiliate will enter into an agreement that provides the terms and conditions of
the Snowball Affiliate's participation. X:drive acknowledges that Snowball
makes no representation or warranty with respect to the number of Snowball
Affiliates who will participate in the X:drive Program described in this Section
or new customer acquisitions that will result from such Affiliate participation.
In addition, X:drive acknowledges that each participating Snowball Affiliate
will be free to place links to the Log-In Page, in its discretion. X:drive and
Snowball agree that there is no limit on the number of Snowball Affiliates that
may join the program.
(b) No Solicitation. X:drive will not, for the term of this
---------------
Agreement, solicit any Snowball Affiliate that has joined the X:drive Program to
engage in any kind of linking, co-branding or ecommerce business relationship
directly with X:drive. The provisions of this Section are not intended to
impose any other restrictions on X:drive, except as expressly provided herein.
6. Payment.
-------
(a) Definitions. Achieving "Implementation" with respect to any of
-----------
the Snowball Sites means either: (a) Snowball has actually provided access to
the X:drive Service on the applicable Snowball Site or (b) Snowball would have
been able to provide access to the X:drive Service on the applicable Snowball
Site were it not for X:drive's failure to deliver any technical information,
content or other materials within the time periods reasonably requested by
Snowball or to otherwise perform its obligations under this Agreement. "Initial
Implementation Date" means the first date to occur of the following: (1) the
first date a Registered User is able to access the X:drive Service on any of the
Snowball Sites; or (2) the date a Registered User would have been able to access
the X:drive Service any of the Snowball Sites were it not for X:drive's failure
to deliver any technical information, content or other materials within the time
periods requested by Snowball or to otherwise perform its obligations under this
Agreement. Snowball will notify X:drive of the actual date that constitutes the
Implementation Date for each of the Snowball Sites at least three (3) days prior
to such date.
(b) Flat Fee. X:drive will pay Snowball a monthly fee of $[**]
--------
as provided in this Section. The first payment shall be due and payable within
five (5) days of the Initial Implementation Date and, subject to the terms of
this subsection, all remaining payments will be due each calendar month
thereafter on the same day of the month as the Initial Implementation Date (e.g.
if the Initial Implementation Date is January 10/th/, 2000, each subsequent
payment will be due on the 10/th/ day of the applicable calendar month). In the
event the Implementation for all of the Snowball Sites has not occurred within
thirty (30) days of the Initial
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
5
<PAGE>
Implementation Date, then X:drive shall be entitled to postpone the payments due
under this Section (after the first payment) until the Implementation of the
X:drive Service on all of the Snowball Sites.
(c) Registered Users. In addition to the flat fee described above,
----------------
X:drive will pay Snowball, on a monthly basis, the amounts described in Exhibit
-------
G. X:drive will make all payments to Snowball due under this Section within
- -
thirty (30) days of the end of the applicable calendar month.
(d) Revenue Share. The parties will share, on a [**] basis,
-------------
any revenues derived from the Folder Sales and sales of advertisements on the
Service Page and actually received by Snowball (less taxes and sales commissions
up to [**], collectively, the "Revenues"). Each party will pay the other party
the other party's share of the Revenues within thirty days of the calendar month
in which such Revenues were received.
(e) Other Payment Terms. Each payment will include a report setting
-------------------
forth all of the information needed to calculate the fees payable for that
period. Payments made under this Agreement after the applicable due date will
incur interest at a rate equal to [**] per month or the highest rate permitted
by applicable law, whichever is lower.
(f) Taxes. All amounts payable under this Agreement are exclusive of
-----
all sales, use, value-added, withholding, and other taxes and duties.
(g) Records and Audit Rights. Each party will keep all records
------------------------
relating to all payments made hereunder for a period of three years after the
termination of this Agreement. An independent certified public accountant
selected by the other party may, no more than once per year and upon at least
two weeks' notice, inspect such records during normal business hours. If, upon
performing such audit, it is determined that a party has underpaid the other
party by an amount greater than 5% of the payments due to such party in the
period being audited, then the audited party will bear all reasonable expenses
and costs of such audit in addition to its obligation to make full payment under
this Section.
7. Licenses and Other.
------------------
(a) X:drive Trademark License. Subject to the terms and conditions of
-------------------------
this Agreement, X:drive hereby grants Snowball a non-exclusive, revocable,
worldwide license to use the X:drive logos and trademarks (collectively, the
"X:drive Marks") solely in conjunction with the Service Links and the
promotional activities described in this Agreement. Any use of the X:drive
Marks must comply with X:drive's trademark guidelines and will inure to
X:drive's benefit. Nothing contained in this Agreement gives Snowball.com any
right, title or interest in the X:drive Marks, except as expressly provided in
this Section and Snowball shall not take any action inconsistent with the
X:drive's ownership rights. Snowball will cease all use and display of the
X:drive Marks upon termination of this Agreement.
(b) Snowball Trademark License. Subject to the terms and conditions
--------------------------
of this
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
6
<PAGE>
Agreement, Snowball hereby grants X:drive a non-exclusive, revocable, worldwide
license to use the Snowball Marks solely in conjunction with the links described
in Section 2(g) of this Agreement. Any use of the Snowball Marks must comply
with Snowball's trademark guidelines and will inure to Snowball's benefit.
Nothing contained in this Agreement gives X:drive any right, title or interest
in the Snowball Marks, except as expressly provided in this Section and X:drive
shall not take any action inconsistent with the Snowball's ownership rights.
X:drive will cease all use and display of the Snowball Marks upon termination of
this Agreement.
(c) Ownership. Subject to the rights expressly granted in this
---------
Agreement, as between the parties, Snowball will retain all right, title and
interest in and to the Snowball Network and the Snowball Marks and X:drive will
retain all right title and interest in and to the X:drive Site, the X:drive
Service, the X:drive Marks and the X:drive Content.
(d) Snowball Discretion. Unless expressly provided in this Agreement,
-------------------
the form, format and position of any Service Link or advertisement described in
this Agreement, and date of placement, will be determined by Snowball in its
discretion. Snowball may, upon written notice to X:drive, reject any content
provided by X:drive under this Agreement if it fails to comply with Snowball's
reasonable requirements or is otherwise inappropriate for the users of the
Snowball Sites. Nothing in this Agreement will be construed to limit Snowball's
right to modify any of the content or any aspect of structure of the Snowball
Sites, or to rename or reposition the Snowball Sites, in its discretion;
provided that, in the event any such change affects Snowball's ability to
perform any obligation described in this Agreement, Snowball will use its best
efforts to provide reasonable alternative performance.
(e) X:drive Discretion. Unless expressly provided in this Agreement,
------------------
the form, format and position of any Folder will be determined by X:drive in its
discretion. X:drive may, upon written notice to Snowball, reject any content
provided by Snowball for inclusion in a Folder if it fails to comply with
X:drive's reasonable requirements or is otherwise inappropriate for the users of
the Service. Nothing in this Agreement will be construed to limit X:drive's
right to modify the format and position of any Folder, in its discretion;
provided that, in the event any such change affects X:drive's ability to perform
any obligation described in this Agreement, X:drive will use its best efforts to
provide reasonable alternative performance.
8. Confidential Information.
------------------------
(a) Obligations. Each party ("Receiving Party") agrees to treat as
-----------
confidential all proprietary information disclosed to it by the other party
("Disclosing Party") including marketing information, customer data, and the
terms of this Agreement ("Confidential Information"). Receiving Party agrees
not to publish or disclose the Disclosing Party's Confidential Information to
others except to those employees and subcontractors to whom disclosure is
necessary in order to carry out the purposes of this Agreement. All tangible
materials embodying such Confidential Information will remain the sole property
of Disclosing Party and will be delivered to Disclosing Party by Receiving Party
upon Disclosing Party's request. Receiving Party will inform all its employees
and subcontractors who receive Confidential Information of the confidential
nature of
7
<PAGE>
such Confidential information and of their obligation to keep same confidential
and not to use it other than as permitted hereunder. The Receiving Party may
disclose the terms and conditions of this Agreement for due diligence purposes
as reasonably required by any financing or potential acquisition. For purposes
of this Agreement, the Registration Data shall be deemed the Confidential
Information of Snowball and the X:drive Data shall be deemed the Confidential
Information of X:drive. Throughout the term of this Agreement, X:drive shall use
the same level of care to protect the confidentiality of the Registration Data
that X:drive uses to protect the data of its other users, which in no event will
be less than reasonable care.
(b) Exceptions. Neither party will have any obligation with respect
----------
to any Confidential Information which: (1) was rightfully known to Receiving
Party prior to receipt of such Confidential Information from Disclosing Party;
(2) is lawfully obtained by Receiving Party from a third party under no
obligation of confidentiality; (3) is or becomes generally known or available
without any act or failure to act by Receiving Party; (4) is developed
independently by Receiving Party. Either party may disclose the Confidential
Information of the Disclosing Party if required by court order or legal
requirement and the party subject to the order has given the other party a
reasonable opportunity (and has cooperated fully) to contest or limit the scope
of such required disclosure (including application for a protective order).
9. User Data.
---------
(a) Ownership. Subject to the restrictions in this Section and any
---------
rights to use the applicable data granted under this Agreement, Snowball will
own the Registration Data and X:drive will own the X:drive Data.
(b) Treatment of Individually Identifiable User Data. Neither party
------------------------------------------------
shall sell, disclose, transfer, or rent any user data obtained by it from the
other party which data identifies, or can be used to identify, a specific
individual ("Individually Identifiable User Data") to any third party or use any
Individually Identifiable User Data on behalf of any third party, without the
express permission of the applicable user specifically approving such use. Each
of Snowball and X:drive will only use Individually Identifiable User Data in
accordance with the Terms of Service and Privacy Policy posted on the Snowball
Sites, as such may be amended from time to time by Snowball; provided that, if
any Registered User "opts-in" to receive information and promotional materials
from X:drive, then X:drive will use all resulting Individually Identifiable User
Data in accordance with the X:drive Privacy Policy posted on the X:drive Site.
In those cases where permission for disclosure of Individually Identifiable User
Data has been obtained from the applicable user, each party shall use all
reasonable efforts to implement an "opt out" feature on its own behalf, and an
include and enforce through its agreements with third parties a requirement for
the inclusion of an "opt out" feature in all e-mail communications generated by,
or on behalf of, third party users of the Individually Identifiable User Data.
(c) Aggregate Data. Notwithstanding the restrictions above, the
--------------
parties retain the right to use, sell, disclose, transfer, or rent any user data
as long as such user data is in an aggregate form that does not include any
Individually Identifiable User Data; provided that, neither party will
8
<PAGE>
identify the other party as the source of such aggregate data.
10. Term and Termination.
--------------------
(a) Term. Subject to the provisions of Section 4, this Agreement will
----
commence on the Effective Date and will, with respect to each Snowball Site,
remain in effect until [**] of Implementation Date for such Snowball Site,
unless terminated earlier under this Section 10. If so requested by either party
by written notice to the other party within thirty (30) days of the end of the
term, the parties will negotiate in good faith to renew the term of this
Agreement, subject to any changes to the terms and conditions of this Agreement
agreed to by the parties.
(b) X:drive Termination Right. X:drive shall be entitled to terminate
-------------------------
this Agreement without further obligation to Snowball if fewer than [**]
Registered Users activate their Service Accounts at least once within the [**]
period commencing on the launch of the X:drive Service on the Service Page
("Trial Period"). If X:drive does not exercise its option to terminate this
Agreement within the ten (10) day period directly following the end of the Trial
Period, then the right to terminate this Agreement as described in this Section
shall automatically expire and the term shall continue until the end of the
term.
(c) Termination for Breach or Insolvency. Either party may terminate
------------------------------------
this Agreement at any time prior to the expiration of its stated term in the
event that: the other party breaches any term or condition of this Agreement
and fails to cure such breach within thirty (30) days of written notice; or
either party becomes the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or either party becomes the subject of
an involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within sixty (60)
days of filing.
(d) Effect of Termination. X:drive's payment obligations hereunder,
---------------------
as well as the provisions of this Section and the following Sections will
survive any termination of this Agreement: Section 7(d) (Ownership), Section 8
(Confidential Information), Section 9 (User Data), Section 11 (Limitation of
Liability), Section 12 (Indemnification) and Section 13 (General). Any proper
termination of this Agreement by Snowball under Section 10(b) will not limit the
accrual of damages under Section 6 (Payment) hereof; provided, however, that,
nothing herein shall be deemed to limit or waive X:drive's rights of
counterclaim regarding the satisfactory of provision of services by Snowball as
described in this Agreement.
11. Limitation of Liability. EXCEPT WITH RESPECT TO ITS OBLIGATIONS UNDER
-----------------------
SECTION 8, SECTION 9 AND SECTION 12, NEITHER PARTY WILL BE LIABLE TO THE OTHER
FOR ANY INDIRECT, EXEMPLARY, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, OR
ANY LOSS OR REVENUE, PROFITS, OR DATA, ARISING IN CONNECTION WITH THIS
AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
9
<PAGE>
12. Indemnification.
---------------
(a) Snowball Obligations. Snowball hereby agrees to defend, indemnify
--------------------
and hold harmless X:drive, and its directors, officers and employees against any
and all claims, actions, losses, damages, costs, and expenses (including
reasonable attorneys' fees, "Losses") arising out of or based on any claim
related to the Snowball Sites other than those claims described in Section 12(b)
below. Snowball's obligations under this Section are hereby expressly
conditioned on the following: (1) X:drive provides Snowball with prompt notice
of any such claim; (2) X:drive permits Snowball to assume and control the
defense of such action, with counsel chosen by Snowball (who will be reasonably
acceptable to X:drive); and (3) X:drive provides Snowball with any information
or assistance requested by Snowball, at Snowball's expense.
(b) X:drive's Obligations. X:drive hereby agrees to defend, indemnify
---------------------
and hold harmless Snowball, and its directors, officers and employees against
any and all Losses arising out of or based on any claim related to the X:drive
Site or the X:drive Service or any content, information or other materials
provided to Snowball under this Agreement. X:drive's obligations under this
Section are hereby expressly conditioned on the following: (1) Snowball provides
X:drive with prompt notice of any such claim; (2) Snowball permits X:drive to
assume and control the defense of such action, with counsel chosen by X:drive
(who will be reasonably acceptable to Snowball); and (3) Snowball provides
X:drive with any information or assistance requested by X:drive, at X:drive's
expense.
13. General.
-------
(a) Waivers/Modifications. Any waiver modification or amendment to
---------------------
any provision of this Agreement will be effective only if in writing and
executed by both parties. The waiver by either party of any default or breach
of this Agreement will not constitute a waiver of any other or subsequent
default or breach.
(b) Notices. All notices required to be given under this Agreement
-------
will be deemed given when delivered personally or sent by confirmed facsimile or
U.S. certified mail, return receipt requested, to the address shown in the
preamble above, or as may otherwise be specified by either party to the other in
writing.
(c) Severability. If any provision of this Agreement is found illegal
------------
or unenforceable, it will be enforced to the maximum extent permissible, and the
legality and enforceability of the other provisions of this Agreement will
remain in full force and effect.
(d) Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the laws of the State of California applicable to agreements
entered into, and to be performed entirely, within California between California
residents.
(e) No Partnership. The relationship of the parties hereto is solely
--------------
that of independent contractors, and not partners, joint venturers or agents.
Neither party has any authority
10
<PAGE>
to bind the other in connection with this Agreement.
(f) Entire Agreement. This Agreement, including any exhibits attached
----------------
hereto, is the complete and exclusive agreement between the parties with respect
to the subject matter hereof, and supersedes and replaces any and all prior or
contemporaneous agreements regarding such subject matter.
