SNOWBALL COM INC, S-1/A, 2000-03-17

SNOWBALL COM INC
S-1/A, 2000-03-17
COMPUTER PROCESSING & DATA PREPARATION

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As filed with the Securities and Exchange Commission on March 17, 2000

Registration No. 333-93487
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Amendment No. 4 to
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
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SNOWBALL.COM, INC.
(Exact name of Registrant as specified in its charter)
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<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)
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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>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
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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 March 17, 2000.

6,250,000 Shares

[SNOWBALL LOGO APPEARS HERE]

Common Stock

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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 the common stock.
Snowball anticipates that the initial public offering price will be between
$10.00 and $12.00 per share. Snowball has applied for quotation of the common
stock on the Nasdaq National Market under the symbol "SNOW".

See "Risk Factors" beginning on page 7 to read about risks you should
consider before buying shares of the common stock.

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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.

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<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.

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The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.

Goldman, Sachs & Co.

Chase H&Q

Robertson Stephens

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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. The United States Census
Bureau estimates that there were 67.9 million individuals in this age group in
1999, and those individuals between the ages of 15 and 24 had an aggregate mean
income of $302.4 billion in 1998. 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, we believe, 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 5.9 million unique
visitors in January 2000, making us one of the 30 highest-trafficked
properties, or networks of affiliated web sites, 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 January 31, 2000, we had over 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.......... "SNOW"
</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:

. 10,252,737 shares of common stock reserved for issuance under our stock
option plans and a stock option agreement, including 5,500,000 shares of
common stock available for future issuance under our 2000 Equity
Incentive Plan and 2000 Employee Stock Purchase Plan, each adopted in
February 2000, 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; and

. 150,000 shares of Series C preferred stock issued in January 2000.

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.................................... 46,718 48,218 110,856
Long-term obligations, less current portion..... 2,036 2,036 2,036
Stockholders' equity............................ 34,661 36,161 98,799
</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

Our business model is unproven and may fail.

We have a limited operating history upon which you can evaluate our business
model and prospects and the merits of investing in our stock. If our business
model proves to be unsuccessful, the trading price of our stock will fall.

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. In particular, we are
implementing an evolving and unpredictable business model. Our business model
is unproven and may fail, which could harm our business and diminish the value
of your investment. See "Business -- The Snowball Strategy" for more
information about our business model.

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.

We believe that period-to-period comparisons are not meaningful and are not
indicative of future performance. We anticipate that the results of our
operations will fluctuate significantly in the future as a result of a variety
of factors, including the long sales cycle we face selling advertising and
promotions, seasonal trends in Internet usage, advertising placements and e-
commerce and other factors discussed in this section. As a result, 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

7
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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.

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 and cannot replace them
with affiliates having comparable traffic patterns and user demographics, or if
we fail to add new affiliates to our networks on a timely basis, we will lose
revenue.

We could lose an affiliate if it were to:

. terminate or fail to renew its affiliate agreement with us;

. be acquired by or otherwise form a relationship with one of our
competitors;

. demand from us a greater portion of revenue derived from advertisements
placed on its web sites; or

. seek to require us to make payments for access to its web sites.

We lost 46 affiliates in 1999. Twenty-nine of these losses resulted from the
expiration and nonrenewal of affiliate agreements. Seventeen losses resulted
from the early termination of affiliate agreements--13 by mutual consent, two
because we acquired the affiliate, one because the affiliate was acquired by a
third party and one because the affiliate breached the agreement. The loss of
these affiliates did not have a significant impact on our revenue because
during the same period we entered into agreements with 102 new affiliates and
renewed agreements with 44 existing affiliates. We cannot assure you, however,
that we will not lose a major affiliate in the near future, which 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

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for approximately 70% of our consolidated page views in January 2000,
approximately 13% of our registered users as of January 31, 2000 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 advertising and marketing arrangements are terminated or are not
renewed, 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, our revenue will decline.

In addition, many of our advertising and marketing customers enter into
agreements with us that have a term of less than six months, and one or more of
our material advertising agreements has a six-month term. 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.

If we fail to perform in accordance with the terms of our advertising
agreements, we will lose revenue.

Our advertising agreements typically provide for minimum performance levels,
such as click-throughs by web users or impressions. If we fail to perform in
accordance with these terms, we typically have to provide free advertising to
the customer until the minimum level is met, causing us to lose revenue. In
addition, we occasionally guarantee the availability of advertising space in
connection with promotion arrangements and content agreements and often
guarantee exclusive placement on our network for our largest customers, which
precludes us from permitting certain competitors of these customers to offer
products and services on our network that are similar to those offered by our
exclusive customers. If we cannot fulfill the guarantees we make to our
customers, or if we lose potential customers whose advertisements, sponsorships
and promotions conflict with those of other customers, we will lose revenue and
our future growth may be impeded.

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.

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.

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<PAGE>

Technical problems with either our internal or our outsourced computer and
communications systems could interrupt our service, resulting in decreased
customer satisfaction, the possible loss of users and advertisers and a decline
in revenue.

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. This would cause our revenue to decline. 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,
or if our management team is unable to perform effectively, 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, nor do we have "key person" life insurance policies covering any of
these individuals.

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.

Finally, our success depends on the ability of our management to perform
effectively, both individually and as a group. Our management team has been
working together for less than one year. 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. If
our management is unable to operate effectively in their respective roles or as
a team, we will not be able to implement our business strategy or operate our
business effectively.

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

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<PAGE>

effectively, we will be unable to operate our business effectively. During the
year ended December 31, 1999, our business grew from 44 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 might
cause our business to fail.

Our operating history is too brief for us to know with certainty whether our
cash reserves and any cash flows from operations 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. If adequate funds are not available to satisfy
either short- or long-term capital requirements, we might be required to limit
our operations significantly and our business might fail. Additional financing
might not be available when required. 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.

Additional financings could disadvantage our existing stockholders and
purchasers in this offering.

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 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 three businesses and the selected
assets of two other businesses 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

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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 have adopted 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. 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. 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 conversion rights and other
preferences that work to the disadvantage of the holders of common stock.

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

12
<PAGE>

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.

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. 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.
Security and privacy concerns may also slow growth. Because our revenues
ultimately depend upon Internet usage generally as well as on our web sites,
our business may suffer as a result of retarded or declining growth.

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

13
<PAGE>

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 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.

14
<PAGE>

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.

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.

15
<PAGE>

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, 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. See "Use of
Proceeds" for more detailed information about how we intend to use the proceeds
of this offering.

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.

16
<PAGE>

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.

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."

17
<PAGE>

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. 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.

18
<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, 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 advertise and promote our brands, 25% to
expand our sales and marketing workforce 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.

19
<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................... 88,662 90,155 152,787
Notes receivable from stockholders........... (1,301) (1,301) (1,301)
Deferred stock compensation.................. (10,868) (10,868) (10,868)
Prepaid marketing and distribution rights.... (2,095) (2,095) (2,095)
Accumulated deficit.......................... (39,761) (39,761) (39,761)
-------- -------- --------
Total stockholders' equity................. 34,661 36,161 98,799
-------- -------- --------
Total capitalization....................... $ 36,697 $ 38,197 $100,835
======== ======== ========
</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; and

. 7,894,369 shares available for future issuance under our stock plans,
including 5,500,000 shares of common stock available for future issuance
under our 2000 Equity Incentive Plan and 2000 Employee Stock Purchase
Plan, each adopted in February 2000, as of December 31, 1999.

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.

20
<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; and

21
<PAGE>

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 7 and 10 of our Notes to Consolidated Financial Statements.

22
<PAGE>

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 46,718
Long-term debt, less current portion.............. -- -- 2,036
Stockholders' / division equity................... 502 762 34,661
</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.

23
<PAGE>

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 5 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

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obligations are not met, we defer recognition of the corresponding revenue
until guaranteed levels are achieved.

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. While these exclusive
arrangements prohibit us from engaging in certain types of business with some
of the competitors of our exclusive customers, we believe that we benefit more
from a few exclusive relationships than from many non-exclusive relationships
because our exclusive customers drive more traffic to our networks and pay
substantially higher fees for our services than do non-exclusive customers.
Moreover, we believe that offering users a greater variety of products and
services within a particular market is more important to our business and
future growth than offering them a greater number of vendors from which to
select these products and services. The portion of revenue derived from these
arrangements that is 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

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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.

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 additional 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
associated with 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

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$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.

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. This amount relates to the following
cost and expense categories (in thousands): cost of revenue $7, production and
content $407, engineering and development $263, sales and marketing $777, and
general and administrative $67. The total unamortized deferred stock-based
compensation recorded through December 31, 1999 is $10.9 million. This amount
will be amortized as follows: $6.2 million for the year ending December 31,
2000; $2.9 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 and $1.7 million arose from
the acquisition of Ameritrack and various web site assets that we purchased
during 1999. See Note 5 of our Notes to Consolidated Financial Statements. As
of December 31, 1999, goodwill and intangible assets of $3.4 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

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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 our operations 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 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 9 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. A significant percentage of the capital raised in this
offering will be expensed over the next two years to advertise and promote our
brands

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and to expand our sales and marketing workforce. We estimate that approximately
40% to 50% of the proceeds of this offering will be expensed during the current
fiscal year.

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 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.

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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. We had more than 150
affiliated web sites and over 100 partner college destinations as of December
31, 1999. 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.

Based upon the number of unique visitors who visited our web sites, Media
Metrix reported that we were the 29th highest-trafficked property on the
Internet in January 2000. Moreover, Media Metrix reported that these visitors
spent more time per day on our networks during that period than on all but 15
other properties among the top 50 properties.

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. 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, many individuals within the Generation i age
group 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, individuals in this age group represented approximately 25% of the U.S.
population in 1999. We believe that advertisers target this age group because
its members have a large aggregate mean 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. In addition to offering
creative and current content, each of our networks provides an interactive
community for users who share similar interests and passions, such as video
games, college life or shopping. We believe this integrated package of content,
community and commerce has helped to make us one of the most popular networks
on the Internet. 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.

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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, we believe, 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.

34
<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 New 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 OF CHICKCLICK]
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 34
million consolidated page views in January 2000 and over 800,000 registered
users as of January 31, 2000. According to the U.S. Census Bureau, women
between the ages of 13 and 30 numbered 33.5 million in 1999. Media Metrix
estimates that 14.5 million women between the ages of 12 and 34 used the
Internet in January 2000.

35
<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 OF IGN.COM]
IGN is a 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 198 million
consolidated page views in January 2000 and approximately 400,000 registered
users as of January 31, 2000. In July 1999, we acquired a popular former
affiliate, The Vault, which had approximately nine million consolidated page
views in January 2000. According to Media Metrix, males between the ages of 12
and 34 accounted for approximately 25% of all Internet users in the United
States in January 2000. Media Metrix estimates that approximately 12% of all 12
to 34 year old males on the Internet and approximately 19% of all 12 to 17 year
old males on the Internet visited our IGN network in January 2000.

36
<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>

37
<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
</TABLE>

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.
[LOGO OF POWER STUDENTS.COM]

Together with its affiliated web sites, PowerStudents had approximately 42
million consolidated page views in January 2000 and approximately two million
registered users as of January 31, 2000. High School Alumni, one of our owned
sites within the PowerStudents network, accounted for approximately 30 million
consolidated page views in January 2000 and approximately 1.8 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.
<TABLE>
<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>

38
<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
</TABLE>
<TABLE>
<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 OF INSIDEGUIDE.COM]
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 nearly nine million
consolidated page views in January 2000. 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.

39
<PAGE>

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 over 20,000 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 January
2000 and over 1.8 million registered users, as of January 31, 2000. Due to its
strong following and potential, we are currently evaluating options to
establish this site as a separate network during the year 2000.

Affiliate Agreements

Our standard affiliate agreement provides for an initial term of two years
and renews at our option for three consecutive one-year terms. As of January 1,
2000, 52 of our affiliates were parties to affiliate agreements with an initial
term of one year, 98 were parties to agreements with an initial term of two
years, two were parties to agreements with an initial term of three years and
two were parties to agreements with an initial term of five years. The average
duration of our current affiliate agreements is 3.4 years and the average term
remaining on these agreements is 2.8 years.

We enter into affiliate agreements with new affiliates on a rolling basis.
Accordingly, our affiliate agreements do not generally terminate at or around
the same time. Approximately 20% of our affiliate agreements will expire within
the next twelve months.

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

40
<PAGE>

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, sponsorships and customer
partnerships and (2) e-commerce and merchandising. For the years ended December
31, 1997, 1998 and 1999, advertising, sponsorship and customer partnership
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 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. One or more of our material agreements, however, have terms as
brief as six months.

We also generate revenue through customer partnerships, which involve the
sale of 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. Because
these arrangements are exclusive, however, they preclude us from offering our
users the products and services of certain competitors of these customers that
are similar to those offered by our exclusive customers.

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.

41
<PAGE>

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.

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 have entered into service agreements with Microsoft offering
free category-specific newsletters via MSN Hotmail.

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

42
<PAGE>

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.

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

43
<PAGE>

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.

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.

44
<PAGE>

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.

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.

45
<PAGE>

MANAGEMENT

Directors, Executive Officers and Significant Employees

The following table presents information regarding our directors, executive
officers and significant employees as of March 9, 2000.

<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
Richard D. Boyce........... 37 President of the Networks
Sandra Cavanah............. 40 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.......... 43 Vice President, Engineering
Kathleen Z. Layendecker.... 38 Vice President, Affiliate Development
Elizabeth G. Murphy........ 41 Vice President, Sales and Marketing
Christopher Anderson....... 43 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.

Richard D. Boyce has served as our President of the Networks since March
2000. Prior to joining to us, in September 1994, he co-founded HotWired, Inc.
(now known as Wired Digital), an Internet media company and, as of June 1999, a
wholly-owned subsidiary of Lycos, Inc., an Internet media company, and from
September 1994 to February 2000, he served in a number positions, including
most recently as its Senior Vice President of Advertising Sales and Commerce.
Mr. Boyce holds a Bachelor of Arts degree in communications from Washington
State University.

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

46
<PAGE>

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 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

47
<PAGE>

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.

Richard A. LeFurgy has served as a director since April 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 have amended our bylaws, 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.

48
<PAGE>

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 and Orsak. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation for
our officers and employees. The compensation committee also administers our
1999 Equity Incentive Plan, 2000 Equity Incentive Plan and 2000 Employee Stock
Purchase Plan.

Audit Committee. The current members of our audit committee are Messrs.
LeFurgy, Orsak and Reid. 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.

49
<PAGE>

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 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 Officer 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.

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

50
<PAGE>

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.

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>
Long-Term Compensation
Awards
----------------------
Annual
Compensation
---------------- 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

51
<PAGE>

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 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>
Individual Grants
------------------------------------------
Potential Realizable Value
Percent of at Assumed Annual Rates
Number of Total of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Expiration --------------------------
Name Granted in 1999 Per 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>

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<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
Underlying Unexercised Value of Unexercised
Number of Options at In-the-Money Options at
Shares 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

On February 22, 2000, the Board adopted the 2000 Equity Incentive Plan and
reserved 5,000,000 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, provided that no more than 30,000,000 shares shall be issued as
incentive stock options.

53
<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 on February 21, 2010, 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 the optionee. The compensation
committee could determine otherwise and provide for these

54
<PAGE>

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

On February 22, 2000, the board adopted the 2000 Employee Stock Purchase Plan
and reserved 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 May 1 and November 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 May 1 or November 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. The compensation committee will have the
power to change the offering dates, purchase dates and

55
<PAGE>

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 21, 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

56
<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 has not lapsed. Our repurchase right will expire as to
75,000 shares of the common stock subject to

57
<PAGE>

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 amended and restated certificate of incorporation to be filed upon the
closing of this offering 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 amended, 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.

58
<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. 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

59
<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.

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<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).................................... 574,504 1.8 1.5
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).. 23,442,652 75.4% 62.9%
</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

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<PAGE>

Cayman, L.P. and 259,867 shares held by Discovery Ventures III, LLC.
Christopher J. Schaepe is a managing member 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 Ventures 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
Ventures 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 20,000 shares held by the Shane M. Keller 1990 Trust and 20,000
shares held by the Samantha J. Keller 1991 Trust. 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, of which 15,000 shares are held by
C.J. Allan Murphy, as custodian for Charles James Murphy under UTMA and
15,000 shares are held by C.J. Allan Murphy, as custodian for Parker
Elisabeth Murphy under UTMA.

(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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<PAGE>

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

63
<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>
<CAPTION>
Total number
of shares Exercise
subject to price
Type of stock Warrants per share Expiration date
-------------------------- ------------ --------- -------------------------
<C> <C> <C> <S>
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 amended and restated certificate of
incorporation to be filed upon the closing of this offering, and our bylaws, as
amended, 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.

65
<PAGE>

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.

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 amended, 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 amended and restated certificate of incorporation to be
filed upon the closing of this offering, 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 amended, 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 amended and restated certificate of incorporation to be filed upon the
closing of this offering, 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 amended and restated certificate of incorporation to be filed upon the
closing of this offering 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 "SNOW".

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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)
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>

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.

69
<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 have applied to have our common stock listed on the Nasdaq National Market
under the symbol "SNOW".

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.

A prospectus in electronic format will be made available on the web sites
maintained by one or more underwriters. The underwriters may agree to allocate
a number of shares to underwriters for sale to their online brokerage account
holders. Internet distributions will be allocated by the lead managers to
underwriters that may make Internet distributions on the same basis as other
distributions.

The underwriters do not expect sales to discretionary accounts to exceed nine
percent of the total number of shares offered.

At our request, the underwriters have reserved up to 549,400 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.

70
<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.

71
<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 Statement of Operations................... F-38
Notes to the Unaudited Pro Forma Condensed Combined Financial
Information........................................................... F-39
</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........... -- 3,355
Fixed assets, net............................. 93 4,368
Other assets.................................. -- 711
------- --------
Total assets............................... $ 1,161 $ 46,718
======= ========
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 88,662 88,655
Notes receivable from stockholders........... -- (1,301) (1,301)
Deferred stock compensation.................. -- (10,868) (10,868)
Prepaid marketing and distribution rights.... -- (2,095) (2,095)
Accumulated/division deficit................. (4,939) (39,761) (39,761)
------- -------- --------
Total stockholders'/division equity........ 762 34,661 $ 34,661
------- -------- ========
Total liabilities and stockholders'/division
equity....................................... $ 1,161 $ 46,718
======= ========
</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(3).................... -- -- 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.

(3)Stock-based compensation relates to the following in 1999:

<TABLE>
<S> <C>
Cost of revenue......................................................... $ 7
Production and content.................................................. 407
Engineering and development............................................. 263
Sales and marketing..................................................... 777
General and administrative.............................................. 67
------
Total................................................................. $1,521
======
</TABLE>

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>
Prepaid
Convertible Net Contribution Notes Marketing
Preferred Stock Common Stock From Imagine Receivable Deferred and Accumulated/
----------------- ---------------- Media/Additional From Stock Distribution Division
Shares Amount Shares Amount Paid-In Capital Stockholders Compensation Rights Deficit
---------- ------ --------- ------ ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1997............ -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Net and
comprehensive
loss for the
period.......... -- -- -- -- -- -- -- -- (1,279)
Contribution
from Imagine
Media........... -- -- -- -- 1,781 -- -- -- --
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1997............ -- -- -- -- 1,781 -- -- -- (1,279)
Net and
comprehensive
loss for the
period.......... -- -- -- -- -- -- -- -- (3,660)
Contribution
from Imagine
Media........... -- -- -- -- 3,920 -- -- -- --
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1998............ -- -- -- -- 5,701 -- -- -- (4,939)
Issuance of
common stock to
founders and
employees for
cash and notes
receivable...... -- -- 3,812,297 4 377 (302) -- -- --
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) -- -- --
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 -- -- -- --
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 -- -- (2,339) --
Issuance of
common stock to
employees upon
exercise of
stock options,
net of
repurchases..... -- -- 1,668,250 2 1,107 (1,044) -- -- --
Issuance of
warrants to
purchase Series
B-1 preferred
stock in
connection with
lease financing
and term loan... -- -- -- -- 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 -- -- -- --
Payments
received on
promissory
notes........... -- -- -- -- -- 2,045 -- -- --
Issuance of
common stock in
connection with
Ameritrack and
Extreme
Interactive
Media
acquisitions.... -- -- 105,000 -- 780 -- -- -- --
Deferred
compensation.... -- -- -- -- 12,389 -- (12,389) -- --
Amortization of
deferred
compensation and
prepaid
marketing and
distribution
rights.......... -- -- -- -- -- -- 1,521 244 --
Net and
comprehensive
loss for the
period.......... -- -- -- -- -- -- -- -- (34,822)
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1999............ 18,066,269 $ 18 5,585,547 $ 6 $88,662 $(1,301) $(10,868) $(2,095) $(39,761)
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
<CAPTION>
Total
Stockholders'/
Division
Equity
--------------
<S> <C>
Balance at
January 1,
1997............ $ --
Net and
comprehensive
loss for the
period.......... (1,279)
Contribution
from Imagine
Media........... 1,781
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1997............ 502
Net and
comprehensive
loss for the
period.......... (3,660)
Contribution
from Imagine
Media........... 3,920
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1998............ 762
Issuance of
common stock to
founders and
employees for
cash and notes
receivable...... 79
Issuance of
Series A
preferred stock
at $0.35 per
share for cash,
notes receivable
and assets
transferred from
Imagine Media... 1,267
Issuance of
Series B and B-1
preferred stock
for cash and
assets
transferred from
Imagine Media at
$6.33 per
share........... 23,750
Issuance of
Series B-1
preferred stock
at $6.33 per
share to
strategic
partner and
officer for cash
and marketing
rights.......... 4,233
Issuance of
common stock to
employees upon
exercise of
stock options,
net of
repurchases..... 65
Issuance of
warrants to
purchase Series
B-1 preferred
stock in
connection with
lease financing
and term loan... 948
Issuance of
Series C
preferred stock
at $10.00 per
share for cash
and conversion
of $3.0 million
term loan....... 33,789
Payments
received on
promissory
notes........... 2,045
Issuance of
common stock in
connection with
Ameritrack and
Extreme
Interactive
Media
acquisitions.... 780
Deferred
compensation.... --
Amortization of
deferred
compensation and
prepaid
marketing and
distribution
rights.......... 1,765
Net and
comprehensive
loss for the
period.......... (34,822)
--------------------------------------------------------------------------------------------------------
Balance at
December 31,
1999............ $ 34,661
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</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 and preferred stock issued for goodwill
and intangible assets and prepaid marketing and
distribution rights.............................. $ -- $ -- $ 3,119
======= ======= ========
Common stock issued for notes receivable.......... $ -- $ -- $ 3,346
======= ======= ========
Deferred stock compensation ...................... $ -- $ -- $ 12,389
======= ======= ========
</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 6 and 7). 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 4).

