<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1999
REGISTRATION NO. 333-87169
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
STARMEDIA NETWORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7375 06-1461770
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
29 WEST 36(TH) STREET
FIFTH FLOOR
NEW YORK, NEW YORK 10018
(212) 548-9600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
FERNANDO J. ESPUELAS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
STARMEDIA NETWORK, INC.
29 WEST 36(TH) STREET
FIFTH FLOOR
NEW YORK, NEW YORK 10018
(212) 548-9600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. KEITH F. HIGGINS, ESQ.
BABAK YAGHMAIE, ESQ. CHRISTOPHER J. AUSTIN, ESQ.
BROBECK, PHLEGER & HARRISON LLP ROPES & GRAY
1633 BROADWAY, 47TH FLOOR ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10019 BOSTON, MASSACHUSETTS 02110
(212) 581-1600 (617) 951-7000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION. DATED SEPTEMBER 27, 1999.
<TABLE>
<S> <C> <C>
6,500,000 Shares
STARMEDIA NETWORK, INC.
</TABLE>
Common Stock
------------------
StarMedia Network, Inc. is offering 6,000,000 of the shares to be sold in
the offering. The selling stockholder identified in this prospectus is offering
an additional 500,000 shares. StarMedia will not receive any of the proceeds
from the sale of the shares being sold by the selling stockholder.
The common stock is quoted on the Nasdaq National Market under the symbol
"STRM". On September 24, 1999, the last reported sale price of the common stock
was $40.125 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Share Total
----------- -------------
<S> <C> <C>
Initial price to public................................... $ $
Underwriting discount..................................... $ $
Proceeds, before expenses, to StarMedia................... $ $
Proceeds, before expenses, to the selling stockholder..... $ $
</TABLE>
To the extent that the underwriters sell more than 6,500,000 shares of
common stock, the underwriters have the option to purchase up to an additional
975,000 shares from StarMedia at the initial price to public less the
underwriting discount.
------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
J.P. MORGAN & CO.
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS L.L.C.
------------------
Prospectus dated , 1999.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
STARMEDIA NETWORK, INC.
OUR BUSINESS
StarMedia is the leading Internet media company targeting Latin America and
other Spanish- and Portuguese-speaking markets worldwide. Our network consists
of seven branded Internet properties:
- StarMedia.com, our flagship Internet media property;
- StarMedia Acesso, our premium Internet access service;
- Cade?, a topical directory of Portuguese-language Web sites;
- LatinRed, one of the largest Spanish-language online communities;
- OpenChile, a local Chilean portal;
- Periscopio.com, our personalized search and retrieval property; and
- Zeek!, a topical directory of Portuguese-language Web sites.
Through these properties, we offer our users a variety of in-language
interest-specific areas or channels, extensive Web-based community features,
sophisticated search capabilities, online shopping and Internet access services.
Our content covers a broad array of topics of interest to Latin Americans and
other Spanish- and Portuguese-speaking audiences, including local and regional
news, business and sports. We promote user affinity to the StarMedia community
by providing Spanish and Portuguese language e-mail, chat rooms, instant
messaging and personal homepages. We provide our content and community features
to our users for free. We derive our revenues principally from the sale of
advertisements and sponsorships on our network.
At a time when content on the Internet is overwhelmingly in English, we
offer our users an in-language community experience, combined with a broad array
of Spanish and Portuguese content tailored for regional dialects and local
cultural norms. We develop our product offerings both internally and through
strategic relationships with third parties, including Netscape, Disney, Reuters,
SkyBox and Ziff-Davis. We also provide advertisers and merchants targeted access
to Latin American and other Spanish- and Portuguese-speaking Internet users, an
audience with a highly desirable demographic profile.
The total number of Web pages our users access on our network, referred to
as our page views, has grown to over 686 million in the three months ended June
30, 1999. In addition, our active e-mail accounts have grown to 1.2 million as
of June 30, 1999.
Our growing user base provides advertisers and merchants with a highly
attractive platform to reach their target audience and provides us with
additional revenue opportunities. In addition, we believe that the StarMedia
network appeals to advertisers and merchants because of our:
- focus on Latin America and other Spanish- and Portuguese-speaking markets;
- powerful brand image across Latin America and in each of our local
markets; and
- a user base with a highly attractive demographic profile.
Consequently, we had 160 advertisers and sponsors on our network during the
three months ended June 30, 1999. Our customers included such leading
advertisers and sponsors as Banco Santander, Bradesco, Ford, Fox Sports America,
IBM, Nokia, Outpost.com, SkyTel, Sony and USA Networks. These named customers,
in the aggregate, accounted for approximately 20% of total revenues in the three
months ended June 30, 1999 and 33% of total revenues for the year ended December
31, 1998.
3
<PAGE>
OUR STRATEGY
Our objective is to strengthen our position as the leading Internet media
company targeting Latin America and other Spanish- and Portuguese-speaking
markets worldwide by:
- aggressively extending the recognition of our brands;
- enhancing and expanding our Spanish and Portuguese content and community
features;
- furthering our penetration into additional Spanish- and
Portuguese-speaking markets;
- continuing to pursue strategic acquisitions and alliances;
- expanding our Internet access service to users across Latin America; and
- developing and deploying next generation content and service distribution
platforms such as wireless and broadband capabilities.
OUR HISTORY AND RECENT DEVELOPMENTS
We were incorporated in Delaware in March 1996. We commenced operations in
September 1996 and launched the StarMedia network in December 1996. In May 1999,
we completed the initial public offering of our common stock for aggregate net
proceeds of approximately $110.4 million.
In April and May 1999, we completed a $41 million private placement to the
following strategic investors:
- Critical Path, Inc.;
- eBay Inc.;
- Europortal Holding, S.A.;
- Hearst Communications, Inc.;
- National Broadcasting Company, Inc.; and
- Reuters Holdings Switzerland SA.
In September 1999, we launched StarMedia Acesso, our Internet access service
in Brazil, and Periscopio, our personalized search and retrieval property.
We recently acquired Webcast Solutions, a streaming media company focused on
the global delivery of audio, video and other Internet-based interactive media.
We have agreed to acquire PageCell International Holdings, a provider of
advanced mobile technologies and services.
As of June 30, 1999, we had an accumulated deficit of approximately $96.3
million.
Our principal executive offices are located at 29 West 36(th) Street, Fifth
Floor, New York, New York 10018 and our telephone number is (212) 548-9600. In
addition, we maintain offices in Barcelona, Bogota, Buenos Aires, Caracas,
Madrid, Mexico City, Miami, Montevideo, Rio de Janeiro, San Francisco, San Juan,
Santiago and Sao Paulo.
OUR TRADEMARKS
We own numerous trademarks and service marks. As used in this prospectus,
STARMEDIA and the STARMEDIA logo are registered U.S. trademarks and service
marks of StarMedia, and have been registered and applications are pending in the
other markets in which we register our marks. TALKPLANET, BUSCAWEB, ORBITA,
PIZARRAS and (V)PULSE are registered trademarks and service marks of StarMedia
in several non-U.S. jurisdictions and applications are pending in the U.S. and
the other markets in which we register our marks. Applications for
STARMEDIA.COM, PERISCOPIO, PERISCOPIO.COM and the PERISCOPIO logo are currently
pending in the United States. CADE?, STARMEDIA ACESSO, LATINRED, ZEEK!,
OPENCHILE and PANORAMAS are trademarks and service marks of StarMedia. All other
trademarks and service marks used in this prospectus are the property of their
respective owners.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered by StarMedia... 6,000,000 shares
Shares offered by the selling
stockholder.................
500,000 shares
Shares to be outstanding after
this offering...............
64,006,198 shares
Nasdaq National Market
symbol......................
STRM
Use of proceeds...............
For working capital and general corporate purposes. Please
see "Use of Proceeds".
</TABLE>
This information is based on our shares of common stock outstanding as of
June 30, 1999 after giving effect to the Webcast acquisition. This information
excludes:
- 7,271,533 shares subject to options outstanding as of June 30, 1999 at a
weighted average exercise price of $2.72 per share;
- 7,594,831 additional shares that could be issued under our stock option
plans;
- 1,500,000 additional shares available for issuance under our employee
stock purchase plan;
- 58,689 additional shares of our common stock issued in exchange for
outstanding shares of series A preferred stock of Webcast, issued by
Webcast subsequent to June 30, 1999; and
- approximately 200,000 shares of our common stock and 65,000 shares of our
junior non-voting convertible preferred stock issuable upon the
consummation of the acquisition of PageCell.
5
<PAGE>
SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following tables summarize the supplemental financial data for our
business and include the acquisitions of Wass Net, commonly referred to as
LatinRed, and Webcast, which have each been accounted for as a pooling of
interests. Accordingly, for all periods presented the supplemental consolidated
financial data includes the results of Wass Net/LatinRed since its inception on
August 29, 1997 and the results of Webcast since its inception on July 24, 1998.
The condensed consolidated pro forma statement of operations data for the year
ended December 31, 1998 and for the six months ended June 30, 1999 assumes that
the acquisition of KD Sistemas occurred on January 1, 1998. You should read this
information with the discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", our pro forma condensed
consolidated financial statements and our supplemental consolidated financial
statements and notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
PERIOD FROM MARCH 5, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 (INCEPTION) TO -------------------- -------------- -------------------- -----------
DECEMBER 31, 1996 1997 1998 1998 1998 1999 1999
----------------------- --------- --------- -------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUPPLEMENTAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ -- $ 472 $ 5,758 $ 6,741 $ 850 $ 5,474 $ 5,694
Operating expenses:
Product and technology
development................ 36 1,233 7,101 7,452 3,178 10,019 10,137
Sales and marketing.......... 12 2,110 29,281 29,343 6,015 22,926 22,876
General and administrative... 78 650 4,810 4,965 1,033 6,665 6,787
Depreciation and
amortization............... 2 38 785 2,715 248 1,644 2,125
Stock-based compensation
expense.................... -- -- 10,421 10,421 3,250 3,012 3,012
------ --------- --------- -------------- --------- --------- -----------
Total operating expenses....... 128 4,031 52,398 54,896 13,724 44,266 44,937
------ --------- --------- -------------- --------- --------- -----------
Operating loss................. (128) (3,559) (46,640) (48,155) (12,874) (38,792) (39,243)
Interest income, net......... -- 34 667 702 90 1,135 1,148
------ --------- --------- -------------- --------- --------- -----------
Loss before provision for
income taxes................. (128) (3,525) (45,973) (47,453) (12,784) (37,657) (38,095)
------ --------- --------- -------------- --------- --------- -----------
Provision for income taxes..... (83)
------ --------- --------- -------------- --------- --------- -----------
Net loss....................... (128) (3,525) (45,973) (47,536) (12,784) (37,657) (38,095)
Preferred stock dividends and
accretion.................... -- (185) (4,536) (4,536) (720) (4,266) (4,266)
------ --------- --------- -------------- --------- --------- -----------
Net loss available to common
shareholders................. $ (128) $ (3,710) $ (50,509) $ (52,072) $ (13,504) $ (41,923) $ (42,361)
------ --------- --------- -------------- --------- --------- -----------
------ --------- --------- -------------- --------- --------- -----------
Basic and diluted net loss per
share........................ $ (0.01) $ (0.37) $ (4.51) $ (1.32) $ (1.91)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Shares used in computing basic
and diluted net loss per
share........................ 9,147 10,040 11,204 10,221 21,927
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Pro forma basic and diluted net
loss per share............... $ (1.06) $ (1.10) $ (0.79) $ (0.80)
--------- -------------- --------- -----------
--------- -------------- --------- -----------
Shares used in computing pro
forma basic and diluted net
loss per share............... 43,200 43,200 47,737 47,737
--------- -------------- --------- -----------
--------- -------------- --------- -----------
</TABLE>
6
<PAGE>
The following table is a summary of our supplemental balance sheet at June
30, 1999. The as adjusted data reflect the sale of 6,000,000 shares of common
stock at an assumed public offering price of $40.125 per share, after deducting
underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
<S> <C> <C>
(IN THOUSANDS)
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 164,719 $ 392,632
Working capital.......................................................................... 153,990 381,903
Total assets............................................................................. 192,466 420,379
Total stockholders' equity............................................................... 173,447 401,360
</TABLE>
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS
OF OPERATIONS WOULD LIKELY SUFFER. IN THIS CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We were incorporated in March 1996. We commenced operations in September
1996 and launched the StarMedia network in December 1996. Accordingly, we have
only a limited operating history for you to evaluate our business. You must
consider the risks, expenses and uncertainties that an early stage company like
ours faces. These risks include our ability to:
- increase awareness of our Internet brands and continue to build user
loyalty;
- expand the content and services on our network;
- attract a larger audience to our network;
- attract a large number of advertisers from a variety of industries;
- maintain our current, and develop new, strategic relationships;
- respond effectively to competitive pressures; and
- continue to develop and upgrade our technology.
If we are unsuccessful in addressing these risks, our business, financial
condition and results of operations will be materially and adversely affected.
WE HAVE NEVER MADE MONEY AND EXPECT OUR LOSSES TO CONTINUE
We have never been profitable. As of June 30, 1999, we had an accumulated
deficit of approximately $96.3 million. We expect to continue to incur
significant losses for the foreseeable future. Although our revenues have grown
in recent quarters, our expenses have grown even faster and we expect to
increase our spending significantly. Accordingly, we will need to generate
significant revenues to achieve profitability. We may not be able to do so.
WE HAVE DERIVED A PORTION OF OUR REVENUES FROM RECIPROCAL ADVERTISING
AGREEMENTS, WHICH DO NOT GENERATE CASH REVENUE
We derive a portion of our revenues from reciprocal advertising arrangements
under which we exchange advertising space on our network predominantly for
advertising space on television and radio stations, rather than cash payments.
In the six months ended June 30, 1999, we derived approximately $1.9 million, or
34% of revenues, from these arrangements. In the year ended December 31, 1998,
we derived approximately $2.4 million, or 42% of revenues, from these
arrangements. We expect that revenues from reciprocal advertising arrangements
will continue to account for a portion of our revenues in the foreseeable
future. Reciprocal advertising arrangements do not generate any cash revenues.
YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF OUR
FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our future revenues and results of operations may significantly fluctuate
due to a combination of factors, including:
- growth and acceptance of the Internet, particularly in Latin America;
- our ability to attract and retain users;
8
<PAGE>
- demand for advertising on the Internet in general and on our network in
particular;
- our ability to upgrade and develop our systems and infrastructure;
- technical difficulties that users may experience on our network;
- technical difficulties or system downtime resulting from the developing
telecommunications infrastructure in Latin America;
- competition in our markets;
- foreign currency exchange rates that affect our international operations;
and
- general economic conditions, particularly in Latin America.
Accordingly, you should not rely on quarter-to-quarter comparisons of our
results of operations as an indication of our future performance. It is possible
that in future periods our results of operations may be below the expectations
of public market analysts and investors. This could cause the trading price of
our common stock to decline.
OUR OPERATING RESULTS MAY ALSO FLUCTUATE DUE TO SEASONAL FACTORS
The level of use on our network is highly seasonal. This may cause
fluctuations in our revenues and operating results. Visitor traffic on our
network has historically been significantly lower during the first calendar
quarter of the year because it includes the summer months in much of Latin
America during which:
- our target audience tends to take extended vacations; and
- schools and universities are generally closed.
As a result, advertisers have historically spent less in the first calendar
quarter. We believe that these seasonal trends will continue to affect our
results of operations. If our expenses increase during these periods, we may not
generate sufficient revenue to offset these expenses.
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT FUNDS TO GROW OUR BUSINESS
We intend to continue to grow our business. Because we expect to generate
losses for the foreseeable future, we do not expect that income from our
operations will be sufficient to meet these needs. Therefore, we will likely
have substantial future capital requirements after this offering. Obtaining
additional financing will be subject to a number of factors, including:
- market conditions;
- our operating performance; and
- investor sentiment.
These factors may make the timing, amount, terms and conditions of
additional financing unattractive for us. If we are unable to raise additional
capital, our growth could be impeded.
RISKS RELATED TO OUR MARKETS AND STRATEGY
IF THE INTERNET IS NOT WIDELY ACCEPTED AS A MEDIUM FOR ADVERTISING AND COMMERCE,
OUR BUSINESS WILL SUFFER
We expect to derive most of our revenue for the foreseeable future from
Internet advertising, and to a lesser extent, from electronic commerce. If the
Internet is not accepted as a medium for advertising and commerce, our business
will suffer. The Internet advertising market is new and rapidly evolving,
particularly in Latin America. As a result, we cannot gauge its effectiveness or
long term market acceptance as compared with traditional media.
Advertisers and advertising agencies must direct a portion of their budgets
to the Internet and, specifically, to our network. Many of our current or
potential advertising and electronic commerce partners have limited experience
using the Internet for advertising purposes and
9
<PAGE>
historically have not devoted a significant portion of their advertising budgets
to Internet-based advertising. Advertisers that have invested substantial
resources in other methods of conducting business may be reluctant to adopt a
new strategy that may limit or compete with their existing efforts.
In addition, companies may choose not to advertise on the StarMedia network
if they do not perceive our audience demographic to be desirable or advertising
on our network to be effective.
THE ACCEPTANCE OF THE INTERNET AS A MEDIUM FOR ADVERTISING DEPENDS ON THE
DEVELOPMENT OF A MEASUREMENT STANDARD
No standards have been widely accepted for the measurement of the
effectiveness of Internet advertising. Standards may not develop sufficiently to
support the Internet as an effective advertising medium. If these standards do
not develop, advertisers may choose not to advertise on the Internet in general
or, specifically, on our network. This would have a material adverse effect on
our business, financial condition and results of operations.
SOCIAL AND POLITICAL CONDITIONS IN LATIN AMERICA MAY CAUSE VOLATILITY IN OUR
OPERATIONS AND ADVERSELY AFFECT OUR BUSINESS
We have and expect to continue to derive substantially all of our revenues
from the Latin American markets. Social and political conditions in Latin
America are volatile and may cause our operations to fluctuate. This volatility
could make it difficult for us to sustain our expected growth in revenues and
earnings, which could have an adverse effect on our stock price. Historically,
volatility has been caused by:
- significant governmental influence over many aspects of local economies;
- political instability;
- unexpected changes in regulatory requirements;
- social unrest;
- slow or negative growth;
- imposition of trade barriers; and
- wage and price controls.
We have no control over these matters. Volatility resulting from these matters
may decrease Internet availability, create uncertainty regarding our operating
climate and adversely affect our customers' advertising budgets, all of which
may adversely impact our business.
CURRENCY FLUCTUATIONS AND GENERAL ECONOMIC CONDITIONS IN LATIN AMERICA MAY
ADVERSELY AFFECT OUR BUSINESS
The currencies of many countries in Latin America have experienced
substantial depreciation and volatility. The currency fluctuations, as well as
high interest rates, inflation and high unemployment, have materially and
adversely affected the economies of these countries. Poor general economic
conditions in Latin American countries may cause our customers to reduce their
advertising spending, which could adversely impact our business and could cause
our revenue to decline unexpectedly.
WE MAY SUFFER CURRENCY EXCHANGE LOSSES IF LOCAL LATIN AMERICAN CURRENCIES
DEPRECIATE RELATIVE TO THE U.S. DOLLAR
Our reporting currency is the U.S. dollar. In a number of cases, however,
customers in Latin America may be billed in local currencies. Our accounts
receivable from these customers will decline in value if the local currencies
depreciate relative to the U.S. dollar. To date, we have not tried to reduce our
exposure to exchange rate fluctuations by using hedging transactions. Although
we may enter into hedging transactions in the future, we may not be able to do
so successfully. In addition, our currency exchange losses may be magnified if
we become subject to exchange control regulations restricting our ability to
convert local currencies into U.S. dollars.
10
<PAGE>
IF INTERNET USE IN LATIN AMERICA AND OTHER SPANISH- AND PORTUGUESE-SPEAKING
MARKETS DOES NOT GROW, OUR BUSINESS WILL SUFFER
The Internet market in Latin America and other Spanish- and
Portuguese-speaking markets is in an early stage of development. Our future
success depends on the continued growth of the Internet in these markets. Our
business, financial condition and results of operations will be materially and
adversely affected if Internet usage in these markets does not continue to grow
or grows more slowly than we anticipate. Internet usage in these markets may be
inhibited for a number of reasons, including:
- the cost of Internet access;
- concerns about security, reliability, and privacy;
- ease of use; and
- quality of service.
UNDERDEVELOPED TELECOMMUNICATIONS INFRASTRUCTURE MAY LIMIT THE GROWTH OF THE
INTERNET IN LATIN AMERICA AND ADVERSELY AFFECT OUR BUSINESS
Access to the Internet requires a relatively advanced telecommunications
infrastructure. The telecommunications infrastructure in many parts of Latin
America is not as well-developed as in the United States or Europe. The quality
and continued development of the telecommunications infrastructure in Latin
America will have a substantial impact on our ability to deliver our services
and on the market acceptance of the Internet in Latin America in general. If
further improvements to the Latin American telecommunications infrastructure are
not made, the Internet will not gain broad market acceptance in Latin America.
If access to the Internet in Latin America does not continue to grow or grows
more slowly than we anticipate, our business, financial condition and results of
operations will be materially and adversely affected.
HIGH COST OF INTERNET ACCESS MAY LIMIT THE GROWTH OF THE INTERNET IN LATIN
AMERICA AND IMPEDE OUR GROWTH
Each country in Latin America has its own telephone rate structure which, if
too expensive, may cause consumers to be less likely to access and transact
business over the Internet. Although rates charged by Internet service providers
and local telephone companies have been reduced recently in some countries, we
do not know whether this trend will continue. Unfavorable rate developments
could decrease our visitor traffic and our ability to derive revenues from
transactions over the Internet. This could have a material adverse effect on our
business, financial condition and results of operations.
OUR PAN-REGIONAL APPROACH TO CONTENT DELIVERY MAY NOT BE APPEALING TO OUR USERS
Our target markets are made up of a number of diverse regions that differ
historically, culturally, economically and politically. We generally use a
pan-regional approach to community development and to advertisements. Users,
however, may prefer content and community features which are specifically
created for a local audience using a strictly localized approach over our
pan-regional approach. If users do not find the pan-regional content on our
network appealing, they will decrease in number and advertisers will find our
network an unattractive medium on which to advertise.
WE MAY NOT BE ABLE TO SUCCESSFULLY OR PROFITABLY PROVIDE INTERNET ACCESS
SERVICES IN LATIN AMERICA
We recently began to offer Internet access services in Brazil and intend to
offer these services in other Latin American markets during the second half of
1999. We have contracted with AT&T Global Network Services, formerly the IBM
Global Network, to provide these services. We may also acquire or develop
additional Internet access services in the future. We have no experience in
marketing or operating an Internet access service, and
11
<PAGE>
we may not be able to do so successfully. If we are not able to successfully
develop, market or operate our Internet access services, our expenses could
increase substantially without generating significant additional revenue, our
management's time may be wasted and our business may otherwise be materially and
adversely affected.
In addition, prices for Internet access services have fallen historically, a
trend we expect will continue. Accordingly, we cannot predict to what extent we
may need to reduce our prices to remain competitive or whether we will be able
to sustain our pricing level as our competition increases. This could have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY NOT BE ABLE TO DEVELOP OUR BRANDS AND ATTRACT USERS TO OUR NETWORK
Maintaining our brands is critical to our ability to expand our user base
and our revenues. We believe that the importance of brand recognition will
increase as the number of Internet sites in our target markets grows. In order
to attract and retain Internet users, advertisers and electronic commerce
partners, we intend to increase substantially our expenditures for creating and
maintaining brand loyalty.
Our success in promoting and enhancing our brands will also depend on our
success in providing high quality content, features and functionality. If we
fail to promote our brands successfully or if visitors to our network or
advertisers do not perceive our services to be of high quality, the value of our
brands could be diminished. This could have a material and adverse effect on our
business, financial condition and results of operations.
OUR ADVERTISING PRICING MODEL, THAT IS BASED ON THE NUMBER OF TIMES AN
ADVERTISEMENT IS DELIVERED TO USERS, MAY NOT BE SUCCESSFUL
Different pricing models are used to sell advertising on the Internet, and
the models we adopt may prove to not be the most profitable. Advertising based
on impressions, or the number of times an advertisement is delivered to users,
currently comprises substantially all of our revenues. To the extent that
minimum guaranteed impression levels are not met, we defer recognition of the
corresponding revenues until guaranteed impression levels are achieved. To the
extent that minimum impression levels are not achieved, we may be required to
provide additional impressions after the contract term, which would reduce our
advertising inventory. This could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY ADAPT TO NEW INTERNET ADVERTISING PRICING
MODELS
It is difficult to predict which pricing model, if any, will emerge as the
industry standard. This makes it difficult to project our future advertising
rates and revenues. Our advertising revenues could be adversely affected if we
are unable to adapt to new forms of Internet advertising or we do not adopt the
most profitable form.
WE MAY NOT BE ABLE TO TRACK THE DELIVERY OF ADVERTISEMENTS ON OUR NETWORK IN A
WAY THAT MEETS THE NEEDS OF OUR ADVERTISERS
It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our network.
Companies may choose to not advertise on our network or may pay less for
advertising if they do not perceive our ability to track and measure the
delivery of advertisements to be reliable. We depend on third parties to provide
us with some of these measurement services. If they are unable to provide these
services in the future, we would need to perform them ourselves or obtain them
from another provider. This could cause us to incur additional costs or cause
interruptions in our business during the time we are replacing these services.
We are currently implementing additional systems designed to record information
on our users. If we do not implement these systems successfully, we may not be
able to accurately evaluate the demographic characteristics of our users.
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<PAGE>
THE LOSS OF ONE OF OUR TOP ADVERTISERS COULD SIGNIFICANTLY REDUCE OUR
ADVERTISING REVENUE AND MATERIALLY ADVERSELY AFFECT OUR BUSINESS
In 1998, our top advertiser, Fox Sports America, accounted for approximately
21% of our total advertising revenues. In 1998, our top five advertisers
accounted for approximately 57% of our total revenues. In the six months ended
June 30, 1999, our top 5 advertisers accounted for approximately 33% of our
total revenues. Our business, results of operations and financial condition
could be materially and adversely affected by the loss of one or more of our top
advertisers. If we do not attract additional advertisers, our business,
financial condition and results of operations could be materially adversely
affected.
WE EXPECT TO CONTINUE TO RELY HEAVILY ON ADVERTISING REVENUES AND IF WE DO NOT
INCREASE OUR ADVERTISING SALES, OUR BUSINESS WILL NOT GROW AS EXPECTED
We depend on our advertising sales department to maintain and increase our
advertising sales. Our business, financial condition and results of operations
could be materially and adversely affected if our advertising sales department
is not effective. As of June 30, 1999, our advertising sales department
consisted of 99 employees. Although we expect our advertising sales department
to grow, it can take a relatively long period of time before new sales personnel
become productive.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS
We have recently experienced a period of rapid growth. This has placed a
significant strain on our managerial, operational and financial resources. To
accommodate this growth, we must implement new or upgraded operating and
financial systems, procedures and controls throughout many different locations.
We may not succeed with these efforts. Our failure to expand and integrate these
areas in an efficient manner could cause our expenses to grow, our revenues to
decline or grow more slowly than expected and could otherwise have a material
adverse effect on our business, financial condition and results of operations.
OUR BUSINESS AND GROWTH WILL SUFFER IF WE ARE UNABLE TO HIRE AND RETAIN KEY
PERSONNEL THAT ARE IN HIGH DEMAND
We depend on the services of our senior management and key technical
personnel. In particular, our success depends on the continued efforts of our
Chairman and Chief Executive Officer, Fernando J. Espuelas, and our President,
Jack C. Chen. The loss of the services of either executive officer or any of our
key management, sales or technical personnel could have a material adverse
effect on our business, financial condition and results of operations. In
addition, our success is largely dependent on our ability to hire highly
qualified managerial, sales and technical personnel. These individuals are in
high demand and we may not be able to attract the staff we need. The
difficulties and costs in connection with our personnel growth are compounded by
the fact that many of our operations are internationally based.
OUR JOINT VENTURES, ACQUISITIONS AND ALLIANCES MAY STRAIN OUR MANAGERIAL,
OPERATIONAL AND FINANCIAL RESOURCES AND MAY BE DISRUPTIVE TO OUR BUSINESS
In the past, we have acquired or developed alliances or joint ventures with
complementary businesses, technologies, services or products. In particular,
during 1999, we have made five acquisitions. Acquisitions could result in a
number of financial consequences, including:
- potentially dilutive issuances of equity securities;
- large non-recurring write-offs;
- reduced cash balances and related interest income;
- higher fixed expenses which require a higher level of revenues to maintain
gross margins;
13
<PAGE>
- the incurrence of debt and contingent liabilities; and
- amortization expenses related to goodwill and other intangible assets.
Furthermore, acquisitions involve numerous operational risks, including:
- difficulties in the integration of operations, personnel, technologies,
products and the information systems of the acquired companies;
- diversion of management's attention from other business concerns;
- diversion of resources from our existing businesses, products or
technologies;
- risks of entering geographic and business markets in which we have no or
limited prior experience; and
- potential loss of key employees of acquired organizations.
We could have difficulty in effectively assimilating and integrating these,
or any future joint ventures, acquisitions or alliances, into our operations.
Any difficulties in this process could disrupt our ongoing business, distract
our management and employees, increase our expenses and otherwise adversely
affect our business.
FINANCING FOR FUTURE JOINT VENTURES, ACQUISITIONS OR ALLIANCES MAY NOT BE
AVAILABLE OR MAY DILUTE EXISTING STOCKHOLDERS
We do not know if we will be able to identify any future joint ventures,
acquisitions or alliances or that we will be able to successfully finance these
transactions. A failure to identify or finance future transactions may impair
our growth. In addition, to finance these transactions, it may be necessary for
us to raise additional funds through public or private financings. Any equity or
debt financings, if available at all, may impact our operations and, in the case
of equity financings, may result in dilution to existing stockholders.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST OUR COMPETITORS
There are many companies that provide Web sites and online destinations
targeted to Latin Americans and Spanish- and Portuguese-speaking people in
general. Competition for visitors, advertisers and electronic commerce partners
is intense and is expected to increase significantly in the future because there
are no substantial barriers to entry in our market.
Increased competition could result in:
- lower advertising rates;
- price reductions and lower profit margins;
- loss of visitors;
- reduced page views; or
- loss of market share.
Any one of these could materially and adversely affect our business,
financial condition and results of operations.
In addition, our competitors may develop content that is better than ours or
that achieves greater market acceptance. It is also possible that new
competitors may emerge and acquire significant market share. A loss of users to
our competitors may have a material and adverse effect on our business,
financial condition and results of operations.
WE WILL NOT BE ABLE TO ATTRACT VISITORS OR ADVERTISERS IF WE DO NOT CONTINUALLY
ENHANCE AND DEVELOP THE CONTENT AND FEATURES OF OUR NETWORK
To remain competitive, we must continue to enhance and improve our content.
In addition, we must:
- continually improve the responsiveness, functionality and features of our
network; and
- develop other products and services that are attractive to users and
advertisers.
We may not succeed in developing or introducing features, functions,
products and
14
<PAGE>
services that visitors and advertisers find attractive in a timely manner. This
would likely reduce our visitor traffic and materially and adversely affect our
business, financial condition and results of operations.
WE RELY FOR OUR CONTENT ON THIRD PARTIES WHO MAY MAKE THEIR CONTENT AVAILABLE TO
OUR COMPETITORS
We constantly attempt to determine what content, features and functionality
our target audience wants. We rely to a large extent on third parties for our
content, much of which is easily available from other sources. If other networks
present the same or similar content in a superior manner, it would adversely
affect our visitor traffic.
IF WE FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH CONTENT
PROVIDERS, ELECTRONIC COMMERCE MERCHANTS AND TECHNOLOGY PROVIDERS, WE MAY NOT
BE ABLE TO ATTRACT AND RETAIN USERS
We have focused on establishing relationships with leading content
providers, electronic commerce merchants, and technology and infrastructure
providers. Our business depends extensively on these relationships. Because most
of our agreements with these third parties are not exclusive, our competitors
may seek to use the same partners as we do and attempt to adversely impact our
relationships with our partners. We might not be able to maintain these
relationships or replace them on financially attractive terms.
If the parties with which we have these relationships do not adequately
perform their obligations, reduce their activities with us, choose to compete
with us or provide their services to a competitor, we may have more difficulty
attracting and maintaining visitors to our network and our business, financial
condition and results of operations could be materially and adversely affected.
Also, we intend to actively seek additional relationships in the future. Our
efforts in this regard may not be successful.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY INFRASTRUCTURE
UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM FAILURES MAY RESULT IN REDUCED
VISITOR TRAFFIC, REDUCED REVENUE AND HARM TO OUR REPUTATION
In the past, we have experienced:
- system disruptions;
- inaccessibility of our network;
- long response times;
- impaired quality; and
- loss of important reporting data.
Although we are in the process of improving our network, we may not be
successful in implementing these measures. If we experience delays and
interruptions, visitor traffic may decrease and our brand could be adversely
affected. Because our revenues depend on the number of individuals who use our
network, our business may suffer if our improvement efforts are unsuccessful.
We maintain our central production servers at the New Jersey data center of
Exodus Communications. A failure by Exodus to protect its systems against damage
from fire, hurricanes, power loss, telecommunications failure, break-ins or
other events, could have a material adverse effect on our business, financial
condition and results of operations.
CONCERNS ABOUT SECURITY OF ELECTRONIC COMMERCE TRANSACTIONS AND CONFIDENTIALITY
OF INFORMATION ON THE INTERNET MAY REDUCE THE USE OF OUR NETWORK AND IMPEDE
OUR GROWTH
A significant barrier to electronic commerce and confidential communications
over the Internet has been the need for security. Internet usage could decline
if any well-publicized compromise of security
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<PAGE>
occurred. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by these breaches.
Unauthorized persons could attempt to penetrate our network security. If
successful, they could misappropriate proprietary information or cause
interruptions in our services. As a result, we may be required to expend capital
and resources to protect against or to alleviate these problems. Security
breaches could have a material adverse effect on our business, financial
condition and results of operations.
COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS AND MAY
ADVERSELY AFFECT OUR BUSINESS
Computer viruses may cause our systems to incur delays or other service
interruptions. In addition, the inadvertent transmission of computer viruses
could expose us to a material risk of loss or litigation and possible liability.
Moreover, if a computer virus affecting our system is highly publicized, our
reputation could be materially damaged and our visitor traffic may decrease.
YEAR 2000 PROBLEMS MAY DISRUPT OUR INTERNAL OPERATIONS
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Therefore, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations
causing disruptions to our operations. Our failure to correct a material Year
2000 problem could have a material adverse effect on our business, financial
condition and results of operations.
We continue to develop testing procedures for all software and other systems
that we believe might be affected by Year 2000 issues. Since third parties
developed and currently support many of the systems that we use, a significant
part of this effort will be to ensure that these third-party systems are Year
2000 compliant. We plan to confirm this compliance through a combination of the
representation by these third parties of their products' Year 2000 compliance,
as well as specific testing of these systems.
RISKS RELATED TO LEGAL UNCERTAINTY
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATIONS AND LEGAL
UNCERTAINTIES AFFECTING THE INTERNET WHICH COULD ADVERSELY AFFECT OUR BUSINESS
To date, governmental regulations have not materially restricted use of the
Internet in our markets. However, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. Uncertainty and new
regulations could increase our costs of doing business and prevent us from
delivering our products and services over the Internet. The growth of the
Internet may also be significantly slowed. This could delay growth in demand for
our network and limit the growth of our revenues.
In addition to new laws and regulations being adopted, existing laws may be
applied to the Internet. New and existing laws may cover issues which include:
- sales and other taxes;
- user privacy;
- pricing controls;
- characteristics and quality of products and services;
- consumer protection;
- cross-border commerce;
- libel and defamation;
- copyright, trademark and patent infringement;
- pornography; and
- other claims based on the nature and content of Internet materials.
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<PAGE>
WE MAY BECOME SUBJECT TO CLAIMS REGARDING FOREIGN LAWS AND REGULATIONS WHICH MAY
BE EXPENSIVE, TIME CONSUMING AND DISTRACTING
Because we have employees, property and business operations throughout the
world, we are subject to the laws and the court systems of many jurisdictions.
We may become subject to claims based on foreign jurisdictions for violations of
their laws. In addition, these laws may be changed or new laws may be enacted in
the future. International litigation is often expensive, time consuming and
distracting. Accordingly, any of the foregoing could have a material adverse
effect on our business, financial condition and results of operations.
UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY BY THIRD PARTIES MAY ADVERSELY
AFFECT OUR BUSINESS
We regard our copyrights, service marks, trademarks, trade secrets and other
intellectual property as critical to our success. Unauthorized use of our
intellectual property by third parties may adversely affect our business and our
reputation. We rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our intellectual property rights. Despite our
precautions, it may be possible for third parties to obtain and use our
intellectual property without authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of some
foreign countries are uncertain or do not protect intellectual property rights
to the same extent as do the laws of the United States.
DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE TIME
CONSUMING AND EXPENSIVE AND, IF WE ARE NOT SUCCESSFUL, COULD SUBJECT US TO
SIGNIFICANT DAMAGES AND DISRUPT OUR BUSINESS
We cannot be certain that our products do not or will not infringe valid
patents, copyrights or other intellectual property rights held by third parties.
We may be subject to legal proceedings and claims from time to time relating to
the intellectual property of others in the ordinary course of our business. We
may incur substantial expenses in defending against these third-party
infringement claims, regardless of their merit. Successful infringement claims
against us may result in substantial monetary liability or may materially
disrupt the conduct of our business.
WE MAY BE SUBJECT TO CLAIMS BASED ON THE CONTENT WE PROVIDE OVER OUR NETWORK
The laws in our target markets relating to the liability of companies which
provide online services, like ours, for activities of their visitors are
currently unsettled. Claims have been made against online service providers and
networks in the past for defamation, negligence, copyright or trademark
infringement, obscenity, personal injury or other theories based on the nature
and content of information that was posted online by their visitors. We could be
subject to similar claims and incur significant costs in their defense. In
addition, we could be exposed to liability for the selection of listings that
may be accessible through our network or through content and materials that our
visitors may post in classifieds, message boards, chat rooms or other
interactive services. It is also possible that if any information provided
through our services contains errors, third parties could make claims against us
for losses incurred in reliance on the information. We offer Web-based e-mail
services, which expose us to potential liabilities or claims resulting from:
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<PAGE>
- unsolicited e-mail;
- lost or misdirected messages;
- illegal or fraudulent use of e-mail; or
- interruptions or delays in e-mail service.
Investigating and defending these claims is expensive, even if they do not
result in liability.
WE MAY BE SUBJECT TO CLAIMS BASED ON PRODUCTS SOLD ON OUR NETWORK
We have entered into arrangements to offer third-party products and services
on our network under which we may be entitled to receive a share of revenues
generated from these transactions. These arrangements may subject us to
additional claims including product liability or personal injury from the
products and services, even if we do not ourselves provide the products or
services. These claims may require us to incur significant expenses in their
defense or satisfaction. While our agreements with these parties often provide
that we will be indemnified against such liabilities, such indemnification may
not be adequate.
Although we carry general liability insurance, our insurance may not cover
all potential claims to which we are exposed or may not be adequate to indemnify
us for all liability that may be imposed. Any imposition of liability that is
not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on our business, financial condition and results of
operations or could result in the imposition of criminal penalties. In addition,
the increased attention focused on liability issues as a result of these
lawsuits and legislative proposals could impact the overall growth of Internet
use.
RISKS RELATED TO THIS OFFERING
WE MAY USE THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT AGREE
We have not committed the net proceeds of this offering to any particular
purpose. Our management will therefore have significant flexibility in applying
the net proceeds of this offering, including ways in which stockholders may
disagree. If we do not apply the funds we receive effectively, our accumulated
deficit will increase and we may lose significant business opportunities. See
"Use of Proceeds".
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY
Following this offering, the price at which our common stock will trade is
likely to be highly volatile and may fluctuate substantially.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
securities of technology companies, particularly Internet companies. As a
result, investors in our common stock may experience a decrease in the value of
their common stock regardless of our operating performance or prospects.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could have a material adverse effect upon our
business, financial condition and results of operations.
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<PAGE>
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also might
make it difficult for us to sell equity securities in the future at a time and
at a price that we deem appropriate.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER THAT STOCKHOLDERS
MAY CONSIDER FAVORABLE
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
consider favorable or beneficial. If a change of control or change in management
is delayed or prevented, the market price of our common stock could suffer.
WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING STOCKHOLDERS, WHOSE INTERESTS
MAY DIFFER FROM OTHER STOCKHOLDERS
Our directors, executive officers and affiliates currently beneficially own
approximately 53.0% of the outstanding shares of our common stock, and after the
offering will beneficially own approximately 48.2% of the outstanding shares of
our common stock. Accordingly, they will have significant influence in
determining the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including mergers, consolidations and the sale
of all or substantially all of our assets, and also the power to prevent or
cause a change in control. The interests of these stockholders may differ from
the interests of the other stockholders.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
The public offering price per share will significantly exceed the net
tangible book value per share. Accordingly, investors purchasing shares in this
offering will suffer immediate and substantial dilution of their investment.
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FORWARD-LOOKING STATEMENTS; MARKET DATA
Many statements made in this prospectus under the captions "Prospectus
Summary", "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors".
This prospectus contains market data related to our business and the
Internet. This market data includes projections that are based on a number of
assumptions. The assumptions include that:
- no catastrophic failure of the Internet will occur;
- the number of people online and the total number of hours spent online
will increase significantly over the next five years;
- the value of online advertising dollars spent per online user hour will
increase;
- the download speed of content will increase dramatically; and
- Internet security and privacy concerns will be adequately addressed.
If any one or more of the foregoing assumptions turns out to be incorrect,
actual results may differ from the projections based on these assumptions. The
Internet-related markets may not grow over the next three to four years at the
rates projected by these market data, or at all. The failure of these markets to
grow at these projected rates may have a material adverse effect on our
business, results of operations and financial condition, and the market price of
our common stock.
The forward-looking statements made in this prospectus relate only to events
as of the date on which the statements are made. We undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events.
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USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of common stock
offered by us are $227.9 million, at an assumed public offering price of $40.125
per share and after deducting the estimated underwriting discount and offering
expenses. If the underwriters' over-allotment option is exercised in full, the
net proceeds we will receive will be $265.1 million. We will not receive any
proceeds from the sale of shares being sold by the selling stockholders.
The principal purpose of this offering is to increase our working capital.
As of the date of this prospectus, we have not made any specific expenditure
plans with respect to the proceeds of this offering. Accordingly, our management
will have significant flexibility in applying the net proceeds of the offering.
We may use a portion of the net proceeds to acquire or invest in
complementary businesses, technologies, services or products; however, we
currently have no commitments or agreements with respect to any such
transactions.
Pending any use, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol STRM since our initial public offering on May 25, 1999. The following
table sets forth, for the periods indicated, the high and low closing prices per
share of our common stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
1999: HIGH LOW
--------- ---------
<S> <C> <C>
Second Quarter (from May 25, 1999)...................... $ 64.125 $ 26.0625
Third Quarter (through September 24, 1999).............. $ 63.50 $ 29.8438
</TABLE>
On September 24, 1999, the closing price of our common stock on the Nasdaq
National Market was $40.125. As of June 30, 1999, there were 162 holders of
record of our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 after
giving retroactive effect to the Webcast acquisition:
- on an actual basis; and
- on an as adjusted basis to reflect our sale of 6,000,000 shares of common
stock at an assumed public offering price of $40.125 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses payable by us.
You should read this information together with our supplemental consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations--current portion................................................ $ 110 $ 110
Long-term debt and other.................................................................. 5,086 5,086
Stockholders' (deficit) equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 58,006,198 shares issued
and outstanding (actual); 64,006,198 issued and outstanding (as adjusted)........... 58 64
Additional paid in capital................................................................ 281,588 509,495
Deferred compensation..................................................................... (11,609) (11,609)
Other comprehensive loss.................................................................. (320) (320)
Accumulated deficit....................................................................... (96,270) (96,270)
---------- ----------
Total stockholders' equity................................................................ 173,447 401,360
---------- ----------
Total capitalization...................................................................... $ 178,643 $ 406,556
---------- ----------
---------- ----------
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 30, 1999. It does not
include:
- 7,271,533 shares subject to options outstanding as of June 30, 1999 at a
weighted average exercise price of $2.72 per share;
- 7,594,831 additional shares that could be issued under our stock option
plans;
- 1,500,000 additional shares available for issuance under our employee
stock purchase plan;
- 58,689 additional shares of our common stock issued in exchange for
outstanding shares of series A preferred stock of Webcast, issued by
Webcast subsequent to June 30, 1999; and
- approximately 200,000 shares of our common stock and 65,000 shares of our
junior non-voting convertible preferred stock issuable upon the
consummation of the acquisition of PageCell.
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DILUTION
Our net tangible book value as of June 30, 1999 was approximately $165.4
million, or $2.85 per share of common stock after giving retroactive effect to
the Webcast acquisition. Net tangible book value per share is determined by
dividing the amount of our total tangible assets less total liabilities by the
number of shares of common stock outstanding at that date. Dilution in net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering made and the
net tangible book value per share of common stock immediately after the
completion of this offering.
After giving effect to the issuance and sale of the shares of common stock
offered by us and after deducting the estimated underwriting discount and
offering expenses payable by us, our net tangible book value as of June 30, 1999
after giving retroactive effect to the Webcast acquisition would have been
$393.3 million, or $6.15 per share. This represents an immediate increase in net
tangible book value of $3.30 per share to existing stockholders and an immediate
dilution of $33.98 per share to new investors purchasing shares in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share............................................ $ 40.13
Net tangible book value per share at June 30, 1999......................... $ 2.85
Increase in net tangible book value per share attributable to this
offering................................................................. 3.30
---------
Net tangible book value per share after this offering...................... 6.15
---------
Dilution per share to new investors........................................ $ 33.98
---------
</TABLE>
------------------------
The following table summarizes, as of June 30, 1999, after giving
retroactive effect to the Webcast acquisition the differences between the number
of shares of common stock purchased from us, the aggregate cash consideration
paid to us and the average price per share paid by existing stockholders and new
investors purchasing shares of common stock in this offering. The calculation
below is based on a public offering price of $40.125 per share, before deducting
the estimated underwriting discount and offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------------- ----------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- ----------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 58,006,198 90.6% $ 260,014,000 51.9% $ 4.48
New investors.............................. 6,000,000 9.4 240,750,000 48.1 40.13
-------------- ----- ---------------- -----
Total.................................. 64,006,198 100.0% $ 500,764,000 100.0%
-------------- ----- ---------------- -----
-------------- ----- ---------------- -----
</TABLE>
This discussion and table assume no exercise of any stock options
outstanding as of June 30, 1999 and do not include the issuance of (1) 58,689
additional shares of our common stock issued in exchange for outstanding shares
of series A preferred stock of Webcast, issued by Webcast subsequent to June 30,
1999 and (2) approximately 200,000 shares of our common stock and 65,000 shares
of our junior non-voting convertible preferred stock issuable upon the
consummation of the acquisition of PageCell. As of June 30, 1999, after giving
retroactive effect to the Webcast acquisition, there were options outstanding to
purchase a total of 7,271,533 shares of common stock with a weighted average
exercise price of $2.72 per share. To the extent that any of these options are
exercised, there will be further dilution to new investors.
23
<PAGE>
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The selected supplemental consolidated balance sheet data as of December 31,
1997 and 1998 and June 30, 1999 and the selected supplemental consolidated
statement of operations data for the period from March 5, 1996 (inception) to
December 31, 1996, the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1999 have been derived from our audited supplemental consolidated
financial statements included elsewhere in this prospectus. The selected
supplemental consolidated statement of operations for the six months ended June
30, 1998 have been derived from the unaudited supplemental consolidated
financial statements included elsewhere in this prospectus. The selected
consolidated balance sheet data as of December 31, 1996 are derived from our
consolidated audited financial statements not included in this prospectus. The
supplemental consolidated statement of operations data includes the acquisitions
of Wass Net and Webcast, which have each been accounted for as a pooling of
interests. Accordingly, our supplemental consolidated financial data includes
for all periods presented the results of Wass Net since its inception on August
29, 1997 and Webcast since its inception on July 24, 1998. The pro forma
statement of operations data for the year ended December 31, 1998 and for the
six months ended June 30, 1999 assumes that the acquisition of KD Sistemas
occurred on January 1, 1998. The unaudited supplemental consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, which, in the opinion of management, are necessary for the fair
presentation of our consolidated financial position and the consolidated results
of operations for such period. Results of operations for the six months ended
June 30, 1999 are not necessarily indicative of the results that may be expected
for the entire year or for any future period. The selected supplemental
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the pro forma condensed consolidated financial statements and the
consolidated financial statements and the notes to those statements and
supplemental consolidated financial statements and notes to those statements
included elsewhere in this prospectus.