(g) No Assignment. Neither party may assign this Agreement without
-------------
the other party's written consent except in the event of a reorganization,
merger, consolidation or sale of all or substantially all of its assets. Any
assignment in violation of this Section will be null and void.
(h) Consolidated URL Listing. X:drive hereby grants Snowball
------------------------
permission to include all of the URLs related to the Service Page together with
other Snowball-related URLs in a consolidated listing assembled by third-party
measurement companies, including but not limited to Media Metrix, NetRatings or
another similar measuring service selected by Snowball. X:drive agrees that the
rights granted under this Section are exclusive to Snowball and that X:drive
will not grant the same or similar rights to any other party.
In Witness Whereof, the parties have entered into this Agreement as of the
Effective Date.
X-drive, Inc. Snowball.com, Inc.
By: /s/ Brett B. O'Brien By: /s/ James R. Tolonen
-------------------- --------------------
Name: Brett O'Brien Name: James R. Tolonen
------------------ -------------------
Title: CEO Title: COO/CFO
----------------- -----------------
11
<PAGE>
EXHIBIT A
REGISTRATION DATA AND OTHER INFORMATION
Registration Data includes:
Registered User's legal name (first name and surname), user name, password and
email address.
X:drive Data includes:
A monthly usage report, including, for each Registered User that has used their
Service Account, their name, their email address and the number of times the
Service Account is accessed during the applicable calendar month.
12
<PAGE>
EXHIBIT B
IMPLEMENTATION ACTIVITIES
Please see attached.
13
<PAGE>
EXHIBIT C
MOCK-UPS
Please see attached
14
<PAGE>
EXHIBIT D
X:DRIVE MARKS AND SNOWBALL MARKS
15
<PAGE>
EXHIBIT E
COMPETITORS
x:drive Competitors:
[**]
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
16
<PAGE>
EXHIBIT F
IMPRESSIONS
Snowball will provide the Impressions described below during the term of
this Agreement. For purposes of this Agreement, the term "Impression"* means a
user's page view of any X:drive mark or other promotion of X:drive or the
X:drive Service.
1. Banners (468x60)
----------------
Network: IGN
-------------
Totals: [**] total Impressions a month
Breakdown: [**] for 'Skip The Download' call to action
[**] for 'Free IGN/X:drive account' call to action
Network: ChickClick
---------------------
Totals: [**] total Impressions a month
Breakdown: [**] for 'Free ChickClick/X:drive account' call to
action
Network: PowerStudents/Inside Guide/High School Alumni/Sports
---------------------------------------------------------------
University
----------
Totals: [**] total Impressions a month
Breakdown: [**] for 'Free PowerStudents/X:drive account'
2. Margins (120x90, 120x60)
------------------------
Network: IGN
--------------
Totals: [**] total Impressions a month
Breakdown: [**] for 'Skip The Download' call to action
[**] for 'Free IGN/X:drive account' call to action
Network: ChickClick
---------------------
Totals: [**] total Impressions a month
Breakdown: [**] for 'Free ChickClick/X:drive account' call to
action
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
17
<PAGE>
Network: PowerStudents/Inside Guide/High School Alumni/Sports
---------------------------------------------------------------
University
----------
Totals: [**] total Impressions a month
Breakdown: [**] for 'Free PowerStudents/X:drive account'
* X:drive acknowledges that Snowball is not currently able to track the
precise number of Impressions derived from the delivery of emails to users;
Snowball will use reasonable estimates to measure the number of email
Impressions obtained for purposes of this Agreement.
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
18
<PAGE>
EXHIBIT G
PAYMENTS
For each Registered User that uses their Service Account (by uploading a
file, downloading a file or sharing a file) at least once during the Term (each,
a "Active User"), X:drive will make the following payments:
------------------------------------------------------
Number of Active Users Fee Per Active User
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
**Confidential treatment has been
requested with respect to the information
contained within the "[**]" markings.
Such marked portions have been omitted
from this filing and have been filed
separately with the Securities and
Exchange Commission
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the
CERTAIN PORTIONS OF THIS information contained within the
DOCUMENT "[**]" markings. Such marked portions
have been omitted from this filing and
have been filed separately with the
Securities and Exchange Commission
</TABLE>
EXHIBIT 10.29
WEBCOURIER PROVIDER AGREEMENT
This agreement (the "Agreement") is made and entered into as of November __,
1999, between Microsoft Corporation ("Microsoft"), with offices at One Microsoft
Way, Redmond, WA 98052-6399 and Snowball.com, Inc., a Delaware corporation with
offices at 250 Executive Park, Suite 4000, San Francisco, CA 94134 (the
"Company"). Microsoft and Company agree as follows:
Section 1. Definitions
"Company Logo" means the "ChickClick" logo(s) and trademark(s)
provided to Microsoft for use in connection with the Service.
"Copy" means a single email delivered to a specific Subscriber
consisting of a reproduction (in whole or in part) of, and/or hypertext link to,
a specific version of the Newsletter.
"IPRs" means trade secrets, patents, copyrights, trademarks, service
marks, trade names, know-how, moral rights, rights of publicity and privacy, and
similar rights of any type under the laws of any governmental authority,
domestic or foreign, including all applications and registrations relating to
any of the foregoing.
"Newsletter" means the publications to be provided by Company to
Microsoft, Copies of which will be distributed to Subscribers via the Service.
"Registration Pages" means those web pages that are displayed to users
of the U.S. English language Hotmail service in a manner to permit such users to
register to receive the Copies and other third party content via the Service.
"Service" means the WebCourier Service whereby a person registering or
registered for a U.S. English language Hotmail email account may also register
to receive generic third party content via the Hotmail service.
"Subscriber" means a Hotmail account that has consented to receiving
the Newsletter.
Section 2. Microsoft Obligations
2.1 Service. Microsoft will provide Company with placement on the
-------
Registration Page consisting of Company or Newsletter name, for which the
Newsletter name will link to the Company Logo and text description of the
Newsletter. Company will be accorded an "Anchor Provider" placement in the
Women category ("Category"). Microsoft may modify the Registration Pages
(including, without limitation, Category names) from time to time, provided that
Company receives reasonably comparable placement on such revised pages as
specified herein.
2.2 Providers. The Newsletters of not more than one (1) "Premier
---------
Provider" and five (5) "Anchor Providers" may be referenced in the Category.
The "Premier Provider" will receive the most prominent placement in the Category
and each "Anchor Provider" will receive placement in descending order based upon
the level of compensation paid by such "Anchor Provider" to Microsoft to appear
in such category.
2.3 Distribution. Subject to paragraph 3.1, Microsoft will deliver
------------
Copies to Subscribers according to such schedules as mutually agreed upon by
Company and Microsoft. Company may change the schedule pursuant to which the
Copies are distributed to Subscribers by giving Microsoft written notice of the
requested change at least fifteen (15) business days prior to the scheduled
change. Company may not schedule Copies of more than one Newsletter to be
distributed in any twenty-four (24) hour period.
2.4 Promotional Banners. Microsoft will provide Company with a
-------------------
monthly credit of [**] promotional banners to be used in the Hotmail service.
Such promotional credits will be specified for use in particular months, and may
not be transferred to any other month or redeemed for cash. Unused promotional
banner credits will expire at the end of the month specified for use; however,
at Microsoft's discretion, unused promotional banners may be used in the month
following that for which the banners were not used. Company will create and
deliver to Microsoft all promotional banners for review at least ten (10) days
prior to the first run date for such banner as designated by Company. All
promotional
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
1
<PAGE>
banners shall meet all specifications and submission requirements provided by
Microsoft, and will contain a link to such Hotmail URL as Microsoft may
designate.
2.5 Hotmail Promotion. Microsoft will use reasonable efforts to
-----------------
promote the Newsletter to new and current Hotmail users through Hotmail standard
promotional vehicles.
Section 3. Company Obligations
3.1 Delivery and Specifications. Company will make the Newsletter
---------------------------
available to Microsoft at a specified URL and on a delivery schedule agreed upon
by the parties in writing. The Company Logo, Newsletter text description and the
Newsletters are all subject to specifications and submissions guidelines (as
applicable) established by Microsoft and set forth in Exhibit A, as the same may
be modified from time to time by Microsoft upon notice. Company will deliver the
Company Logo and Newsletter text description to Microsoft in the manner directed
by Microsoft. Company acknowledges that time is of the essence in providing the
foregoing to Microsoft, and the Company's failure to meet the foregoing timing
requirements or any applicable specifications may delay or prevent delivery of
Copies hereunder.
3.2 License. Company hereby grants Microsoft a world-wide, non-
-------
exclusive, royalty-free license to:
(a) reproduce, promote, market, distribute, display,
transmit, download, upload, and, only for the purposes of enabling
distribution, transmission, downloading and uploading without substantive
change, edit, modify and otherwise use the Newsletter as reasonably
anticipated to fulfill Microsoft's obligations under this Agreement; and
(b) reproduce, display, transmit and otherwise use the
Company Logo and Newsletter text description in connection with (i)
providing the Service and Newsletter to Subscribers, and (ii) marketing and
promoting the Service and Newsletter, provided that (A) Microsoft will use
the Company Logo only in the form provided by Company and will not modify
or alter the Company Logo; and (b) Microsoft will cease any specified use
of the Company Logo upon three (3) business days' written notice of
Company. Company shall use reasonable commercial efforts to provide a
replacement Company Logo to Microsoft within forty-eight (48) hours of
notification. Microsoft acknowledges that the Company Logo is owned by
Company and will not attempt to register the Company Logo or take any other
action that is inconsistent with Company's ownership. The use of the
Company Logo hereunder will inure to the sole and exclusive benefit of
Company.
3.3 MSN Ad Buy. Company will purchase from Microsoft an aggregate of
----------
[**] of advertising on Microsoft properties, at a negotiated average CPM rate
(which, in no event will be greater than [**], to be displayed during the Term
(the "Media Buy"). Terms of the Media Buy (including the location, number of ad
requests, ad types, and dates) will be agreed upon by both parties in writing or
by Microsoft Insertion Order no later than December 15, 1999. The Media Buy will
be made pursuant to Microsoft's standard terms and conditions and must be
completed during the Term. Company agrees that the Media Buy will not be applied
to MSN WomenCentral, unless approved by Microsoft. If Company fails to complete
the Media Buy prior to termination or expiration of the Term, Company will
immediately pay such amount to Microsoft all remaining unpaid amounts of the
Media Buy.
3.4 Limitations. The Newsletter may not contain, promote, market,
-----------
advertise, distribute, offer to distribute, link (either directly or, if with
the knowledge of Company, indirectly) to or otherwise be related to content
that:
(a) is inappropriate, obscene, defamatory, libelous, slanderous,
profane, indecent or unlawful;
(b) infringes or misappropriates third party IPRs;
(c) constitutes "hate speech", whether directed at an individual
or a group, and whether based upon the race, sex, creed, national origin,
religious affiliation, sexual orientation or language of such individual or
group;
(d) promotes or contains viruses, worms, corrupted files, cracks
or other materials that are intended to or may damage or render inoperable
software, hardware or security measures of Microsoft, Subscribers or any
third party;
(e) facilitates or promotes gambling, or the sale or use of
liquor, tobacco products or illicit drugs;
(f) facilitates, promotes or forwards illegal contests, pyramid
schemes or chain letters; or
(g) otherwise restricts or inhibits any person's use or enjoyment
of Hotmail or the Service.
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
2
<PAGE>
The Newsletter may not contain, promote, market, advertise, distribute, or offer
to distribute competing e-mail or newsletter products whether offered by Company
or a third party (e.g., Lycos, Excite and other services designated by
Microsoft), except that Company may link or refer to the registration, contest
and promotional pages of Company or its affiliates. Microsoft may, but is under
no obligation to, review the Newsletter, and may refuse to host or make the
Newsletter available to Subscribers in whole or in part if Microsoft determines
that the Newsletter violates the foregoing limitations or such other reasonable
limitations as Microsoft may adopt from time to time.
3.5 Subscriber Information. All information regarding Subscribers
----------------------
collected through the Service constitutes Confidential Information (as that term
is used in Section 9) of Microsoft, and is subject to the confidentiality
requirements of Section 9. Notwithstanding the foregoing, information obtained
by Company directly from Subscribers will not constitute Confidential
Information of Microsoft and may be used by Company from time to time; provided,
Company does not collect, use or disclose such information in any manner that
identifies the subject as a Subscriber or Hotmail customer.
3.6 Changes to Newsletter. Company will provide Microsoft with thirty
---------------------
(30) days' prior written notice of any material change to the nature or intended
audience of any Newsletter. Microsoft will have the option to (a) permit Company
to remain in the Category, (b) place Company in a different category on the
Registration Pages, or (c) terminate this Agreement with respect to each
Newsletter for which such a change is anticipated or implemented upon written
notice. If Microsoft terminates the Agreement pursuant to this paragraph, within
thirty (30) days of the date of termination, Company will pay Microsoft [**] of
the pro rated Advance for the remainder of the original Term.
Section 4. Consideration
4.1 Advance. Company will prepay Microsoft an advance of the fees set
-------
forth in paragraph 4.2 in an amount equal to [**] (the "Advance"). The Advance
is a non-refundable, guaranteed payment to Microsoft. The Advance will be
rendered to Microsoft in the amounts and on the dates set forth in Exhibit C
attached hereto. Notwithstanding the foregoing, upon termination or expiration
of this Agreement, other than by Company pursuant to paragraph 5.2 and 5.4 or
Microsoft pursuant to paragraph 5.3, Company will immediately pay Microsoft any
amounts of the Advance not yet paid.
4.2 Fee. As consideration for Microsoft distributing the Newsletters
---
to Subscribers, Company will pay Microsoft [**] per Copy distributed to
Subscribers ("Fee").
4.3 Distribution Adjustment. On a quarterly basis (including, at the
-----------------------
end of the Term), Microsoft will compare the number of Copies actually
distributed hereunder against the Advance paid for such quarter (or the Term).
If the fees incurred pursuant to paragraph 4.2 for the number of Copies actually
distributed during such quarter (or the Term) are greater than the portion of
the Advance paid for such quarter (or the Term), Microsoft will invoice Company
for the difference at the applicable rates noted in paragraph 4.2. If at the end
of the Term the fees (including the Advance) received by Microsoft hereunder
exceed the amount of the fees incurred by Company for distribution of Copies
hereunder, Microsoft will refund the difference to Company; except that in no
event will Microsoft be required to refund or otherwise return to Company any
portion of the Advance. Notwithstanding the foregoing, the maximum aggregate
Advance and Fee payments that Company may incur to Microsoft hereunder will be
[**]. Once and only if the foregoing payment cap is reached by Company, Company
will be relieved of paying any additional amounts pursuant to Section 4.2
hereunder; provided that, for the remainder of the Term, Company may not
increase the average number of Copies delivered by Microsoft to Subscribers
during the period preceding Company attaining such payment cap.
4.4 Invoice and Payment. Within thirty (30) days after the date of an
-------------------
invoice, Company will pay Microsoft all amounts owing pursuant to such invoice
in readily available funds. Amounts not paid when due under this Agreement will
accrue interest at a rate of [**], compounded on a monthly basis. Microsoft
reserves the right to immediately suspend distribution of the Newsletter if
Company fails to make timely payment of any amounts owing hereunder. All
payments of amounts owing to Microsoft will be made at the following location or
such other location designated by Microsoft in writing:
Microsoft Corporation
PO Box 7247 - 7123
Philadelphia PA 19170-7123
4.5 Reports. Microsoft will provide Company with monthly reports
-------
setting forth the number of Subscribers receiving Copies and the total number of
Copies delivered per month.