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,
including one or more material contracts with a six-month term, 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

F-8
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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 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................................ -- 502
Accrued marketing and advertising........................... -- 47
Other accrued expenses...................................... -- 1,575
---- -------
$ 50 $ 3,081
==== =======
</TABLE>

4. 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

F-14
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

5. 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 $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.

F-15
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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>

6. 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.

7. 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,

F-16
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

In January 2000, Snowball issued 150,000 shares of Series C preferred stock
at $10 per share.

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.

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.

F-17
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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

F-18
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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>

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>

Stock-Based Compensation

In 1999, Snowball recorded deferred compensation expense of approximately
$12.0 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 $12.4 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

F-19
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

compensation expense of approximately $1.5 million for the year ended December
31, 1999. At December 31, 1999, Snowball had a total of $10.9 million remaining
to be amortized over the corresponding vesting period of each respective
option, generally four years. In October 1999, Snowball issued 560,822 shares
of Series B-1 preferred stock in connection with a commercial transaction.
Snowball recorded approximately $2.3 million in prepaid marketing and
distribution rights representing the difference between the purchase price and
the deemed fair value of the shares at that date. The rights are being
amortized using the straight-line method over two years.

The remaining deferred stock compensation at December 31, 1999 will be
amortized as follows: $6.2 million for the year ending December 31, 2000, $2.9
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.

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.

8. 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

F-20
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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>

9. 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).

F-21
<PAGE>

Snowball.com, Inc.
and its predecessor division of Imagine Media, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

10. Subsequent Events (unaudited)

Snowball anticipates that it will record additional deferred compensation
expense of approximately $1.4 million relating to the difference between the
exercise price and the deemed fair value of options awarded at prices between
$8.50 and $9.35 per share in January and February of 2000.

In February 2000, Snowball drew down $12 million under its term loan.

Acquisition

On February 16, 2000, Snowball signed an asset purchase agreement 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.

2000 Equity Incentive Plan

On February 22, 2000, the board of directors adopted the 2000 Equity
Incentive Plan and reserved 5,000,000 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 the outstanding shares of capital stock on December 31
of the preceding year.

2000 Employee Stock Purchase Plan

On February 22, 2000, the board of directors adopted the 2000 Employee Stock
Purchase Plan and reserved 500,000 shares of common stock under this plan. The
plan will become effective on the first business day on which price quotations
for Snowball 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 the 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.

F-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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 statement of operations combines
Snowball's and Extreme Interactive Media's historical statements of operations
and gives 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, 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 date 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-36
<PAGE>

Snowball.com, Inc.

PRO FORMA CONDENSED COMBINED STATEMENT 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-37
<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 statement of
operations for the year ended December 31, 1999, assumes the merger occurred as
of January 1, 1999, 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-38
<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............................ 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 31
Management............................................................... 46
Related Party Transactions............................................... 59
Principal Stockholders................................................... 61
Description of Capital Stock............................................. 63
Shares Available for Future Sale......................................... 67
Underwriting............................................................. 69
Legal Matters............................................................ 71
Experts.................................................................. 71
Where You Can Find Additional Information................................ 71
Index to Financial Statements............................................ F-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

--------------

[SNOWBAL.COM 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. 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 $8.00 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 did not exceed either 15% of
our outstanding securities or 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 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

II-2
<PAGE>

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 warrants were issued to Comdisco
in consideration for the leases under the Master Lease Agreement and have
an exercise price of $4.75 per share.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.

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

II-3
<PAGE>

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 warrants were issued to
Comdisco in consideration for additional leases under the Master Lease
Agreement and have an exercise price of $10.67 per share. 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 warrants
were issued to each of these creditors in consideration for the payment of
$1.00 and have an exercise price of $12.66 per share. 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 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.

II-4
<PAGE>

Shares of our Preferred Stock may be converted to Common Stock by any holder
of these shares at any time upon surrender of the certificates representing
such shares and written notice to us. Shares of any series of our Preferred
Stock automatically convert to Common Stock, if a majority of the shares of
that series elects to convert. All shares of our Preferred Stock will convert
to Common Stock upon completion of this offering.

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 (adopted February 22, 2000 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* 2000 Equity Incentive Plan and forms of stock option agreements and
stock option exercise agreements.
10.04* 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.
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
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.
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.
10.32+* eCommerce Agreement dated as of February 1, 2000 between the
Registrant and drugstore.com, inc.
10.33+* eCommerce Agreement dated as of February 29, 2000 between the
Registrant and JobDirect.com.
10.34 Lease dated March , 2000 between Registrant and 475 Park Avenue So.
Co.
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 and filed separately with the Commission.

(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.

II-6
<PAGE>

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-7
<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 17th day of March, 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 March 17, 2000
______________________________________ Officer and a director
Mark A. Jung (Principal Executive
Officer)

/s/ James R. Tolonen Chief Financial Officer and March 17, 2000
______________________________________ Chief Operating Officer
James R. Tolonen (Principal Financial
Officer)

* Controller and Chief March 17, 2000
______________________________________ Accounting Officer
Janette S. Chock (Principal Accounting
Officer)

* Director March 17, 2000
______________________________________
Christopher Anderson

* Director March 17, 2000
______________________________________
Richard A. LeFurgy

* Director March 17, 2000
______________________________________
Michael Orsak

* Director March 17, 2000
______________________________________
Robert H. Reid

/s/ James R. Tolonen
*By: _________________________________
James R. Tolonen
Attorney-in-Fact
</TABLE>

II-8
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S> <C>
10.28+ Services and Promotion Agreement dated as of December 22, 1999
between the Registrant and X-drive, Inc.
10.34 Lease dated March , 2000 between Registrant and 475 Park Avenue
So. Co.
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 and filed separately with the 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 One Million Fifty Thousand Eight
Hundred Ninety Seven (1,050,897) Registered Users, which constitutes 24.3% 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

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

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

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.

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:

[**]

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

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.

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
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------
[**] [**]
------------------------------------------------------

<PAGE>

EXECUTION COPY
EXHIBIT 10.34
- --------------------------------------------------------------------------------

475 PARK AVENUE SO. CO.,

Landlord

SNOWBALL.COM, INC.

Tenant

------------

LEASE

------------

Premises: 475 Park Avenue South
Entire 4th Floor
New York, New York 10022

- --------------------------------------------------------------------------------
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- -----
<C> <S> <C>
1. Premises................................................ 1
2. Commencement of Term.................................... 1
3. Rent.................................................... 2
4. Use..................................................... 4
5. Alterations, Fixtures................................... 5
6. Repairs................................................. 7
7. Floor Load; Noise....................................... 8
8. Laws, Ordinances, Requirements of Public Authorities.... 8
9. Insurance............................................... 9
10. Damage by Fire or Other Cause........................... 11
11. Assignment, Subletting, Mortgaging...................... 12
12. No Liability of Landlord and indemnity of Tenant........ 20
13. Moving of Heavy Equipment............................... 21
14. Condemnation............................................ 21
15. Entry, Right to Charge Public Portions of the Building.. 22
16. Conditional Limitations, Etc. .......................... 23
17. Mechanic's Liens........................................ 28
18. Landlord's Right to Perform Obligations................. 29
19. Covenant of Quiet Enjoyment............................. 29
20. Excavation.............................................. 29
21. Services and Equipment.................................. 30
22. Escalation.............................................. 31
23. Electric Inclusion...................................... 37
24. Broker.................................................. 39
25. Subordination and Ground Lease.......................... 40
26. Estoppel Certificate.................................... 43
27. Waiver of Jury.......................................... 43
28. Surrender of Premises................................... 44
29. Rules and Regulations................................... 44
30. Successors and Assigns and Definitions.................. 45
31. Notices................................................. 46
32. No Waiver; Entire Agreement............................. 46
33. Captions................................................ 48
34. Inability to Perform.................................... 48
35. No Representations by Landlord.......................... 48
36. Rent Control............................................ 49
37. Late Payment Charges.................................... 49
38. Security Deposit........................................ 50
39. Additional Space........................................ 52
40. Arbitration............................................. 55
41. Landlord's Contribution................................. 56
42. Supplemental Air Conditioning........................... 57
Testimony and Signatures................................ 58
ACKNOWLEDGMENT.......................................... 59
SCHEDULE A Floor Plan................................. 60
SCHEDULE B Description of the Land.................... 61
SCHEDULE C Rules and Regulations...................... 66
SCHEDULE D Cleaning Specifications.................... 68
SCHEDULE E Definitions................................ 68
</TABLE>
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INDENTURE OF LEASE ("Lease") made this 1st day of March, 2000, between
475 PARK AVENUE SO. CO., a New York partnership, having an office at 750
Lexington Avenue, New York, New York 10022 ("Landlord") and SNOWBALL.COM, INC.,
a California corporation, having an office at 250 Executive Park Blvd., Suite
4000, San Francisco, California ("Tenant").

WITNESSETH:

ARTICLE 1

Premises

Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
the following space ("Demised Premises"): the entire 4th Floor, as shown on the
floor plan (Schedule A) attached hereto, in the office building known as and by
the street number 475 Park Avenue South, in the Borough of Manhattan, City and
State of New York ("Building"), upon and subject to the terms, covenants and
conditions hereafter set forth.

TO HAVE AND TO HOLD the Demised Premises unto Tenant for a term
commencing on the date hereof (the "Commencement Date") (as defined in Article 2
hereof) and ending on a date (the "Expiration Date") which shall be ten (10)
years and six (6) months after the Commencement Date, plus the number of days
required, if any, to have such term expire on the last day of the calendar
month, or on such earlier date upon which said term may expire or terminate
pursuant to any of the conditions or covenants of this lease or pursuant to law.

IT IS MUTUALLY COVENANTED AND AGREED between Landlord and Tenant as
follows:

ARTICLE 2

Commencement of Term

Section 2.01. The term of this Lease and the payment of minimum rent
hereunder shall commence on the Commencement Date, and Landlord shall deliver
possession of the Demised Premises on the Commencement Date.

Section 2.02. Tenant has fully inspected the Demised Premises, is
familiar with the condition thereof and agrees to accept possession of the same
on the
<PAGE>

Commencement Date in their present "As Is" condition, except for latent defects
provided notice of such defects is given to Landlord within one (1) year from
the Commencement Date. Landlord shall not be required to do any work therein in
order to make the same suitable for the conduct of Tenant's business.

Section 2.03. If, prior to the Commencement Date, Tenant shall enter
the Demised Premises to make any installations, Landlord shall have no liability
or obligation for the care or preservation of Tenant's property, except if due
to the negligence of Landlord, its agents, contractors and employees.

Section 2.04. Promptly after the Commencement Date, Landlord and
Tenant will execute a statement in recordable form confirming the Commencement
and Expiration Dates of this Lease, in accordance with the foregoing provisions.

ARTICLE 3

Rent

Section 3.01. Tenant shall pay, as rent for the Demised Premises,
the following:

(a) a fixed minimum rent (the "minimum rent") at the following
annual rates:

(i) $624,000.00 per annum (or $52,000.00 per month) for
the first five (5) years following the Commencement Date, provided
that if the Commencement Date is other than the first day of the
month, then the minimum rent for the month in which the Commencement
Date occurs shall be prorated; and

(ii) $688,000.00 per annum (or $57,333.33 per month) for
the last five (5) years and six (6) months following the Commencement
Date; and

(b) all other sums and charges required to be paid by Tenant
under the terms of this Lease (including without limitation, the payments
required to be made under Article 22), which shall be deemed to be and are
sometimes referred to hereafter as additional rent.

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<PAGE>

Section 3.02. Notwithstanding the provisions of Section 3.01 hereof,
and provided Tenant is not then in default hereunder after any applicable notice
and expiration of any applicable cure period, Tenant shall be entitled to an
abatement of part of the minimum rent only in the amount of $48,000 for the 1st,
2nd, 3rd, 16th, 17th and 18th months following the Commencement Date, provided
that the balance of minimum rent of $4,000.00 for each of said months shall be
due and payable. Tenant acknowledges that the consideration for the aforesaid
abatement of minimum rent is Tenant's agreement to perform all of the monetary
terms, covenants and conditions of this Lease on its part to be performed.
Therefore, if Tenant shall be in default under any of the terms, covenants and
conditions at any time during the term hereof and this lease shall thereupon be
terminated, the aggregate amount of all minimum rent that was abated shall
immediately thereafter become due and payable by Tenant to Landlord. In the
event of Tenant's failure to pay such aggregate amount to Landlord, Landlord
shall be entitled to the same rights and remedies as in the event of tenant's
default in the payment of minimum rent. Tenant shall be required to pay
additional rent and all other sums from and after the Commencement Date.

Section 3.03. The minimum rent shall be payable in equal monthly
installments in advance on the first day of each and every month during the term
of this Lease, except that the amount of $52,000.00 shall be paid upon the
execution of this Lease and be applied to the payment of minimum rent for the
fourth (4th) month of the term following the Commencement Date.

Section 3.04. Tenant shall pay the minimum rent and additional rent
in lawful money of the United States which shall be legal tender for the payment
of all debts, public and private, at the time of payment.

Landlord and Tenant agree that Tenant shall pay minimum rent,
additional rent and other amounts now due or hereafter to become due to the
Landlord or its agent as provided for in this Lease, (as and when due) directly
to the following lock-box account:

475 Park Avenue So. Co.
PO Box 41037
Newark, New Jersey 07101-8007

All rent checks shall be made payable to 475 Park Avenue So. Co.

Section 3.05. The minimum rent and additional rent shall be payable
by Tenant without any set-off, abatement or deduction whatsoever and without
notice or demand, except as otherwise expressly provided herein.

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<PAGE>

ARTICLE 4

Use

Section 4.01. Tenant shall use and occupy the Demised Premises only
for the purposes of general, executive and administrative offices.

Section 4.02. Notwithstanding the provisions of Section 4.01, Tenant
shall not use or allow the use of the Demised Premises or any part thereof (1)
for the cooking and/or sale of food; (2) for storage for sale of any alcoholic
beverage in the Demised Premises; (3) for the sale of any product or material
from the Demised Premises to the general public; (4) for manufacturing or
printing purposes; (5) for the conduct of a school or training facility or
similar type of business which results in the presence of the general public in
the Demised Premises; (6) for the conduct of the business of an employment
agency or personnel agency; (7) for the conduct of any public auction or public
exhibition; (8) for occupancy by a foreign, United States, state, municipal or
other governmental or quasi-governmental body, agency or department or any
authority or other entity which is affiliated therewith or controlled thereby
and which has diplomatic or sovereign immunity or the like with respect to a
commercial lease; (9) for messenger or delivery service (excluding Tenant's own
employees or outside services); (10) as a public stenographer or typist; (11) as
a telephone or telegraph agency; (12) as a company engaged in the business of
renting office(s) or desk space in the Demised Premises; (13) as medical offices
or a laboratory; (14) as a travel agency; (15) as a dating service; (16) as a
restaurant; (17) as a night club, discotheque, arcade or like kind
establishments; (18) as a public or quasi-public health facility, radiation
treatment facility, methadone clinic or other drug related clinic, abortion
clinic, or for any practice conducted in or through the format of a clinic; (19)
as a pawn shop; (20) as an off-track betting parlor; (21) as a homeless shelter,
soup kitchen or similar use; (22) for the sale or display or pornographic
products or services; (23) for the use or storage of flammable liquids or
chemicals (unless incidental to a permitted use); (24) as a funeral parlor; (25)
for the sale or grooming of pets; or (26) for any form of spiritualist services,
such a fortune telling or reading.

Section 4.03. If any governmental license or permit, other than a
Certificate of Occupancy, shall be required for the proper and lawful conduct of
Tenant's business in the Demised Premises, or any part thereof, and if failure
to secure such license or permit would in any way affect Landlord, Tenant, at
its expense, shall duly procure and thereafter maintain such license or permit
and submit the same for inspection by Landlord. Tenant shall at all times comply
with the terms and conditions of each such license or permit.

Section 4.04. Tenant shall not at any time use or occupy, or suffer
or permit anyone to use or occupy, the Demised Premises, or do or permit
anything to be done in the Demised Premises, in violation of the Certificate of
Occupancy for the Demised Premises or for the Building, and will not permit or
cause any act to be done or any

4
<PAGE>

condition to exist on the Demised Premises which may be dangerous unless
safeguarded as required by law, or which in law constitutes a nuisance, public
or private, or which may make void or voidable any insurance then in force
covering the Building and building equipment.

ARTICLE 5

Alterations, Fixtures

Section 5.01. Tenant without Landlord's prior consent shall make no
alterations, installations, additions, or improvements in or to the Demised
Premises ("work"), including, but not limited to a water cooler, an air
conditioning or cooling system, or any unit or part thereof or other apparatus
of like or other nature, paneling, partitions, railings, mezzanine floors,
galleries and the like. Notwithstanding the foregoing, Tenant may make, without
Landlord's consent but subject to Landlord's approval of contractors, non-
structural interior changes and improvements, provided such changes and
improvements do not adversely affect the structural integrity of the Building or
the Building systems, do not adversely affect other tenants, do not violate the
provisions of any mortgage covering the Building, do not violate any
Governmental Requirements relating to the Demised Premises, do not cost more
than $75,000 in the aggregate during any twelve (12) month period, and Tenant
has given Landlord at least ten (10) days prior notice of such changes. If any
contractor, other than Landlord, shall perform work, such contractor shall first
be approved by Landlord, and as a condition of such approval, Tenant shall pay
to Landlord ten (10%) percent of the cost of such work for supervision,
coordination and other expenses incurred by Landlord in connection therewith.
However, such (10%) percent charge shall not be applicable to Tenant's initial
work in the Demised Premises. Tenant acknowledges that the ICIP Program (as
hereinafter defined) may impose requirements with respect to the hiring and
training practices, among other matters, of contractors and subcontractors
engaged to perform certain work in the Building for Tenant (collectively, herein
called "Tenant's Contractors"). Tenant shall use Tenant's Contractors (subject
to Landlord's approval) that qualify under the applicable requirements of the
ICIP Program for the performance of Tenant's initial work and any subsequent
alterations to the Demised Premises and Tenant will require Tenant's Contractors
to comply with the provisions of the ICIP Program. If Landlord is notified of
any violation of the ICIP Program by Tenant's Contractors, Landlord shall
promptly advise Tenant, and Tenant shall take all necessary actions to cure such
violations. Workers' compensation and public liability insurance and property
damage insurance, all in amounts and with companies and/or forms reasonably
satisfactory to Landlord, shall be provided and at all times maintained by
Tenant's contractors engaged in the performance of the work, and before
proceeding with the work certificates of such insurance shall be furnished to
Landlord. If consented to by Landlord, all such work shall be done at Tenant's
sole expense and at such times and in such manner as Landlord may from time to
time designate and in full compliance with all governmental authorities having
jurisdiction thereover. Upon completion of the work, Tenant shall deliver to
Landlord full scale "as built" plans for the same. All work affixed to the
realty or if not so affixed but for which

5
<PAGE>

Tenant shall have received a credit (other than Tenant's trade fixtures), shall
become the property of Landlord and shall remain upon, and be surrendered with,
the Demised Premises as a part thereof at the end of the term, without allowance
to Tenant or charge to Landlord, unless Landlord with respect to work which is
not standard office installation and which is unusually difficult and costly to
remove, elects otherwise on notice to Tenant given at the time that Landlord has
consented to the work. If Landlord shall elect otherwise, then all such work or
such portion thereof as Landlord shall elect shall be removed by Tenant and
Tenant shall restore the Demised Premises to its original condition, at Tenant's
expense. Notwithstanding the foregoing, Tenant shall not be required to remove
its initial work in the Demised Premises. If any Building facilities or
services, including but not limited to air-conditioning and ventilating
equipment installed by Landlord and adversely affected or damaged by reason of
work by Tenant, Tenant, at its expense, shall repair such damage and shall
correct the work so as to prevent any further damage or adverse affect on such
facilities or services.

Section 5.02. Prior commencing any work pursuant to the provisions
of Section 5.01, Tenant shall furnish to Landlord:

(a) Plans and specifications for the work. If Landlord fails to
respond to Tenant's request for Landlord's consent to such plans within ten
(10) business days following its receipt thereof with all required
information, the same shall be deemed approved.

(b) Copies of all governmental permits and authorizations which
may be required in connection with such work.