24
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PERIOD FROM PRO FORMA SIX MONTHS
MARCH 5, 1996 YEAR ENDED YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, DECEMBER 31, ENDED JUNE 30, JUNE 30,
DECEMBER 31, ----------------------- ------------ -------------------- -----------
1996 1997 1998 1998 1998 1999 1999
--------------- --------- ------------ ------------ --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues........................... $ -- $ 472 $ 5,758 $ 6,741 $ 850 $ 5,474 $ 5,694
Product and technology
development.................... 36 1,233 7,101 7,452 3,178 10,019 10,137
Sales and marketing.............. 12 2,110 29,281 29,343 6,015 22,926 22,876
General and administrative....... 78 650 4,810 4,965 1,033 6,665 6,787
Depreciation and amortization.... 2 38 785 2,715 248 1,644 2,125
Stock-based compensation
expense........................ -- -- 10,421 10,421 3,250 3,012 3,012
------ --------- ------------ ------------ --------- --------- -----------
Total operating expenses........... 128 4,031 52,398 54,896 13,724 44,266 44,937
------ --------- ------------ ------------ --------- --------- -----------
Operating loss..................... (128) (3,559) (46,640) (48,155) (12,874) (38,792) (39,243)
Interest income, net............. -- 34 667 702 90 1,135 1,148
------ --------- ------------ ------------ --------- --------- -----------
Loss before provision for income
taxes............................ (128) (3,525) (45,973) (47,453) (12,784) (37,657) (38,095)
------ --------- ------------ ------------ --------- --------- -----------
Provision for income taxes......... (83)
------ --------- ------------ ------------ --------- --------- -----------
Net loss........................... (128) (3,525) (45,973) (47,536) (12,784) (37,657) (38,095)
Preferred stock dividends and
accretion........................ -- (185) (4,536) (4,536) (720) (4,266) (4,266)
------ --------- ------------ ------------ --------- --------- -----------
Net loss available to common
shareholders..................... $ (128) $ (3,710) $ (50,509) $ (52,072) $ (13,504) $ (41,923) $ (42,361)
------ --------- ------------ ------------ --------- --------- -----------
------ --------- ------------ ------------ --------- --------- -----------
Basic and diluted net loss per
share............................ $ (0.01) $ (0.37) $ (4.51) $ (1.32) $ (1.91)
------ --------- ------------ --------- ---------
------ --------- ------------ --------- ---------
Shares used in computing basic and
diluted net loss per share....... 9,147 10,040 11,204 10,221 21,927
------ --------- ------------ --------- ---------
------ --------- ------------ --------- ---------
Pro forma basic and diluted net
loss per share(1)................ $ (1.06) $ (1.10) $ (0.79) $ (0.80)
------------ ------------ --------- -----------
------------ ------------ --------- -----------
Shares used in computing pro forma
basic and diluted net loss per
share(1)......................... 43,200 43,200 47,737 47,737
------------ ------------ --------- -----------
------------ ------------ --------- -----------
</TABLE>
- --------------------------
(1) Assumes conversion of all outstanding shares of redeemable convertible
preferred stock into 31,996,667 shares of common stock. See note 5 to our
supplemental consolidated financial statements and the pro forma condensed
consolidated financial statements included elsewhere in this prospectus for
an explanation of the method used to determine the number of shares used to
compute pro forma net loss per share.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1997 1998
----- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 230 $ 443 $ 53,147
Working capital........................................................................ 284 149 47,500
Total assets........................................................................... 313 810 61,156
Capital lease obligations.............................................................. 229
Total current liabilities.............................................................. 342 7,870
Long-term debt.........................................................................
Redeemable convertible preferred stock................................................. 3,833 96,494
Total stockholders' (deficit) equity................................................... 313 (3,394) (43,339)
<CAPTION>
JUNE 30,
---------
<S> <C>
1999
---------
<S> <C>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 164,719
Working capital........................................................................ 153,990
Total assets........................................................................... 192,466
Capital lease obligations.............................................................. 110
Total current liabilities.............................................................. 15,306
Long-term debt......................................................................... 4,705
Redeemable convertible preferred stock................................................. --
Total stockholders' (deficit) equity................................................... 173,447
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
StarMedia is the leading Internet media company targeting Latin America and
other Spanish- and Portuguese- speaking audiences worldwide. We were
incorporated in March 1996 and commenced operations in September 1996. For the
period from our inception through December 1996, we did not generate any
revenues, incurred minimal operating expenses and focused our operating
activities on the development of the StarMedia network.
We launched our network in December 1996. During 1997, we continued the
development of the StarMedia network and related technology infrastructure and
also focused on recruiting personnel, raising capital and developing content to
attract and retain users. In 1998, we:
- improved and upgraded our services;
- expanded our production staff;
- built a direct sales force; and
- increased our marketing activities in order to build the StarMedia brand.
In March and April 1999, we acquired two leading Brazilian Internet guides,
Zeek!, otherwise known as Achei, and Cade?, otherwise known as KD Sistemas,
which primarily categorize and review Portuguese-language Web sites. The
aggregate purchase price paid by us for these acquisitions was approximately
$6.1 million plus $0.9 million due before March 2000. We are obligated to make
additional payments, estimated to be up to $6.4 million, to the former
stockholders of KD Sistemas if various performance targets are achieved. These
acquisitions were accounted for as purchases.
Effective May 1999, we acquired LatinRed, otherwise known as Wass Net, a
Spanish-language online community offering e-mail, chat, classified, bulletin
boards, home pages and search capabilities. We issued 1,133,334 shares of our
common stock for all of the outstanding capital stock of Wass Net. This
acquisition was accounted for as a pooling of interests.
In June 1999, we acquired all of the outstanding stock of OpenChile,
otherwise known as Servicios Interactivos Limitada, for 20,000 shares of our
common stock. This acquisition was accounted for as a purchase.
In September 1999, we acquired Webcast, a streaming media company focused on
the global delivery of audio, video and other Internet-based interactive media.
We issued 842,887 shares of our common stock for all of the outstanding capital
stock of Webcast. This acquisition was accounted for as a pooling of interests,
which requires the restatement of all relevant periods as if StarMedia and
Webcast had always been combined. Accordingly, the following discussion reflects
the combined results of operations of StarMedia and Webcast. The only
significant effect of the restatement was the inclusion of Webcast's revenues of
$411,000 for the year ended December 31, 1998 and $175,000 for the six months
ended June 30, 1999 as well as Webcast's net loss of $15,000 for the year ended
December 31, 1998 and $212,000 for the six months ended June 30, 1999.
On September 18, 1999, we entered into an agreement to purchase
substantially all of the assets of PageCell International Holdings, Inc., a
provider of advanced mobile technologies and services, in exchange for common
stock and junior non-voting convertible preferred stock of the Company valued at
$10 million at the closing date and additional consideration valued at up to $15
million upon the achievement of certain quarterly performance related targets
through December 2000. The consummation of the acquisition is subject to certain
closing conditions.
26
<PAGE>
To date, we have derived our revenues primarily from the sale of
advertisements and sponsorships on our network as well as consulting and
technical services.
Advertising revenues are derived principally from:
- advertising arrangements under which we receive revenues based on a
cost-per-thousand-impressions basis, commonly referred to as CPMs;
- sponsorship arrangements which allow advertisers to sponsor an area on our
network in exchange for a fixed payment;
- reciprocal advertising arrangements, under which we exchange advertising
space on our network predominantly for advertising on television and radio
stations; and
- design, coordination and integration of advertising campaigns and
sponsorships to be placed on our network.
Advertising and sponsorship rates depend on:
- whether the impressions are for general audiences or targeted audiences;
- the size and placement of the advertisement; and
- the number of guaranteed impressions, if any.
Advertising revenues are recognized ratably in the period in which the
advertisement is displayed, provided that no significant obligations remain and
collection of the resulting receivable is probable. To the extent minimum
guaranteed impression levels are not met, we defer recognition of the
corresponding revenues until guaranteed levels are achieved. Payments received
from advertisers prior to displaying their advertisements on our network are
recorded as deferred revenues. Revenues from sponsorship arrangements are
recognized ratably over the contract term, provided that we have no significant
obligations remaining. Revenue related to the design, coordination and
integration of content under sponsorship arrangements are recognized ratably
over the contract term or using the percentage of completion method if the
revenue for the services is fixed. Under some of our content arrangements, we
have agreed to pay a portion of the advertising revenue derived from the related
content to the content provider.
We have entered into reciprocal advertising arrangements with various media
companies, including Fox Sports America and MTV Latin America. We do not receive
any cash payments for these arrangements. We entered into these agreements to
enhance our marketing efforts and to extend our marketing presence beyond the
ten major markets in which our paid advertising is concentrated. Revenues and
expenses from these arrangements are recorded at the estimated fair value of the
goods or services received or the estimated fair value of the advertisements
given, whichever is more readily determinable. Expenses are recorded at the
value of the television advertising received when our advertisements are
broadcast, which is typically in the same period as the advertisements are run
on our network. These expenses are included in our sales and marketing expenses.
To date, we have engaged in no reciprocal advertising arrangements under which
we have received online advertising.
In addition to advertising revenues, we derive revenues from online commerce
transactions conducted through our network. Revenues from our share of the
proceeds from sales are recognized on notification of sales attributable to our
network. To date, commerce revenues have not been significant. We anticipate
that, although commerce revenues will increase in future periods, the
substantial majority of our revenues will continue to be derived from the sale
of advertising on our network.
We have a limited operating history for you to use as a basis for evaluating
our business. You must consider the risks and difficulties frequently
encountered by early stage companies like us in new and rapidly evolving
27
<PAGE>
markets, including the Internet advertising market.
We have incurred significant net losses and negative cash flows from
operations since our inception. At June 30, 1999, we had an accumulated deficit
of $96.3 million. These losses have been funded primarily through the issuance
of our equity securities. We intend to continue to invest heavily in marketing
and brand development, content enhancements, and technology and infrastructure
development. As a result, we believe that we will continue to incur net losses
and negative cash flows from operations for the foreseeable future. Moreover,
the rate at which these losses will be incurred may increase from current
levels.
We recorded cumulative deferred compensation of approximately $25.0 million
through June 30, 1999, which represents the difference between the exercise
price of some stock options granted in 1998 and 1999, and the fair market value
of the underlying common stock at the date of grant. The difference is recorded
as a reduction of stockholders' equity and amortized over the vesting period of
the applicable options. Options granted through February 1999 typically vest
over three years, although a portion of those options vested immediately.
Options granted after February 1999 generally vest over four years. Of the total
deferred compensation amount, approximately $10.4 million and $3.0 million was
amortized during the year ended December 31, 1998 and the six months ended June
30, 1999, respectively. The amortization of deferred compensation is recorded as
an operating expense. As a result, we currently expect to amortize the following
amounts of deferred compensation annually:
- 1999--$6.2 million;
- 2000--$5.0 million;
- 2001--$2.8 million;
- 2002--$700,000; and
- 2003--$50,000.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 AND 1998
REVENUE
Revenues increased to $5.5 million for the six months ended June 30, 1999
from $850,000 for the six months ended June 30, 1998. The increase in revenues
was primarily due to an increase in the volume of advertising impressions and
sponsorships sold. During 1999, we continued to:
- expand our sales force;
- increase the number of impressions available on our network by adding
channels and by increasing our marketing efforts; and
- expand through acquisitions.
In the six months ended June 30, 1998, four advertisers each accounted for
greater than 10% of total revenues. For the six months ended June 30, 1999, no
advertiser accounted for more than 10% of our revenue. For the six months ended
June 1998, our top five advertisers accounted for 81% of our revenue. For the
six months ended June 1999, our top five advertisers accounted for 33% of our
revenue. In the six months ended June 30, 1999, we derived approximately $1.9
million, or 35% of total revenues, from reciprocal advertising arrangements. We
do not receive any cash payments for these arrangements.
OPERATING EXPENSES
PRODUCT AND TECHNOLOGY. Product and technology expenses include:
- personnel costs
- hosting and telecommunication costs; and
- content acquisition fees and revenue sharing arrangements related to
agreements with third-party content providers under which we pay
guaranteed fees and/or a portion of our revenues.
28
<PAGE>
For the six months ended June 30, 1999, product and technology expenses
increased to $10.0 million, or 182% of total revenues, from $3.2 million, or
376% of total revenues, for the six months ended June 30, 1998. The increase was
primarily due to an increase of approximately $2.9 million related to staffing
levels and approximately $1.3 million to enhance the content and features of the
StarMedia network.
We have, to date, expensed all product and technology costs as incurred. We
believe that increased investment in new and enhanced features and technology is
critical to attaining our strategic objectives and remaining competitive.
Accordingly, we intend to continue recruiting and hiring experienced product and
technology personnel and to make additional investments in product development
and technological infrastructure. We expect that product expenditures will
continue to increase in absolute dollars in future periods.
SALES AND MARKETING. Sales and marketing expenses consist primarily of:
- advertising costs, including the costs of advertisements placed on various
television networks under our reciprocal advertising arrangements;
- salaries and commissions of sales and marketing personnel;
- public relations costs; and
- other marketing-related expenses.
Sales and marketing expenses increased to $22.9 million, or 416% of total
revenues, for the six months ended June 30, 1999 from $6.0 million, or 706% of
total revenues, for the six months ended June 30, 1998.
The increase in sales and marketing expenses was primarily attributable to:
- expansion of our advertising, public relations and other promotional
expenditures related to our branding campaign of approximately $11.1
million; and
- higher personnel expenses, including sales commissions, of approximately
$3.4 million.
We expect sales and marketing expenses will continue to increase in absolute
dollars for the foreseeable future as we:
- continue our branding strategy;
- expand our direct sales force;
- hire additional marketing personnel; and
- increase expenditures for marketing and promotion.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of:
- salaries and benefits;
- costs for general corporate functions, including finance, accounting and
facilities; and
- fees for professional services.
General and administrative expenses increased to $6.7 million, or 122% of
total revenues, for the six months ended June 30, 1999, from $1.0 million, or
118% of total revenues, for the six months ended June 30, 1998. The increase in
general and administrative expenses was primarily due to increased salaries and
related expenses associated with the hiring of additional personnel of
approximately $2.1 million, additional rental costs of approximately $600,000
and additional taxes and insurance charges of approximately $500,000.
General and administrative expenses for the six months ended June 30,1999
include one-time charges of $1.0 million related to the acquisition of Wass Net.
Since the acquisition was accounted for as a pooling of interests, these costs
were expensed at the consummation of the acquisition.
We expect that we will incur additional general and administrative expenses
as we hire additional personnel and incur additional costs related to the growth
of our business and our operation as a public company.
29
<PAGE>
Accordingly, we anticipate that general and administrative expenses will
continue to increase in absolute dollars in future periods.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased to $1.6 million, or 29% of
total revenues, for the six months ended June 30, 1999 from $248,000, or 29% of
total revenues, for the six months ended June 30, 1998. The dollar increases
were primarily attributable to the increase in fixed assets of approximately
$6.3 million during 1999 and $5.9 million during 1998. We also incurred goodwill
amortization expenses of $0.5 million related to the acquisitions of Achei and
KD Sistemas. We expect that depreciation and amortization expenses will continue
to increase as we build the structure necessary to improve our products and
acquire other businesses.
STOCK-BASED COMPENSATION EXPENSE
We recorded additional deferred compensation of $6.0 million during the six
months ended June 30, 1999. Of the cumulative deferred compensation amount, $3.0
million was recorded as an expense during the six months ended June 30, 1999.
The unamortized balance is being amortized over the vesting period for the
individual options, which is typically three years for options issued earlier
than February 1999 and four years for options issued since that date.
INTEREST INCOME, NET
Interest income, net includes income from our cash and investments. Net
interest income increased from $90,000 for the six months ended June 30, 1998 to
$1.1 million for the six months ended June 30, 1999. Interest income increased
as a result of capital raised from the sale of preferred shares in 1998, the
issuance of 3.7 million shares of common stock to a group of third party
investors in April and May 1999, and the initial public offering of shares of
our common stock in May 1999.
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIOD FROM MARCH 5, 1996
(INCEPTION) TO DECEMBER 31, 1996
REVENUES
Revenues increased to $5.8 million for the year ended December 31, 1998 from
$472,000 for the year ended December 31, 1997. We did not have any revenue for
the period from March 5, 1996 (inception) to December 31, 1996. The increase in
revenues was primarily due to an increase in the volume of advertising
impressions and sponsorships sold. During 1998, we:
- expanded our sales force; and
- increased the number of impressions available on our network by adding
channels and by increasing our marketing efforts.
In 1997, three advertisers each accounted for greater than 10% of total
revenues and the five largest advertisers accounted for 98% of total revenues.
In 1998, two advertisers, Netscape and Fox Latin America, each accounted for
greater than 10% of total revenues and the five largest advertisers accounted
for 57% of total revenues. In 1998, 42% of our total revenues were derived from
reciprocal advertising arrangements with our media partners, which consist
primarily of television network operators. We do not receive any cash payments
from these arrangements. We have not engaged in any reciprocal advertising
arrangements under which we received online advertising. Electronic commerce
revenues were not material during these periods.
OPERATING EXPENSES
PRODUCT AND TECHNOLOGY. Product and technology expenses increased to $7.1
million, or 122% of total revenues, for the year ended December 31, 1998, from
$1.2 million, or 254% of total revenues, for the year ended December 31, 1997.
We incurred $36,000 of product and technology expenses during 1996. The increase
in product and technology expenses was primarily attributable to an increase of
approximately $3.1 million in 1998
30
<PAGE>
and $668,000 in 1997 related to staffing levels required to support the
StarMedia network and related systems and approximately $1.5 million in 1998 and
$310,000 in 1997 to enhance the content and features on the StarMedia network.
We have, to date, expensed all product and technology costs as incurred.
SALES AND MARKETING. Sales and marketing expenses increased to $29.3
million, or 505% of total revenues, for the year ended December 31, 1998, from
$2.1 million, or 445% of total revenues, for the year ended December 31, 1997,
and $12,000 during 1996. The increases in sales and marketing expenses were
primarily attributable to:
- expansion of our advertising, public relations and other promotional
expenditures related to our aggressive branding campaign of approximately
$22.3 million in 1998 and $1.7 million in 1997; and
- higher personnel expenses, including sales commissions, of approximately
$2.9 million in 1998 and $222,000 in 1997.
Sales and marketing expenses as a percentage of total revenues have
increased as a result of the continued development and implementation of
StarMedia's branding and marketing campaign.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $4.8 million, or 83% of total revenues, for the year ended December 31, 1998,
from $650,000, or 138% of total revenues, for the year ended December 31, 1997,
and $78,000 during 1996. The increase in general and administrative expenses was
primarily due to increased salaries and related expenses associated with the
hiring of additional personnel of approximately $1.4 million in 1998 and
$200,000 in 1997 to support the growth of our business. General and
administrative expenses decreased on a percentage basis because of the growth in
revenues.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased to $785,000, or 14% of
revenues, for the year ended December 31, 1998, from $38,000, or 8% of revenues,
for the year ended December 31, 1997 and from $2,000 during 1996. The dollar
increases were primarily attributable to the increase in fixed assets of
approximately $5.9 million during 1998 and $270,000 during 1997.
STOCK-BASED COMPENSATION EXPENSE
We recorded deferred compensation of $19.1 million during the year ended
December 31, 1998. Of this amount, $10.4 million was recorded as an expense in
1998. The unamortized balance is being amortized over the vesting period for the
individual options, which is typically three years.
INTEREST INCOME, NET
Interest income, net includes income from our cash and investments. Interest
income, net increased to $667,000 for the year ended December 31, 1998 from
$34,000 for the year ended December 31, 1997. We did not record any interest
income, net during 1996. The increase in interest income was primarily due to
higher average cash, cash equivalent and investment balances as a result of
capital received from the sale of preferred stock in the first and third
quarters of 1998.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have primarily financed our operations through the sale of our
equity securities. At June 30, 1999, we had $164.7 million in cash and cash
equivalents, an increase of $111.6 million from December 31, 1998.
In the six months ended June 30, 1999, we used $36.0 million in operating
activities, mostly related to our $37.7 million loss during the period which
included non-cash activities such as $1.6 million in depreciation and
amortization and $3.0 million in non-cash charges related to stock option
grants. In the
31
<PAGE>
six months ended June 30, 1998, we used $7.0 million in operating activities,
consisting mostly of $12.8 million for our net loss, partly offset by $3.2
million in non-cash charges related to stock option grants and $3.1 million in
additional liabilities. Net cash used in operating activities was $30.7 million
for the year ended December 31, 1998, $3.3 million for the year ended December
31, 1997 and $127,000 for 1996. To date, we have experienced significant
negative cash flows from operating activities. Net cash used in operating
activities resulted primarily from our net operating losses, offset in part by:
- the amortization of deferred compensation;
- depreciation and amortization;
- increases in accrued expenses and accounts payable; and
- deferred revenues.
For the six months ended June 30, 1999, we used $11.1 million in investing
activities, including $6.0 million for fixed assets and $5.1 million in
connection with acquisitions and related costs. Net cash used in investing
activities was $4.7 million for the year ended December 31, 1998, $283,000 for
the year ended December 31, 1997 and $30,000 during 1996. Net cash used in
investing activities during 1996, 1997 and 1998 resulted primarily from the
purchase of fixed assets.
Net cash provided by financing activities was $159.1 million for the six
months ended June 30, 1999, $88.1 million for the year ended December 31, 1998,
$3.8 million for the year ended December 31, 1997 and $387,000 during 1996. Net
cash provided by financing activities during 1997 and 1998 consisted primarily
of proceeds from the sale of preferred stock. In April and May 1999, we
completed the sale of 3,727,272 shares of our common stock for $41 million. In
May 1999, we raised approximately $110.4 million, net of underwriting discounts
and commissions and related expenses, from the initial public offering of shares
of our common stock. We also entered into a credit line, utilizing $5.1 million
of a $12.0 million facility.
Our principal commitments consist of obligations outstanding under capital
and operating leases. We expect our capital expenditures will increase
significantly in the future as we make technological improvements to our system
and technical infrastructure.
In March 1999, we entered into a $12.0 million credit line for the
acquisition of computer equipment and furniture and fixtures. At June 30, 1999,
approximately $4.7 million was outstanding under the equipment line. Amounts
outstanding are payable in monthly installments of principal and interest of
approximately $170,000, bear interest at approximately 13.6% per annum and are
secured by certain computer equipment and furniture and fixtures. The credit
line requires us to maintain at least $10 million in cash and cash equivalents.
We have entered into an agreement with AT&T Global Network Services,
formerly IBM Global Network, under which we can offer Internet access services
in Argentina, Brazil, Chile, Colombia and Mexico. Under the agreement, we are
obligated to pay AT&T a minimum of approximately $4.3 million in 1999 and
approximately $16.0 million in 2000.
Our capital requirements depend on numerous factors, including:
- market acceptance of our services;
- the amount of resources we devote to investments in the StarMedia network;
- marketing and selling our services; and
- promoting our brand.
We have experienced a substantial increase in our capital expenditures and
operating lease arrangements since our inception consistent with the growth in
our operations and staffing. We anticipate that this will continue for the
foreseeable future. Additionally, we will continue to evaluate possible
investments in businesses, products and technologies, and plan to expand our
sales and marketing programs and conduct more aggressive brand promotions.
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We believe that our current cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next 12 months. If cash generated from operations is insufficient
to satisfy our liquidity requirements, we may seek to sell additional equity or
debt securities or establish an additional credit facility. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders. The incurrence of additional indebtedness would
result in increased fixed obligations and could result in operating covenants
that would restrict our operations. We cannot assure you that financing will be
available in amounts or on terms acceptable to us, if at all.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to the potential for system and processing
failures of date-related calculations, and is the result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
STATE OF READINESS
We have made a preliminary assessment of the Year 2000 readiness of our
operating, financial and administrative systems, including the hardware and
software that support our systems. As part of our assessment plan, we are
evaluating our date-dependent code, internally-developed software, software
developed by third parties and hardware. We plan to complete this evaluation by
October 1999. All internally-developed code will be checked, and any problematic
code identified, fixed and tested by November 1999. All material
externally-developed software that is not Year 2000 compliant will be upgraded
or replaced by November 1999. More specifically:
- We are quality assurance testing our internally-developed proprietary
software and systems related to the delivery of our service to our users.
We plan to complete this testing by November 1999.
- We have contacted our principal third-party vendors and licensors of
material hardware, software, and services that are related to the delivery
of our services to our users, and requested their confirmation of our Year
2000 compliance of the software, hardware and services they provide to us.
All of these contacted vendors and licensors have notified us that the
hardware, software and services that they have provided to us are Year
2000 compliant.
- We have contacted our principal vendors of material non-information
technology systems and services used by us, and requested their
confirmation of the Year 2000 compliance of their systems and services. We
have received notification from the majority of these vendors that the
systems and services that they have provided to us are Year 2000
compliant. By the end of the third quarter of 1999, we will either have
received this confirmation from the remaining vendors or have replaced the
systems and services they provide with compliant systems and services.
- We are formulating repair or replacement requirements and implementing
corrective measures. These requirements will be completed by October 1999,
and, if necessary, corrective measures and repair procedures will be
implemented by the end of November 1999.
- We are currently evaluating the need for, and preparing and implementing a
contingency plan, if required. The results of our assessment and
simulation testing will be taken into account when we determine the need
for and the extent of any contingency plans. We
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plan to finalize our contingency plans, if any, by November 1999.
COSTS
To date, we have spent an immaterial amount on Year 2000 compliance issues
but expect to incur an additional $200,000 to $350,000 in connection with
identifying, evaluating and addressing Year 2000 compliance issues. Most of our
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees and consultants in the
evaluation process and Year 2000 compliance matters generally. Such expenses, if
higher than anticipated, could have a material adverse effect on our business,
results of operations, and financial condition.
RISKS
To the extent that our assessment is finalized without identifying any
additional material non-compliant IT systems operated by us or by third parties,
the most reasonably likely worst case Year 2000 scenario is a systemic failure
beyond our control, such as a prolonged telecommunications or electrical
failure. Such a failure could prevent us from operating our business, prevent
users from accessing our network, or change the behavior of advertising
customers or persons accessing our network. We believe that the primary business
risks, in the event of such failure, would include but not be limited to, lost
advertising revenues, increased operating costs, loss of customers or persons
accessing our network, or other business interruptions of a material nature, as
well as claims of mismanagement, misrepresentation, or breach of contract.
CONTINGENCY PLAN
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have developed no contingency plans to address the worst-case scenario that
might occur if technologies we are dependent on actually are not Year 2000
compliant. The results of our Year 2000 simulation testing and the responses
received from all third-party vendors and service providers will be taken into
account in determining the need for and nature and extent of any contingency
plans. We intend to develop any required contingency plans by November 1999.
FORWARD-LOOKING STATEMENTS
The Year 2000 discussion above is provided as a "Year 2000 Readiness
Disclosure" as defined in the Year 2000 Information and Readiness Disclosure Act
of 1998 (Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998 and
contains forward-looking statements. These statements are based on management's
best current estimates, which were derived from a number of assumptions about
future events, including the continued availability of resources,
representations received from third parties and other factors. However, we
cannot assure you that these estimates will be achieved, and our actual results
could differ materially from those anticipated. Specific factors that might
cause material differences include:
- the ability to identify and remediate all relevant systems;
- results of Year 2000 testing;
- adequate resolution of Year 2000 issues by governmental agencies,
businesses and other third parties who are our outsourcing service
providers, suppliers, and vendors;
- unanticipated system costs; and
- our ability to implement adequate contingency plans.
INFLATION AND FOREIGN CURRENCY
EXCHANGE RATE LOSSES
To date, our results of operations have not been impacted materially by
inflation in the U.S. or in the countries that comprise Latin America.
Although a substantial portion of our revenues are denominated in U.S.
dollars, an increasing percentage of our revenues are denominated in foreign
currencies. As a result,
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our revenues may be impacted by fluctuations in these currencies and the value
of these currencies relative to the U.S. dollar. In addition, a portion of our
monetary assets and liabilities and our accounts payable and operating expenses
are denominated in foreign currencies. Therefore, we are exposed to foreign
currency exchange risks. However, revenues derived from foreign currencies
historically have not comprised a material portion of our revenues. As a result,
we have not tried to reduce our exposure to exchange rate fluctuations by using
hedging transactions. However, we may choose to do so in the future. We may not
be able to do this successfully. Accordingly, we may experience economic loss
and a negative impact on earnings and equity as a result of foreign currency
exchange rate fluctuations.
RECENT ACCOUNTING PRONOUNCEMENTS
We adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" as of January 1, 1998. SFAS
No. 130 requires us to report in our financial statements, in addition to our
net income (loss), comprehensive income (loss), which includes all changes in
equity during a period from non-owner sources including, as applicable, foreign
currency items, minimum pension liability adjustments and unrealized gains and
losses on investments in debt and equity securities.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosure About Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. We have determined that we do not have any separately reportable
business segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standard for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the FASB
issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities
Deferral of Effective Date of FASB Statement No. 133", which deferred the
effective date of SFAS 133 to all fiscal quarters of fiscal years beginning
after June 15, 2000. The statement is not expected to affect us as we currently
do not have any derivative instruments or hedging activities.
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BUSINESS
OVERVIEW
StarMedia is the leading Internet media company targeting Latin America and
other Spanish- and Portuguese-speaking markets worldwide. Our network consists
of seven branded Internet properties:
- - StarMedia.com, our flagship Internet media property;
- - StarMedia Acesso, our premium Internet access service;
- - Cade?, a topical directory of Portuguese-language Web sites;
- - LatinRed, one of the largest Spanish-language online communities;
- - OpenChile, a local Chilean portal;
- - Periscopio.com, our personalized search and retrieval property; and
- - Zeek!, a topical directory of Portuguese-language Web sites.
Through these properties, we offer our users a variety of in-language
interest-specific areas or channels, extensive Web-based community features,
sophisticated search capabilities, online shopping and Internet access services.
Our content covers a broad array of topics of interest to Latin Americans and
other Spanish- and Portuguese-speaking audiences, including local and regional
news, business and sports. We promote user affinity to the StarMedia community
by providing Spanish and Portuguese language e-mail, chat rooms, instant
messaging and personal homepages. We provide our content and community features
to our users for free. We derive our revenues principally from the sale of
advertisements and sponsorships on our network.
At a time when content on the Internet is overwhelmingly in English, we
offer our users an in-language community experience, combined with a broad array
of Spanish and Portuguese content tailored for regional dialects and local
cultural norms. As a result, we provide advertisers and merchants targeted
access to Latin American and other Spanish-and Portuguese-speaking Internet
users, an audience with a highly desirable demographic profile.
INDUSTRY BACKGROUND
THE GROWTH OF THE INTERNET AND ONLINE ADVERTISING AND COMMERCE
The Internet has developed into a significant global mass medium that allows
millions of people worldwide to find information, interact with others and
conduct business electronically. International Data Corporation, or IDC,
estimates that the number of Internet users worldwide will grow from
approximately 142 million at the end of 1998 to approximately 399 million by the
end of 2002, representing a compound annual growth rate of 29%. The Internet has
also emerged as an attractive new medium for advertisers. The Internet allows
advertisers to target desired demographic groups or consumers in specific
geographic locations. It also allows them to interact more effectively with
consumers and capture valuable data about buying patterns, preferences and
demands. According to Jupiter Communications, the dollar value of Internet
advertising in the U.S. is expected to increase from $2.1 billion in 1998 to
approximately $8.8 billion in 2002, representing a compound annual growth rate
of 43%. The growth in the use of the Internet is also providing businesses with
a platform to conduct electronic commerce. According to IDC, spending on the
Internet is expected to increase from $50.4 billion in 1998 to approximately
$733.6 billion in 2002, representing a compound annual growth rate of 95%.
INTERNET USE IN LATIN AMERICA
Latin America is comprised of 23 countries with a total population of
approximately 500 million people. This region consists of the following
countries:
<TABLE>
<S> <C>
- - Argentina - Guyana
- - Belize - Guatemala
- - Bolivia - Honduras
- - Brazil - Mexico
- - Chile - Nicaragua
- - Colombia - Panama
- - Costa Rica - Paraguay
- - Cuba - Peru
- - Dominican Republic - Suriname
- - Ecuador - Uruguay
- - El Salvador - Venezuela
- - French Guiana
</TABLE>
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Although divided by geographical and political boundaries, Latin Americans
share many cultural affinities, including common languages and religions, as
well as a similar heritage. A majority of Latin Americans speak Spanish or
Portuguese, with only a small portion of the population being proficient in
English.
A substantial portion of the buying power in Latin America is concentrated
within 20% of the population, according to Strategy Research Corporation. This
group of approximately 100 million people controls an estimated 60% of the
overall buying power in Latin America and enjoys a standard of living comparable
to the populations of Germany and Great Britain. As a result, the Latin American
market represents a highly desirable demographic profile for advertisers and
businesses. According to a study published in July 1999 by Zenith Media, overall
advertising spending across all media in Latin America was $24 billion in 1998
and is estimated to grow to $26 billion in 2001. According to Forrester
Research, Internet advertising in Latin America was $20 million in 1998 and is
estimated to grow to $259 million in 2001.
While Internet use in Latin America is in a relatively early stage of
development, it has grown rapidly in recent years and, according to Nazca
Saatchi & Saatchi, is expected to significantly outpace growth in worldwide
Internet usage over the next several years. According to Audits & Surveys
Worldwide, the number of Internet users in Latin America is currently over 15
million. Nazca Saatchi & Saatchi estimates that there will be 34 million
Internet users in Latin America by the end of 2000. According to Nazca Saatchi &
Saatchi, approximately 90% of these users are from upper and middle
socio-economic classes.
The following factors have contributed to the growth in Internet use in
Latin America:
- increased use of personal computers, particularly among affluent Latin
Americans;
- network infrastructure improvements accelerated by privatization of
telecommunications providers and increased spending;
- govermental Internet initiatives;
- the relative youth of the Latin American population and their tendency to
use new technologies, like the Internet;
- reduced Internet access costs; and
- increased awareness of the Internet.
NEED FOR A LATIN AMERICAN ONLINE NETWORK
Despite the rapid growth of non-English speaking Internet users worldwide,
approximately 85 to 90% of the content on the Internet remains in English,
according to Audits & Surveys Worldwide. We believe that an increasing number of
Latin American Internet users are seeking a full-service Internet offering in
their local language that provides them with:
- a social interactive experience across the entire Spanish- and Portuguese-
speaking world;
- a variety of in-depth and focused local content;
- a broad array of compelling content at the regional and international
level;
- fast and reliable Internet access;
- sophisticated Internet applications and tools like e-mail, chat, instant
messaging, bulletin boards, personal homepages and search capabilities;
and
- the ability to easily and securely buy goods and services online.
To date, few Internet sites have been tailored specifically to the interests
and needs of Latin Americans. In an attempt to address this need, some of the
English language general destination sites have translated a small portion of
their content into Spanish or Portuguese. To date, however, these sites have
generally been focused on expanding into the European and Asian markets. As a
result, they typically do not extend their Spanish and Portuguese translations
beyond selected topical content and do not provide in-depth local content or
in-language applications for Latin Americans. Furthermore, they do not tailor
their translations and content to take into account regional dialects, language
differences or local cultural norms.
Some regional sites attempt to provide content for the populations of
specific cities or countries in the local dialect. These sites, while
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providing Spanish or Portuguese content, have a limited community of users and
do not provide extensive regional or global content. There are also Spanish or
Portuguese language interest-specific sites, like sports sites. These sites
offer in-depth content, but are limited to only one topic.
We believe that few of these Spanish and Portuguese language sites attract a
broad user audience. Therefore, they cannot provide advertisers with an
attractive platform to effectively reach the highly desirable Latin American
Internet user base.
THE STARMEDIA SOLUTION
We are the leading Internet media company targeting Latin America and other
Spanish- and Portuguese-speaking markets worldwide. Our network consists of
seven branded Internet properties:
- StarMedia.com, our flagship Internet media property;
- StarMedia Acesso, our premium Internet access service;
- Cade?, a topical directory of Portuguese-language Web sites;
- LatinRed, one of the largest Spanish-language online communities;
- OpenChile, a local Chilean portal;
- Periscopio.com, our personalized search and retrieval property; and
- Zeek!, a topical directory of Portuguese-language Web sites.
Through these properties, we offer our users a variety of in-language
interest-specific areas or channels, extensive Web-based community features,
sophisticated search capabilities, online shopping and Internet access services.
We believe that we have created an online network that uniquely addresses the
needs of Latin American and other Spanish- and Portuguese-speaking Internet
users and provides advertisers and merchants with a highly desirable platform
for targeting affluent consumers in our markets. Our page views have grown to
over 686 million in the three months ended June 30, 1999. In addition, our
active e-mail accounts have grown to 1.2 million as of June 30, 1999.
We believe that our success to date is attributable to the following key
factors:
FOCUS ON LATIN AMERICA AND OTHER SPANISH-AND PORTUGUESE-SPEAKING
MARKETS. We serve the interests and needs of Latin American and other Spanish-
and Portuguese-speaking Internet users and have developed both a product and a
business infrastructure to support our focus on these markets. We designed our
network around the needs of our users, providing them with:
- customized global, regional and local content covering a variety of topics
in the appropriate Spanish and Portuguese dialect;
- a broad range of in-language community features, like chat, bulletin
boards, free e-mail, personal homepages, and personal and classified ads,
that allow users to interact with each other;
- easy-to-use interfaces and consistent navigation experiences that
facilitate usage by the growing number of Latin Americans and other
Spanish- and Portuguese-speaking users coming online for the first time;
- search capabilities that can be customized by country, region and/or
language;
- sophisticated electronic commerce capabilities; and
- premium Internet access service with high quality customer care and
international account access through a single network.
In addition, we have developed a business infrastructure designed to address
the needs of our users by maintaining a strong local presence and employing a
high percentage of Spanish- and Portuguese-speaking employees, both in the U.S.
and abroad. These employees are critical to maintaining our network's focus and
flavor.
Our employees provide us with important cultural and linguistic insights.
Our local presence allows us to better understand the needs of local advertisers
and businesses, and to maintain strong relationships with them. Our local
offices include Barcelona, Bogota,
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Buenos Aires, Caracas, Madrid, Mexico City, Montevideo, Rio de Janeiro, San
Juan, Santiago and Sao Paulo. Each office is staffed predominantly with people
from the country in which the office is located.
MARKET LEADERSHIP THROUGH BRAND DEVELOPMENT. We believe that StarMedia is
the most recognized Internet brand in Latin America. As a result, visiting
StarMedia is one of the first Internet experiences for many Latin Americans. We
began our marketing efforts in February 1997 and were the first online network
to make a significant investment in brand development in Latin America. We
believe that many of our regular users first visited our network in response to
our marketing efforts. We have continued to invest heavily in building the
StarMedia brands through our extensive marketing, advertising and public
relations programs. Our brand recognition has enabled us to attract a growing
user audience and leading companies as advertisers and electronic commerce
partners.
EXTENSIVE COMMUNITY AND CONTENT OFFERINGS. We believe that our extensive
local and pan-regional content, combined with our community of Internet users,
gives us a competitive advantage and is key to our continued leadership as the
Internet destinations of choice in the region. We provide our users with a broad
array of relevant and in-depth local content. In addition, our network serves as
a virtual central plaza for our users to access region-specific information and
conduct electronic commerce across boundaries. Our pan-regional community
enables us to attract a larger population of users and, consequently, provide
them with greater outlets for online interaction.
DEDICATION TO USER CARE. We believe that high quality user care and
technical support are essential to our continued success and brand development
efforts. To further enhance our users' experience and to foster user loyalty, we
have local user care support teams that rapidly respond to e-mail inquiries and
provide technical advice, 24 hours a day, seven days a week in Spanish or
Portuguese. We also proactively solicit feedback from our users in order to
understand their preferences and to enhance their experience on our network.
HIGHLY ATTRACTIVE PLATFORM FOR ADVERTISING AND COMMERCE. We believe that
the StarMedia network is a highly attractive platform for advertisers and
businesses because it gives them access to:
- leading Internet brands in Latin America and other Spanish- and
Portuguese-speaking markets;
- a user base with a highly desirable demographic profile; and
- users with a high degree of affinity and involvement through e-mail, chat,
bulletin boards and personal homepages.
Internet advertising is new in our markets, and we believe that buying
advertising on the StarMedia network is often one of the first Internet
advertising purchases made by businesses and advertising agencies targeting
Spanish- and Portuguese-speaking audiences. Accordingly, we have created an
advertising environment that fosters advertiser use of this new medium and
solidifies our relationship with advertisers. We have developed a client
services team that is dedicated to enhancing our relationship with these
advertisers and maximizing the effectiveness of their advertising campaigns. We
use our knowledge about the needs and sensitivities of our user base to help
advertisers create more effective advertising campaigns. In addition, we use
leading advertising techniques and tracking technologies to:
- target advertising to users with specific demographic profiles;
- gather extensive data to create an intelligence profile for each campaign;
and
- use daily tracking data to analyze the campaign's effectiveness.
We provide advertisers with detailed and timely feedback on the
effectiveness of campaigns, as well as recommendations on how to improve their
campaigns. We believe that our client services group is a key differentiator
from other competitive Web sites and provides us with a significant competitive
advantage.
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As a result, we have been able to:
- attract high-profile advertisers, including Bradesco, Ford, Fox Sports
America, IBM, Nokia and Sony;
- enter into relationships with leading electronic commerce companies,
including barnesandnoble.com, CDNow, Disney, Latin Grocer and Outpost.com;
and
- charge premium advertising rates.
STRATEGY
Our objective is to strengthen our position as the leading online network
across Latin America and other Spanish- and Portuguese-speaking markets. In
order to accomplish this, we will:
AGGRESSIVELY EXTEND THE RECOGNITION OF OUR BRANDS. Our goal is to make our
brands synonymous with the Internet in our markets. We believe that continuing
to enhance our brand recognition will enable us to capitalize on our leading
position and will make us more attractive to advertisers and businesses
conducting electronic commerce. This will increase in importance as more
Spanish- and Portuguese-speaking consumers move online and as additional
Internet sites compete for these users.
We intend to continue to build our brands through:
- extensive television, print, Internet and outdoor advertising;
- public relations programs;
- conference sponsorships;
- new strategic alliances; and
- additional distribution relationships.
ENHANCE AND EXPAND OUR SPANISH AND PORTUGUESE CONTENT AND COMMUNITY
FEATURES. We intend to continue to add new content and features to the StarMedia
network. We believe that this will:
- further differentiate our brands from competing sites;
- provide users with a more comprehensive and satisfying Internet
experience; and
- result in users visiting the StarMedia network more often and remaining
there longer.
We currently have relationships with leading content providers, including
Agencia EFE, Fox Sports America, Internet Securities, Mpath, Patagon.com,
Reuters, WeatherLabs, and Ziff-Davis. We are aggressively seeking new content
relationships in order to further increase the breadth and depth of our content
and community features without incurring significant additional costs. We
currently have more than 110 employees in our content development group who are
responsible for gathering, developing and designing our content. We intend to
further enlarge this group.
We are also expanding our country-specific content to further penetrate
local markets. We are seeking to enter into partnerships with leading local
interest-specific content providers and to further enhance the features and
functions of our network.
We are also seeking to aggressively expand our electronic commerce business.
We are developing relationships with credit card, fulfillment and transaction
software companies, as well as merchants. We have entered into a relationship
with SkyBox Services Corporation, a provider of logistics solutions, to
facilitate the delivery of goods sold over our network.
FURTHERING OUR PENETRATION INTO ADDITIONAL SPANISH- AND PORTUGUESE-SPEAKING
MARKETS. We seek to make StarMedia network the first and most frequent
destination on the Internet for the Spanish- and Portuguese-speaking population
worldwide. We believe there is a significant opportunity for a Spanish and
Portuguese language online network that extends beyond Latin America to include
Spain, the United States and Portugal.
There are approximately 8.6 million Spanish- and Portuguese-speaking
Internet users dispersed through the United States, Spain and Portugal. In the
U.S., the Hispanic population is growing more rapidly than any other minority
group. According to the Tomas Rivera Policy Institute at Claremont University,
from 1994 to 1998, Internet usage by U.S. Hispanics grew 800%. Forrester
Research Inc. estimates that by the end of 1999, 43% of U.S. Hispanic households
will be online. We believe that Hispanic Americans are increasingly using our
network to maintain their cultural identities and to communicate with friends
and family in Latin America and elsewhere.
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We have expanded our presence outside of Latin America through the
acquisition of LatinRed, which has an established user base in the Spanish and
U.S. Hispanic markets. In addition, we recently launched our Puerto Rican
operations by opening an office in San Juan to focus on advertising sales and
new business development. Additionally, we are expanding our advertising and
marketing campaigns in the United States and Spain.
CONTINUE TO PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. We plan to
continue to expand our user base, revenues and competitive position through
strategic acquisitions and alliances. In 1999, we made a number of strategic
acquisitions to further this goal. These include:
- Cade?, a topical directory of Portuguese-language Web sites;
- LatinRed, one of the largest Spanish-language online communities;
- OpenChile, a local Chilean portal;
- Webcast, a streaming media company focused on the global delivery of
audio, video and other Internet-based interactive media; and
- Zeek!, a topical directory of Portuguese-language Web sites.
We believe that these acquisitions have significantly enhanced our presence in
our markets and have enabled us to reach a broader base of users and
advertisers. We have also agreed to acquire PageCell, a provider of advanced
mobile technologies and services. We intend to aggressively seek other
opportunities to acquire or form alliances with other companies that will
complement our network.
EXPAND OUR INTERNET ACCESS SERVICES TO USERS ACROSS LATIN AMERICA. We
recently began to offer Internet access services in Brazil and intend to offer
these services in other Latin American markets during the second half of 1999.
We believe this service will enable us to develop an additional source of
revenue and to create closer ties with Internet users in our markets. We have
entered into an agreement with AT&T Global Network Services, formerly known as
IBM Global Network. AT&T will provide us with its existing infrastructure,
billing, operations and customer service capabilities necessary to provide these
services. We will market the service under the StarMedia Acesso brand and
StarMedia will be the pre-programmed homepage for the service. We will charge
users monthly access fees with pricing based on rates that are competitive in
each local market.
DEVELOP AND DEPLOY NEXT GENERATION CONTENT AND SERVICE DISTRIBUTION
PLATFORMS. We intend to seek opportunities to extend our brands beyond personal
computers to wireless products, consumer electronics and entertainment media. To
that end, we have created two new divisions, StarMedia Broadband and StarMedia
Mobile. StarMedia Broadband will provide Spanish- and Portuguese-speaking users
with premium streaming media services and programming, including audio, video
and interactive multimedia via the Internet. Webcast, our recent acquisition,
will serve as the core of this new division. An additional goal of StarMedia
Broadband is the enhancement of our users' interactive experience by enabling
rich media programming to be delivered quickly and efficiently via high speed
distribution platforms.
StarMedia Mobile advances our strategy to provide our users worldwide with a
richer Internet experience by allowing them to bring Internet content and
applications to a wide range of wireless devices.
We have also agreed to acquire PageCell and intend to take advantage of its
advanced mobile technologies and services to enable our users to handle their
mobile communications needs through one central service.
We intend to continue to seek similar acquisition or investment
opportunities. We believe this strategy will:
- augment our user base by enabling access to StarMedia's content and
services by users offline;
- enhance our brand recognition by extending our presence to new viewership;
- increase our revenues by providing new advertising and sponsorship
opportunities to our clients; and
- prepare StarMedia for the future convergence of interactive and
entertainment technologies, and further distinguish our network from
traditional Internet portals.
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THE STARMEDIA NETWORK
The StarMedia network currently consists of seven branded Internet
properties:
- StarMedia.com, our flagship Internet media property;
- StarMedia Acesso, our premium Internet access service;
- Cade?, a topical directory of Portuguese-language Web sites;
- LatinRed, one of the largest Spanish-language online communities;
- OpenChile, a local Chilean portal;
- Periscopio.com, our personalized search and retrieval property; and
- Zeek!, a topical directory of Portuguese-language Web sites.
STARMEDIA.COM
StarMedia.com, our principal branded destination and flagship Internet media
property, is organized around 19 topical channels. These channels are grouped
into:
- community services; and
- content and commerce services.
StarMedia.com's Welcome Screen-- www.starmedia.com-- provides a guide to the
network channels, features special content and promotions, offers direct access
to our search, e-mail and chat services and displays real-time news headlines.
When users first visit StarMedia.com, they are prompted to indicate what
country they are from and whether they prefer to receive content in Spanish or
Portuguese. This information allows us to target both content and advertising by
subject matter, dialect and country.
StarMedia.com's unique design and layout provides a consistent navigation
experience allowing users to access any channel on StarMedia.com from any other
channel on the service. Additionally, this design allows for persistent
branding.
StarMedia.com's broad range of community features enables users throughout
Latin America and other Spanish- and Portuguese-speaking markets to interact
with each other. These community features include:
- StarMedia TalkPlanet--chat
- StarMedia Mail--e-mail
- StarMedia Orbita/Orbita--personal homepages
- StarMedia Forum/Pizarras--bulletin boards
- StarMedia Express--instant messenger
- StarMedia Classificados/Clasificados-- classifieds
- Namoro Personet/Romance Personet-- personals
- StarMedia Jogos/Juegos--games
- StarMedia Saude--health and wellness
We have built StarMedia.com's content and commerce services around a
successful community environment. We enhance the effectiveness of
StarMedia.com's community services by wrapping them around engaging content
channels. These include:
- StarMedia Noticias/Noticias--news
- StarMedia Esportes/Deportes--sports
- StarMedia Money--finance
- StarMedia Digital--technology
- StarMedia Entretenimento/ Entretenimientos--entertainment
- StarMedia Shopping--electronic commerce
- StarMedia BuscaWeb--search and guide
- StarMedia Viagens/Viajes--travel
- StarMedia Tempo/Tiempo--weather
- StarMedia Horoscopo--horoscopes
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STARMEDIA ACESSO
We recently launched StarMedia Acesso, our premium Internet access service.
StarMedia Acesso is designed to offer Latin Americans fast, reliable Internet
connectivity, 24 hour customer support, international account access through a
single global network, a selection of pricing plans, and direct links to all of
our Internet properties.
We have contracted with AT&T Global Network Services, formerly the IBM
Global Network, to create this new service. Acesso leverages AT&T's network
infrastructure, operational, billing, and customer service capabilities.
We have begun to offer access services through Acesso in Brazil and intend
to expand our Internet access services in other Latin American markets during
the second half of 1999. We will charge users monthly access fees with pricing
based on rates that are competitive in each local market.
CADE?
Cade? is among the leading Internet portals in Brazil. The service provides
a topical directory of Portuguese-language Web sites and is one of the largest
directories in Brazil. The service currently provides over 165,000 listings.
More than 2,500 Web sites are added to the Cade? directory each week by
experienced editors who analyze and review every site. In addition to its search
and guide resources, Cade? offers other services such as Cade Voce?
(www.cadevoce.com.br), a personalized email list subscription service, and Aqui
(www.aqui.com.br), an area featuring local news, interviews, forums and other
sections developed by Cade? staff.
LATINRED
LatinRed (www.latinred.net) is one of the largest Spanish-speaking community
services on the Internet. It is comprised of a variety of free services, such as
LatinMail (www.latinmail.com), an e-mail service, and LatinChat
(www.latinchat.com), a chat community, each of which can be accessed
independently. In addition to e-mail and chat, LatinRed's products include:
- GratisWeb (www.gratisweb.com)-- personal homepages
- LatinCards (www.latincards.com)-- electronic greeting cards
- LatinTiempo--weather
- LatinGuia--directory
- LatinBanners--advertising distribution network
- Futbolmania--local soccer news
- Usados--classifieds
- Solidaridad--news
- Tableros--forum
OPENCHILE
OpenChile consists of three brands:
- OpenChile (www.openchile.cl), a leading Chilean portal that provides
national content, search capabilities, free electronic mail, chat,
international daily newspaper and magazine directories;
- Panoramas (www.panoramas.cl), an interactive Internet product that
supplies a guide to the latest in local Chilean entertainment and culture;
and
- Servicios Interactivos Limitada, a developer of online content, portals
and electronic commerce platforms and a provider of design services in
Chile.