4.6 Taxes. The fees, advances and other amounts owing to Microsoft
-----
pursuant to this Agreement do not include taxes or other governmental fees.
Company will pay all taxes and other governmental fees arising out of or related
to all
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
3
<PAGE>
transactions undertaken pursuant to this Agreement, other than taxes on
Microsoft income and revenue, and will provide Microsoft with appropriate
evidence of such payment upon request.
4.7 Audits. Microsoft will maintain during the Term and for at least
------
twelve (12) months thereafter all of its regular books of account relating to
Copies distributed via the Service and amounts owing to Microsoft hereunder. If
Company believes in good faith that Microsoft invoiced Company in excess of
amounts actually owing pursuant to paragraph 4.2, Company will have the right at
Company's sole expense to audit such books of account, subject to the following:
(a) Company will provide Microsoft with at least thirty (30) days' prior written
notice of such audits; (b) audits may occur only during Microsoft's regular
business hours, and at the location where such books of account are maintained
by Microsoft or such other location reasonably specified by Microsoft; (c)
Company will cooperate with Microsoft in good faith to avoid and limit any
disruption of such audits to Microsoft's business and operations; (d) such audit
will be conducted by an independent accounting firm, acceptable to Microsoft and
compensated by Company in a manner that is not affected by the outcome of the
audit (e.g., no contingency fees); (e) the auditors provide Microsoft with all
results and other communications to Company related to the audit at the same
time such auditors provide such communications to Company; (f) audits may not
occur more than once during the Term, may not exceed three (3) consecutive days
and must be completed within twelve (12) months after the end of the Term; (g)
the auditors provide their final conclusions of the audit to Company and
Microsoft simultaneously and within thirty (30) days after the last day of the
audit. Any information disclosed to or otherwise learned by Company or its
auditors in connection with an audit conducted pursuant to this paragraph
constitutes Confidential Information (as the term is used in Section 9) of
Microsoft and subject to the limitations on use set forth in paragraph 9.1.
Section 5. Term and Termination
5.1 Term. This Agreement is binding upon signature and the "Term"
----
will be in effect for a period of [**] commencing November 23, 1999.
5.2 Termination for Breach. Either party may immediately terminate
----------------------
this Agreement upon written notice if the other party breaches the Agreement in
any material respect, and the breach remains uncured for a period of ten (10)
days following the breaching party's receipt of written notice of the breach
from the non-breaching party.
5.3 Microsoft Termination. Notwithstanding paragraph 5.1, Microsoft
----------------------
may terminate this Agreement upon thirty (30) days' prior written notice if
Microsoft ceases to offer the Service. In such a case, Microsoft will return to
Company a pro rata portion of the Advance actually paid to Microsoft (less any
additional fees incurred by Company hereunder as of the date of termination). If
fees incurred by Company hereunder exceed the amount of the pro rated Advance
actually paid by to Microsoft as of the date of termination, Microsoft will
invoice, and Company will promptly pay, any additional amounts owing hereunder.
5.4 Company Termination. Company may terminate this Agreement upon
-------------------
fifteen (15) days prior written notice to Microsoft after three (3) calendar
months following commencement of the Term if the benchmark of [**] Subscribers
in any calendar month during such period is not achieved. If Microsoft does not
achieve the benchmark set forth above, Microsoft will have fifteen (15) days to
remedy such Subscriber shortfall following Microsoft's receipt of Company's
written termination notice. The parties acknowledge and agree that they will
execute an amendment to this Agreement which sets forth the terms of the
Subscriber shortfall remedy. Upon execution of such amendment, or if Company has
not provided Microsoft written notice of its intent to terminate as set forth
above, Company will forfeit the right to terminate the Agreement as set forth in
this section. In no event will Microsoft be required to refund or otherwise
return to Company any portion of the Advance.
5.5 Survival. This paragraph and Sections 3.6 (Changes to
--------
Newsletter), 4 (Consideration) only to the extent of fees accrued and payable
prior to the date of termination, 6 (Representations and Warranties), 7
(Indemnification), 8 (Limitation of Liability), 9 (Confidentiality), and 10
(General) shall survive any termination of this Agreement, together with all
obligations, rights and causes of action that may have accrued prior to
termination, along with any other provisions that might reasonably be deemed to
survive such termination.
Section 6. Representations and Warranties
6.1 Company. Company represents and warrants that:
-------
(a) Company has the full corporate rights, power and authority to
enter into this Agreement and to perform the acts required of it hereunder;
(b) Company's execution and performance of this Agreement do not
and will not violate any agreement to which Company is a party or by which
Company is otherwise bound, or any applicable law, rule or regulation;
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
4
<PAGE>
(c) the Newsletter does not and will not violate any third party
IPRs or give rise to any obligation for the payment of any sums to any
third party by Microsoft or Microsoft's successors in interest;
(d) the Newsletter (in whole or in part) does not and will not
violate the limitations set forth in paragraph 3.4;
(e) it will not harvest or otherwise collect through the Service
information about Subscribers, including e-mail addresses, without
Subscribers' express consent;
(f) it will not link the Service or Hotmail to any unsolicited
communication sent to any third party, or otherwise use or mention the
Service or Hotmail in connection with any such unsolicited communication;
and
(g) it has in effect a privacy policy that is available online to
Subscribers and that meets or exceeds the applicable standards of an
industry recognized online privacy organization (e.g., the TRUST.E Program,
BBB OnLine), and it will adhere to the information gathering,
dissemination, privacy protection and other practices specified in such
privacy policy.
6.2 Microsoft: Microsoft represents and warrants to the Company that
----------
has the full corporate rights, power and authority to enter into this Agreement
and to perform the acts required of it hereunder.
6.3 Warranty Disclaimer. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE
-------------------
SERVICE, NEWLETTER, HOTMAIL, AND ANY MATERIALS OR OTHER SERVICES PROVIDED BY OR
ON BEHALF OF MICROSOFT PURSUANT TO THIS AGREEMENT ARE PROVIDED "AS IS" AND WITH
ALL DEFECTS. MICROSOFT HEREBY DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND
CONDITIONS, EXPRESS OR IMPLIED, OF FITNESS FOR A PARTICULAR PURPOSE,
MERCHANTABILITY, TITLE, NONINFRINGEMENT, COMPATIBILITY, SECURITY, AND CONDITION
OR OPERATION OF THE FOREGOING. MICROSOFT DOES NOT WARRANT THE CONTINUED OR
UNINTERRUPTED OPERATION OF THE INTERNET, SERVICE, OR HOTMAIL.
6.4 Date Warranty: Each party represents and warrants that the
--------------
information technology, financial, operational, communication and other systems
and processes used by such party in connection with performing its obligations
pursuant to this Agreement will not be interrupted or adversely affected by the
manipulation, processing, comparison, display or calculation of dates from, into
and between the twentieth and twenty-first centuries, including leap years, and
each agrees to cooperate with the other party to promptly remedy any such error.
Section 7. Indemnification
7.1 Company. The Company will indemnify and hold harmless Microsoft
-------
against, and will defend or settle at the Company's expense, any and all
actions, claims, liabilities, losses, damages, costs, expenses, judgments and
penalties, including but not limited to reasonable attorneys' fees, or other
proceeding brought by third parties against Microsoft to the extent based on a
claim that, if true would (a) result from any misrepresentation or breach of
representation or warranty of the Company contained herein, or (b) result from
any breach of any covenant or agreement to be performed by Company hereunder.
7.2 Microsoft. Microsoft will indemnify and hold harmless the Company
---------
against, and will defend or settle at Microsoft's expense, any action actions,
claims, liabilities, losses, damages, costs, expenses, judgments and penalties,
including but not limited to reasonable attorneys' fees, or other proceeding
brought by third parties against Company to the extent based on a claim that, if
true would (a) result from any misrepresentation or breach of representation or
warranty of Microsoft contained herein, or (b) result from any breach of any
covenant or agreement to be performed by Microsoft hereunder.
7.3 Procedure. The party to be indemnified, defended and held
---------
harmless pursuant to paragraph 7.1 or 7.2 will: (a) provide the indemnifying
party with prompt written notice of any such claim, (b) permit the indemnifying
party to assume and control the defense of such action, and (c) not enter into
any settlement or compromise of any such claim without the indemnifying party's
prior written consent (not to be unreasonably withheld). The indemnifying party
will pay any and all costs, damages, and expenses (including but not limited to
reasonable attorneys' fees and costs) awarded against or incurred by the
indemnified party in any such action or proceeding attributable to any such
claim. The indemnified party may also retain counsel at its own expense in
connection with the defense or settlement of any such claim.
Section 8. Limitation of Liability
8.1 Limitation of Remedies. EXCEPT TO THE EXTENT ARISING PURSUANT TO
-----------------------
SECTION 7 OR A BREACH OF SECTION 9, UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY
5
<PAGE>
FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF
THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM OR
OTHERWISE RELATED TO THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE, PROFITS, ACCOUNTS OR LOST BUSINESS, AND WHETHER ARISING IN CONTRACT,
TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
8.2 Limitation of Damages. EXCEPT TO THE EXTENT ARISING PURSUANT TO
---------------------
SECTION 7 OR A BREACH OF SECTION 9, UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR DAMAGES IN EXCESS OF AMOUNTS ACTUALLY PAID AND
OWING TO MICROSOFT HEREUNDER.
Section 9. Confidentiality
The parties acknowledge and agree that the Microsoft Non-Disclosure Agreement
dated as of _________________ ("NDA") entered into by and between the parties
applies to this Agreement as if fully set forth herein and that all of the terms
of this Agreement (including but not limited to its existence) and all
discussions and negotiations related thereto are considered Confidential
Information (as that term is defined in the NDA) of Microsoft under the NDA. If
Company has not executed a NDA, Company agrees to sign the NDA attached hereto
as Exhibit B and return it to Microsoft with this Agreement. Upon termination or
expiration of this Agreement, each party will destroy (or upon the other party's
request return) any and all Confidential Information of the other party in its
possession or control.
Section 10. General.
10.1 Notices. All notices and requests in connection with this
-------
Agreement will be deemed given (a) when personally delivered, (b) when delivered
by facsimile or telex, (c) the next business day following delivery to a
nationally recognized courier service guarantying next-day delivery, or (d) five
(5) business days after being placed in the United States mail, postage prepaid,
certified or registered, return receipt requested, as follows:
Notices to Company: Notices to Microsoft:
- ------------------ --------------------
Snowball.com, Inc. Microsoft Corporation
250 Executive Park, Suite 4000 One Microsoft Way
San Francisco, CA 94134 Redmond, WA 98052-6399
Attn.: ________________________ Attn.: Chuck Frizelle
Telephone: (415) 508-2000 Telephone: (425) 705-2179
----------------
Fax: (415) 508-2001 Fax: (425) 936-7329
----------------
Copy to: Copy to:
Snowball.com, Inc. Microsoft Law & Corporate Affairs
250 Executive Park, Suite 4000 One Microsoft Way
San Francisco, CA 94134 Redmond, WA 98052
Fax: (415) 508-2001 Fax: (425) 936-7329
Attn.: Legal Department Attn.: Gregory Ritts
or to such other address as the party to receive the notice or request so
designates by at least ten (10) days prior written notice to the other party.
10.2 Independent Contractor. Company is an independent contractor, and
----------------------
nothing in this Agreement will be construed as creating an employer-employee
relationship, partnership, or joint venture between the parties.
10.3 Governing Law. This Agreement will be governed by the laws of the
-------------
State of Washington. Company hereby irrevocably consents to the personal
jurisdiction of, and exclusive venue for any legal proceeding commenced by or on
behalf of Company in, the state and federal courts sitting King County,
Washington, USA. In any suit or action to enforce any right or remedy under this
Agreement or to interpret any provision of this Agreement, the prevailing party
will be entitled to recover its costs, including reasonable attorneys' fees.
10.4 Assignment. Company may not assign, sub-license, transfer,
----------
encumber or otherwise dispose of this Agreement without Microsoft's prior
written approval, except in connection with a merger or sale of substantially
all of Company's assets. Any attempted assignment, sub-license, transfer,
encumbrance or other disposal of this Agreement by Company without Microsoft's
prior written approval will be void and will constitute a material default and
breach of this
6
<PAGE>
Agreement. Except as otherwise provided, this Agreement will be binding upon and
inure to the benefit of the parties' successors and lawful assigns.
10.5 Publicity. No press releases, public statements, promotions or
----------
advertising concerning the existence of this Agreement, shall be made or
released in any medium except with the prior written approval of both parties,
provided that either party may disclose the nonpricing terms of this Agreement
as required by the Securities and Exchange Commission or other government
authority, provided that such party takes reasonable steps to procure the
maximum level of confidentiality protection therefor.
10.6 Headings. The section headings used in this Agreement are
--------
intended for convenience only and will not be deemed to affect in any manner the
meaning or intent of this Agreement or any provision hereof.
10.7 Modification. This Agreement may not be modified except by a
------------
written agreement dated subsequent to the date of this Agreement and signed on
behalf of Company and Microsoft by their respective duly authorized
representatives.
10.8 Waiver. No waiver of any breach of this Agreement will constitute
------
a waiver of any prior, concurrent or subsequent breach of the same or any other
provisions hereof, and no waiver will be effective unless made in writing and
signed by the waiving party.
10.9 Severability. To the extent that any provision of this Agreement
------------
conflicts with governing law or any provision is held to be null, void or
otherwise ineffective or invalid by a court of competent jurisdiction, (a) such
provision will be deemed to be restated to reflect as nearly as possible the
original intentions of the parties in accordance with applicable law, and (b)
the remaining terms, provisions, covenants and restrictions of this Agreement
will remain in full force and effect.
10.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together will constitute one agreement
10.11 Entire Agreement. Subject to Section 9, this Agreement
----------------
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous agreements or
communications between the parties.
The parties have caused this Agreement to be executed by their duly authorized
representatives as of the date written above.
Microsoft Company
MICROSOFT CORPORATION SNOWBALL.COM, INC.
One Microsoft Way 250 Executive Park, Suite 4000
Redmond, WA 98052-6399 San Francisco, CA 94134
By /s/ Martin A. Stever /s/ Teresa M. Crummett
---------------------------- -----------------------------------
(Sign) (Sign)
Martin A. Stever Teresa M. Crummett
- ------------------------------- -----------------------------------
Name (Print) Name (Print)
Ad & Strat Mngr. V.P.
- ------------------------------- -----------------------------------
Title Title
12/3/99 11-29-99
- ------------------------------- -----------------------------------
Date Date
____________________________________
Company's Federal Employer ID Number
7
<PAGE>
EXHIBIT A
SPECIFICATIONS
A. Specifications for Providers
a. Company logo: 100x 30, 1.5K file size, gif, non-animated, non-
clickable
b. Newsletter description: 215 Latin characters (including spaces)
that briefly describes the newsletter
c. Company name: 20 characters
d. Promotional banners
i. 468x60, 12K file size, gif or jpeg
ii. At Microsoft discretion, Company must include Hotmail
and/or WebCourier logo, making it clear to the user
that the banner is a co-branded banner.
iii. URL determined by Microsoft
iv. Banner must meet standard Microsoft guidelines set
forth in Standard Terms and Conditions
B. Hosting Schedule
a. Company will make the newsletter content available to Microsoft
according to a schedule agreed upon by Microsoft and Company.
b. Company will run newsletter content through an HTML validator
program to catch any errors before posting it for pickup.
c. Company will provide Microsoft with the URL of the newsletter
content for Microsoft pick-up.
d. Company may not alter the newsletter content more than once each
day.