(c) A certificate evidencing that Tenant (or Tenant's
contractor) has procured workers' compensation insurance covering all persons
employed in connection with the work who might assert claims for death or
bodily injury against Overlandlord, as defined in Article 25, Landlord,
Tenant or the Building.

(d) Such additional personal injury and property damage
insurance (over and above the insurance required to be carried by Tenant
pursuant to the provisions of Section 9.03) as Landlord may reasonably
require because of the nature of the work to be done by Tenant.

(e) Except with respect to Tenant's initial work in the Demised
Premises or thereafter with respect to work costing less than $75,000 a bond
or other security satisfactory to Landlord in the amount of one hundred ten
(110%) percent of the cost of the work to insure completion of the work.

Section 5.03. Where furnished by or at the expense of Tenant (except
the replacement of an item theretofore furnished and paid for by Landlord or for
which Tenant has received a credit), all movable property, furniture,
furnishings and trade fixtures ("personalty") other than those affixed to the
realty shall remain the property of and shall

6
<PAGE>

be removed by Tenant on or prior to any termination or expiration of this Lease,
and, in the case of damage by reason of such removal, Tenant, at Tenant's
expense, promptly shall repair the damage. If Tenant does not remove any such
personalty, Landlord, at its election, (a) may cause the personalty to be
removed and placed in storage at Tenant's expense or (b) may treat the
personalty as abandoned and may dispose of the personalty as it sees fit without
accounting to Tenant for any proceeds realized upon such disposal.

Section 5.04. Tenant agrees that the exercise of its rights pursuant
to the provisions of this Article 5 shall not be done in a manner which would
create any work stoppage, picketing, labor disruption or dispute or violate
Landlord's union contracts affecting the Building or unreasonably interfere with
the business of Landlord or any Tenant or occupant of the Building. In the event
of the occurrence of any condition described above arising from the exercise by
Tenant of its right pursuant to the provisions of this Article 5, Tenant shall,
immediately upon written notice from Landlord, cease the manner of exercise of
such right giving rise to such condition. In the event Tenant fails to cease
such manner of exercise of its rights as aforesaid, Landlord, in addition to any
rights available to it under this Lease and pursuant to law, shall have the
right to injunction without notice. With respect to Tenant's work, Tenant shall
make all arrangements for, and pay all expenses incurred in connection with, use
of the freight elevators servicing the Demised Premises during those hours other
than as provided in Section 21.01(a).

ARTICLE 6

Repairs

Section 6.01. Tenant shall take good care of the Demised Premises
and the fixtures and appurtenances therein and of all portions of the HVAC,
mechanical, plumbing and electrical systems within and exclusively serving the
Demised Premises, and at its sole cost and expense make all repairs thereto as
and when needed to preserve them in good working order and condition. Subject to
the provisions of Section 9.04, II damage or injury to the Demised Premises or
the Building or to any building equipment caused by Tenant moving property in or
out of the Building or by installation or removal of personalty or resulting
from negligence or conduct of Tenant, its employees, agents, contractors,
customers, invitees and visitors, shall be repaired, promptly by Tenant at
Tenant's expense, and whether or not involving structural changes or
alterations, to the satisfaction of Landlord. All repairs shall include
replacements or substitutions where necessary and shall be at least equal to the
quality, class and value of the property repaired, replaced or substituted and
shall be done in a good and workmanlike manner.

Section 6.02. Landlord shall, at Landlord's sole expense, perform
all maintenance, repairs and replacements, structural and otherwise, to the
exterior and public portions of the Building and the Building systems, unless
Tenant is required to make them under the provisions of Section 6.01, or unless
required as a result of the performance or existence of alterations performed by
Tenant or on its behalf, in which event Tenant, at its

7
<PAGE>

expense, shall perform such maintenance, repairs or replacement. Landlord shall
have no liability to Tenant by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord's making any repairs or
changes which Landlord is required or permitted by this Lease, or required by
law, to make in or to any portion of the Building or the Demised Premises, or in
or to the fixtures, equipment or appurtenances of the Building or the Demised
Premises. However, Landlord shall use reasonable efforts to make such repairs or
changes in a manner to minimize its interference with the normal conduct of
Tenant's business in the Demised Premises, provided Landlord shall not be
required to employ overtime or premium labor.

Section 6.03. Tenant shall not store or place any materials or other
obstructions in the lobby or other public portions of the Building, or on the
sidewalk abutting the Building.

ARTICLE 7

Floor Load; Noise

Section 7.01. Tenant shall not place a load upon any floor of the
Demised Premises which exceeds the load per square foot which such floor was
designed to carry (50 lbs. live load per square foot).

Section 7.02. Business machines and mechanical equipment belonging
to Tenant which cause noise, vibration or any other nuisance that may be
transmitted to the structure or other portions of the Building or to the Demised
Premises, to such a degree as to be objectionable to Landlord or which interfere
with the use or enjoyment by other tenants of their premises or the public
portions of the Building, shall be placed and maintained by Tenant, at Tenant's
expense, in settings of cork, rubber or spring type vibration eliminators
sufficient to eliminate such objectionable or interfering noise or vibration.

ARTICLE 8

Laws, Ordinances, Requirements of Public Authorities

Section 8.01.

(a) Tenant, at its expense, shall comply with all laws, orders,
ordinances, rules and regulations and directions of Federal, State, County
and Municipal authorities and departments thereof having jurisdiction over
the Demised Premises and the Building, including without limitation the

8
<PAGE>

Americans With Disabilities Act ("Governmental Requirements") referable to
Tenant or the Demised Premises, arising by reason of (i) Tenant's
occupancy, use or manner of use of the Demised Premises, or any
installations made therein by or at Tenant's request, or (ii) any default
by Tenant under this Lease.

(b) Landlord, at its expense, shall comply with Governmental
Requirements relating to the public portions of the Building and that
Tenant is not obligated to comply with them under the provisions of
subdivision (a) of this Section. Landlord, at its expense, may contest the
validity of any Governmental Requirements and postpone compliance therewith
pending such contest.

Section 8.02. If Tenant receives written notice of any violation of
any Governmental Requirements applicable to the Demised Premises, it shall give
prompt written notice thereof to Landlord.

Section 8.03. Tenant will not clean, nor allow any window in the
Demised Premises to be cleaned, from the outside in violation of Section 202 of
the Labor Law or the rules of the Board of Standards and Appeals or of any other
board or body having or asserting jurisdiction.

Section 8.04. Landlord represents that on the Commencement Date the
Demised Premises will be in compliance with Governmental Requirements (as
hereinbefore defined) including the Americans With Disabilities Act and
including available hookup by Tenant to the Building's fire protection system.

ARTICLE 9

Insurance

Section 9.01. Tenant shall not do or permit to be done any act or
thing in or upon the Demised Premises which will invalidate or be in conflict
with the Certificate of Occupancy for the Building or the terms of the insurance
policies covering the Building and the property and equipment therein; and
Tenant, at its expense, shall comply with all rules, orders, regulations and
requirements of the New York Board of Fire Underwriters or any other similar
body having jurisdiction, and of the insurance carriers, and shall not knowingly
do or permit anything to be done in or upon the Demised Premises in a manner
which increases the rate of insurance for the Building or any property or
equipment therein over the rate in effect on the Commencement Date.

Section 9.02. If, by reason of Tenant's failure to comply with the
provisions of Section 9.01 or any of the other provisions of this Lease, the
rate of insurance for the Building or the property and equipment of Landlord
shall be higher than on the

9
<PAGE>

Commencement Date, Tenant shall pay to Landlord any additional or increased
insurance premiums to the extent resulting therefrom thereafter paid by
Landlord, and Tenant shall make such payment forthwith on demand of Landlord. In
any action or proceeding wherein Landlord and Tenant are parties, a schedule or
"make up" of any insurance rate for the Building or Demised Premises issued by
the New York Fire Insurance Exchange, or other body establishing fire insurance
rates for the Building, shall be conclusive evidence of the facts therein stated
and of the several items and charges in the insurance rates then applicable to
the Building or Demised Premises.

Section 9.03.

(a) Tenant covenants to provide on or before the Commencement
Date and to keep in force during the term hereof, the following
insurance:

(i) A commercial policy of liability insurance
protecting and indemnifying Landlord, Tenant and Overlandlord (as
defined in Article 25) against claims for personal injury, death or
property damage occurring upon, in or about the Demised Premises,
and the public portions of the Building used by Tenant, its
employees, agents, contractors, customers, invitees, and visitors,
including, without limitation, personal injury, death or property
damage resulting from any work performed by or on behalf of Tenant,
with coverage of not less than an aggregate of $5,000,000.00
combined single limit for personal injury, death and property damage
arising out of one occurrence or accident.

(ii) Fire and extended coverage in an amount adequate to
cover the cost of replacement of all personal property, fixtures,
furnishings and equipment, including Tenant's work as set forth in
Section 5.01, located in the Demised Premises.

(b) All such insurance shall (i) be effected under valid and
enforceable policies, (ii) be issued by insurers of recognized
responsibility authorized to do business in the State of New York and
(iii) contain a provision whereby the insurer agrees not to cancel the
insurance without at least thirty (30) days' prior written notice to
Landlord.

On or before the Commencement Date, Tenant shall deliver to Landlord
duplicate originals of the aforesaid policies or certificates evidencing the
aforesaid insurance coverage, and renewal policies or certificates shall be
delivered to Landlord at least thirty (30) days prior to the expiration date of
each policy with proof of payment of the premiums thereof.

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<PAGE>

Section 9.04. Landlord and Tenant shall each secure an appropriate
clause in, or an endorsement upon, each fire or extended coverage policy
obtained by it and covering the Building, the Demised Premises or the personal
property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive subrogation or permit the insured,
prior to any loss, to agree with a third party to waive any claim it might have
against said third party. The waiver of subrogation or permission for waiver of
any claim herein before referred to shall extend to the agents of each party and
its employees and, in the case of Tenant, shall also extend to all other persons
and entities occupying or using the Demised Premises in accordance with the
terms of this lease. If and to the extent that such waiver or permission can be
obtained only upon payment of an additional charge, then, the party benefiting
from the waiver or permission shall pay such charge upon demand, or shall be
deemed to have agreed that the party obtaining the insurance coverage in
question shall be free of any further obligations under the provisions hereof
relating to such waiver or permission.

Subject to the foregoing provisions of this Section 9.04, and insofar
as may be permitted by the terms of the insurance policies carried by it, (i)
each party hereby releases the other with respect to any claim (including a
claim for negligence) which it might otherwise have against the other party for
loss, damages or destruction with respect to its property by fire or other
casualty (including rental value or business interruption, as the case may be)
occurring during the term of this Lease, and (ii) Tenant releases other tenants
but only to the extent that the policies of such other tenants permit a similar
waiver for the benefit of Tenant and such other tenant gives such a waiver.

ARTICLE 10

Damage by Fire or Other Cause

Section 10.01. If the Demised Premises or the Building shall be
damaged by fire (or other hazards included in extended coverage endorsements to
fire insurance policies covering property in the City of New York), the damage
shall be repaired by and at the expense of Landlord and the minimum rent and
additional rent as provided in Article 22 until such repairs shall be made,
shall be apportioned according to the part of the Demised Premises which is
usable by Tenant. Landlord shall have no responsibility to repair any damage to
tenant's work (as referred to in Section 5.01), the same being the
responsibility of Tenant. No penalty shall accrue for delays which may arise by
reason of adjustment of insurance by Landlord, unavoidable delays (as
hereinafter defined), or any other cause beyond Landlord's reasonable control.
Tenant shall give immediate notice to Landlord in case of fire or other damage
to the Demised Premises of which Tenant has knowledge. If the Demised Premises
are totally or substantially damaged or are rendered wholly or substantially
untenantable by fire or any such other casualty and if Landlord decides not to
restore or rebuild the same, or if the Building shall be so damaged that
Landlord shall decide to demolish it or to rebuild it (whether or not the
Demised Premises

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<PAGE>

shall have been damaged), Landlord at its election may, within ninety (90) days
after such fire or other casualty, notify Tenant of such decision, and thereupon
the term of this Lease shall expire by lapse of time upon the third (3rd) day
after such notice is given, and Tenant shall vacate and surrender the Demised
Premises to Landlord. Tenant hereby waives the provisions of Section 227 of the
Real Property Law, and the provisions of this Article shall govern and control
in lieu thereof. Notwithstanding the foregoing provisions of this Section 10.01,
within sixty (60) days after such casualty, Landlord shall provide Tenant with
an estimate as to the time reasonably required to repair such damage. If such
period exceeds six (6) months from the date of such casualty, either party may
elect to terminate this Lease by notice to the other party not later than ten
(10) days following its receipt of such estimate, and thereupon the term of this
Lease shall expire on the thirtieth (30th) day after such notice is given, and
Tenant shall vacate and surrender the Demised Premises to Landlord. If the time
period set forth in said estimate exceeds six (6) months and this Lease has not
been terminated and if the Landlord does not substantially complete such repairs
within the time period set forth in such estimate, then Tenant may elect to
terminate this Lease by notice to Landlord within ten (10) days following the
expiration of such time period, and thereupon the term of this Lease shall
expire on the thirtieth (30th) day after such notice is given, and Tenant shall
vacate and surrender the Demised Premises to Landlord, unless within such thirty
(30) day period, Landlord substantially completes such restoration or rebuilding
in which event this Lease shall remain in full force and effect.

Section 10.02. No damages or compensation shall be payable by
Landlord nor shall Tenant make any claim for inconvenience, loss of business or
annoyance arising from any repair or restoration of any portion of the Demised
Premises or of the Building.

ARTICLE 11

Assignment, Subletting, Mortgaging

Section 11.01. Tenant will not, by operation of law or otherwise,
assign, mortgage or encumber this Lease or sublet or permit the Demised Premises
or any part thereof to be used by others, without Landlord's prior written
consent in each instance. If this Lease be assigned, or if the Demised Premises
or any part thereof be underlet or occupied by anybody other than Tenant,
Landlord may, after default by Tenant, collect rent from the assignee,
undertenant or occupant, and apply the net amount collected to the rent herein
reserved, but no assignment, underletting, occupancy or collection shall be
deemed a waiver of the provisions hereof, the acceptance of the assignee,
undertenant or occupant as tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained. The
consent by Landlord to any assignment, subletting, mortgage or encumbrance shall
not in any manner be construed to relieve Tenant from obtaining Landlord's
express written consent to any other or further assignment, subletting, mortgage
or encumbrance. In no event shall any permitted

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<PAGE>

sublessee assign or encumber its sublease or further sublet all or any portion
of its sublet space, or otherwise suffer or permit the sublet space or any part
thereof to be used or occupied by others, without Landlord's prior written
consent in each instance.

Section 11.02. If Tenant shall at anytime or times during the term
of this Lease desire to assign this Lease or sublet all or part of the Demised
Premises, Tenant shall give written notice thereof to Landlord, which notice
shall be accompanied by (a) a conformed or photostatic copy of the proposed
assignment or sublease, the effective or commencement date, which shall be not
less than twenty (20) nor more than one hundred and twenty (120) days after the
giving of such notice, (b) a statement setting forth in reasonable detail the
identity of the proposed assignee or subtenant, the nature of its business and
its proposed use of the Demised Premises, and (c) current financial information
with respect to the proposed assignee or subtenant, including, without
limitation, its most recent financial report. Such notice shall be deemed an
offer from Tenant to Landlord whereby Landlord (or Landlord's designee) may, at
its option, (i) sublease such space (hereinafter called the "Leaseback Space")
from Tenant upon the terms and conditions hereinafter set forth (if the proposed
transaction is a sublease of all or part of the Demised Premises), (ii)
terminate this Lease if the proposed transaction is an assignment or a sublease
(whether by one sublease or a series of related or unrelated subleases) of all
or substantially all of the Demised Premises, or (iii) terminate this Lease with
respect to the Leaseback Space (if the proposed transaction is a sublease of
part of the Demised Premises). Said options may be exercised by Landlord by
written notice to Tenant at any time within twenty (20) days after such notice
has been given by Tenant to Landlord; and during such twenty (20) day period
Tenant shall not assign this lease nor sublet such space to any person.

Section 11.03. If Landlord exercises its option to terminate this
Lease in the case where Tenant desires either to assign this Lease or sublet
(whether by one sublease or a series of related or unrelated subleases) all or
substantially all of the Demised Premises, then, this Lease shall end and expire
on the date that such assignment or sublet was to be effective or commence, as
the case may be, and the minimum rent and additional rent shall be paid and
apportioned to such date and any payments with respect thereto made or to be
made by Tenant to such date shall be promptly returned to or paid by Tenant, as
the case may be.

Section 11.04. If Landlord exercises its option to terminate this
Lease in part in any case where Tenant desires to sublet part of the Demised
Premises, then, (a) this Lease shall end and expire with respect to such part of
the Demised Premises on the date that the proposed sublease was to commence; and
(b) from and after such date the minimum rent and additional rent shall be
adjusted, based upon the proportion that the rentable area of the Demised
Premises remaining bears to the total rentable area of the Demised Premises; and
(c) Tenant shall pay to Landlord, upon demand, the costs incurred by Landlord in
physically separating such part of the Demised Premises from the balance of the
Demised Premises and in complying with any laws and requirements of any public
authorities relating to such separation.

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Section 11.05. If Landlord exercises its option to sublet the
Leaseback Space, such sublease to Landlord or its designee (as subtenant) shall
be at the lower of (i) the rental rate per rentable square foot of minimum rent
and additional rent then payable pursuant to this Lease or (ii) the rentals set
forth in the proposed sublease, and shall be for the same term as that of the
proposed subletting, and such sublease:

(a) shall be expressly subject to all of the covenants,
agreements, terms, provisions and conditions of this Lease except such as
are irrelevant or inapplicable, and except as otherwise expressly set forth
to the contrary in this Section;

(b) Such sublease shall be upon the same terms and conditions as
those contained in the proposed sublease, except such as are irrelevant or
inapplicable and except as otherwise expressly set forth to the contrary in
this Section;

(c) Such sublease shall give the sublessee the unqualified and
unrestricted right, without Tenant's permission, to assign such sublease or
any interest therein and/or to sublet the Leaseback Space or any part or
parts of the Leaseback Space and to make any and all changes, alterations,
and improvements in the space covered by such sublease at no cost or
liability to Tenant and if the proposed sublease will result in all or
substantially all of the Demised Premises being sublet, grant Landlord or
its designee the option to extend the term of such sublease for the balance
of the term of this Lease less one (1) day;

(d) Such sublease shall provide that any assignee or further
subtenant, of Landlord or its designee, may, at the election of Landlord,
be permitted to make alterations, decorations and installations in the
Leaseback Space or any part thereof and shall also provide in substance
that any such alterations, decorations and installations in the Leaseback
Space therein made by any assignee or subtenant of Landlord or its designee
may be removed, in whole or in part, by such assignee or subtenant, at its
option, prior to or upon the expiration or other termination of such
sublease provided that such assignee or subtenant, at its expense, shall
repair any damage and injury to that portion of the Leaseback Space so
sublet caused by such removal, and provided further that Tenant shall not
be required to restore the Leaseback Space to its condition existing prior
to such sublease; and

(e) Such sublease shall also provide that (i) the parties to
such sublease expressly negate any intention that any estate created under
such sublease be merged with any other estate held by either of said
parties, (ii) any assignment or subletting by Landlord or its designee (as
the subtenant) may be for any purpose or purposes that Landlord, in
Landlord's uncontrolled discretion, shall deem suitable or appropriate,
(iii) Tenant, at
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Tenant's expense, shall and will at all times provide and permit reasonably
appropriate means of ingress to and egress from the Leaseback Space so
sublet by Tenant to Landlord or its designee, (iv) Landlord, at Tenant's
expense, may make such alterations as may be required or deemed necessary
by Landlord to physically separate the Leaseback Space from the balance of
the demised Premises and to comply with any laws and requirements of public
authorities relating to such separation, and (v) that at the expiration of
the term of such sublease, Tenant will accept the space covered by such
sublease in its then existing condition, subject to the obligations of the
sublessee to make such repairs thereto as may be necessary to preserve the
premises demised by such sublease in good order and condition, and provided
further that Tenant shall not be required to restore the Leaseback Space to
its condition existing prior to such sublease.

Section 11.06.

(a) If Landlord exercises its option to sublet the Leaseback
Space, Landlord shall indemnify and save Tenant harmless from all
obligations under this Lease as to the Leaseback Space during the period of
time it is so sublet to Landlord.

(b) Performance by Landlord, or its designee, under a sublease
of the Leaseback Space shall be deemed performance by Tenant of any similar
obligation under this Lease and any default under any such sublease shall
not give rise to a default under a similar obligation contained in this
Lease, nor shall Tenant be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or
arises from any act or omission of the tenant under such sublease or is
occasioned by or arises from any act or omission of any occupant holding
under or pursuant to any such sublease.

(c) Tenant shall have no obligation, at the expiration or
earlier termination of the term of this Lease, to remove any alteration,
installation or improvement made in the Leaseback Space by Landlord.