ZEEK!
Zeek! offers a well-organized, user-friendly Brazilian guide with a
universal search capability that reaches more than 95,000 sites. Recognized for
its efficient segmented guide, the site allows users to perform specific
searches in areas such as shopping, human resources, education and health &
beauty. Additional Zeek! products include games, news, classifieds, Zeek! Plus,
where users can access a daily updated selection of links in diverse categories,
and Zeek! Cities, which
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provides local information about the main Brazilian cities.
PERISCOPIO
We recently launched a new product, Periscopio.com, which is designed for
users seeking streamlined and customizable information retrieval. This product
provides online Spanish-speakers with a powerful search and information
destination. It is a functionality-driven product focused on fast information
retrieval and personalization.
Periscopio.com's search engine has indexed more than 110 million documents
worldwide that can be searched by language, country and date. Coupled with Guia
Periscopio, which features over 24,000 selected Spanish-language sites across
various topics, as well as a host of advanced personalization features,
Periscopio is a powerful destination for finding Spanish-language information on
the Internet. Using the personalization tools on Mi Pagina, users can customize
their Internet experience by editing each of the 16 guides, 22 news subjects,
weather from several major cities worldwide and horoscopes.
Periscopio.com is organized into four sections:
- Mi Pagina--personalized pages
- Guia--directory of Spanish-language Web sites
- Canales--news and information channels
- Comunidad--community features
STRATEGIC ALLIANCES
We have developed strategic relationships with leading content, electronic
commerce, syndication and application partners. Many of these relationships give
us various exclusive rights. For example, some of these partners have agreed
that StarMedia properties will be the only Internet companies to display their
content in Spanish or Portuguese. Others have agreed that they will not enter
into agreements with other companies targeting the Spanish or Portuguese
Internet markets. These relationships are typically for a period of one to five
years.
These relationships are designed to:
- enhance our network;
- expand our community of users;
- increase traffic; and
- provide us with additional revenues.
Our partners allow us to display their content or technology on our network,
within one or many of our channels, in exchange for a share of revenue or a
licensing fee. We receive some of this content in a format that is ready to
publish on our network. We also receive content that we must modify in order to
publish. For example, some of our partners provide us with English-language
content. In these cases, we translate the content into Spanish and Portuguese
prior to publishing it on our network.
Our commerce partners typically pay us a flat fee for placement on our
network. This fee is based on location of links that allow for entry into their
online store and the number of links present throughout our network. These
partners also share with us a percentage of transaction revenues generated when
our users purchase their products or services.
CONTENT AND APPLICATION PROVIDERS
We have a number of relationships with leading content and application
providers, including:
- Agence France Press--news and sports information
- Agencia EFE--news and information
- Billboard--entertainment news and featured content
- Bottle Rocket--interactive sports games
- BusinessWire--business news
- Critical Path--email services
- DYN--Argentinian news and information
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- eDrive--entertainment news and featured content
- eShare--chat software
- Futbol de Primera--soccer Webcasts
- Inktomi--in-language search services
- Internet Securities--local business news for major Latin American cities
provided by leading publishers, including Avance Economico, El Economista,
El Universal and Enfoque
- Lonely Planet--travel information
- Mpath--multi-player game software
- Patagon.com--financial news and information
- PeopleLink--instant messaging
- Quote.com--stock and mutual fund quotes
- Reuters--news and sports information
- WeatherLabs--weather information
- Ziff-Davis--technology news and information
COMMERCE PARTNERS
Our electronic commerce relationships include:
- barnesandnoble.com--online bookstore
- CDNow--music products, CDs, clothing, posters and books
- CIM--Brazilian music
- Disney--branded merchandise
- GoChile--Chilean travel service
- Gradiente--Brazilian consumer electronics
- Jungla--Chilean bookstore
- Latin Grocer--Latin products
- Outpost.com--computer and technology merchandise
- SportsSuperstore--sports merchandise
- Viajo.com--travel services
NETSCAPE
In May 1998, we entered into a marketing and distribution agreement with
Netscape. Together, we developed and launched NETSCAPE GUIDE BY STARMEDIA in
both Spanish and Portuguese. NETSCAPE GUIDE BY STARMEDIA is one of the core
services available as part of Netscape's Latin American Spanish and Portuguese
browsers. We also appear as a premium bookmark located on Netscape's Spanish and
Portuguese browser toolbars. These bookmarks link users directly to
StarMedia.com. StarMedia Noticias/Noticias appears as a ticker on the Netscape
Latin America and Brazil homepages and directs users to our news areas. In
addition, Netscape promotes StarMedia throughout its Spanish and Portuguese
offerings.
REALNETWORKS
In February 1999, we entered into a relationship with RealNetworks, the
leading provider of streaming audio/video over the Internet. StarMedia.com is
the only in-language Internet destination featured as a default channel on both
the Spanish and Portuguese versions of RealNetworks' RealPlayer G2. This
relationship uniquely positions us to enhance our user base by enabling Spanish
and Portuguese-speaking Internet users to access our in-language streaming
content, including music videos, television and radio programming, and sporting
events directly from RealPlayer.
SKYBOX
We have entered into an exclusive distribution relationship with SkyBox
Services Corporation, a provider of logistics solutions for electronic commerce
clients and U.S. merchandisers targeting Latin America. Through our relationship
with SkyBox, we provide our Latin American users with the ability to make
purchases with an ease of transaction similar to that available to those living
in the U.S. As part of the StarMedia/ SkyBox service, non-U.S. resident clients
are provided with a U.S. suite address at which SkyBox receives correspondence
and
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merchandise, and from which it then forwards these items to the clients' home or
office. SkyBox systems handle the receipt of merchandise, the international
transportation, customs clearance and home delivery, all at very competitive
rates.
RECENT STRATEGIC INVESTORS
In April and May 1999, we completed the private placement of 3,727,272
shares of our common stock to a number of strategic investors for $41 million.
These investors include:
- Critical Path, Inc.;
- eBay Inc.;
- Europortal Holding S.A.;
- Hearst Communications, Inc.;
- National Broadcasting Company, Inc.; and
- Reuters Holdings Switzerland SA.
We intend to continue to work closely with our strategic investors in order
to develop new content and to add new features to our network.
RECENT ACQUISITIONS
We have made a number of acquisitions in order to further expand the breadth
of the services we provide to Latin American and other Spanish- and
Portuguese-speaking Internet users.
WEBCAST SOLUTIONS
We acquired Webcast as the foundation of our StarMedia Broadband division,
which will allow us to develop and deploy next generation content and service
distribution platforms. Webcast is a streaming media company focused on the
global delivery of audio, video and other Internet-based interactive media.
Webcast combines the latest streaming media technologies with expert on-location
media production, Web site design, content hosting, media management and online
promotion for use in dynamic, media rich Web sites and broadband applications.
Webcast has accumulated significant expertise in the deployment of international
webcasting and on-site production, particularly in Latin America.
PAGECELL
On September 18, 1999, we entered into an agreement to purchase
substantially all of the assets of PageCell. PageCell is a provider of advanced
mobile technologies and services. It brings Internet content and applications to
wireless devices such as pagers and cell phones. PageCell's key offerings
include its mobile software technologies, including its mobile Internet
platforms, wireless portal services and messaging services. Through these
technologies, we will be able to deliver content and features such as e-mail,
weather, horoscopes, sports, finance and other personalized information to
wireless devices including pagers, cellular phones and personal digital
assistants. PageCell will serve as the core of our new division, StarMedia
Mobile.
ADVERTISING SALES
We have built a direct sales organization of 99 professionals located in
Bogota, Buenos Aires, Caracas, Dallas, Los Angeles, Madrid, Mexico City, Miami,
New York, Rio de Janeiro, San Juan, Santiago and Sao Paulo.
SALES ORGANIZATION
Our sales organization is dedicated to maintaining close relationships with
top advertisers and leading advertising agencies throughout our target markets.
It is structured on a regional basis and is focused solely on selling
advertising on our network. Our sales organization consults regularly with
advertisers and agencies on design and placement of their Web-based advertising,
provides customers with advertising measurement analysis and focuses on
providing a high level of customer service satisfaction.
ADVERTISING PROGRAMS
Currently, advertisers and advertising agencies enter into agreements under
which they pay for a guaranteed number of impressions for a fixed fee. These
agreements
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range from one month to multiple years. Advertising on our network currently
consists primarily of banner-style advertisements, buttons and sponsorships from
which viewers can hyperlink directly to the advertiser's own Web site. Our
standard cost per thousand impressions, commonly referred to as CPMs, for banner
advertisements varies depending on location of the advertisements on the
network, the targeted country and the extent to which advertisements are
targeted for a particular audience. Discounts from standard CPM rates may be
provided for higher volume, longer-term advertising contracts.
We also offer promotional advertising programs, such as contests, sampling
and couponing opportunities, in order to build brand awareness, generate leads
and drive traffic to an advertiser's site.
ADVERTISING CUSTOMERS
We had 160 advertisers and sponsors on our network during the three months
ended June 30, 1999. The following is a selected list of our current advertising
customers, which are representative of our customer base:
<TABLE>
<S> <C>
Banco Santander Nokia
Bradesco Outpost.com
Ford SkyTel
Fox Sports America Sony
IBM USA Networks
</TABLE>
These customers, in the aggregate, accounted for approximately 20% of total
revenues in the three months ended June 30, 1999 and 33% of total revenues for
the year ended December 31, 1998.
We have derived substantially all of our revenues to date from the sale of
advertisements and sponsorships. In the six months ended June 30, 1999, no
advertiser accounted for greater than 10% of total revenues. During the same
period, our five largest advertisers accounted for 33% of total revenues. In
1998, two advertisers, Fox Sports America and Netscape, each accounted for
greater than 10% of total revenues. During the same period, our five largest
advertisers accounted for 57% of total revenues.
MARKETING AND BRAND AWARENESS
We use multiple advertising media, like television, print and Web-based
advertising in order to:
- build our brand;
- increase traffic; and
- raise our profile among potential advertisers.
Our television advertisements have appeared on broadcast television in
Brazil, Mexico, Colombia, Argentina, Chile, the United States, Uruguay,
Venezuela, Spain, Peru and on cable networks throughout Latin America. Our first
television commercial, "Birth of a Star", began airing in 18 Latin American
markets in Spanish and Portuguese in February 1997. In addition to advertising
on television, we advertise in print, use outdoor advertising and have a
significant presence in highly-targeted online media. We also have an extensive
public relations campaign. We are currently in the midst of our fourth
advertising campaign across Latin America. Our strategic and content partners
also typically provide us with advertising support.
We form marketing alliances with companies that have broad reach and whose
customers are similar to our target customers. We currently have co-marketing
relationships with Fox Sports America and MTV Latin America and regional
television stations.
TECHNOLOGY INFRASTRUCTURE
Our technology infrastructure is built and maintained for reliability,
security, and flexibility and is administered by our technical staff.
We maintain our central production servers at the New Jersey data center of
Exodus Communications. We maintain regional network operating centers in Brazil
and Argentina. Our operations depend on the ability of Exodus to protect its
systems against damage from fire, hurricanes, power loss, telecommunications
failure, break-ins, or other events.
Exodus provides comprehensive facilities management services, including
human and
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technical monitoring of all production servers 24 hours per day, 7 days per
week. Exodus also provides connectivity for our U.S. servers through multiple
high-speed connections. In Brazil and Argentina, our servers are connected to
the largest Internet service providers in each country. All facilities are
protected by multiple uninterruptible power supplies.
For reliability, availability, and serviceability, we have implemented an
environment in which each server can function separately. Key components of our
server architecture are served by multiple redundant machines.
We employ in-house and third-party monitoring software. Reporting and
tracking systems generate daily traffic, demographic, and advertising reports.
Our production data is copied to backup tapes each night.
We employ in-house and third-party software to monitor access to our
production and development servers.
Our network must accommodate a high volume of traffic and deliver frequently
updated information. Components or features of our network have in the past
suffered outages or experienced slower response times because of equipment or
software downtime. These events did not have a material adverse effect on our
business.
LATIN AMERICAN TELECOMMUNICATION INFRASTRUCTURE
Many of the largest markets in Latin America, including Argentina, Brazil,
Chile, Colombia and Mexico, have privatized and begun to deregulate their
telephone industries. As a result, many Latin American telephone companies in
recent years have undertaken significant investments in their infrastructure.
These investments have resulted in an improvement in the quality of telephone
service in these countries. In addition, deregulation has had a direct impact on
the cost and quality of Internet access as competition has driven down both
monthly access fees and per minute usage charges.
In the past, Internet service providers, or ISPs, in Latin America charged
an average of more than $80 per month for basic Internet access. Today, monthly
Internet access fees have decreased to an average of $20 to $25 per month. In
addition to access charges, local calls to connect to the ISP range in cost from
$.02-$.05 per minute in some countries, including Venezuela, Peru, Argentina,
Chile and Brazil and up to $.12 per minute in Mexico. These per minute charges
may make the total cost of Internet access substantially greater in Latin
America than in the United States, where users typically only pay a monthly
access fee and nominal local charges, if any. Long distance charges, if
required, would make the total cost of Internet access in Latin America even
greater.
While per minute charges have not declined as rapidly as access costs, we
believe that they will trend downward as the effects of deregulation spread.
Because our target market consists of a relatively affluent part of the
population across Latin America, we do not believe that Internet access costs
are a significant deterrent for many of our users. However, if rates were to
increase substantially or fail to decline in the future, the number of visitors
to our network may decline or fail to grow.
The majority of Latin Americans access the Internet via traditional analog
dial-up accounts. Digital access is still relatively expensive and is not widely
available throughout Latin America. We do not believe that the quality of
telephone service has to date been a deterrent to the number of users that visit
our network.
COMPETITION
There are many companies that provide Web sites and online destinations
targeted to Latin Americans and Spanish- and Portuguese-speaking people in
general. All of these companies compete with us for visitor traffic, advertising
dollars and electronic commerce partners. The market for Internet content
companies in Latin America is new and rapidly evolving. Competition for
visitors, advertisers and electronic commerce partners is intense
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and is expected to increase significantly in the future because there are no
substantial barriers to entry in our market. Increased competition could result
in:
- lower advertising rates;
- price reductions and lower profit margins;
- loss of visitors;
- reduced page views; or
- loss of market share.
Any one of these could materially and adversely affect our business, financial
condition and results of operations.
Our ability to compete successfully depends on many factors. These factors
include:
- the quality of the content provided by us and our competitors;
- how easy our respective services are to use;
- sales and marketing efforts; and
- the performance of our technology.
We compete with providers of Spanish-and Portuguese-language content and
services over the Internet, including Web directories, search engines, content
sites, Internet service providers and sites maintained by government and
educational institutions. Our current and anticipated competitors include:
- America Online;
- Telefonica Interactiva;
- Telefonos de Mexico/Prodigy;
- Universo Online; and
- Yahoo! en espanol/Yahoo! Brasil.
Many of our competitors and potential new competitors have:
- longer operating histories;
- greater name recognition in some markets;
- larger customer bases; and
- significantly greater financial, technical and marketing resources.
These competitors may also be able to:
- undertake more extensive marketing campaigns for their brands and
services;
- adopt more aggressive advertising pricing policies;
- use superior technology platforms to deliver their products and services;
and
- make more attractive offers to potential employees, distribution partners,
commerce companies, advertisers and third-party content providers.
Our competitors may develop content that is better than ours or that
achieves greater market acceptance. It is also possible that new competitors may
emerge and acquire significant market share. This could have a material and
adverse effect on our business, financial condition and results of operations.
We also compete with traditional forms of media, like newspapers, magazines,
radio and television for advertisers and advertising revenue. If advertisers
perceive the Internet or our network to be a limited or an ineffective
advertising medium, they may be reluctant to devote a portion of their
advertising budget to Internet advertising or to advertising on our network.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
To date, regulations have not materially restricted use of the Internet in
our markets. However, the legal and regulatory environment that pertains to the
Internet is uncertain and may change. New laws and regulations may be adopted.
Existing laws may be applied to the Internet and new forms of electronic
commerce. Uncertainty and new regulations could increase our costs and prevent
us from delivering our products and services over the Internet. It could also
slow the growth of the Internet significantly. This could delay growth in demand
for our network and limit the growth of our revenues. New and existing laws may
cover issues like:
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- sales and other taxes;
- user privacy;
- pricing controls;
- characteristics and quality of products and services;
- consumer protection;
- cross-border commerce;
- libel and defamation;
- copyright, trademark and patent infringement;
- pornography; and
- other claims based on the nature and content of Internet materials.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our copyrights, service marks, trademarks, trade secrets and other
intellectual property as critical to our success. We rely on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
intellectual property rights. Despite our precautions, it may be possible for
third parties to obtain and use our intellectual property without authorization.
Furthermore, the validity, enforceability and scope of protection of
intellectual property in Internet-related industries is uncertain and still
evolving. The laws of some foreign countries do not protect intellectual
property to the same extent as do the laws of the United States.
We pursue the registration of our trademarks in the United States and
internationally in Latin America, Spain and Portugal. We may not be able to
secure adequate protection for our trademarks in the United States and other
countries. [An action has been filed in Chile opposing our STARMEDIA and design
mark, which we are currently contesting.] In addition, there have been
oppositions filed against our applications in other countries for some of our
other marks.
We currently hold service mark or trademark registrations in the United
States, Peru, Uruguay, Colombia and Paraguay for the StarMedia mark and
registrations for other marks in some of these and other countries. Effective
trademark protection may not be available in all the countries in which we
conduct business. Policing unauthorized use of our marks is also difficult and
expensive. In addition, it is possible that our competitors will adopt product
or service names similar to ours, thereby impeding our ability to build brand
identity and possibly leading to customer confusion.
We actively seek to protect our marks against similar and confusing marks of
third parties by:
- using a watch service which identifies applications to register
trademarks;
- filing oppositions to third parties' applications for trademarks; and
- bringing lawsuits against infringers.
For example, we were aware of an unauthorized use of our PIZARRAS trademark
and successfully pursued enforcement of our rights against that party. Similar
actions like this may be time consuming and expensive. Our inability to
effectively protect our trademarks and service marks would have a material
adverse effect on our business, financial condition and results of operations.
Many parties are actively developing chat, homepage, search and related Web
technologies. We expect these developers to continue to take steps to protect
these technologies, including seeking patent protection. There may be patents
issued or pending that are held by others and that cover significant parts of
our technology, business methods or services. For example, we are aware that a
number of patents have been issued in the areas of electronic commerce,
Web-based information indexing and retrieval and online direct marketing.
Disputes over rights to these technologies are likely to arise in the future. We
cannot be certain that our products do not or will not infringe valid patents,
copyrights or other intellectual property rights held by third parties. We may
be subject to legal proceedings and claims from time to time relating to the
intellectual property of others in the ordinary course of our
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business. In the event that we determine that licensing this intellectual
property is appropriate, we may not be able to obtain a license on reasonable
terms or at all. We may also incur substantial expenses in defending against
third-party infringement claims, regardless of the merit of these claims.
Successful infringement claims against us may result in substantial monetary
liability or may prevent us from conducting all or a part of our business.
We also intend to continue to license technology from third parties,
including our Web-server and encryption technology. The market is evolving and
we may need to license additional technologies to remain competitive. We may not
be able to license these technologies on commercially reasonable terms or at
all. In addition, we may fail to successfully integrate any licensed technology
into our services. Our inability to obtain any of these licenses could delay
product and service development until alternative technologies can be
identified, licensed and integrated.
EMPLOYEES
As of June 30, 1999, we had 409 full-time employees, of whom 99 worked in
sales, 10 in editorial, 24 in marketing, 203 in product and technology and 73 in
finance and administration. From time to time, we employ independent contractors
to support our research and development, marketing, sales and editorial
departments. None of our personnel are represented under collective bargaining
agreements. We consider our relations with our employees to be good.
FACILITIES
Our principal executive offices are located in approximately 19,500 square
feet of office space in New York, New York, under a lease that expires in August
2003. We also lease sales and business development office space in:
- Barcelona, Spain;
- Bogota, Colombia;
- Buenos Aires, Argentina;
- Caracas, Venezuela;
- Madrid, Spain;
- Mexico City, Mexico;
- Miami, Florida;
- Montevideo, Uruguay;
- Rio de Janeiro, Brazil;
- San Francisco, California;
- San Juan, Puerto Rico;
- Santiago, Chile; and
- Sao Paulo, Brazil.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the executive officers, directors and key
employees of StarMedia, their ages and the positions held by them:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Fernando J. Espuelas......................... 33 Chairman of the Board of Directors
and Chief Executive Officer
Jack C. Chen................................. 33 President and Director
Tracy J. Leeds............................... 35 Senior Vice President, Corporate Development
Steven J. Heller............................. 33 Chief Financial Officer
Adriana J. Kampfner.......................... 27 President, StarMedia de Mexico and Senior Vice President,
Global Sales
James D. Granlund............................ 35 Chief Technology Officer
Justin K. Macedonia.......................... 40 Senior Vice President, General Counsel
Douglas M. Karp.............................. 43 Director
Christopher T. Linen(1)...................... 49 Director
Gerardo M. Rosenkranz(2)..................... 48 Director
Susan L. Segal............................... 46 Director
Frederick R. Wilson(1)(2).................... 36 Director
</TABLE>
- ------------------------
(1) Member of the compensation committee
(2) Member of the audit committee
FERNANDO J. ESPUELAS is a founder of StarMedia and has been Chairman of the
Board and Chief Executive Officer since September 1996. Prior to founding
StarMedia, Mr. Espuelas was employed in various positions at AT&T from 1994 to
1996, most recently as Managing Director of Marketing Communications for the
Americas. From 1991 to 1994, Mr. Espuelas was employed in various positions at
Ogilvy & Mather, an international advertising firm, most recently as Regional
Account Director for Latin America. Prior to his employment at Ogilvy & Mather,
Mr. Espuelas worked at other major advertising agencies, including Lowe &
Partners and Wunderman Worldwide. He received a B.A. with Distinction from
Connecticut College. Mr. Espuelas is a native of Uruguay.
JACK C. CHEN is a founder of StarMedia and has been President and a Director
since March 1996. Prior to founding StarMedia, Mr. Chen was a Vice President at
S.L. Chen & Associates, Inc., an international consulting firm, from 1995
through 1996. Mr. Chen was a securities analyst at CS First Boston Investment
Management from 1994 to 1995. Prior to his employment at CS First Boston, Mr.
Chen was an investment banker at Goldman, Sachs & Co. Mr. Chen received an
M.B.A. from Harvard Business School and a B.A. with High Honors in Computer
Science from Harvard University.
TRACY J. LEEDS has been Senior Vice President, Corporate Development since
September 1999. Ms. Leeds served as StarMedia's Chief Operating Officer since
1998 and prior to that was Vice President, Business Operations beginning in July
1997 when she joined the company. Ms. Leeds was General Manager of the
Healthsite Web service for AT&T Personal Online Services. From 1994 to 1996, she
was Director of the PC DreamShop the electronic commerce project of Time Warner
Cable Programming. Prior to that, Ms. Leeds was Director, Client Services, for
Catalog 1, a joint venture between Time Warner and Spiegel. Ms. Leeds has also
held various marketing positions at Johnson & Johnson and Playtex. Ms. Leeds
received an M.B.A. from Harvard Business School and a B.A. from Yale University.
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STEVEN J. HELLER has been the Chief Financial Officer of StarMedia since May
1999, and prior to that served as StarMedia's Vice President, Finance and
Administration since October 1997. From 1995 to 1997, Mr. Heller was Director,
Finance and Administration, and Treasurer at Evolve Software, Inc., a software
firm based in San Francisco. Prior to that, Mr. Heller was Managing Director of
Entrepreneurial Accounting Resources, a firm he founded in 1991 that provided
finance and accounting consulting services to high technology and media
companies. Mr. Heller served in the San Francisco office of Coopers & Lybrand in
the Emerging Business Services division of the Business Assurance Group from
1987 to 1991. He received a B.S. from The American University.
ADRIANA J. KAMPFNER is President of StarMedia de Mexico and Senior Vice
President of Global Sales. Ms. Kampfner has worked at StarMedia since August
1997. Prior to her current position, Ms. Kampfner was StarMedia's Vice
President, General Manager, Mexico and StarMedia's Director of Sales, North
America, responsible for initiating relationships with key domestic and
international clients. Before joining StarMedia, Ms. Kampfner was a Senior
Financial Analyst at Chase Securities Inc. from 1996 to 1997. Ms. Kampfner
received a B.A. in Business Administration from the University of Michigan.
JAMES D. GRANLUND joined StarMedia as its Chief Technology Officer in
January 1999. Prior to joining StarMedia, Mr. Granlund was Vice President,
Operations and Technology for Turner Broadcast Systems/CNNfn from 1995 until
1999. During his tenure with CNNfn, he designed, developed and implemented
technological strategies and maintained operational integrity for both the CNNfn
television network and CNNfn.com Web site. Prior to joining Turner Broadcast
Systems, Mr. Granlund was manager of Work Group Computing for Bristol-Myers
Squibb Company from 1988 to 1995. He received a B.S. in Industrial and Labor
Relations from Cornell University.
JUSTIN K. MACEDONIA joined StarMedia as its Senior Vice President, General
Counsel in April 1999. Prior to joining StarMedia, Mr. Macedonia was employed by
the law firm of Winthrop, Stimson, Putnam & Roberts from 1994 until 1999, most
recently in the position of Counsel. Prior to joining Winthrop, Stimson, Mr.
Macedonia was a corporate associate with the law firm of Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel from 1988 to 1994. He is a member of the Bar
of the State of New York. Mr. Macedonia received a J.D. from Harvard Law School
and a B.A. from Fordham College.
DOUGLAS M. KARP has been a Director of StarMedia since September 1998. Mr.
Karp is currently a Managing Director and a member of the Operating Committee of
E.M. Warburg, Pincus & Co., LLC, where he is responsible for limited partner
relationships and fund raising as well as the firm's Communications and Latin
American investments. Prior to joining Warburg, Pincus, he was a Managing
Director of Mergers and Acquisitions at Salomon Brothers Inc. from 1989 to 1991
and a manager with the Boston Consulting Group and founder of its New York
office. Mr. Karp is a member of the boards of directors of Qwest Communications,
Journal Register Company, TV Filme, Inc., Primus Telecommunications Group,
Golden Books Family Entertainment and PageNet do Brasil. Mr. Karp received a
B.A. from Yale University and a J.D. from Harvard Law School.
CHRISTOPHER T. LINEN has been a Director of StarMedia since November 1996.
Currently, Mr. Linen is Principal of Christopher Linen & Company, a venture
capital firm. Mr. Linen was President and Chief Executive Officer of Warner
Music Enterprises, a Time Warner Inc. unit charged with developing new music-
related opportunities including Internet properties and direct marketing
businesses worldwide from 1992 to 1996. From 1988 to 1992, Mr. Linen was
President and Chief Executive Officer of Time Warner Direct, a unit of Time
Warner Inc. composed of Time Life, one of the world's largest direct marketers
of books, music and videocassettes; Book-of-the-Month Club Inc., the nation's
largest book club operator; and related
53
<PAGE>
ventures. Prior to his employment with Time Warner Direct, Mr. Linen held
various top-level executive positions at Time Life, including President and
Chief Executive Officer and Managing Director for Latin America, and currently
serves on the board of directors of Allied Devices Corporation. Mr. Linen
received a B.S. from Williams College and attended the Graduate School of
Business Administration at New York University.
GERARDO M. ROSENKRANZ has been a Director of StarMedia since November 1996.
Mr. Rosenkranz is a private investor and founder and Chief Executive Officer of
Ventech International, Inc. Ventech provides consulting services to
telecommunications and information technology companies. Prior to establishing
Ventech in 1987, Mr. Rosenkranz served for 10 years at Sprint International
(formerly GTE Telenet), where he held senior executive positions in management,
business development and sales. Mr. Rosenkranz received B.S., M.S. and Engineer
Degrees in Electrical Engineering from Stanford University. He was born and
raised in Mexico City, Mexico.
SUSAN L. SEGAL has been a Director of StarMedia since July 1997. Ms. Segal
has served as General Partner and Latin American Group Head at Chase Capital
Partners since December 1996. From 1992 to 1996, Ms. Segal was a Senior Managing
Director at Chase Securities Inc. responsible for Emerging Markets Investment
Banking. She has more than 20 years of experience in emerging markets,
particularly Latin America, where her responsibilities have included trading,
capital markets and sovereign debt rescheduling. Ms. Segal is a member of the
Council on Foreign Relations, the advisory board of the Council of the Americas
and the boards of directors of the Tinker Foundation, the Americas Society and
the Corp Group. Ms. Segal received an M.B.A. from Columbia University and a B.A.
from Sarah Lawrence College.
FREDERICK R. WILSON has been a Director of StarMedia since July 1997. Mr.
Wilson is currently Managing Partner of Flatiron Partners, a venture capital
firm focused on early-stage, Internet-focused investments. Prior to founding
Flatiron Partners, Mr. Wilson was associated with Euclid Partners from 1986 to
1996. He received an M.B.A. from The Wharton School of Business at The
University of Pennsylvania and a B.S. in Mechanical Engineering and Computer
Science from MIT.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. Upon expiration of the term of a class of directors,
the directors in that class will be elected for three-year terms at the annual
meeting of stockholders in the year in which their term expires. Our board of
directors has resolved that Messrs. Chen and Karp will be Class I directors
whose terms expire at the 2000 annual meeting of stockholders, Messrs. Linen and
Wilson will be Class II directors whose terms expire at the 2001 annual meeting
of stockholders, and Messrs. Espuelas and Rosenkranz and Ms. Segal will be Class
III directors whose terms expire at the 2002 annual meeting of stockholders.
With respect to each class, a director's term will be subject to the election
and qualification of their successors, or their earlier death, resignation or
removal. In addition, our directors may be removed only for cause and only by
the affirmative vote of holders of not less than 66.67% of our outstanding
capital stock entitled to vote generally in the election of directors. These
provisions, when coupled with the provision of our amended and restated
certificate of incorporation authorizing the board of directors to fill vacant
directorships, may delay a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies with its own nominees.
BOARD COMMITTEES
The audit committee reports to the board regarding the appointment of our
independent public accountants, the scope and results of our annual audits,
compliance with our accounting and financial policies and management's
procedures and policies relative
54
<PAGE>
to the adequacy of our internal accounting controls. The audit committee
consists of Gerardo M. Rosenkranz and Frederick R. Wilson.
The compensation committee of the board of directors reviews and makes
recommendations to the board regarding our compensation policies and all forms
of compensation to be provided to our executive officers and directors. In
addition, the compensation committee reviews bonus and stock compensation
arrangements for all of our other employees. The current members of the
compensation committee are Christopher T. Linen and Frederick R. Wilson. No
interlocking relationships exist between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the past.
DIRECTOR COMPENSATION
Directors currently do not receive a stated salary from StarMedia for their
service as members of the board of directors, although by resolution of the
board, they may receive a fixed sum and reimbursement for expenses in connection
with the attendance at board and committee meetings. We currently do not provide
additional compensation for committee participation or special assignments of
the board of directors. From time to time, some of our directors have received
grants of options to purchase shares of common stock.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 to our Chief Executive Officer and to each of
our most highly compensated executive officers, other than the Chief Executive
Officer, whose salary and bonus for such fiscal year exceeded $100,000.
Securities Underlying Options/SARs does not include options cancelled under our
1997 Plan, but does include the immediate reissuance of options equal to the
cancelled options under our 1998 Plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS ($) OPTIONS/SARS(#)
- --------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Fernando J. Espuelas................................................. $ 152,084 $ 200,000 1,750,000
Chairman of the Board and Chief Executive Officer
Jack C. Chen......................................................... 152,104 200,000 1,750,000
President
Tracy J. Leeds....................................................... 117,917 -- 550,000
Senior Vice President, Corporate Development
Steven J. Heller..................................................... 106,667 -- 190,000
Chief Financial Officer
Adriana J. Kampfner.................................................. 138,750 -- 230,000
President, StarMedia de Mexico, Senior Vice President, Global Sales
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options for the year ended
December 31, 1998 to our Chief Executive Officer and our most highly compensated
executive officers, other than our Chief Executive Officer, whose salary and
bonus exceeded $100,000. The options shown for each executive officer do not
include options cancelled under our 1997 Plan, but do include the immediate
reissuance of options equal to the cancelled options under our 1998 Plan. We
have never granted any stock appreciation rights. The potential
55
<PAGE>
realizable value is calculated based on the term of the option at its time of
grant. It is calculated assuming that the fair market value of common stock on
the date of grant appreciates at the indicated annual rate compounded annually
for the entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price. These numbers are
calculated based on the requirements of the Securities and Exchange Commission
and do not reflect our estimate of future stock price growth. The percentage of
total options granted to employees in the last fiscal year is based on options
to purchase an aggregate of 5,782,000 shares of common stock granted under our
1998 Plan to our employees, consultants and directors and under our 1997 Plan to
Messrs. Espuelas and Chen in the year ended December 31, 1998. All options
granted under our 1997 Plan, other than those granted to Messrs. Espuelas and
Chen, have been cancelled and reissued under our 1998 Plan.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
OPTION GRANTS IN LAST FISCAL YEAR ANNUAL RATES
INDIVIDUAL GRANTS OF
--------------------------------------------------------------------------- STOCK PRICE
NUMBER OF APPRECIATION
SECURITIES PERCENT OF TOTAL EXERCISE FOR OPTION
UNDERLYING OPTIONS GRANTED TO PRICE PER FMV ON THE TERM
OPTIONS EMPLOYEES IN SHARE DATE OF GRANT EXPIRATION -------------
NAME GRANTED(#) FISCAL YEAR (%) ($/SHARE) ($/SHARE) DATE 0%($)
- -------------------------------- ------------ ------------------- ----------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fernando J. Espuelas............ 1,000,000 17% $ 0.50 $ 2.08 4/1/08 $ 1,580,000
750,000 13 1.60 5.20 12/17/08 2,700,000
Jack C. Chen.................... 1,000,000 17 0.50 2.08 4/1/08 1,580,000
750,000 13 1.60 5.20 12/17/08 2,700,000
Tracy J. Leeds.................. 375,000 6 0.50 3.83 7/16/07 1,248,750
175,000 3 0.50 4.54 9/17/08 707,000
Steven J. Heller................ 100,000 2 0.50 3.83 7/10/08 333,000
90,000 2 0.50 4.54 9/17/08 363,600
Adriana J. Kampfner............. 130,000 3 0.50 3.83 7/10/08 432,900
100,000 2 0.50 4.54 9/17/08 404,000
<CAPTION>
NAME 5%($) 10%($)
- -------------------------------- ------------- -------------
<S> <C> <C>
Fernando J. Espuelas............ $ 2,890,400 $ 4,887,200
5,157,000 8,901,000
Jack C. Chen.................... 2,890,400 4,887,200
5,157,000 8,901,000
Tracy J. Leeds.................. 2,153,588 3,532,388
1,207,535 1,970,255
Steven J. Heller................ 574,290 941,970
621,018 1,013,274
Adriana J. Kampfner............. 746,577 1,224,561
690,020 1,125,860
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table provides some information about stock options held as of
December 31, 1998 by our Chief Executive Officer and our most highly compensated
executive officers other than our Chief Executive Officer. No options were
exercised during fiscal 1998 by any of these executive officers. There was no
public trading market for the common stock as of December 31, 1998. Accordingly,
the value of unexercised in-the-money options at fiscal year-end is based on
$15.00 per share, less the exercise price per share, multiplied by the number of
shares underlying the options.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END (#) AT FISCAL YEAR END ($)
----------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fernando J. Espuelas............................. 1,750,000 -- $ 24,550,000 $ --
Jack C. Chen..................................... 1,750,000 -- 24,550,000 --
Tracy J. Leeds................................... 550,000 -- 7,975,001 --
Steven J. Heller................................. 190,000 -- 2,755,001 --
Adriana J. Kampfner.............................. 230,000 -- 3,335,001 --
</TABLE>
56
<PAGE>
EMPLOYMENT CONTRACTS
We have entered into executive employment agreements with Fernando J.
Espuelas, our Chairman and Chief Executive Officer, and Jack C. Chen, our
President. Each employment agreement provides for an initial annual base salary
of $150,000 that will be automatically increased effective each January 1 by not
less than 10% of the previous year's base salary. Each employment agreement also
provides for an initial annual bonus of not less than $100,000, that will also
be increased annually by not less than 10% of the previous year's bonus amount.
Each executive is also entitled to participate in our
stock option plans as well as all health, welfare and other benefit plans
provided by us to key executive employees.
Each employment agreement expires on July 31, 2000, subject to earlier
termination or extension. Each employment agreement provides that, if Messrs.
Espuelas or Chen is terminated by us without cause, or if they choose to
terminate their employment with us for good reason, they will be entitled to
receive from us:
- their base salary through the termination date;
- any accrued but unpaid vacation pay;
- the amount of all compensation previously deferred, if any, together with
any accrued interest or earnings on any deferred compensation;
- a termination payment of 200% of the annual base salary and guaranteed
minimum bonus amount applicable to the year in which the termination
occurs; and
- health and disability benefits for twenty-four months following the
termination date.
Under the agreements, good reason includes:
- a material breach of the compensation provisions of the employment
agreements;
- assignment of Messrs. Espuelas or Chen to duties that are inconsistent
with their roles as executive officers;
- relocation of Messrs. Espuelas or Chen outside of the New York
metropolitan area;
- a change of the reporting relationship of Messrs. Espuelas or Chen; or
- a change of control.
In addition, in the event Messrs. Espuelas or Chen is terminated by us
without cause, or if they choose to terminate their employment with us for good
reason, all stock options previously granted to them that have not been
exercised and are outstanding will remain outstanding and continue to become
exercisable pursuant to their respective terms.
Each employment agreement prohibits Messrs. Espuelas and Chen from competing
with us for a period of two years from the date of their termination of
employment, if they are terminated either by us for cause or if they choose to
terminate their employment with us without good reason. If we terminate their
employment without cause, the non-compete period lasts for one year from the
date of termination.
We have agreed to indemnify Messrs. Espuelas and Chen for all liabilities
relating to their status as officers or directors, and any actions committed or
omitted by them in this capacity, to the maximum extent permitted by the laws of
the State of Delaware.
STOCK OPTION PLANS
1997 STOCK OPTION PLAN
Our 1997 Stock Option Plan was adopted by the board of directors in June
1997. A total of 5,000,000 shares of common stock were authorized for issuance
under the 1997 Plan. When the 1998 Plan was adopted, all options outstanding
under the 1997 Plan were cancelled and reissued under the 1998 Plan, other than
those granted to Messrs. Espuelas and Chen in the aggregate amount of 2,000,000.
We will not issue additional options under the 1997 Plan.
57
<PAGE>
The exercise price for the shares of common stock subject to option grants
made under the 1997 Plan may, at the discretion of the plan administrator, be
paid in cash or in shares of common stock valued at fair market value on the
exercise date.
In the event of a merger pursuant to which StarMedia is acquired, each
outstanding option may, at the discretion of the plan administrator, be assumed
by the successor corporation or terminated in exchange for a cash payment equal
to the difference between the fair market value of the shares for which the
option is at the time exercisable and the exercise price payable for such
shares.
The board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate in all events on December 31, 1999. Options under the 1997 Plan,
however, will remain outstanding in accordance with their terms.
1998 STOCK PLAN
Our 1998 Stock Plan was adopted by the board of directors and approved by
the stockholders in July 1998. A total of 17,000,000 shares of common stock have
been authorized for issuance under the 1998 Plan. The number of shares of common
stock available for issuance under the 1998 Plan will increase on July 1 of each
year beginning in 2000 by the lesser of:
- 4 million shares;
- 4% of the outstanding shares on such date; or
- an amount determined by the board.
Under the 1998 Plan, eligible individuals in StarMedia's employ or service
may, at the discretion of the plan administrator, be granted options to purchase
shares of common stock at an exercise price determined by the plan administrator
or may be issued shares of common stock directly through the purchase of such
shares at a price determined by the plan administrator. Eligible individuals
include officers, non-employee board members and consultants.
The 1998 Plan is administered by the compensation committee of the board.
The compensation committee as plan administrator has complete discretion to
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when option grants or stock issuances are to be
made, the number of shares subject to each grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding.
The exercise price for the shares of common stock subject to option grants
made under the 1998 Plan may, at the discretion of the plan administrator, be
paid in cash, in shares of common stock valued at fair market value on the
exercise date, through a same-day sale program without any cash outlay by the
optionee or by delivering a full-recourse, interest-bearing promissory note.
In the event of an acquisition of StarMedia, whether by merger or asset
sale, each option which is not to be assumed by the successor corporation will
automatically accelerate in full and all unvested shares will immediately vest,
except to the extent that StarMedia's repurchase rights with respect to those
shares are to be assigned to the successor corporation.
The plan administrator has the authority to effect the cancellation of
outstanding options in return for the grant of new options for the same or
different number of option shares with an exercise price per share based upon
the fair market value of the common stock on the new grant date.
The board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earliest of:
- the date determined by the board;
- the date on which all shares available for issuance under the 1998 Plan
have been issued as fully-vested shares; or
58
<PAGE>
- the termination of all outstanding options in connection with an
acquisition of StarMedia.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan was adopted by the Board of Directors
in May 1999. A total of 1,500,000 shares of common stock has been reserved for
issuance under the purchase plan, plus annual increases, on July 1 of each year
beginning in 2000, equal to the lesser of:
- 500,000 shares;
- 1% of the outstanding shares on such date; or
- a lesser amount determined by the Board.
The purchase plan is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended. It contains successive, overlapping 24-month
offering periods, each consisting of four six-month purchase periods. The
offering periods generally start on the first trading day on or after May 15 and
November 15 of each year, except for the first offering period which commences
on the first trading day on or after the effective date of this offering and
ends on the last trading day on or before May 14, 2001.
Our employees are eligible to participate in the stock plan if they work
with StarMedia for at least 20 hours per week and more than five months in any
calendar year. However, any employee who:
- immediately after grant owns stock representing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- whose rights to purchase stock under all of our employee stock purchase
plans exceed $25,000 worth of stock for any calendar year
may not be granted any rights to purchase stock under the purchase plan. The
purchase plan permits participants to purchase common stock through payroll
deductions of not less than 2% and up to 10% of their "cash earnings". Cash
earnings is defined as the participant's base salary plus all overtime payments,
bonuses, commissions, current profit sharing distributions and other incentive-
type payments. Cash earnings are calculated before the deduction of any income
or employment tax withholdings or any pre-tax contributions made by the
participant to a 401(k) plan or cafeteria benefit program. The maximum number of
shares a participant may purchase during a single purchase period is 2,500
shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning or end of the offering period. Participants
may end their participation at any time during an offering period, and they will
be paid their payroll deductions to date. Participation ends automatically upon
termination of a participant's employment.
Rights granted under the purchase plan are not transferable by a participant
other than by will, the laws of descent and distribution, or as otherwise
provided under the purchase plan. The purchase plan provides that, in the event
that we merge with or into another corporation or sell substantially all of our
assets, each outstanding right to purchase stock will be assumed or substituted
for by the successor corporation. If the successor corporation refuses to assume
or substitute for the outstanding rights to purchase stock, the offering period
then in progress will be shortened and a new exercise date will be set. The
purchase plan will terminate in 2009. The Board has the authority to amend or
terminate the purchase plan, except that, subject to certain exceptions, no such
action may adversely affect any outstanding rights to purchase stock under the
purchase plan.
59
<PAGE>
CERTAIN TRANSACTIONS
In 1996, our directors, officers and 5% stockholders, and their affiliates,
purchased common stock as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PURCHASE
COMMON PRICE PER
NAME OF INVESTOR STOCK SHARE
- ------------------------------ ----------- -----------
<S> <C> <C>
Fernando J. Espuelas.......... 4,500,000 $ .0056
Jack C. Chen.................. 4,500,000 .0056
Gerardo M. Rosenkranz......... 220,000 .09
Christopher T. Linen.......... 100,000 .25
A trust, of which Mr. Chen is
trustee..................... 20,000 .50
</TABLE>
Messrs. Espuelas, Chen, Rosenkranz and Linen currently serve as our officers
and/or directors.
In May 1997, we issued options to purchase 280,000 shares of common stock at
an exercise price of $0.09 per share to Mr. Rosenkranz. At that time, we also
issued options to purchase 100,000 shares of common stock at an exercise price
of $0.25 per share to Mr. Linen. These options were granted to Messrs.
Rosenkranz and Linen in connection with services provided to us.
In July 1997, we sold 7,330,000 shares of our series A redeemable
convertible preferred stock to a number of investors at a purchase price of
$0.50 per share. Of these, our directors, officers and 5% stockholders, and
their affiliates, purchased shares as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES A
REDEEMABLE
CONVERTIBLE
NAME OF INVESTOR PREFERRED STOCK
- --------------------------------------- ----------------
<S> <C>
Chase Venture Capital Associates....... 5,535,000
fl@tiron Fund.......................... 465,000
Tracy Leeds and family................. 200,000
Christopher T. Linen................... 100,000
Gerardo Rosenkranz, family and
affiliates........................... 100,000
A trust, of which Mr. Chen is
trustee.............................. 20,000
</TABLE>
Chase Venture Capital Associates owns more than 5% of our stock. In
addition, Susan Segal, one of our directors, is affiliated with Chase Venture
Capital Associates. The fl@tiron Fund is controlled by Frederick Wilson, one of
our directors. Tracy Leeds currently serves as one of our executive officers.
All of the series A redeemable convertible preferred stock automatically
converted into an aggregate of 7,330,000 shares of common stock upon the closing
of our initial public offering.
In January 1998, we issued 8% convertible subordinated notes that were due
on the earlier of July 21, 1998 or the closing of our series B redeemable
convertible preferred stock financing to the fl@tiron Fund in the aggregate
principal amount of $410,000 and to Chase Venture Capital Associates in the
aggregate principal amount of $3,590,000. The notes were repaid in full.
In February 1998, we sold 8,000,000 shares of series B redeemable
convertible preferred stock to a number of investors at a purchase price of
$1.50 per share. Of these, our directors, officers and 5% stockholders, and
their affiliates, purchased shares as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES B
REDEEMABLE
CONVERTIBLE
NAME OF INVESTOR PREFERRED STOCK
- --------------------------------------- ----------------
<S> <C>
Chase Venture Capital Associates....... 2,393,333
fl@tiron Fund.......................... 273,333
Gerardo Rosenkranz, family and
affiliates........................... 66,666
Tracy Leeds and family................. 66,668
Family of Steven Heller................ 30,000
</TABLE>
Steven Heller is our chief financial officer. The series B redeemable
convertible preferred stock automatically converted into an aggregate of
8,000,000 shares of common stock upon the closing of our initial public
offering.
In August 1998, we issued 8% convertible subordinated notes that were due on
the earlier of December 31, 1998 or the closing of our series C redeemable
convertible preferred stock financing to the Flatiron Fund 1998/99 in the
aggregate principal amount of $200,000, and to Chase Venture Capital Associates
in the aggregate amount of $1,800,000. The Flatiron
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<PAGE>
Fund 1998/99 is controlled by Mr. Wilson. The notes were repaid in full.
In August 1998, we sold 16,666,667 shares of series C redeemable convertible
preferred stock to a number of investors at a purchase price of $4.80 per share.
Of these, our directors, officers and 5% stockholders, and their affiliates,
purchased shares as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES C
REDEEMABLE
CONVERTIBLE
NAME OF INVESTOR PREFERRED STOCK
- --------------------------------------- ----------------
<S> <C>
Chase Venture Capital Associates ...... 3,750,000
Warburg, Pincus Equity Partners ....... 2,380,209
Warburg, Pincus Ventures
International ....................... 2,380,208
Flatiron Fund 1998/99.................. 416,667
Gerardo Rosenkranz, family and
affiliates........................... 104,165
Tracy Leeds............................ 28,918
</TABLE>
The Warburg, Pincus entities, collectively, own more than 5% of our stock.
In addition, Douglas M. Karp, one of our directors, is affiliated with the
Warburg, Pincus entities. The series C redeemable convertible preferred stock
automatically converted into an aggregate of 16,666,667 shares of common stock
upon the closing of our initial public offering.
We have entered into employment agreements with Fernando J. Espuelas, our
chairman and chief executive officer, and Jack C. Chen, our president.
From time to time we have retained an affiliate of Chase Venture Capital
Associates to perform various investment banking and advisory services on our
behalf. The amount paid to this affiliate of Chase in 1998 for these services
was $1.2 million.
It is our current policy that all transactions with officers, directors, 5%
stockholders and their affiliates be entered into only if they are approved by a
majority of the disinterested independent directors, are on terms no less
favorable to us than could be obtained from unaffiliated parties and are
reasonably expected to benefit us.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, as of June 30, 1999 and as adjusted to reflect
the sale of common stock offered by us in this offering for:
- each person known by us to beneficially own more than 5% of our common
stock;
- each executive officer named in the Summary Compensation Table;
- each of our directors; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Shares beneficially owned includes ownership of
shares of redeemable convertible preferred stock. Unless otherwise indicated,
the address for those listed below is c/o StarMedia Network, Inc., 29 West
36(th) Street, Fifth Floor, New York, New York 10018. Except as indicated by
footnote, and subject to applicable community property laws, the persons named
in the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The number of shares of common
stock outstanding used in calculating the percentage for each listed person
includes the shares of common stock underlying options held by such persons that
are exercisable within 60 days of June 30, 1999, but excludes shares of common
stock underlying options held by any other person. Percentage of beneficial
ownership is based on 58,006,198 shares of common stock outstanding as of June
30, 1999, and 64,006,198 shares of common stock outstanding after completion of
this offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
-------------------------- SHARES OFFERED ---------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT HEREBY NUMBER PERCENT
- -------------------------------------------- ------------- ----------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Fernando J. Espuelas(1)..................... 6,250,000 10.5% 0 6,250,000 9.5%
Jack C. Chen(2)............................. 6,290,000 10.5 0 6,290,000 9.6
Tracy J. Leeds(3)........................... 813,251 1.4 0 813,251 1.3
Steven J. Heller(4)......................... 481,000 * 0 481,000 *
Adriana J. Kampfner(5)...................... 376,000 * 0 376,000 *
Douglas M. Karp(6).......................... 4,760,417 8.2 0 4,760,417 7.5
Christopher T. Linen(7)..................... 300,000 * 0 300,000 *
Gerardo M. Rosenkranz(8).................... 598,055 1.0 0 598,055 *
Susan L. Segal(9)........................... 11,378,333 19.6 500,000 10,878,333 17.0
Frederick R. Wilson(10)..................... 1,236,000 2.1 0 1,236,000 1.9
Chase Venture Capital Associates,
L.P.(11).................................. 11,378,333 19.6 500,000 10,878,333 17.0
Warburg, Pincus Equity Partners, L.P.(12)... 2,380,209 4.1 0 2,380,209 3.7
Warburg, Pincus Ventures International,
L.P.(12).................................. 2,380,208 4.1 0 2,380,208 3.7
All directors and executive officers as a
group (12 persons)........................ 33,384,623 53.0 500,000 32,884,623 48.2
</TABLE>
- ------------------------
* Indicates less than one percent of the common stock.