C. Delivery Schedule
a. Microsoft will distribute the Newsletter to Subscribers according
to the schedule agreed upon by Microsoft and Company.
Newsletter Technical Requirements
1. Code must be syntactically correct, and resemble the following;
(HTML)
(BODY)
......
(/BODY)
(/HTML)
Note: Tables are good if you want the page to retain its attributes, but if
any of the above tags are missing, it WILL NOT work. Code that is not clean
will run into problems with WebCourier automated content pickups and page
display.
2. No Relative Links.
The following are examples of relative links
(a href="/hotmail/link.html")
(img src="../../../../hotmail/img.gif")
All links must have full headings similar to these:
(a href="http://www.hotmail.com/hotmail.html")
(img src="http://www.hotmail.com/hotmail/img.gif")
3. Use NO JavaScript/DHTML.
For security reasons, we do not allow JavaScript or DHTML.
4. We accept only the GET method instead of the POST method in Form tags (i.e.,
(FORM) tags should have "METHOD=GET".
Scripts receiving (FORM) input must accept the "GET" method.
5. Links may NOT open new browser windows.
6. Tags that are opened must be closed.
7. Suggestion: Code for a maximum resolution screen size of 800 x 600. For best
results across all platforms, use a minimum of 600 pixels.
1
<PAGE>
8. Setting Background Colors:
If you wish to set a background color, then set it in a table around your
HTML, rather than using body tags. DO NOT USE BODY TAGS. DO NOT USE GLOBAL
STYLE TO SPECIFY COLORS. DO NOT SET A BODY BACKGROUND. Use nested styles
within the table. Anything with body tags will be stripped out or ignored.
Example of what NOT to do:
---
(body bgcolor="#FFFFFF" text="#000000" link="#003366" vlink="#003366"
alink="#003366")
What you can do:
- create CSS classes specific to your content, or
----
- create all styles in-line
9. Variable Subject Lines: (You must inform the Program Manager to turn ON this
feature.)
Subject must be enclosed in the (title)...(/title) tags on same line. 46
character max, including spaces. Subject line must begin with your
newsletter name. (Ex. MSNBC: followed by subject).
10. Content: maximum of 512 characters per line. If it's longer than 512
characters, people using email clients will not be able to retrieve your
WebCourier newsletter.
Server Rules
11. Server Accessibility:
The server on which your HTML resides must be accessible via telnet client.
We will retrieve the HTML by "telnet"ing into the site and using the GET
command to retrieve the material.
telnet www.hotmail.com 80
Trying 207.82.250.251...
Connected to www.hotmail.com.
Escape character is '(caret)]'.
GET /hotmail/test.html HTTP/1.0
The server can reside on any port as long as it is not a secure server.
SID's are supported.
12. No Password Protected Pages.
13. Note: Some codes that may work in a browser alone may not be permissible in
WebCourier content.
14. Please run your newsletters through an HTML validator program to catch any
errors before posting it for pickup.
Pickup Rules
15. The URL where the page resides for pickup cannot be changed. If it must be
changed, Hotmail must be notified as far in advance as possible.
16. Content must be ready at the time of pickup. Materials that have not been
changed from the previous pickup will not be delivered.
Subscriber Customer Support:
17. If subscribers have problems with their WebCourier subscription, please have
them send a blank email to [email protected]. This alias will send the user
------------------
some troubleshooting instructions. If a subscriber continues to have
problems after following the autoresponder directions, there is another
email alias provided for a personal response.
18. Company must maintain WebCourier delivered newsletter content pages, links,
and images for a minimum of six (6) months.
2
<PAGE>
EXHIBIT B
MICROSOFT CORPORATION NON-DISCLOSURE AGREEMENT
THIS AGREEMENT (the "Agreement") is made between MICROSOFT CORPORATION, a
Washington corporation, and Snowball.com, Inc. (the "Company") and entered into
this 23rd day of November, 1999.
In consideration of the mutual promises and covenants contained in this
Agreement, the mutual disclosure of confidential information to each other, the
parties hereto agree as follows:
1. Confidential Information and Confidential Materials
---------------------------------------------------
(a) "Confidential Information" means nonpublic information that Disclosing
Party designates as being confidential or which, under the circumstances
surrounding disclosure ought to be treated as confidential. "Confidential
Information" includes, without limitation, information relating to released or
unreleased Disclosing Party software or hardware products, the marketing or
promotion of any Disclosing Party product, Disclosing Party's business policies
or practices, and information received from others that Disclosing Party is
obligated to treat as confidential. Confidential Information disclosed to
Receiving Party by any Disclosing Party Subsidiary and/or agents is covered by
this Agreement.
(b) Confidential Information shall not include any information that: (i) is
or subsequently becomes publicly available without Receiving Party's breach of
any obligation owed Disclosing Party; (ii) became known to Receiving Party prior
to Disclosing Party's disclosure of such information to Receiving Party; (iii)
became known to Receiving Party from a source other than Disclosing Party other
than by the breach of an obligation of confidentiality owed to Disclosing Party;
or (iv) is independently developed by Receiving Party.
(c) "Confidential Materials" shall mean all tangible materials containing
Confidential Information, including without limitation written or printed
documents and computer disks or tapes, whether machine or user readable.
2. Restrictions
------------
(a) Receiving Party shall not disclose any Confidential Information to
third parties for five (5) years following the date of its disclosure by
Disclosing Party to Receiving Party, except to Receiving Party's consultants as
provided below. However, Receiving Party may disclose Confidential Information
in accordance with judicial or other governmental order, provided Receiving
Party shall give Disclosing Party reasonable notice prior to such disclosure and
shall comply with any applicable protective order or equivalent.
(b) Receiving Party shall take reasonable security precautions, at least as
great as the precautions it takes to protect its own confidential information,
to keep confidential the Confidential Information. Receiving Party may disclose
Confidential Information or Confidential Material only to Receiving Party's
employees or consultants on a need-to-know basis. Receiving Party will have
executed or shall execute appropriate written agreements with its employees and
consultants sufficient to enable it to comply with all the provisions of this
Agreement.
(c) Confidential Information and Confidential Materials may be disclosed,
reproduced, summarized or distributed only in pursuance of Receiving Party's
business relationship with Disclosing Party, and only as otherwise provided
hereunder. Receiving Party agrees to segregate all such Confidential Materials
from the confidential materials of others in order to prevent commingling.
(d) Receiving Party may not reverse engineer, decompile or disassemble any
software disclosed to Receiving Party.
3. Rights and Remedies
-------------------
(a) Receiving Party shall notify Disclosing Party immediately upon
discovery of any unauthorized use or disclosure of Confidential Information
and/or Confidential Materials, or any other breach of this Agreement by
Receiving Party, and will cooperate with Disclosing Party in every reasonable
way to help Disclosing Party regain possession of the Confidential Information
and/or Confidential Materials and prevent its further unauthorized use.
(b) Receiving Party shall return all originals, copies, reproductions and
summaries of Confidential Information or Confidential Materials at Disclosing
Party's request, or at Disclosing Party's option, certify destruction of the
same.
(c) Receiving Party acknowledges that monetary damages may not be a
sufficient remedy for unauthorized disclosure of Confidential Information and
that Disclosing Party shall be entitled, without waiving any other rights or
remedies, to such injunctive or equitable relief as may be deemed proper by a
court of competent jurisdiction.
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<PAGE>
(d) Disclosing Party may visit Receiving Party's premises, with reasonable
prior notice and during normal business hours, to review Receiving Party's
compliance with the terms of this Agreement.
4. Miscellaneous
-------------
(a) All Confidential Information and Confidential Materials are and shall
remain the property of Disclosing Party. By disclosing information to Receiving
Party, Disclosing Party does not grant any express or implied right to Receiving
Party to or under Disclosing Party patents, copyrights, trademarks, or trade
secret information.
(b) If either party provides pre-release software as Confidential
Information or Confidential Materials under this Agreement, such pre-release
software is provided "as is" without warranty of any kind. Receiving Party
agrees that neither Disclosing Party nor its suppliers shall be liable for any
damages whatsoever relating to Receiving Party's use of such pre-release
software.
(c) All software provided to the U.S. Government pursuant to solicitations
issued on or after December 1, 1995 is provided with the commercial rights and
restrictions described elsewhere herein. All software provided to the U.S.
Government pursuant to solicitations issued prior to December 1, 1995 is
provided with RESTRICTED RIGHTS as provided for in FAR, 48 CFR 52.227-14 (JUNE
1987) or DFAR, 48 CFR 252.227-7013 (OCT 1988), as applicable. Manufacturer is
Microsoft Corporation/One Microsoft Way/Redmond, WA 98052-6399.
(d) Both parties agree that they do not intend nor will they, directly or
indirectly, export or re-export (i) any Confidential Information or Confidential
Materials, or (ii) any product (or any part thereof), process or service that is
the direct product of the Confidential Information or Materials to (A) any
country that is subject to U.S. export restrictions (currently including, but
not necessarily limited to, Iran, Iraq, Syria, Cuba, North Korea, Libya, the
Federal Republic of Yugoslavia (Serbia and Montenegro) and Sudan), or to any
national of any such country, wherever located, who intends to transmit or
transport the products back to such country; (B) to any end-user who either
party knows or has reason to know will utilize them in the design, development
or production of nuclear, chemical or biological weapons; or (C) to any end-user
who has been prohibited from participating in U.S. export transactions by any
federal agency of the U.S. government.
(e) The terms of confidentiality under this Agreement shall not be
construed to limit either party's right to independently develop or acquire
products without use of the other party's Confidential Information. Further,
either party shall be free to use for any purpose the residuals resulting from
access to or work with such Confidential Information, provided that such party
shall maintain the confidentiality of the Confidential Information as provided
herein. The term "residuals" means information in non-tangible form, which may
be retained by persons who have had access to the Confidential Information,
including ideas, concepts, know-how or techniques contained therein. Neither
party shall have any obligation to limit or restrict the assignment of such
persons or to pay royalties for any work resulting from the use of residuals.
However, the foregoing shall not be deemed to grant to either party a license
under the other party's copyrights or patents.
(f) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and signed by
both parties. None of the provisions of this Agreement shall be deemed to have
been waived by any act or acquiescence on the part of Disclosing Party, its
agents, or employees, but only by an instrument in writing signed by an
authorized officer of Disclosing Party. No waiver of any provision of this
Agreement shall constitute a waiver of any other provision(s) or of the same
provision on another occasion.
(g) If either party employs attorneys to enforce any rights arising out of
or relating to this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees. This Agreement shall be construed and controlled by
the laws of the State of Washington, and both parties further consent to
jurisdiction by the state and federal courts sitting in the State of Washington.
Process may be served on either party by U.S. Mail, postage prepaid, certified
or registered, return receipt requested, or by such other method as is
authorized by the Washington Long Arm Statute.
(h) Subject to the limitations set forth in this Agreement, this Agreement
will inure to the benefit of and be binding upon the parties, their successors
and assigns.
(i) If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
(j) All obligations created by this Agreement shall survive change or
termination of the parties' business relationship.
2
<PAGE>
5. Suggestions and Feedback
------------------------
Either party may from time to time provide suggestions, comments or other
feedback to the other party with respect to Confidential Information provided
originally by the other party (hereinafter "Feedback"). Both parties agree that
all Feedback is and shall be entirely voluntary and shall not, absent separate
agreement, create any confidentiality obligation for the Receiving Party.
However, the Receiving Party shall not disclose the source of any feedback
without the providing party's consent. Feedback shall be clearly designated as
such and, except as otherwise provided herein, each party shall be free to
disclose and use such Feedback as it sees fit, entirely without obligation of
any kind to the other party. The foregoing shall not, however, affect either
party's obligations hereunder with respect to Confidential Information of the
other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
Microsoft Company
MICROSOFT CORPORATION SNOWBALL.COM, INC.
One Microsoft Way 250 Executive Park, Suite 4000
Redmond, WA 98052-6399 San Francisco, CA 94134
By /s/ Martin A. Stever /s/ Teresa M. Crummett
---------------------------- -----------------------------------
(Sign) (Sign)
Martin A. Stever Teresa M. Crummett
- ------------------------------- -----------------------------------
Name (Print) Name (Print)
Ad & Strat Mngr. V.P. Corp. Marketing
- ------------------------------- -----------------------------------
Title Title
12/3/99 11-29-99
- ------------------------------- -----------------------------------
Date Date
3
<PAGE>
EXHIBIT C
Webcourier Payment Schedule
- --------------------------------------------------------------------------------
Payment Schedule
- --------------------------------------------------------------------------------
Payment Due to MSN Time Period Covered by Payment Payment Amount
- --------------------------------------------------------------------------------
[**] [**] [**]
- --------------------------------------------------------------------------------
[**] [**] [**]
- --------------------------------------------------------------------------------
[**] [**] [**]
- --------------------------------------------------------------------------------
[**] [**] [**]
- --------------------------------------------------------------------------------
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the
CERTAIN PORTIONS OF THIS information contained within the
DOCUMENT "[**]" markings. Such marked portions
have been omitted from this filing and
have been filed separately with the
Securities and Exchange Commission
</TABLE>
EXHIBIT 10.30
WEBCOURIER PROVIDER AGREEMENT
This agreement (the "Agreement") is made and entered into as of ____________,
1999, between Microsoft Corporation ("Microsoft"), with offices at One Microsoft
Way, Redmond, WA 98052-6399 and Snowball.com d/b/a IGN.com (the "Company"), a
Delaware corporation with offices at 250 Executive Park, Suite 4000, San
Francisco, CA 94134. Microsoft and Company agree as follows:
Section 1. Definitions
"Company Logo" means the Company logo(s) and trademark(s) provided
to Microsoft for use in connection with the Service.
"Copy" means a single email delivered to a specific Subscriber
consisting of a reproduction (in whole or in part) of, and/or hypertext link to,
a specific version of the Newsletter.
"IPRs" means trade secrets, patents, copyrights, trademarks, service
marks, trade names, know-how, moral rights, rights of publicity and privacy, and
similar rights of any type under the laws of any governmental authority,
domestic or foreign, including all applications and registrations relating to
any of the foregoing.
"Newsletter" means the publications to be provided by Company to
Microsoft, Copies of which will be distributed to Subscribers via the Service.
"Registration Pages" means those web pages that are displayed to users
of the U.S. English language Hotmail service in a manner to permit such users to
register to receive the Copies and other third party content via the Service.
"Service" means the WebCourier Service whereby a person registering or
registered for a U.S. English language Hotmail email account may also register
to receive generic third party content via the Hotmail service.
"Subscriber" means a Hotmail account that has consented to receiving
the Newsletter.
Section 2. Microsoft Obligations
2.1 Service. Microsoft will provide Company with placement on the
-------
Registration Page consisting of Company or Newsletter name (at Company option),
will link to the Company Logo and text description of the Newsletter. Company
will be accorded an "Anchor Provider" placement in the Games category upon
creation of such category on or about December 24, 1999, the Entertainment and
Music category ("Category"). Microsoft may modify the Registration Pages
(including, without limitation, Category names) from time to time, provided that
Company receives reasonably comparable placement on such revised pages as
specified herein.
2.2 Providers. The Newsletters of not more than one (1) "Premier
---------
Provider" and five (5) "Anchor Providers" may be referenced in the Category.
The "Premier Provider" will receive the most prominent placement in the Category
and each "Anchor Provider" will receive placement in descending order based upon
the level of compensation paid by such "Anchor Provider" to Microsoft to appear
in such category.