Section 11.07. In the event Landlord does not exercise an option
provided to it pursuant to Section 11.02 and provided that Tenant is not in
default of any of Tenant's obligations under this Lease, Landlord's consent
(which must be in writing and in form reasonably satisfactory to Landlord) to
the proposed assignment or sublease shall not be unreasonably withheld or
delayed, provided and upon condition that:

(a) Tenant shall have complied with the provisions of Section
11.02 and Landlord shall not have exercised any of its options under said
Section 11.02 within the time permitted therefor;

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(b) The proposed assignee or subtenant is engaged in a business
and the Demised Premises, or the relevant part thereof, will be used in a
manner which (i) is limited to the use expressly permitted under Sections
4.01 and 4.02 of this Lease, and (ii) is in keeping with the then standards
of the Building;

(c) The proposed assignee or subtenant is a reputable person or
entity with sufficient financial worth considering the responsibility
involved, and Landlord has been furnished with reasonable proof thereof;

(d) Neither (i) the proposed assignee or sublessee nor (ii) any
person which, directly or indirectly, controls, is controlled by or is under
common control with, the proposed assignee or sublessee, is then an occupant
of any part of the Building;

(e) The proposed assignee or sublessee is not a person with whom
Landlord is currently negotiating to lease space in the Building;

(f) The proposed sublease shall be in form reasonably
satisfactory to Landlord and shall comply with the provisions of this
Article;

(g) At any one time there shall not be more than three (3)
subtenants (including Landlord or its designee) in the Demised Premises;

(h) Tenant shall reimburse Landlord on demand for any reasonable
costs that may be incurred by Landlord in connection with said assignment or
sublease, including costs incurred for obtaining financial and credit
reports of the proposed assignee or subtenant, and reasonable attorneys'
fees incurred in connection with the granting of any requested consent; and

(i) Tenant shall not have (i) advertised the Demised Premises
for subletting or assignment without prior notice to Landlord or (ii) listed
the same at a rental rate less than the minimum rent or additional rent at
which Landlord is then offering to lease other space in the Building.

Except for any subletting by Tenant to Landlord or its designee
pursuant to the provisions of this Article, each subletting pursuant to this
Article shall be subject to all of the covenants, agreements, terms, provisions
and conditions contained in this Lease. Notwithstanding any such subletting to
Landlord or any such subletting to any other subtenant and/or acceptance of rent
or additional rent by Landlord from any subtenant, Tenant shall and will remain
fully liable for the payment for the minimum rent and additional rent due and to
become due hereunder and for the performance of all the covenants, agreements,
terms, provisions and conditions contained in this Lease on the part of Tenant
to be performed and all acts and omissions of any licensee or subtenant or
anyone

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claiming under or through any subtenant which shall be in violation of any of
the obligations of this Lease, and any such violation shall be deemed to be a
violation by Tenant. Tenant further agrees that notwithstanding any such
subletting, no other and further subletting of the Demised Premises by Tenant or
any person claiming through or under Tenant (except as provided in Section
11.05) shall or will be made except upon compliance with and subject to the
provisions of this Article. If, pursuant to the provisions of this Lease,
Landlord shall decline to give its consent to any proposed assignment or
sublease, or if Landlord shall exercise any of its options under Section 11.02,
Tenant shall indemnify, defend and hold harmless Landlord against and from any
and all loss, liability, damages, costs and expenses (including reasonable
counsel fees) resulting from any claims that may be made against Landlord by the
proposed assignee or sublessee or by any brokers or other persons claiming a
commission or similar compensation in connection with the proposed assignment or
sublease, excluding any employed directly by Landlord and not claiming through
Tenant or the proposed assignee or subtenant.

Section 11.08. In the event that (a) Landlord fails to exercise any
of its options under Section 11.02 and consents to a proposed assignment or
sublease, and (b) Tenant fails to execute and deliver the assignment or sublease
to which Landlord consented within sixty (60) days after the giving of such
consent, then, Tenant shall again comply with all of the provisions and
conditions of Section 11.02 before assigning this Lease or subletting all or
part of the Demised Premises.

Section 11.09. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this Lease, it is further agreed:

(a) No subletting shall be for a term ending later than one day
prior to the expiration date of this Lease;

(b) No sublease shall be valid, and no subtenant shall take
possession of the Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord;

(c) Each sublease shall provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or shall
be subordinate, and that in the event of termination, re-entry or dispossess
by Landlord under this Lease Landlord may, at its option, take over all of
the right, title and interest of Tenant, as sublessor, under such sublease,
and such subtenant shall, at Landlord's option, attorn to Landlord pursuant
to the then executory provisions of such sublease, except that Landlord
shall not (i) be liable for any previous act or omission of Tenant under
such sublease, (ii) be subject to any offset, not expressly provided in such
sublease, which theretofore accrued to such subtenant against Tenant, or
(iii) be bound by any previous modification of such sublease or by any
previous prepayment of more than one month's rent.

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Section 11.10. If Landlord gives its consent to any assignment of
this Lease or to any sublease, Tenant shall, in consideration therefor, pay to
Landlord, as additional rent:

(a) in the case of an assignment of this Lease or an
assignment by any sublessee of any sublease, an amount equal to
one-half of all sums and other considerations paid to Tenant from the
assignee for such assignment or paid to Tenant by any sublessee or other
person claiming through or under Tenant for such assignment, (including, but
not limited to sums paid for the sale of Tenant's or sublessee's fixtures,
leasehold improvements, less, in case of a sale thereof, the then net
unamortized or undepreciated cost thereof determined on the basis of
Tenant's or sublessee's federal income tax returns). The sums payable to
Landlord under this Section 11.10(a) shall be paid to Landlord as and when
paid by such assignee to Tenant; and

(b) in the case of a sublease by Tenant or by any sublessee or
other person claiming through or under Tenant, an amount equal to one-half
of the rents and charges and other consideration payable under the sublease
to Tenant by the subtenant or paid to Tenant by any such sublessee or other
person claiming through or under Tenant in connection with such subletting,
which is in excess of the minimum rent accruing during the term of the
sublease in respect of the subleased space (at the rate per square foot
payable by Tenant hereunder or such sublessee) pursuant to the terms of this
Lease or such sublease (including, but not limited to sums paid for the sale
or rental of Tenant's or such sublessee's, fixtures, leasehold improvements,
less, in case of a sale thereof, the then net unamortized or undepreciated
cost thereof determined on the basis of Tenant's or sublessee's federal
income tax returns). The sums payable to Landlord under this Section
11.10(b) shall be paid to Landlord as and when paid by such subtenant to
Tenant.

(c) For the purposes of computing the sums payable by Tenant to
Landlord under subparagraphs (a) and (b) hereof, there shall be excluded
from the consideration payable to Tenant by any assignee or sublessee any
transfer taxes, rent concession, reasonable attorneys' fees, reasonable
brokerage commissions, advertising costs and fix-up costs paid by Tenant
with respect to such assignment or subletting, but only to the extent any
such sums are allocable to the period of this Lease (in the case of any
assignment), or the term of any sublease.

Section 11.11. If Tenant or any permitted subtenant is a corporation,
partnership, limited liability company or other entity, the provisions of
Section 11.01 shall apply to a transfer (by one or more transfers) of a majority
of the stock, partnership, membership or other ownership interests of Tenant or
such subtenant as if such transfer

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of a majority of the stock, partnership, membership or other ownership interests
of Tenant or such subtenant were an assignment of this Lease; but said
provisions and the provisions of Section 11.02 shall not apply to the stock of
a publicly held company or to the stock of a company going public or to the
issuance of stock in connection with venture capital financing, transactions
with a corporation, partnership, limited liability company or other entity into
or with which Tenant or such subtenant is merged or consolidated or to which
substantially all of Tenant's or such subtenant's stock, ownership interests or
assets are transferred or to any corporation or other entity which controls or
is controlled by Tenant or such subtenant or is under common control with Tenant
or such subtenant, provided that in any of such events, (i) the successor to
Tenant or such subtenant has a net worth computed in accordance with generally
accepted accounting principles at least equal to the greater of (1) the net
worth of Tenant or such subtenant immediately prior to such merger,
consolidation or transfer, or (2) the net worth of tenant herein named on the
date of this Lease or the net worth of such subtenant on the date of the
sublease, and (ii) proof satisfactory to Landlord of such net worth shall have
been delivered to Landlord at least ten (10) days prior to the effective date of
any such transaction.

Section 11.12. Any assignment or transfer, whether made with
Landlord's consent pursuant to Section 11.01 or without Landlord's consent
pursuant to Section 11.11, shall be made only if, and shall not be effective
until, the assignee shall execute, acknowledge and deliver to Landlord an
agreement in form and substance satisfactory to Landlord whereby the assignee
shall assume the obligations of this Lease on the part of Tenant to be performed
or observed, and whereby the assignee shall agree that the provisions in Section
11.01 shall, notwithstanding such assignment or transfer, continue to be binding
upon it in respect of all future assignments and transfers. The original named
Tenant covenants that, notwithstanding any assignment or transfer, whether or
not in violation of the provisions of this Lease, and notwithstanding the
acceptance of minimum rent and/or additional rent by Landlord from an assignee,
transferee, or any other party, the original named Tenant shall remain fully
liable for the payment of the minimum rent and additional rent and for the other
obligations of this Lease on the part of Tenant to be performed or observed.

Section 11.13. The joint and several liability of Tenant and any
immediate or remote successor in interest of Tenant and the due performance of
the obligations of this Lease on Tenant's part to be performed or observed shall
not be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this Lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this Lease.

Section 11.14. The listing of any name other than that of Tenant,
whether on the doors of the Premises or the Building directory, or otherwise,
shall not operate to vest any right or interest in this Lease or in the
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Premises or to the use or
occupancy thereof by others. Tenant shall be entitled, initially without cost,
to sixteen (16) listings on the Building directory.

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ARTICLE 12

No Liability of Landlord and Indemnity of Tenant

Section 12.01. Each party shall indemnify the other, its agents,
contractors and employees against and save the other, its agents, contractors
and employees harmless from any liability to and claim by or on behalf of any
person, firm, governmental authority, corporation or entity for personal injury,
death or property damage, arising (a) (i) from its use of the Demised Premises
or from any work whatsoever done or omitted to be done by Tenant, its employees,
agents, contractors, customers, invitees or visitors, or from any accident
thereat, except to the extent caused by the negligence or willful act of
Landlord, its agents, contractors and employees, and (ii) with respect to
Landlord from any work done or omitted to be done in the Building, except to the
extent caused by the negligence or willful act of Tenant, its agents,
contractors or employees, and (b) from any default by Tenant under the terms,
covenants and conditions of this Lease.

Tenant also shall indemnify Landlord, its agents, contractors and
employees against and save Landlord, its agents, contractors and employees
harmless from all costs, reasonable counsel fees, expenses and penalties
incurred by Landlord, its agents, contractors and employees in connection with
any such liability or claim.

If any action or proceeding shall be brought against Landlord in
connection with any such liability or claim, Tenant, on notice from Landlord,
shall defend such action or proceeding, at Tenant's expense, by counsel
reasonably satisfactory to Landlord. Counsel for Tenant's insurance carrier is
satisfactory.

Section 12.02. Landlord shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the Building, nor for
the loss of or damage to any property of Tenant by theft or otherwise, except if
due to the negligence of Landlord, its agents, contractors or employees.
Landlord and its agents shall not be liable for any injury or damage to persons
or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow or leaks from any part of the Building or from
the pipes, appliances or plumbing works or from the roof, street or sub-surface
or from any other place or by dampness or by any other cause of whatsoever
nature, except if due to the negligence of Landlord, its agents, contractors or
employees; nor shall Landlord be liable for any such damage caused by other
tenants or persons in the Building or caused by operations in construction of
any public or quasi-public work; nor shall Landlord be liable for any latent
defect in the Demised Premises or in the building. If, at any time any windows
of the Demised Premises are permanently closed, darkened or bricked up in
accordance with the requirements of law or are temporarily darkened or closed by
reason of repairs, alterations or maintenance by Landlord, Landlord shall not be
liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement of rent nor shall the same
release Tenant from its obligations

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hereunder nor constitute an eviction. (Reference hereinabove to Landlord shall
for all purposes be deemed to include the Overlandlord as defined in Article
25.)

Tenant shall reimburse and compensate Landlord, as additional rent,
within ten (10) days after rendition of a statement for all expenditures made by
or damages or fines sustained or incurred by Landlord due to any default by
Tenant under this Lease.

Tenant shall give immediate notice to Landlord upon its discovery of
accidents in the Demised Premises.

Section 12.03. If in this Lease it is provided that Landlord's
consent or approval as to any matter will not be unreasonably withheld, and it
is established by a court or body having final jurisdiction thereover that
Landlord has been unreasonable, the only effect of such finding shall be that
Landlord shall be deemed to have given its consent or approval; but Landlord
shall not be liable to Tenant in any respect for money damages by reason of
withholding its consent.

ARTICLE 13

Moving of Heavy Equipment

Tenant shall not move any safe, heavy equipment or bulky matter,
except for standard office equipment or furniture, in or out of the Building
without Landlord's written consent, which shall not be unreasonably withheld. If
the movement of such items requires special handling, Tenant agrees to employ
only persons holding a Master Rigger's License to do said work and all such work
shall be done in full compliance with the Administrative Code of the City of New
York and other municipal requirements. All such movements shall be made during
hours which will least interfere with the normal operations of the Building, and
all damage caused by such movement shall be promptly repaired by Tenant at
Tenant's expense.

ARTICLE 14

Condemnation

Section 14.01. In the event that the whole of the Demised Premises
shall be condemned or taken in any manner for any public or quasi-public use,
this Lease and the term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title. In the event that a portion of the
Demised Premises shall be so condemned or taken, then, effective as of the date
of vesting of title, the rent hereunder for such part shall be equitably abated
and this Lease shall continue as to such part not

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so taken. In the event that a portion of the Building shall be so condemned or
taken, then (a) if substantial structural alteration or reconstruction of the
Building shall, in the reasonable opinion of Landlord, be necessary or
appropriate as a result of such condemnation or taking (whether or not the
Demised Premises be affected), Landlord may, at its option, terminate this Lease
and the term and estate hereby granted as of the date of such vesting of title
by notifying Tenant in writing of such termination within ninety (90) days of
following the date on which Landlord shall have received notice of vesting of
title, or (b) if Landlord does not elect to terminate this Lease, as aforesaid,
this Lease shall be and remain unaffected by such condemnation or taking, except
that the minimum rent and additional rent shall be abated to the extent, if any,
hereinbefore provided. In the event that only a part of the Demised Premises
shall be so condemned or taken and this Lease and the term and estate hereby
granted are not terminated as hereinbefore provided, Landlord, out of the
portion of the award allocated for such purpose and to the extent such award is
sufficient, will restore with reasonable diligence the remaining portions of the
Demised Premises as nearly as practicable to the same condition as it was in
prior to such condemnation or taking.

Section 14.02. In the event of termination in any of the cases
hereinabove provided, this Lease and the term and estate hereby granted shall
expire as of the date of such termination with the same effect as if that were
the Expiration Date and the rent hereunder shall be apportioned as of such date.

Section 14.03. In the event of any condemnation or taking hereinabove
mentioned of all or a part of the Building, Landlord shall be entitled to
receive the entire award in the condemnation proceeding, including any award
made for the value of the estate vested by this Lease in Tenant, and Tenant
hereby expressly assigns to Landlord any and all right, title and interest of
Tenant now or hereafter arising in or to any such award or any part thereof, and
Tenant shall be entitled to receive no part of such award.

ARTICLE 15

Entry, Right to Change Public Portions of the Building

Section 15.01. Tenant shall permit Landlord to erect, use and
maintain pipes and conduits in and through the walls, ceiling or below the
floors of the Demised Premises. Landlord, or its agents or designees shall have
the right, upon prior reasonable notice (except no notice in an emergency) to
enter the Demised Premises for the purpose of making such repairs or alterations
as Landlord shall desire, shall be required or shall have the right to make
under the provisions of this Lease; and shall also have the right to enter the
Demised Premises for the purpose of inspecting them or exhibiting them to
prospective purchasers or lessees of the Building or to prospective mortgagees
or to prospective assignees of any such mortgagees. Landlord shall be allowed to
take all

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material into and upon the Demised Premises that may be required for the repairs
or alterations above mentioned without the same constituting an eviction of
Tenant in whole or in part and the rent reserved shall in no wise abate while
said repairs or alterations are being made. However, Landlord shall use
reasonable efforts to perform such repairs or alterations in a manner to
minimize interference with the normal conduct of Tenant's business therein,
provided Landlord shall not be required to employ overtime or premium labor.

Section 15.02. During the twelve (12) months prior to the expiration
of the term of this Lease, Landlord may exhibit the Demised Premises to
prospective tenants.

Section 15.03. Landlord shall have the right at any time without
thereby creating an actual or constructive eviction or incurring any liability
to Tenant therefor, to change the arrangement or location of, but not limited
to, such of the following as are not contained within the Demised Premises:
entrances, passageways, doors and doorways, corridors, elevators, stairs,
toilets, and other like public service portions of the Building, provided the
same shall not interfere with Tenant's access to see Demised Premises.

Section 15.04. Landlord shall have the right at any time to name the
Building as it desires and to change any and all such names at any time
thereafter.

ARTICLE 16

Conditional Limitations, Etc.

Section 16.01. If at any time during the term of this Lease:

(a) Tenant shall file a petition in bankruptcy or insolvency or
for reorganization or arrangement or for the appointment of a receiver of
all or a portion of Tenant's property, or

(b) Any petition of the kind referred to in subdivision (a) of
this Section shall be filed against Tenant and such petition shall not be
vacated or withdrawn within ninety (90) days after the date of filing
thereof, or

(d) Tenant shall make an assignment for the benefit of
creditors, or

(e) a permanent receiver shall be appointed for the property of
Tenant by order of a court of competent jurisdiction by reason of the

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insolvency of Tenant (except where such receiver shall be appointed in an
involuntary proceeding, if he shall not be withdrawn within ninety (90)
days after the date of his appointment),

then Landlord, at Landlord's option, may terminate this Lease on five (5) days'
notice to Tenant, and upon such termination, Tenant shall quit and surrender the
Demised Premises to Landlord.

Section 16.02.

(a) If Tenant assumes this Lease and proposes to assign
the same pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. (S)
101 et seq. (the "Bankruptcy Code") to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment, setting
forth (i) the name and address of such person, (ii) all of the terms and
conditions of such offer, and (iii) the adequate assurance to be provided
Landlord to assure such person's future performance under the Lease,
including, without limitation, the assurance referred to in section
365(b)(1) of the Bankruptcy Code, shall be given to Landlord by Tenant not
later than twenty (20) days after receipt by Tenant but in no event later
than ten (10) days prior to the date that Tenant shall made application to
a court of competent jurisdiction for authority and approval to enter into
such assignment and assumption, and Landlord shall thereupon have the prior
right and option, to be exercised by notice to Tenant given at any time
prior to the effective date of such proposed assignment, to accept an
assignment of this Lease upon the same terms and conditions and for the
same consideration, if any, as the bona fide offer made by such person,
less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease.

(b) If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant
or of the estate of Tenant within the meaning of the Bankruptcy Code. Any
and all monies or other considerations constituting Landlord's Property
under the preceding sentence not paid or delivered to Landlord shall be
held in trust for the benefit of Landlord and shall be promptly paid to
Landlord.

(c) Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed without
further act or deed to have assumed all of the obligations arising under
this Lease on and after the date of such assignment. Any such assignee
shall

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upon demand execute and deliver to Landlord an instrument confirming such
assumption.

(d) Nothing contained in this Section shall, in any way,
constitute a waiver of the provisions of this Lease relating to assignment.
Tenant shall not, by virtue of this Section, have any further rights
relating to assignment other than those granted in the Bankruptcy Code.

(e) Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of Landlord under this Lease,
whether or not expressly denominated as rent, shall constitute rent for the
purposes of Section 502(b)(6) of the Bankruptcy Code.

(f) The term "Tenant" as used in this Section and in Section
16.01, includes any guarantor(s) of this Lease and any trustee, debtor in
possession, receiver, custodian or other similar officer.

Section 16.03. If this Lease shall terminate pursuant to the
provisions of Section 16.01:

(a) Landlord shall be entitled to recover from Tenant arrears in
minimum rent and additional rent and, in addition thereto as liquidated
damages, an amount equal to the difference between the minimum rent and
additional rent for the unexpired portion of the term of this Lease which
had been in force immediately prior to the termination effected under
Section 16.01 of this Article and the fair and the reasonable rental value
of the Demised Premises, on the date of termination, for the same period,
both discounted at the rate of eight (8%) percent per annum to the date of
termination; or

(b) Landlord shall be entitled to recover from Tenant arrears in
minimum rent and additional rent and, in addition thereto as liquidated
damages, an amount equal to the maximum allowed by statute or rule of law
in effect at the time when and governing the proceedings in which such
damages are to be proved, whether or not such amount be greater or less
than the amount referred to in subdivision (a) of this Section.

Section 16.04.

(a) If Tenant shall fail to make any payment of any minimum rent
or additional rent when the same becomes due and payable, or if Tenant
shall fail to cancel or discharge the lien referred to in Section 17.02, or
if the Demised Premises become vacant or deserted, and if any such default
shall continue for a period of five (5) days after written notice by
Landlord, or

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(b) if Tenant shall be in default in the performance of any of
the other terms, covenants and conditions of this Lease, and such default
shall not have been remedied within thirty (30) days after notice by
Landlord to Tenant specifying such default and requiring it to be remedied;
or where such default reasonably cannot be remedied within such period of
thirty (30) days, if Tenant shall not have commenced the remedying thereof
within such period of time and shall not be proceeding with due diligence
to remedy it,

then Landlord, at Landlord's election, may terminate this Lease on five (5)
days' written notice to Tenant, and upon such termination Tenant shall quit and
surrender the Demised Premises to Landlord.