(1) Includes (a) 1,687,500 shares issuable upon the exercise of currently
exercisable stock options and (b) 1,000,000 shares held by a trust, of which
Mr. Chen and the spouse of Mr. Espuelas are trustees.
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(2) Includes (a) 1,687,500 shares issuable upon the exercise of currently
exercisable stock options, (b) 2,150,000 shares owned by Mr. Chen's spouse
and (c) an aggregate of 2,246,600 shares held by three trusts, of which Mr.
Chen is trustee.
(3) Includes (a) options to purchase 125,304 shares of common stock that are
immediately exercisable, all of which are unvested, and (b) 336,112 shares
of common stock which we have a right to repurchase if Ms. Leeds' services
with us are terminated prior to vesting. Also includes 250,000 shares held
by a trust of which Ms. Leeds is trustee.
(4) Includes (a) options to purchase 140,000 shares of common stock that are
immediately exercisable, 101,111 of which are unvested, and (b) 288,500
shares of common stock which we have a right to repurchase if Mr. Heller's
services with us are terminated prior to vesting.
(5) Includes (a) options to purchase 146,000 shares of common stock that are
immediately exercisable, all of which are unvested, and (b) 172,778 shares
of common stock which we have a right to repurchase if Ms. Kampfner's
services with us are terminated prior to vesting.
(6) All shares indicated as owned by Mr. Karp are included because of Mr. Karp's
affiliation with the Warburg, Pincus entities. Mr. Karp disclaims beneficial
ownership of all shares owned by the Warburg, Pincus entities. Mr. Karp's
address is c/o E.M. Warburg, Pincus & Co., LLC, 466 Lexington Avenue, New
York, NY 10017. See note 12 below.
(7) Includes 100,000 shares owned by members of Mr. Linen's immediate family.
Mr. Linen's address is c/o Christopher Linen & Co., 113 East 19(th) Street,
New York, NY 10003.
(8) Consists of (a) 530,833 shares owned by Mr. Rosenkranz, (b) 43,055 shares
owned by a trust, of which Mr. Rosenkranz is managing trustee, and (c)
24,167 shares owned by a company controlled by Mr. Rosenkranz. Mr.
Rosenkranz's address is c/o Ventech International, Inc., 60 Arch Street,
Greenwich, CT 06830.
(9) All shares indicated as owned by Ms. Segal are included because of Ms.
Segal's affiliation with Chase Venture Capital Associates, L.P., of which
Chase Capital Partners is the general partner. Ms. Segal disclaims
beneficial ownership of all shares owned by Chase. Ms. Segal's address is
c/o Chase Venture Capital Associates, L.P., 380 Madison Avenue, 9(th) Floor,
New York, NY 10017.
(10) Consists of shares owned by the fI@tiron Fund, LLC and the FIatiron Fund
1998/99, LLC which are controlled by Mr. Wilson. Mr. Wilson's address is c/o
Flatiron Partners, 257 Park Avenue South, 12(th) Floor, New York, NY 10010.
(11) The address of Chase Venture Capital Associates, L.P. is 380 Madison
Avenue, 12(th) Floor, New York, NY 10017.
(12) THE WARBURG, PINCUS STOCKHOLDERS. The Warburg, Pincus stockholders are
comprised of Warburg, Pincus Equity Partners, L.P., including three related
limited partnerships, and Warburg Pincus Ventures International,
L.P. Warburg, Pincus & Co. is the sole general partner of each of these
entities and has a 20% interest in each of their profits. The Warburg Pincus
stockholders are each managed by E.M. Warburg Pincus & Co., LLC. Lionel I.
Pincus is the managing partner of Warburg, Pincus & Co. and the managing
member of E.M. Warburg, Pincus & Co., LLC, and may be deemed to control both
entities.
MR. KARP. Mr. Karp, a director of StarMedia, is a managing director and
member of E.M. Warburg, Pincus & Co., LLC and a general partner of Warburg,
Pincus & Co. Mr. Karp may be deemed to have an indirect pecuniary interest
(within the meaning of Rule 16a-1 under the Securities Exchange of 1934, as
amended) in an indeterminate portion of the shares beneficially owned by the
Warburg, Pincus stockholders.
ADDRESS. The address of the Warburg, Pincus entities is 466 Lexington
Avenue, New York, NY 10017.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
StarMedia's amended and restated certificate of incorporation authorizes the
issuance of up to 200,000,000 shares of common stock, par value $.001 per share,
and 10,000,000 shares of preferred stock, par value $.001 per share, the rights
and preferences of which may be established from time to time by StarMedia's
board of directors. As of June 30, 1999, 58,006,198 shares of common stock were
outstanding and no shares of preferred stock were outstanding. As of June 30,
1999, StarMedia had 162 stockholders of record.
COMMON STOCK
Under our amended and restated certificate of incorporation, holders of our
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders, including the election of
directors. They do not have cumulative voting rights. Subject to preferences
that may be applicable to any then-outstanding preferred stock, holders of our
common stock are entitled to receive ratably dividends, if any, as may be
declared by the board of directors out of legally available funds. In case of a
liquidation, dissolution or winding up of StarMedia, the holders of common stock
will be entitled to share ratably in the net assets legally available for
distribution to shareholders after payment of all of our liabilities and any
preferred stock then outstanding. Holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. The rights, preferences
and privileges of holders of common stock are subject to the rights of the
holders of shares of any series of preferred stock that we may designate and
issue in the future.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, our board of
directors has the authority, without further action by the stockholders, to
issue from time to time, shares of preferred stock in one or more series. The
board of directors may fix the number of shares, designations, preferences,
powers and other special rights of the preferred stock. The preferences, powers,
rights and restrictions of different series of preferred stock may differ. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock. The
issuance may also have the effect of delaying, deferring or preventing a change
in control of StarMedia. We currently have no shares of preferred stock
outstanding.
Our board of directors has authorized the issuance of shares of junior
non-voting convertible preferred stock in connection with our pending
acquisition of PageCell. Holders of our junior non-voting convertible preferred
stock will rank junior or PARI PASSU to any other series of our preferred stock
that we may subsequently issue in terms of distribution of assets upon the
liquidation, dissolution or winding up of our company and the payment of
dividends.
If and when we pay a dividend on our common stock, the holders of our junior
non-voting convertible preferred stock will be entitled to receive a dividend
equal to the amount they would have received if their shares had been converted
into shares of common stock immediately prior to the record date for the
dividend. Also, in the event of the liquidation, dissolution or winding up of
our company, the holders of the preferred stock will receive, before the payment
or distribution of our assets to the holders of our common stock, a payment or
distribution equal to the amount the holders would have received if their shares
were converted into shares of common stock.
The holders of the junior non-voting convertible preferred stock are not
entitled to vote on any matter to be voted upon by our stockholders, except as
required by Delaware law. After the first anniversary of the issuance
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of the junior non-voting convertible preferred stock, the holders of the junior
non-voting convertible preferred stock will be entitled to convert all of their
shares into shares of our common stock at a one-to-one conversion rate.
REGISTRATION RIGHTS
Under the terms of our amended and restated registration rights agreement,
at any time on or after June 1, 2000, each of Chase Venture Capital Associates,
Warburg, Pincus Equity Partners and the holders of a majority of the outstanding
shares of common stock held by parties to that agreement may, on one occasion
only, require us to register for sale all or any portion of the shares of common
stock held by them. We are also obligated to register any of the shares of
common stock held by parties to the registration rights agreement if they
request to be included in the registration. These parties, in the aggregate,
have three demand registration rights. Further, if we become eligible to file
registration statements on Form S-3, a holder of our common stock which is a
party to the registration rights agreement may require us to file a registration
statement on Form S-3 under the Securities Act with respect to their shares of
common stock. We are also obligated to register the shares of common stock held
by parties to the registration rights agreement if they request to be included
in the registration, provided that we will not be required to effect any Form
S-3 registration more than once in any 180-day period. In addition, holders of
common stock which are parties to the registration rights agreement will be
entitled to require us to register the common stock when we register stock for
our own account or the account of other stockholders. This type of registration
right is known as a "piggyback" registration right. Mr. Espuelas and Mr. Chen
may also participate in any demand, S-3 or piggyback registration.
The foregoing registration rights are subject to certain conditions and
limitations, including:
- the right of the underwriters in any underwritten offering to limit the
number of shares of common stock held by stockholders with registration
rights to be included in any demand, S-3 or piggyback registration; and
- our right to delay for up to 90 days the filing or effectiveness of a
registration statement pursuant to a demand for registration if the board
of directors of determines that the registration would not be in our best
interest at that time.
We are generally required to bear all of the expenses of all registrations,
except underwriting discounts and commissions. Registration of any of the shares
of common stock held by stockholders with registration rights would result in
those shares becoming freely tradable without restriction under the Securities
Act immediately after effectiveness of the registration. We have agreed to
indemnify the holders of registration rights in connection with demand, S-3 and
piggyback registration under the terms of our amended and restated registration
rights agreement.
In connection with our private placement of an aggregate of 3,727,272 shares
of common stock in May 1999, we granted the investors registration rights. As a
result, each of the investors may require us to register the shares of common
stock they purchased. If at any time between the first and third anniversary of
the private placement we propose to register any of our common stock, we have
agreed, upon their written request, to include the investors' shares of common
stock in the registration. The number of shares of common stock which we will be
required to register for the investors may be reduced in an underwritten
offering by the managing underwriter.
We are generally required to bear all of the expenses of registering the
investors' shares of common stock, other than underwriting discounts and
commissions. Registration of any of the shares of common stock held by the
investors would result in those shares becoming freely tradable without
restriction under the Securities Act immediately after effectiveness of the
registration. We have agreed to indemnify the investors in connection with the
registration of their shares
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<PAGE>
of common stock under the terms of the registration rights agreements.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AND BYLAWS
Provisions of our amended and restated certificate of incorporation and
amended and restated bylaws, which are summarized in the following paragraphs,
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider it its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. Upon expiration of the term of a class of directors,
the directors in that class will be elected for three-year terms at the annual
meeting of stockholders in the year in which their term expires. Our board of
directors has resolved that Messrs. Chen and Karp will be Class I directors
whose terms expire at the 2000 annual meeting of stockholders, Messrs. Linen and
Wilson will be Class II directors whose terms expire at the 2001 annual meeting
of stockholders, and Messrs. Espuelas and Rosenkranz and Ms. Segal will be Class
III directors whose terms expire at the 2002 annual meeting of stockholders.
With respect to each class, a director's term will be subject to the election
and qualification of their successors, or their earlier death, resignation or
removal. In addition, our board of directors may be removed only for cause and
only by the affirmative vote of holders of not less than 66.67% of our
outstanding capital stock entitled to vote generally in the election of
directors. These provisions, when coupled with the provision of our amended and
restated certificate of incorporation authorizing the board of directors to fill
vacant directorships, may delay a stockholder from removing incumbent directors
and simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our amended and restated certificate of incorporation eliminates the ability
of stockholders to act by written consent. Our amended and restated bylaws
further provide that special meetings of our stockholders may be called only by
the chairman of the board of directors or the president at the request of two-
thirds of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS NOMINATIONS
Our amended and restated bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be received
at our principal executive offices not less than 90 days nor more than 120 days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders. In the event that the annual meeting is called for a date that is
not within 30 days before or 70 days after the anniversary date, in order to be
timely, notice from the stockholder must be received:
- not earlier than 120 days prior to the annual meeting of stockholders, and
- not later than 90 days prior to the annual meeting of stockholders or the
tenth day following the date on which notice of the annual meeting was
made public.
In the case of a special meeting of stockholders called for the purpose of
electing directors, notice by the stockholder, in order to be timely, must be
received:
- not earlier than 120 days prior to the special meeting, and
- not later than 90 days prior to the special meeting or the close of
business on the tenth day following the day on
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which public disclosure of the date of the special meeting was made.
Our amended and restated bylaws also specify certain requirements as to the
form and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our amended and restated certificate of
incorporation imposes supermajority vote requirements in connection with various
business combination transactions and the amendment of various provisions of our
amended and restated certificate of incorporation and amended and restated
bylaws, including those provisions relating to the classified board of directors
and the ability of stockholders to call special meetings.
RIGHTS AGREEMENT
Under Delaware law, every corporation may create and issue rights entitling
the holders of such rights to purchase from the corporation shares of its
capital stock of any class or classes, subject to any provisions in its
certificate of incorporation. The price and terms of such shares must be stated
in the certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.
We have entered into a stockholder rights agreement. As with most
stockholder rights agreements, the terms of our rights agreement are complex and
not easily summarized, particularly as they relate to the acquisition of our
common stock and to exercisability. This summary may not contain all of the
information that is important to you.
Our rights agreement provides that each share of our common stock
outstanding will have one right to purchase one ten-thousandth of a preferred
share attached to it. The purchase price per one ten-thousandth of a preferred
share under the stockholder rights agreement is four times the average closing
price of our common stock for the first five days of trading after the
consummation of this offering.
Initially, the rights under our rights agreement are attached to outstanding
certificates representing our common stock and no separate certificates
representing the rights will be distributed. The rights will separate from our
common stock and be represented by separate certificates on the day someone
acquires 15% of our common stock, or approximately 10 days after someone
commences a tender offer for 15% of our outstanding common stock.
After the rights separate from our common stock, certificates representing
the rights will be mailed to record holders of the common stock. Once
distributed, the rights certificates alone will represent the rights.
All shares of our common stock issued prior to the date the rights separate
from the common stock will be issued with the rights attached. The rights are
not exercisable until the date the rights separate from the common stock. The
rights will expire on the tenth anniversary of the date of the completion of
this offering unless earlier redeemed or exchanged by us.
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If an acquiror obtains or has the rights to obtain 15% or more of our common
stock, then each right will entitle the holder to purchase a number of one
ten-thousandths of a preferred share having a market value of twice the purchase
price of each right.
Each right will entitle the holder to purchase a number of shares of common
stock of the acquiror having a then current market value of twice the purchase
price if an acquiror obtains 15% or more of our common stock and any of the
following occurs:
- we merge into another entity;
- an acquiring entity merges into us; or
- we sell more than 50% of our assets or earning power.
Under our rights agreement, any rights that are or were owned by an acquiror
of more than 15% of our outstanding common stock will be null and void.
Our rights agreement contains exchange provisions which provide that after
an acquiror obtains 15% or more, but less than 50% of our respective outstanding
common stock, our board of directors may, at its option, exchange all or part of
the then outstanding and exercisable rights for common shares. In such an event,
the exchange ratio is one common share per right, adjusted to reflect any stock
split, stock dividend or similar transaction.
Our board of directors may, at its option, redeem all of the outstanding
rights under our rights agreement prior to the earlier of (1) the time that an
acquiror obtains 15% or more of our outstanding common stock or (2) the final
expiration date of the rights agreement. The redemption price under our rights
agreement is $0.001 per right, subject to adjustment. The right to exercise the
rights will terminate upon the action of our board ordering the redemption of
the rights and the only right of the holders of the rights will be to receive
the redemption price.
Holders of rights will have no rights as our stockholders including the
right to vote or receive dividends, simply by virtue of holding the rights.
Our rights agreement provides that the provisions of the rights agreement
may be amended by the board of directors prior to the day someone acquires 15%
of our outstanding common stock or 10 days after someone commences a tender
offer for 15% of our outstanding common stock without the approval of the
holders of the rights. However, after that date, the rights agreement may not be
amended in any manner which would adversely effect the interests of the holders
of the rights, excluding the interests of any acquiror. In addition, our rights
agreement provides that no amendment may be made to adjust the time period
governing redemption at a time when the rights are not redeemable.
Our rights agreement contains rights that have anti-takeover effects. The
rights may cause substantial dilution to a person or group that attempts to
acquire us without conditioning the offer on a substantial number of rights
being acquired. Accordingly, the existence of the rights may deter acquirors
from making takeover proposals or tender offers. However, the rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of our board to negotiate with an acquiror on behalf of all the stockholders. In
addition, the rights should not interfere with a proxy contest.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for StarMedia's common stock is American
Stock Transfer & Trust Company, New York, New York.
LISTING
Our common stock is quoted on the Nasdaq National Market under the trading
symbol "STRM".
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore, many
sales of substantial amounts of common stock in the public market after
contractual and legal restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
64,006,198 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless the shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. Of the remaining 58,006,198 shares of common stock held by
existing stockholders, 49,902,032 are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 under the Securities Act, which rules are
summarized below.
LOCK-UP AGREEMENTS
Our officers, directors and 5% stockholders have signed lock-up agreements
under which they have agreed not to transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock, for a period of 90 days
after the date of this prospectus. Transfers or dispositions can be made sooner:
- with the prior written consent of Goldman, Sachs & Co.;
- in the case of some transfers to affiliates;
- as a bona fide gift; or
- to any trust.
Approximately 44,076,962 shares of our common stock are subject to lock-up
agreements entered into in connection with our initial public offering that
expire on November 22, 1999, and approximately 3,876,363 additional shares of
our common stock are subject to one-year lock-up agreements that expire in April
and May 2000.
Subject to the provisions of Rule 144, 144(k) and 701, restricted shares
totaling 1,951,707 will be available for sale in the public market, subject in
the case of shares held by affiliates to the volume restrictions contained in
those rules.
RULE 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year 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 635,062 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 such sale.
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 is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell those shares
without complying with the manner of sale, public information, volume limitation
or notice
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provisions of Rule 144. Therefore, unless otherwise restricted, "144(k) shares"
may be sold at any time.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell such shares in reliance on Rule 144, but without compliance with some
of the restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 41,271,818 shares of our
common stock, or their transferees will be entitled to request that we register
their shares under the Securities Act.
STOCK PLANS
At June 30, 1999, options to purchase 7,271,533 shares were issued and
outstanding under our Plans and otherwise. All of these shares will be eligible
for sale in the public market from time to time, subject to vesting provisions,
Rule 144 volume limitations applicable to our affiliates and, in the case of
some of the options, the expiration of lock-up agreements.
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed upon for
StarMedia by Brobeck, Phleger & Harrison LLP, New York, New York. Legal matters
relating to the offering will be passed upon for the underwriters by Ropes &
Gray, Boston, Massachusetts. Certain attorneys at Brobeck, Phleger & Harrison
LLP own shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule and our supplemental financial statements and
schedule at December 31, 1997 and 1998 and at June 30, 1999 and for the period
from March 5, 1996 (date of inception) to December 31, 1996, the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1999 as set forth
in their reports. We have included our consolidated financial statements and
schedule and supplemental consolidated financial statements and schedule 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.
The financial statements of KD Sistemas de Informacao Ltda. included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of the firm as experts in giving such reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits and schedules thereto) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement or
the exhibits and schedules which are part of the registration
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statement. We file annual, quarterly and special reports, proxy statements and
other information with the Commission. For further information with respect to
StarMedia and the common stock, reference is made to the registration statement
and the exhibits and schedules thereto.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in StarMedia's files in the
Commission's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. StarMedia's
Commission filings, including the registration statement, will also be available
to you on the Commission's Internet site (http://www.sec.gov).
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STARMEDIA NETWORK, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.................................................. F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999.. F-4
Consolidated Statements of Operations for the period from March 5, 1996 (date of
inception) to December 31, 1996, the years ended December 31, 1997 and 1998
and the six months ended June 30, 1998 (Unaudited) and 1999................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the period from
March 5, 1996 (date of inception) to December 31, 1996, the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1999............. F-6
Consolidated Statements of Cash Flows for the period from March 5, 1996 (date of
inception) to December 31, 1996, the years ended December 31, 1997 and 1998
and the six months ended June 30, 1998 (Unaudited) and 1999................... F-7
Notes to Consolidated Financial Statements...................................... F-8 - F-22
KD SISTEMAS DE INFORMACAO LTDA. FINANCIAL STATEMENTS
Report of Independent Public Accountants........................................ F-23
Balance Sheet as of December 31, 1998........................................... F-24
Statement of Income for the year ended December 31, 1998........................ F-25
Statement of Changes in Stockholders' Equity for the year ended December 31,
1998.......................................................................... F-26
Statement of Cash Flows for the year ended December 31, 1998.................... F-27
F-28 -
Notes to Financial Statements................................................... F-31
Unaudited Balance Sheets as of March 31, 1999 and 1998.......................... F-32
Unaudited Statements of Income for the three months ended March 31, 1999 and
1998.......................................................................... F-33
Unaudited Statements of Changes in Stockholders' Equity for the three month
periods ended March 31, 1999 and 1998......................................... F-34
Unaudited Statements of Cash Flows for the three month periods ended March 31,
1999 and 1998................................................................. F-35
F-36 -
Notes to Unaudited Financial Statements......................................... F-40
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1998............................................................. F-42
Unaudited Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1999........................................................... F-43
Notes to Unaudited Pro Forma Consolidated Financial Statements.................. F-44
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
STARMEDIA NETWORK, INC. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS(*)
Report of Independent Auditors.................................................. F-45
Supplemental Consolidated Balance Sheets as of December 31, 1997 and 1998 and
June 30, 1999................................................................. F-46
Supplemental Consolidated Statements of Operations for the period from March 5,
1996 (date of inception) to December 31, 1996, the years ended December 31,
1997 and 1998 and the six months ended June 30, 1998 (Unaudited) and 1999..... F-47
Supplemental Consolidated Statements of Changes in Stockholders' Equity for the
period from March 5, 1996 (date of inception) to December 31, 1996, the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1999....... F-48
Supplemental Consolidated Statements of Cash Flows for the period from March 5,
1996 (date of inception) to December 31, 1996, the years ended December 31,
1997 and 1998 and the six months ended June 30, 1998 (Unaudited) and 1999..... F-49
F-50 -
Notes to Supplemental Consolidated Financial Statements......................... F-65
</TABLE>
(*) On September 14, 1999, a subsidiary of the Company merged with Webcast
Solutions, Inc (the "Webcast Merger"). The supplemental consolidated
financial statements have been prepared to give retroactive effect to the
Webcast Merger. These supplemental consolidated financial statements will
become the historical consolidated financial statements of the Company after
financial statements covering the consummation date of the Webcast Merger
are issued.
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
StarMedia Network, Inc.
We have audited the accompanying consolidated balance sheets of StarMedia
Network, Inc. (the "Company") as of December 31, 1997 and 1998 and June 30,
1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the period from March 5, 1996 (date of
inception) to December 31, 1996, the years ended December 31, 1997 and 1998 and
the six months ended June 30, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
StarMedia Network, Inc. at December 31, 1997 and 1998 and June 30, 1999 and the
results of their operations and their cash flows for the period from March 5,
1996 (date of inception) to December 31, 1996, the years ended December 31, 1997
and 1998 and the six months ended June 30, 1999 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
New York, New York
September 14, 1999
F-3
<PAGE>
STARMEDIA NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- JUNE 30,
1997 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 443,000 $ 53,141,000 164,716,000
Accounts receivable net of allowance for bad debts of $0, $60,000 and
$239,000 as of December 31, 1997 and 1998 and June 30, 1999,
respectively....................................................... 38,000 460,000 2,122,000
Other current assets................................................. 10,000 1,675,000 2,403,000
----------- ------------ -------------
Total current assets................................................... 491,000 55,276,000 169,241,000
Fixed assets, net...................................................... 266,000 5,457,000 10,616,000
Intangible assets, net of accumulated amortization of $1,000, $93,000,
and $132,000 as of December 31, 1997 and 1998 and June 30, 1999,
respectively......................................................... 30,000 179,000 583,000
Goodwill, net of accumulated amortization of $538,000 at June 30,
1999................................................................. 7,429,000
Other assets........................................................... 23,000 129,000 4,467,000
----------- ------------ -------------
$ 810,000 $ 61,041,000 $ 192,336,000
----------- ------------ -------------
----------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable..................................................... $ 18,000 $ 308,000 $ 3,810,000
Accrued expenses..................................................... 227,000 6,442,000 8,644,000
Due to principal stockholders........................................ 67,000
Loan payable, current portion........................................ 1,497,000
Capital lease obligations, current portion........................... 10,000 220,000 110,000
Deferred revenues.................................................... 20,000 815,000 924,000
----------- ------------ -------------
Total current liabilities.............................................. 342,000 7,785,000 14,985,000
Capital lease obligations.............................................. 8,000
Loan payable, long term................................................ 3,208,000
Other long-term liabilities............................................ 381,000
Deferred rent.......................................................... 21,000 122,000 124,000
Preferred stock, authorized 60,000,000 shares at December 31, 1997 and
1998 and 10,000,000 shares at June 30, 1999:
Series A Redeemable Convertible Preferred Stock, $.001 par value,
7,330,000 shares authorized, 7,330,000 shares issued and
outstanding at December 31, 1997 and 1998 and -0- at June 30, 1999,
respectively, stated at liquidation value, net of related
expenses........................................................... 3,833,000 4,218,000
Series B Redeemable Convertible Preferred Stock, $.001 par value,
8,000,000 shares authorized, 8,000,000 shares issued and
outstanding at December 31, 1998 and -0- at June 30, 1999,
respectively, stated at liquidation value, net of related
expenses........................................................... 12,944,000
Series C Redeemable Convertible Preferred Stock, $.001 par value,
16,666,667 shares authorized, 16,666,667 shares issued and
outstanding at December 31, 1998 and -0- at June 30, 1999,
respectively, stated at liquidation value, net of related
expenses........................................................... 79,332,000
Stockholders' (deficit) equity:
Common stock, $.001 par value, 100,000,000 shares authorized at
December 31, 1997 and 1998 and 200,000,000 shares at June 30, 1999,
10,092,952 shares, 11,525,334 shares and 57,222,000 shares issued
and outstanding at December 31, 1997 and 1998 and June 30, 1999,
respectively....................................................... 11,000 12,000 57,000
Additional paid-in capital........................................... 433,000 19,658,000 281,553,000
Deferred compensation................................................ (8,666,000) (11,609,000)
Other comprehensive loss............................................. (32,000) (320,000)
Accumulated deficit.................................................. (3,838,000) (54,332,000) (96,043,000)
----------- ------------ -------------
Total stockholders' (deficit) equity................................... (3,394,000) (43,360,000) 173,638,000
----------- ------------ -------------
Total liabilities and stockholders' (deficit) equity................... $ 810,000 $ 61,041,000 $ 192,336,000
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
STARMEDIA NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5,1996
(DATE OF SIX MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31 JUNE 30,
DECEMBER ----------------------------- ------------------------------
31, 1996 1997 1998 1999
-------------- ------------- -------------- 1998 --------------
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $ $ 472,000 $ 5,347,000 $ 850,000 $ 5,299,000
Operating expenses:
Product and technology development... 36,000 1,233,000 6,825,000 3,178,000 9,930,000
Sales and marketing.................. 12,000 2,110,000 29,281,000 6,015,000 22,922,000
General and administrative........... 78,000 650,000 4,665,000 1,033,000 6,378,000
Depreciation and amortization........ 2,000 38,000 781,000 248,000 1,637,000
Stock-based compensation expense..... 10,421,000 3,250,000 3,012,000
-------------- ------------- -------------- -------------- --------------
Total operating expenses............... 128,000 4,031,000 51,973,000 13,724,000 43,879,000
-------------- ------------- -------------- -------------- --------------
Loss from operations................... (128,000) (3,559,000) (46,626,000) (12,874,000) (38,580,000)
Other income (expense):
Interest income...................... 34,000 715,000 119,000 1,404,000
Interest expense..................... (47,000) (29,000) (269,000)
-------------- ------------- -------------- -------------- --------------
Net loss............................... (128,000) (3,525,000) (45,958,000) (12,784,000) (37,445,000)
Preferred stock dividends and
accretion............................ -- (185,000) (4,536,000) (720,000) (4,266,000)
-------------- ------------- -------------- -------------- --------------
Net loss available to common
stockholders......................... $ (128,000) $ (3,710,000) $ (50,494,000) $ (13,504,000) $ (41,711,000)
-------------- ------------- -------------- -------------- --------------
-------------- ------------- -------------- -------------- --------------
Historical basic and diluted net loss
per common share..................... $ (0.01) $ (0.37) $ (4.64) $ (1.32) $ (1.97)
-------------- ------------- -------------- -------------- --------------
-------------- ------------- -------------- -------------- --------------
Historical number of shares used in
computing basic and diluted net loss
per share............................ 9,147,223 10,039,502 10,877,000 10,220,866 21,142,904
-------------- ------------- -------------- -------------- --------------
-------------- ------------- -------------- -------------- --------------
Pro forma basic and diluted net loss
per share............................ $ (1.07) $ (.80)
-------------- --------------
-------------- --------------
Number of shares used in computing pro
forma basic and diluted net loss per
share................................ 42,873,667 46,952,370
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
STARMEDIA NETWORK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
PERIOD FROM MARCH 5, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996, AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER
------------------------ PAID-IN ACCUMULATED DEFERRED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION INCOME
----------- ----------- ------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 5, 1996 (date of
inception)...................... $ $ $ $ $
Sale of common stock.............. 10,012,000 10,000 431,000
Net loss for the period........... (128,000)
----------- ----------- ------------- -------------- --------------- -----------------
Balance at December 31, 1996...... 10,012,000 10,000 431,000 (128,000)
Accretion of preferred stock...... (185,000)
Issuance of common stock-- Wass
Net, S.L. ...................... 80,952 1,000 2,000
Net loss for the year............. (3,525,000)
----------- ----------- ------------- -------------- --------------- -----------------
Balance at December 31, 1997...... 10,092,952 11,000 433,000 (3,838,000)
Deferred compensation related to
stock options, net of
cancellations................... 19,087,000 (19,087,000)
Amortization of deferred
compensation.................... 10,421,000
Exercise of common stock
options......................... 380,000 45,000
Issuance of common stock-- Wass
Net, S.L. ...................... 1,052,382 1,000 93,000
Preferred stock dividends and
accretion....................... (4,536,000)
Net loss for the year............. (45,958,000)
Translation adjustment............ (32,000)
Comprehensive loss................
----------- ----------- ------------- -------------- --------------- -----------------
Balance at December 31, 1998...... 11,525,334 12,000 19,658,000 (54,332,000) (8,666,000) (32,000)
Deferred compensation related to
stock options, net of
cancellations................... 5,955,000 (5,955,000)
Amortization of deferred
compensation.................... 3,012,000
Issuance of common stock, net of
offering costs.................. 11,926,363 12,000 151,435,000
Shares issued for acquisition of
Services Interactivos Limitada.. 20,000 1,000,000
Conversion of redeemable
convertible preferred stock..... 31,996,667 31,000 100,728,000
Exercise of common stock
options......................... 1,753,636 2,000 2,014,000
Stock options issued for
services........................ 31,000
Transaction expenses related to
Wass Net, S.L. acquisition
payable by Wass Net
shareholders.................... 732,000
Preferred stock dividends and
accretion....................... (4,266,000)
Net loss for the period........... (37,445,000)
Translation adjustment............ (288,000)
Comprehensive loss................
----------- ----------- ------------- -------------- --------------- -----------------
Balance at June 30, 1999.......... 57,222,000 $ 57,000 $ 281,553,000 $(96,043,000) $ (11,609,000) $ (320,000)
----------- ----------- ------------- -------------- --------------- -----------------
----------- ----------- ------------- -------------- --------------- -----------------
<CAPTION>
TOTAL
--------------
<S> <C>
Balance at March 5, 1996 (date of
inception)...................... $
Sale of common stock.............. 441,000
Net loss for the period........... (128,000)
--------------
Balance at December 31, 1996...... 313,000
Accretion of preferred stock...... (185,000)
Issuance of common stock-- Wass
Net, S.L. ...................... 3,000
Net loss for the year............. (3,525,000)
--------------
Balance at December 31, 1997...... (3,394,000)
Deferred compensation related to
stock options, net of
cancellations...................
Amortization of deferred
compensation.................... 10,421,000
Exercise of common stock
options......................... 45,000
Issuance of common stock-- Wass
Net, S.L. ...................... 94,000
Preferred stock dividends and
accretion....................... (4,536,000)
Net loss for the year............. (45,958,000)
Translation adjustment............ (32,000)
--------------
Comprehensive loss................ (45,990,000)
--------------
Balance at December 31, 1998...... (43,360,000)
Deferred compensation related to
stock options, net of
cancellations...................
Amortization of deferred
compensation.................... 3,012,000
Issuance of common stock, net of
offering costs.................. 151,447,000
Shares issued for acquisition of
Services Interactivos Limitada.. 1,000,000
Conversion of redeemable
convertible preferred stock..... 100,759,000
Exercise of common stock
options......................... 2,016,000
Stock options issued for
services........................ 31,000
Transaction expenses related to
Wass Net, S.L. acquisition
payable by Wass Net
shareholders.................... 732,000
Preferred stock dividends and
accretion....................... (4,266,000)
Net loss for the period........... (37,445,000)
Translation adjustment............ (288,000)
--------------
Comprehensive loss................ (37,733,000)
--------------
Balance at June 30, 1999.......... $ 173,638,000
--------------
--------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
STARMEDIA NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------- SIX MONTHS ENDED SIX MONTHS ENDED
1997 1998 JUNE 30, 1998 JUNE 30, 1999
------------ ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
(Unaudited)
OPERATING ACTIVITIES
Net loss......................................... $ (3,525,000) $ (45,958,000) $ (12,784,000) $ (37,445,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 38,000 781,000 248,000 1,637,000
Provision for bad debts...................... 60,000 9,000 179,000
Amortization of deferred compensation........ 10,421,000 3,250,000 3,012,000
Stock options issued for services............ 31,000
Deferred rent................................ 21,000 101,000 27,000 2,000
Transaction expenses related to Wass Net,
S.L........................................ 732,000
Changes in operating assets and liabilities:
Accounts receivable........................ (38,000) (485,000) (411,000) (1,844,000)
Other assets............................... (33,000) (1,771,000) (695,000) (5,264,000)
Accounts payable and accrued expenses...... 245,000 5,356,000 3,102,000 2,995,000
Deferred revenues.......................... 20,000 795,000 305,000 109,000
------------ ------------- ------------------ ------------------
Net cash used in operating activities............ (3,272,000) (30,700,000) (6,949,000) (35,856,000)
INVESTING ACTIVITIES
Purchase of fixed assets......................... (252,000) (4,446,000) (2,397,000) (5,988,000)
Intangible assets................................ (31,000) (241,000) (371,000) (360,000)
Cash paid for acquisitions....................... (4,711,000)
------------ ------------- ------------------ ------------------
Net cash used in investing activities............ (283,000) (4,687,000) (2,768,000) (11,059,000)
FINANCING ACTIVITIES
Issuance of common stock......................... 3,000 87,000 11,978,000 154,422,000
Issuance of redeemable convertible preferred
stock, net of related expenses................. 3,647,000 88,125,000
Capital contribution--Wass Net, S.L.............. 51,000
Issuance of convertible subordinated notes....... 6,000,000
Proceeds from long-term debt..................... 5,074,000
Repayment of long-term debt...................... (369,000)
Repayment of convertible subordinated notes...... (6,000,000)
Loans (to) from stockholders..................... 67,000
Repayments (to) from stockholders................ 54,000 (67,000) (67,000)
Payments under capital leases.................... (3,000) (112,000) 285,000 (110,000)
------------ ------------- ------------------ ------------------
Net cash provided by financing activities........ 3,768,000 88,084,000 12,196,000 159,017,000
Effect of exchange rate changes on cash and cash
equivalents.................................... 1,000 (527,000)
------------ ------------- ------------------ ------------------
Net increase in cash and cash equivalents........ 213,000 52,698,000 2,479,000 111,575,000
Cash and cash equivalents, beginning of period... 230,000 443,000 443,000 53,141,000
------------ ------------- ------------------ ------------------
Cash and cash equivalents, end of period......... $ 443,000 $ 53,141,000 $ 2,922,000 $ 164,716,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.................................... $ $ 45,000 $ 29,000 $ 66,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Accrued purchases of fixed assets and intangible
assets......................................... $ $ $ $ 477,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
Accrued costs for acquisitions................... $ $ $ $ 1,174,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
Accrued costs related to issuance of common
stock.......................................... $ $ $ $ 959,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
Acquisition of fixed assets through capital
leases......................................... $ 21,000 $ 314,000 $ $
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM MARCH 5, 1996 (DATE OF INCEPTION)
TO DECEMBER 31, 1996, THE YEARS ENDED
DECEMBER 31, 1997 AND 1998 AND THE SIX MONTHS
ENDED JUNE 30, 1999
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of
StarMedia Network, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All intercompany account balances and transactions have been
eliminated in consolidation. StarMedia Network, Inc. was incorporated under
Delaware law in March 1996.
The Company is the leading Internet media company targeting Latin America and
other Spanish-and Portuguese-speaking markets worldwide. The Company's network
consists of interest-specific channels, extensive Web-based community features,
sophisticated search capabilities and access to online shopping in Spanish and
Portuguese. These channels cover topics of interest to Latin Americans online,
including local and regional news, business and sports. The Company promotes
user affinity to the StarMedia community by providing Spanish- and
Portuguese-language e-mail, chat rooms, instant messaging and personal
homepages. During 1999, the Company also launched sales offices in Spain and
Puerto Rico and began hiring regional sales managers throughout the United
States, focusing on those regions with large Spanish-speaking populations.
The accompanying consolidated financial statements have been restated to reflect
the May 26, 1999 acquisition of Wass Net, S.L. ("Wass Net"), which was accounted
for as a pooling-of-interests. (See Note 4.)
INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1998, and for the six months ended June
30, 1998 have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position as of June 30, 1998 and the
results of operations and cash flows for the six months ended June 30, 1998 have
been made. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or eliminated.
REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of banner
advertisements and sponsorships, some of which also involve more integration,
design and coordination of the customer's content with the Company's services,
such as the placement of sponsor buttons in specific areas of the Network. The
sponsor buttons generally provide users with direct links to sponsor homepages
that exist within the Network which are usually focused on selling sponsor
F-8
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
merchandise and services to users of the Network. Advertising revenues on both
banner and sponsorship contracts, which range from one month to two years, are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain and collection of the
resulting receivable is probable. Company obligations typically include
guarantees of minimum number of "impressions," or times that an advertisement
appears in pages viewed by users of the Company's Network. To the extent minimum
guaranteed impressions are not met, the Company defers recognition of the
corresponding revenues until the remaining guaranteed impression levels are
achieved. The Company also earns revenues on sponsorship contracts for fees
relating to the design, coordination, and integration of the customer's content.
Revenue related to the design, coordination and integration of the customers'
content are recognized ratably over the term of the contract or using the
percentage of completion method if the fee for such services is fixed. A number
of the Company's agreements provide for the Company to receive a percentage of
revenues from electronic commerce transactions conducted by advertisers who are
selling goods or services to users of the Network. These revenues are recognized
by the Company upon notification from the advertiser of its share of revenues
earned by the Company and, to date, have not been significant.
Revenues from barter transactions are recognized during the period in which the
advertisements are displayed on the Company's Network. Barter transactions are
recorded at the estimated fair market value of the goods or services received or
the estimated fair market value of the advertisements given, whichever is more
readily determinable. For the year ended December 31, 1997, substantially all of
the Company's revenues were derived from barter transactions. For the year ended
December 31, 1998 and the six months ended June 30, 1998 and 1999, revenues
derived from barter transactions, were approximately $2,400,000, $500,000 and
$1,900,000, respectively.
Deferred revenues are primarily comprised of billings in excess of recognized
revenues relating to advertising contracts and sponsorship and banner
advertising contracts.
PRODUCT DEVELOPMENT
Costs incurred in the classification and organization of listings within the
Network and the development of new products and enhancements to existing
products are charged to expense as incurred. Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based upon the Company's product development process, technological feasibility
is established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant.
CASH AND CASH EQUIVALENTS
The Company considers all financial instruments with a maturity of three months
or less when purchased to be cash equivalents. Such amounts are stated at cost
which approximates market value.
F-9
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets, including those acquired under capital leases, are stated at cost
and depreciated by the straight-line method over the estimated useful lives of
the assets, which range from three to five years. Leasehold improvements are
amortized over the lesser of the useful life of the asset or the remaining
period of the lease.
INTANGIBLE ASSETS
Intangible assets consist of trademarks and trade names and are being amortized
on a straight-line basis over a period of five years.
Goodwill consists of the excess of the purchase price paid over the tangible net
assets of acquired companies. Goodwill is amortized using the straight-line
method over three years. Amortization expense and accumulated amortization as of
June 30, 1999 and for the six months ended June 30, 1999 were approximately
$538,000.
The Company assesses the recoverability of its 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 the Company'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.
INCOME TAXES
The Company uses the liability method of accounting for income taxes, whereby
deferred income taxes are provided on items recognized for financial reporting
purposes over different periods than for income tax purposes. Valuation
allowances are provided when the expected realization of tax assets does not
meet a more likely than not criteria.
ADVERTISING COSTS
Advertising costs are expensed as incurred. For the period from March 5, 1996
(date of inception) to December 31, 1996, the years ended December 31, 1997 and
1998 and the six months ended June 30, 1998 and 1999, advertising expense
amounted to approximately $0, $1,610,000, $21,246,000, $4,578,000 and
$15,657,000, respectively. For the years ended December 31, 1997 and 1998 and
the six months ended June 30, 1998 and 1999, advertising expense includes
approximately $460,000, $2,400,000, $483,000 and $1,900,000 of charges related
to barter advertising transactions.
F-10
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 amounts reported in the financial statements and footnotes thereto.
Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company grants stock options generally for a fixed number of shares to
certain employees with an exercise price equal to or below the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and, accordingly, recognizes compensation
expense only if the fair value of the underlying Common Stock exceeds the
exercise price of the stock option on the date of grant. In October 1995, the
FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), which provides an alternative to APB Opinion No. 25 in accounting for
stock-based compensation. As permitted by SFAS No. 123, the Company continues to
account for stock-based compensation in accordance with APB Opinion No. 25 and
has elected the pro forma disclosure alternative of SFAS No. 123 (See Note 6).
COMPUTATION OF HISTORICAL NET LOSS PER SHARE
The Company calculates earnings per share in accordance with SFAS No. 128,
"Computation of Earnings Per Share" and SEC Staff Accounting Bulletin No. 98.
Accordingly, basic earnings per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon the conversion of the Preferred Stock (using the if-converted
method) and shares issuable upon the exercise of stock options (using the
treasury stock method); common equivalent shares are excluded from the
calculation if their effect is anti-dilutive.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains the majority of its cash and cash
equivalents with one financial institution. The Company's sales are primarily to
companies located in the United States and Latin American region. The Company
performs periodic credit evaluations of its customers' financial condition and
does not require collateral. Accounts receivable are due principally from large
U.S. companies under stated contract terms and the Company provides for
estimated credit losses at the time of sale. Such losses have not been
significant to date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, accounts payable and loan payable
approximate their fair values.
F-11
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY AND INTERNATIONAL OPERATIONS
The functional currency of the Company's active subsidiaries in Argentina,
Brazil, Chile, Spain and Colombia is the local currency. The financial
statements of these subsidiaries are translated to U.S. dollars using period-end
rates of exchange for assets and liabilities, and average rates for the period
for revenues and expenses. Translation gains and losses are deferred and
accumulated as a component of stockholders' equity. The functional currency of
the Company's subsidiaries in highly inflationary economies, Mexico, Uruguay,
and Venezuela, is the U.S. dollar. Accordingly, for those subsidiaries that use
U.S. dollars as the functional currency, monetary assets and liabilities are
translated using the current exchange rate in effect at the period-end date,
while nonmonetary assets and liabilities are translated at historical rates.
Operations are generally translated at the weighted average exchange rate in
effect during the period. The resulting foreign exchange gains and losses are
recorded in the consolidated statement of operations. Revenues earned by the
Company's foreign subsidiaries and assets of such foreign subsidiaries were not
significant for all periods presented or at December 31, 1997, 1998 and June 30,
1999. Commencing January 1, 1999, the functional currency of the Company's
Mexican subsidiary changed from the U.S. dollar to the local currency as Mexico
was no longer considered a hyper-inflationary economy.
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires foreign currency translation adjustments to be included in other
comprehensive loss.
SEGMENT INFORMATION
The Company discloses information regarding segments in accordance with SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for reporting of financial information about
operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports. The
disclosure of segment information was not required as the Company operates in
only one business segment.
As of and for the period and years ended December 31, 1996, 1997 and 1998 and
June 30, 1999, substantially all of the Company's assets were located in the
U.S. and the Company derived substantially all of its revenue from businesses
located in the U.S.
F-12
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------- JUNE 30,
1997 1998 1999
----------- ------------- -------------
<S> <C> <C> <C>
Computer equipment................................. $ 173,000 $ 4,797,000 10,379,000
Furniture and fixtures............................. 9,000 448,000 579,000
Leasehold improvements............................. 121,000 938,000 1,476,000
----------- ------------- -------------
303,000 6,183,000 12,434,000
Less accumulated depreciation and amortization..... (37,000) (726,000) (1,818,000)
----------- ------------- -------------
$ 266,000 $ 5,457,000 10,616,000
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
3. STOCKHOLDERS' (DEFICIT) EQUITY
Between April 30 and May 5, 1999, a group of third party investors purchased an
aggregate of 3,727,272 shares of the Company's common stock at $11 per share, or
approximately $41,000,000, less fees and commissions of $1,640,000 paid by
issuing 149,091 shares of the Company's common stock. These investors are
subject to a one-year restriction on the sale or transfer of such shares, after
which such investors have been granted certain registration rights.
On May 25, 1999, the Company's initial public offering ("IPO") was declared
effective by the SEC. The Company realized proceeds of approximately
$110,400,000, net of underwriting discounts and commissions and related
expenses, from the initial public offering of 8,050,000 shares of its common
stock.
On May 26, 1999, the Company issued 1,133,334 shares of its common stock in
connection with the Wass Net merger.
On June 26, 1999, the Company issued 20,000 shares of its common stock in
connection with an acquisition valued at $1,000,000.
During the six months ended June 30, 1999, the Company issued 1,753,636 shares
of its common stock for $2,016,000 in connection with the exercise of stock
options.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
In July 1997, the Company sold 7,330,000 shares of Series A Redeemable
Convertible Preferred Stock (the "Series A Preferred") for $3,665,000, or $.50
per share. In February 1998, the Company sold 8,000,000 shares of Series B
Redeemable Convertible Stock (the "Series B Preferred") for $12,000,000, or
$1.50 per share. In August and September 1998, the Company sold an aggregate
16,666,667 shares of Series C Redeemable Convertible Preferred Stock (the
"Series C Preferred") for $80,000,000, or $4.80 per share. The Series A
Preferred, Series B Preferred and the Series C Preferred (collectively, the
"Preferred Stock") were convertible into common stock on a one for one basis,
subject to certain anti-dilution provisions, as defined, at any time at the
option of the holder or automatically in the event of a qualified IPO. The
holders of the Preferred Stock were entitled to the number of votes equal to the
number of common shares that could be obtained upon conversion on the date of
the vote and are entitled to a discretionary noncumulative dividend.
F-13
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
3. STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
Upon a liquidation, including any merger or acquisition where the existing
stockholders of the Company own less than 50% of the successor entity, the
holders of the Preferred Stock were entitled to have the Company redeem their
shares at the original price paid per share (the "Original Investment"), plus a
10% cumulative return less any dividends paid.
In the event that the Preferred Stock had not been converted as of December 31,
2004, the holders of the Preferred Stock could elect to have the Company redeem
their Preferred Stock for an amount equal to their original investment plus any
dividends declared but unpaid.
The Preferred Stock was converted into 31,996,667 shares common stocks on a
one-for-one basis, upon the consummation of the IPO. No Preferred Stock
dividends had been declared or paid. At December 31, 1997 and 1998, and at the
date of conversion total cumulative dividends in arrears, that would be payable
upon a liquidation, were approximately $183,000, $4,233,000 and $8,499,000,
respectively.
The Company has recorded issuance costs incurred in connection with the
Preferred Stock as discounts at issuance and accreted the discounts from the
date of issuance through the date of mandatory redemption on December 31, 2004.
CONVERTIBLE SUBORDINATED NOTES
In January 1998 the Company issued $4,000,000 8% convertible subordinated notes
due at the earlier of the closing of the Series B Preferred financing, or on
July 21, 1998. In August 1998 the Company issued $2,000,000 8% convertible
subordinated notes due at the earlier of the closing of the Series C Preferred
financing or on December 31, 1998. All amounts outstanding were repaid during
1998 in accordance with their terms.
4. ACQUISITIONS
ACHEI INTERNET PROMOTION, LTDA
On March 10, 1999, the Company acquired all of the outstanding stock of Achei
Internet Promotion Ltda. ("Achei"), a Brazilian company, in exchange for cash of
$810,000.
KD SISTEMAS DE INFORMACAO LTDA.
On April 13, 1999, the Company acquired all of the outstanding stock of KD
Sistemas de Informacao Ltda. ("KD Sistemas"), a Brazilian company, in exchange
for a cash payment of $5,000,000 at closing, $890,000 payable in March 2000, and
additional estimated cash payments of up to $6,400,000, in the aggregate, due in
March 2000, 2001 and 2002 upon the achievement of certain performance targets
(the "Earn-out"), plus related expenses of approximately $250,000. As a portion
of the Earn-out is contingent upon the continued employment of certain key
individuals, the Company will record a portion of such payments as compensation
expense, estimated to be $3,000,000, when and if such performance targets are
met.