2.3 Distribution. Subject to paragraph 3.1, Microsoft will deliver
------------
Copies to Subscribers according to such schedules as mutually agreed upon by
Company and Microsoft. Company may change the schedule pursuant to which the
Copies are distributed to Subscribers by giving Microsoft written notice of the
requested change at least fifteen (15) business days prior to the scheduled
change. Company may not schedule Copies of more than one Newsletter to be
distributed in any twenty-four (24) hour period or more than (3) Newsletters per
week.
2.4 Promotional Banners. Microsoft will provide Company with a
-------------------
monthly credit of [**] promotional banners to be used in the Hotmail service,
commencing on January 1, 2000. Such promotional credits will be specified for
use in particular months, and may not be transferred to any other month or
redeemed for cash. Unused promotional banner credits will expire at the end of
the month specified for use; however, at Microsoft's discretion, unused
promotional banners may be used in the month following that for which the
banners were not used. Company will create and deliver to Microsoft all
promotional banners for review at least ten (10) days prior to the first run
date for such banner as designated by Company. All promotional
**Confidential treatment has
been requested with respect
to the information contained
within the "[**]" markings.
Such marked portions have
been omitted from this filing
and have been filed
separately with the
Securities and Exchange
Commission.
1
<PAGE>
banners shall meet all specifications and submission requirements provided by
Microsoft, and will contain a link to such Hotmail URL as Microsoft may
designate.
2.5 Hotmail Promotion. Microsoft will use reasonable efforts to
-----------------
promote the Newsletter to new and current Hotmail users through Hotmail standard
promotional vehicles.
Section 3. Company Obligations
3.1 Delivery and Specifications. Company will make the Newsletter
---------------------------
available to Microsoft at a specified URL and on a delivery schedule agreed upon
by the parties in writing. The Company Logo, Newsletter text description and the
Newsletters are all subject to specifications and submissions guidelines (as
applicable) established by Microsoft and set forth in Appendix A, as the same
may be modified from time to time by Microsoft upon notice. Company will deliver
the Company Logo and Newsletter text description to Microsoft in the manner
directed by Microsoft. Company acknowledges that time is of the essence in
providing the foregoing to Microsoft, and the Company's failure to meet the
foregoing timing requirements or any applicable specifications may delay or
prevent delivery of Copies hereunder.
3.2 License. Company hereby grants Microsoft a world-wide, non-
-------
exclusive, royalty-free license to:
(a) reproduce, promote, market, distribute, display,
transmit, download, upload, edit, modify and otherwise use the Newsletter
as reasonably anticipated to fulfill Microsoft's obligations under this
Agreement; and
(b) reproduce, display, transmit and otherwise use the
Company Logo and Newsletter text description in connection with (i)
providing the Service and Newsletter to Subscribers, and (ii) marketing and
promoting the Service and Newsletter.
3.3 Limitations. The Newsletter may not contain, promote, market,
-----------
advertise, distribute, offer to distribute, link (either directly or, if with
the knowledge of Company, indirectly) to or otherwise be related to content
that:
(a) is inappropriate, obscene, defamatory, libelous, slanderous,
profane, indecent or unlawful;
(b) infringes or misappropriates third party IPRs;
(c) constitutes "hate speech", whether directed at an individual
or a group, and whether based upon the race, sex, creed, national origin,
religious affiliation, sexual orientation or language of such individual or
group;
(d) promotes or contains viruses, worms, corrupted files, cracks
or other materials that are intended to or may damage or render inoperable
software, hardware or security measures of Microsoft, Subscribers or any
third party;
(e) facilitates or promotes gambling, or the sale or use of
liquor, tobacco products or illicit drugs;
(f) facilitates, promotes or forwards illegal contests, pyramid
schemes or chain letters; or
(g) otherwise restricts or inhibits any person's use or enjoyment
of Hotmail or the Service.
2
<PAGE>
The Newsletter may not contain, promote, market, advertise, distribute, or offer
to distribute competing e-mail or newsletter products whether offered by Company
or a third party (e.g., Lycos, Excite and other services designated by
Microsoft), except that Company may link or refer to the registration, contest
and promotional pages of Company or its affiliates. Microsoft may, but is under
no obligation to, review the Newsletter, and may refuse to host or make the
Newsletter available to Subscribers in whole or in part if Microsoft determines
that the Newsletter violates the foregoing limitations or such other reasonable
limitations as Microsoft may adopt from time to time.
3.4 Subscriber Information. All information regarding Subscribers
----------------------
collected through the Service constitutes Confidential Information (as that term
is used in Section 9) of Microsoft, and is subject to the confidentiality
requirements of Section 9. Notwithstanding the foregoing, information obtained
by Company directly from Subscribers will not constitute Confidential
Information of Microsoft and may be used by Company from time to time; provided,
Company does not collect, use or disclose such information in any manner that
identifies the subject as a Subscriber or Hotmail customer.
3.5 Changes to Newsletter. Company will provide Microsoft with thirty
---------------------
(30) days' prior written notice of any material change to the nature or intended
audience of any Newsletter. Microsoft will have the option to (a) permit Company
to remain in the Category, (b) place Company in a different category on the
Registration Pages, or (c) terminate this Agreement with respect to each
Newsletter for which such a change is anticipated or implemented upon written
notice. If Microsoft terminates the Agreement pursuant to this paragraph, within
thirty (30) days of the date of termination, Company will pay Microsoft [**] of
the pro rated Advance for the remainder of the original Term.
Section 4. Consideration
4.1 Advance. Company will prepay Microsoft an advance of the fees set
-------
forth in paragraph 4.2 in an amount equal to [**] (the "Advance"). The Advance
is a non-refundable, guaranteed payment to Microsoft. The Advance will be
rendered to Microsoft in four (4) equal installments on a quarterly basis (i.e.,
every three (3) months during the Term). The first payment hereunder is due on
December 23, 1999. Microsoft will invoice Company for the three (3) remaining
payments approximately thirty (30) days prior to the beginning of each
subsequent quarter, and the Company will pay such invoiced amounts on or before
the first day of each such subsequent quarter. Notwithstanding the foregoing,
upon termination or expiration of this Agreement, other than by Company pursuant
to paragraph 5.2 or Microsoft pursuant to paragraph 5.3, Company will
immediately pay Microsoft any amounts of the Advance not yet paid.
4.2 Fee. As consideration for Microsoft distributing the Newsletters
---
to Subscribers, Company will pay Microsoft [**] per Copy distributed to
Subscribers ("Fee").
4.3 Distribution Adjustment. On a quarterly basis (including, at the
-----------------------
end of the Term), Microsoft will compare the number of Copies actually
distributed hereunder against the Advance paid for such quarter (or the Term).
If the fees incurred pursuant to paragraph 4.2 for the number of Copies actually
distributed during such quarter (or the Term) are greater than the portion of
the Advance paid for such quarter (or the Term), Microsoft will invoice Company
for the difference at the applicable rates noted in paragraph 4.2. If at the end
of the Term the fees (including the Advance) received by Microsoft hereunder
exceed the amount of the fees incurred by Company for distribution of Copies
hereunder, Microsoft will refund the difference to Company; except that in no
event will Microsoft be required to refund or otherwise return to Company any
portion of the Advance. Notwithstanding the foregoing, the maximum aggregate
Advance and Fee payments that Company may incur to Microsoft hereunder will be
[**]. Once and only if the foregoing payment cap is reached by Company, Company
will be relieved of paying any additional amounts pursuant to Section 4.2
hereunder; provided that, for the remainder of the Term, Company may not
increase the average number of Copies delivered by Microsoft to Subscribers
during the period preceding Company attaining such payment cap.
4.4 Invoice and Payment. Within thirty (30) days after the date of an
-------------------
invoice, Company will pay Microsoft all amounts owing pursuant to such invoice
in readily available funds. Amounts not paid when due under this Agreement will
accrue interest at a rate of [**], compounded on a monthly basis. Microsoft
reserves the right to immediately suspend distribution of the Newsletter if
Company fails to make timely payment of any amounts owing hereunder. All
payments of amounts owing to Microsoft will be made at the following location or
such other location designated by Microsoft in writing:
Microsoft Corporation
PO Box 7247 - 7123
Philadelphia PA 19170-7123
4.5 Reports. Microsoft will provide Company with monthly reports
-------
setting forth the number of Subscribers receiving Copies and the total number of
Copies delivered per month.
4.6 Taxes. The fees, advances and other amounts owing to Microsoft
-----
pursuant to this Agreement do not include taxes or other governmental fees.
Company will pay all taxes and other governmental fees arising out of or related
to all
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
3
<PAGE>
transactions undertaken pursuant to this Agreement, other than taxes on
Microsoft income and revenue, and will provide Microsoft with appropriate
evidence of such payment upon request.
4.7 Audits. Microsoft will maintain during the Term and for at least
------
twelve (12) months thereafter all of its regular books of account relating to
Copies distributed via the Service and amounts owing to Microsoft hereunder. If
Company believes in good faith that Microsoft invoiced Company in excess of
amounts actually owing pursuant to paragraph 4.2, Company will have the right at
Company's sole expense to audit such books of account, subject to the following:
(a) Company will provide Microsoft with at least thirty (30) days' prior written
notice of such audits; (b) audits may occur only during Microsoft's regular
business hours, and at the location where such books of account are maintained
by Microsoft or such other location reasonably specified by Microsoft; (c)
Company will cooperate with Microsoft in good faith to avoid and limit any
disruption of such audits to Microsoft's business and operations; (d) such audit
will be conducted by an independent accounting firm, acceptable to Microsoft and
compensated by Company in a manner that is not affected by the outcome of the
audit (e.g., no contingency fees); (e) the auditors provide Microsoft with all
results and other communications to Company related to the audit at the same
time such auditors provide such communications to Company; (f) audits may not
occur more than once during the Term, may not exceed three (3) consecutive days
and must be completed within twelve (12) months after the end of the Term; (g)
the auditors provide their final conclusions of the audit to Company and
Microsoft simultaneously and within thirty (30) days after the last day of the
audit. Any information disclosed to or otherwise learned by Company or its
auditors in connection with an audit conducted pursuant to this paragraph
constitutes Confidential Information (as the term is used in Section 9) of
Microsoft and subject to the limitations on use set forth in paragraph 9.1.
Section 5. Term and Termination
5.1 Term. This Agreement is binding upon signature and the "Term"
----
will be in effect for a period of [**] commencing December 25, 1999.
Additionally, Microsoft and Company hereby acknowledge and agree that, upon
December 25, 1999, this Agreement shall supersede and replace in its entirety
the "Hotmail WebCourier Contract" dated as of June 24, 1997 between Microsoft
and Imagine, Inc.
5.2 Termination. Either party may immediately terminate this
-----------
Agreement upon written notice if the other party breaches the Agreement in any
material respect, and the breach remains uncured for a period of ten (10) days
following the breaching party's receipt of written notice of the breach from the
non-breaching party.
5.3 Microsoft Termination. Notwithstanding paragraph 5.1, Microsoft
----------------------
may terminate this Agreement upon thirty (30) days' prior written notice if
Microsoft ceases to offer the Service. In such a case, Microsoft will return to
Company a pro rata portion of the Advance actually paid to Microsoft (less any
additional fees incurred by Company hereunder as of the date of termination). If
fees incurred by Company hereunder exceed the amount of the pro rated Advance
actually paid by to Microsoft as of the date of termination, Microsoft will
invoice, and Company will promptly pay, any additional amounts owing hereunder.
5.4 Survival. This paragraph and Sections 3.6 (Changes to
--------
Newsletter), 4 (Consideration) (Representations and Warranties), 7
(Indemnification), 8 (Limitation of Liability), 9 (Confidentiality), and 10
(General) shall survive any termination of this Agreement, together with all
obligations, rights and causes of action that may have accrued prior to
termination, along with any other provisions that might reasonably be deemed to
survive such termination.
Section 6. Representations and Warranties
6.1 Company. Company represents and warrants that:
-------
(a) Company has the full corporate rights, power and authority to
enter into this Agreement and to perform the acts required of it hereunder;
(b) Company has the right to terminate the Imagine Hotmail
Webcourier Contract as set forth in Section 5.1;
(c) Company's execution and performance of this Agreement do not
and will not violate any agreement to which Company is a party or by which
Company is otherwise bound, or any applicable law, rule or regulation;
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
4
<PAGE>
(d) the Newsletter does not and will not violate any third party
IPRs or give rise to any obligation for the payment of any sums to any
third party by Microsoft or Microsoft's successors in interest;
(e) the Newsletter (in whole or in part) does not and will not
violate the limitations set forth in paragraph 3.4;
(f) it will not harvest or otherwise collect through the Service
information about Subscribers, including e-mail addresses, without
Subscribers' express consent;
(g) it will not link the Service or Hotmail to any unsolicited
communication sent to any third party, or otherwise use or mention the
Service or Hotmail in connection with any such unsolicited communication;
and
(h) it has in effect a privacy policy that is available online to
Subscribers and that meets or exceeds the applicable standards of an
industry recognized online privacy organization (e.g., the TRUST.E Program,
BBB OnLine), and it will adhere to the information gathering,
dissemination, privacy protection and other practices specified in such
privacy policy.
6.2 Microsoft: Microsoft represents and warrants to the Company that
----------
has the full corporate rights, power and authority to enter into this Agreement
and to perform the acts required of it hereunder.
6.3 Warranty Disclaimer. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE
-------------------
SERVICE, NEWLETTER, HOTMAIL, AND ANY MATERIALS OR OTHER SERVICES PROVIDED BY OR
ON BEHALF OF MICROSOFT PURSUANT TO THIS AGREEMENT ARE PROVIDED "AS IS" AND WITH
ALL DEFECTS. MICROSOFT HEREBY DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND
CONDITIONS, EXPRESS OR IMPLIED, OF FITNESS FOR A PARTICULAR PURPOSE,
MERCHANTABILITY, TITLE, NONINFRINGEMENT, COMPATIBILITY, SECURITY, AND CONDITION
OR OPERATION OF THE FOREGOING. MICROSOFT DOES NOT WARRANT THE CONTINUED OR
UNINTERRUPTED OPERATION OF THE INTERNET, SERVICE, OR HOTMAIL.
6.4 Date Warranty: Each party represents and warrants that the
--------------
information technology, financial, operational, communication and other systems
and processes used by such party in connection with performing its obligations
pursuant to this Agreement will not be interrupted or adversely affected by the
manipulation, processing, comparison, display or calculation of dates from, into
and between the twentieth and twenty-first centuries, including leap years, and
each agrees to cooperate with the other party to promptly remedy any such error.
Section 7. Indemnification
7.1 Company. The Company will indemnify and hold harmless Microsoft
-------
against, and will defend or settle at the Company's expense, any and all
actions, claims, liabilities, losses, damages, costs, expenses, judgments and
penalties, including but not limited to reasonable attorneys' fees, or other
proceeding brought by third parties against Microsoft to the extent based on a
claim that, if true would (a) result from any misrepresentation or breach of
representation or warranty of the Company contained herein, or (b) result from
any breach of any covenant or agreement to be performed by Company hereunder.
7.2 Microsoft. Microsoft will indemnify and hold harmless the Company
---------
against, and will defend or settle at Microsoft's expense, any action actions,
claims, liabilities, losses, damages, costs, expenses, judgments and penalties,
including but not limited to reasonable attorneys' fees, or other proceeding
brought by third parties against Company to the extent based on a claim that, if
true would (a) result from any misrepresentation or breach of representation or
warranty of Microsoft contained herein, or (b) result from any breach of any
covenant or agreement to be performed by Microsoft hereunder.