Section 16.05. If this Lease shall terminate as provided in this
Article, or if Tenant shall be in default in the payment of minimum rent or
additional rent when the same become due and payable and such default shall
continue for a period of five (5) days after written notice by Landlord,

(a) Landlord may re-enter and resume possession of the Demised
Premises and remove all persons and property therefrom either by summary
dispossess proceedings or by a suitable action or proceeding, at law or in
equity, or by force or otherwise, without being liable for any damages
therefor, and

(b) Landlord may re-let the whole or any part of the Demised
Premises for a period equal to, greater or less than the remainder of the
then term of this Lease, at such rental and upon such terms and conditions
as Landlord shall deem reasonable to any tenant it may deem suitable and
for any use and purpose it may deem appropriate. Landlord shall not be
liable in any respect for failure to re-let the Demised Premises or, in the
event of such re-letting, for failure to collect the rent thereunder and
any sums received by Landlord on a re-letting in excess of the rent
reserved in this Lease shall belong to Landlord.

Section 16.06. If this Lease shall terminate as provided in this
Article or by summary proceedings (except as to any termination under Section
16.01), Landlord shall be entitled to recover from Tenant as damages, in
addition to arrears in minimum rent and additional rent,

(a) an amount equal to (i) all reasonable expenses incurred by
Landlord in recovering possession of the Demised Premises and in connection
with the re-letting of the Demised Premises, including, without limitation,
the reasonable cost of repairing the Demised Premises, and (ii) all
reasonable brokers' commissions and legal fees incurred by Landlord in re-
letting the Demised Premises, which amounts set forth in this subdivision

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<PAGE>

(a) shall be due and payable by Tenant to Landlord at such time or times as
they shall have been incurred; and

(b) an amount equal to the deficiency between the minimum rent
and additional rent which would have become due and payable had this Lease
not terminated and the net amount, if any, of rent collected by Landlord on
re-letting the Demised Premises. The amounts specified in this subdivision
shall be due and payable by Tenant on the several days on which such
minimum rent and additional rent would have become due and payable had this
Lease not terminated. Tenant consents that Landlord shall be entitled to
institute separate suits or actions or proceedings for the recovery of such
amount or amounts, and Tenant hereby waives the right to enforce or assert
the rule against splitting a cause of action as a defense thereto.

Landlord, at its election, at any time after such termination of this
Lease, may collect from Tenant and Tenant shall pay, in lieu of the sums
becoming due, under the provisions of subdivision (b) of this Section, an amount
equal to the difference between the minimum rent and additional rent which would
have become due and payable had this Lease not terminated (from the date of the
service of such notice to the end of the term of this Lease which had been in
force immediately prior to any termination effected under this Article) and the
then fair and reasonable rental value of the Demised Premises for the same
period, both discounted to the date of the service of such notice at the rate of
eight (8%) percent per annum.

Section 16.07. Tenant, for itself and for all persons claiming
through or under it, hereby waives any and all rights which are or may be
conferred upon Tenant by any present or future law to redeem the Demised
Premises after a warrant to dispossess shall have been issued or after judgment
in an action of ejectment shall have been made and entered.

Section 16.08. The words "re-enter" and "re-entry", as used in this
Article, are not restricted to their technical legal meanings.

Section 16.09. Landlord shall not be required to give any notice of
its intention to re-enter, except as otherwise provided in this Lease.

Section 16.10. If this Lease shall terminate as provided in this
Article or by summary proceedings or otherwise, Landlord, in addition to any
other rights under this Article, shall be entitled to recover as damages, (a)
the reasonable cost of performing any work required to be done by Tenant under
this Lease; and (b) the reasonable cost of placing the Demised Premises in the
same condition as that in which Tenant is required to surrender them to Landlord
under this Lease.

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<PAGE>

Section 16.11. In any action or proceeding brought by Landlord
against Tenant, predicated on a default in the payment of minimum rent or
additional rent, Tenant shall not have the right to and shall not interpose any
set-off or counterclaim of any kind whatsoever, except for a mandatory
counterclaim. If Tenant has any claim, Tenant shall be entitled only to bring an
independent action therefor; and if such independent action is brought by
Tenant, Tenant shall not be entitled to and shall not consolidate it with any
pending action or proceeding brought by Landlord against Tenant for a default in
the payment of minimum rent or additional rent.

ARTICLE 17

Mechanic's Liens

Section 17.01. If, subject to and notwithstanding Landlord's consent
as required under this Lease, Tenant shall cause any changes, alterations,
additions, improvements, installations or repairs to be made to or at the
Demised Premises or shall cause any labor to be performed or material to be
furnished in connection therewith, neither Landlord nor the Demised Premises,
under any circumstances, shall be liable for the payment of any expense incurred
or for the value of any work done or material furnished, and all such changes,
alterations, additions, improvements, installations and repairs and labor and
material shall be made, furnished and performed upon Tenant's credit alone and
at Tenant's expense, and Tenant shall be solely and wholly responsible to
contractors, laborers, and materialmen furnishing and performing such labor and
material. Nothing contained in this Lease shall be deemed or construed in any
way as constituting the consent or request of Landlord, express or implied, to
any contractor, laborer or materialman to furnish to perform any such labor or
material.

Section 17.02. If, because of any act or omission (or alleged act or
omission) of Tenant, any mechanic's or other lien, charge or order for the
payment of money shall be filed against the Demised Premises or the Building or
Landlord's estate as tenant under any ground or underlying lease (whether or not
such lien, charge or order is valid or enforceable as such), Tenant, at Tenant's
expense, shall cause it to be canceled or discharged of record by bonding or
otherwise within ten (10) days after notice to Tenant of such filing, and Tenant
shall indemnify Landlord against and save Landlord harmless from and shall pay
all costs, expenses, losses, fines and penalties, including, without limitation,
reasonable attorneys' fees resulting therefrom.

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<PAGE>

ARTICLE 18

Landlord's and Tenant's Right to Perform Obligations

Section 18.01. If Tenant shall default in the performance of any of
the terms, covenants and conditions of this Lease, Landlord, without being under
any obligation to do so and without hereby waiving such default, may remedy such
default for the account and at the expense of Tenant. Any payment made or
expense incurred by Landlord for such purpose (including, but not limited to,
reasonable attorneys' fees) with interest at the maximum legal rate, shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Landlord
on demand, or at Landlord's election, added to any subsequent installment or
installments of minimum rent.

Section 18.02. If Landlord shall fail to perform any repair or
maintenance obligation required to be performed by Landlord in the Demised
Premises pursuant to the provisions of this Lease, then Tenant shall give
Landlord written notice (the "Repair Notice") stating the repair or maintenance
obligation which affects the Demised Premises. If Landlord fails to remedy the
condition set forth in the Repair Notice within thirty (30) days after such
Repair Notice is given, then, to the extent such repair or maintenance may be
performed by Tenant solely within the Demised Premises, Tenant may perform the
same. Landlord shall reimburse Tenant for the reasonable actual costs and
expenses of performing the same, within twenty (20) days after receipt from
Tenant of paid receipts therefor, together with waivers of liens with respect
thereto.

ARTICLE 19

Covenant of Quiet Enjoyment

Landlord covenants that upon Tenant paying the minimum rent and
additional rent and observing and performing all the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed, after
any applicable notice and prior to the expiration of any applicable cure period,
Tenant may peaceably and quietly enjoy the Demised Premises, subject
nevertheless to the terms and conditions of this Lease.

ARTICLE 20

Excavation

In the event that construction is to be commenced or an excavation is
made or authorized for building or other purposes upon land adjacent to the
Building, Tenant shall, if necessary, afford to the person or persons causing or
authorized to commence

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<PAGE>

construction or cause such excavation or to engage in such other purpose,
license to enter upon the Demised Premises for the purpose of doing such work as
shall reasonably be necessary to protect or preserve the Building, from injury
or damage and to support the Building and any new structure to be built by
proper foundations, pinning and/or underpinning, or otherwise.

ARTICLE 21

Services and Equipment

Section 21.01. Landlord shall, at its cost and expense:

(a) Provide operatorless passenger elevator service Mondays
through Fridays from 8:00 A.M. to 6:00 P.M., holidays excepted. A passenger
elevator will be available at all other times. A service elevator shall be
available Mondays through Fridays, holidays excepted, only from 10:00 A.M.
to 11:30 A.M. and from 2:30 P.M. to 4:30 P.M.

(b) Maintain and keep in good order and repair the central
heating, ventilating and air-conditioning system installed by Landlord. The
system will be operated by Landlord on Mondays through Fridays, holidays
excepted, from 8:30 A.M. to 5:30 P.M.

(c) Provide Building standard cleaning services in the Demised
Premises and public portions of the Building, except no services shall be
performed Saturdays, Sundays and holidays, in accordance with Schedule "D"
annexed hereto and made part hereof. Tenant, at its own cost, may utilize
its own employees or outside contractors to perform additional cleaning
services in the Demised Premises, provided such employees or outside
contractors do not cause any labor disruption or dispute or violate
Landlord's union contracts affecting the Building. However, such use of
outside contractors shall be subject to the right of Landlord to match the
costs chargeable by such outside contractors, in which event Landlord shall
perform such services at such cost, to be paid by Tenant within ten (10)
days after being billed therefor.

(d) Furnish hot and cold water for lavatory and drinking
purposes. If Tenant requires, uses or consumes water for any other
purposes, Landlord may install a meter or meters or other means to measure
Tenant's water consumption, and Tenant shall reimburse Landlord for the
cost of the meter or meters and the installation thereof, and shall pay for
the maintenance of said meter equipment and/or pay Landlord's cost of other
means of measuring such water consumption by Tenant. Tenant shall pay

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<PAGE>

to Landlord on demand the cost of all water consumed as measured by said
meter or meters or as otherwise measured, including sewer rents.

(e) If Tenant shall require and request any of the foregoing
services at times other than above provided, and if such request is made at
least twenty-four (24) hours prior to the time when such additional
services are required, Landlord will provide them and Tenant shall pay to
Landlord promptly thereafter the charges therefor at the then Building
standard rate charged to other tenants in the Building.

If Tenant shall request Landlord to furnish any services in addition
to those hereinabove provided or perform any work not required under this Lease,
and Landlord agrees to furnish and/or perform the same, Tenant shall pay to
Landlord promptly thereafter the charges therefor, which charges are deemed to
be additional rent and payable as such.

Section 21.02. Holidays shall be deemed to mean all federal
holidays, state holidays, Building Service Employees Union Contract holidays and
all other applicable union contract holidays.

Section 21.03. Landlord reserves the right to interrupt, curtail or
suspend the services required to be furnished by Landlord under this Lease when
the necessity therefor arises by reason of accident, emergency, mechanical
breakdown, or when required by any law, order or regulation of any Federal,
State, County or Municipal authority, or for any other cause beyond the
reasonable control of Landlord. Tenant shall not be entitled to nor shall Tenant
make claim for any diminution or abatement of minimum rent or additional rent or
other compensation, nor shall this Lease or any of the obligations of Tenant be
affected or reduced by reason of such interruption, curtailment, suspension,
work or inconvenience.

Section 21.04. Tenant shall reimburse Landlord promptly upon demand
for the cost to Landlord of removal from the Demised Premises and the Building
of any refuse and rubbish of Tenant not covered by the Cleaning Specifications
and Tenant shall pay all bills therefor when rendered.

ARTICLE 22

Escalation

Section 22.01. Taxes. Tenant shall pay to Landlord, as additional
rent, tax escalation in accordance with this Section:

(a) Definitions: For the purpose of this Section, the following
definitions shall apply:

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(i) The term "Tax Base Factor" shall mean the real
estate taxes for the Building Project for the period from July 1, 2000
to June 30, 2001, (as finally determined).

(ii) The term "The Building Project" shall mean the
parcel of land described in Schedule C of this Lease with all
improvements erected thereon.

(iii) The term "comparative tax year" shall mean the New
York City real estate tax year commencing on July 1, 2001, and each
subsequent New York City real estate tax year. If the present use of
July 1 - June 30 New York City real estate tax year shall hereafter be
changed, then such changed tax year shall be used with appropriate
adjustment for the transition.

(iv) The term "real estate taxes" shall mean the total
of all taxes, special or other assessments and charges of any Special
Business Improvement District levied, assessed or imposed at any time
by any governmental authority upon or against the Building Project,
and also any tax or assessment levied, assessed or imposed at any time
by any governmental authority in connection with the receipt of income
or rents from said Building Project to the extent that same shall be
in lieu of all or a portion of any of the aforesaid taxes or
assessments, or additions or increases thereof, upon or against said
Building Project, excluding income, estate and franchise taxes. If,
due to a future change in the method of taxation or in the taxing
authority, or for any other reason, a franchise, income, transit,
profit rents or other tax or governmental imposition, however
designated, shall be levied against Landlord in substitution in whole
or in part for the real estate taxes, or in lieu of or additions to or
increases of said real estate taxes, then such franchise, income,
transit, profit or other tax or governmental imposition shall be
deemed to be included within the definition of "real estate taxes" for
the purposes hereof. If, by law, any assessment may be paid in
installments, then, for the purpose hereof (a) such assessment shall
be deemed to have been payable in the maximum number of installments
permitted by law and (b) there shall be included in real estate taxes
for each comparative year in which such installments may be paid, the
installments of such assessment so becoming payable during such
comparative tax year, together with interest payable during such
comparative tax year.

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<PAGE>

(v) The term "the Percentage" for purposes of computing
tax escalation, shall mean 4.85%.

(b) (i) In the event that the real estate taxes payable for
any comparative tax year shall exceed the Tax Base Factor, Tenant
shall pay to Landlord, as additional rent for such comparative tax
year, an amount for tax escalation equal to the Percentage of the
excess. Before or after the start of each comparative year, Landlord
shall furnish to Tenant a statement of the real estate taxes payable
for such comparative tax year. Tenant shall make its aforesaid tax
escalation payment to Landlord, in installments in the same manner
that such taxes are payable by Landlord to the governmental authority.
If a statement is furnished to Tenant after the commencement of the
comparative tax year in respect of which such statement is rendered,
Tenant shall, within ten (10) days thereafter, pay to Landlord an
amount equal to those installments of the total tax escalation payable
as provided in the preceding sentence, during the period prior to the
first day of the month next succeeding the month in which the
applicable statement has been furnished. If, during the term of this
Lease, taxes are required to be paid, in full or in monthly or other
installments, on any other date or dates than as presently required,
or if Landlord shall be required to make monthly deposits of real
estate taxes to the holder of any first institutional mortgage then
Tenant's tax escalation payment(s) shall be correspondingly adjusted
so that said payments are due to Landlord in corresponding
installments not later than thirty (30) days prior to the last date on
which the applicable installment of such real estate taxes shall be
due and payable to the governmental authority or such mortgagee.

(ii) If in establishing the amount of the real estate
taxes payable for any comparative tax year, Landlord has incurred
expenses for legal and/or consulting services rendered in, applying
for, negotiating or obtaining a reduction of the assessment upon which
the real estate taxes are predicated, Tenant shall pay an amount equal
to the Percentage of such expenses.

(iii) The statements of the tax escalation to be
furnished by Landlord as provided above shall be certified by Landlord
as correct and shall constitute a final determination as between
Landlord and Tenant of the tax escalation for the periods represented
thereby, except for manifest error.

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(iv) In no event shall the fixed minimum rent under this
Lease be reduced by virtue of this Section 22.01.

(v) Upon the date of any expiration or termination of
this Lease, whether the same be the date hereinabove set forth for the
expiration of the term or any prior or subsequent date, a
proportionate share of said additional rent for the comparative tax
year during which such expiration or termination occurs shall
immediately become due and payable by Tenant to Landlord, if it was
not theretofore already billed and paid. The said proportionate share
shall be based upon the length of time that this Lease shall have been
in existence during such comparative tax year. Prior to or promptly
after said expiration or termination, Landlord shall compute the
additional rent due from Tenant, as aforesaid and Tenant shall
promptly pay Landlord any amount unpaid. If Landlord shall receive a
refund of any amount of real estate taxes for any comparative tax year
for which Tenant has made a payment, Landlord shall promptly pay to
Tenant the Percentage of any such refund, less the Percentage of any
legal fees and other expenses provided for in Section 22.01 (b)(ii) to
the extent the same have theretofore been paid by Tenant to Landlord.

(vi) Tenant's and Landlord's obligations to make the
adjustments referred to in subdivision (v) above shall survive any
expiration or termination of this Lease.

(vii) Any delay or failure of Landlord in billing any tax
escalation hereinabove provided shall not constitute a waiver of or in
any way impair the continuing obligation of Tenant to pay such tax
escalation hereunder.

(viii) Notwithstanding any language to the contrary
contained in this Lease, Landlord and Tenant agree that for the
purposes of this Section 22.01, Real Estate Taxes and Tax Escalation
Payments shall be calculated without regard to any deductions,
credits, abatements, or deferral of Real Estate Taxes which Landlord
may receive pursuant to Sections 11.256 through 11-267 of the
Administrative Code of the City of New York, authorized by Title 2-D
of Article 4 of the New York real Property Tax Law and any and all
rules and regulations promulgated thereunder (herein collectively
called the "ICIP Program").

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Section 22.02. Porter's Wage Rate. Tenant shall pay to the Landlord,
as additional rent, a porters wage rate escalation in accordance with this
Section:

(a) For the purpose of this Section, the following definitions
shall apply:

(i) "Wage Rate" shall mean the minimum regular hourly
rate of wages in effect as of January 1st of each year (whether paid
by Landlord or any contractor employed by Landlord) computed as paid
over a forty hour week to Porters in Class A office buildings pursuant
to an Agreement between Realty Advisory Board on Labor Relations,
Incorporated, or any successor thereto, and Local 32B-32J of the
Building Service Employees International Union, AFL-CIO, or any
successor thereto; and provided, however, that if there is no such
agreement in effect prescribing a wage rate for Porters, computations
and payments shall thereupon be made upon the basis of the regular
hourly wage rate actually payable in effect as of January 1st of each
year, and provided, however, that if in any year during the term, the
regular employment of Porters shall occur on days or during the hours
when overtime or other premium pay rates are in effect pursuant to
such Agreement, then the term "hourly rate of wages" as used herein
shall be deemed to mean the average hourly rate for the hours in a
calendar week during which Porters are regularly employed (e.g., if
pursuant to an agreement between Realty Advisory Board and the Local
the regular employment of Porters for forty hours during a calendar
week is at a regular hourly wage rate of $3.00 for the first thirty
hours, and premium or overtime hourly wage rate of $4.50 for the
remaining ten hours, then the hourly rate of wages under this Article
during such period shall be the total weekly rate of $135.00 divided
by the total number of regular hours of employment, forty or $3.375).
Notwithstanding the foregoing, if at any time such hourly wage rate is
different for new hire and old hire Porters, then thereafter such
hourly wage rate shall be based on the weighted average of the wage
rates for the different classifications of Porters.

(ii) "Base Wage Rate" shall mean the Wage Rate in effect
on January 1, 2000.

(iii) The term "Porters" shall mean that classification
of non-supervisory employees employed in and about the Building who
devote a major portion of their time to

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<PAGE>

general cleaning, maintenance and miscellaneous services essentially
of a non-technical and non-mechanical nature and are the type of
employees who are presently included in the classification of "Class
A--Others" in the Commercial Building Agreement between the Realty
Advisory Board and the aforesaid Union.

(iv) The term "minimum regular hourly rate of wages"
shall not include any payments for fringe benefits or adjustments of
any kind.

(v) The term "Multiplication Factor" shall mean 16,000.

(b) If the Wage Rate for any calendar year during the term shall
be increased above the Base Wage Rate, then Tenant shall pay, as additional
rent, an amount equal to the product obtained by multiplying the
Multiplication Factor by 100% of the number of cents (including any
fraction of a cent) by which the Wage Rate is greater than the Base Wage
Rate, such payment to be made in equal one-twelfth (1/12th) monthly
installments commencing with the first monthly installment of minimum rent
falling due on or after the effective date of such increase in Wage Rate
(payable retroactive from said effective date) and continuing thereafter
until a new adjustment shall have become effective in accordance with the
provisions of this Article. Landlord shall give Tenant notice of each
change in Wage Rate which will be effective to create or change Tenant's
obligation to pay additional rent pursuant to the provisions of this
Section 22.02 and such notice shall contain Landlord's calculation in
reasonable detail and certified as true by an authorized partner of
Landlord or of its managing agent, of the annual rate of additional rent
payable resulting from such increase in Wage Rate. Such amounts shall be
prorated for any partial calendar years during the term.

(c) Every notice given by Landlord pursuant to Section 22(b)
hereof shall be conclusive and binding upon Tenant, except for manifest
error.

(d) Any delay or failure of Landlord in billing any wage rate
escalation hereinabove provided shall not constitute a waiver of or in any
way impair the continuing obligation of Tenant to pay such wage rate
escalation.

(e) The "Wage Rate" is intended to be a substitute comparative
index of economic costs and does not necessarily reflect the actual costs
of wages or other expenses of operating the Building. The Wage Rate shall
be used whether or not the Building is a Class A office

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<PAGE>

building and whether or not Porters are employed in the Building and
without regard to whether such employees are members of the Union referred
to in subsection (a) hereof.