F-14
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
4. ACQUISITIONS (CONTINUED)
SERVICIOS INTERACTIVOS LIMITADA
In June 1999, the Company acquired all the outstanding stock of Servicios
Interactivos Limitada ("SIL") for 20,000 shares of the Company's common stock.
The Company accounted for the aforementioned acquisitions under the purchase
method of accounting and the results of their operations have been included in
the financial statements of the Company from the respective dates of the
acquisitions. The excess purchase price over the fair value of the net assets
acquired, including expenses incurred by the Company, has been recorded as
goodwill. Goodwill resulting from the acquisitions of approximately $7,967,000
is being amortized using the straight-line method over three years.
The pro forma unaudited consolidated results of operations, assuming the
consummation of the KD Sistemas acquisition as of January 1, 1998, are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------------
<S> <C> <C>
1998 1999
--------------- ---------------
Revenues................................................... $ 1,250,000 $ 5,519,000
Net loss................................................... $ (13,553,000) $ (37,883,000)
Net loss available for common stockholders................. $ (14,273,000) $ (42,149,000)
Basic and diluted net loss per share....................... $ (1.40) $ (1.99)
</TABLE>
On a pro forma basis, if the Achei and SIL acquisitions had taken place at
the beginning of 1998, the effect on the Company's net sales, net loss, and loss
per share would have been immaterial.
WASS NET, S.L.
Effective May 26, 1999, the Company acquired all of the outstanding stock of
Wass Net, a company organized under the laws of Spain. The acquisition was
completed pursuant to the terms of a Share Purchase Agreement, whereby Wass Net
became a wholly-owned subsidiary of the Company. Under the terms of the
agreement, the Wass Net shareholders received 161.9 shares of the Company's
common stock for each outstanding Wass Net share. Accordingly, the Company
issued 1,133,334 shares of its common stock for all the outstanding shares of
Wass Net stock. Wass Net is a Spanish-language online community offering e-mail,
chat, classifieds, bulletin boards, home pages and search capabilities. The
acquisition was accounted for as a pooling of interests. Accordingly, the
Company's financial statements have been restated to include the results of Wass
Net for all periods presented.
F-15
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
4. ACQUISITIONS (CONTINUED)
Unaudited combined and separate results of StarMedia and Wass Net during the
periods preceding the merger were as follows:
<TABLE>
<CAPTION>
STARMEDIA WASS NET INTERCOMPANY COMBINED
-------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Revenues............................................ $ 5,293,000 $ 11,000 $ (5,000) $ 5,299,000
Net Loss............................................ $ 36,560,000 $ 885,000 $ $ 37,445,000
YEAR ENDED DECEMBER 31, 1998
Revenues............................................ $ 5,329,000 $ 21,000 $ (3,000) $ 5,347,000
Net Loss............................................ $ 45,886,000 $ 72,000 $ $ 45,958,000
</TABLE>
In connection with the Wass Net merger, Wass Net recorded a one-time charge of
$773,000 for transaction costs. In addition, the Company recorded a one-time
charge of approximately $250,000 in transaction costs.
5. LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996
(DATE OF SIX MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31 JUNE 30,
DECEMBER ----------------------------- --------------------------------
31, 1996 1997 1998 1998 1999
-------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Numerator:
Net loss..................... $ (128,000) $ (3,525,000) $ (45,958,000) $ (12,784,000) $ (37,445,000)
Preferred stock dividends and
accretion.................. (185,000) (4,536,000) (720,000) (4,266,000)
-------------- ------------- -------------- --------------- ---------------
Numerator for basic and diluted
loss per share-- net loss
available for common
stockholders................. $ (128,000) $ (3,710,000) $ (50,494,000) $ (13,504,000) $ (41,711,000)
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
Denominator:
Denominator for basic and
dilutive loss per
share--weighted average
shares..................... 9,147,223 10,039,502 10,877,000 10,220,866 21,142,904
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
Basic and diluted net loss per
share........................ $ (0.01) $ (0.37) $ (4.64) $ (1.32) $ (1.97)
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
</TABLE>
Diluted net loss per share for the period from March 5, 1996 (date of
inception) to December 31, 1996, the years ended December 31, 1997 and 1998, and
the six month period ended June 30, 1998 and 1999, does not include the effect
of options to purchase 0, 1,804,933, 6,131,933, 4,117,000 and 7,175,388 shares
of common stock, respectively. Diluted net loss per share for the period from
March 5, 1996 (date of inception) to December 31, 1996 and the years
F-16
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
5. LOSS PER SHARE (CONTINUED)
ended December 31, 1997 and 1998 and the six months ended June 30, 1998 does not
include the effect of 0, 7,330,000, 31,996,667, and 15,330,000 shares of common
stock issuable upon the conversion of Preferred Stock on an "as if converted"
basis, respectively, as the effect of their inclusion is antidilutive during
each period.
The following table sets forth the computation of the unaudited pro forma
basic and diluted loss per share, assuming conversion of the Preferred Stock:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
--------------- ---------------
<S> <C> <C>
Numerator:
Net loss available to common stockholders.......................... $ (50,494,000) $ (41,711,000)
Preferred Stock dividends and accretion............................ 4,536,000 4,266,000
--------------- ---------------
Numerator for pro forma loss available to common stockholders........ $ (45,968,000) $ 37,445,000
--------------- ---------------
--------------- ---------------
Denominator:
Weighted average number of common shares........................... 10,877,000 21,142,904
Assumed conversion of Preferred Stock to common shares (if
converted method)................................................ 31,996,667 25,809,466
--------------- ---------------
Denominator for pro forma basic and diluted loss per share........... 42,873,667 46,952,370
--------------- ---------------
Pro forma basic and diluted net loss per share....................... $ (1.07) $ (.80)
--------------- ---------------
--------------- ---------------
</TABLE>
6. STOCK OPTIONS
In January 1997, the Company adopted the 1997 Stock Option Plan and, in July
1998, the Company adopted the 1998 Stock Option Plan (collectively, the "Option
Plans"). The 1997 Stock Option Plan and the 1998 Stock Plan provide for the
authorization of 10,000,000 shares. In February 1999, an additional 7,000,000
shares were reserved for issuance pursuant to the 1998 Stock Option Plan. The
Option Plans provide for the granting of incentive stock options or
non-qualified stock options to purchase common stock to eligible participants.
Options granted under the Option Plan are for periods not to exceed ten years.
In July 1998, approximately 1,400,000 non-qualified options outstanding were
exchanged for incentive stock options having generally equivalent terms as the
non-qualified options.
Other than options to purchase 2,000,000 and 1,500,000 shares granted in
April and December 1998, respectively, which were immediately vested, options
outstanding under the Option Plans generally vest one-third after the first year
of service and ratably each month over the next two years.
In connection with the granting of stock options in 1998 and the exchange of
non-qualified options to incentive stock options, the Company recorded deferred
compensation of approximately $19,087,000. In connection with the granting of
stock options in 1999, the Company recorded additional deferred compensation of
approximately $5,955,000. Deferred compensation is being
F-17
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
6. STOCK OPTIONS (CONTINUED)
amortized for financial reporting purposes over the vesting period of the
options. The amount recognized as expense during the year ended December 31,
1998 and the six months ended June 30, 1998 and 1999 amounted to approximately
$10,421,000, $3,250,000 and $3,012,000, respectively.
In May 1999, 1,500,000 shares of common stock were reserved for issuance
under the Company's 1999 Employee Stock Purchase Plan.
The following transactions occurred with respect to the Option Plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------------ ---------------
<S> <C> <C>
Granted........................................................ 1,814,933 $ 0.42
Canceled....................................................... (10,000) .50
------------
Outstanding, December 31, 1997................................. 1,804,933 .42
Granted........................................................ 6,792,000 .78
Canceled....................................................... (2,085,000) .50
Exercised...................................................... (380,000) .12
------------
Outstanding, December 31, 1998................................. 6,131,933 .81
Granted........................................................ 2,928,424 5.80
Canceled....................................................... (131,333) 2.19
Exercised...................................................... (1,753,636) 1.16
Outstanding, June 30,1999 7,175,388 $ 2.73
------------
------------
</TABLE>
The following table summarizes information concerning outstanding
exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED-
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OUTSTANDING LIFE
- ---------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
$0.50....................................................................... 4,415,433 6.75
$1.60....................................................................... 1,716,500 7.00
------------
6,131,933
------------
------------
</TABLE>
F-18
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
6. STOCK OPTIONS (CONTINUED)
The following table summarizes information concerning outstanding
exercisable options at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED-
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OUTSTANDING LIFE
- ---------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
$ 0.50...................................................................... 3,059,229 6.25
$ 1.60...................................................................... 2,093,000 6.50
$ 5.64...................................................................... 1,590,659 9.66
$11.00...................................................................... 180,500 9.90
$15.00...................................................................... 252,000 9.81
------------
7,175,388
------------
------------
</TABLE>
Pro forma information regarding net loss is required by SFAS No. 123 which
also requires that the information be determined as if the Company has accounted
for its stock option under the fair value method of the statement. The fair
value for these options was estimated using the minimum value method with the
following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------- SIX MONTHS ENDED
ASSUMPTIONS 1997 1998 JUNE 30, 1999
- ---------------------------------------------------------- --------------- ---------------- ------------------
<S> <C> <C> <C>
Average risk-free interest rate........................... 6.00%-6.40% 4.440%-5.70% 5.0%
Dividend yield............................................ 0.0% 0.0% 0.0%
Average life.............................................. 5 years 5 years 5 years
</TABLE>
Because the determination of fair value of all options granted after the
Company became a public entity will include an expected volatility factor in
addition to the factors described in the preceding paragraph, the above results
may not be representative of future periods. No options were granted subsequent
to the consummation of the IPO through June 30, 1999.
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- SIX MONTHS ENDED
1997 1998 JUNE 30, 1999
-------------- --------------- ------------------
<S> <C> <C> <C>
Pro forma net loss available to common stockholders......... $ (3,737,000) $ (49,927,863) $ (41,231,078)
Pro forma basic and diluted loss per share.................. $ (0.37) $ (4.59) $ (1.95)
</TABLE>
7. INCOME TAXES
For Federal income tax purposes, at June 30, 1999, the Company had net
operating loss carryforwards of approximately $51,742,000 which expire from 2011
through 2019. The net operating loss carryforwards may be subject to Section 382
of the Internal Revenue Code, which imposes annual limitations on their
utilization. A valuation allowance has been recognized to fully offset the
deferred tax assets, after considering deferred tax liabilities.
F-19
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
------------------------------- ---------------
<S> <C> <C> <C>
1997 1998 1999
-------------- --------------- ---------------
Federal net operating loss carryforwards...... $ 1,200,000 $ 12,422,000 $ 17,592,000
Depreciation and amortization................. (6,000) (227,000) 553,000
Deferred rent................................. 9,000 55,000 59,000
Other......................................... 27,000 31,000
-------------- --------------- ---------------
1,203,000 12,277,000 18,235,000
Valuation allowance........................... (1,203,000) (12,277,000) (18,235,000)
-------------- --------------- ---------------
$ $ $
-------------- --------------- ---------------
-------------- --------------- ---------------
</TABLE>
The effective income tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996 YEAR ENDED DECEMBER
(DATE OF 31 SIX MONTHS
INCEPTION) TO -------------------- ENDED JUNE 30,
DECEMBER 31, 1996 1997 1998 1999
--------------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
Statutory rate............................................ (34%) (34%) (34%) (34%)
Non deductible losses from foreign operations............. 2
Permanent differences..................................... 8 5
Valuation allowance....................................... 33 33 23 28
Other..................................................... 1 1 1 1
----- --------- --------- -----
Effective tax rate........................................ % % % %
----- --------- --------- -----
----- --------- --------- -----
</TABLE>
8. LONG-TERM DEBT
The Company has a $12 million credit line for the acquisition of computer
equipment and furniture and fixtures. At June 30, 1999, approximately $4.7
million was outstanding under the credit line. Amounts outstanding are payable
in monthly installments of principal and interest of approximately $170,000,
bear interest at approximately 13.6% per annum and are secured by certain
computer equipment and furniture and fixtures. The credit line requires the
Company to maintain at least $10,000,000 in cash and cash equivalents.
F-20
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Product and technology development........................ $ 14,000 $ 490,000 1,169,000
Sales and marketing....................................... 64,000 3,639,000 3,859,000
General and administrative................................ 132,000 1,108,000 758,000
Accrued fixed asset and intangible purchases.............. 17,000 1,059,000 477,000
Costs related to issuance of common stock................. 959,000
Costs for acquisitions.................................... 1,174,000
Other..................................................... 146,000 248,000
------------- ------------- -------------
$ 227,000 $ 6,442,000 $ 8,644,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The nature of the accrued expenses is as follows: (i) product and technology
development primarily represents content acquisition costs and telecommunication
and hosting costs related to the Company's operations; (ii) sales and marketing
primarily represent advertising expenses related to the Company's print,
television and radio advertisements; (iii) general and administrative primarily
represent professional fees and employee bonuses; (iv) accrued fixed asset and
intangible purchases primarily represent the purchase of fixed assets which have
been placed in service and certain costs incurred in connection with the
Company's trademarks and trade names.
10. COMMITMENTS
CAPITAL LEASE
Included in computer equipment are assets acquired under a capital lease.
The cost of such equipment as of December 31, 1997 and 1998 is approximately
$21,000 and $335,000 and the related accumulated depreciation is approximately
$1,000 and $51,000, respectively.
Future minimum lease payments under the noncancelable capital lease as of
December 31, 1998 are $231,000, including interest of $11,000, which is all due
in 1999.
In connection with the capital lease the Company has a letter of credit
outstanding of approximately $144,000 at December 31, 1998.
OPERATING LEASES
The Company rents office space under noncancelable lease agreements. The
minimum annual rental commitments under noncancelable operating leases that have
initial or remaining terms in excess of one year as of June 30, 1999 are as
follows:
<TABLE>
<S> <C>
Year ended June 30,:
2000........................................................... $ 898,000
2001........................................................... 740,000
2002........................................................... 385,000
2003........................................................... 297,000
2004........................................................... 51,000
----------
$2,371,000
----------
----------
</TABLE>
F-21
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
10. COMMITMENTS (CONTINUED)
Rent expense amounted to approximately $0, $66,000, $392,000, $135,000 and
$495,000 for the period from March 5, 1996 (date of inception) to December 31,
1996, the years ended December 31, 1997 and 1998, and the six months ended June
30, 1998 and 1999, respectively.
11. RETIREMENT PLAN
The Company has a 401(k) plan that covers its eligible domestic employees.
The plan does not require a matching contribution by the Company.
12. SIGNIFICANT CUSTOMERS AND GEOGRAPHICAL CONCENTRATION
For the six months ended June 30, 1999, three customers accounted for
approximately 8%, 7% and 7% of the Company's total revenue, respectively.
For the six months ended June 30, 1998, two customers accounted for
approximately 27% and 25% of the Company's total revenue, respectively.
For the year ended December 31, 1998, two customers accounted for
approximately 23% and 15% of the Company's total revenue, respectively.
For the year ended December 31, 1997, three customers accounted for
approximately 36%, 23%, and 16% of the Company's total revenue, respectively.
13. SUBSEQUENT EVENTS
WEBCAST
On September 14, 1999, a newly formed wholly owned subsidiary of the Company
merged with and into Webcast (the "Webcast Merger"). Under the terms of the
Webcast Merger, 842,887 shares of the Company's common stock were issued in
exchange for all of the outstanding shares of Webcast common stock based on an
exchange ratio of .1084 shares of the Company's common stock for each share of
Webcast common stock. Webcast is a streaming media company focused on the global
delivery of audio, video and other Internet-based interactive media. The Webcast
Merger will be accounted for as a pooling of interests.
PAGECELL (UNAUDITED)
On September 18, 1999, the Company entered into an agreement to purchase
substantially all of the assets of PageCell International Holdings, Inc.
("PageCell"), a provider of advanced mobile technologies and services, in
exchange for common stock and junior non-voting convertible preferred stock of
the Company (the "Equity Consideration") valued at $10,000,000 at the closing
date and additional Equity Consideration valued at up to $15,000,000 upon the
achievement of certain quarterly performance related targets through December
2000. The consummation of the acquisition is subject to certain closing
conditions.
F-22
<PAGE>
ARTHUR ANDERSEN S/C
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
KD Sistemas de Informacao Ltda.:
(1) We have audited the accompanying balance sheets of KD Sistemas de
Informacao Ltda. (a Brazilian corporation), translated into U.S. dollars, as of
December 31, 1998, and the related translated statements of income, changes in
stockholders' equity and cash flows for the year 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 audit.
(2) We conducted our audit in accordance with generally accepted auditing
standards 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 misstatements. 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.
(3) In our opinion, the financial statements referred to in paragraph (1)
present fairly, in all material respects, for the purpose described in the
preceding paragraph, the financial position of KD Sistemas de Informacao Ltda.,
as of December 31, 1998, and the results of its operations, the changes in its
stockholders' equity and its cash flows for the year then ended, in conformity
with generally accepted accounting principles in the United States.
/s/ Arthur Andersen S/C
- ------------------------------------------------------------------
Rio de Janeiro, Brazil,
June 10, 1999.
F-23
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
BALANCE SHEET AS OF DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and banks................................................................. $ 8,957
Short-term investments......................................................... 258,593
Accounts receivable............................................................ 191,783
Other current assets........................................................... 3,723
---------
Total current assets....................................................... 463,056
PROPERTY, PLANT AND EQUIPMENT, net............................................... 96,127
---------
Total assets............................................................... $ 559,183
---------
---------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable............................................................... $ 27,848
Accrued payroll and income taxes............................................... 46,391
Accrued salaries............................................................... 6,246
---------
Total current liabilities.................................................. 80,485
STOCKHOLDERS' EQUITY:
Capital stock.................................................................. 107,127
Other comprehensive income-
Cumulative translation adjustments........................................... (35,962)
Restricted retained earnings................................................... 668
Unrestricted retained earnings................................................. 406,865
---------
Total stockholders' equity................................................. 478,698
---------
Total liabilities and stockholders' equity................................. $ 559,183
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-24
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<S> <C>
OPERATIONS REVENUES, NET OF DISCOUNTS:
Sales........................................................................ $1,151,948
Value-added tax.............................................................. (69,076)
----------
Net operating revenues................................................... 1,082,872
OPERATING COSTS AND EXPENSES:
Costs of services rendered................................................... (272,746)
Selling, general and administrative expenses................................. (422,066)
----------
(694,812)
----------
INCOME FROM OPERATIONS......................................................... 388,060
NONOPERATING INCOME:
Financial income on Investment funds......................................... 34,911
----------
INCOME BEFORE TAXES............................................................ 422,971
INCOME TAX AND SOCIAL CONTRIBUTION............................................. (82,517)
----------
NET INCOME FOR THE YEAR........................................................ 340,454
----------
----------
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment...................................... (25,503)
----------
COMPREHENSIVE INCOME FOR THE YEAR.............................................. $ 314,951
----------
----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<S> <C>
CAPITAL STOCK:
Initial balance as of January 1............................................... $ 60,347
Change in the year............................................................ 46,780
----------
Balance December 31....................................................... $ 107,127
----------
PAID FOR NOT YET SUBSCRIBED:
Initial balance as of January 1............................................... $ 46,780
Change in the year............................................................ (46,780)
----------
Balance December 31....................................................... $ --
----------
OTHER COMPREHENSIVE INCOME:
Cumulative translation adjustments-
Initial balance as of January 1............................................. $ (10,459)
Change in the year.......................................................... (25,503)
----------
Balance December 31....................................................... $ (35,962)
----------
RESTRICTED RETAINED EARNINGS:
Legal reserve................................................................. $ 668
----------
UNRESTRICTED RETAINED EARNINGS:
Balance January 1............................................................. $ 66,411
Net income for the year....................................................... 340,454
----------
Balance December 31....................................................... 406,865
----------
Total stockholders' equity................................................ $ 478,698
----------
----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 340,454
Adjustments to reconcile net income to net cash provided by operating
activities--
Depreciation............................................................... 5,987
-----------
346,441
-----------
Decrease (increase) in assets--
Accounts receivable........................................................ (173,316)
Other...................................................................... (3,871)
-----------
(177,187)
-----------
Increase (decrease) in liabilities--
Accounts payable........................................................... 27,499
Accrued payroll and income taxes........................................... 41,368
Accrued salaries........................................................... 6,494
-----------
75,361
-----------
Net cash provided by operating activities.................................. 244,615
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................................... (74,411)
-----------
Net cash used in financing activities...................................... (74,411)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term investment............................................. (171,749)
-----------
Net cash used in financing activities...................................... (171,749)
-----------
Effects of exchange rate changes on cash................................... (198)
DECREASE IN CASH AND EQUIVALENTS............................................... (1,743)
CASH AND EQUIVALENTS, BEGINNING OF YEAR........................................ 10,700
-----------
CASH AND EQUIVALENTS, END OF YEAR.............................................. $ 8,957
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
1. BACKGROUND
KD Sistemas de Informacao Ltda. was incorporated on January 2, 1996 under
the laws of the Federal Republic of Brazil. Initially denominated Skynet
Sistemas Ltda., the Company developed and maintains www.cade.com.br, a branded
Internet on-line network ("the network") located in the World Wide Web ("the
Web"). The network develops, trains and provides systems and a search engine for
Internet network purposes. The Company also provides graphic arts, editing of
virtual programs, publicity, consulting, and other community Internet features
targeted to the Brazilian market.
2. BASIS OF PRESENTATION
The Company is required to maintain its books and records in local currency
(Brazilian reais) and in the Portuguese language, based on generally accepted
accounting principles in Brazil. All of the Company's sales and other
transactions are denominated in local currency.
The Company's official financial statements as of December 31, 1998 were
originally prepared in local currency and in the Portuguese language. The
accompanying financial statements herein presented have been translated into
U.S. dollars and adjusted to be in conformity with generally accepted accounting
principles in the United States (U.S. GAAP), in accordance with the criteria set
forth in Statement of Financial Accounting Standards 52 (SFAS 52).
As from July 1, 1997, the Brazilian economy had ceased to be highly
inflationary so the functional currency (U.S. dollars) was changed to the local
currency (Brazilian reais).
The accompanying financial statements stated in U.S. dollars have been
translated at the official exchange rate prevailing at December 31, 1998 of
R$1.2087 to US$1.00. The criteria for translating the revenue and expense
accounts is the average rate of January 31, 1998 and December 31, 1998 or
R$1.1626, which does not differ significantly from using the average monthly
rate. The gain or loss resulting from this translation process is included in
the Cumulative Translation Adjustments component of stockholders' equity.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation and
presentation of the financial statements are summarized as follows:
a. Cash and banks are stated at cost.
b. Short-term investments are stated at the lower of the market value of
the investment funds quota value at the balance sheet date or cost plus
income accrued to the balance sheet date.
c. Assets and liabilities to be realized or paid within 12 months following
the balance sheet dates are classified as current assets and current
liabilities, respectively.
d. Property, plant and equipment are stated at cost of purchase or
construction less accumulated depreciation. Depreciation is calculated
using the straight-line method. The annual rates used take into
consideration the estimated useful lives of the assets.
F-28
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. Revenues, costs and expenses are recognized on the accrual basis. The
Company's revenues are derived from the sale of advertisements.
Advertising revenues are recognized ratably in the period in which the
advertisement is displayed, provided that no significant Company
obligations remain outstanding and collection of the resulting receivable
is probable.
f. Accrued salaries are fully accrued liabilities for future compensation
to employees for vacations vested during the year.
g. The Company pays the corporate income tax and social contribution on
profits based on the Presumed Profit Computation. Such method consists,
basically, of the calculation of the above taxes through the calculation
of 32% and 12%, respectively, on the revenues of the Company. On this
amount, called Presumed Profits, the income tax, at the rate of 15% plus
surtax of 10% on presumed profits exceeding 20,000 Brazilian reais per
month, and the social contribution, at the rate of 8%, apply.
4. SHORT-TERM INVESTMENTS
Short-term investments were comprised of financial investment funds - fixed
income, denominated in Brazilian reais, at the following banks:
<TABLE>
<S> <C>
Banco Brasileiro de Descontos - BRADESCO......................... $ 207,890
Lloyd's Bank..................................................... 50,703
---------
$ 258,593
---------
---------
</TABLE>
5. ACCOUNTS RECEIVABLE
Accounts receivable were comprised of:
<TABLE>
<S> <C>
LG Electronics de Sao Paulo Ltda................................. $ 24,952
Itanet Itamarati On Line Ltda.................................... 31,174
Lloyd's Asset Management......................................... 19,856
Petroleo Brasileiro S.A.......................................... 13,066
Souza Cruz S.A................................................... 13,238
Others........................................................... 99,499
---------
201,785
---------
Allowance for doubtful accounts.................................. (10,002)
---------
$ 191,783
---------
---------
</TABLE>
F-29
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were comprised of:
<TABLE>
<CAPTION>
ANNUAL
RATE OF
DEPRECIATION ACCUMULATED NET
(%) COST DEPRECIATION BALANCE
------------ ----------- ------------- ---------
<S> <C> <C> <C> <C>
Computer equipment..................... 20 $ 90,652 $ (8,545) $ 82,107
Furniture and fixtures................. 10 to 20 12,643 (939) 11,704
Telephone lines........................ -- 2,316 -- 2,316
----------- ------------- ---------
Total $ 105,611 $ (9,484) $ 96,127
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
7. ACCOUNTS PAYABLE
Accounts payable were comprised of:
<TABLE>
<S> <C>
Netgravity........................................................ $ 15,293
MM Eventos........................................................ 8,042
Others............................................................ 4,513
---------
$ 27,848
---------
---------
</TABLE>
8. ACCRUED PAYROLL AND OTHER TAXES
Accrued payroll and other taxes were comprised of:
<TABLE>
<CAPTION>
RATE
(%)
---------
<S> <C> <C>
Government Severance Indemnity Fund for Employees--FGTS................. 8 $ 1,453
National Institute of Social Security--INSS............................. 27.8 8,129
---------
Total of accrued payroll taxes...................................... 9,582
---------
Income tax on gross revenue............................................. 4.8-8.0 19,362
Social contribution..................................................... 0.96 2,522
Service Tax--ISS........................................................ 3 7,964
Tax for Social Security Financing--COFINS............................... 3 5,254
Employees' Profit Participation Program--PIS............................ 0.65 1,707
---------
Total of accrued taxes.............................................. 36,809
---------
$ 46,391
---------
---------
</TABLE>
F-30
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
9. CAPITAL STOCK
Capital stock is fully paid-in and is comprised of 110,000 quotas, as
follows:
<TABLE>
<CAPTION>
NUMBER OF QUOTAS
------------------
<S> <C>
Gustavo Guillermo Viberti..................................................................... 23,760
Fabio Goncalves de Oliveira................................................................... 23,760
Guillermo Jose Viberti........................................................................ 21,780
Carlos Augusto Saade Montenegro............................................................... 9,900
Luiz Paulo Saade Montenegro................................................................... 9,900
Jose Caetano Paula de Lacerda................................................................. 9,900
ROTHKO - Empreendimentos Participacoes e Assessoria Ltda...................................... 11,000
--------
110,000
--------
--------
</TABLE>
10. SUBSEQUENT EVENT
EXCHANGE POLICY
On January 13, 1999, the Brazilian Central Bank changed its exchange policy,
discontinuing the so-called exchange band through which it controlled the real
fluctuation margin in relation to the U.S. dollar; therefore, the exchange rate
was freely negotiated in the market. As a consequence of such change, the real
had devalued in relation to the U.S. dollar, from R$1.2087 per U.S. dollar at
December 31, 1998 to R$1.7597 per U.S. dollar at June 10, 1999. It is still not
possible to determine if the U.S. dollar quotation will remain at this level and
its impact on the Company's transactions and financial position.
CHANGE IN CONTROL
On April 13, 1999 the stockholders' entered into an agreement with StarMedia
Network Inc., an U.S. corporation, and sold all the outstanding equity interest
in the Company.
F-31
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
UNAUDITED BALANCE SHEETS AS OF MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and banks...................................................................... $ 31,804 $ 68,099
Short-term investments.............................................................. 216,091 112,437
Accounts receivable................................................................. 88,154 42,336
------------ ------------
Total current assets............................................................ 336,049 222,872
PROPERTY, PLANT AND EQUIPMENT, net.................................................... 92,306 34,831
------------ ------------
Total assets.................................................................... $ 428,355 $ 257,703
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................... $ 19,908 $ 2,498
Accrued payroll and income taxes.................................................... 14,563 14,065
Accrued salaries.................................................................... 17,604 5,461
------------ ------------
Total current liabilities....................................................... 52,075 22,024
------------ ------------
STOCKHOLDERS' EQUITY:
Capital stock....................................................................... 107,127 60,347
Paid for not yet subscribed......................................................... -- 46,780
Other comprehensive income--cumulative translation adjustments...................... (174,438) (14,181)
Restricted retained earnings........................................................ 668 668
Unrestricted retained earnings...................................................... 442,923 142,065
------------ ------------
Total stockholders' equity...................................................... 376,280 235,679
------------ ------------
Total liabilities and stockholders' equity...................................... $ 428,355 $ 257,703
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-32
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
UNAUDITED STATEMENTS OF INCOME
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
OPERATIONS REVENUES, NET OF DISCOUNTS:
Sales................................................................................ $ 247,959 $ 185,618
Value-added tax...................................................................... (23,511) (11,963)
------------ -----------
Net operating revenues............................................................... 224,448 173,655
------------ -----------
OPERATING COSTS AND EXPENSES:
Costs of services rendered........................................................... (59,077) (18,188)
Selling, general and administrative expenses......................................... (121,670) (75,029)
------------ -----------
(180,747) (93,217)
------------ -----------
INCOME FROM OPERATIONS................................................................. 43,701 80,438
NONOPERATING INCOME (EXPENSES):
Income On Investment Funds........................................................... 12,016 6,889
Financial income (expense), net...................................................... (561) (366)
------------ -----------
INCOME BEFORE TAXES.................................................................... 55,156 86,961
INCOME TAX AND SOCIAL CONTRIBUTION..................................................... (19,098) (11,307)
------------ -----------
NET INCOME FOR THE PERIOD.............................................................. $ 36,058 $ 75,654
------------ -----------
------------ -----------
OTHER COMPREHENSIVE INCOME
Foreign Currency Translation Adjustments............................................. (138,476) (3,722)
------------ -----------
COMPREHENSIVE INCOME (LOSS)............................................................ (102,418) 71,932
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CAPITAL STOCK......................................................................... $ 107,127 $ 60,347
------------ ------------
PAID FOR NOT YET SUBSCRIBED........................................................... -- 46,780
------------ ------------
OTHER COMPREHENSIVE INCOME:
Cumulative translation adjustments--
Initial balance as of January 1................................................... $ (35,962) $ (10,459)
Change in the period.............................................................. (138,476) (3,722)
------------ ------------
Balance March 31.................................................................. $ (174,438) $ (14,181)
------------ ------------
RESTRICTED RETAINED EARNINGS:
Legal reserve....................................................................... $ 668 $ 668
------------ ------------
UNRESTRICTED RETAINED EARNINGS:
Balance January 1................................................................... $ 406,865 $ 66,411
Net income for the period........................................................... 36,058 75,654
------------ ------------
Balance March 31.................................................................. 442,923 142,065
------------ ------------
Total stockholders' equity........................................................ $ 376,280 $ 235,679
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................ $ 36,058 $ 75,654
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation...................................................................... 3,662 2,525
------------ ----------
39,720 78,179
------------ ----------
Decrease (increase) in assets-
Accounts receivable............................................................... 41,599 (15,687)
Other............................................................................. 2,340 --
------------ ----------
43,939 (15,687)
------------ ----------
Increase (decrease) in liabilities-
Accounts payable.................................................................. 17,494 955
Accrued payroll and income taxes.................................................. (33,287) 7,028
Accrued salaries.................................................................. 11,835 5,461
------------ ----------
(3,958) 13,444
------------ ----------
Net cash provided by operating activities....................................... 79,701 75,936
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............................................ (21,290) (5,147)
------------ ----------
Net cash provided by (used in) investing activities............................... (21,290) (5,147)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term investment...................................................... (30,961) (13,188)
------------ ----------
Net cash provided by (used in) financing activities............................... (30,961) (13,188)
------------ ----------
Effect of Exchange Rate Changes On Cash................................................. (4,603) (202)
------------ ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS............................................. 22,847 57,399
CASH AND EQUIVALENTS, BEGINNING OF QUARTER.............................................. 8,957 10,700
------------ ----------
CASH AND EQUIVALENTS, END OF QUARTER.................................................... $ 31,804 $ 68,099
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
1. BACKGROUND
KD Sistemas de Informacao Ltda. was incorporated on January 2, 1996 under
the laws of the Federative Republic of Brazil. Initially denominated Skynet
Sistemas Ltda., the Company developed and maintains www.cade.com.br, a branded
Internet on-line network ("the network") located in the World Wide Web ("the
Web"). The network develops, trains and provides systems and a search engine for
Internet network purposes. The Company also provides graphic arts, editing of
virtual programs, publicity, consulting, and other community Internet features
targeted to the Brazilian market.
2. BASIS OF PRESENTATION
The Company is required to maintain its books and records in local currency
(Brazilian reais) and in the Portuguese language, based on generally accepted
accounting principles in Brazil.
The Company's official financial statements as of March 31, 1999 and 1998
were originally prepared in local currency and in the Portuguese language. The
accompanying financial statements herein presented have been translated into
U.S. dollars and adjusted to be in conformity with generally accepted accounting
principles in the United States (U.S. GAAP), in accordance with the criteria set
forth in Statement of Financial Accounting Standards 52 (SFAS 52).
As from July 1, 1997, the Brazilian economy had ceased to be highly
inflationary so the functional currency (U.S. dollars) was changed to the local
currency (Brazilian reais).
The accompanying financial statements stated in U.S. dollars have been
translated at the official exchange rate prevailing at March 31, 1999 (R$1.7220
to US$1.00) and March 31, 1998 (R$1.1374 to US$1.00). The criteria for
translating the revenue and expense accounts are the average rates prevailing
during the period. The gain or loss resulting from this translation process is
included in the Cumulative Translation Adjustment component of stockholders'
equity.
The unaudited financial statements as of March 31, 1999 and 1998 include, in
the opinion of the management, all adjustments (which are of a normal recurring
nature) necessary for fair presentation thereof. The results of operations for
the three-month period ended March 31, 1999 are not necessarily indicative of
the results for the full fiscal year ending December 31, 1999.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation and
presentation of the financial statements are summarized as follows:
a. Cash and banks are stated at cost.
b. Short-term investments are stated at the lower of the market value of
the investment funds quota value at the balance sheet date or cost plus
income accrued to the balance sheet date.
c. Assets and liabilities to be realized or paid within 12 months following
the balance sheet dates are classified as current assets and current
liabilities, respectively.
F-36
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. Property, plant and equipment are stated at cost of purchase or
construction less accumulated depreciation. Depreciation is calculated
using the straight-line method. The annual rates used take into
consideration the estimated useful lives of the assets.
e. Revenues, costs and expenses are recognized on the accrual basis. The
Company's revenues are derived from the sale of advertisements.
Advertising revenues are recognized ratably in the period in which the
advertisement is displayed, provided that no significant Company
obligations remain outstanding and collection of the resulting receivable
is probable.
f. Accrued salaries are fully accrued liabilities for future compensation
to employees for vacations vested during the year.
g. The Company pays the corporate income tax and social contribution on
profits based on the Presumed Profit Computation. Such method consists,
basically, of the calculation of the above taxes through the calculation
of 32% and 12%, respectively, on the revenues of the Company. On this
amount, called Presumed Profits, the income tax, at the rate of 15% plus
surtax of 10% on all amounts exceeding 20,000 Brazilian reais of presumed
profit per month, and the social contribution, at the rate of 8%, apply.
4. SHORT-TERM INVESTMENTS
As of March 31, 1999 and 1998, short-term investments were comprised of
financial investment fund--fixed income, denominated in Brazilian reais at Banco
Brasileiro de Descontos--BRADESCO, in the total amount of US$216,091 and
US$112,437, respectively.
F-37
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
5. ACCOUNTS RECEIVABLE
Accounts receivable were comprised of:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Centrais Eletricas Brasileiras S.A......................................................... $ 13,141 $ --
Itanet Itamarati On Line Ltda.............................................................. 11,614 --
Petroleo Brasileiro S.A.................................................................... 20,014 --
Souza Cruz S.A............................................................................. 9,292 --
Wild Tecnologies do Brasil................................................................. -- 4,396
STI Sao Paulo On Line...................................................................... -- 3,681
Unisys do Brasil Ltda...................................................................... -- 3,077
Others..................................................................................... 41,114 31,182
--------- ---------
95,175 42,336
Allowance for doubtful accounts............................................................ (7,021) --
--------- ---------
$ 88,154 $ 42,336
--------- ---------
--------- ---------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were comprised of:
<TABLE>
<CAPTION>
ANNUAL RATE OF
DEPRECIATION
(%) 1999 1998
-------------- ----------- -----------
<S> <C> <C> <C>
Computer equipment..................................................... 20 $ 91,973 $ 35,754
Furniture and fixtures................................................. 10 to 20 9,454 5,561
Telephone lines........................................................ -- 1,626 --
----------- -----------
103,053 41,315
Accumulated depreciation............................................... (10,747) (6,484)
----------- -----------
$ 92,306 $ 34,831
----------- -----------
----------- -----------
</TABLE>
F-38
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
7. ACCOUNTS PAYABLE
Accounts payable were comprised of:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
MM Eventos........................................................................ $ 3,213 $ --
Bradesco Saude.................................................................... 1,634 --
RM Cine e Video Ltda.............................................................. 2,613 --
Fund. Parque de Alta Tecnologia de Petropolis..................................... 3,194 2,417
Others............................................................................ 9,254 81
--------- ---------
$ 19,908 $ 2,498
--------- ---------
--------- ---------
</TABLE>
8. ACCRUED PAYROLL AND OTHER TAXES
Accrued payroll and other taxes were comprised of:
<TABLE>
<CAPTION>
RATE (%) 1999 1998
----------- --------- ---------
<S> <C> <C> <C>
Government Severance Indemnity Fund for Employees - FGTS........... 8 $ 1,129 $ 270
National Institute of Social Security - INSS....................... 27.8 5,513 2,232
Income and Tax Withholdings Return - IRRF.......................... 9 953
--------- ---------
Total of accrued payroll taxes................................. 6,651 3,455
--------- ---------
Income tax on gross revenue........................................ -- 5,015
Social contribution................................................ 4.8 to 8.0 -- 813
Service Tax - ISS.................................................. 3 3,570 2,540
Tax for Social Security Financing - COFINS......................... 3 3,570 1,692
Employees' Profit Participation Program - PIS...................... 0.65 772 550
--------- ---------
Total of accrued taxes......................................... 7,912 10,610
--------- ---------
$ 14,563 $ 14,065
--------- ---------
--------- ---------
</TABLE>
F-39
<PAGE>
KD SISTEMAS DE INFORMACAO LTDA.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
9. CAPITAL STOCK
As of March 31, capital stock is fully paid-in and is comprised of 110,000
and 60,000 quotas, in 1999 and 1998, respectively, as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Gustavo Guillermo Viberti......................................................... 23,760 15,600
Fabio Goncalves de Oliveira....................................................... 23,760 13,200
Guillermo Jose Viberti............................................................ 21,780 13,200
Carlos Augusto Saade Montenegro................................................... 9,900 --
Luiz Paulo Saade Montenegro....................................................... 9,900 9,000
Jose Caetano Paula de Lacerda..................................................... 9,900 4,500
ROTHKO -- Empreendimentos
Participacoes e Assessoria Ltda................................................. 11,000 --
Marcos Spinola Montenegro......................................................... -- 4,500
--------- ---------
110,000 60,000
--------- ---------
--------- ---------
</TABLE>
10. RELEVANT ISSUE
On January 13, 1999, the Brazilian Central Bank changed its exchange policy,
discontinuing the so-called exchange band through which it controlled the real
fluctuation margin in relation to the U.S. dollar; therefore, the exchange rate
was freely negotiated in the market. As a consequence of such change, the real
had devalued in relation to the U.S. dollar, from R$1.2087 per U.S. dollar at
December 31, 1998 to R$1.7597 per U.S. dollar at June 10, 1999. It is still not
possible to determine if the U.S. dollar quotation will remain at this level and
its impact on the Company's transactions and financial position.
11. SUBSEQUENT EVENT
On April 13, 1999 the Company's stockholders' entered into an agreement with
StarMedia Network Inc., a U.S. corporation, and sold all the outstanding equity
interest in the Company.
F-40
<PAGE>
STARMEDIA NETWORK, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On April 13, 1999, StarMedia Network, Inc. (the "Company") acquired all of
the outstanding stock of KD Sistemas De Informacao Ltda. ("KD Sistemas"), a
Brazilian company. As a result of the acquisition, KD Sistemas became a
wholly-owned subsidiary of the Company. The purchase price consisted of a cash
payment of $5,000,000 at closing, $890,000 payable in March 2000, and additional
estimated cash payments of up to $6,400,000, in the aggregate, due in March
2000, 2001, and 2002 upon the achievement of certain performance targets (the
"Earn-out"), plus related expenses of approximately $250,000. As a portion of
the Earn-out is contingent upon the continued employment of certain key
individuals, the Company will record a portion of such payments as compensation
expense, estimated to be $3,000,000 when and if such performance targets are
met. The KD Sistemas acquisition was accounted for as a purchase.
The pro forma condensed consolidated statements of operations for the year
ended December 31, 1998 and the six months ended June 30, 1999 assume that the
KD Sistemas acquisition occurred as of January 1, 1998. The unaudited pro forma
statements of operations for the year ended December 31, 1998 and the six months
ended June 30, 1999 are based on the supplemental consolidated statements of
operations for the Company for the year ended December 31, 1998 and the six
months ended June 30, 1999, the historical financial statements of KD Sistemas
for the year ended December 31, 1998 and the period from January 1, 1999 through
April 13, 1999.
The pro forma condensed consolidated statements of operations have been
prepared by the Company's management. The pro forma consolidated financial
statements may not be indicative of the results that actually would have
occurred if the acquisitions had been consummated on the respective dates
indicated or which may be obtained in the future. The pro forma condensed
consolidated financial statements should be read in conjunction with financial
statements and notes of the Company and KD Sistemas.
The Company's supplemental consolidated financial statements have been
prepared to give retroactive effect to the Webcast Merger which is being
accounted as a pooling of interests. These supplemental consolidated financial
statements will become the historical consolidated financial statements of the
Company after financial statements covering the consummation date of the Webcast
Merger are issued.
F-41
<PAGE>
STARMEDIA NETWORK, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
KD SISTEMAS PRO FORMA
STARMEDIA HISTORICAL ADJUSTMENTS CONSOLIDATED
---------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues....................... $ 5,758,000 $ 1,083,000 $ (100,000 (a) $ 6,741,000
Operating expenses:
Product and technology
development................ 7,101,000 273,000 78,000(d) 7,452,000
Sales and marketing.......... 29,281,000 422,000 (360,000 (c) 29,343,000
General and administrative... 4,810,000 155,000(c) 4,965,000
Depreciation and
amortization............... 785,000 1,930,000 ,(c 2,715,000
Stock-based compensation
expense.................... 10,421,000 10,421,000
---------------- ------------- --------------- ----------------
Total operating expenses..... 52,398,000 695,000 1,803,000 54,896,000
---------------- ------------- --------------- ----------------
Net (loss) income from
operations................... (46,640,000) 388,000 (1,903,000) (48,155,000)
Interest income, net........... 667,000 35,000 702,000
---------------- ------------- --------------- ----------------
Net (loss) income before income
tax.......................... (45,973,000) 423,000 (1,903,000) (47,453,000)
Provision for income tax....... (83,000) (83,000)
---------------- ------------- --------------- ----------------
Net (loss) income.............. $ (45,973,000) $ 340,000 $ (1,903,000) $ (47,536,000)
---------------- ------------- --------------- ----------------
---------------- ------------- --------------- ----------------
Pro forma basic and diluted net
loss per common share (d).... $ (1.06) $ (1.10)
---------------- ----------------
---------------- ----------------
Number of shares used in
computing pro forma basic and
diluted net loss per share
(d).......................... 43,200,416 43,200,416
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-42
<PAGE>
STARMEDIA NETWORK, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
KD SISTEMAS
HISTORICAL
JANUARY 1, PRO FORMA
STARMEDIA 1999 THROUGH CONSOLIDATED
SIX MONTHS ENDED APRIL 13, SIX MONTHS ENDED
JUNE 30, 1999 1999 ADJUSTMENTS JUNE 30, 1999
---------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 5,474,000 $ 256,000 $ (36,000 (a) $ 5,694,000
Operating expenses:
Product and technology development................... 10,019,000 94,000 24,000(c) 10,137,000
Sales and marketing.................................. 22,926,000 49,000 (99,000 (c) 22,876,000
General and administrative........................... 6,665,000 84,000 38,000(c) 6,787,000
Depreciation and amortization........................ 1,644,000 481,000 ,(c 2,125,000
Stock-based compensation expense..................... 3,012,000 3,012,000
---------------- ------------- ------------ ----------------
Total operating expenses........................... 44,266,000 227,000 444,000 44,937,000
---------------- ------------- ------------ ----------------
Net (loss) income from operations...................... (38,792,000) 29,000 (480,000) (39,243,000)
Interest income, net................................... 1,135,000 13,000 1,148,000
---------------- ------------- ------------ ----------------
Net (loss) income...................................... $ (37,657,000) $ 42,000 $ (480,000) $ (38,095,000)
---------------- ------------- ------------ ----------------
---------------- ------------- ------------ ----------------
Pro forma basic and diluted net loss per common share
(d).................................................. $ (.79) $ (.80)
---------------- ----------------
---------------- ----------------
Number of shares used in computing pro forma basic and
diluted net loss per share (d)....................... 47,736,568 47,736,568
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes
F-43
<PAGE>
STARMEDIA NETWORK, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1998 and the six months ended June 30, 1999 gives
effect to the acquisition of KD Sistemas as if it occurred on January 1, 1998.
Such unaudited pro forma financial statements sets forth the supplemental
results of operations of the Company for the year ended December 31, 1998 and
the six months ended June 30, 1999 and the historical results of operations of
KD for the year ended December 31, 1998 and the period from January 1, 1999
through April 13, 1999. The operations of KD for the period April 14, 1999
through June 30, 1999 are included in the operations of the Company.
PRO FORMA ADJUSTMENTS
For purposes of determining the pro forma effects of the acquisition of KD
on the consolidated statement of operations the following pro forma adjustments
have been made:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, 1998 JUNE 30, 1999
------------------- ------------------
<S> <C> <C>
(a) Revenues......................................................... $ (100,000) $ (36,000)
Sales and marketing............................................... (100,000) (36,000)
---------- ----------
Net (loss) income from operations................................. -- --
---------- ----------
---------- ----------
To eliminate the inter-company revenue of KD earned from the Company.
</TABLE>
<TABLE>
<S> <C> <C>
(b) Amortization of goodwill.......................... $ 1,921,000 $ 480,000
--------------- --------------
--------------- --------------
</TABLE>
Amortization expense of the goodwill over 3 years on a straight line
basis.
<TABLE>
<S> <C> <C>
(c) Product and technology development................ $ 78,000 $ 24,000
Sales and marketing................................ (260,000) (63,000)
General and amortization........................... 155,000 38,000
Depreciation and amortization...................... 9,000 1,000
--------------- --------------
(18,000) --
--------------- --------------
--------------- --------------
</TABLE>
To reclassify KD Sistemas' historical operating expenses to conform to
StarMedia's historical presentation.
(d) In conjunction with the Company's initial public offering, all
outstanding shares of series A, B, C redeemable convertible preferred
stock automatically converted into common stock on a one for one basis.
Accordingly, the effect of the conversions have been reflected in the
computation of pro forma basic and diluted net loss per common share.
F-44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
StarMedia Network, Inc.