7.3 Procedure. The party to be indemnified, defended and held
---------
harmless pursuant to paragraph 7.1 or 7.2 will: (a) provide the indemnifying
party with prompt written notice of any such claim, (b) permit the indemnifying
party to assume and control the defense of such action, and (c) not enter into
any settlement or compromise of any such claim without the indemnifying party's
prior written consent (not to be unreasonably withheld). The indemnifying party
will pay any and all costs, damages, and expenses (including but not limited to
reasonable attorneys' fees and costs) awarded against or incurred by the
indemnified party in any such action or proceeding attributable to any such
claim. The indemnified party may also retain counsel at its own expense in
connection with the defense or settlement of any such claim.
Section 8. Limitation of Liability
8.1 Limitation of Remedies. EXCEPT TO THE EXTENT ARISING PURSUANT TO
-----------------------
SECTION 7 OR A BREACH OF SECTION 9, UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY
5
<PAGE>
FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF
THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM OR
OTHERWISE RELATED TO THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE, PROFITS, ACCOUNTS OR LOST BUSINESS, AND WHETHER ARISING IN CONTRACT,
TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
8.2 Limitation of Damages. EXCEPT TO THE EXTENT ARISING PURSUANT TO
---------------------
SECTION 7 OR A BREACH OF SECTION 9, UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR DAMAGES IN EXCESS OF AMOUNTS ACTUALLY PAID AND
OWING TO MICROSOFT HEREUNDER.
Section 9. Confidentiality
The parties acknowledge and agree that the Microsoft Non-Disclosure Agreement
dated as of _________________ ("NDA") entered into by and between the parties
applies to this Agreement as if fully set forth herein and that all of the terms
of this Agreement (including but not limited to its existence) and all
discussions and negotiations related thereto are considered Confidential
Information (as that term is defined in the NDA) of Microsoft under the NDA. If
Company has not executed a NDA, Company agrees to sign the NDA attached hereto
as Exhibit B and return it to Microsoft with this Agreement. Upon termination or
expiration of this Agreement, each party will destroy (or upon the other party's
request return) any and all Confidential Information of the other party in its
possession or control.
Section 10. General.
10.1 Notices. All notices and requests in connection with this
-------
Agreement will be deemed given (a) when personally delivered, (b) when delivered
by facsimile or telex, (c) the next business day following delivery to a
nationally recognized courier service guarantying next-day delivery, or (d) five
(5) business days after being placed in the United States mail, postage prepaid,
certified or registered, return receipt requested, as follows:
Notices to Company: Notices to Microsoft:
- ------------------ --------------------
Snowball.com d/b/a IGN.com Microsoft Corporation
250 Executive Park, Suite 4000 One Microsoft Way
San Francisco, CA 94134 Redmond, WA 98052-6399
Attn.: Simon Whitcombe Attn.: Chuck Frizelle
------------------------
Telephone: (415) 508-2011 Telephone: (425) 705-2179
----------------
Fax: (415) 508-2001 Fax: (425) 936-7329
----------------
Copy to: Copy to:
Snowball.com, Inc. Microsoft Law & Corporate Affairs
250 Executive Park, Suite 4000 One Microsoft Way
San Francisco, CA 94134 Redmond, WA 98052
Fax: (415) 508-2001 Fax: (425) 936-7329
Attn.: Legal Department Attn.: Gregory Ritts
or to such other address as the party to receive the notice or request so
designates by at least ten (10) days prior written notice to the other party.
10.2 Independent Contractor. Company is an independent contractor, and
----------------------
nothing in this Agreement will be construed as creating an employer-employee
relationship, partnership, or joint venture between the parties.
10.3 Governing Law. This Agreement will be governed by the laws of the
-------------
State of Washington. Company hereby irrevocably consents to the personal
jurisdiction of, and exclusive venue for any legal proceeding commenced by or on
behalf of Company in, the state and federal courts sitting King County,
Washington, USA. In any suit or action to enforce any right or remedy under this
Agreement or to interpret any provision of this Agreement, the prevailing party
will be entitled to recover its costs, including reasonable attorneys' fees.
10.4 Assignment. Company may not assign, sub-license, transfer,
----------
encumber or otherwise dispose of this Agreement without Microsoft's prior
written approval. Any attempted assignment, sub-license, transfer,
encumbrance or other disposal of this Agreement by Company without Microsoft's
prior written approval will be void and will constitute a material default and
breach of this
6
<PAGE>
Agreement. Except as otherwise provided, this Agreement will be binding upon and
inure to the benefit of the parties' successors and lawful assigns.
10.5 Publicity. No press releases, public statements, promotions or
----------
advertising concerning the existence of this Agreement, shall be made or
released in any medium except with the prior written approval of both parties.
10.6 Headings. The section headings used in this Agreement are
--------
intended for convenience only and will not be deemed to affect in any manner the
meaning or intent of this Agreement or any provision hereof.
10.7 Modification. This Agreement may not be modified except by a
------------
written agreement dated subsequent to the date of this Agreement and signed on
behalf of Company and Microsoft by their respective duly authorized
representatives.
10.8 Waiver. No waiver of any breach of this Agreement will constitute
------
a waiver of any prior, concurrent or subsequent breach of the same or any other
provisions hereof, and no waiver will be effective unless made in writing and
signed by the waiving party.
10.9 Severability. To the extent that any provision of this Agreement
------------
conflicts with governing law or any provision is held to be null, void or
otherwise ineffective or invalid by a court of competent jurisdiction, (a) such
provision will be deemed to be restated to reflect as nearly as possible the
original intentions of the parties in accordance with applicable law, and (b)
the remaining terms, provisions, covenants and restrictions of this Agreement
will remain in full force and effect.
10.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together will constitute one agreement
10.11 Entire Agreement. Subject to Section 9, this Agreement
----------------
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous agreements or
communications between the parties.
The parties have caused this Agreement to be executed by their duly authorized
representatives as of the date written above.
Microsoft Company
MICROSOFT CORPORATION SNOWBALL.COM d/b/a IGN.COM
One Microsoft Way 250 Executive Park, Suite 4000
Redmond, WA 98052-6399 San Francisco, CA 94134
By /s/ MARK JUNG
---------------------------- -----------------------------------
(Sign) (Sign)
MARK JUNG
- ------------------------------- -----------------------------------
Name (Print) Name (Print)
CEO
- ------------------------------- -----------------------------------
Title Title
10-28-99
- ------------------------------- -----------------------------------
Date Date
94-33-16902
-----------------------------------
Company's Federal Employer ID Number
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CONFIDENTIAL TREATMENT **Confidential treatment has been
HAS BEEN REQUESTED FOR requested with respect to the
CERTAIN PORTIONS OF THIS information contained within the
DOCUMENT "[**]" markings. Such marked portions
have been omitted from this filing and
have been filed separately with the
Securities and Exchange Commission
</TABLE>
EXHIBIT 10.31
WEBCOURIER PROVIDER AGREEMENT
This agreement (the "Agreement") is made and entered into as of October 25,
1999, between Microsoft Corporation ("Microsoft"), with offices at One Microsoft
Way, Redmond, WA 98052-6399 and Snowball.com d/b/a PowerStudents.com (the
"Company"), a Delaware corporation with offices at 250 Executive Park, Suite
4000, San Francisco, CA 94134. Microsoft and Company agree as follows:
Section 1. Definitions
"Company Logo" means the Company logo(s) and trademark(s) provided
to Microsoft for use in connection with the Service.
"Copy" means a single email delivered to a specific Subscriber
consisting of a reproduction (in whole or in part) of, and/or hypertext link to,
a specific version of the Newsletter.
"IPRs" means trade secrets, patents, copyrights, trademarks, service
marks, trade names, know-how, moral rights, rights of publicity and privacy, and
similar rights of any type under the laws of any governmental authority,
domestic or foreign, including all applications and registrations relating to
any of the foregoing.
"Newsletter" means the publications to be provided by Company to
Microsoft, Copies of which will be distributed to Subscribers via the Service.
"Registration Pages" means those web pages that are displayed to users
of the U.S. English language Hotmail service in a manner to permit such users to
register to receive the Copies and other third party content via the Service, to
be launched on or about October 31, 1999.
"Service" means the WebCourier Service whereby a person registering or
registered for a U.S. English language Hotmail email account may also register
to receive generic third party content via the Hotmail service.
"Subscriber" means a Hotmail account that has consented to receiving
the Newsletter.
Section 2. Microsoft Obligations
2.1 Service. Microsoft will provide Company with placement on the
-------
Registration Page consisting of Company or Newsletter name (at Company option),
will link to the Company Logo and text description of the Newsletter. Company
will be accorded an "Anchor Provider" placement in the Teens/Young Adults
category ("Category"). Microsoft may modify the Registration Pages (including,
without limitation, Category names) from time to time, provided that Company
receives reasonably comparable placement on such revised pages as specified
herein.
2.2 Providers. The Newsletters of not more than one (1) "Premier
---------
Provider" and five (5) "Anchor Providers" may be referenced in the Category.
The "Premier Provider" will receive the most prominent placement in the Category
and each "Anchor Provider" will receive placement in descending order based upon
the level of compensation paid by such "Anchor Provider" to Microsoft to appear
in such category.
2.3 Distribution. Subject to paragraph 3.1, Microsoft will deliver
------------
Copies to Subscribers according to such schedules as mutually agreed upon by
Company and Microsoft. Company may change the schedule pursuant to which the
Copies are distributed to Subscribers by giving Microsoft written notice of the
requested change at least fifteen (15) business days prior to the scheduled
change. Company may not schedule Copies of more than one Newsletter to be
distributed in any twenty-four (24) hour period.
2.4 Promotional Banners. Microsoft will provide Company with a
-------------------
monthly credit of [**] promotional banners to be used in the Hotmail service.
Such promotional credits will be specified for use in particular months, and may
not be transferred to any other month or redeemed for cash. Unused promotional
banner credits will expire at the end of the month specified for use; however,
at Microsoft's discretion, unused promotional banners may be used in the month
following that for which the banners were not used. Company will create and
deliver to Microsoft all promotional banners for review at least ten (10) days
prior to the first run date for such banner as designated by Company. All
promotional
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked
portions have been omitted from
this filing and have been filed
separately with the Securities and
Exchange Commission.
1
<PAGE>
banners shall meet all specifications and submission requirements provided by
Microsoft, and will contain a link to such Hotmail URL as Microsoft may
designate.
2.5 Hotmail Promotion. Microsoft will use reasonable efforts to
-----------------
promote the Newsletter to new and current Hotmail users through Hotmail standard
promotional vehicles.
Section 3. Company Obligations
3.1 Delivery and Specifications. Company will make the Newsletter
---------------------------
available to Microsoft at a specified URL and on a delivery schedule agreed upon
by the parties in writing. The Company Logo, Newsletter text description and the
Newsletters are all subject to specifications and submissions guidelines (as
applicable) established by Microsoft and set forth in Appendix A, as the same
may be modified from time to time by Microsoft upon notice. Company will deliver
the Company Logo and Newsletter text description to Microsoft in the manner
directed by Microsoft. Company acknowledges that time is of the essence in
providing the foregoing to Microsoft, and the Company's failure to meet the
foregoing timing requirements or any applicable specifications may delay or
prevent delivery of Copies hereunder.
3.2 License. Company hereby grants Microsoft a world-wide, non-
-------
exclusive, royalty-free license to:
(a) reproduce, promote, market, distribute, display,
transmit, download, upload and, only for the purpose of enabling
distribution, transmission, downloading and uploading without substantive
change, edit, modify and otherwise use the Newsletter as reasonably
anticipated to fulfill Microsoft's obligations under this Agreement; and
(b) reproduce, display, transmit and otherwise use the Company
Logo and Newsletter text description in connection with (i) providing the
Service and Newsletter to Subscribers, and (ii) marketing and promoting the
Service and Newsletter, provided that (A) Microsoft will use the Company
Logo only in the form provided by the Company and will not modify or alter
the Company Logo and (B) Microsoft will cease any specified use of the
Company Logo upon written notice of the Company. Microsoft acknowledges
that the Company Logo is owned by the Company and will not attempt to
register the Company Logo or take any other action that is inconsistent
with Company's ownership. The use of the Company Logo hereunder will inure
to the sole and exclusive benefit of the Company.
3.3 Limitations. The Newsletter may not contain, promote, market,
-----------
advertise, distribute, offer to distribute, link (either directly or, if with
the knowledge of Company, indirectly) to or otherwise be related to content
that:
(a) is inappropriate, obscene, defamatory, libelous, slanderous,
profane, indecent or unlawful;
(b) infringes or misappropriates third party IPRs;
(c) constitutes "hate speech", whether directed at an individual
or a group, and whether based upon the race, sex, creed, national origin,
religious affiliation, sexual orientation or language of such individual or
group;
(d) promotes or contains viruses, worms, corrupted files, cracks
or other materials that are intended to or may damage or render inoperable
software, hardware or security measures of Microsoft, Subscribers or any
third party;
(e) facilitates or promotes gambling, or the sale or use of
liquor, tobacco products or illicit drugs;
(f) facilitates, promotes or forwards illegal contests, pyramid
schemes or chain letters; or
(g) otherwise restricts or inhibits any person's use or enjoyment
of Hotmail or the Service.
2
<PAGE>
The Newsletter may not contain, promote, market, advertise, distribute, or offer
to distribute competing e-mail or newsletter products whether offered by Company
or a third party (e.g., Lycos, Excite and other services designated by
Microsoft), except that Company may link or refer to the registration, contest
and promotional pages of Company or its affiliates. Microsoft may, but is under
no obligation to, review the Newsletter, and may refuse to host or make the
Newsletter available to Subscribers in whole or in part if Microsoft determines
that the Newsletter violates the foregoing limitations or such other reasonable
limitations as Microsoft may adopt from time to time.
3.4 Subscriber Information. All information regarding Subscribers
----------------------
collected through the Service constitutes Confidential Information (as that term
is used in Section 9) of Microsoft, and is subject to the confidentiality
requirements of Section 9. Notwithstanding the foregoing, information obtained
by Company directly from Subscribers will not constitute Confidential
Information of Microsoft and may be used by Company from time to time; provided,
Company does not collect, use or disclose such information in any manner that
identifies the subject as a Subscriber or Hotmail customer.
3.5 Changes to Newsletter. Company will provide Microsoft with thirty
---------------------
(30) days' prior written notice of any material change to the nature or intended
audience of any Newsletter. Microsoft will have the option to (a) permit Company
to remain in the Category, (b) place Company in a different category on the
Registration Pages, or (c) terminate this Agreement with respect to each
Newsletter for which such a change is anticipated or implemented upon written
notice. If Microsoft terminates the Agreement pursuant to this paragraph, within
thirty (30) days of the date of termination, Company will pay Microsoft [**] of
the pro rated Advance for the remainder of the original Term.
Section 4. Consideration
4.1 Advance. Company will prepay Microsoft an advance of the fees set
-------
forth in paragraph 4.2 in an amount equal to [**] (the "Advance"). The Advance
is a non-refundable, guaranteed payment to Microsoft. The Advance will be
rendered to Microsoft in four (4) equal installments on a quarterly basis (i.e.,
every three (3) months during the Term). The first payment hereunder is due on
December 23, 1999. Microsoft will invoice Company for the three (3) remaining
payments approximately thirty (30) days prior to the beginning of each
subsequent quarter, and the Company will pay such invoiced amounts on or before
the first day of each such subsequent quarter. Notwithstanding the foregoing,
upon termination or expiration of this Agreement, other than by Company pursuant
to paragraph 5.2 or Microsoft pursuant to paragraph 5.3, Company will
immediately pay Microsoft any amounts of the Advance not yet paid.
4.2 Fee. As consideration for Microsoft distributing the Newsletters
---
to Subscribers, Company will pay Microsoft [**] per Copy distributed to
Subscribers ("Fee").