ARTICLE 23

Electric Inclusion

Section 23.01

(a) Landlord shall furnish electric energy on a rent inclusion
basis to the Demised Premises, the charges therefor being included in the
minimum rent. The amount included in the minimum rent is based upon the
normal use of such electric energy between the hours of 8:00 A.M. to 6:30
P.M. on Mondays through Fridays, holidays excepted, for lighting and for
the normal use of lamps, typewriters, personal computers and similar
customary office machines. Landlord shall not be liable in any way for any
loss, damage or expense that Tenant may sustain or incur by reason of for
any failure, change, interruption or defect in the supply or character of
electric energy furnished to the Demised Premises by reason of any
requirement, act or omission of the Electric Service Provider or Alternate
Service Provider (as said terms are hereinafter defined) serving the
Building with electricity and no such failure, change, interruption or
defect shall constitute an actual or constructive eviction, in whole or in
part, or entitle Tenant to any abatement of minimum rent or additional rent
or relieve Tenant of its obligations under this Lease. Tenant shall furnish
and install, at its sole cost and expense, all lighting fixtures, tubes,
lamps, bulbs, ballasts and outlets relating to Tenant's electrical
equipment.

(b) Landlord has advised Tenant that presently Con Edison
("Electric Service Provider") is the utility company selected by Landlord
to provide electricity service for the Building. Notwithstanding the
foregoing, if permitted by law, Landlord shall have the right at any time
and from time to time during the term of this Lease to either contract for
service from a different company or companies providing electricity service
(each such company shall hereinafter be referred to as an "Alternate
Service Provider") or continue to contract for service from the Electric
Service Provider.

(c) Tenant shall cooperate with Landlord, the Electric Service
Provider, and any Alternate Service Provider at all times and, as
reasonably necessary, shall allow Landlord, Electric Service Provider, and
any Alternate Service Provider reasonable access to the Building's electric
lines, feeders, risers, wiring, and any other machinery within the Demised
Premises.

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Section 23.02. Tenant's connected electrical load in the Demised
Premises, including lighting, shall not at any time exceed the capacity of any
of the electrical conductors and equipment in or serving the Demised Premises.
Landlord represents that such capacity is five (5) watts per usable square foot
(excluding Building HVAC. In order to insure that such capacity is not exceeded
and to avert possible adverse effect upon the Building electric service, Tenant
shall not, without Landlord's prior consent in each instance, connect any
additional fixtures, appliances or equipment (other than as set forth in Section
23.01) or make any alteration or addition to the electric system of the Demised
Premises existing on the Commencement Date. Should Landlord grant such consent,
all additional risers or other equipment required therefor shall be provided by
Landlord and the cost thereof shall be paid by Tenant upon Landlord's demand. As
a condition to granting such consent, Landlord may require Tenant to agree to an
increase in the annual minimum rent by an amount which will reflect the value to
Tenant of the additional service to be furnished by Landlord, that is the
potential additional electrical energy to be made available to Tenant based upon
the estimated additional capacity of such additional risers or other equipment.
If Landlord and Tenant cannot agree thereon, the amount of such increase shall
be determined by a reputable, independent electrical engineer or consultant, to
be selected by Landlord whose fees or charges shall be paid by Tenant. When the
amount of such increase is so determined, Tenant shall pay to Landlord within
twenty (20) days following notification to Tenant of such determination the
amount thereof retroactive to the date of such increased usage, unless within
such twenty (20) day period Tenant disputes such determination. If Tenant
disputes such determination, it shall, at its own expense, obtain from a
reputable, independent electrical engineer or consultant, its own survey of the
additional electrical energy consumed by Tenant. Tenant's consultant and
Landlord's consultant shall then seek to agree on a finding of such
determination of such change in the consumption of electrical energy. If they
cannot agree, they shall choose a third reputable, independent electrical
engineer or consultant, whose cost shall be shared equally by Landlord and
Tenant, to make a similar survey, and the determination of such third consultant
shall be controlling. If they cannot agree on such third consultant, within ten
(10) days, then either party may apply to the Supreme Court in the County of New
York, for the appointment of such third consultant. However, pending such
determination, Tenant shall pay to Landlord the amount as determined by
Landlord's engineer or consultant. If the amount determined as aforesaid is
different from that determined by Landlord's engineer or consultant, then
Landlord and Tenant shall make adjustment for any deficiency owed by Tenant or
overage paid by Tenant. Following the final determination, the parties shall
execute an agreement supplementary hereto to reflect such increase in the annual
minimum rent and in the amount set forth in Section 23.03; but such increase
shall be effective even if such supplementary agreement is not executed.

Section 23.03. If, during the term of this Lease, the public utility
rate paid by Landlord for the supply of electric current to the Building shall
be increased or decreased or if there shall be an increase or decrease in taxes
or if additional taxes shall be imposed upon the sale or furnishing of such
electric energy (hereafter collectively as the "cost") the annual minimum rent
shall be increased or decreased by an amount arrived at by multiplying $48,000
(or the sum to which said sum may have been increased or

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decreased pursuant to the provisions of Section 23.02 or this Section 23.03
prior to the effective date of the cost increases or decreases; such sum being
referred to herein as the "Rent Inclusion Factor") by the percentage of the
increase or decrease of such cost. When the amount of such increase or decrease
is so determined, Landlord and Tenant shall execute an agreement supplementary
hereto to reflect such increase or decrease in the amount of the minimum rent
payable and effective from the effective date of such increase, but such
increase shall be effective from such date whether or not such a supplementary
agreement is executed. Notwithstanding the foregoing provisions of this Section
23.03, the Rent Inclusion Factor shall never be less than $48,000.00

Section 23.04. Landlord reserves the right to discontinue furnishing
electric energy at any time, whether or not Tenant is in default under this
Lease, upon not less than thirty (30) days' notice to Tenant. If Landlord
exercises such right of discontinuance, this Lease shall continue in full force
and effect and shall be unaffected thereby, except only that, from and after the
effective date of such discontinuance, Landlord shall not be obligated to
furnish electric energy to Tenant, and the minimum rent payable under this Lease
shall be reduced by an amount per annum equal to the then prevailing Rent
Inclusion Factor. If Landlord so elects to discontinue furnishing electric
energy to Tenant, Tenant shall arrange to obtain electric energy directly from
the Electric Service Provider furnishing electric service to the Building or the
Alternate Service Provider. Notwithstanding the foregoing, Landlord shall not
discontinue furnishing electric energy until Tenant is able to obtain such
electric energy directly from said Electric Service Provider or the Alternate
Service Provider. Such electric energy may be furnished to Tenant by means of
the then existing Building system feeders, risers and wiring. All meters and
additional panel boards, feeders, risers, wiring and other conductors and
equipment which may be required to obtain electric energy directly from such
public utility company, and which are to be located within the Demised Premises,
shall be installed and maintained by Tenant at its expense.

Section 23.05. At no time shall Tenant's connected electrical load
in the Demised Premises, including lighting, exceed five (5) watts per usable
square foot.

ARTICLE 24

Broker

Landlord and Tenant covenant and represent that the sole brokers who
negotiated and brought about this transaction were Cushman & Wakefield, Inc. and
Cohen Brothers Realty Corporation and Landlord agrees to pay a commission
therefor as per separate agreements. Landlord and Tenant agree to hold the other
harmless against any claims for a brokerage commission arising out of a breach
by the other of the representations contained in this Article.

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ARTICLE 25

Subordination and Ground Lease

Section 25.01. This Lease is subject and subordinate to (a) the
ground and underlying lease, dated as of May 1, 1967 between Southern
Associates, Inc., as landlord, and Sherman Cohen, Mortimer H. Cohen and Edward
B. Cohen, as tenant, (the "Ground Lease") a memorandum of which was recorded in
the Office of the City Register, New York County, in Reel 181, Page 194 and to
the rights of the landlord thereunder (the landlord under said Ground Lease
being sometimes referred to in this Lease as the "Overlandlord"), (b) any other
future ground and underlying lease, and (c) to a leasehold mortgage, dated
October 3, 1989 (the "Leasehold Mortgage"), between 475 Park Avenue So. Co., et
al., as Mortgagor, and Mutual Life Insurance Company of New York, as Mortgagee,
recorded on October 5, 1988, in the Office of the City Register, New York
County, in Reel 1474, Page 782, and (d) to all mortgages which may now or
hereafter affect any such ground and underlying lease or the Building, and to
all renewals, modifications, amendments, consolidations, replacements or
extensions of any of the foregoing (hereinafter collectively called the
"Mortgages"). This clause shall be self-operative and no further instrument of
subordination shall be required. However, in confirmation of such subordination,
Tenant, at any time and from time to time, shall execute promptly any
certificate and document that Landlord may request, which reasonably evidences
such subordination, and Tenant hereby irrevocably constitutes and appoints
Landlord attorney-in-fact for Tenant to execute any such instrument for and on
behalf of Tenant if not so executed and delivered by Tenant within fifteen (15)
days after such request. Notwithstanding the foregoing, Landlord agrees to
request from the existing Overlandlord and the existing mortgagee an agreement
("non-disturbance and adornment agreement"), providing in substance that
Tenant's possession of and rights in the Demised Premises shall remain
undisturbed, so long as Tenant is not in default under the provisions of this
Lease, and providing that Tenant agrees in said instrument to attorn to such
Overlandlord or mortgagee as its Landlord under this Lease. However, Landlord
shall have no liability or responsibility to Tenant if Landlord is unable to
obtain either one or both of said non-disturbance and adornment agreements and
this Lease shall remain subject and subordinate to said Ground Lease and/or
Leasehold Mortgage. Concurrently with the execution of this Lease Tenant has
executed a non-disturbance and attornment agreement with respect to the existing
Overlandlord and existing mortgagee. Landlord shall also request from the lessor
under any future ground lease or the holder of any future mortgage a non-
disturbance and attornment agreement in the then customary form of such lessor
or mortgagee, provided this Lease shall remain subject and subordinate to such
future mortgage or ground lease notwithstanding that Landlord may not be able to
obtain a non-disturbance and attornment agreement from either one or both of
said parties.

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Section 25.02.

(a) The Tenant covenants and agrees that if by reason of a
default under any ground or underlying lease (including an underlying lease
through which the Landlord derives its leasehold estate in the Demised
Premises), or under the Leasehold Mortgage or any Mortgage, such ground or
underlying lease and the leasehold estate of the Landlord in the premises
demised hereby is terminated, the Tenant will attorn to the then holder of
the reversionary interest in the premises demised by this Lease and will
recognize such holder as the Tenant's Landlord under this Lease, unless,
subject to any non-disturbance and adornment agreement, the lessor under
such ground or underlying lease or the holder of any such Mortgage shall,
in any proceeding to terminate such ground or underlying lease or
foreclosure of such Mortgage, elect to terminate this Lease and the rights
of Tenant hereunder; provided, however, the holder of the reversionary
interest shall not be: (i) liable for any act or omission or negligence of
Landlord under this Lease; (ii) subject to any counterclaim, defense or
offset, which theretofore shall have accrued to Tenant against Landlord;
(iii) obligated to perform any work; (iv) bound by any previous
modification or amendment of this Lease or by any previous prepayment of
more than one months' rent, unless such modification or prepayment shall
have been approved in writing by the holder of such Mortgage; (v) obligated
to repair the Demised Premises, or the Building, or any part thereof, in
the event of any damage beyond such repair as can reasonably be
accomplished from the net proceeds of insurance actually made available to
the then holder of the reversionary interest; or (vi) obligated to repair
the Demised Premises or the Building, or any part thereof, in the event of
partial condemnation beyond such repair as can reasonably be accomplished
from the net proceeds of any award actually made available to the then
holder of the reversionary interest on account of partial condemnation of
the Demised Premises or the Building. By execution of this Lease, Tenant
acknowledges that is has received sufficient notice of the existence and
text of Article 8 of the Leasehold Mortgage to confer upon the Mortgagee of
same only the benefits of Section 291-f of the Real Property Law of the
State of New York. Tenant agrees to execute and deliver, at any time and
from time to time, within fifteen (15) days after the request of the
Landlord of or the lessor under any such ground or underlying lease or the
holder of any such Mortgage any instrument which may be necessary or
appropriate to evidence such adornment, and Tenant hereby irrevocably
constitutes and appoints Landlord attorney-in-fact for Tenant to execute
any such instrument for and on behalf of Tenant, if not so executed and
delivered within such fifteen (15) day period. Tenant further waives the
provisions of any statute or rule or law now or hereafter in effect which
may give or purport to give Tenant any right of election to terminate this
Lease or to surrender possession of the premises demised hereby in the
event any proceeding is brought by the lessor under any such ground or

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underlying lease or the holder of any such Mortgage to terminate the same,
and agrees that, subject to any non-disturbance and adornment agreement,
unless and until any such lessor, in connection with any such proceeding,
shall elect to terminate this Lease and the rights of Tenant hereunder,
this Lease shall not be affected in any way whatsoever by any such
proceeding.

(b) Upon its receipt of a written notice from the lessor under
any ground or underlying lease or the holder of any such Mortgage to the
effect that (i) the lessor of said ground or underlying lease or the holder
of any such Mortgage is entitled to send a notice to Landlord, as tenant
under said ground or underlying lease, terminating said lease, and (ii) the
Tenant should pay the minimum rent and additional rent thereafter due and
payable under this Lease to said lessor or the holder of any such Mortgage
at a place designated in such notice, Tenant shall pay such minimum rent
and additional rent to said lessor under said ground or underlying lease or
the holder of any such Mortgage at such designated place until such time as
said lessor or the holder of any such Mortgage shall notify Tenant that
Landlord is no longer in default under said ground or underlying lease or
said Mortgage and that Tenant may resume paying all minimum rent and
additional rent thereafter due and payable under this Lease to Landlord.
Tenant shall have no liability to Landlord for paying any minimum rent or
additional rent to said lessor under the ground or underlying lease or the
holder of any such Mortgage or otherwise acting in accordance with the
provisions of any notice sent to it under this paragraph and shall be
relieved of its obligations to pay Landlord any minimum rent or additional
rent under this Lease to the extent such payments are made to said lessor
under the ground or underlying lease or the holder of any such Mortgage.

Section 25.03. In the event of any act or omission by Landlord which
would give Tenant the right to terminate this Lease or to claim a partial or
total eviction, pursuant to the terms of this Lease, Tenant will not exercise
any such right until:

(a) it has given written notice of such act or omission to the
holder of any Mortgage and to the lessor of any ground or underlying lease,
whose names and addresses shall previously have been furnished to Tenant in
accordance with Article 31, addressed to such holder and lessor at the last
addresses so furnished, and

(b) a reasonable period (not to exceed the period in the ground
lease or the Mortgage, as the case may be) for remedying such act or
omission shall have elapsed following such giving of notice during which
such parties, or any of them, with reasonable diligence, following the
giving of such notice, shall not have commenced and is or are not
continuing to remedy such act or omission or to cause the same to be
remedied.

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Section 25.04. If, in connection with obtaining financing for the
Building, or of Landlord's interest in any ground or underlying lease, a
banking, insurance or other recognized institutional lender shall request
modifications in this Lease as a condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereto and its execution and
delivery of such modification agreement, provided that such modifications do not
increase the obligations of Tenant hereunder or adversely affect the leasehold
interest hereby created or reduce Tenant's rights hereunder.

ARTICLE 26

Estoppel Certificate

Tenant shall at any time, and from time to time, within fifteen (15)
days after so requested by Landlord, execute, acknowledge and deliver to
Landlord, a statement addressed to Landlord or its designee stating (a) that
this Lease is unmodified and in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), (b) stating the dates to which the minimum rent and
additional rent have been paid, (c) stating whether or not there exists any
default by Landlord, and, if so, specifying each such default, and (d) such
other information requested by Landlord or the Mortgagee that pertains to the
status of this Lease or the performance of obligations under this Lease as to
which Tenant has actual knowledge, it being intended that any such statement may
be relied upon by Landlord and parties with whom it may be dealing, including
any mortgagee or prospective mortgagee of any mortgage affecting the Building or
the leasehold estate under any ground or underlying lease affecting the land
described in Schedule B and/or Building and improvements thereon, or may be
relied upon by the landlord under any such ground or underlying lease or a
purchaser of Lessee's estate under any such ground or underlying lease or any
interest therein.

ARTICLE 27

Waiver of Jury Trial

Tenant hereby waives trial by jury in any proceeding, action or
counterclaim that may hereafter be instituted against it on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord or Tenant, Tenants use or occupancy of the Demised
Premises, including any claims for injury or damage, or any emergency or other
statutory remedy with respect thereto.

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ARTICLE 28

Surrender of Premises

Section 28.01. Upon the expiration or other termination of the term
of this Lease, Tenant shall quit and surrender the Demised Premises in good
order and condition, ordinary wear and tear and damage by the elements, fire or
other casualty or any other cause for which Tenant might not be liable excepted,
and shall remove all its property therefrom, except as otherwise provided in
this Lease. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of the term of this Lease.

Section 28.02. In the event Tenant shall remain in possession of the
Demised Premises after the expiration or other termination of the term of this
Lease, such holding over shall not constitute a renewal or extension of this
Lease. Landlord, may, at its option, elect to treat Tenant as one who is not
removed at the end of the term, and thereupon be entitled to all of the remedies
against Tenant provided by law in that situation or Landlord may elect to
construe such holding over as a tenancy from month-to-month, subject to all of
the terms and conditions of this Lease, except as to the duration thereof, and
the minimum rent shall be due, in either of such events, at a monthly rental
rate equal to two (2) times the monthly installment of minimum rent which would
otherwise be payable for such month, together with any and all additional rent.

ARTICLE 29

Rules and Regulations

Section 29.01. Tenant, its servants, employees, agents, visitors and
licensees shall observe faithfully and comply with the rules and regulations set
forth in Schedule "C" attached hereto and made a part hereof. Landlord shall
have the right from time to time during the term of this Lease to make
reasonable changes in and additions to the rules thus set forth. All rules and
regulations shall be enforced in a non-discriminatory manner against Tenant.

Section 29.02. Any failure by Landlord to enforce any rules and
regulations now or hereafter in effect, either against Tenant or any other
tenant in the Building, shall not constitute a breach hereunder or waiver of any
such rules and regulations.

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ARTICLE 30

Successors and Assigns and Definitions

Section 30.01. The covenants, conditions and agreements contained in
this Lease shall bind and enure to the benefit of Landlord and Tenant and their
respective distributees, legal representatives, successors and, except as
otherwise provided herein, their assigns.

Section 30.02. The term "Landlord" as used in this Lease, so far as
the covenants and agreements on the part of Landlord are concerned shall be
limited to mean and include only the owner or owners at the time in question of
the tenant's estate under the Ground Lease or under any ground or underlying
lease covering the land described in Schedule B hereto annexed and/or the
Building and improvements thereon. In the event of any assignment or assignments
of such tenant's estate, and regardless of whether the assignee is financially
responsible or solvent and not notwithstanding that the assignor may be a
stockholder, officer or director of a corporate assignee or may be associated
directly or indirectly with the assignee, Landlord herein named (and in case of
any subsequent assignment, the then assignor) shall be automatically freed and
relieved from and after the date of such assignment of all personal liability as
respects to performance of any of Landlord's covenants and agreements thereafter
to be performed, and such assignee shall, by acceptance of such assignment, be
bound by all of such covenants and agreements and the assignee shall assume in
writing the Landlord's obligations hereunder; it being intended that Landlord's
covenants and agreements shall be binding on Landlord, its successors and
assigns only during and in respect of their successive periods of such
ownership. Notwithstanding the foregoing, Landlord shall not be relieved of any
liability with respect to any security deposited with and held by Landlord until
said security is transferred to such assignee.

However, in any event, Landlord shall not have any personal liability
or obligation by reason of any default by Landlord under any of Landlord's
covenants and agreements in this Lease, and in case of such default, Tenant will
look only to Landlord's estate, as tenant under the Ground Lease or under any
ground or underlying lease, covering the land described in Schedule B, to
recover any loss or damage resulting therefrom; and Tenant shall have no right
to nor shall Tenant assert any claim against nor have recourse to Landlord's
other property or assets to recover such loss or damage.

Section 30.03. All pronouns or any variation thereof shall be deemed
to refer to masculine, feminine or neuter, singular or plural as the identity of
the person or persons may require; and if Tenant shall consist of more than one
(1) person, the obligations of such persons, as Tenant, under this Lease, shall
be joint and several.

Section 30.04. The definitions contained in Schedule E annexed
hereto are hereby made a part of this Lease.

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ARTICLE 31

Notices

Any notice, statement, certificate, request, approval, consent or
demand required or permitted to be given under this Lease shall be in writing
sent by registered or certified mail (or reputable, commercial overnight courier
service), return receipt requested and postage prepaid, addressed, as the case
may be, to Landlord, at 750 Lexington Avenue, New York, New York 10022, and to
Tenant, prior to the Commencement Date at 250 Executive Park Blvd., Suite 4000,
San Francisco, California, and after the Commencement Date, at the Demised
Premises, or to such other addresses as Landlord or Tenant respectively shall
designate in the manner herein provided. Such notice, statement, certificate,
request, approval, consent or demand shall be deemed to have been given on the
date when received, as aforesaid, or on the date of delivery (or refusal to
accept delivery) by overnight courier.

ARTICLE 32

No Waiver; Entire Agreement

Section 32.01. The specific remedies to which Landlord may resort
under the provisions of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which Landlord may be
lawfully entitled in case of any breach or threatened breach by Tenant of any of
the terms, covenants and conditions of this Lease. The failure of Landlord to
insist upon the strict performance of any of the terms, covenants and conditions
of this Lease, or to exercise any right or remedy herein contained, shall not be
construed as a waiver or relinquishment for the future of such term, covenant,
condition, right or remedy. A receipt by Landlord of minimum rent or additional
rent with knowledge of the breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such breach. This Lease may not be changed
or terminated orally. In addition to the other remedies in this Lease provided,
Landlord shall be entitled to restraint by injunction of the violation or
attempted or threatened violation of any of the terms, covenants and conditions
of this Lease or to a decree, any court having jurisdiction in the matter,
compelling performance of any such terms, covenants and conditions.