We have audited the accompanying supplemental consolidated balance sheets of
Starmedia Network, Inc. (the "Company") (formed as a result of the consolidation
of the Company and Webcast Solutions, Inc. ("Webcast")) as of December 31, 1997
and 1998 and June 30, 1999 and the related supplemental consolidated statements
of operations, changes in stockholders' equity and cash flows for the period
from March 5, 1996 (date of inception) to December 31, 1996, the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1999. The
supplemental consolidated financial statements give retroactive effect to the
merger of the Company and Webcast on September 14, 1999, which has been
accounted for using the pooling of interests method as described in the notes to
the supplemental consolidated financial statements. These supplemental financial
statements are the responsibility of the management of the Company. Our
responsibility is to express an opinion on these supplemental 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 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 supplemental consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of the Company at December 31, 1997 and 1998 and June 30, 1999, and the
results of their operations and their cash flows for the period from March 5,
1996 (date of inception) to December 31, 1996, the years ended December 31, 1997
and 1998 and the six months ended June 30, 1999, after giving retroactive effect
to the merger of Webcast as described in the notes to the supplemental
consolidated financial statements, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
New York, New York
September 14, 1999
F-45
<PAGE>
STARMEDIA NETWORK, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- JUNE 30,
1997 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 443,000 $ 53,147,000 164,719,000
Accounts receivable net of allowance for bad debts of $0, $65,000 and
$244,000 as of December 31, 1997 and 1998 and June 30, 1999,
respectively....................................................... 38,000 511,000 2,180,000
Other current assets................................................. 10,000 1,712,000 2,397,000
----------- ------------ -------------
Total current assets................................................... 491,000 55,370,000 169,296,000
Fixed assets, net...................................................... 266,000 5,478,000 10,687,000
Intangible assets, net of accumulated amortization of $1,000, $93,000,
and $538,000 as of December 31, 1997 and 1998 and June 30, 1999,
respectively......................................................... 30,000 179,000 583,000
Goodwill, net of accumulated amortization of $538,000 at June 30,
1999................................................................. 7,429,000
Other assets........................................................... 23,000 129,000 4,471,000
----------- ------------ -------------
$ 810,000 $ 61,156,000 $ 192,466,000
----------- ------------ -------------
----------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable..................................................... $ 18,000 $ 346,000 $ 3,858,000
Accrued expenses..................................................... 227,000 6,489,000 8,767,000
Due to principal stockholders........................................ 67,000 131,000
Loan payable, current portion........................................ 1,497,000
Capital lease obligations, current portion........................... 10,000 220,000 110,000
Deferred revenues.................................................... 20,000 815,000 943,000
----------- ------------ -------------
Total current liabilities.............................................. 342,000 7,870,000 15,306,000
Capital lease obligations.............................................. 8,000 9,000
Loan payable, long term................................................ 3,208,000
Other long-term liabilities............................................ 381,000
Deferred rent.......................................................... 21,000 122,000 124,000
Preferred stock, authorized 60,000,000 shares at December 31, 1997 and
1998 and 10,000,000 shares at June 30, 1999:
Series A Redeemable Convertible Preferred Stock, $.001 par value,
7,330,000 shares authorized, 7,330,000 shares issued and
outstanding at December 31, 1997 and 1998 and -0- at June 30, 1999,
respectively, stated at liquidation value, net of related
expenses........................................................... 3,833,000 4,218,000
Series B Redeemable Convertible Preferred Stock, $.001 par value,
8,000,000 shares authorized, 8,000,000 shares issued and
outstanding at December 31, 1998 and -0- at June 30, 1999,
respectively, stated at liquidation value, net of related
expenses........................................................... 12,944,000
Series C Redeemable Convertible Preferred Stock, $.001 par value,
16,666,667 shares authorized, 16,666,667 shares issued and
outstanding at December 31, 1998 and -0- at June 30, 1999,
respectively, stated at liquidation value, net of related
expenses........................................................... 79,332,000
Stockholders' (deficit) equity:
Common stock, $.001 par value, 100,000,000 shares authorized at
December 31, 1997 and 1998 and 200,000,000 shares at June 30, 1999,
10,092,952 shares, 12,309,532 shares and 58,006,198 shares issued
and outstanding at December 31, 1997 and 1998 and June 30, 1999,
respectively....................................................... 11,000 13,000 58,000
Additional paid-in capital........................................... 433,000 19,693,000 281,588,000
Deferred compensation................................................ (8,666,000) (11,609,000)
Other comprehensive loss............................................. (32,000) (320,000)
Accumulated deficit.................................................. (3,838,000) (54,347,000) (96,270,000)
----------- ------------ -------------
Total stockholders' (deficit) equity................................... (3,394,000) (43,339,000) 173,447,000
----------- ------------ -------------
Total liabilities and stockholders' (deficit) equity................... $ 810,000 $ 61,156,000 $ 192,466,000
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-46
<PAGE>
STARMEDIA NETWORK, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5,1996
(DATE OF SIX MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31 JUNE 30,
DECEMBER ----------------------------- ------------------------------
31, 1996 1997 1998 1999
-------------- ------------- -------------- 1998 --------------
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $ $ 472,000 $ 5,758,000 $ 850,000 $ 5,474,000
Operating expenses:
Product and technology development... 36,000 1,233,000 7,101,000 3,178,000 10,019,000
Sales and marketing.................. 12,000 2,110,000 29,281,000 6,015,000 22,926,000
General and administrative........... 78,000 650,000 4,810,000 1,033,000 6,665,000
Depreciation and amortization........ 2,000 38,000 785,000 248,000 1,644,000
Stock-based compensation expense..... 10,421,000 3,250,000 3,012,000
-------------- ------------- -------------- -------------- --------------
Total operating expenses............... 128,000 4,031,000 52,398,000 13,724,000 44,266,000
-------------- ------------- -------------- -------------- --------------
Loss from operations................... (128,000) (3,559,000) (46,640,000) (12,874,000) (38,792,000)
Other income (expense):
Interest income...................... 34,000 715,000 119,000 1,404,000
Interest expense..................... (48,000) (29,000) (269,000)
-------------- ------------- -------------- -------------- --------------
Net loss............................... (128,000) (3,525,000) (45,973,000) (12,784,000) (37,657,000)
Preferred stock dividends and
accretion............................ -- (185,000) (4,536,000) (720,000) (4,266,000)
-------------- ------------- -------------- -------------- --------------
Net loss available to common
stockholders......................... $ (128,000) $ (3,710,000) $ (50,509,000) $ (13,504,000) $ (41,923,000)
-------------- ------------- -------------- -------------- --------------
-------------- ------------- -------------- -------------- --------------
Historical basic and diluted net loss
per common share..................... $ (0.01) $ (0.37) $ (4.51) $ (1.32) $ (1.91)
-------------- ------------- -------------- -------------- --------------
-------------- ------------- -------------- -------------- --------------
Historical number of shares used in
computing basic and diluted net loss
per share............................ 9,147,223 10,039,502 11,203,749 10,220,866 21,927,102
-------------- ------------- -------------- -------------- --------------
-------------- ------------- -------------- -------------- --------------
Pro forma basic and diluted net loss
per share............................ $ (1.06) $ (.79)
--------------
--------------
Number of shares used in computing pro
forma basic and diluted net loss per
share................................ 43,200,416 47,736,568
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-47
<PAGE>
STARMEDIA NETWORK, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
EQUITY
PERIOD FROM MARCH 5, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996, AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER
------------------------ PAID-IN ACCUMULATED DEFERRED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION INCOME
----------- ----------- ------------ -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 5, 1996 (date of
inception)....................... $ $ $ $ $
Sale of common stock............... 10,012,000 10,000 431,000
Net loss for the period............ (128,000)
----------- ----------- ------------ -------------- --------------- -----------------
Balance at December 31, 1996....... 10,012,000 10,000 431,000 (128,000)
Accretion of preferred stock....... (185,000)
Issuance of common stock--Wass Net
S.L. ............................ 80,952 1,000 2,000
Net loss for the year.............. (3,525,000)
----------- ----------- ------------ -------------- --------------- -----------------
Balance at December 31, 1997....... 10,092,952 11,000 433,000 (3,838,000)
Deferred compensation related to
stock options, net of
cancellations.................... 19,087,000 (19,087,000)
Amortization of deferred
compensation..................... 10,421,000
Exercise of common stock options... 380,000 45,000
Issuance of common stock--Wass Net
S.L. ............................ 1,052,382 1,000 93,000
Issuance of common stock--
Webcast.......................... 784,198 1,000 35,000
Preferred stock dividends and
accretion........................ (4,536,000)
Net loss for the year.............. (45,973,000)
Translation adjustment............. (32,000)
Comprehensive loss.................
----------- ----------- ------------ -------------- --------------- -----------------
Balance at December 31, 1998....... 12,309,532 13,000 19,693,000 (54,347,000) (8,666,000) (32,000)
Deferred compensation related to
stock options, net of
cancellations.................... 5,955,000 (5,955,000)
Amortization of deferred
compensation..................... 3,012,000
Issuance of common stock, net of
offering costs................... 11,926,363 12,000 151,435,000
Shares issued for acquisition of
Services Interactivos Limitada... 20,000 1,000,000
Conversion of redeemable
convertible preferred stock...... 31,996,667 31,000 100,728,000
Exercise of common stock options... 1,753,636 2,000 2,014,000
Stock options issued for services.. 31,000
Transaction expenses related to
Wass Net, S.L. acquisition
payable by Wass Net
Shareholders..................... 732,000
Preferred stock dividends and
accretion........................ (4,266,000)
Net loss for the period............ (37,657,000)
Translation adjustment............. (288,000)
Comprehensive loss.................
----------- ----------- ------------ -------------- --------------- -----------------
Balance at June 30, 1999........... 58,006,198 $ 58,000 $ 281,588,00 $(96,270,000) $ (11,609,000) $ (320,000)
----------- ----------- ------------ -------------- --------------- -----------------
----------- ----------- ------------ -------------- --------------- -----------------
<CAPTION>
TOTAL
--------------
<S> <C>
Balance at March 5, 1996 (date of
inception)....................... $
Sale of common stock............... 441,000
Net loss for the period............ (128,000)
--------------
Balance at December 31, 1996....... 313,000
Accretion of preferred stock....... (185,000)
Issuance of common stock--Wass Net
S.L. ............................ 3,000
Net loss for the year.............. (3,525,000)
--------------
Balance at December 31, 1997....... (3,394,000)
Deferred compensation related to
stock options, net of
cancellations....................
Amortization of deferred
compensation..................... 10,421,000
Exercise of common stock options... 45,000
Issuance of common stock--Wass Net
S.L. ............................ 94,000
Issuance of common stock--
Webcast.......................... 36,000
Preferred stock dividends and
accretion........................ (4,536,000)
Net loss for the year.............. (45,973,000)
Translation adjustment............. (32,000)
--------------
Comprehensive loss................. (46,005,000)
--------------
Balance at December 31, 1998....... (43,339,000)
Deferred compensation related to
stock options, net of
cancellations....................
Amortization of deferred
compensation..................... 3,012,000
Issuance of common stock, net of
offering costs................... 151,447,000
Shares issued for acquisition of
Services Interactivos Limitada... 1,000,000
Conversion of redeemable
convertible preferred stock...... 100,759,000
Exercise of common stock options... 2,016,000
Stock options issued for services.. 31,000
Transaction expenses related to
Wass Net, S.L. acquisition
payable by Wass Net
Shareholders..................... 732,000
Preferred stock dividends and
accretion........................ (4,266,000)
Net loss for the period............ (37,657,000)
Translation adjustment............. (288,000)
--------------
Comprehensive loss................. (37,945,000)
--------------
Balance at June 30, 1999........... $ 173,447,000
--------------
--------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-48
<PAGE>
STARMEDIA NETWORK, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------- SIX MONTHS ENDED SIX MONTHS ENDED
1997 1998 JUNE 30, 1998 JUNE 30, 1999
------------ ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
(Unaudited)
OPERATING ACTIVITIES
Net loss......................................... $ (3,525,000) $ (45,973,000) $ (12,784,000) $ (37,657,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 38,000 785,000 248,000 1,643,000
Provision for bad debts...................... 65,000 9,000 179,000
Amortization of deferred compensation........ 10,421,000 3,250,000 3,012,000
Stock options issued for services............ 31,000
Deferred rent................................ 21,000 101,000 27,000 2,000
Transaction expenses related to Wass Net,
S.L........................................ 732,000
Changes in operating assets and liabilities:
Accounts receivable........................ (38,000) (541,000) (411,000) (1,851,000)
Other assets............................... (33,000) (1,772,000) (731,000) (5,261,000)
Accounts payable and accrued expenses...... 245,000 5,448,000 3,102,000 3,081,000
Deferred revenues.......................... 20,000 795,000 305,000 128,000
------------ ------------- ------------------ ------------------
Net cash used in operating activities............ (3,272,000) (30,671,000) (6,985,000) (35,961,000)
INVESTING ACTIVITIES
Purchase of fixed assets......................... (252,000) (4,478,000) (2,397,000) (6,044,000)
Intangible assets................................ (31,000) (241,000) (371,000) (360,000)
Cash paid for acquisition........................ (4,711,000)
------------ ------------- ------------------ ------------------
Net cash used in investing activities............ (283,000) (4,719,000) (2,768,000) (11,115,000)
FINANCING ACTIVITIES
Issuance of common stock......................... 3,000 87,000 12,014,000 154,458,000
Issuance of redeemable convertible preferred
stock, net of related expenses................. 3,647,000 88,125,000
Capital contribution--Wass Net, S.L.............. 51,000
Issuance of convertible subordinated notes....... 6,000,000
Proceeds from long-term debt..................... 5,074,000
Repayment of long-term debt...................... (369,000)
Repayment of convertible subordinated notes...... (6,000,000)
Loans (to) from stockholders..................... 67,000 9,000 122,000
Repayments (to) from stockholders................ 54,000 (67,000) (67,000)
Payments under capital leases.................... (3,000) (112,000) 285,000 (110,000)
------------ ------------- ------------------ ------------------
Net cash provided by financing activities........ 3,768,000 88,093,000 12,232,000 159,175,000
Effect of exchange rate changes on cash and cash
equivalents.................................... 1,000 (527,000)
------------ ------------- ------------------ ------------------
Net increase (decrease) in cash and cash
equivalents.................................... 213,000 52,704,000 2,479,000 111,572,000
Cash and cash equivalents, beginning of period... 230,000 443,000 443,000 53,147,000
------------ ------------- ------------------ ------------------
Cash and cash equivalents, end of period......... $ 443,000 $ 53,147,000 $ 2,922,000 $ 164,719,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.................................... $ $ 45,000 $ 29,000 $ 66,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Accrued purchases of fixed assets and
intangible assets........................ $ $ $ $ 477,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
Accrued costs for acquisitions............. $ $ $ $ 1,174,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
Accrued costs related to issuance of common
stock.................................... $ $ $ $ 959,000
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
Acquisition of fixed assets through capital
leases......................................... $ 21,000 $ 314,000 $ $
------------ ------------- ------------------ ------------------
------------ ------------- ------------------ ------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-49
<PAGE>
StarMedia Network, Inc.
Notes to Supplemental Consolidated Financial Statements
Period from March 5, 1996 (date of inception)
to December 31, 1996, the years ended
December 31, 1997 and 1998 and the
six months ended June 30, 1999
(information as of June 30, 1998 and for
the six months ended June 30, 1998 is unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND DESCRIPTION OF BUSINESS
The supplemental consolidated financial statements of Starmedia Network, Inc.
and its wholly-owned subsidiaries (collectively the "Company") have been
prepared to give retroactive effect to the merger with Webcast Solutions, Inc.
("Webcast") on September 14, 1999, (the "Webcast Merger"). The
pooling-of-interest method of accounting requires the restatement of all periods
as if the Company and Webcast had always been combined. Webcast was incorporated
on July 24, 1998. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for as a
pooling-of-interests that do not include the date of combination. These
supplemental consolidated financial statements included do not extend through
the date of consummation; however, they will become the historical consolidated
financial statements of the Company after financial statements covering the
consummation date of the Webcast Merger are issued. (See Notes 3, 4 and 6).
All intercompany account balances and transactions have been eliminated in
consolidation. StarMedia Network, Inc. was incorporated under Delaware law in
March 1996.
The Company is the leading Internet media company targeting Latin America and
other Spanish-and Portuguese-speaking markets worldwide. The Company's network
consists of interest-specific channels, extensive Web-based community features,
sophisticated search capabilities and access to online shopping in Spanish and
Portuguese. These channels cover topics of interest to Latin Americans online,
including local and regional news, business and sports. The Company promotes
user affinity to the StarMedia community by providing Spanish- and
Portuguese-language e-mail, chat rooms, instant messaging and personal
homepages. During 1999, the Company also launched sales offices in Spain and
Puerto Rico and began hiring regional sales managers throughout the United
States, focusing on those regions with large Spanish-speaking populations.
The accompanying consolidated financial statements have been restated to reflect
the May 26, 1999 acquisition of Wass Net, S.L. ("Wass Net"), which was accounted
for as a pooling-of-interests. (See Note 4).
INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1998, and for the six months ended June
30, 1998 have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position as of June 30, 1998 and the
results of operations and cash flows for the six months ended June 30, 1998 have
been made. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or eliminated.
F-50
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of banner
advertisements and sponsorships, some of which also involve more integration,
design and coordination of the customer's content with the Company's services,
such as the placement of sponsor buttons in specific areas of the Network. The
sponsor buttons generally provide users with direct links to sponsor homepages
that exist within the Network which are usually focused on selling sponsor
merchandise and services to users of the Network. Advertising revenues on both
banner and sponsorship contracts, which range from one month to two years, are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain and collection of the
resulting receivable is probable. Company obligations typically include
guarantees of minimum number of "impressions," or times that an advertisement
appears in pages viewed by users of the Company's Network. To the extent minimum
guaranteed impressions are not met, the Company defers recognition of the
corresponding revenues until the remaining guaranteed impression levels are
achieved. The Company also earns revenues on sponsorship contracts for fees
relating to the design, coordination, and integration of the customer's content.
Revenue related to the design, coordination and integration of the customers'
content are recognized ratably over the term of the contract or using the
percentage of completion method if the fee for such services is fixed. A number
of the Company's agreements provide for the Company to receive a percentage of
revenues from electronic commerce transactions conducted by advertisers who are
selling goods or services to users of the Network. These revenues are recognized
by the Company upon notification from the advertiser of its share of revenues
earned by the Company and, to date, have not been significant.
Revenues from barter transactions are recognized during the period in which the
advertisements are displayed on the Company's Network. Barter transactions are
recorded at the estimated fair market value of the goods or services received or
the estimated fair market value of the advertisements given, whichever is more
readily determinable. For the year ended December 31, 1997, substantially all of
the Company's revenues were derived from barter transactions. For the year ended
December 31, 1998 and the six months ended June 30, 1998 and 1999, revenues
derived from barter transactions, were approximately $2,400,000, $500,000 and
$1,900,000, respectively.
Revenues derived from the Company's Webcast subsidiary related to webcasting
services are recognized during the period in which the webcasting services are
delivered. Revenues related to consulting and technical services from time and
material contracts are recognized during the period in which the related
services are provided and revenue from fixed price contracts is recognized using
the percentage-of-completion method.
Deferred revenues are primarily comprised of billings in excess of recognized
revenues relating to advertising contracts and sponsorship and banner
advertising contracts.
PRODUCT DEVELOPMENT
Costs incurred in the classification and organization of listings within the
Network and the development of new products and enhancements to existing
products are charged to expense as
F-51
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
incurred. Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based upon the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have been insignificant.
CASH AND CASH EQUIVALENTS
The Company considers all financial instruments with a maturity of three months
or less when purchased to be cash equivalents. Such amounts are stated at cost
which approximates market value.
FIXED ASSETS
Fixed assets, including those acquired under capital leases, are stated at cost
and depreciated by the straight-line method over the estimated useful lives of
the assets, which range from three to five years. Leasehold improvements are
amortized over the lesser of the useful life of the asset or the remaining
period of the lease.
INTANGIBLE ASSETS
Intangible assets consist of trademarks and trade names and are being amortized
on a straight-line basis over a period of five years.
Goodwill consists of the excess of the purchase price paid over the tangible net
assets of acquired companies. Goodwill is amortized using the straight-line
method over three years. Amortization expense and accumulated amortization as of
June 30, 1999 and for the six months ended June 30, 1999 was approximately
$538,000.
The Company assesses the recoverability of its 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 the Company'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.
INCOME TAXES
The Company uses the liability method of accounting for income taxes, whereby
deferred income taxes are provided on items recognized for financial reporting
purposes over different periods than for income tax purposes. Valuation
allowances are provided when the expected realization of tax assets does not
meet a more likely than not criteria.
F-52
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed as incurred. For the period from March 5, 1996
(date of inception) to December 31, 1996, the years ended December 31, 1997 and
1998 and the six months ended June 30, 1998 and 1999, advertising expense
amounted to approximately $0, $1,610,000, $21,246,000, $4,578,000 and
$15,661,000, respectively. For the years ended December 31, 1997 and 1998 and
the six months ended June 30, 1998 and 1999, advertising expense includes
approximately $460,000, $2,400,000, $483,000 and $1,900,000 of charges related
to barter advertising transactions.
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 amounts reported in the financial statements and footnotes thereto.
Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company grants stock options generally for a fixed number of shares to
certain employees with an exercise price equal to or below the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and, accordingly, recognizes compensation
expense only if the fair value of the underlying Common Stock exceeds the
exercise price of the stock option on the date of grant. In October 1995, the
FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), which provides an alternative to APB Opinion No. 25 in accounting for
stock-based compensation. As permitted by SFAS No. 123, the Company continues to
account for stock-based compensation in accordance with APB Opinion No. 25 and
has elected the pro forma disclosure alternative of SFAS No. 123 (See Note 6).
COMPUTATION OF HISTORICAL NET LOSS PER SHARE
The Company calculates earnings per share in accordance with SFAS No. 128,
"Computation of Earnings Per Share" and SEC Staff Accounting Bulletin No. 98.
Accordingly, basic earnings per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon the conversion of the Preferred Stock (using the if-converted
method) and shares issuable upon the exercise of stock options (using the
treasury stock method); common equivalent shares are excluded from the
calculation if their effect is anti-dilutive.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains the majority of its cash and cash
equivalents with one financial institution. The Company's sales are primarily to
companies located in the United States and Latin American region. The Company
performs periodic credit evaluations of its customers' financial condition and
does not require
F-53
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
collateral. Accounts receivable are due principally from large U.S. companies
under stated contract terms and the Company provides for estimated credit losses
at the time of sale. Such losses have not been significant to date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the supplemental consolidated balance sheets
for cash and cash equivalents, accounts receivable, accounts payable and loan
payable approximate their fair values.
FOREIGN CURRENCY AND INTERNATIONAL OPERATIONS
The functional currency of the Company's active subsidiaries in Argentina,
Brazil, Chile, Spain and Colombia is the local currency. The financial
statements of these subsidiaries are translated to U.S. dollars using period-end
rates of exchange for assets and liabilities, and average rates for the period
for revenues and expenses. Translation gains and losses are deferred and
accumulated as a component of stockholders' equity. The functional currency of
the Company's subsidiaries in highly inflationary economies, Mexico, Uruguay,
and Venezuela, is the U.S. dollar. Accordingly, for those subsidiaries that use
U.S. dollars as the functional currency, monetary assets and liabilities are
translated using the current exchange rate in effect at the period-end date,
while nonmonetary assets and liabilities are translated at historical rates.
Operations are generally translated at the weighted average exchange rate in
effect during the period. The resulting foreign exchange gains and losses are
recorded in the consolidated statement of operations. Revenues earned by the
Company's foreign subsidiaries and assets of such foreign subsidiaries were not
significant for all periods presented or at December 31, 1997, 1998 and June 30,
1999. Commencing January 1, 1999, the functional currency of the Company's
Mexican subsidiary changed from the U.S. dollar to the local currency as Mexico
was no longer considered a hyper-inflationary economy.
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires foreign currency translation adjustments to be included in other
comprehensive loss.
SEGMENT INFORMATION
The Company discloses information regarding segments in accordance with SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for reporting of financial information about
operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports. The
disclosure of segment information was not required as the Company operates in
only one business segment.
As of and for the period and years ended December 31, 1996, 1997 and 1998 and
June 30, 1999, substantially all of the Company's assets were located in the
U.S. and the Company derived substantially all of its revenue from businesses
located in the U.S.
F-54
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------- JUNE 30,
1997 1998 1999
----------- ------------- -------------
<S> <C> <C> <C>
Computer equipment................................. $ 173,000 $ 4,822,000 10,421,000
Furniture and fixtures............................. 9,000 448,000 618,000
Leasehold improvements............................. 121,000 938,000 1,476,000
----------- ------------- -------------
303,000 6,208,000 12,515,000
Less accumulated depreciation and amortization..... (37,000) (730,000) (1,828,000)
----------- ------------- -------------
$ 266,000 $ 5,478,000 10,687,000
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
3. STOCKHOLDERS' (DEFICIT) EQUITY
Between April 30 and May 5, 1999, a group of third party investors purchased an
aggregate of 3,727,272 shares of the Company's common stock at $11 per share, or
approximately $41,000,000, less fees and commissions of $1,640,000 paid by
issuing 149,091 shares of the Company's common stock. These investors are
subject to a one-year restriction on the sale or transfer of such shares, after
which such investors have been granted certain registration rights.
On May 25, 1999, the Company's initial public offering was declared effective by
the SEC. The Company realized proceeds of approximately $110,400,000, net of
underwriting discounts and commissions and related expenses, from the initial
public offering of 8,050,000 shares of its common stock.
On May 26, 1999, the Company issued 1,133,334 shares of its common stock in
connection with the Wass Net merger.
On June 26, 1999, the Company issued 20,000 shares of its common stock in
connection with an acquisition valued at $1,000,000.
During the six months ended June 30, 1999, the Company issued 1,753,636 shares
of its common stock for $2,016,000 in connection with the exercise of stock
options.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
In July 1997, the Company sold 7,330,000 shares of Series A Redeemable
Convertible Preferred Stock (the "Series A Preferred") for $3,665,000, or $.50
per share. In February 1998, the Company sold 8,000,000 shares of Series B
Redeemable Convertible Stock (the "Series B Preferred") for $12,000,000, or
$1.50 per share. In August and September 1998, the Company sold an aggregate
16,666,667 shares of Series C Redeemable Convertible Preferred Stock (the
"Series C Preferred") for $80,000,000, or $4.80 per share. The Series A
Preferred, Series B Preferred and the Series C Preferred (collectively, the
"Preferred Stock") were convertible into common stock on a one for one basis,
subject to certain anti-dilution provisions, as defined, at any time at the
option of the holder or automatically in the event of a qualified IPO. The
holders of the Preferred Stock were entitled to the number of votes equal to the
number of common shares that could be obtained upon conversion on the date of
the vote and are entitled to a discretionary noncumulative dividend.
F-55
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
3. STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
Upon a liquidation, including any merger or acquisition where the existing
stockholders of the Company own less than 50% of the successor entity, the
holders of the Preferred Stock were entitled to have the Company redeem their
shares at the original price paid per share (the "Original Investment"), plus a
10% cumulative return less any dividends paid.
In the event that the Preferred Stock had not been converted as of December 31,
2004, the holders of the Preferred Stock can elect to have the Company redeem
their Preferred Stock for an amount equal to their original investment plus any
dividends declared but unpaid.
The Preferred Stock were converted into 31,996,667 shares common stocks on a
one-for-one basis, upon the consummation of the IPO. No Preferred Stock
dividends had been declared or paid. At December 31, 1997 and 1998, and at the
date of conversion total cumulative dividends in arrears, that would be payable
upon a liquidation, were approximately $183,000, $4,233,000 and $8,499,000,
respectively.
The Company has recorded issuance costs incurred in connection with the
Preferred Stock as discounts at issuance and accreted the discounts from the
date of issuance through the date of mandatory redemption on December 31, 2004.
CONVERTIBLE SUBORDINATED NOTES
In January 1998 the Company issued $4,000,000 8% convertible subordinated
notes due at the earlier of the closing of the Series B Preferred financing, or
on July 21, 1998. In August 1998 the Company issued $2,000,000 8% convertible
subordinated notes due at the earlier of the closing of the Series C Preferred
financing or on December 31, 1998. All amounts outstanding were repaid during
1998 in accordance with their terms.
WEBCAST
As of June 30, 1999 Webcast had 7,237,500 shares of common stock
outstanding. On July 1, 1999 Webcast issued 541,650 shares of Series A Preferred
Stock for $1.80 per share. The Series A Preferred Stock was convertible into
Webcast common stock at $1.80 per share at any time. In connection with the
Webcast Merger, all the outstanding Webcast common stock and Series A Preferred
Stock were exchanged for 842,887 shares of the Company's common stock. (See
Notes 1, 4 and 6).
4. ACQUISITIONS
ACHEI INTERNET PROMOTION, LTDA
On March 10, 1999, the Company acquired all of the outstanding stock of Achei
Internet Promotion Ltda. ("Achei"), a Brazilian company, in exchange for cash of
$810,000.
KD SISTEMAS DE INFORMACAO LTDA.
On April 13, 1999, the Company acquired all of the outstanding stock of KD
Sistemas de Informacao Ltda. ("KD Sistemas"), a Brazilian company, in exchange
for a cash payment of $5,000,000 at closing, $890,000 payable in March 2000, and
additional estimated cash payments of
F-56
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
4. ACQUISITIONS (CONTINUED)
up to $6,400,000, in the aggregate, due in March 2000, 2001 and 2002 upon the
achievement of certain performance targets (the "Earn-out"), plus related
expenses of approximately $250,000. As a portion of the Earn-out is contingent
upon the continued employment of certain key individuals, the Company will
record a portion of such payments as compensation expense, estimated to be
$3,000,000, when and if such performance targets are met.
SERVICIOS INTERACTIVOS LIMITADA
In June 1999, the Company acquired all the outstanding stock of Servicios
Interactivos Limitada ("SIL") for 20,000 shares of the Company's common stock.
The Company accounted for the aforementioned acquisitions under the purchase
method of accounting and the results of their operations have been included in
the financial statements of the Company from the respective dates of the
acquisitions. The excess purchase price over the fair value of the net assets
acquired, including expenses incurred by the Company, has been recorded as
goodwill. Goodwill resulting from the acquisitions of approximately $7,967,000
is being amortized using the straight-line method over three years.
The pro forma unaudited consolidated results of operations, assuming the
consummation of the KD Sistemas acquisition as of January 1, 1998, are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------------
<S> <C> <C>
1998 1999
--------------- ---------------
Revenues................................................... $ 1,250,000 $ 5,694,000
Net loss................................................... $ (13,553,000) $ (38,024,000)
Net loss available for common stockholders................. $ (14,273,000) $ (42,290,000)
Basic and diluted net loss per share....................... $ (1.40) $ (1.93)
</TABLE>
On a pro forma basis, if the Achei and SIL acquisitions had taken place at the
beginning of 1998, the effect on the Company's net sales, net loss, and loss per
share would have been immaterial.
WASS NET, S.L.
Effective May 26, 1999, the Company acquired all of the outstanding stock of
Wass Net, a company organized under the laws of Spain. The acquisition was
completed pursuant to the terms of a Share Purchase Agreement, whereby Wass Net
became a wholly-owned subsidiary of the Company. Under the terms of the
agreement, the Wass Net shareholders received 161.9 shares of the Company's
common stock for each outstanding Wass Net share. Accordingly, the Company
issued 1,133,334 shares of its common stock for all the outstanding shares of
Wass Net stock. Wass Net is a Spanish-language online community offering e-mail,
chat, classifieds, bulletin boards, home pages and search capabilities. The
acquisition was accounted for as a pooling of interests. Accordingly, the
Company's financial statements have been restated to include the results of Wass
Net for all periods presented.
F-57
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
4. ACQUISITIONS (CONTINUED)
Unaudited combined and separate results of StarMedia and Wass Net during the
periods preceding the merger were as follows:
<TABLE>
<CAPTION>
STARMEDIA AND
WASS NET
STARMEDIA WASS NET INTERCOMPANY COMBINED
-------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Revenues............................................ $ 5,293,000 $ 11,000 $ (5,000) $ 5,299,000
Net Loss............................................ $ 36,560,000 $ 885,000 $ -- $ 37,445,000
YEAR ENDED DECEMBER 31, 1998
Revenues............................................ $ 5,329,000 $ 21,000 $ (3,000) $ 5,347,000
Net Loss............................................ $ 45,886,000 $ 72,000 $ -- $ 45,958,000
</TABLE>
In connection with the Wass Net merger, Wass Net recorded a one-time charge of
$773,000 for transaction costs. In addition, the Company recorded a one-time
charge of approximately $250,000 in transaction costs.
WEBCAST
On September 14, 1999, a newly formed wholly owned subsidiary of the Company
merged with and into Webcast (the "Webcast Merger"). See Notes 1 and 3. Under
the terms of the Webcast Merger, 842,887 shares of the Company's common stock
were issued in exchange for all of the outstanding share of Webcast common stock
based on an exchange ratio of .1084 shares of the Company's common stock for
each share of Webcast common stock. Webcast is a streaming media company focused
on the global delivery of audio, video and other Internet-based interactive
media.
Unaudited combined and separate results of Starmedia and Webcast during the
periods preceding the merger were as follows:
<TABLE>
<CAPTION>
STARMEDIA
AND WASS NET WEBCAST COMBINED
-------------- ----------- --------------
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Revenues............................................................ $ 5,299,000 $ 175,000 $ 5,474,000
Net Loss............................................................ $ 37,445,000 $ 212,000 $ 37,657,000
YEAR ENDED DECEMBER 31, 1998
Revenues............................................................ $ 5,347,000 $ 411,000 $ 5,758,000
Net Loss............................................................ $ 45,958,000 $ 15,000 $ 45,973,000
</TABLE>
F-58
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
5. LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996
(DATE OF SIX MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31 JUNE 30,
DECEMBER ----------------------------- --------------------------------
31, 1996 1997 1998 1998 1999
-------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Numerator:
Net loss..................... $ (128,000) $ (3,525,000) $ (45,973,000) $ (12,784,000) $ (37,657,000)
Preferred stock dividends and
accretion.................. -- (185,000) (4,536,000) (720,000) (4,266,000)
-------------- ------------- -------------- --------------- ---------------
Numerator for basic and diluted
loss per share-- net loss
available for common
stockholders................. $ (128,000) $ (3,710,000) $ (50,509,000) $ (13,504,000) $ (41,923,000)
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
Denominator:
Denominator for basic and
dilutive loss per
share--weighted average
shares..................... 9,147,223 10,039,502 11,203,749 10,220,866 21,927,102
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
Basic and diluted net loss per
share........................ $ (0.01) $ (0.37) $ (4.51) $ (1.32) $ (1.91)
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
</TABLE>
Diluted net loss per share for the period from March 5, 1996 (date of
inception) to December 31, 1996, the years ended December 31, 1997 and 1998, and
the six month period ended June 30, 1998 and 1999, does not include the effect
of options to purchase 0, 1,804,933, 6,131,933, 4,117,000 and 7,277,000 shares
of common stock, respectively. Diluted net loss per share for the period from
March 5, 1996 (date of inception) to December 31, 1996 and the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1998 does not
include the effect of 0, 7,330,000, 31,996,667, and 15,330,000 shares of common
stock issuable upon the conversion of Preferred Stock on an "as if converted"
basis, respectively, as the effect of their inclusion is antidilutive during
each period.
F-59
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
5. LOSS PER SHARE (CONTINUED)
The following table sets forth the computation of the unaudited pro forma
basic and diluted loss per share, assuming conversion of the Preferred Stock:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
--------------- ---------------
<S> <C> <C>
Numerator:
Net loss available to common stockholders................ $ (50,509,000) $ (41,923,000)
Preferred Stock dividends and accretion.................. 4,536,000 4,266,000
--------------- ---------------
Numerator for pro forma loss available to common
stockholders............................................. $ (45,973,000) $ (37,657,000)
--------------- ---------------
--------------- ---------------
Denominator:
Weighted average number of common shares................. 11,203,749 21,927,102
Assumed conversion of Preferred Stock to common shares
(if converted method).................................. 31,996,667 25,809,466
--------------- ---------------
Denominator for pro forma basic and diluted loss per
share.................................................... 43,200,416 47,736,568
--------------- ---------------
Pro forma basic and diluted net loss per share............. $ (1.06) $ (.79)
--------------- ---------------
--------------- ---------------
</TABLE>
6. STOCK OPTIONS
In January 1997, the Company adopted the 1997 Stock Option Plan and, in July
1998, the Company adopted the 1998 Stock Option Plan (collectively, the "Option
Plans"). The 1997 Stock Option Plan and the 1998 Stock Plan provide for the
authorization of 10,000,000 shares. In February 1999, an additional 7,000,000
shares were reserved for issuance pursuant to the 1998 Stock Option Plan. The
Option Plans provide for the granting of incentive stock options or
non-qualified stock options to purchase common stock to eligible participants.
Options granted under the Option Plan are for periods not to exceed ten years.
In July 1998, approximately 1,400,000 non-qualified options outstanding were
exchanged for incentive stock options having generally equivalent terms as the
non-qualified options.
Other than options to purchase 2,000,000 and 1,500,000 shares granted in
April and December 1998, respectively, which were immediately vested, options
outstanding under the Option Plans generally vest one-third after the first year
of service and ratably each month over the next two years.
In connection with the granting of stock options in 1998 and the exchange of
non-qualified options to incentive stock options, the Company recorded deferred
compensation of approximately $19,087,000. In connection with the granting of
stock options in 1999, the Company recorded additional deferred compensation of
approximately $5,955,000. Deferred compensation is being amortized for financial
reporting purposes over the vesting period of the options. The amount recognized
as expense during the year ended December 31, 1998 and the six months ended June
30, 1998 and 1999 amounted to approximately $10,421,000, $3,250,000 and
$3,012,000, respectively.
F-60
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
6. STOCK OPTIONS (CONTINUED)
In May 1999, 1,500,000 shares of common stock were reserved for issuance
under the Company's Employee Stock Purchase Plan.
As of June 30, 1999 Webcast had granted options to purchase 886,951 shares
of Webcast common stock under the Webcast 1999 Stock Plan. In July and August
1999 an additional 46,000 options were granted. In connection with the Webcast
Merger all the Webcast options were exchanged for options to purchase 101,132
shares of the Company's common stock at an exchange ratio of .1084 shares of the
Company's common stock for each option outstanding.
The following transactions occurred with respect to the Option Plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------------ ---------------
<S> <C> <C>
Granted........................................................ 1,814,933 $ 0.42
Canceled....................................................... (10,000) .50
------------
Outstanding, December 31, 1997................................. 1,804,933 .42
Granted........................................................ 6,792,000 .78
Canceled....................................................... (2,085,000) .50
Exercised...................................................... (380,000) .12
------------
Outstanding, December 31, 1998................................. 6,131,933 .81
Granted........................................................ 3,024,569 5.67
Canceled....................................................... (131,333) 2.19
Exercised...................................................... (1,753,636) 1.16
------------ -----
Outstanding, June 30,1999 7,271,533 $ 2.72
------------ -----
------------ -----
</TABLE>
The following table summarizes information concerning outstanding
exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED-
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OUTSTANDING LIFE
- ------------------------------------------------------------------ ------------ ---------------
<S> <C> <C>
$0.50............................................................. 4,415,433 6.75
$1.60............................................................. 1,716,500 7.00
------------
6,131,933
------------
------------
</TABLE>
F-61
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
6. STOCK OPTIONS (CONTINUED)
The following table summarizes information concerning outstanding
exercisable options at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED-
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OUTSTANDING LIFE
- ------------------------------------------------------------------ ------------ ---------------
<S> <C> <C>
$ 0.50............................................................ 3,059,229 6.25
$ 1.60............................................................ 2,093,000 6.50
$ 1.66............................................................ 96,145 9.62
$ 5.64............................................................ 1,590,659 9.66
$11.00............................................................ 180,500 9.90
$15.00............................................................ 252,000 9.81
------------
7,271,533
------------
------------
</TABLE>
Pro forma information regarding net loss is required by SFAS No. 123 which
also requires that the information be determined as if the Company has accounted
for its stock option under the fair value method of the statement. The fair
value for these options was estimated using the minimum value method with the
following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------- SIX MONTHS ENDED
ASSUMPTIONS 1997 1998 JUNE 30, 1999
- ---------------------------------------------------------- --------------- ---------------- ------------------
<S> <C> <C> <C>
Average risk-free interest rate........................... 6.00%-6.40% 4.440%-5.70% 5.0%
Dividend yield............................................ 0.0% 0.0% 0.0%
Average life.............................................. 5 years 5 years 5 years
</TABLE>
Because the determination of fair value of all options granted after the
Company became a public entity will include an expected volatility factor in
addition to the factors described in the preceding paragraph, the above results
may not be representative of future periods. No options were granted subsequent
to the consummation of the IPO through June 30, 1999.
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- SIX MONTHS ENDED
1997 1998 JUNE 30, 1999
-------------- --------------- ------------------
<S> <C> <C> <C>
Pro forma net loss available to common stockholders......... $ (3,710,000) $ (49,942,863) $ (41,443,078)
Pro forma basic and diluted loss per share.................. $ (0.37) $ (4.46) $ (1.89)
</TABLE>
7. INCOME TAXES
For Federal income tax purposes, at June 30, 1999, the Company had net
operating loss carryforwards of approximately $51,742,000 which expire from 2011
through 2019. The net operating loss carryforwards may be subject to Section 382
of the Internal Revenue Code, which imposes annual limitations on their
utilization. A valuation allowance has been recognized to fully offset the
deferred tax assets, after considering deferred tax liabilities.
F-62
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
------------------------------- ---------------
<S> <C> <C> <C>
1997 1998 1999
-------------- --------------- ---------------
Federal net operating loss carryforwards... $ 1,200,000 $ 12,422,000 $ 17,592,000
Depreciation and amortization.............. (6,000) (227,000) 553,000
Deferred rent.............................. 9,000 55,000 59,000
Other...................................... 27,000 31,000
-------------- --------------- ---------------
1,203,000 12,277,000 18,235,000
Valuation allowance........................ (1,203,000) (12,277,000) (18,235,000)
-------------- --------------- ---------------
$ -- $ -- $ --
-------------- --------------- ---------------
-------------- --------------- ---------------
</TABLE>
The effective income tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996
(DATE OF YEAR ENDED DECEMBER 31
INCEPTION) TO SIX MONTHS
DECEMBER 31, ------------------------ ENDED JUNE 30,
1996 1997 1998 1999
----------------- ----- ----- -------------------
<S> <C> <C> <C> <C>
Statutory rate................................................ (34%) (34%) (34%) (34%)
Non deductible losses from foreign operations................. 2 --
Permanent differences......................................... 8 5
Valuation allowance........................................... 33 33 23 28
Other......................................................... 1 1 1 1
-- -- -- --
Effective tax rate............................................ --% --% --% --%
-- -- -- --
-- -- -- --
</TABLE>
8. LONG-TERM DEBT
The Company has a $12 million credit line for the acquisition of computer
equipment and furniture and fixtures. At June 30, 1999, approximately $4.7
million was outstanding under the credit line. Amounts outstanding are payable
in monthly installments of principal and interest of approximately $170,000,
bear interest at approximately 13.6% per annum and are secured by certain
computer equipment and furniture and fixtures. The credit line requires the
Company to maintain at least $10,000,000 in cash and cash equivalents.
F-63
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Product and technology development........................ $ 14,000 $ 490,000 1,169,000
Sales and marketing....................................... 64,000 3,639,000 3,859,000
General and administrative................................ 132,000 1,155,000 853,000
Accrued fixed asset and intangible purchases.............. 17,000 1,059,000 477,000
Costs related to issuance of common stock................. -- -- 959,000
Costs for acquisitions.................................... -- -- 1,174,000
Other..................................................... -- 146,000 276,000
------------- ------------- -------------
$ 227,000 $ 6,489,000 $ 8,767,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The nature of the accrued expenses is as follows: (i) product and technology
development primarily represents content acquisition costs and telecommunication
and hosting costs related to the Company's operations; (ii) sales and marketing
primarily represent advertising expenses related to the Company's print,
television and radio advertisements; (iii) general and administrative primarily
represent professional fees and employee bonuses; (iv) accrued fixed asset and
intangible purchases primarily represent the purchase of fixed assets which have
been placed in service and certain costs incurred in connection with the
Company's trademarks and trade names.
10. COMMITMENTS
CAPITAL LEASE
Included in computer equipment are assets acquired under a capital lease.
The cost of such equipment as of December 31, 1997 and 1998 is approximately
$21,000 and $335,000 and the related accumulated depreciation is approximately
$1,000 and $51,000, respectively.
Future minimum lease payments under the noncancelable capital lease as of
December 31, 1998 are $231,000, including interest of $11,000, which is all due
in 1999.
In connection with the capital lease the Company has a letter of credit
outstanding of approximately $144,000 at December 31, 1998.
OPERATING LEASES
The Company rents office space under noncancelable lease agreements. The
minimum annual rental commitments under noncancelable operating leases that have
initial or remaining terms in excess of one year as of June 30, 1999 are as
follows:
<TABLE>
<S> <C>
Year ended June 30:
2000........................................................... $ 898,000
2001........................................................... 740,000
2002........................................................... 385,000
2003........................................................... 297,000
2004........................................................... 51,000
----------
$2,371,000
----------
----------
</TABLE>
F-64
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
10. COMMITMENTS (CONTINUED)
Rent expense amounted to approximately $0, $66,000, $392,000, $135,000 and
$511,000 for the period from March 5, 1996 (date of inception) to December 31,
1996, the years ended December 31, 1997 and 1998, and the six months ended June
30, 1998 and 1999, respectively.
11. RETIREMENT PLAN
The Company has a 401(k) plan that covers its eligible domestic employees.
The plan does not require a matching contribution by the Company.
12. SIGNIFICANT CUSTOMERS AND GEOGRAPHICAL CONCENTRATION
For the six months ended June 30, 1999, three customers each accounted for
approximately 7% of the Company's total revenue.
For the six months ended June 30, 1998, two customers accounted for
approximately 27% and 25% of the Company's total revenue, respectively.
For the year ended December 31, 1997, three customers accounted for
approximately 36%, 23%, and 16% of the Company's total revenue, respectively.
For the year ended December 31, 1998, two customers accounted for
approximately 21% and 14% of the Company's total revenue, respectively.
13. SUBSEQUENT EVENT (UNAUDITED)
On September 18, 1999, the Company entered into an agreement to purchase
substantially all of the assets of PageCell International Holdings, Inc.
("PageCell"), a provider of advanced mobile technologies and services, in
exchange for common stock and junior non-voting convertible preferred stock of
the Company (the "Equity Consideration") valued at $10,000,000 at the closing
date and additional Equity Consideration valued at up to $15,000,000 upon the
achievement of certain quarterly performance related targets through December
2000. The consummation of the acquisition is subject to certain closing
conditions.
F-65
<PAGE>
UNDERWRITING
StarMedia, the selling stockholder and the underwriters for the offering
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to the terms of the underwriting agreement, each
underwriter has severally agreed to purchase the number of shares indicated in
the following table. Goldman, Sachs & Co., BancBoston Robertson Stephens Inc.,
J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Smith Barney Inc. and Thomas Weisel Partners L.L.C. are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
Goldman, Sachs & Co..................................................................................
BancBoston Robertson Stephens Inc. ..................................................................
J.P. Morgan Securities Inc. .........................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................................................
Salomon Smith Barney Inc. ...........................................................................
Thomas Weisel Partners L.L.C. .......................................................................
-----------
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 975,000
shares from StarMedia to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by StarMedia and the selling
stockholder. Such amounts are shown assuming both no exercise and full exercise
of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by StarMedia
----------------------------
No Exercise Full Exercise
------------- -------------
<S> <C> <C>
Per Share............... $ $
Total................... $ $
</TABLE>
<TABLE>
<CAPTION>
Paid by the Selling
Stockholder
----------------------------
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 price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any of those securities
dealers may resell any shares purchased from the underwriters to other brokers
or dealers at a discount of up to $ per share from the initial price to
public. If all the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.
StarMedia, its directors and officers, 5% stockholders and the selling
stockholder 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 90 days (180 days in the case of the selling stockholder) after
the date of this prospectus, except with the prior written consent of the
representatives. This agreement does not apply to any existing employee benefit
plans. Please see "Shares Eligible for Future Sale" for a discussion of transfer
restrictions relating to StarMedia's outstanding shares of common stock.
U-1
<PAGE>
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager of 68 filed
public offerings of equity securities, of which 37 have been completed, and has
acted as a syndicate member in an additional 33 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
StarMedia or any of our officers, directors or other controlling persons, except
for its proposed contractual relationship with StarMedia under the terms of the
underwriting agreement to be entered into in connection with this offering.
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 this 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 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.
As permitted by Rule 103 under the Exchange Act, underwriters and selling
group members that are market makers ("passive market makers") in the common
stock may make bids for or purchases of common stock in the Nasdaq National
Market until a stabilizing bid has been made. Rule 103 generally provides that:
- a passive market maker's net daily purchases of the common stock may not
exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months, or any 60 consecutive days ending
within the 10 days, immediately preceding the filing date of the
registration statement of which this prospectus forms a part,
- a passive market maker may not effect transactions or display bids for
common stock at a price that exceeds the highest independent bid for the
common stock by persons who are not passive market makers, and
- bids made by passive market makers must be identified as such.
StarMedia and the selling stockholder estimate that their shares of the
total expenses of this offering, excluding underwriting discounts and
commissions, will be approximately $ .
J.P. Morgan Securities Inc., an affiliate of J.P. Morgan & Co., acted as a
placement agent for StarMedia in connection with the private placement of
StarMedia's series C redeemable convertible preferred stock in August 1998.
StarMedia incurred customary placement fees to J.P. Morgan Securities Inc. for
such services.
Goldman, Sachs & Co. acted as a placement agent for StarMedia in connection
with the private placement of shares of StarMedia's common stock in April and
May 1999. StarMedia incurred customary placement fees to Goldman, Sachs & Co.
for such services. StarMedia paid the fee in shares of common stock priced at
the private placement price of $11.00 per share. Goldman, Sachs & Co. received
149,091 shares and agreed with StarMedia not to sell, transfer, assign, pledge
U-2
<PAGE>
or hypothecate any such shares for one year after the date of the initial public
offering.
Bayview Investors, an affiliate of BancBoston Robertson Stephens Inc.,
purchased 200,000 shares of StarMedia's series B redeemable convertible
preferred stock in connection with StarMedia's private placement in February
1998 and 20,834 shares of StarMedia's series C redeemable convertible preferred
stock in connection with StarMedia's private placement in August 1998. Bayview
Investors has agreed with StarMedia not to sell, transfer, assign, pledge or
hypothecate any of its 20,834 series C shares for one year after the date of
this offering.
StarMedia and the selling stockholder have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
U-3
<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......................... 8
Forward-Looking Statements; Market
Data............................... 20
Use of Proceeds...................... 21
Price Range of Common Stock.......... 21
Dividend Policy...................... 21
Capitalization....................... 22
Dilution............................. 23
Selected Supplemental Consolidated
Financial Data..................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................. 36
Management........................... 52
Certain Transactions................. 60
Principal Stockholders............... 62
Description of Capital Stock......... 64
Shares Eligible for Future Sale...... 69
Validity of Common Stock............. 70
Experts.............................. 70
Where You Can Find More Information.. 70
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>
6,500,000 Shares
STARMEDIA NETWORK, INC.
Common Stock
---------------
------------
GOLDMAN, SACHS & CO.
BANCBOSTON
ROBERTSON STEPHENS
J.P. MORGAN & CO.
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS L.L.C.
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 an estimate of the costs and expenses, other
than the underwriting discounts and commissions, payable by the registrant in
connection with the issuance and distribution of the common stock being
registered.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 86,109
NASD filing fee.................................................. 30,500
NASDAQ listing fee............................................... 17,500
Legal fees and expenses.......................................... 200,000
Accountants' fees and expenses................................... 200,000
Printing expenses................................................ 200,000
Blue sky fees and expenses....................................... 10,000
Transfer Agent and Registrar fees and expenses................... 20,000
Miscellaneous.................................................... 35,891
---------
Total...................................................... $ 800,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL makes provision for the indemnification of officers
and directors in terms sufficiently broad to indemnify officers and directors
under certain circumstances from liabilities (including reimbursement for
expenses incurred) arising under the Securities Act. Section 145 of the DGCL
empowers a corporation to indemnify its directors and officers and to purchase
insurance with respect to liability arising out of their capacity or status as
directors and officers, provided that this provision shall not eliminate or
limit the liability of a director: (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) arising under Section 174 of the DGCL, or (iv) for any transaction
from which the director derived an improper personal benefit. The DGCL provides
further that the indemnification permitted thereunder shall not be deemed
exclusive of any other rights to which the directors and officers may be
entitled under the corporation's bylaws, any agreement, a vote of stockholders
or otherwise.