4.3 Distribution Adjustment. On a quarterly basis (including, at the
-----------------------
end of the Term), Microsoft will compare the number of Copies actually
distributed hereunder against the Advance paid for such quarter (or the Term).
If the fees incurred pursuant to paragraph 4.2 for the number of Copies actually
distributed during such quarter (or the Term) are greater than the portion of
the Advance paid for such quarter (or the Term), Microsoft will invoice Company
for the difference at the applicable rates noted in paragraph 4.2. If at the end
of the Term the fees (including the Advance) received by Microsoft hereunder
exceed the amount of the fees incurred by Company for distribution of Copies
hereunder, Microsoft will refund the difference to Company; except that in no
event will Microsoft be required to refund or otherwise return to Company any
portion of the Advance. Notwithstanding the foregoing, the maximum aggregate
Advance and Fee payments that Company may incur to Microsoft hereunder will be
[**]. Once and only if the foregoing payment cap is reached by Company, Company
will be relieved of paying any additional amounts pursuant to Section 4.2
hereunder; provided that, for the remainder of the Term, Company may not
increase the average number of Copies delivered by Microsoft to Subscribers
during the period preceding Company attaining such payment cap.
4.4 Invoice and Payment. Within thirty (30) days after the date of an
-------------------
invoice, Company will pay Microsoft all amounts owing pursuant to such invoice
in readily available funds. Amounts not paid when due under this Agreement will
accrue interest at a rate of [**], compounded on a monthly basis. Microsoft
reserves the right to immediately suspend distribution of the Newsletter if
Company fails to make timely payment of any amounts owing hereunder. All
payments of amounts owing to Microsoft will be made at the following location or
such other location designated by Microsoft in writing:
Microsoft Corporation
PO Box 7247 - 7123
Philadelphia PA 19170-7123
4.5 Reports. Microsoft will provide Company with monthly reports
-------
setting forth the number of Subscribers receiving Copies and the total number of
Copies delivered per month.
4.6 Taxes. The fees, advances and other amounts owing to Microsoft
-----
pursuant to this Agreement do not include taxes or other governmental fees.
Company will pay all taxes and other governmental fees arising out of or related
to all
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
3
<PAGE>
transactions undertaken pursuant to this Agreement, other than taxes on
Microsoft income and revenue, and will provide Microsoft with appropriate
evidence of such payment upon request.
4.7 Audits. Microsoft will maintain during the Term and for at least
------
twelve (12) months thereafter all of its regular books of account relating to
Copies distributed via the Service and amounts owing to Microsoft hereunder. If
Company believes in good faith that Microsoft invoiced Company in excess of
amounts actually owing pursuant to paragraph 4.2, Company will have the right at
Company's sole expense to audit such books of account, subject to the following:
(a) Company will provide Microsoft with at least thirty (30) days' prior written
notice of such audits; (b) audits may occur only during Microsoft's regular
business hours, and at the location where such books of account are maintained
by Microsoft or such other location reasonably specified by Microsoft; (c)
Company will cooperate with Microsoft in good faith to avoid and limit any
disruption of such audits to Microsoft's business and operations; (d) such audit
will be conducted by an independent accounting firm, acceptable to Microsoft and
compensated by Company in a manner that is not affected by the outcome of the
audit (e.g., no contingency fees); (e) the auditors provide Microsoft with all
results and other communications to Company related to the audit at the same
time such auditors provide such communications to Company; (f) audits may not
occur more than once during the Term, may not exceed three (3) consecutive days
and must be completed within twelve (12) months after the end of the Term; (g)
the auditors provide their final conclusions of the audit to Company and
Microsoft simultaneously and within thirty (30) days after the last day of the
audit. Any information disclosed to or otherwise learned by Company or its
auditors in connection with an audit conducted pursuant to this paragraph
constitutes Confidential Information (as the term is used in Section 9) of
Microsoft and subject to the limitations on use set forth in paragraph 9.1.
Section 5. Term and Termination
5.1 Term. This Agreement is binding upon signature and the "Term"
----
will be in effect for a period of [**] commencing October 31, 1999 or the day on
which the Registration Page is made publicly available.
5.2 Termination. Either party may immediately terminate this
-----------
Agreement upon written notice if the other party breaches the Agreement in any
material respect, and the breach remains uncured for a period of ten (10) days
following the breaching party's receipt of written notice of the breach from the
non-breaching party.
5.3 Microsoft Termination. Notwithstanding paragraph 5.1, Microsoft
----------------------
may terminate this Agreement upon thirty (30) days' prior written notice if
Microsoft ceases to offer the Service. In such a case, or if Company terminates
this Agreement under Section 5.2 or Section 5.4, Microsoft will return to
Company a pro rata portion of the Advance actually paid to Microsoft (less any
additional fees incurred by Company hereunder as of the date of termination). If
fees incurred by Company hereunder exceed the amount of the pro rated Advance
actually paid by to Microsoft as of the date of termination, Microsoft will
invoice, and Company will promptly pay, any additional amounts owing hereunder.
5.4 Company Termination. Company may terminate this Agreement upon
--------------------
fifteen (15) days prior written notice to Microsoft after three (3) calendar
months following commencement of the Term if the benchmark of (i) [**]
Subscribers in each calendar month during such period is not achieved or
(ii) [**] Subscribers in the three month period is not achieved. If Microsoft
does not achieve the benchmark set forth above, Microsoft will have fifteen (15)
days to remedy such Subscriber shortfall following Microsoft's receipt of
Company's written termination notice. The parties acknowledge and agree that
they will execute an amendment to this Agreement which sets forth the terms of
the Subscriber shortfall remedy. Upon execution of such amendment, or if
Company has not provided Microsoft written notice of its intent to terminate as
set forth above, Company will forfeit the right to terminate the Agreement as
set forth in this section. In no event will Microsoft be required to refund or
otherwise return to Company any portion of the Advance.
5.5 Survival. This paragraph and Sections 3.5 (Changes to
--------
Newsletter), 4 (Consideration) only to the extent of fees set forth in paragraph
4.2 accrued and payable prior to the date of termination (Representations and
Warranties), 7 (Indemnification), 8 (Limitation of Liability), 9
(Confidentiality), and 10 (General) shall survive any termination of this
Agreement, together with all obligations, rights and causes of action that may
have accrued prior to termination, along with any other provisions that might
reasonably be deemed to survive such termination.
Section 6. Representations and Warranties
6.1 Company. Company represents and warrants that:
-------
(a) Company has the full corporate rights, power and authority to
enter into this Agreement and to perform the acts required of it hereunder;
(b) Company's execution and performance of this Agreement do not
and will not violate any agreement to which Company is a party or by which
Company is otherwise bound, or any applicable law, rule or regulation;
**Confidential treatment has been
requested with respect to the
information contained within the
"[**]" markings. Such marked portions
have been omitted from this filing and have
been filed separately with the Securities and
Exchange Commission
4
<PAGE>
(c) the Newsletter does not and will not violate any third party
IPRs or give rise to any obligation for the payment of any sums to any
third party by Microsoft or Microsoft's successors in interest;
(d) the Newsletter (in whole or in part) does not and will not
violate the limitations set forth in paragraph 3.3;
(e) it will not harvest or otherwise collect through the Service
information about Subscribers, including e-mail addresses, without
Subscribers' express consent;
(f) it will not link the Service or Hotmail to any unsolicited
communication sent to any third party, or otherwise use or mention the
Service or Hotmail in connection with any such unsolicited communication;
and
(g) it has in effect a privacy policy that is available online to
Subscribers and that meets or exceeds the applicable standards of an
industry recognized online privacy organization (e.g., the TRUST.E Program,
BBB OnLine), and it will adhere to the information gathering,
dissemination, privacy protection and other practices specified in such
privacy policy.
6.2 Microsoft: Microsoft represents and warrants to the Company that
----------
has the full corporate rights, power and authority to enter into this Agreement
and to perform the acts required of it hereunder.
6.3 Warranty Disclaimer. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE
-------------------
SERVICE, NEWLETTER, HOTMAIL, AND ANY MATERIALS OR OTHER SERVICES PROVIDED BY OR
ON BEHALF OF MICROSOFT PURSUANT TO THIS AGREEMENT ARE PROVIDED "AS IS" AND WITH
ALL DEFECTS. MICROSOFT HEREBY DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND
CONDITIONS, EXPRESS OR IMPLIED, OF FITNESS FOR A PARTICULAR PURPOSE,
MERCHANTABILITY, TITLE, NONINFRINGEMENT, COMPATIBILITY, SECURITY, AND CONDITION
OR OPERATION OF THE FOREGOING. MICROSOFT DOES NOT WARRANT THE CONTINUED OR
UNINTERRUPTED OPERATION OF THE INTERNET, SERVICE, OR HOTMAIL.
6.4 Date Warranty: Each party represents and warrants that the
--------------
information technology, financial, operational, communication and other systems
and processes used by such party in connection with performing its obligations
pursuant to this Agreement will not be interrupted or adversely affected by the
manipulation, processing, comparison, display or calculation of dates from, into
and between the twentieth and twenty-first centuries, including leap years, and
each agrees to cooperate with the other party to promptly remedy any such error.
Section 7. Indemnification
7.1 Company. The Company will indemnify and hold harmless Microsoft
-------
against, and will defend or settle at the Company's expense, any and all
actions, claims, liabilities, losses, damages, costs, expenses, judgments and
penalties, including but not limited to reasonable attorneys' fees, or other
proceeding brought by third parties against Microsoft to the extent based on a
claim that, if true would (a) result from any misrepresentation or breach of
representation or warranty of the Company contained herein, or (b) result from
any breach of any covenant or agreement to be performed by Company hereunder.
7.2 Microsoft. Microsoft will indemnify and hold harmless the Company
---------
against, and will defend or settle at Microsoft's expense, any action actions,
claims, liabilities, losses, damages, costs, expenses, judgments and penalties,
including but not limited to reasonable attorneys' fees, or other proceeding
brought by third parties against Company to the extent based on a claim that, if
true would (a) result from any misrepresentation or breach of representation or
warranty of Microsoft contained herein, or (b) result from any breach of any
covenant or agreement to be performed by Microsoft hereunder.
7.3 Procedure. The party to be indemnified, defended and held
---------
harmless pursuant to paragraph 7.1 or 7.2 will: (a) provide the indemnifying
party with prompt written notice of any such claim, (b) permit the indemnifying
party to assume and control the defense of such action, and (c) not enter into
any settlement or compromise of any such claim without the indemnifying party's
prior written consent (not to be unreasonably withheld). The indemnifying party
will pay any and all costs, damages, and expenses (including but not limited to
reasonable attorneys' fees and costs) awarded against or incurred by the
indemnified party in any such action or proceeding attributable to any such
claim. The indemnified party may also retain counsel at its own expense in
connection with the defense or settlement of any such claim.
Section 8. Limitation of Liability
8.1 Limitation of Remedies. EXCEPT TO THE EXTENT ARISING PURSUANT TO
-----------------------
SECTION 7 OR A BREACH OF SECTION 9, UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY
5
<PAGE>
FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF
THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM OR
OTHERWISE RELATED TO THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE, PROFITS, ACCOUNTS OR LOST BUSINESS, AND WHETHER ARISING IN CONTRACT,
TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
8.2 Limitation of Damages. EXCEPT TO THE EXTENT ARISING PURSUANT TO
---------------------
SECTION 7 OR A BREACH OF SECTION 9, UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR DAMAGES IN EXCESS OF AMOUNTS ACTUALLY PAID AND
OWING TO MICROSOFT HEREUNDER.
Section 9. Confidentiality
The parties acknowledge and agree that the Microsoft Non-Disclosure Agreement
dated as of _________________ ("NDA") entered into by and between the parties
applies to this Agreement as if fully set forth herein and that all of the terms
of this Agreement (including but not limited to its existence) and all
discussions and negotiations related thereto are considered Confidential
Information (as that term is defined in the NDA) of Microsoft under the NDA. If
Company has not executed a NDA, Company agrees to sign the NDA attached hereto
as Exhibit B and return it to Microsoft with this Agreement. Upon termination or
expiration of this Agreement, each party will destroy (or upon the other party's
request return) any and all Confidential Information of the other party in its
possession or control.
Section 10. General.
10.1 Notices. All notices and requests in connection with this
-------
Agreement will be deemed given (a) when personally delivered, (b) when delivered
by facsimile or telex, (c) the next business day following delivery to a
nationally recognized courier service guarantying next-day delivery, or (d) five
(5) business days after being placed in the United States mail, postage prepaid,
certified or registered, return receipt requested, as follows:
Notices to Company: Notices to Microsoft:
- ------------------ --------------------
Snowball.com d/b/a IGN.com Microsoft Corporation
250 Executive Park, Suite 4000 One Microsoft Way
San Francisco, CA 94134 Redmond, WA 98052-6399
Attn.: Sybil Yang Attn.: Chuck Frizelle
------------------------
Telephone: (415) 508-2049 Telephone: (425) 705-2179
----------------
Fax: (415) 508-2001 Fax: (425) 936-7329
----------------
Copy to: Copy to:
Snowball.com, Inc. Microsoft Law & Corporate Affairs
250 Executive Park, Suite 4000 One Microsoft Way
San Francisco, CA 94134 Redmond, WA 98052
Fax: (415) 508-2001 Fax: (425) 936-7329
Attn.: Legal Department Attn.: Gregory Ritts
or to such other address as the party to receive the notice or request so
designates by at least ten (10) days prior written notice to the other party.
10.2 Independent Contractor. Company is an independent contractor, and
----------------------
nothing in this Agreement will be construed as creating an employer-employee
relationship, partnership, or joint venture between the parties.
10.3 Governing Law. This Agreement will be governed by the laws of the
-------------
State of Washington. Company hereby irrevocably consents to the personal
jurisdiction of, and exclusive venue for any legal proceeding commenced by or on
behalf of Company in, the state and federal courts sitting King County,
Washington, USA. In any suit or action to enforce any right or remedy under this
Agreement or to interpret any provision of this Agreement, the prevailing party
will be entitled to recover its costs, including reasonable attorneys' fees.
10.4 Assignment. Company may not assign, sub-license, transfer,
----------
encumber or otherwise dispose of this Agreement without Microsoft's prior
written approval, except in connection with a merger or sale of substantially
all of Company's assets. Any attempted assignment, sub-license, transfer,
encumbrance or other disposal of this Agreement by Company without Microsoft's
prior written approval will be void and will constitute a material default and
breach of this
6
<PAGE>
Agreement. Except as otherwise provided, this Agreement will be binding upon and
inure to the benefit of the parties' successors and lawful assigns.
10.5 Publicity. No press releases, public statements, promotions or
----------
advertising concerning the existence of this Agreement, shall be made or
released in any medium except with the prior written approval of both parties.
10.6 Headings. The section headings used in this Agreement are
--------
intended for convenience only and will not be deemed to affect in any manner the
meaning or intent of this Agreement or any provision hereof.
10.7 Modification. This Agreement may not be modified except by a
------------
written agreement dated subsequent to the date of this Agreement and signed on
behalf of Company and Microsoft by their respective duly authorized
representatives.
10.8 Waiver. No waiver of any breach of this Agreement will constitute
------
a waiver of any prior, concurrent or subsequent breach of the same or any other
provisions hereof, and no waiver will be effective unless made in writing and
signed by the waiving party.
10.9 Severability. To the extent that any provision of this Agreement
------------
conflicts with governing law or any provision is held to be null, void or
otherwise ineffective or invalid by a court of competent jurisdiction, (a) such
provision will be deemed to be restated to reflect as nearly as possible the
original intentions of the parties in accordance with applicable law, and (b)
the remaining terms, provisions, covenants and restrictions of this Agreement
will remain in full force and effect.