Section 32.02. No receipt of monies by Landlord from Tenant, after
any re-entry or after the cancellation or termination of this Lease in any
lawful manner, shall reinstate the Lease; and after the service of notice to
terminate this Lease, or after commencement of any action, proceeding or other
remedy, Landlord may demand, receive and collect any monies due, and apply them
of account of Tenant's obligations under this Lease but without in any respect
affecting such notice, action, proceeding or remedy,

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except that if a money judgment is being sought in any such action or
proceeding, the amount of such judgment shall be reduced by such payment.

Section 32.03. If Tenant is in arrears in the payment of minimum rent
or additional rent, Tenant waives its right, if any, to designate the items in
arrears against which any payments made by Tenant are to be credited and
Landlord may apply any of such payments to any such items in arrears as
Landlord, in its sole discretion, shall determine, irrespective of any
designation or request by Tenant as to the items against which any such payments
shall be credited.

Section 32.04. No payment by Tenant nor receipt by Landlord of a
lesser amount than may be required to be paid hereunder shall be deemed to be
other than on account of any such payment, nor shall any endorsement or
statement on any check or any letter accompanying any check tendered as payment
be deemed an accord and satisfaction and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
payment due or pursue any other remedy in this Lease provided.

Section 32.05. This Lease and the Schedules annexed hereto constitute
the entire agreement between Landlord and Tenant referable to the Demised
Premises, and all prior negotiations and agreements are merged herein.

Section 32.06. If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.

Section 32.07. Tenant acknowledges that Landlord will contract or has
contracted with one or more providers of telecommunications services for the
installation of cable, wire and related electrical, electronic or mechanical
devices in the Building sufficient to provide telecommunications services to the
Demised Premises, and Tenant agrees to engage such a provider, as designated by
Landlord, to provide such services, unless another provider selected by Tenant
and approved by Landlord agrees to provide such services to Tenant at a lower
cost than the provider designated by Landlord. In such event Landlord shall have
the right to cause the service provider designated by Landlord to match the cost
chargeable by the provider selected by Tenant, in which event Tenant agrees to
engage the provider designated by Landlord.

Section 32.08. It is understood and agreed that this Lease is
submitted to Tenant on the understanding that it shall not be considered an
offer and shall not bind Landlord in any way whatsoever until (i) Tenant has
duly executed and delivered duplicate originals to Landlord, and (ii) Landlord
has executed and delivered one of said fully executed originals to Tenant.

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ARTICLE 33

Captions

The captions of Articles in this Lease are inserted only as a matter
of convenience and for reference and they in no way define, limit or describe
the scope of this Lease or the intent of any provision thereof.

ARTICLE 34

Inability to Perform

If the performance or observance by Landlord or Tenant of any of the
terms, covenants and conditions of this Lease on the part of Landlord or Tenant
to be performed shall be delayed by reason of unavoidable delays (as hereinafter
defined), then the time for the performance or observance thereof shall be
extended for the period of time as Landlord or Tenant shall have been so
delayed, provided Tenant shall continue, notwithstanding unavoidable delays, to
be obligated to pay minimum rent and additional rent without abatement.

The words "unavoidable delays", as used in this Lease shall mean (a)
the enactment of any law or issuance of any governmental order, rule or
regulation (i) prohibiting or restricting performance of work of the character
required to be performed by Landlord under this Lease, or (ii) establishing
rationing or priorities in the use of materials, or (iii) restricting the use of
labor, and (b) strikes, lockouts, acts of God, inability to obtain labor or
materials, enemy action, civil commotion, fire, unavoidable casualty or other
similar types of causes beyond the reasonable control of Landlord, other than
financial inability.

ARTICLE 35

No Representations by Landlord

Neither Landlord nor any agent or employee of Landlord has made any
representation whatsoever with respect to the Demised Premises except as
expressly set forth in this Lease.

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ARTICLE 36

Rent Control

In the event the minimum rent and/or additional rent or any part
thereof provided to be paid by Tenant under the provisions of this Lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any federal, state, county or city law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules, code or regulations of any organization or entity
formed pursuant to law, Tenant shall enter into such agreement(s) and take such
other steps (without additional expense or liability to Tenant) as Landlord may
reasonably request and as may be legally permissible to permit Landlord to
collect the maximum rents which from time to time during the continuance of such
legal rent restriction may be legally permissible (and not in excess of the
amounts reserved therefor under this Lease). Upon the termination of such legal
rent restriction, (a) the minimum rent and/or additional rent shall become and
thereafter be payable in accordance with the amounts reserved herein for the
periods following such termination, and (b) Tenant shall pay to Landlord
promptly upon being billed, to the maximum extent legally permissible, an amount
equal to (i) minimum rent and/or additional rent which would have been paid
pursuant to this Lease but for such legal rent restriction less (ii) the rents
paid by Tenant during the period such legal rent restriction was in effect.

ARTICLE 37

Late Payment Charges

If Tenant shall fail to pay any minimum rent or additional rent within
ten (10) days after its due date, Tenant shall pay a late charge of $.05 for
each $1.00 which remains unpaid after such period to compensate Landlord for
additional expense in processing such late payment. In addition, if Tenant fails
to pay any minimum rent or additional rent within fifteen (15) days after its
due date, Tenant shall pay interest thereon from the date due until the date
paid at the rate of one and one-half percent (1-1/2%), per month. If any check
of Tenant in payment of any sum due under this Lease, including but not limited
to minimum rent and additional rent, fails to clear the bank, Tenant shall pay
a charge of $250.00.

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ARTICLE 38

Security Deposit

Section 38.01. Concurrently with the execution of this Lease, Tenant
shall deposit with Landlord the sum of $712,000, by Letter of Credit as provided
in Section 38.02, as security for the faithful performance and observance by
Tenant of the terms, provisions and conditions of this Lease. Tenant agrees
that, in the event that Tenant defaults, after any applicable notice and
expiration of any applicable cure period, in respect of any of the terms,
provisions and conditions of this Lease (including the payment of minimum rent
and additional rent), Landlord may notify the "Issuing Bank" (as such term is
defined in Section 38.02) and thereupon receive all of the monies represented by
the said Letter of Credit and use, apply, or retain the whole or any part of
such proceeds to the extent required for the payment of any rent, additional
rent, or any other sum as to which Tenant is in default, or for any sum that
Landlord may expend or may be required to expend by reason of Tenant's default,
in respect of any of the terms, covenants and conditions of this Lease
(including any damages or deficiency accrued before or after summary proceedings
or other re-entry by Landlord). In the event that Landlord applies or retains
any portion or all of the proceeds of such Letter of Credit Tenant shall
forthwith restore the amount so applied or retained so that, at all times, the
amount deposited shall be $712,000, or the amount set forth in Section 38.06, as
the case may be. Upon Tenant making such additional deposit, Landlord is hereby
authorized to act as Tenant's agent to use the proceeds of the Letter of Credit
to obtain a new Letter of Credit and Tenant hereby irrevocably appoints Landlord
as Tenant's agent and attorney-in-fact to obtain a replacement Letter of Credit
from the Issuing Bank or any such qualifying bank (such qualifying bank shall
then be the Issuing Bank). If Tenant shall fail or refuse to make such
additional deposit, Landlord shall have the same rights in law and in equity and
under this Lease as it has with respect to a default by Tenant in the payment of
minimum rent. In the event that Tenant shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this Lease, the Letter
of Credit shall be returned to Tenant after the expiration date and after
delivery of possession of the entire Demised Premises to Landlord in the
condition provided in this Lease for such delivery of possession.

Section 38.02. Such letter of credit (the "Letter of Credit") shall
be a clean, irrevocable and unconditional Letter of Credit (the "Letter of
Credit") issued by and drawn upon any commercial bank (the "Issuing Bank") with
offices for banking purposes in the City of New York and having at all times
that such Letter of Credit is in effect a net worth of not less than
$500,000,000.00, which Letter of Credit shall have an initial term of not less
than one year or finally having a term expiring not less than ninety (90) days
following the expiration of the term of this Lease, shall permit multiple
drawings, shall be transferable by the beneficiary on one or more occasions at
no charge to the beneficiary, and otherwise be in form and content satisfactory
to Landlord, be for the account of Landlord and be in the amount of $712,000 or
the amount set forth in Section 38.06, as the case may be. Notwithstanding the
foregoing, if at any time the net worth of the Issuing Bank is less than
$500,000,000.00 or its rating is downgraded from its current rating, and

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provided Tenant does not replace the existing Letter of Credit with a Letter of
Credit meeting the criteria of Section 38.02 within the sooner of thirty (30)
days following Tenant's receipt of Landlord's notice to Tenant of either of the
foregoing events or the number of days remaining until the expiration date of
the existing Letter of Credit, Landlord shall have the right, at any time
thereafter, to draw down the entire proceeds of the existing Letter of Credit
and hold such proceeds pursuant to the terms of Section 38.01 as cash security
pending the replacement of such Letter of Credit. The Letter of Credit shall
provide that:

(a) the Issuing Bank shall pay to Landlord or its duly
authorized representative an amount up to the face amount of the Letter of
Credit upon presentation of the Letter of Credit and a sight draft, in the
amount to be drawn together with a statement signed by a member of Landlord
that Tenant is in default under this Lease after any applicable notice and
cure period.

(b) it shall be deemed automatically renewed, without amendment,
for consecutive periods of one (1) year each thereafter during the term of
this Lease, unless Issuing Bank sends written notice (hereinafter referred
to as the Non-Renewal Notice) to Landlord by certified or registered mail,
return receipt requested, not less than sixty (60) days next preceding the
expiration date of the Letter of Credit that it elects not to have the
Letter of Credit renewed, and it being agreed that the giving of such Non-
Renewal Notice shall for the purpose of this Article 38 be deemed a default
under this Lease;

(c) Landlord, subsequent to its receipt of a Non-Renewal
Notice, and prior to the expiration date of the Letter of Credit, shall
have the right, exercisable by means of sight draft, to receive the monies
represented by the Letter of Credit and hold such proceeds pursuant to the
terms of Section 38.01 as cash security pending the replacement of such
Letter of Credit; and

(d) upon Landlord's sale or assignment of its estate as Tenant
under any ground or underlying lease, the Letter of Credit shall be
transferable by Landlord, as provided in Section 38.03.

Section 38.03. In the event Landlord's estate as tenant under any
ground or underlying Lease is sold or assigned, Landlord shall transfer the
cash security or the Letter of Credit then held by Landlord to the vendee or
assignee, and Landlord shall thereupon be released by Tenant from all liability
for the return of such cash security or Letter of Credit. In such event, Tenant
agrees to look solely to the new Landlord for the return of said cash security
or Letter of Credit. It is agreed that the provisions hereof shall apply to
every transfer or assignment made of the cash security or Letter of Credit to a
new Landlord.

Section 38.04. Tenant covenants that it will not assign or encumber,
or attempt to assign or encumber, the monies or Letter of Credit deposited
hereunder as

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security, and that neither Landlord nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment, or attempted
encumbrance.

Section 38.05. The use of the security, as provided in this Article,
shall not be deemed or construed as a waiver of Tenants default or as a waiver
of any other rights and remedies to which Landlord may be entitled under the
provisions of this Lease by reason of such default, it being intended that
Landlord's rights to use the whole or any part of the security shall be in
addition to but not in limitation of any such other rights and remedies; and
Landlord may exercise any of such other rights and remedies independent of or in
conjunction with its rights under this Article.

Section 38.06. Provided that (i) Tenant is not, at the time of any
reduction as hereafter provided, then in default under any of the terms,
covenants and conditions of this Lease on its part to be performed and (ii)
Tenant's net profits, determined in accordance with generally accepted
accounting procedures, has been at least $50,000,000.00 for the last two (2)
fiscal years of Tenant, then at any time after the actual payment by Tenant of
thirty-six (36) monthly installments of minimum rent, the amount of the security
deposit hereunder shall be reduced by the amount of $71,200 and shall also be
reduced annually thereafter by a like amount of $71,200, until such time that
the amount of the security deposit is $356,000, and thereafter there shall be no
further reduction. In each such event, Tenant shall either deliver to Landlord a
replacement Letter of Credit in the reduced amount and Landlord will then return
to Tenant the existing Letter of Credit, or Tenant will deliver to Landlord an
amendment to the existing Letter of Credit reducing the amount thereof to the
applicable amount.

ARTICLE 39

Additional Space

Section 39.01. So long as this Lease is then in full force and effect
and Tenant is not then in default in performing any of the conditions of this
Lease on its part to be performed, both at the time of Landlord's Availability
Notice (as hereinafter defined) and on the Effective Date (as hereinafter
defined) for the Additional Space (as hereinafter defined), at any time during
the term of this Lease (excluding the last two (2) years) that Landlord becomes
aware of the potential availability of the entire 3rd, 5th or 6th floors in the
Building (each such floor being referred to herein as the "Additional Space"),
which Landlord anticipates will come available for lease and future occupancy by
Tenant, Landlord shall then give Tenant notice thereof (the "Availability
Notice"). Such notice shall also state the rentable square feet of the
Additional Space (which for the purpose of this Article 39 is agreed to be
16,000 for each) and Landlord's reasonable estimation of the date when such
Additional Space will be available for Tenant's occupancy (the "Occupancy
Date"). If the same is subject to the prior right of then tenant thereof to
review the term thereof or of another existing tenant to lease the same (the
"Prior Right"), Landlord shall include in its Availability Notice the existence
of such Prior Right and the date by which the

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same must be exercised by the existing tenant having such Prior Right.
Concurrently with giving the Availability Notice to Tenant, Landlord shall give
to the existing tenant notice to exercise its Prior Right. Landlord thereafter
shall notify Tenant of the exercise or nonexercise of such Prior Right. Tenant
shall have the one time to exercise its option to lease such Additional Space by
giving Landlord notice of its election to do so (the "Exercise Notice"), within
thirty (30) days from the date of its receipt of the Availability Notice, with
TIME OF THE ESSENCE. However, if such Additional Space is subject to a Prior
Right, Tenant may exercise its option by giving the Exercise Notice within
thirty (30) days from the date of its receipt of notice from Landlord of the
non-exercise of such Prior Right, with TIME OF ESSENCE. If Landlord does not
receive the Exercise Notice within the applicable thirty (30) day period, then
Tenant shall have no further rights with respect to the Additional Space set
forth in the Availability Notice under this Article 39, and Landlord may lease
such Additional Space to any other party upon such terms and conditions as
Landlord may deem desirable.

Section 39.02. Tenant shall take possession of the Additional Space
and Landlord shall deliver possession thereof to Tenant on the later of the
Occupancy Date and the actual date on which Landlord shall have delivered such
Additional Space to Tenant vacant (the "Effective Date"), and from and after the
Effective Date such Additional Space shall automatically be deemed added to and
made part of the Demised Premises upon all of the terms, covenants and
conditions as are contained in this Lease (except those which by their terms are
no longer applicable), except as follows:

(a) Tenant agrees to accept possession of the Additional Space
in its then "As Is" condition and Landlord shall not be required to do any
work therein to prepare the same for Tenant's occupancy.

(b) The respective amounts of the minimum rent provided in
Section 3.01(a) shall be increased by the amount equal to the fair market
annual rental value ("Rental Value") of the Additional Space as of the
Effective Date, but not less than at the aggregate rate per square foot
payable for minimum rent and additional rent payable under Articles 22 and
23 of this Lease immediately prior to the Effective Date. In the event the
parties fail to agree on such Rental Value within ninety (90) days prior to
the Effective Date, such Rental Value shall be determined by arbitration in
the manner as hereinafter provided in Article 40, and the determination of
such arbitration shall be conclusive and binding on the parties. If for any
reason such Rental Value shall not be determined prior to the commencement
of the Effective Date, Tenant, in the meantime shall pay the monthly
installments of minimum rent at the rate per square foot payable for
minimum rent and said additional rent immediately prior to the Effective
Date. If the Rental Value shall be greater than the amount paid by Tenant
for the Additional Space following the Effective Date, Tenant forthwith
after the arbitrators' decision, shall pay to Landlord the difference
between the monthly installments actually paid and the monthly installments
which should have been paid from the commencement

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of the Effective Date, and thereafter Tenant shall pay the monthly
installments of the new minimum rent.

(c) In Section 22.01(a), with respect to the Additional Space
only, in subdivision (i) the "Tax Base Factor" shall mean the July 1 - June
30 fiscal year in which the Effective Date occurs; in subdivision (iii) the
"comparative tax year" shall mean the July 1 - June 30 fiscal year
immediately following the Tax Base Factor; and in subdivision (v) the
"Percentage" shall mean 4.85%.

(d) In Section 22.02(a), with respect to the Additional Space
only, in subdivision (ii), the "Base Wage Rate" shall mean the Wage Rate
in effect for the calendar year in which the Effective Date occurs; and in
subdivision (v), the "Multiplication Factor" shall mean 16,000.

(e) In Section 23.03, the then Rent Inclusion Factor shall be
increased by the amount of $48,000.

Section 39.03. Notwithstanding the provisions of Section 39.02, if
Landlord is unable to give possession of the Additional Space on the Effective
Date because of the holding-over of the tenant thereof, Landlord shall not be
subject to any liability for failure to give possession on the Effective Date,
but the Effective Date shall not be deemed to have occurred for any purpose
whatsoever until the date that Landlord shall actually deliver possession of the
Additional Space to Tenant. In any event, Landlord shall promptly commence and
diligently prosecute holdover proceedings or such other legal proceedings as may
be required in order to obtain possession of the Additional Space as promptly
thereafter as may be practical.

Section 39.04 Following the determination of the Effective Date, the
minimum rent and the escalation rents of the Additional Space, Landlord and
Tenant shall execute an agreement amending this Lease to reflect the foregoing,
but the provisions of this Article 39 shall be effective with respect to the
Additional Space effective from and after the Effective Date whether or not such
an amendment is executed.

Section 39.05. Except as specifically amended in this Article 39,
all of the terms, covenants and conditions of this Lease shall continue in full
force and effect and unchanged.

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ARTICLE 40

Arbitration

Section 40.01. The arbitration provided for in Article 39 shall be
settled in the Borough of Manhattan, City, County and State of New York,
conducted to the extent consistent with this Article 40 in accordance with the
rules then obtaining of the American Arbitration Association, or any successor
body of similar function, governing commercial arbitration, except that the
foregoing shall not be deemed or construed to require that such arbitration
actually be conducted by or before the American Arbitration Association or any
successor body of similar function. The arbitration shall be conducted before
arbitrators selected as follows: The party desiring arbitration shall appoint a
disinterested person as arbitrator on its behalf and give notice thereof to the
other party who shall, within twenty (20) days thereafter, appoint a second
disinterested person as arbitrator on its behalf and give written notice thereof
to the first party. The arbitrators thus appointed shall, within twenty (20)
days after the date of the appointment of the second arbitrator, appoint a third
disinterested person, who shall be a person licensed by the State of New York
(if such license is required by law) or otherwise qualified and having the
necessary expertise, including at least ten (10) years' experience, in the
matter or discipline which is the primary subject or is primarily involved in
such arbitration. If the arbitrators thus appointed shall fail to appoint such
third disinterested person within said twenty (20) day period, then either party
may, by application to the presiding Justice of the Appellate Division of the
Supreme Court of the State of New York for the First Judicial Department, which
application shall be made within fifteen (15) days after the end of said twenty
(20) day period, seek to appoint such third disinterested person, such
appointment being made not later than thirty (30) days after the date of said
application. Upon such appointment, such person shall be the third arbitrator as
if appointed by the original two arbitrators. The decision of the majority of
the arbitrators shall be final, non-appealable, conclusive and binding on all
parties and judgment upon the award may be entered in any court having
jurisdiction. If a party who shall have the right pursuant to the foregoing, to
appoint an arbitrator, fails or neglects to do so, then and in such event the
other party shall select the arbitrator not so selected by the first party, and
upon such selection, such arbitrator shall be deemed to have been selected by
the first party. The expenses of arbitration shall be shared equally by Landlord
and Tenant, unless this Lease expressly provides otherwise, but each party shall
pay and be separately responsible for its own counsel and witness fees and
disbursements, unless this Lease expressly provides otherwise. Landlord and
Tenant agree to sign all documents and to do all other things reasonably
necessary to submit any such matter to arbitration and further agree to, and
hereby do, waive any and all rights they or either of them may at any time have
to revoke their agreement hereunder to submit to arbitration and to abide by the
decision rendered thereunder and agree that a judgment or order may be entered
in any court of competent jurisdiction based on an arbitration award (including
the granting of injunctive relief).

Section 40.02. The arbitrators shall be disinterested persons having
at least ten (10) years experience in the County of New York in a calling
connected with the

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dispute, and shall have the right to retain and consult experts and competent
authorities skilled in the matters under arbitration, but any such consultation
shall be made in the presence of both parties, with full right on their part to
cross-examine such experts and authorities. The arbitrators shall render their
decision and award upon the concurrence of at least two (2) of their number, not
later than sixty (60) days after appointment of the third arbitrator. Their
decision and award shall be in writing and counterpart copies thereof shall be
delivered to each of the parties. In rendering their decision and award, the
arbitrators shall have no power to modify or in any manner alter or reform any
of the provisions of this Lease, and the jurisdiction of the arbitrators is
limited accordingly.