The certificate of incorporation of StarMedia provides for indemnification
of our directors against, and absolution of, liability to StarMedia and its
stockholders to the fullest extent permitted by the DGCL. StarMedia intends to
purchase directors' and officers' liability insurance covering liabilities that
may be incurred by our directors and officers in connection with the performance
of their duties.
The employment agreements we have with Fernando J. Espuelas and Jack C. Chen
provide that such executives will be indemnified by us for all liabilities
relating to their status as officers or directors of StarMedia, and any actions
committed or omitted by the executives, to the maximum extent permitted by law
of the State of Delaware.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The registrant has sold and issued the following securities since March 5,
1996 (inception):
1. From March 5, 1996 to December 31, 1998, the registrant issued and
sold 10,392,000 shares of common stock to twenty-two purchasers,
including officers, directors and other accredited investors, at prices
ranging from $0.0056 to $0.50 per share.
II-1
<PAGE>
2. In 1997, the registrant issued and sold 7,330,000 shares of series A
redeemable convertible preferred stock to twenty-nine purchasers,
including officers, directors and other accredited investors, for an
aggregate purchase price of $3,665,000.
3. On January 21, 1998, the registrant issued 8% convertible subordinated
notes due July 21, 1998 to the fl@tiron Fund, LLC in the aggregate
principal amount of $410,000 and to Chase Venture Capital Associates,
L.P. in the aggregate amount of $3,590,000.
4. In February 1998, the registrant issued and sold 8,000,000 shares of
series B redeemable convertible preferred stock to thirty-two purchasers,
including officers, directors and other accredited investors, for an
aggregate purchase price of $12,000,000.
5. On August 14, 1998, the registrant issued 8% convertible subordinated
notes due December 31, 1998 to the Flatiron Fund 1998/99, LLC in the
aggregate principal amount of $200,000 and to Chase Venture Capital
Associates, L.P. in the aggregate amount of $1,800,000.
6. In August 1998, the registrant issued and sold 16,666,667 shares of
series C redeemable convertible preferred stock to thirty-seven
purchasers, including officers, directors and other accredited investors,
for an aggregate purchase price of $80,000,000.
7. Since December 31, 1998, the registrant has issued and sold 1,624,860
shares of common stock to twenty purchasers, including five officers and
thirteen employees, upon the exercise of options for an aggregate
purchase price of $1,619,123.
8. In May 1999, the registrant completed the sale of 3,727,272 shares of
its common stock at $11.00 per share to six accredited investors for the
aggregate purchase price of $41,000,000.
9. In May 1999, the registrant issued 1,133,334 shares of its common
stock in connection with a merger valued at $17,000,000.
10. In June 1999, the registrant issued 20,000 shares of its common stock
in connection with an acquisition valued at $1,000,000.
11. In September 1999, the registrant issued 842,887 shares of its common
stock in connection with an acquisition valued at $36,655,000.
12. Since May 25, 1999, the registrant has issued and sold 33,333 shares
of common stock to 1 employee upon the exercise of options for an
aggregate price of $16,667.
The sales of the above securities were deemed to be exempt from registration
in reliance on Section 4(2) of the Securities Act of 1933, as amended, or Rule
701 promulgated under the Securities Act. The recipients of securities in each
of these transactions represented their intention to acquire the securities for
investment only and not with view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationship with the registrant, to information
about the registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of underwriting agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and restated certificate of incorporation (Incorporated by reference to exhibit 3.2 of
StarMedia's Registration Statement on Form S-1, No. 333-74659 ("Registration Statement No.
333-74659").
3.2 Amended and restated bylaws (Incorporated by reference to exhibit 3.4 of Registration Statement No.,
333-74659).
4.1* Specimen common stock certificate.
4.2 Please see Exhibits 3.1 and 3.2 for provisions of the certificate of incorporation and bylaws
defining the rights of holders of common stock.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1997 stock option plan (Incorporated by reference to exhibit 10.1 of Registration Statement No.
333-74659).
10.2 1998 stock plan. (Incorporated by reference to exhibit 10.2 of Registration Statement No. 333-74659).
10.3 Lease dated September 15, 1997 between Clemons Management Corp. and StarMedia, as amended
(Incorporated by reference to exhibit 10.3 of Registration Statement No. 333-74659).
10.4 Amended and restated registration rights agreement (Incorporated by reference to exhibit 10.4 of
Registration Statement No. 333-74659).
10.5 Amendment no. 1 to amended and restated registration rights agreement (Incorporated by reference to
exhibit 10.5 of Registration Statement No. 333-74659).
10.6u IBM Business Partner Agreement, dated as of April 1, 1999, by and between StarMedia and International
Business Machines Corporation (Incorporated by reference to exhibit 10.9 of Registration Statement
No. 333-74659).
10.7 Quota Purchase Agreement, dated as of April 13, 1999, by and between StarMedia, StarMedia do Brasil
Ltda., Quotaholders of KD Sistemas de Informacao Ltda. and KD Sistemas de Informacao Ltda
(Incorporated by reference to exhibit 10.10 of Registration Statement No. 333-74659).
10.8 Master Loan and Security Agreement No. 4231, dated as of March 31, 1999, by and between StarMedia and
Charter Financial, Inc (Incorporated by reference to exhibit 10.11 of Registration Statement No.
333-74659).
10.9 StarMedia 1999 Employee Stock Purchase Plan (Incorporated by reference to exhibit 10.12 of
Registration Statement No. 333-74659).
10.10 Stock Purchase Agreement between StarMedia and Hearst Communications, Inc. dated as of April 30, 1999
(Incorporated by reference to exhibit 10.13 of Registration Statement No. 333-74659).
10.11 Stock Purchase Agreement between StarMedia and Reuters Holding Switzerland SA dated as of April 30,
1999 (Incorporated by reference to exhibit 10.14 of Registration Statement No. 333-74659).
10.12 Stock Purchase Agreement between StarMedia and eBay Inc. dated as of April 30, 1999 (Incorporated by
reference to exhibit 10.15 of Registration Statement No. 333-74659).
10.13 Stock Purchase Agreement between StarMedia and Europortal Holding S.A. dated as of April 30, 1999
(Incorporated by reference to exhibit 10.16 of Registration Statement No. 333-74659).
10.14 Stock Purchase Agreement between StarMedia and Critical Path, Inc. dated as of May 3, 1999
(Incorporated by reference to exhibit 10.17 of Registration Statement No. 333-74659).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.15 Stock Purchase Agreement between StarMedia and Europortal Holding S.A. dated as of May 5, 1999
(Incorporated by reference to exhibit 10.18 of Registration Statement No. 333-74659).
10.16 Share Purchase Agreement dated as of May 4, 1999 between StarMedia and Wass Net S.L., Geradons, S.L.,
Salvador Porte and Eduardo Kawas (Incorporated by reference to exhibit 10.19 of Registration
Statement No. 333-74659).
10.17 Stock Purchase Agreement between StarMedia and National Broadcasting Company, Inc. dated as of May 4,
1999 (Incorporated by reference to exhibit 10.20 of Registration Statement No. 333-74659).
10.18 Registration Rights Agreement dated as of April 30, 1999 between StarMedia and Hearst Communications,
Inc. (Incorporated by reference to exhibit 10.21 of Registration Statement No. 333-74659).
10.19 Registration Rights Agreement dated as of April 30, 1999 between StarMedia and Reuters Holdings
Switzerland S.A. (Incorporated by reference to exhibit 10.22 of Registration Statement No.
333-74659).
10.20 Registration Rights Agreement dated as of April 30, 1999 between StarMedia and eBay Inc.
(Incorporated by reference to exhibit 10.23 of Registration Statement No. 333-74659).
10.21 Registration Rights Agreement dated as of May 3, 1999 between StarMedia and Europortal Holding S.A.
(Incorporated by reference to exhibit 10.24 of Registration Statement No. 333-74659).
10.22 Registration Rights Agreement dated as of May 3, 1999 between StarMedia and Critical Path, Inc.
(Incorporated by reference to exhibit 10.25 of Registration Statement No. 333-74659).
10.23 Registration Rights Agreement dated as of May 5, 1999 between StarMedia and Europortal Holding S.A.
(Incorporated by reference to exhibit 10.26 of Registration Statement No. 333-74659).
10.24 Registration Rights Agreement dated as of May 4, 1999 between StarMedia and Geradons, S.L.
(Incorporated by reference to exhibit 10.27 of Registration Statement No. 333-74659).
10.25 Registration Rights Agreement dated as of May 4, 1999 between StarMedia and National Broadcasting
Company, Inc. (Incorporated by reference to exhibit 10.28 of Registration Statement No. 333-74659).
10.26 Employment Agreement dated as of April 29, 1999 by and between StarMedia and Fernando J. Espuelas
(Incorporated by reference to exhibit 10.29 of Registration Statement No. 333-74659).
10.27 Employment Agreement dated as of April 29, 1999 by and between StarMedia and Jack C. Chen
(Incorporated by reference to exhibit 10.30 of Registration Statement No. 333-74659).
10.28 Form of Rights Agreement (Incorporated by reference to exhibit 10.31 of Registration Statement No.
333-74659).
10.29 Agreement and Plan of Reorganization by and among Webcast Solutions, Inc., StarMedia Network, Inc.
and S Media Acquisition Corp., dated as of September 14, 1999.
21.1+ List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1+ Power of attorney (please see Signature Page).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
+ Previously filed.
* To be filed by amendment.
u The Commission granted confidential treatment of certain provisions. Omitted
material for which confidential treatment has been granted has been filed
separately with the Commission.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 of 1933 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
of 1933, 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on this 27th day of September, 1999.
STARMEDIA NETWORK, INC.
BY: /S/ FERNANDO J. ESPUELAS
-----------------------------------------
Fernando J. Espuelas
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities indicated below:
<TABLE>
<S> <C>
Dated: September 27, 1999 /s/ FERNANDO J. ESPUELAS
--------------------------------------------
Fernando J. Espuelas
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Dated: September 27, 1999 *
--------------------------------------------
Jack C. Chen
President and Director
Dated: September 27, 1999 *
--------------------------------------------
Steven J. Heller
Chief Financial Officer(Principal Financial
and Accounting Officer)
Dated: September 27, 1999
--------------------------------------------
Douglas M. Karp
Director
Dated: September 27, 1999 *
--------------------------------------------
Christopher T. Linen
Director
Dated: September 27, 1999 *
--------------------------------------------
Gerardo M. Rosenkranz
Director
Dated: September 27, 1999 *
--------------------------------------------
Susan L. Segal
Director
Dated: September 27, 1999 *
--------------------------------------------
Frederick R. Wilson
Director
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ FERNANDO J.
ESPUELAS
-------------------------
Fernando J. Espuelas
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
StarMedia Network, Inc.
We have audited the consolidated financial statements of StarMedia Network, Inc.
as of December 31, 1997 and 1998 and June 30, 1999, and the period from March 5,
1996 (date of inception) to December 31, 1996, the years ended December 31, 1997
and 1998, and the six months ended June 30, 1999 and have issued our report
thereon dated September 14, 1999 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
New York, New York
September 14, 1999
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
STARMEDIA NETWORK INC.
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
ADDITIONS
BALANCE AT
BEGINNING OF CHARGED TO COSTS CHARGED TO OTHER
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... $ 60,000 $ 179,000 -- --
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... -- 60,000 -- --
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... -- -- -- --
PERIOD ENDED MARCH 5, 1996 (DATE OF
INCEPTION) TO DECEMBER 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... -- -- -- --
<CAPTION>
COLUMN A COLUMN E
BALANCE AT END
DESCRIPTION OF PERIOD
<S> <C>
SIX MONTHS ENDED JUNE 30, 1999
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... $ 239,000
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... 60,000
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... --
PERIOD ENDED MARCH 5, 1996 (DATE OF
INCEPTION) TO DECEMBER 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... --
</TABLE>
S-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
StarMedia Network, Inc.
We have audited the supplemental consolidated financial statements of StarMedia
Network, Inc. as of December 31, 1997 and 1998 and June 30, 1999, and the period
from March 5, 1996 (date of inception) to December 31, 1996, the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1999, and have
issued our report thereon dated September 14, 1999 (included elsewhere in this
Registration Statement). Our audits also included the supplemental financial
statement schedule listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the supplemental financial statement schedule referred to above,
when considered in relation to the basic supplemental financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
New York, New York
September 14, 1999
S-3
<PAGE>
SUPPLEMENTAL SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
STARMEDIA NETWORK INC.
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
ADDITIONS
BALANCE AT
BEGINNING OF CHARGED TO COSTS CHARGED TO OTHER
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... $ 65,000 $ 179,000 -- --
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... -- 65,000 -- --
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... -- -- -- --
PERIOD ENDED MARCH 5, 1996 (DATE OF
INCEPTION) TO DECEMBER 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... -- -- -- --
<CAPTION>
COLUMN A COLUMN E
BALANCE AT END
DESCRIPTION OF PERIOD
<S> <C>
SIX MONTHS ENDED JUNE 30, 1999
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... $ 244,000
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... 65,000
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... --
PERIOD ENDED MARCH 5, 1996 (DATE OF
INCEPTION) TO DECEMBER 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... --
</TABLE>
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of underwriting agreement.
3.1 Amended and restated certificate of incorporation (Incorporated by reference to exhibit 3.2 of
StarMedia's Registration Statement on Form S-1, No. 333-74659 ("Registration Statement No.
333-74659").
3.2 Amended and restated bylaws (Incorporated by reference to exhibit 3.4 of Registration Statement No.,
333-74659).
4.1* Specimen common stock certificate.
4.2 Please see Exhibits 3.1 and 3.2 for provisions of the certificate of incorporation and bylaws
defining the rights of holders of common stock.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1997 stock option plan (Incorporated by reference to exhibit 10.1 of Registration Statement No.
333-74659).
10.2 1998 stock plan.(Incorporated by reference to exhibit 10.2 of Registration Statement No. 333-74659).
10.3 Lease dated September 15, 1997 between Clemons Management Corp. and StarMedia, as amended
(Incorporated by reference to exhibit 10.3 of Registration Statement No. 333-74659).
10.4 Amended and restated registration rights agreement (Incorporated by reference to exhibit 10.4 of
Registration Statement No. 333-74659).
10.5 Amendment no. 1 to amended and restated registration rights agreement (Incorporated by reference to
exhibit 10.5 of Registration Statement No. 333-74659).
10.6u IBM Business Partner Agreement, dated as of April 1, 1999, by and between StarMedia and International
Business Machines Corporation (Incorporated by reference to exhibit 10.9 of Registration Statement
No. 333-74659).
10.7 Quota Purchase Agreement, dated as of April 13, 1999, by and between StarMedia, StarMedia do Brasil
Ltda., Quotaholders of KD Sistemas de Informacao Ltda. and KD Sistemas de Informacao Ltda
(Incorporated by reference to exhibit 10.10 of Registration Statement No. 333-74659).
10.8 Master Loan and Security Agreement No. 4231, dated as of March 31, 1999, by and between StarMedia and
Charter Financial, Inc (Incorporated by reference to exhibit 10.11 of Registration Statement No.
333-74659).
10.9 StarMedia 1999 Employee Stock Purchase Plan (Incorporated by reference to exhibit 10.12 of
Registration Statement No. 333-74659).
10.10 Stock Purchase Agreement between StarMedia and Hearst Communications, Inc. dated as of April 30, 1999
(Incorporated by reference to exhibit 10.13 of Registration Statement No. 333-74659).
10.11 Stock Purchase Agreement between StarMedia and Reuters Holding Switzerland SA dated as of April 30,
1999 (Incorporated by reference to exhibit 10.14 of Registration Statement No. 333-74659).
10.12 Stock Purchase Agreement between StarMedia and eBay Inc. dated as of April 30, 1999 (Incorporated by
reference to exhibit 10.15 of Registration Statement No. 333-74659).
10.13 Stock Purchase Agreement between StarMedia and Europortal Holding S.A. dated as of April 30, 1999
(Incorporated by reference to exhibit 10.16 of Registration Statement No. 333-74659).
10.14 Stock Purchase Agreement between StarMedia and Critical Path, Inc. dated as of May 3, 1999
(Incorporated by reference to exhibit 10.17 of Registration Statement No. 333-74659).
10.15 Stock Purchase Agreement between StarMedia and Europortal Holding S.A. dated as of May 5, 1999
(Incorporated by reference to exhibit 10.18 of Registration Statement No. 333-74659).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.16 Share Purchase Agreement dated as of May 4, 1999 between StarMedia and Wass Net S.L., Geradons, S.L.,
Salvador Porte and Eduardo Kawas (Incorporated by reference to exhibit 10.19 of Registration
Statement No. 333-74659).
10.17 Stock Purchase Agreement between StarMedia and National Broadcasting Company, Inc. dated as of May 4,
1999 (Incorporated by reference to exhibit 10.20 of Registration Statement No. 333-74659).
10.18 Registration Rights Agreement dated as of April 30, 1999 between StarMedia and Hearst Communications,
Inc. (Incorporated by reference to exhibit 10.21 of Registration Statement No. 333-74659).
10.19 Registration Rights Agreement dated as of April 30, 1999 between StarMedia and Reuters Holdings
Switzerland S.A. (Incorporated by reference to exhibit 10.22 of Registration Statement No.
333-74659).
10.20 Registration Rights Agreement dated as of April 30, 1999 between StarMedia and eBay Inc.
(Incorporated by reference to exhibit 10.23 of Registration Statement No. 333-74659).
10.21 Registration Rights Agreement dated as of May 3, 1999 between StarMedia and Europortal Holding S.A.
(Incorporated by reference to exhibit 10.24 of Registration Statement No. 333-74659).
10.22 Registration Rights Agreement dated as of May 3, 1999 between StarMedia and Critical Path, Inc.
(Incorporated by reference to exhibit 10.25 of Registration Statement No. 333-74659).
10.23 Registration Rights Agreement dated as of May 5, 1999 between StarMedia and Europortal Holding S.A.
(Incorporated by reference to exhibit 10.26 of Registration Statement No. 333-74659).
10.24 Registration Rights Agreement dated as of May 4, 1999 between StarMedia and Geradons, S.L.
(Incorporated by reference to exhibit 10.27 of Registration Statement No. 333-74659).
10.25 Registration Rights Agreement dated as of May 4, 1999 between StarMedia and National Broadcasting
Company, Inc. (Incorporated by reference to exhibit 10.28 of Registration Statement No. 333-74659).
10.26 Employment Agreement dated as of April 29, 1999 by and between StarMedia and Fernando J. Espuelas
(Incorporated by reference to exhibit 10.29 of Registration Statement No. 333-74659).
10.27 Employment Agreement dated as of April 29, 1999 by and between StarMedia and Jack C. Chen
(Incorporated by reference to exhibit 10.30 of Registration Statement No. 333-74659).
10.28 Form of Rights Agreement (Incorporated by reference to exhibit 10.30 of Registration Statement No.
333-74659).
10.29 Agreement and Plan of Reorganization by and among Webcast Solutions, Inc., StarMedia Network, Inc.
and S Media Acquisition Corp., dated as of September 14, 1999.
21.1+ List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1+ Power of attorney (please see Signature Page).
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
+ Previously filed.
* To be filed by amendment.
u The Commission granted confidential treatment of certain provisions. Omitted
material for which confidential treatment has been granted has been filed
separately with the Commission.
<PAGE>
Exhibit 1.1
DRAFT OF SEPTEMBER 24, 1999
STARMEDIA NETWORK, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE]
UNDERWRITING AGREEMENT
....................., 19..
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney Inc.
BancBoston Robertson Stephens Inc.
JP Morgan Securities Inc.
Thomas Weisel Partners L.L.C.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
StarMedia Network, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
6,000,000 shares and, at the election of the Underwriters, up to 975,000
additional shares of Common Stock ("Stock") of the Company and the stockholders
of the Company named in Schedule II hereto (the "Selling Stockholders") propose,
subject to the terms and conditions stated herein, to sell to the Underwriters
an aggregate of 500,000 shares of Stock. The aggregate of 6,500,000 shares to be
sold by the Company and the Selling Stockholders is herein called the "Firm
Shares" and the aggregate of 975,000 additional shares to be sold by the Company
is herein called the "Optional Shares". The Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-87169) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement and any
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
post-effective amendment thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such form;
other than a registration statement, if any, increasing the size of the
offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which
became effective upon filing, no other document with respect to the
Initial Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the Rule
462(b) Registration Statement, if any, has been issued and no proceeding
for that purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including
all exhibits thereto and including the information contained in the form
of final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 5(a) hereof and deemed by virtue
of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective, each as amended at the
time such part of the Initial Registration Statement became effective or
such part of the Rule 462(b) Registration Statement, if any, became or
hereafter becomes effective, are hereinafter collectively called the
"Registration Statement"; such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and
11(l) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto, and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in
-2-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change
in the capital stock (other than pursuant to the grant or exercise of
options described in the Prospectus) or long-term debt of the Company or
any of its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, otherwise than
as set forth or contemplated in the Prospectus;
(v) The Company and its subsidiaries do not own any real property
and have good and marketable title to all personal property owned by them,
in each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to require such
qualification, except where the failure to be so qualified would not be
reasonably likely to have a material adverse effect now or in the future
on the business, financial condition, stockholder's equity or results of
operations of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect"); and each subsidiary of the Company has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained
in the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and (except for directors'
qualifying shares) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;
-3-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
(viii) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus;
(ix) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and
the consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, other than breaches or
defaults that are not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or By-laws
of the Company or any statute or any material order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party
or by which it or any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(xii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a Material Adverse Effect; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
-4-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
(xiii) Other than as set forth in the Prospectus, the Company and
its subsidiaries own or have the right to use pursuant to license,
sublicense, agreement, or permission all patents, patent applications,
trademarks, service marks, trade names, copyrights, trade secrets,
confidential information, proprietary rights and processes ("Intellectual
Property") necessary for the operation of the business of the Company and
its subsidiaries as described in the Prospectus and have taken all steps
reasonably necessary to secure assignments of such Intellectual Property
from its employees and contractors; to the Company's knowledge, none of
the technology employed by the Company or its subsidiaries has been
obtained or is being used by the Company or its subsidiaries in violation
of any contractual or fiduciary obligation binding on the Company, its
subsidiaries or any of their respective directors or executive officers or
any of their respective employees or consultants; and the Company and its
subsidiaries have taken and will maintain reasonable measures to prevent
the unauthorized dissemination or publication of its confidential
information.
To the Company's knowledge, neither the Company nor any of its
subsidiaries have interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of
third parties, and the Company and its subsidiaries have not received any
charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any
claim that the Company or any of its subsidiaries must license or refrain
from using any intellectual property rights of any third party) which, if
the subject of any unfavorable decision, ruling or finding would,
individually or in the aggregate, have a Material Adverse Effect;
(xiv) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company", as such term
is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(xv) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(xvi) The Company is in the process of reviewing its operations and
that of its subsidiaries and any third parties with which the Company or
any of its subsidiaries has a material relationship to evaluate the extent
to which the business or operations of the Company or any of its
subsidiaries will be affected by the Year 2000 Problem. As a result of
such review, the Company has no reason to believe, and does not believe,
that the Year 2000 Problem will have a Material Adverse Effect or result
in any material loss or interference with the Company's business or
operations. The "Year 2000 Problem" as used herein means any significant
risk that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the
-5-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
case of dates or time periods occurring after December 31, 1999, function
at least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement
and the Power of Attorney and the Custody Agreement hereinafter referred
to, and for the sale and delivery of the Shares to be sold by such Selling
Stockholder hereunder, have been obtained; and such Selling Stockholder
has full right, power and authority to enter into this Agreement, the
Power-of-Attorney and the Custody Agreement and to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of the Partnership Agreement of such
Selling Stockholder or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims; and, upon delivery of such Shares and payment therefor pursuant
hereto, good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several Underwriters;
(iv) Such Selling Stockholder shall not, during the period beginning
from the date hereof and continuing to and including the date 180 days
after the date of the Prospectus, offer, sell, contract to sell or
otherwise dispose of, except as provided hereunder, any securities of the
Company that are substantially similar to the Shares, including but not
limited to any securities that are convertible into or exchangeable for,
or that represent the right to receive, Stock or any such substantially
similar securities (other than pursuant to employee stock option plans
existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement),
without your prior written consent;
-6-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary Prospectus
and the Registration Statement did, and the Prospectus and any further
amendments or supplements to the Registration Statement and the
Prospectus, when they become effective or are filed with the Commission,
as the case may be, will conform in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Stockholder hereunder have been placed
in custody under a Custody Agreement, in the form heretofore furnished to
you (the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to [NAME OF CUSTODIAN], as custodian (the "Custodian"), and
such Selling Stockholder has duly executed and delivered a Power of
Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement
on behalf of such Selling Stockholder, to determine the purchase price to
be paid by the Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
such Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling
-7-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
Stockholder or, in the case of an estate or trust, by the death or
incapacity of any executor or trustee or the termination of such estate or
trust, or in the case of a partnership or corporation, by the dissolution
of such partnership or corporation, or by the occurrence of any other
event; if any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or trust
should be terminated, or if any such partnership or corporation should be
dissolved, or if any other such event should occur, before the delivery of
the Shares hereunder, certificates representing the Shares shall be
delivered by or on behalf of the Selling Stockholders in accordance with
the terms and conditions of this Agreement and of the Custody Agreements;
and actions taken by the Attorneys-in-Fact pursuant to the Powers of
Attorney shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or not
the Custodian, the Attorneys-in-Fact, or any of them, shall have received
notice of such death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Stockholders,
at a purchase price per share of $.............., the number of Firm Shares (to
be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Shares to be sold by the Company and each of
the Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company and all of the Selling Stockholders hereunder and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 975,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company
within a period of 30 calendar days after the date of this Agreement and setting
forth the aggregate number of Optional Shares to be purchased and the date on
which such Optional Shares are to be delivered, as determined by you but in no
event earlier than the First Time of Delivery (as defined in Section 4 hereof)
or, unless you and the Company otherwise agree in writing, earlier than two or
later than ten business days after the date of such notice.
-8-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of the Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of Federal (same-day) funds to the
account specified by the Company and the Custodian to Goldman, Sachs & Co. at
least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York time, on ............., 1999 or such
other time and date as Goldman, Sachs & Co., the Company and the Selling
Stockholders may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co.
in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(k) hereof, will be delivered at the offices of Brobeck,
Phleger; Harrison LLP, 1633 Broadway, New York, NY 10019 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at
.......p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment
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DRAFT OF SEPTEMBER 24, 1999
or any supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the delivery of a prospectus is required
at any time prior to the expiration of nine months after the time of issue of
the Prospectus in connection with the offering or sale of the Shares and if at
such time any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such period to amend or supplement the Prospectus
in order to comply with the Act, to notify you and upon your request to prepare
and furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
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DRAFT OF SEPTEMBER 24, 1999
(e) During the period beginning from the date hereof and continuing to and
including the date 90 days after the date of the Prospectus, not to offer, sell,
contract to sell or otherwise dispose of, except as provided hereunder, any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), without
your prior written consent; except that the Company may issue such securities in
exchange for all of the equity or substantially all of the equity or assets of a
company in connection with a merger or acquisition, provided that prior to any
such issuance the recipients of such securities shall have agreed with Goldman,
Sachs & Co. in writing to be found by this provision for the remainder of the 90
day period;
(f) To furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), to make available to its stockholders consolidated
summary financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or Form 10-K
as may be required by rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing
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DRAFT OF SEPTEMBER 24, 1999
either pay to the Commission the filing fee for the Rule 462(b) Registration
Statement or give irrevocable instructions for the payment of such fee pursuant
to Rule 111(b) under the Act.
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) the Company shall
pay or cause to be paid the following: (i) the fees, disbursements and expenses
of the Company's counsel and accountants in connection with the registration of
the Shares under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and the
mailing and delivering of copies thereof to the Underwriters and dealers; (ii)
the cost of printing or producing any Agreement among Underwriters, this
Agreement, the Blue Sky Memorandum, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Shares; (iii) all expenses in connection with
the qualification of the Shares for offering and sale under state securities
laws as provided in Section 5(b) hereof, including the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on the NASDAQ; (v) the filing
fees incident to, and the reasonable fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(vi) the cost of preparing stock certificates; (vii) the cost and charges of any
transfer agent or registrar; and (vii) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section; and (b) each Selling Stockholder will
pay or cause to be paid all costs and expenses incident to the performance of
such Selling Stockholder's obligations hereunder which are not otherwise
specifically provided for in this Section, including (i) any fees and expenses
of counsel for such Selling Stockholder, (ii) such Selling Stockholder's pro
rata share of the fees and expenses of the Attorneys-in-Fact and the Custodian,
and (iii) all expenses and taxes incident to the sale and delivery of the Shares
to be sold by such Selling Stockholder to the Underwriters hereunder. In
connection with clause (b) (iii) of the preceding sentence, Goldman, Sachs & Co.
agrees to pay New York State stock transfer tax, and the Selling Stockholder
agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such
tax payment is not rebated on the day of payment and for any portion of such tax
payment not rebated.. It is understood, however, that, except as provided in
this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act
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DRAFT OF SEPTEMBER 24, 1999
and in accordance with Section 5(a) hereof; if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have become
effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement;
no stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Ropes & Gray, counsel for the Underwriters, shall have furnished to
you such written opinion or opinions (a draft of each such opinion is attached
as Annex II(a) hereto), dated such Time of Delivery, with respect to the matters
covered in paragraphs (i), (ii), (vii), (x) and (xii) of subsection (c) below as
well as such other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(c) Brobeck, Phleger & Harrison, LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and, upon payment
therefor in accordance with the terms hereof, will be fully paid and
non-assessable; and the Shares conform in all material respects to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of
Florida and New York (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in respect
of matters of fact upon certificates of officers of the Company, provided
that such counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Each subsidiary of the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation; and all of the issued shares of capital
stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for directors'
qualifying shares) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims (such counsel
being entitled to rely in respect of the
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DRAFT OF SEPTEMBER 24, 1999
opinion in this clause upon opinions of local counsel and in respect to
matters of fact upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they believe
that both you and they are justified in relying upon such opinions and
certificates);
(v) Any material real property and buildings held under lease by the
Company, including the Company's New York headquarters, are held by it
under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries
(in giving the opinion in this clause, such counsel may state that no
examination of record titles for the purpose of such opinion has been
made, and that they are relying upon a general review of the titles of the
Company and its subsidiaries, upon opinions of local counsel and
abstracts, reports and policies of title companies rendered or issued at
or subsequent to the time of acquisition of such property by the Company
or its subsidiaries, upon opinions of counsel to the lessors of such
property and, in respect to matters of fact, upon certificates of officers
of the Company or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in relying upon
such opinions, abstracts, reports, policies and certificates);
(vi) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect; and, to
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii)The issue and sale of the Shares being delivered at such Time
of Delivery by the Company and the compliance by the Company with all of
the provisions of this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument which is filed as an exhibit to, or referred to,
in the Registration Statement (in giving the opinion in this clause
counsel may attach to such opinion a list of the foregoing agreements and
instruments), nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the Company
or any statute or any order, rule or regulation known to such counsel of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the
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DRAFT OF SEPTEMBER 24, 1999
Shares or the consummation by the Company of the transactions contemplated
by this Agreement, except the registration under the Act of the Shares,
and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Shares by the
Underwriters;
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(xi) The Company is not an "investment company", as such term is
defined in the Investment Company Act; and
(xii) Although such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements in the
Registration Statement or the Prospectus, except for those referred to in
the opinion in subsection (x) of this Section 7(c), they have participated
in the preparation of the Registration Statement and the Prospectus,
including review and discussion of the contents thereof with
representatives of the Underwriters and their counsel, officers and
representatives of the Company, and representatives of the independent
certified public accountants of the Company, and nothing has come to their
attention that has caused them to believe that the Registration Statement
(other than with respect to the consolidated financial statements,
including the notes and schedules thereto, and the other financial data
included in the Registration Statement, as to which they need express no
opinion), at the time the Registration Statement became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (other than with
respect to the consolidated financial statements, including the notes and
schedules thereto, and the other financial data included in the
Prospectus, as to which they need express no opinion), as of its date or
as of such Time of Delivery, contained an untrue statement of material
fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; and that the Registration Statement and
the Prospectus (other than the consolidated financial statements,
including the notes and schedules thereto, and the other financial data
included in the Prospectus, as to which they need express no opinion)
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder, and to their
knowledge, no amendment to the Registration Statement is required to be
filed and there are no contracts or documents of a character required to
be filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which are not
filed or described as required.
(d) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their written
opinion with respect to each of the Selling Stockholders for whom they are
acting as counsel (a draft of each such opinion is attached as
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DRAFT OF SEPTEMBER 24, 1999
Annex II(c) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute valid
and binding agreements of such Selling Stockholder in accordance with
their terms;
(ii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the sale of the Shares to be sold
by such Selling Stockholder hereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement, the
Power-of-Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any statute, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to such
counsel to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the property or assets of
such Selling Stockholder is subject, nor will such action result in any
violation of the provisions of the Partnership Agreement of such Selling
Stockholder or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by such Selling Stockholder hereunder, except [NAME ANY SUCH
CONSENT, APPROVAL, AUTHORIZATION OR ORDER] which [HAS] [HAVE] been duly
obtained and [IS] [ARE] in full force and effect, such as have been
obtained under the Act and such as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of such
Shares by the Underwriters;
(iv) Immediately prior to such Time of Delivery, such Selling
Stockholder had good and valid title to the Shares to be sold at such Time
of Delivery by such Selling Stockholder under this Agreement, free and
clear of all liens, encumbrances, equities or claims, and full right,
power and authority to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder hereunder; and
(v) Good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each of
the several Underwriters who have purchased such Shares in good faith and
without notice of any such lien, encumbrance, equity or claim or any other
adverse claim within the meaning of the Uniform Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
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DRAFT OF SEPTEMBER 24, 1999
(e) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Ernst & Young LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York State authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in this
clause (iv) in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been duly
listed for quotation on NASDAQ;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of its officers, directors and
holders of five percent (5%) or more of its securities, substantially to
the effect set forth in Subsection 1(b)(iv) hereof in form and substance
satisfactory to you;
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DRAFT OF SEPTEMBER 24, 1999
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(k) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Stockholders of all of their respective
obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request, and
the Company shall have furnished or caused to be furnished certificates as
to the matters set forth in subsections (a) and (f) of this Section.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) an untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein in light of the
circumstances in which they were made, or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) The Selling Stockholder will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to
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DRAFT OF SEPTEMBER 24, 1999
the Company by such Selling Stockholder expressly for use therein; and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; PROVIDED, HOWEVER, that such
Selling Stockholder shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein; and PROVIDED FURTHER, HOWEVER, that the liability
of the Selling Stockholders pursuant to this subsection 8(a) shall not exceed
the product of the number of Shares sold by such Selling Stockholder and the
initial price to public of the Shares as set forth in the Prospectus..
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) an untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or (ii) an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein in light
of the circumstances in which they were made, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Goldman, Sachs & Co. expressly for use
therein; and will reimburse the Company and each Selling Stockholder for any
legal or other expenses reasonably incurred by the Company or such Selling
Stockholder in connection with investigating or defending any such action or
claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other
-19-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Stockholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (e) were determined by PRO RATA
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (e). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (e),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
-20-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company and the Selling Stockholders shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company and the
Selling Stockholders that you have so arranged for the purchase of such Shares,
or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
-21-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company and the Selling Stockholders to sell
the Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent
-22-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
by mail, telex or facsimile transmission to counsel for such Selling Stockholder
at its address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us eight counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and each of the Selling Stockholders. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Stockholders for examination, upon
request, but without warranty on your part as to the authority of the signers
thereof.
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
StarMedia Network, Inc.
-23-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
By:___________________________________
Name:
Title:
Chase Venture Capital Associates, L.P.
By:___________________________________
Name:
Title:
Accepted as of the date hereof at New York New York
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney Inc.
BancBoston Robertson Stephens Inc.
JP Morgan Securities Inc.
Thomas Weisel Partners L.L.C.
By:___________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-24-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney Inc.
BancBoston Robertson Stephens Inc.
JP Morgan Securities Inc.
Thomas Weisel Partners L.L.C.
[NAMES OF OTHER UNDERWRITERS]
</TABLE>
-25-
<PAGE>
DRAFT OF SEPTEMBER 24, 1999
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Optional
Shares to be
Total Number of Sold if
Firm Shares Maximum Option
to be Sold Exercised
--------------- --------------
<S> <C> <C>
The Company.................................
The Selling Stockholder:
Chase Venture Capital Associates, L.P. (a)
--------------- --------------
Total.................................
=============== ==============
</TABLE>
(a) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
-26-
<PAGE>
ANNEX I
Form of Comfort Letter
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such five
fiscal years which were included or incorporated by reference in the
Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the
<PAGE>
foregoing procedures that caused them to believe that this information
does not conform in all material respects with the disclosure requirements
of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations, or (ii) any
material modifications should be made to the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus for
them to be in conformity with generally accepted accounting
principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any such
unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included in
the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in clause (B) were not determined on
a basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation
-2-
<PAGE>
rights, upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on the
date of the latest financial statements included in the Prospectus)
or any increase in the consolidated long-term debt of the Company
and its subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter;
and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified procedures,
not constituting an examination in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived
from the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
-3-
<PAGE>
BPH DRAFT
04/30/99
Exhibit 10.28
STARMEDIA NETWORK, INC.
AND
Enter [NAME OF RIGHTS AGENT]
(RIGHTS AGENT)
RIGHTS AGREEMENT
DATED AS OF MAY __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Certain Definitions 1
Section 2. Appointment of Rights Agent 5
Section 3. Issue of Rights Certificates. 5
Section 4. Form of Rights Certificates. 7
Section 5. Countersignature and Registration. 8
Section 6. Transfer, Split-Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates. 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. 9
Section 8. Cancellation and Destruction of Rights Certificates 11
Section 9. Reservation and Availability of Preferred Stock. 11
Section 10. Preferred Stock Record Date 12
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights 12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares 20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. 21
Section 14. Fractional Rights and Fractional Shares. 23
Section 15. Rights of Action 24
Section 16. Agreement of Rights Holders 25
Section 17. Rights Certificate Holder Not Deemed a Stockholder 25
Section 18. Concerning the Rights Agent 26
Section 19. Merger or Consolidation or Change of Name of Rights Agent. 26
Section 20. Duties of Rights Agent 27
Section 21. Change of Rights Agent 29
Section 22. Issuance of New Rights Certificates 30
</TABLE>
2.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 23. Redemption and Termination. 30
Section 24. Exchange. 31
Section 25. Notice of Certain Events. 32
Section 26. Notices 33
Section 27. Supplements and Amendments 34
Section 28. Successors 34
Section 29. Determinations and Actions by the Board of Directors 34
Section 30. Benefits of This Agreement 35
Section 31. Severability 35
Section 32. Governing Law 35
Section 33. Counterparts 35
Section 34. Descriptive Headings 35
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Form of Certificate of Designation of Series A Junior Participating Preferred Stock
Exhibit B - Form of Rights Certificate
Exhibit C - Summary of Rights to Purchase Shares of Series A Preferred Stock
</TABLE>
3.
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT (the "Agreement"), dated as of May __, 1999,
between StarMedia Network, Inc., a Delaware corporation (the "Company"), and
[Enter NAME OF TRANSFER AGENT], a ___ banking corporation (the "Rights Agent").
WHEREAS, effective May 4, 1999 (the "Rights Dividend
Declaration Date"), the Board of Directors authorized and declared a
distribution of one Right (each, a "Right") for each share of Common Stock (as
hereinafter defined) of the Company outstanding as of the Close of Business (as
hereinafter defined) upon the consumation of the Company's initial public
offering (the "Record Date"), each Right initially representing the right to
purchase one one-thousandth of a share (a "Unit") of Preferred Stock (as
hereinafter defined) upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right with
respect to each share of Common Stock that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the Redemption Date or
the
Final Expiration Date (as such terms are hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS
For purposes of this AGREEMENT, the following terms have the
meanings indicated:
"Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the shares of
Common Stock of the Company then outstanding but shall not include (1) the
Company, any Subsidiary (as such term is hereinafter defined) of the Company,
any employee benefit plan of the Company or any Subsidiary of the Company, or
any entity holding shares of Common Stock for or pursuant to the terms of any
such plan, or (2) ___________________ (the "Permitted Investor"), or any of its
Affiliates or Associates (collectively with the Permitted Investor, the
"Investor Group") to the extent that the members of the Investor Group shall
beneficially own in the aggregate up to, but not exceeding, ___% of the shares
of Common Stock of the Company then outstanding. Notwithstanding the foregoing:
(i) no Person shall become an "Acquiring Person" as the result of
an acquisition of shares of Common Stock by the Company which, by reducing
the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to 15% or more of the shares of
Common Stock of the Company then outstanding; (or, in the case of the
Investor Group, more than ___% of the shares of Common Stock of the Company
then outstanding); PROVIDED, HOWEVER, that if a Person shall become the
Beneficial Owner of 15% or more of the shares of Common Stock of the
Company then outstanding (or, in the case of the Investor Group, more than
___% of the shares of Common Stock of the Company then outstanding) by
reason of share purchases by the
4
<PAGE>
Company and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional shares of Common Stock of the Company
(or, in the case of the members of the Investor Group, become the
Beneficial Owner of any additional shares of Common Stock of the Company),
then such Person shall be deemed to be an "Acquiring Person" hereunder; and
(ii) if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person" as defined
pursuant to the foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a
sufficient number of shares of Common Stock so that such Person would no
longer be an "Acquiring Person" (as defined pursuant to the foregoing
provisions of this paragraph (a)), then such Person shall not be deemed to
be an "Acquiring Person" for any purpose of this Agreement.
"Adjustment Shares" has the meaning set forth in Section 11(a)(ii).
"Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act (as such term is hereinafter defined).
A Person shall be deemed the "Beneficial Owner" of, and shall be deemed
to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly, for purposes of Section 13(d) of
the Exchange Act and Rule 13d-3 thereunder (or any comparable or successor
law or regulation); or
(ii) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing, other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights (other than the
Rights), warrants or options, or otherwise; PROVIDED, HOWEVER, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange; or
(B) the right to vote pursuant to any agreement, arrangement or
understanding; PROVIDED FURTHER, HOWEVER, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," any security under
this subparagraph (ii) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (x) arises solely from a revocable proxy given in response
to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange Act and the
Exchange Act Regulations, and (y) is not reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
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(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding, (whether or not in writing, other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), for the
purpose of acquiring, holding, voting (except to the extent contemplated by
the proviso to (B) of subparagraph (ii) above) or disposing of any
securities of the Company; PROVIDED, HOWEVER, that in no case shall an
officer or director of the Company be deemed (A) the Beneficial Owner of
any securities beneficially owned by another officer or director of the
Company solely by reason of actions undertaken by such persons in their
capacity as officers or directors of the Company or (B) the Beneficial
Owner of securities held of record by the trustee of any employee benefit
plan of the Company or any Subsidiary of the Company for the benefit of any
employee of the Company or any Subsidiary of the Company, other than the
officer or director, by reason of any influence that such officer or
director may have over the voting of the securities held in the plan;
Notwithstanding anything in this definition of "Beneficial Owner" and
"beneficially own" to the contrary, the phrase "then outstanding," when used
with reference to a Person who is the Beneficial Owner of securities of the
Company, shall mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to beneficially own hereunder.
"Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in the State of New York or the
state in which the principal office of the Rights Agent is located are
authorized or obligated by law or executive order to close.
"Close of Business" on any given date shall mean 5:00 P.M., New
York time, on such date; PROVIDED, HOWEVER, that if such date is not a Business
Day it shall mean 5:00 P.M., California time, on the next succeeding Business
Day.
"Common Stock" when used with reference to the Company shall mean
the shares of common stock, par value $.001, of the Company. "Common Stock" when
used with reference to any Person other than the Company shall mean the capital
stock (or other equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
"Company" shall have the meaning set forth in the recitals to
this Agreement.
"current per share market price" shall have the meaning set
forth in Section 11(d)(i) hereof.
"Current Value" shall have the meaning set forth in Section 11(a)
(iii) hereof.
"Distribution Date" shall have the meaning set forth in Section 3
(a) hereof.
"equivalent preferred shares" shall have the meaning set forth
in Section 11(b)
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hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Act Regulations" shall mean the General Rules and Regulations
under the Exchange Act.
"Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
"Expiration Date" shall have the meaning set forth in Section 7(a)
hereof.
"Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
"NASDAQ" shall have the meaning set forth in Section 11(d) hereof.
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" shall mean shares of Series A Preferred Stock, par
value $.001, of the Company having the rights and preferences set forth in the
Form of Certificate of Designation attached to this Agreement as EXHIBIT A.
"preferred stock equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Purchase Price" shall have the meaning set forth in Section 7(b)
hereof.
"Record Date" shall have the meaning set forth in the recitals to this
Agreement.
"Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
"Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
"Right" shall have the meaning set forth in the recitals to this
Agreement.
"Rights Agent" shall have the meaning set forth in the recitals to this
Agreement.
"Rights Certificate" shall have the meaning set forth in Section 3(a)
hereof.
"Rights Dividend Declaration Date" shall have the meaning set forth in
the recitals to this Agreement.
"Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii)(A), (B) or (C) hereof.
"Section 11(a)(ii) Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.
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"Section 13 Event" shall mean any event described in clause (x), (y) or
(z) of Section 13(a) hereof.
"Section 24(a) Exchange Ratio" has the meaning set forth in Section
24(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such.
"Spread" shall have the meaning set forth in Section 11(a)(iii) hereof.
"Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
"Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
"Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
"Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. APPOINTMENT OF RIGHTS AGENT
The Company hereby appoints the Rights Agent to act as agent for
the Company in accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. The Company may from time to time
appoint such co-Rights Agents as it may deem necessary or desirable.
Section 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the Close of Business on the Shares
Acquisition Date and (ii) the Close of Business on the tenth Business Day
(or such later date as may be determined by action of the Company's Board of
Directors prior to such time as any Person becomes an Acquiring Person and of
which the Company will give the Rights Agent prompt written notice) after the
date that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding shares of Common Stock for or
pursuant to the terms of any such plan) is first published or sent or given
within the meaning of Rule 14d-4(a) of the Exchange Act Regulations or any
successor rule or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding shares of Common Stock for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer, if upon consummation thereof such Person
would be the Beneficial Owner of 15% or more of the
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shares of Company Common Stock then outstanding (the earlier of (i) and (ii)
above being the "Distribution Date"), (x) the Rights will be evidenced (subject
to the provisions of Section 3(b) hereof) by the certificates for shares of
Common Stock registered in the names of the holders thereof (which certificates
shall also be deemed to be Rights Certificates) and not by separate Rights
Certificates, and (y) the right to receive Rights Certificates will be
transferable only in connection with the transfer of shares of Common Stock. As
soon as practicable after the Distribution Date, the Company will notify the
Rights Agent thereof and the Company will prepare and execute, the Rights Agent
will countersign, and the Company will send or cause to be sent (and the Rights
Agent will, if requested, send) by first-class, insured, postage-prepaid mail,
to each record holder of shares of Common Stock as of the Close of Business on
the Distribution Date, at the address of such holder shown on the records of the
Company, a Rights Certificate, in substantially the form of EXHIBIT B hereto (a
"Rights Certificate"), evidencing one Right for each share of Common Stock so
held. As of the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form of EXHIBIT C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of shares of Common
Stock as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to certificates for
shares of Common Stock outstanding as of the Record Date, until the Distribution
Date, the Rights will be evidenced by such certificates registered in the names
of the holders thereof together with a copy of the Summary of Rights attached
thereto. Until the Distribution Date (or the Expiration Date), the surrender for
transfer of any certificate for shares of Common Stock outstanding on the Record
Date, with or without a copy of the Summary of Rights attached thereto, shall
also constitute the transfer of the Rights associated with the shares of Common
Stock represented thereby.
(c) Certificates for shares of Common Stock which become outstanding
(including, without limitation, reacquired shares of Common Stock referred to in
the last sentence of this paragraph (c)) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date shall have impressed
on, printed on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between StarMedia
Network, Inc. and [Enter NAME OF RIGHTS AGENT], dated as of ________
__, ____ (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of StarMedia Network, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. StarMedia Network, Inc. will mail to the holder
of this certificate a copy of the Rights Agreement without charge
after receipt of a written request therefor. Under certain
circumstances,
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<PAGE>
as set forth in the Rights Agreement, Rights issued to any Person who
becomes an Acquiring Person (as defined in the Rights Agreement),
whether currently held by or on behalf of such person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of the Distribution Date and the Expiration Date, the Rights associated
with the shares of Common Stock represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
shares of Common Stock represented thereby. In the event that the Company
purchases or acquires any shares of Common Stock after the Record Date but prior
to the Distribution Date, any Rights associated with such shares of Common Stock
shall be deemed cancelled and retired so that the Company shall not be entitled
to exercise any Rights associated with the shares of Common Stock which are no
longer outstanding.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase Units of
Preferred Stock and of assignment to be printed on the reverse thereof) shall be
substantially the same as EXHIBIT B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or transaction reporting system on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates shall entitle the holders thereof to purchase the number of Units
of Preferred Stock as shall be set forth therein at the price per Unit of
Preferred Stock set forth therein, but the number of such Units of Preferred
Stock and the Purchase Price shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant hereto that represents Rights
beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate of
an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
such Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect avoidance of Section 7(e) hereof shall
contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
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Person or an Affiliate or Associate of an Acquiring Person (as such
terms are defined in the Rights Agreement between StarMedia Network,
Inc. and [NAME OF TRANSFER AGENT], as Rights Agent, dated as of
_____, 1999 (the "Rights Agreement"). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void
in the circumstances specified in Section 7(e) of the Rights
Agreement.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the Company by
its Chairman of the Board, its President, any of its Vice Presidents, or its
Treasurer or Chief Financial Officer, either manually or by facsimile signature,
shall have affixed thereto the Company's seal or a facsimile thereof, and shall
be attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Rights Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Agreement any such
person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its office designated for such purpose, books for registration and
transfer of the Rights Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Rights Certificates, the
number of Rights evidenced on its face by each of the Rights Certificates and
the date of each of the Rights Certificates.