10.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together will constitute one agreement
10.11 Entire Agreement. Subject to Section 9, this Agreement
----------------
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous agreements or
communications between the parties.
The parties have caused this Agreement to be executed by their duly authorized
representatives as of the date written above.
Microsoft Company
MICROSOFT CORPORATION SNOWBALL.COM d/b/a POWERSTUDENTS.COM
One Microsoft Way 250 Executive Park, Suite 4000
Redmond, WA 98052-6399 San Francisco, CA 94134
By /s/ KELLY TANABE
---------------------------- -----------------------------------
(Sign) (Sign)
KELLY TANABE
- ------------------------------- -----------------------------------
Name (Print) Name (Print)
Director
- ------------------------------- -----------------------------------
Title Title
11/1/99
- ------------------------------- -----------------------------------
Date Date
-----------------------------------
Company's Federal Employer ID Number
7
<PAGE>
EXHIBIT A
SPECIFICATIONS
A. Specifications for Providers
a. Company logo: 100x 30, 1.5K file size, gif, non-animated, non-
clickable
b. Newsletter description: 215 Latin characters (including spaces)
that briefly describes the newsletter
c. Company name: 20 characters
d. Promotional banners
i. 468x60, 12K file size, gif or jpeg
ii. At Microsoft discretion, Company must include Hotmail
and/or WebCourier logo, making it clear to the user
that the banner is a co-branded banner.
iii. URL determined by Microsoft
iv. Banner must meet standard Microsoft guidelines set
forth in Standard Terms and Conditions
B. Hosting Schedule
a. Company will make the newsletter content available to Microsoft
according to a schedule agreed upon by Microsoft and Company.
b. Company will run newsletter content through an HTML validator
program to catch any errors before posting it for pickup.
c. Company will provide Microsoft with the URL of the newsletter
content for Microsoft pick-up.
d. Company may not alter the newsletter content more than once each
day.
C. Delivery Schedule
a. Microsoft will distribute the Newsletter to Subscribers according
to the schedule agreed upon by Microsoft and Company.
Newsletter Technical Requirements
1. Code must be syntactically correct, and resemble the following;
(HTML)
(BODY)
......
(/BODY)
(/HTML)
Note: Tables are good if you want the page to retain its attributes, but if
any of the above tags are missing, it WILL NOT work. Code that is not clean
will run into problems with WebCourier automated content pickups and page
display.
2. No Relative Links.
The following are examples of relative links
(a href="/hotmail/link.html")
(img src="../../../../hotmail/img.gif")
All links must have full headings similar to these:
(a href="http://www.hotmail.com/hotmail.html")
(img src="http://www.hotmail.com/hotmail/img.gif")
3. Use NO JavaScript/DHTML.
For security reasons, we do not allow JavaScript or DHTML.
4. We accept only the GET method instead of the POST method in Form tags (i.e.,
(FORM) tags should have "METHOD=GET".
Scripts receiving (FORM) input must accept the "GET" method.
5. Links may NOT open new browser windows.
6. Tags that are opened must be closed.
7. Suggestion: Code for a maximum resolution screen size of 800 x 600. For best
results across all platforms, use a minimum of 600 pixels.
1
<PAGE>
8. Setting Background Colors:
If you wish to set a background color, then set it in a table around your
HTML, rather than using body tags. DO NOT USE BODY TAGS. DO NOT USE GLOBAL
STYLE TO SPECIFY COLORS. DO NOT SET A BODY BACKGROUND. Use nested styles
within the table. Anything with body tags will be stripped out or ignored.
Example of what NOT to do:
---
(body bgcolor="#FFFFFF" text="#000000" link="#003366" vlink="#003366"
alink="#003366")
What you can do:
- create CSS classes specific to your content, or
----
- create all styles in-line
9. Variable Subject Lines: (You must inform the Program Manager to turn ON this
feature.)
Subject must be enclosed in the (title)...(/title) tags on same line. 46
character max, including spaces. Subject line must begin with your
newsletter name. (Ex. MSNBC: followed by subject).
10. Content: maximum of 512 characters per line. If it's longer than 512
characters, people using email clients will not be able to retrieve your
WebCourier newsletter.
Server Rules
11. Server Accessibility:
The server on which your HTML resides must be accessible via telnet client.
We will retrieve the HTML by "telnet"ing into the site and using the GET
command to retrieve the material.
telnet www.hotmail.com 80
Trying 207.82.250.251...
Connected to www.hotmail.com.
Escape character is '(caret)]'.
GET /hotmail/test.html HTTP/1.0
The server can reside on any port as long as it is not a secure server.
SID's are supported.
12. No Password Protected Pages.
13. Note: Some codes that may work in a browser alone may not be permissible in
WebCourier content.
14. Please run your newsletters through an HTML validator program to catch any
errors before posting it for pickup.
Pickup Rules
15. The URL where the page resides for pickup cannot be changed. If it must be
changed, Hotmail must be notified as far in advance as possible.
16. Content must be ready at the time of pickup. Materials that have not been
changed from the previous pickup will not be delivered.
Subscriber Customer Support:
17. If subscribers have problems with their WebCourier subscription, please have
them send a blank email to [email protected]. This alias will send the user
------------------
some troubleshooting instructions. If a subscriber continues to have
problems after following the autoresponder directions, there is another
email alias provided for a personal response.
18. Company must maintain WebCourier delivered newsletter content pages, links,
and images for a minimum of six (6) months.
2
<PAGE>
EXHIBIT B
MICROSOFT CORPORATION NON-DISCLOSURE AGREEMENT
THIS AGREEMENT (the "Agreement") is made between MICROSOFT CORPORATION, a
Washington corporation, and Snowball.com, Inc. (the "Company") and entered into
this ______ day of ________________, 19_____.
In consideration of the mutual promises and covenants contained in this
Agreement, the mutual disclosure of confidential information to each other, the
parties hereto agree as follows:
1. Confidential Information and Confidential Materials
---------------------------------------------------
(a) "Confidential Information" means nonpublic information that Disclosing
Party designates as being confidential or which, under the circumstances
surrounding disclosure ought to be treated as confidential. "Confidential
Information" includes, without limitation, information relating to released or
unreleased Disclosing Party software or hardware products, the marketing or
promotion of any Disclosing Party product, Disclosing Party's business policies
or practices, and information received from others that Disclosing Party is
obligated to treat as confidential. Confidential Information disclosed to
Receiving Party by any Disclosing Party Subsidiary and/or agents is covered by
this Agreement.
(b) Confidential Information shall not include any information that: (i) is
or subsequently becomes publicly available without Receiving Party's breach of
any obligation owed Disclosing Party; (ii) became known to Receiving Party prior
to Disclosing Party's disclosure of such information to Receiving Party; (iii)
became known to Receiving Party from a source other than Disclosing Party other
than by the breach of an obligation of confidentiality owed to Disclosing Party;
or (iv) is independently developed by Receiving Party.
(c) "Confidential Materials" shall mean all tangible materials containing
Confidential Information, including without limitation written or printed
documents and computer disks or tapes, whether machine or user readable.
2. Restrictions
------------
(a) Receiving Party shall not disclose any Confidential Information to
third parties for five (5) years following the date of its disclosure by
Disclosing Party to Receiving Party, except to Receiving Party's consultants as
provided below. However, Receiving Party may disclose Confidential Information
in accordance with judicial or other governmental order, provided Receiving
Party shall give Disclosing Party reasonable notice prior to such disclosure and
shall comply with any applicable protective order or equivalent.
(b) Receiving Party shall take reasonable security precautions, at least as
great as the precautions it takes to protect its own confidential information,
to keep confidential the Confidential Information. Receiving Party may disclose
Confidential Information or Confidential Material only to Receiving Party's
employees or consultants on a need-to-know basis. Receiving Party will have
executed or shall execute appropriate written agreements with its employees and
consultants sufficient to enable it to comply with all the provisions of this
Agreement.
(c) Confidential Information and Confidential Materials may be disclosed,
reproduced, summarized or distributed only in pursuance of Receiving Party's
business relationship with Disclosing Party, and only as otherwise provided
hereunder. Receiving Party agrees to segregate all such Confidential Materials
from the confidential materials of others in order to prevent commingling.
(d) Receiving Party may not reverse engineer, decompile or disassemble any
software disclosed to Receiving Party.
3. Rights and Remedies
-------------------
(a) Receiving Party shall notify Disclosing Party immediately upon
discovery of any unauthorized use or disclosure of Confidential Information
and/or Confidential Materials, or any other breach of this Agreement by
Receiving Party, and will cooperate with Disclosing Party in every reasonable
way to help Disclosing Party regain possession of the Confidential Information
and/or Confidential Materials and prevent its further unauthorized use.
(b) Receiving Party shall return all originals, copies, reproductions and
summaries of Confidential Information or Confidential Materials at Disclosing
Party's request, or at Disclosing Party's option, certify destruction of the
same.
(c) Receiving Party acknowledges that monetary damages may not be a
sufficient remedy for unauthorized disclosure of Confidential Information and
that Disclosing Party shall be entitled, without waiving any other rights or
remedies, to such injunctive or equitable relief as may be deemed proper by a
court of competent jurisdiction.
1
<PAGE>
(d) Disclosing Party may visit Receiving Party's premises, with reasonable
prior notice and during normal business hours, to review Receiving Party's
compliance with the terms of this Agreement.
4. Miscellaneous
-------------
(a) All Confidential Information and Confidential Materials are and shall
remain the property of Disclosing Party. By disclosing information to Receiving
Party, Disclosing Party does not grant any express or implied right to Receiving
Party to or under Disclosing Party patents, copyrights, trademarks, or trade
secret information.
(b) If either party provides pre-release software as Confidential
Information or Confidential Materials under this Agreement, such pre-release
software is provided "as is" without warranty of any kind. Receiving Party
agrees that neither Disclosing Party nor its suppliers shall be liable for any
damages whatsoever relating to Receiving Party's use of such pre-release
software.
(c) All software provided to the U.S. Government pursuant to solicitations
issued on or after December 1, 1995 is provided with the commercial rights and
restrictions described elsewhere herein. All software provided to the U.S.
Government pursuant to solicitations issued prior to December 1, 1995 is
provided with RESTRICTED RIGHTS as provided for in FAR, 48 CFR 52.227-14 (JUNE
1987) or DFAR, 48 CFR 252.227-7013 (OCT 1988), as applicable. Manufacturer is
Microsoft Corporation/One Microsoft Way/Redmond, WA 98052-6399.
(d) Both parties agree that they do not intend nor will they, directly or
indirectly, export or re-export (i) any Confidential Information or Confidential
Materials, or (ii) any product (or any part thereof), process or service that is
the direct product of the Confidential Information or Materials to (A) any
country that is subject to U.S. export restrictions (currently including, but
not necessarily limited to, Iran, Iraq, Syria, Cuba, North Korea, Libya, the
Federal Republic of Yugoslavia (Serbia and Montenegro) and Sudan), or to any
national of any such country, wherever located, who intends to transmit or
transport the products back to such country; (B) to any end-user who either
party knows or has reason to know will utilize them in the design, development
or production of nuclear, chemical or biological weapons; or (C) to any end-user
who has been prohibited from participating in U.S. export transactions by any
federal agency of the U.S. government.
(e) The terms of confidentiality under this Agreement shall not be
construed to limit either party's right to independently develop or acquire
products without use of the other party's Confidential Information. Further,
either party shall be free to use for any purpose the residuals resulting from
access to or work with such Confidential Information, provided that such party
shall maintain the confidentiality of the Confidential Information as provided
herein. The term "residuals" means information in non-tangible form, which may
be retained by persons who have had access to the Confidential Information,
including ideas, concepts, know-how or techniques contained therein. Neither
party shall have any obligation to limit or restrict the assignment of such
persons or to pay royalties for any work resulting from the use of residuals.
However, the foregoing shall not be deemed to grant to either party a license
under the other party's copyrights or patents.
(f) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and signed by
both parties. None of the provisions of this Agreement shall be deemed to have
been waived by any act or acquiescence on the part of Disclosing Party, its
agents, or employees, but only by an instrument in writing signed by an
authorized officer of Disclosing Party. No waiver of any provision of this
Agreement shall constitute a waiver of any other provision(s) or of the same
provision on another occasion.
(g) If either party employs attorneys to enforce any rights arising out of
or relating to this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees. This Agreement shall be construed and controlled by
the laws of the State of Washington, and both parties further consent to
jurisdiction by the state and federal courts sitting in the State of Washington.
Process may be served on either party by U.S. Mail, postage prepaid, certified
or registered, return receipt requested, or by such other method as is
authorized by the Washington Long Arm Statute.
(h) Subject to the limitations set forth in this Agreement, this Agreement
will inure to the benefit of and be binding upon the parties, their successors
and assigns.
(i) If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
(j) All obligations created by this Agreement shall survive change or
termination of the parties' business relationship.
2
<PAGE>
5. Suggestions and Feedback
------------------------
Either party may from time to time provide suggestions, comments or other
feedback to the other party with respect to Confidential Information provided
originally by the other party (hereinafter "Feedback"). Both parties agree that
all Feedback is and shall be entirely voluntary and shall not, absent separate
agreement, create any confidentiality obligation for the Receiving Party.
However, the Receiving Party shall not disclose the source of any feedback
without the providing party's consent. Feedback shall be clearly designated as
such and, except as otherwise provided herein, each party shall be free to
disclose and use such Feedback as it sees fit, entirely without obligation of
any kind to the other party. The foregoing shall not, however, affect either
party's obligations hereunder with respect to Confidential Information of the
other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
Microsoft Company
MICROSOFT CORPORATION SNOWBALL.COM d/b/a POWERSTUDENTS.COM
One Microsoft Way 250 Executive Park, Suite 4000
Redmond, WA 98052-6399 San Francisco, CA 94134
By /s/ KELLY TANABE
-------------------------- ---------------------------------
(Sign) (Sign)
KELLY TANABE
- ----------------------------- ---------------------------------
Name (Print) Name (Print)
Director
- ----------------------------- ---------------------------------
Title Title
October 25, 1999
- ----------------------------- ---------------------------------
Date Date
3
<PAGE>
Exhibit 21.01
Snowball.com, Inc. has the following subsidiaries:
High School Alumni, Inc., a Delaware corporation
Extreme Interactive Media, Inc., a Oklahoma corporation
Two Cents, Inc., a New Jersey corporation
<PAGE>
Exhibit 23.02
Consent of Ernst & Young LLP, Independent Auditors
--------------------------------------------------
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated January 28, 2000,
in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-93487) and
related Prospectus of Snowball.com, Inc. for the registration of 7,187,500
shares of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
February 9, 2000
<PAGE>
EXHIBIT 23.03
Consent of Independent Accountants
We hereby consent to the use in Amendment 1 of Snowball.com on Form S-1 of our
report dated December 9, 1999, relating to the audited financial statements of
Extreme Interactive Media, Inc., which appear in such registration statement. We
also consent to the reference to us under heading "Experts" in such registration
statement.
Sincerely,
/s/ Hamilton & Associates, Inc.
Hamilton & Associates, Inc.
February 9, 2000
<PAGE>
Exhibit 23.04
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated October 8, 1999, with respect to the financial
statements and schedules of Ameritrack, Inc. included in Amendment #1 to the
Registration Statement (Form S-1) and related Prospectus of Snowball.com, Inc.
for the registration of shares of its common stock.
/s/ J.W. Hunt and Company, LLP
Columbia, South Carolina
February 9, 2000