ARTICLE 41

Landlord's Contribution

Subject to the provisions of Article 5 of this Lease, Tenant agrees to
perform the initial work and installations required to make the Demised Premises
suitable for the conduct of Tenant's business. Tenant agrees to deliver to
Landlord, for Landlord's approval, the plans and specifications for Tenant's
initial work on or before April 14, 2000. Landlord agrees to contribute up to
the sum of $416,000.00 ("Landlord's Contribution") toward the cost of such work,
which shall include hard and soft costs. Landlord shall pay to Tenant, from time
to time, but not more often that once a month, ninety (90%) percent of the cost
of the work requested by Tenant theretofore performed by the contractor,
provided Tenant delivers to Landlord concurrently with its request, receipted
bills of the contractor involved approved by Tenant, a certificate by Tenant's
architect that such bills have been approved and the work or materials evidenced
by such bills have been satisfactorily performed or delivered and a waiver of
mechanic's lien signed by the contractor with respect to the amount paid as
evidenced by the receipted bill, such payment to be made to Tenant within twenty
(20) days after receipt of Tenant's request together with the aforesaid
documentation. Notwithstanding the foregoing, Tenant shall advise Landlord of
the cost to be charged by any of Tenant's contractors for the work to be
performed by such contractors prior to employing such contractor to perform its
work. Landlord shall have the right to match the cost chargeable by such
contractor(s), provided notice thereof is given to Tenant within ten (10) days
after Landlord's receipt of Tenant's notice of such cost. In such event Landlord
shall perform the work at such cost, the amount thereof to be applied in
reduction of the amount of Landlord's Contribution. The work performed by
Landlord shall be comparable to the specifications, materials and quality of the
work of the contractor proposed by Tenant. Within ten (10) days after Landlord
receives a certificate from Tenant's architect stating that Tenants work
(including the work, if any, performed by Landlord) has been substantially
completed, that the same has been performed in compliance with all applicable
Governmental Requirements and the approved plans and specifications and delivery
to Landlord of the final "sign-off" letters and equipment use permits (as
necessary) for all work performed from the applicable municipal authorities,
Landlord shall pay to Tenant the aggregate of the ten (10%) percent sums

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retained by Landlord. Landlord shall have no obligation or responsibility to pay
any cost exceeding the amount of Landlord's Contribution. If the amount Tenant
expends for the cost exceeds the amount of Landlord's Contribution, Tenant shall
be responsible for the payment to the contractors of the excess. If said amount
is less than the amount of Landlord's Contribution, Landlord shall not be
obligated to pay such difference to Tenant. Tenant shall indemnify and hold
Landlord harmless from and against any and all claims, costs and expenses in
connection with such work exceeding the amount of Landlord's Contribution.

ARTICLE 42

Supplemental Air Conditioning

Tenant, at its cost, subject to the provisions of Article 5 of the
Lease, may install an air cooled supplemental air conditioning system (the
"System") in the Demised Premises, such installation to be in accordance with
plans and specifications to be approved by Landlord, which approval shall not be
unreasonably withheld or delayed. Said System shall be vented only out of the
rear lot line windows on the 31st Street corner of the Building. The design,
color and location of any louvers installed in connection therewith shall be
subject to Landlord's approval, which approval shall not be unreasonably
withheld or delayed. Tenant, at its own cost, shall maintain such System in good
condition and repair and shall make any replacements thereof as may be required.
Tenant, at its own expense, shall obtain in its own name the use permits for
such System and provide Landlord with copies of same. Tenant shall also obtain
and pay for all annual renewal fees in connection therewith, and provide
Landlord with a copy of such annual renewals. Tenant shall indemnify and hold
Landlord harmless from and against any loss, claims, costs and expenses
(including reasonable attorneys' fees) in connection with the repair and
maintenance of said System. Said System shall be subject to the determination by
Landlord's electrical consultant of the cost of the additional electricity to be
consumed by Tenant with respect to the use and operation of said System, as
provided in Section 23.02. Upon such determination, annual minimum rent and the
amount set forth in Section 23.03 shall be increased by the amount of the cost
of such additional electricity.

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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.

475 PARK AVENUE SO. CO.

By: /s/ Charles Steven Cohen
---------------------------------------
Charles Steven Cohen, Agent

SNOWBALL.COM, INC.

By: /s/ James R. Tolonen
---------------------------------------
Name: James R. Tolonen
Title: CFO/COO
Tenant

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ACKNOWLEDGMENT

STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )

On the day of in the year 2000 before me, the
undersigned, a Notary Public in and said State, personally appeared Charles
Steven Cohen, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.

-------------------------------------------
Notary Public

STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )

On the day of in the year 2000 before me, the
undersigned, a Notary Public in and said State, personally appeared,
personally known to me proved to me on the basis of satisfactory evidence
to be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.

-------------------------------------------
Notary Public

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SCHEDULE A
----------

Floor Plan

[DIAGRAM OF EAST 32ND STREET & PARK AVENUE SOUTH]

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SCHEDULE B
----------

Description of Land

All that certain plot, piece or parcel of land situate, lying and
being in the Borough of Manhattan, City, County and State of New York, and the
buildings and improvements thereon, bounded and described as follows:

BEGINNING at the southeasterly corner of Park Avenue South and 32nd
Street; running

thence southerly along the easterly side of Park Avenue South 162 feet
3-1/2 inches;

thence easterly parallel with 31st Street 80 feet;

thence northerly parallel with Park Avenue South 35 feet 5-7/8 inches;

thence southeasterly on an angle on its southerly side of 86 degrees
34 minutes 00 seconds with the last described line 20 feet 1/2 inch to
a line drawn parallel with Park Avenue South and distant 100 feet
easterly therefrom;

thence northerly along said last mentioned line 29 feet 3 inches to
the center line of the block;

thence easterly along said center line of the block 61 feet 2 inches;

thence northerly parallel with Park Avenue South 98 feet 9 inches;

thence westerly along the southerly side of 32nd Street 161 feet 2
inches to the point or place of BEGINNING.

SAID PREMISES being known as and by the street numbers 465 to 477 Park
Avenue South.

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SCHEDULE C
----------

Rules and Regulations

1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees, guests,
customers and invitees, and no tenant shall use, or permit the use of, the
entrances, corridors, escalators or elevators for any other purpose. No tenant
shall invite to the tenants premises, or permit the visit of, persons in such
numbers or under such conditions as to interfere with the use and enjoyment of
any of the plazas, entrances, corridors, escalators, elevators and other
facilities of the Building by other tenants. Fire exits and stairways are for
emergency use only, and they shall not be used for any other purposes by the
tenants, their employees, licensees or invitees. No tenant shall encumber or
obstruct, or permit the encumbrance or obstruction of any of the sidewalks,
plazas, entrances, corridors, escalators, elevators, fire exits or stairways of
the Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it deems best for
the benefit of the tenants generally. Landlord further reserves the right, at
any time, to install a message/package center in an area in the Building
designated by Landlord and reasonably accessible to and for the common use of
tenants, and the tenants shall comply with the procedures for the same set forth
by the Landlord.

2. The reasonable cost of repairing any damage to the public
portions of the Building or the public facilities or to any facilities used in
common with other tenants, caused by a tenant or the employees, licensees or
invitees of the tenant, shall be paid by such tenant.

3. The Landlord may refuse admission to the Building outside of
ordinary business hours to any person not known to the watchman in charge or not
having Landlord approved identification, and may require ail persons admitted to
or leaving the Building outside of ordinary business hours to register. Tenant's
agents and visitors shall be permitted to enter and leave the building after
ordinary business hours whenever appropriate arrangements have been previously
made between the Landlord and the Tenant with respect thereto. Each tenant shall
be responsible for all persons for whom he requests such permission and shall
be liable to the Landlord for all acts of such persons. Any person whose
presence in the Building at any time shall, in the judgment of the Landlord, be
prejudicial to the safety, character, reputation and interests of the Building
or its tenants may be denied access to the Building or may be rejected
therefrom. In case of invasion, riot, public excitement or other commotion the
Landlord may prevent all access to the Building during the continuance of the
same, by closing the doors or otherwise, for the safety of the tenants and
protection of property in the Building. The Landlord may require any person
leaving the Building with any package or other object to exhibit a pass from the
tenant from whose premises the package or object is being removed, but the

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establishment and enforcement of such requirement shall not impose any
responsibility on the Landlord for the protection of any tenant against the
removal of property from the premises of the tenant. The Landlord shall, in no
way, be liable to any tenant for damages or loss arising from the admission,
exclusion or ejection of any person to or from the tenant's premises or the
Building under the provisions of this rule.

4. No tenant shall obtain or accept for use in its premises towel,
barbering, boot blacking, floor polishing, lighting maintenance, cleaning or
other similar services from any persons not authorized by the Landlord in
writing to furnish such services, provided always that the charges for such
services by persons authorized by the Landlord are comparable to the industry
charge. Such services shall be furnished only at such hours, in such places
within the tenant's premises and under such reasonable regulations as may be
fixed by the Landlord.

5. No awnings or other projections over or around the windows shall
be installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's premises.

6. There shall not be used in any space, or in the public halls of
the Building, either by the Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.

7. All entrance doors in each tenant's premises shall be left locked
when the tenant's premises are not in use. Entrance doors shall not be left
open at any time. All windows in each tenant's premises if operable shall be
kept closed at all times and all blinds therein above the ground floor shall be
lowered when and as reasonably required because of the position of the sun,
during the operation of the Building air conditioning system to cool or
ventilate the tenant's premises.

8. No noise, including the playing of any musical instruments, radio
or television, which, in the judgment of the Landlord, might disturb other
tenants in the Building shall be made or permitted by any tenant. Nothing shall
be done or permitted in any tenant's premises, and nothing shall be brought into
or kept in any tenant's premises, which would impair or interfere with any of
the Building services or the proper and economic heating, cleaning or other
servicing of the Building or the premises, or the use or enjoyment by any other
tenant of any other premises, nor shall there be installed by any tenant any
ventilating, air conditioning, electrical or other equipment of any kind which,
in the judgment of the Landlord, might cause any such impairment or
interference. No dangerous, flammable, combustible or explosive object or
material shall be brought into the Building by any tenant or with the permission
of any tenant.

9. Tenant shall not permit any cooking or food odors emanating within
the Demised Premises to seep into other portions of the Building.

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10. No acids, vapor or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building
which may damage them. The water and wash closets and other plumbing fixtures in
or serving any tenant's premises shall not be used for any purpose other than
the purpose for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein. Ail
damages resulting from any misuse of the fixtures shall be borne by the tenant
who, or whose servants, employees, agents, visitors or licensees, shall have
caused the same.

11. No signs, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside or inside the premises or the Building without the prior written consent
of the Landlord. In the event of the violation of the foregoing by any tenant,
Landlord may remove the same without any liability, and may charge the expense
incurred by such removal to the tenant or tenants violating this rule. Interior
signs and lettering on doors and elevators shall be inscribed, painted, or
affixed for each tenant by Landlord at the expense of such tenant, (the charge
not to exceed that which a reputable outside contractor would charge), and shall
be of a size, color and style reasonably acceptable to Landlord. Landlord shall
have the right to prohibit any advertising by any tenant which impairs the
reputation of the Building or its desirability as a building for offices, and
upon written notice from Landlord, Tenant shall refrain from or discontinue such
advertising.

12. No additional locks or belts of any kind shall be placed upon any
of the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. However, the tenant may install an
electronic entry device at its cost. Upon the termination of a tenant's lease,
all keys of the tenant's premises and toilet rooms shall be delivered to the
Landlord.

13. No tenant shall mark, paint, drill into or in any way deface any
part of the Building or the premises demised to such tenant. No boring, cutting
or stringing of wires shall be permitted, except with the prior written consent
of Landlord, which will not be unreasonably withheld or delayed, and as Landlord
may reasonably direct. No tenant shall install any resilient tile or similar
floor covering in the premises demised to such tenant except in a manner
approved by Landlord.

14. No tenant shall use or occupy, or permit any portion of the
premises demised to such tenant to be used or occupied, as an office for a
public stenographer or typist, or as a barber or manicure shop, or as an
employment bureau. No tenant or occupant shall engage or pay any employees in
the Building, except those actually working for such tenant or occupant in the
Building, nor advertise for laborers giving an address at the Building.

15. No premises shall be used, or permitted to be used, at any time,
as a store for the sale or display of goods, wares or merchandise of any kind,
or as a restaurant, shop, booth, bootblack or other stand, or for the conduct of
any business or

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occupation which predominantly involves direct patronage of the general public
in the premises demised to such tenant, or for manufacturing or for other
similar purposes.

16. The requirements of tenants will be attended only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of the regular duties, unless under
special instructions from the office of the Landlord.

17. Each tenant shall, at its expense, provide artificial light in
the premises demised to such tenant for Landlord's agents, contractors and
employees while performing janitorial or other cleaning services and making
repairs or alterations in said premises.

18. The tenant's employees shall not loiter around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.

19. If the premises demised to any tenant become infested with
vermin, such tenant, at its sole cost and expense, shall cause its premises to
be exterminated, from time to time, to the satisfaction of Landlord and shall
employ such exterminators therefor as shall be approved by Landlord.

20. No bicycle or other vehicle and no animals shall be allowed in
the showrooms, offices, halls, corridors or any other parts of the Building.

21. Tenant shall not, without Landlord's prior written consent,
install or operate any hearing device, refrigerating or air conditioning
equipment, steam or internal combustion engine, boiler, stove, machinery or
mechanical devices upon the premises or carry on any mechanical or manufacturing
business thereon, or use or permit to be brought into the Building flammable
fluids such as gasoline, kerosene, benzene or naphtha or use any illumination
other than electric lights. All equipment, fixtures, lamps and bulbs shall be
compatible with, and not exceed the capacity of the Building's electric system.
No explosives, firearms, radioactive or toxic or hazardous substances or
materials, or other articles deemed hazardous to life, limb or property shall be
brought into the Building or the Premises.

22. Tenant shall at its expense provide artificial light for
employees of Landlord while doing service or other work and making repairs or
alterations in the premises.

23. Tenant must list all furniture and fixtures to be taken from the
Building upon a form approved by Landlord. Such list shall be presented at the
office of the Building for approval before acceptance by the security officer or
elevator operator.

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24. Tenant, its customers, invitees, licensees, agents, servants,
employees and guests shall not encumber or obstruct sidewalks, entrances,
passages, courts, vestibules, halls, elevators, stairways or other common areas
in or about the Building.

25. Tenant shall not allow anything to be placed against or near the
glass in the partitions between the premises and the halls or corridors of the
Building which shall diminish the light in the halls or corridors.

26. Upon termination of this Lease, Tenant shall surrender all keys
of the premises and of the Building and give to Landlord the explanation of the
combination of all locks on safes or vault doors in the Premises.

27. Tenant shall provide the Building Manager with keys to all locks
on any doors of the premises. The Building Manager shall be allowed admittance
to the premises in the event of any emergency, fire or other casualty that may
arise in other appropriate instances.

28. Unless otherwise advised by Landlord, neither Tenant nor its
employees shall undertake to regulate the radiator controls of thermostats.
Tenant shall report to the office of the Building whenever such thermostats or
radiator controls are not working properly or satisfactorily.

29. All window treatments that are visible from the street shall be
subject to Landlord's approval.

30. Tenant assumes full responsibility for protecting its space from
weather, theft, robbery and pilferage, which includes keeping doors locked and
other means of entry into the premises closed and secured.

31. Tenant shall not sell food of any kind or cook in the Building.
Tenant may serve complimentary foods to its guests provided that it shall first
comply with all Legal Requirements.

32. Water in the premises shall not be wasted by Tenant or its
employees by tying or wedging back the faucets of the washbowls or otherwise.

33. All messengers shall be required to sign in and obtain a pass
from either the front desk or the elevator starters. Contractors and other
workmen shall use only the freight elevators for all movement within the
Building.

34. Landlord reserves the right at any time, to install a
message/package center in an area in the Building designated by Landlord and
reasonably accessible to and for the common use of the tenants, and tenants
shall comply with the procedures for the same set forth by the Landlord.

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SCHEDULE D
----------

Cleaning Specifications

for

475 Park Avenue South
New York, New York

Landlord will provide the following cleaning services in the Demised Premises
and related areas on a nightly basis (or as otherwise indicated), Monday through
Friday, holidays excluded:

OFFICE AREAS
- ------------

Empty and wipe clean all waste receptacles.

Sweep all vinyl composition tile flooring as needed.

Carpet sweep all carpeted areas; vacuum clean weekly.

Dust all office furniture within hand high reach, including window sills,
wall ledges, chairs, desks, tables, baseboards, file cabinets, convector
enclosures, and pictures.

Wipe clean all glass desks and table tops.

CORE AREA LAVATORIES
- --------------------

Wash all toilet bowls, urinals, washbasins and toilet seats.

Wash and dry all mirrors, shelves and bright work.

Wipe clean sills, partitions, ledges, waste receptacles, and dispensers.

Empty paper towel and sanitary napkin disposal receptacles.

Insert toilet tissue, paper towels, and hand soap dispensers.
Materials to be furnished by Landlord at Tenant's expense.

Sweep and mop all flooring.

Dust exterior of light fixtures quarterly.

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FLOOR MAINTENANCE
- -----------------

High Dusting Public Areas.

High dusting of walls, ledges, fixtures, vents, etc., not reached in
the normal nightly cleaning operation, to be done quarterly.

WINDOW CLEANING SERVICES
- ------------------------

Clean all exterior windows, inside and out periodically during the
year, as the Landlord deems necessary.

RUBBISH REMOVAL SERVICES
- ------------------------

Remove all ordinary dry rubbish and paper only from the office premises of
the Demised Premises daily, Monday through Friday, holidays excepted.

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SCHEDULE E
----------

Definitions

(a) The term mortgage shall include an indenture of mortgage and deed
--------
of trust to a trustee to secure an issue of bonds, and the term mortgagee shall
---------
include such a trustee.

(b) The terms include, including and such as shall each be construed
------- --------- -------
as if followed by phrase "without being limited to".

(c) The term obligations of this lease, and words of like import,
-------------------------
shall mean the covenants to pay rent and additional rent under this lease and
all of the other covenants and conditions contained in this lease. Any provision
in this lease that one party or the other or both shall do or not do or shall
cause or permit or not cause or permit a particular act, condition, or
circumstance shall be deemed to mean that such party so covenants or both
parties so covenant, as the case may be.

(d) The term Tenant's obligations hereunder, and words of like
------------------------------
import, and the term Landlord's obligations hereunder, and words of like
--------------------------------
import, shall mean the obligations of this lease which are to be performed or
observed by Tenant, or by Landlord, as the case may be. Reference to performance
-----------
of either party's obligations under this lease shall be construed as
"performance and observance".

(e) Reference to Tenant or Landlord being or not being in default
----------
hereunder, or words of like import, shall mean that Tenant or Landlord is in
- ---------
default in the performance of one or more of Tenant's or Landlord's obligations
hereunder after any applicable notice and cure period, or that Tenant or
Landlord is not in default in the performance of any of Tenant's or Landlord's
obligations hereunder after any applicable notice and cure period, or that a
condition of the character described in Section 16.01 has occurred and continues
or has not occurred or does not continue, as the case may be.

(f) The term laws and/or requirements of public authorities and words
----------------------------------------------
of like import shall mean laws and ordinances of any or all of the Federal,
state, city, county and borough governments and rules, regulations, orders
and/or directives of any or all departments, subdivisions, bureaus, agencies or
offices thereof, or of any other governmental, public or quasi-public
authorities, having jurisdiction in the premises, and/or the direction of any
public officer pursuant to law.

(g) The term requirements of insurance bodies and words of like
--------------------------------
import shall mean rules, regulations, orders and other requirements of the New
York Board of Fire Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance of the Building and/or the
Demised Premises.

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(h) Reference to termination of this lease includes expiration or
-------------------------
earlier termination of the term of this lease or cancellation of this lease
pursuant to any of provisions of this lease or to law. Upon a termination of
this lease, the term and estate granted by this lease shall end at noon of the
date of termination as if such date were the date of expiration of the term of
this lease and neither party shall have any further obligation or liability to
the other after such termination (i) except as shall be expressly provided for
in this lease, or (ii) except for such obligation as by its nature or under the
circumstances can only be, or by the provisions of this lease, may be performed
after such termination, and, in any event, unless expressly otherwise provided
in this lease, any liability for a payment which shall have accrued to or with
respect to any period ending at the time of termination shall survive the
termination of this lease.

(i) The term in full force and effect when herein used in reference
------------------------
to this lease as a condition to the existence or exercise of a right on the part
of Tenant shall be construed in each instance as including the further condition
that at the time in question no default on the part of Tenant exists, and no
event has occurred which has continued to exist for such period of time (after
the notice, if any, required by this lease), as would entitle Landlord to
terminate this lease or to dispossess Tenant.

(j) The term Tenant shall mean Tenant herein named or any assignee or
------
other successor in interest (immediate or remote) of Tenant herein named, but
only while such Tenant or such assignee or other successor in interest, as the
case may be, is in possession of the Demised Premises as owner of the Tenant's
estate and interest granted by this lease and also, if Tenant is not an
individual or a corporation, all of the persons, firms and corporations then
comprising Tenant.

(k) Words and phrases used in the singular shall be deemed to include
the plural and vice versa, and nouns and pronouns used in any particular gender
shall be deemed to include any other gender.

<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 Consolidated Financial Data" and to the use of our report dated
January 28, 2000, in Amendment No. 4 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
March 16, 2000

<PAGE>

EXHIBIT 23.03

Consent of Independent Accountants

We hereby consent to the use in Amendment 4 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.

March 16, 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 #4 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
March 16, 2000