Section 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS
CERTIFICATES.
(a) Subject to the provisions of Sections 4(b), 7(e) and 14 hereof, at any
time after the Close of Business on the Distribution Date, and at or prior to
the Close of Business on the Expiration Date, any Rights Certificate or Rights
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Rights Certificates, entitling the registered holder to
purchase a like number of Units of Preferred Stock (or, following a Triggering
Event, other securities, cash or other assets, as the case may be) as the Rights
Certificate or Rights Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Rights Certificates shall make such request
in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Rights Certificates to be transferred, split up, combined or
exchanged at the office of the Rights
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Agent designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the transfer of
any such surrendered Rights Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Thereupon the Rights Agent shall, subject to Sections 4(b), 7(e) and 14 hereof,
countersign and deliver to the person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will make and
deliver a new Rights Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) Except as provided in Sections 23(c) and 7(e), the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date upon surrender of the Rights Certificate, with the
form of election to purchase and certification on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the Purchase Price for each Unit of
Preferred Stock as to which the Rights are exercised, at or prior to the
earliest of (i) the Close of Business on the tenth anniversary hereof (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at
which such Rights are exchanged as provided in Section 24 hereof (the earlier of
(i), (ii) and (iii) being the "Expiration Date").
(b) The Purchase Price for each Unit of Preferred Stock
pursuant to the exercise of a Right shall initially be $100.00, shall be subject
to adjustment from time to time as provided in Sections 11 and 13 hereof and
shall be payable in lawful money of the United States of America in accordance
with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the number of Units of
Preferred Stock (or other securities or property, as the case may be) to be
purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of such Rights Certificate in accordance with Section 9 hereof in
cash, or by certified check or cashier's check payable to the order of the
Company, the Rights Agent shall, subject to Section
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20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock (or make available, if the Rights Agent is the transfer
agent for the Preferred Stock) a certificate or certificates for the number of
Units of Preferred Stock to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests or (B) if the
Company shall have elected to deposit the total number of Units of Preferred
Stock issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent of a depositary receipt or depositary
receipts representing such number of Units of Preferred Stock as are to be
purchased (in which case certificates for the Units of Preferred Stock
represented by such receipt or receipts shall be deposited by the transfer agent
with the depositary agent) and the Company hereby directs the depositary agent
to comply with such request, (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt
thereof, deliver such cash to or upon the order of the registered holder of such
Rights Certificate. The payment of the Purchase Price (as such amount may be
reduced (including to zero) pursuant to Section 11(a)(iii) hereof) may be made
in cash or by certified bank check or bank draft payable to the order of the
Company. In the event that the Company is obligated to issue other securities of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing a number of Rights equivalent to the number of Rights
remaining unexercised shall be issued by the Rights Agent to the registered
holder of such Rights Certificate or to such registered holder's duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which a majority of the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e) or (iv) any subsequent transferee shall become null and void
without any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Company shall use all reasonable efforts to ensure
that the provisions of this Section 7(e) and Section 4(b) hereof are complied
with, but shall have no
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liability to any holder of Rights Certificates or to any other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or any of such Acquiring Person's Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES.
All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or to any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificate purchased
or acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certificates to the Company, or shall,
at the written request of the Company, destroy such cancelled Rights
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED STOCK.
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of and to the extent of
its authorized and unissued Units of Preferred Stock not reserved for another
purpose that will be sufficient to permit the exercise in full of all
outstanding Rights. Upon the occurrence of any events resulting in an increase
in the aggregate number of shares of Preferred Stock (or other equity securities
of the Company) issuable upon exercise of all outstanding Rights above the
number then reserved, the Company shall make appropriate increases in the number
of shares so reserved.
(b) If the Units of Preferred Stock to be issued and delivered upon
the exercise of the Rights are at any time listed on a national securities
exchange or included for quotation on any transaction reporting system, the
Company shall during the period from the Distribution Date to the Expiration
Date use its best efforts to cause all shares reserved for such issuance to be
listed on such exchange or included for quotation on any such transaction
reporting system upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event in which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as
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the case may be, a registration statement under the Securities Act, with respect
to the securities purchasable upon exercise of the Rights on an appropriate
form, (ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the Expiration Date. The Company
will also take such action as may be appropriate under, or to ensure compliance
with, the securities or "blue sky" laws of the various states in connection with
the exercisability of the Rights. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction, unless the requisite qualification in such jurisdiction shall have
been obtained, or an exemption therefrom shall be available and until a
registration statement has been declared effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Units of Preferred Stock (and, following the
occurrence of a Triggering Event, any other securities that may be delivered
upon exercise of Rights) shall, at the time of delivery of the certificates for
such Units of Preferred Stock (subject to payment of the Purchase Price), be
duly and validly authorized and issued and fully paid and non-assessable.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Rights Certificates or of
any Units of Preferred Stock upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Rights Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for Units of
Preferred Stock in a name other than that of, the registered holder of the
Rights Certificate evidencing Rights surrendered for exercise or to issue or to
deliver any certificates or depositary receipts for Units of Preferred Stock
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
Section 10. PREFERRED STOCK RECORD DATE.
Each person in whose name any certificate for Units of
Preferred Stock (or, following the occurrence of a Triggering Event, other
securities) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Units of Preferred Stock (or,
following the occurrence of a Triggering Event, other securities) represented
thereby on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; PROVIDED, HOWEVER,
that if the date of such surrender and payment is a date upon which the
Preferred Stock (or, following the occurrence of a Triggering Event, other
securities) transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Stock
transfer books of the Company are open; PROVIDED FURTHER, HOWEVER, that if
delivery of Units of Preferred Stock is delayed pursuant to
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Section 9(c), such Persons shall be deemed to have become the record holders of
such Units of Preferred Stock only when such Units first become deliverable.
Prior to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a stockholder of the Company
with respect to securities for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Prior to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a holder of a Unit of
Preferred Stock for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER
OF RIGHTS
The Purchase Price, the number and kinds of securities covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in shares
of Preferred Stock, (B) subdivide the outstanding shares of Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares
Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification, and
the number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Rights exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Rights had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the Company were
open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
If an event occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior, to any adjustment
required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event that (A)
any Acquiring Person or any Associate or Affiliate of any Acquiring Person, at
any time after the date of
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this Agreement, directly or indirectly, shall (1) merge into the Company or
otherwise combine with the Company and the Company shall be the continuing or
surviving corporation of such merger or combination and shares of Company Common
Stock shall remain outstanding and unchanged, (2) in one transaction or a series
of transactions, transfer any assets to the Company or any of its Subsidiaries
in exchange (in whole or in part) for shares of Company Common Stock, for other
equity securities of the Company or any such Subsidiary, or for securities
exercisable for or convertible into shares of equity securities of the Company
or any of its Subsidiaries (whether shares of Company Common Stock or otherwise)
or otherwise obtain from the Company or any of its Subsidiaries, with or without
consideration, any additional shares of such equity securities or securities
exercisable for or convertible into such equity securities other than pursuant
to a pro rata distribution to all holders of shares of Company Common Stock, (3)
sell, purchase, lease, exchange, mortgage, pledge, transfer or otherwise acquire
or dispose of, in one transaction or a series of transactions, to, from or with
the Company or any of its Subsidiaries or any employee benefit plan maintained
by the Company or any of its Subsidiaries or any trustee or fiduciary with
respect to such plan acting in such capacity, assets (including securities) on
terms and conditions less favorable to the Company or such Subsidiary or plan
than those that could have been obtained in arm's-length negotiations with an
unaffiliated third party, other than pursuant to a transaction set forth in
Section 13(a) hereof, (4) sell, purchase, lease, exchange, mortgage, pledge,
transfer or otherwise acquire or dispose of, in one transaction or a series of
transactions, to, from or with the Company or any of its Subsidiaries or any
employee benefit plan maintained by the Company or any of its Subsidiaries or
any trustee or fiduciary with respect to such plan acting in such capacity
(other than transactions, if any, consistent with those engaged in, as of the
date hereof, by the Company and such Acquiring Person or such Associate or
Affiliate), assets (including securities or intangible assets) having an
aggregate fair market value of more than $[5,000,000], other than pursuant to a
transaction set forth in Section 13(a) hereof, (5) receive, or any designee,
agent or representative of such Acquiring Person or any Affiliate or Associate
of such Acquiring Person shall receive, any compensation from the Company or any
of its Subsidiaries other than compensation for full-time employment as a
regular employee at rates in accordance with the Company's (or its
Subsidiaries') past practices, or (6) receive the benefit, directly or
indirectly (except proportionately as a holder of shares of Company Common Stock
or as required by law or governmental regulation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Company or any of its Subsidiaries or any
employee benefit plan maintained by the Company or any of its Subsidiaries or
any trustee or fiduciary with respect to such plan acting in such capacity; or
(B) any Person shall become an Acquiring Person, unless the event causing the
Person to become an Acquiring Person is a transaction set forth in Section
13(a); or (C) during such time as there is an Acquiring Person, there shall be
any reclassification of securities (including any reverse stock split), or
recapitalization of the Company, or any merger or consolidation of the Company
with any of its Subsidiaries or any other transaction or series of transactions
involving the Company or any of its Subsidiaries, other than a transaction or
transactions to which the provisions of Section 13(a) apply (whether or not with
or into or otherwise involving an
17
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Acquiring Person), which has the effect, directly or indirectly, of
increasing by more than 1% the proportionate share of the outstanding
shares of any class of equity securities of the Company or any of its
Subsidiaries that is directly or indirectly beneficially owned by any
Acquiring Person or any Person or any Associate or Affiliate of any
Acquiring Person;
then promptly following the occurrence of an event described in Section
11(a)(ii)(A), (B) or (C) (a "Section 11(a)(ii) Event"), proper provision shall
be made so that each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive for each Right, upon exercise
thereof in accordance with the terms of this Agreement and payment of the
then-current Purchase Price, in lieu of the number of Units of Preferred Stock
for which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, such number of Units of Preferred Stock as shall equal
the result obtained by multiplying the then-current Purchase Price by the then
number of Units of Preferred Stock for which a Right was exercisable (or would
have been exercisable if the Distribution Date had occurred) immediately prior
to the first occurrence of a Triggering Event, and dividing that product by 50%
of the current per share market price (determined pursuant to Section 11(d)
hereof) for shares of Common Stock on the date of occurrence of the Triggering
Event (such number of Units of Preferred Stock being hereinafter referred to as
the "Adjustment Shares").
(iii) In the event that the number of Units of Preferred Stock which
are authorized by the Company's Amended and Restated Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company, the Company shall, in lieu of issuing
Units of Preferred Stock in accordance with Section 11(a)(ii) hereof: (A)
determine the excess of (1) the value of the Units of Preferred Stock issuable
upon the exercise of a Right (the "Current Value") over (2) the Purchase Price
(such excess being referred to as the "Spread") and (B) with respect to each
Right, make adequate provision to substitute for such Units of Preferred Stock,
upon exercise of the Rights, (1) cash, (2) a reduction in the Purchase Price,
(3) other equity securities of the Company (including, without limitation,
Common Stock or shares or units of shares of any series of preferred stock which
the Board of Directors of the Company has deemed to have the same value as the
Units of Preferred Stock (such shares or units of preferred stock are herein
called "preferred stock equivalents")), except to the extent that the Company
has not obtained any necessary regulatory approval for such issuance, (4) debt
securities of the Company, except to the extent that the Company has not
obtained any necessary regulatory approval for such issuance, (5) other assets
or (6) any combination of the foregoing, having an aggregate value equal to the
Current Value, where such aggregate value has been determined by the Board of
Directors of the Company based upon the advice of a nationally recognized
investment banking firm selected by the Board of Directors of the Company;
PROVIDED, HOWEVER, if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days following the
later of (x) occurrence of a Section 11(a)(ii) Event, and (y) the date on which
the Company's right of redemption pursuant to Section 23(a) expires (the later
of (x) and (y) being
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referred to herein as the "Section 11(a)(iii) Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, Units
of Preferred Stock (to the extent available), [except to the extent
that the Company has not obtained any necessary regulatory approval
for such issuance,] and then, if necessary, cash, which Units and/or
cash have an aggregate value equal to the Spread.
(b) In the event that the Company shall fix a record date for the issuance
of rights, options or warrants to all holders of Units of Preferred Stock
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Units of Preferred Stock (or shares having
the same rights, privileges and preferences as the Preferred Stock ("equivalent
preferred stock")) or securities convertible into Units of Preferred Stock or
equivalent preferred stock at a price per Unit of Preferred Stock or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Units of Preferred Stock or equivalent preferred stock) less
than the then current per share market price of a Unit of Preferred Stock (as
determined pursuant to Section 11(d)) on such record date, the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of Units of Preferred Stock
outstanding on such record date plus the number of Units of Preferred Stock
which the aggregate offering price of the total number of Units of Preferred
Stock and/or equivalent preferred stock so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price and the denominator of which shall be the
number of Units of Preferred Stock outstanding on such record date plus the
number of additional Units of Preferred Stock and/or equivalent preferred stock
to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Units of
Preferred Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to all
holders of Units of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation) of evidences of indebtedness, cash (other than a
regular quarterly cash dividend), assets (other than a dividend payable in Units
of Preferred Stock but including any dividend payable in equity securities other
than Preferred Stock) or subscription rights or warrants (excluding those
referred to in Section 11(d) hereof), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price (as determined pursuant to
Section 11(d)) of the Preferred Stock on such record date, less the fair market
value (as
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<PAGE>
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holder of rights) of the cash,
assets or evidences of indebtedness to be distributed or of such subscription
rights or warrants distributable in respect of a share of Preferred Stock and
the denominator of which shall be such current per share market price (as
determined pursuant to Section 11(d)) of a share of Preferred Stock. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date; PROVIDED, HOWEVER, that in the event that the "current
per share market price" of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend
or distribution on such Security payable in shares of such Security or
securities convertible into such shares, or (B) any subdivision,
combination or reclassification of such Security and prior to the
expiration of thirty (30) Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the "current
per share market price" shall be appropriately adjusted to reflect the
"current market price" per share equivalent of such Security. The closing
price for each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the Nasdaq National Market System ("NASDAQ") or,
if the Security is not listed or admitted to trading on the NASDAQ, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security
is not listed or admitted to trading on any national securities exchange,
the last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by the NASDAQ
or such other system then in use, or, if on any such date the Security is
not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Company. If on any
such date no market maker is making a market in the Security, the "current
per share market price" of such Security on such date as determined in good
faith by the Board of Directors of the Company as provided for above shall
be used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) For the purpose of any computation hereunder, the "current
per share market
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<PAGE>
price" of the Preferred Stock shall be determined in accordance with
the method set forth in Section 11(d)(i). If the "current per share
market price" of the Preferred Stock cannot be determined in the
manner provided above or if the Preferred Stock is not publicly held
or listed or traded in a manner described in clause (i) of this
Section 11(d), the "current per share market price" of the Preferred
Stock shall be conclusively deemed to be an amount equal to $1,000 (as
such amount may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalizations with respect to shares
of Company Common Stock occurring after the date of this Agreement)
multiplied by the current market price per share of Company Common
Stock. If shares of neither the Company Common Stock nor Preferred
Stock is publicly held or so listed or traded, "current per share
market price" of the Preferred Stock shall mean the fair value per
share as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights. For all purposes of this Agreement, the
"current market price" of a Unit of Preferred Stock shall be equal to
the "current market price" of one share of Preferred Stock divided by
[100].
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-thousandth of a
share of Preferred Stock or one one-hundredth of any other share or security as
the case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
hereof, the holder of any Rights thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Units of Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
any Rights and the Purchase Price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Section 11(a), (b),
(c), (d), (e), (g), (h), (i), (j), (k), (l) and (m), and the provisions of
Sections 7, 9, 10, 13 and 14 with respect to the Preferred Stock shall apply on
like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Units of Preferred Stock
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of Units of Preferred
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<PAGE>
Stock (calculated to the nearest one-millionth of a share of Preferred Stock)
obtained by dividing (i) the product obtained by multiplying (x) the number of
Units of Preferred Stock covered by a Right immediately prior to this adjustment
by (y) the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price by, (ii) the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of Units of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of Units of Preferred
Stock for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest one one-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least ten days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates to be so distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of Units of Preferred Stock issuable upon the exercise of the Rights,
the Rights Certificates theretofore and thereafter issued may continue to
express the Purchase Price per Unit and the number of Units of Preferred Stock
which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value of the number of Units of Preferred
Stock issuable upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable number of
Units of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Rights exercised after such record
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<PAGE>
date of that number of Units of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the Units of Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment; PROVIDED, HOWEVER, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares (fractional or otherwise)
upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any (i) consolidation or subdivision of the
Preferred Stock, (ii) issuance wholly for cash of any Unit of Preferred Stock at
less than the current market price, (iii) issuance wholly for cash of Preferred
Stock or securities which by their terms are convertible into or exchangeable
for Preferred Stock, (iv) dividends on Preferred Stock payable in Preferred
Stock or (v) issuance of rights, options or warrants referred to in this Section
11, hereafter made by the Company to holders of Units of its Preferred Stock
shall not be taxable to such stockholders.
(n) The Company shall not, at any time after the Distribution
Date, (i) consolidate with any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o)), (ii) merge with or
into any other Person (other than a Subsidiary of the Company in a transaction
which complies with Section 11(o)), or (iii) sell or transfer (or permit any
Subsidiary to sell or transfer), in one transaction, or a series of
transactions, assets or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company and/or any of its Subsidiaries
in one or more transactions each of which complies with Section 11(o)), if (x)
at the time of or immediately after such consolidation, merger or sale there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights or (y) prior to,
simultaneously with or immediately after such consolidation, merger or sale, the
Person which constitutes, or would constitute the "Principal Party" for purposes
of Section 13(a) shall have distributed or otherwise transferred to its
stockholders or other persons holding an equity interest in such Person Rights
previously owned by such Person or any of its Affiliates and Associates;
PROVIDED, HOWEVER, this Section 11(n) shall not affect the ability of any
Subsidiary of the Company to consolidate with, merge with or into, or sell or
transfer assets or earning power to, any other Subsidiary of the Company.
(o) After the Distribution Date, the Company shall not, except
as permitted by Section 23 or Section 26, take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or otherwise eliminate
the benefits intended to be afforded by the Rights.
(p) In the event that, at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on outstanding shares of Common Stock payable in shares of
Common Stock or (ii) effect a subdivision, combination or consolidation of
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<PAGE>
the Common Stock (by reclassification or otherwise than by payment of dividends
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in any such case the number of Units of Preferred Stock purchasable
after such event upon proper exercise of each Right shall be determined by
multiplying the number of Units of Preferred Stock so purchasable immediately
prior to such event by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately before such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately after such event. The adjustments provided for in this Section 11(p)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES
Whenever an adjustment is made as provided in Sections 11 and 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the shares of
Common Stock or Units of Preferred Stock a copy of such certificate and (c) mail
a brief summary thereof to each holder of a Rights Certificate in accordance
with Section 25 hereof. Notwithstanding the foregoing sentence, the failure by
the Company to make such certification or give such notice shall not affect the
validity of or the force or effect of the requirement for such adjustment. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment contained therein and shall not be deemed to have knowledge of
such adjustment unless and until it shall have received such certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) Except as provided in Section 13(b) hereof, in the event that,
following a Shares Acquisition Date, directly or indirectly, (x) the Company
shall consolidate with, or merge with and into, any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)),
and the Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(o)) shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the shares of
Common Stock shall be changed into or exchanged for stock or other securities of
any other Person or cash or any other property, or (z) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer) to any Person or Persons (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o)), in one or more transactions,
directly or indirectly, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole),
(any such event being a "Section 13 Event"), then, and in each such case, proper
provision shall be made so that: (i) each holder of a Right, except as provided
in Section 7(e), shall thereafter have the right to receive, upon the exercise
thereof at the then current Purchase Price, such number of validly authorized
and issued, fully paid and non-assessable shares of Common Stock of the
Principal Party (as such term is hereinafter defined),
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<PAGE>
which shares shall not be subject to any liens, encumbrances, rights of first
refusal, transfer restrictions or other adverse claims, as shall be equal to the
result obtained by (1) multiplying the then current Purchase Price by the number
of Units of Preferred Stock for which a Right is exercisable immediately prior
to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event
has occurred prior to the first occurrence of a Section 13 Event, multiplying
the number of such Units of Preferred Stock for which a Right would be
exercisable hereunder but for the occurrence of such Section 11(a)(ii) Event by
the Purchase Price which would be in effect hereunder but for such first
occurrence) and (2) dividing that product (which, following the direct
occurrence of a Section 13 Event, shall be the "Purchase Price" for all purposes
of this Agreement) by 50% of the current per share market price (determined
pursuant to Section 11(d)) of the shares of Common Stock of such Principal Party
on the date of consummation of such Section 13 Event; (ii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such Section 13
Event, all the obligations and duties of the Company pursuant to this Agreement;
(iii) the term "Company" shall, for all purposes of this Agreement, thereafter
be deemed to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 shall apply only to such Principal Party following
the first occurrence of a Section 13 Event; (iv) such Principal Party shall take
such steps (including, but not limited to, the reservation of a sufficient
number of shares of its Common Stock) in connection with the consummation of any
such transaction as may be necessary to ensure that the provisions of this
Agreement shall thereafter be applicable to its shares of Common Stock
thereafter deliverable upon the exercise of the Rights; and (v) the provisions
of Section 11(a)(ii) shall be of no further effect following the first
occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a), (A) the Person that is the
issuer of any securities into which shares of Company Common Stock are
converted in such merger or consolidation, or, if there is more than
one such issuer, the issuer of shares of Common Stock that has the
highest aggregate current market price (determined pursuant to Section
11(d)) and (B) if no securities are so issued, the Person that is the
other party to such merger or consolidation, or, if there is more than
one such Person, the Person the Common Stock of which has the highest
aggregate current market price (determined pursuant to Section 11(d));
and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the largest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if each
Person that is a party to such transaction or transactions receives
the same portion of the assets or earning power transferred pursuant
to such transaction or transactions or if the Person receiving the
largest portion of the assets or earning power cannot be determined,
whichever Person the Common Stock of which has the highest aggregate
current market price (determined pursuant to Section 11(d)); PROVIDED,
HOWEVER, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding
twelve-month period registered under Section 12 of the Exchange Act
("Registered Common Stock"), or such Person is not a corporation, and
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such Person is a direct or indirect Subsidiary of another Person that
has Registered Common Stock outstanding, "Principal Party" shall refer
to such other Person; (2) if the Common Stock of such Person is not
Registered Common Stock or such Person is not a corporation, and such
Person is a direct or indirect Subsidiary of another Person but is not
a direct or indirect Subsidiary of another Person which has Registered
Common Stock outstanding, "Principal Party" shall refer to the
ultimate parent entity of such first-mentioned Person; (3) if the
Common Stock of such Person is not Registered Common Stock or such
Person is not a corporation, and such Person is directly or indirectly
controlled by more than one Person, and one or more of such other
Persons has Registered Common Stock outstanding, "Principal Party"
shall refer to whichever of such other Persons is the issuer of the
Registered Common Stock having the highest aggregate current per share
market price (determined pursuant to Section 11(d)); and (4) i the
Common Stock of such Person is not Registered Common Stock or such
Person is not a corporation, and such Person is directly or indirectly
controlled by more than one Person, and none of such other Persons has
Registered Common Stock outstanding, "Principal Party" shall refer to
whichever ultimate parent entity is the corporation having the
greatest stockholders' equity or, if no such ultimate parent entity is
a corporation, shall refer to whichever ultimate parent entity is the
entity having the greatest net assets.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13, and unless prior thereto the Company and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that the Principal Party will:
(i) (A) file on an appropriate form, as soon as
practicable following the execution of such agreement, a registration
statement under the Securities Act with respect to the shares of Common
Stock that may be acquired upon exercise of the Rights, (B) cause such
registration statement to remain effective (and to include a prospectus
complying with the requirements of the Securities Act) until the
Expiration Date, and (C) as soon as practicable following the execution
of such agreement take such action as may be required to ensure that
any acquisition of such shares of Common Stock upon the exercise of the
Rights complies with any applicable state securities or "blue sky"
laws; and
(ii) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements for
registration on Form 10 under the Exchange Act.
(d) In case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or Bylaws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue, in connection with, or as a
consequence of, the consummation of a transaction referred to in this Section
13, shares of Common Stock of such
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Principal Party at less than the then current market price per share (determined
pursuant to Section 11(d)) or securities exercisable for, or convertible into,
shares of Common Stock of such Principal Party at less than such then current
marker price (other than to holders of Rights pursuant to this Section 13) or
(ii) providing for any special payment, tax or similar provisions in connection
with the issuance of the shares of Common Stock of such Principal Party pursuant
to the provisions of this Section 13, then, in such event, the Company shall not
consummate any such transaction unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
(e) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. In
the event that a Section 13 Event shall occur at any time after the
occurrence of a Section 11(a)(ii) Event, the Rights which have not
theretofore been exercised shall thereafter become exercisable in the
manner described in Section 13(a).
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the NASDAQ
or, if the Rights are not listed or admitted to trading on the NASDAQ, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Directors. If on any
such date no such market maker is making a market in the Rights, the fair value
of the Rights on such date as determined in good faith by the Board of Directors
of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Stock (other than
fractions which are integral multiples of one one-thousandth of a share of
Preferred
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Stock). Fractions of Preferred Stock in integral multiples of one one-thousandth
of a share of Preferred Stock may, at the election of the Company, be evidenced
by depositary receipts, pursuant to an appropriate agreement between the Company
and a depositary selected by it; PROVIDED, HOWEVER, that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Stock represented by such depositary receipts. In lieu of
fractional shares of Preferred Stock that are not integral multiples of one
one-thousandth of a share of Preferred Stock, the Company shall pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one a share of Preferred Stock as determined pursuant to Section
11(d).
(c) The holder of a Right by the acceptance of the Right expressly waives
such holder's right to receive any fractional Rights or any fractional shares
upon exercise of a Right (except as provided above).
Section 15. RIGHTS OF ACTION
All rights of action in respect of this Agreement, excepting the
rights of action given to the Rights Agent under Section 18 hereof, are vested
in the respective registered holders of the Rights Certificates (and, prior to
the Distribution Date, the registered holders of certificates representing
shares of Common Stock); and any registered holder of any Rights Certificate
(or, prior to the Distribution Date, a certificate representing shares of Common
Stock), without the consent of the Rights Agent or of the holder of any other
Rights Certificate (or, prior to the Distribution Date, of a certificate
representing shares of Common Stock), may, in such holder's own behalf and for
such holder's own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, such holder's right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations hereunder, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS
Every holder of a Right, by accepting the same, consents and agrees
with the Company and the Rights Agent and with every other holder of a Right
that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of shares of the Company's
Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer;
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(c) subject to Sections 6(a) and 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, HOWEVER, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.
No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the Units of
Preferred Stock or any other securities of the Company which may at any time be
issuable upon the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Rights Certificate be construed to confer upon the
holder of any Rights Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 hereof), or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
The Company agrees to pay to the Rights Agent reasonable compensation for
all services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without gross negligence, or willful misconduct on the part of
the Rights Agent, for any action taken, suffered or omitted by the Rights Agent
in connection with the execution, acceptance and administration of this
Agreement and the exercise and performance hereunder of its duties, including
the costs and expenses of defending against and appealing any claim of liability
in the premises. The indemnity provided herein shall survive the termination of
this Agreement and the expiration of the Rights. The costs and expenses incurred
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in enforcing this right of indemnification shall be paid by the Company.
The Rights Agent may conclusively rely upon and shall be
protected and shall incur no liability for, or in respect of any action taken,
suffered or omitted by it in connection with, its administration of this
Agreement and the exercise and performance of its duties hereunder in reliance
upon any Rights Certificate or certificate for Units of Preferred Stock or
shares of Common Stock or for other securities of the Company, instrument of
assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper person or persons, or otherwise upon the
advice of counsel as set forth in Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the stock transfer or corporate trust business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions and no implied duties or
obligations shall be read into this Agreement against the Rights Agent, by all
of which the Company and the holders of Rights Certificates, by their acceptance
thereof, shall be bound:
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(a) Before the Rights Agent acts or refrains from acting, it may
consult with legal counsel of its choice (who may be legal counsel for the
Company), and the advice or opinion of such counsel shall be full and complete
authorization and protection to the Rights Agent as to any action taken,
suffered or omitted by it in good faith and in accordance with such advice or
opinion.
(b) Whenever in the administration, exercise and performance of its
duties under this Agreement the Rights Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking, suffering or omitting any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken, suffered or omitted in good faith by
it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own gross negligence or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any liability or responsibility in
respect of the legality, validity or enforceability of this Agreement or the
execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the legality, validity or enforceability or the
execution of any Rights Certificate (except its countersignature thereof and has
actual knowledge of such change or adjustment); nor shall it be liable or
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Rights Certificate; nor shall it be responsible for
any change in the exercisability of the Rights (including the Rights becoming
void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the
Rights (including the manner, method or amount thereof) provided for in Section
3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise of
Rights evidenced by Rights Certificates after receipt of the certificate
described in Section 12 hereof or has actual knowledge of such change or
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any Units
of Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any Preferred Stock will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or
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performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the administration, exercise and performance
of its duties hereunder from any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Secretary or the
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be responsible or
liable for any action taken, suffered or omitted by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on and/or after which such action shall
be taken or such omission shall be effective. The Rights Agent shall not be
liable for any action taken by, or omission of, the Rights Agent in accordance
with a proposal included in any such application on or after the date specified
in such application (which date shall not be less than five (5) Business Days
after the date any officer of the Company actually received such application,
unless any such officer shall have consented in writing to an earlier date)
unless, prior to taking any such action (or the effective date in the case of an
omission), the Rights Agent shall have received written instructions in response
to such application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its rights
if the Rights Agent in good faith believes that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise, transfer, split up, combination or exchange, the
certification on the form of assignment or form of election to purchase, as the
case may be, that the Rights evidenced by the Rights Certificate are not owned
by an Acquiring Person, or an Affiliate or Associate thereof, has either not
been completed or in any manner indicates any other response thereto, the Rights
Agent shall not take any further action with respect to such requested exercise,
transfer, split up, combination or
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exchange, without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT.
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon thirty (30) days' notice in
writing mailed to the Company and to each transfer agent of the Common Stock or
Preferred Stock (as to which the Rights Agent has received prior written notice)
by registered or certified mail, and the Company shall mail notice thereof to
the holders of the Rights Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon thirty (30) days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Stock or Preferred Stock
(as to which the Rights Agent has received prior written notice) by registered
or certified mail, and to the holders of the Rights Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such
notice, submit such holder's Rights Certificate for inspection by the Company),
then the registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any state of the United States, in good standing, authorized under such laws
to exercise corporate trust or stock transfer powers, and subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Stock or
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
under the Rights Certificates made in accordance with the provisions of this
Agreement. In addition, in connection with the issuance or sale of shares of
Common Stock
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following the Distribution Date and prior to the Expiration Date, the Company
(a) shall, with respect to shares of Common Stock so issued or sold pursuant to
the exercise of stock options or under any employee benefit plan or arrangement
or upon the exercise, conversion or exchange of securities of the Company
currently outstanding or issued at any time in the future by the Company and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company issue Rights Certificates representing the appropriate
number of Rights in connection with such issuance or sale; PROVIDED, HOWEVER,
that (i) no such Rights Certificate shall be issued and this sentence shall be
null and void AB INITIO if, and to the extent that, such issuance or this
sentence would create a significant risk of or result in material adverse tax
consequences to the Company or the Person to whom such Rights Certificate would
be issued or would create a significant risk of or result in such options' or
employee plans' or arrangements' failing to qualify for otherwise available
special tax treatment and (ii) no such Rights Certificate shall be issued if,
and to the extent that, appropriate adjustment shall otherwise have been made in
lieu of the issuance thereof.
Section 23. REDEMPTION AND TERMINATION.
(a) The Company may, at its option, upon approval by the Board
of Directors, at any time on or prior to the close of business (or such later
date as may be determined by the Board of Directors) on the earlier of (i) the
Shares Acquisition Date, or (ii) the Final Expiration Date redeem all but not
less than all the then outstanding Rights at a redemption price of $0.001 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"), and the Company may, at its
option, pay the Redemption Price either in cash, shares of Common Stock (based
on the current per share market price thereof (as determined pursuant to Section
11(d) hereof) at the time of redemption), or any other form of consideration
deemed appropriate by the Board of Directors. The redemption of the Rights by
the Board of Directors may be made effective at such time on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; PROVIDED, HOWEVER, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and shall mail a notice of redemption to all the
holders of the then outstanding Rights at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Stock. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be made. Neither
the Company nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section
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23 or in Section 24 hereof, and other than in connection with the purchase of
shares of Common Stock prior to the Distribution Date.
(c) Notwithstanding anything contained in this Agreement to the
contrary, the Rights shall not be exercisable pursuant to Section 7(a) at any
time when the Rights are redeemable hereunder.
Section 24. EXCHANGE.
(a) The Company, at its option, upon approval by the Board of
Directors, at any time after any Person becomes an Acquiring Person, may
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
7(e) hereof) for Units of Preferred Stock at an exchange ratio equal to, subject
to adjustment to reflect stock splits, stock dividends and similar transactions
occurring after the date hereof, that number obtained by dividing the Purchase
Price by the then current per share market price per Unit of Preferred Stock on
the earlier of (i) the date on which any Person becomes an Acquiring Person and
(ii) the date on which a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan maintained by
the Company or any of its Subsidiaries or any trustee or fiduciary with respect
to such plan acting in such capacity) is first published or sent or given within
the meaning of Rule 14d-4(a) of the Exchange Act Regulations or any successor
rule, if upon consummation thereof such Person would be the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding (such exchange ratio
being hereinafter referred to as the "Section 24(a) Exchange Ratio").
Notwithstanding the foregoing, the Company may not effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan maintained by the Company or any of its Subsidiaries,
or any trustee or fiduciary with respect to such plan acting in such capacity),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the shares of Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Units of Preferred
Stock equal to the number of such Rights held by such holder multiplied by the
Section 24(a) Exchange Ratio. The Company shall promptly give public notice of
any such exchange; PROVIDED, HOWEVER, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of Units of Preferred Stock
for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be effected
PRO RATA based on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 7(e) hereof) held by each holder of
Rights.
35
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(c) In the event that the number of shares of Preferred Stock
which are authorized by the Company's Certificate of Incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit any exchange of Rights as contemplated
in accordance with this Section 24, the Company shall take all such action as
may be necessary to authorize additional shares of Preferred Stock for issuance
upon exchange of the Rights or make adequate provision to substitute (1) cash,
(2) Company Common Stock or other equity securities of the Company, (3) debt
securities of the Company, (4) other assets, or (5) any combination of the
foregoing, having an aggregate value equal to the Adjustment Spread, where such
aggregate value has been determined by the Board of Directors. To the extent
that the Company determines that some action need be taken pursuant to
subsection (a) of this Section 24, the Board of Directors may temporarily
suspend the exercisability of the Rights for a period of up to sixty (60) days
following the date on which the event described in Section 24(a) shall have
occurred, in order to seek any authorization of additional shares of Preferred
Stock and/or to decide the appropriate form of distribution to be made pursuant
to the above provision and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
(d) The Company shall not be required to issue fractions smaller than
or to distribute certificates which evidence fractions smaller than one
one-thousandth of a share of Preferred Stock. In lieu thereof, the Company shall
pay to the registered holders of the Rights Certificates with regard to which
such fractional Units would otherwise be issuable an amount in cash equal to the
same fraction of the current market value (as determined pursuant to Section
11(d)(i) hereof) of one Unit of Preferred Stock.
Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Stock or to make
any other distribution to the holders of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Stock rights or warrants to subscribe for or to purchase any additional Units of
Preferred Stock or shares of stock of any class or any other securities, rights
or options, (iii) to effect any reclassification of its Preferred Stock (other
than a reclassification involving only the subdivision of outstanding Preferred
Stock), (iv) to effect any consolidation or merger into or with any other Person
(other than a Subsidiary of the Company in a transaction which complies with
Section 11(o)), or to effect any sale or other transfer (or to permit one or
more of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Stock payable in shares of Common Stock or to effect
a subdivision, combination or consolidation of the shares of Common Stock (by
reclassification or otherwise than by payment of dividends in shares of Common
Stock), then, in each such case, the Company shall give to each holder of a
Rights Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which such
36
<PAGE>
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Common Stock and/or shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least ten (10) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least ten (10) days prior to the date of the taking of such proposed action or
the date of participation therein by the holders of the shares of Common Stock
and/or shares of Preferred Stock, whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Rights Certificate, in accordance with Section 26 hereof, a notice
of the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
In the event any Person becomes an Acquiring Person, the Company will promptly
notify the Rights Agent thereof.
Section 26. NOTICES.
Notices or demands authorized by this Agreement to be given or made by
the Rights Agent or by the holder of any Rights Certificate to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Attention:
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sent by registered or
certified mail and shall be deemed given upon receipt and addressed (until
another address is filed in writing with the Company) as follows:
StarMedia Network, Inc.
29 West 36th Street
Fifth Floor
New York, New York 10018
Attention: JACK C. CHEN, PRESIDENT
----------------------
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS.
37
<PAGE>
Prior to the Distribution Date, the Company may supplement or amend
this Agreement in any respect, without the approval of any holders of Rights, by
action of its Board of Directors, and the Rights Agent shall, if the Company so
directs, execute such supplement or amendment. From and after the Distribution
Date, the Company may from time to time supplement or amend this Agreement
without the approval of any holders of Rights, by action of its Board of
Directors in order (i) to cure any ambiguity, (ii) to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder or
(iv) to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person), including, without
limitation, to change the Purchase Price, the Redemption Price, any time periods
herein specified, and any other term hereof, any such supplement or amendment to
be evidenced by a writing signed by the Company and the Rights Agent; PROVIDED,
HOWEVER, that from and after such time as any Person becomes an Acquiring
Person, this Agreement shall not be amended in any manner which would adversely
affect the interests of the holders of Rights. Upon receipt of a certificate
from an appropriate officer of the Company that the proposed supplement or
amendment is consistent with this Section 27 and, after such time as any Person
has become an Acquiring Person, that the proposed supplement or amendment does
not adversely affect the interests of the holders of Rights, the Rights Agent
shall execute such supplement or amendment.
Section 28. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS .
For all purposes of this Agreement, any calculation of the number of shares
of Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the Exchange Act. The Board of
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing), which are done or made by the
Board of Directors in good faith, shall (x) be final, conclusive and binding on
the Company, the Rights Agent, the holders of the Rights Certificates and all
other parties and (y) not subject the Board of Directors to any liability to the
holders of the Rights.
38
<PAGE>
Section 30. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Rights Agent and the registered holders
of the Rights Certificates (and, prior to the Distribution Date, shares of
Common Stock) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the registered holders of the Rights Certificates
(and, prior to the Distribution Date, shares of Common Stock).
Section 31. SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated; PROVIDED, HOWEVER, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this Agreement,
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the tenth Business Day following the date of such
determination by the Board of Directors of the Company.
Section 32. GOVERNING LAW.
This Agreement and each Rights Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of New York and for all
purposes shall be governed by and construed in accordance with the laws of such
State applicable to contracts to be made and performed entirely within such
State.
Section 33. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
Section 34. DESCRIPTIVE HEADINGS.
Descriptive headings of the several sections of this Agreement are
inserted or convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
ATTEST: STARMEDIA NETWORK, INC.
By: By:
Name: Name:
Title: Title:
ATTEST: [Enter NAME OF RIGHTS AGENT]
By: By:
Name: Name:
Title: Title:
40
<PAGE>
<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN OF REORGANIZATION
by and among
Webcast Solutions, Inc.,
StarMedia Network, Inc., and
S Media Acquisition Corp.,
dated as of
September 14, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I Generally........................................................................... 2
Section 1.1. Certain Definitions............................................................ 2
Section 1.2. Terms Generally................................................................ 2
ARTICLE II Merger of Newco into the Company.................................................... 2
Section 2.1. The Merger..................................................................... 2
Section 2.2. Effective Time of Merger....................................................... 2
Section 2.3. Articles of Incorporation; By-Laws............................................. 2
Section 2.4. Directors and Officers......................................................... 3
Section 2.5. Taking of Necessary Action; Further Action..................................... 3
Section 2.6. Time and Place of Closing...................................................... 3
Section 2.7. Tax Consequences............................................................... 4
ARTICLE III Conversion and Exchange of Shares................................................... 4
Section 3.1. Conversion of Shares........................................................... 4
Section 3.2. Exchange of Certificates....................................................... 5
Section 3.3. Lost, Stolen or Destroyed Certificates......................................... 6
Section 3.4. Dissenting Shares.............................................................. 6
Section 3.5. Stock Legend................................................................... 7
ARTICLE IV Representations and Warranties of the Company....................................... 7
Section 4.1. Incorporation; Authorization; Capitalization................................... 7
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TABLE OF CONTENTS
(Continued)
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Section 4.2. Financial Statements........................................................... 9
Section 4.3. Undisclosed Liabilities........................................................ 9
Section 4.4. Properties..................................................................... 9
Section 4.5. Absence of Certain Changes..................................................... 10
Section 4.6. Taxes.......................................................................... 11
Section 4.7. Litigation; Orders............................................................. 11
Section 4.8. Intellectual Property.......................................................... 12
Section 4.9. Licenses, Approvals, Other Authorizations,
Consents, Reports, etc......................................................... 13
Section 4.10. Labor Matters.................................................................. 14
Section 4.11. Compliance with Laws........................................................... 14
Section 4.12. Insurance...................................................................... 14
Section 4.13. Contracts...................................................................... 14
Section 4.14. Transactions with Affiliates................................................... 15
Section 4.15. OSHA Matters................................................................... 15
Section 4.16. Totality of Assets............................................................. 15
Section 4.17. Environmental Matters.......................................................... 15
Section 4.18. Employee Benefits.............................................................. 17
Section 4.19. Year 2000...................................................................... 19
Section 4.20. Pooling........................................................................ 19
Section 4.21. Vote Required.................................................................. 20
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TABLE OF CONTENTS
(Continued)
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Section 4.23. Brokers, Finders, etc.......................................................... 20
Section 4.24. Minute Books................................................................... 20
Section 4.25. Disclosure..................................................................... 20
ARTICLE V Representations and Warranties of Parent and Newco.................................. 20
Section 5.1. Incorporation; Authorization; Capitalization................................... 20
Section 5.2. Consents, etc.................................................................. 22
Section 5.3. SEC Documents.................................................................. 22
Section 5.4. No Material Adverse Change..................................................... 23
Section 5.5. Brokers, Finders, etc.......................................................... 23
Section 5.6. Pooling........................................................................ 23
Section 5.7. Litigation, etc................................................................ 23
ARTICLE VI Covenants........................................................................... 24
Section 6.1. Covenants of the Company....................................................... 24
Section 6.2. Additional Agreements.......................................................... 27
Section 6.3. Employee Matters............................................................... 28
Section 6.4. Exclusivity.................................................................... 28
Section 6.7. Nasdaq Listing................................................................. 28
Section 6.8. Company's Auditors............................................................. 28
Section 6.10. Form S-8....................................................................... 28
Section 6.11. Indemnity Agreement............................................................ 28
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TABLE OF CONTENTS
(Continued)
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ARTICLE VII Conditions to Parent's and Newco's Obligations to Close............................. 29
Section 7.1. Representations, Warranties and Covenants of the
Company........................................................................ 29
Section 7.2. Shareholders................................................................... 30
Section 7.3. Representations, Warranties and Covenants of the
Shareholders................................................................... 30
Section 7.4. Filings; Consents.............................................................. 30
Section 7.5. No Injunction.................................................................. 30
Section 7.6. Documents...................................................................... 31
Section 7.7. Convertible Securities......................................................... 31
Section 7.8. Rule 145 Letters............................................................... 31
Section 7.9. Appraisal Rights............................................................... 31
ARTICLE VIII Conditions to the Company's Obligation to Close..................................... 31
Section 8.1. Representations, Warranties and Covenants of Parent............................ 31
Section 8.2. Shareholder Approvals.......................................................... 32
Section 8.3. No Injunction.................................................................. 32
Section 8.4. Nasdaq Listing................................................................. 32
ARTICLE IX Survival............................................................................ 32
Section 9.1. Survival....................................................................... 32
ARTICLE X Termination......................................................................... 33
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TABLE OF CONTENTS
(Continued)
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Section 10.1. Termination.................................................................... 33
Section 10.2. Procedure and Effect of Termination............................................ 33
ARTICLE XI Miscellaneous....................................................................... 33
Section 11.1. Entire Agreement............................................................... 33
Section 11.2. Benefit; Assignment............................................................ 33
Section 11.3. No Presumption................................................................. 34
Section 11.4. Notices........................................................................ 34
Section 11.5. Counterparts; Headings......................................................... 35
Section 11.6. Severability................................................................... 35
Section 11.7. No Reliance.................................................................... 35
Section 11.8. Governing Law.................................................................. 35
Section 11.9. Submission to Jurisdiction; Waivers............................................ 35
Section 11.10. Waiver......................................................................... 36
Section 11.11. Amendment...................................................................... 36
Section 11.12. Specific Performance........................................................... 36
Section 11.13. Expenses....................................................................... 36
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of September
14, 1999 (together with the Schedules and Exhibits hereto, the "PLAN OF
MERGER"), among Webcast Solutions, Inc., a California corporation (the
"COMPANY"), StarMedia Network, Inc., a Delaware corporation ("PARENT"), and S
Media Acquisition Corp., a California corporation and a wholly-owned subsidiary
of Parent ("NEWCO").
A. The respective Board of Directors of Parent and the Company
have determined that it is in the best interests of each such corporation that
Parent, through a wholly-owned subsidiary, acquire all outstanding shares of
common stock, no par value per share, of the Company (the "WEBCAST COMMON
STOCK") for the Aggregate Share Merger Consideration (as hereinafter defined),
pursuant to the terms and conditions of this Plan of Merger which provides,
among other things, for the merger of Newco into the Company (the "MERGER"), and
the respective Board of Directors of the Company and Newco have directed that
this Plan of Merger and the Agreement of Merger annexed hereto as Exhibit A (the
"MERGER AGREEMENT") be submitted to the Company's and Newco's shareholders for
their adoption.
B. Pursuant to the Merger, among other things, all of the issued
and outstanding capital stock of the Company shall be converted into the right
to receive StarMedia Common Stock (as defined herein), as set forth herein, and
all outstanding options to purchase Webcast Common Stock shall be converted into
options to purchase StarMedia Common Stock, as set forth herein.
C. The Company, on the one hand, and Parent and Newco, on the
other hand, desire to make certain representations, warranties, covenants and
other agreements in connection with the Merger.
D. The parties intend, by executing this Plan of Merger, to adopt
a plan of reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended, and any successor thereto (the "Code").
E. Concurrent with the execution of this Plan of Merger, as a
material inducement to Parent and Newco, certain shareholders of the Company
will enter into an agreement to indemnify and not to compete with Parent (the
"INDEMNITY AND NON-COMPETE AGREEMENT") in the form of Exhibit B hereto.
F. Concurrent with the execution of the Merger Agreement, as a
material inducement to Parent and Newco, the directors and certain shareholders
of the Company will enter a general release of the Company (the "GENERAL
RELEASE") in the form of Exhibit C hereto.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
<PAGE>
ARTICLE I
GENERALLY
Section 1.1. CERTAIN DEFINITIONS. Certain capitalized
terms used in this Plan of Merger have the meanings specified in Exhibit D
hereof.
Section 1.2. TERMS GENERALLY. (a) Words in the singular shall
be held to include the plural and vice versa and words of one gender shall be
held to include the other genders as the context requires, (b) the terms
"hereof," "herein," "hereto" and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Plan of Merger as a whole
(including all of the Schedules and Exhibits hereto) and not to any particular
provision of this Plan of Merger, and Article, Section, paragraph, Exhibit and
Schedule references are to the Articles, Sections, paragraphs, Exhibits and
Schedules to this Plan of Merger unless otherwise specified, (c) the word
"including" and words of similar import when used in this Plan of Merger shall
mean "including, without limitation," unless otherwise specified, (d) the word
"or" shall not be exclusive, (e) provisions shall apply, when appropriate, to
successive events and transactions and (f) terms not found in Exhibit D are
defined elsewhere in this Plan of Merger.
ARTICLE II
MERGER OF NEWCO INTO THE COMPANY
Section 2.1. THE MERGER. At the Effective Time, subject to the
terms and conditions of this Plan of Merger and in accordance with the
Corporations Code, (i) Newco shall be merged with and into the Company, (ii) the
separate existence of Newco shall cease, (iii) the Company shall continue as the
surviving corporation (the "SURVIVING CORPORATION") as a wholly-owned subsidiary
of Parent and under its present corporate name, and (iv) the Merger shall have
the effects set forth herein and in the Corporations Code.
Section 2.2. EFFECTIVE TIME OF MERGER. The Merger shall become
effective at the time a copy of the Merger Agreement, together with the
certificates required by Section 1103 of the Corporations Code (collectively,
the "CERTIFICATE OF MERGER") is accepted for filing by the Secretary of State of
California in accordance with the Corporations Code. Such time is referred to
herein as the "EFFECTIVE TIME." This Plan of Merger can be terminated by the
applicable party prior to the filing of the Certificate of Merger in accordance
with Article X hereof.
Section 2.3. ARTICLES OF INCORPORATION; BY-LAWS. (a) At the
Effective Time, the Articles of Incorporation of the Surviving Corporation
shall, pursuant to the Merger, be amended and restated in its entirety to be in
the form of the Articles of Incorporation of Newco, except Article One of such
amended and restated Articles of Incorporation shall be amended to read in its
entirety as follows:
"The name of the corporation is Webcast Solutions, Inc."
<PAGE>
(b) At the Effective Time, the By-Laws of Newco in effect
immediately prior to the Effective Time shall become the By-Laws of the
Surviving Corporation, except that the name "S Media Acquisition Corp." shall be
changed to "Webcast Solutions, Inc."
Section 2.4. DIRECTORS AND OFFICERS. The Board of Directors
and principal officers of the Surviving Corporation shall be those persons who
constitute the Board of Directors and principal officers of Newco at the
Effective Time. Each such director or officer shall hold office until such
person's respective successor has been duly elected or appointed or qualified
pursuant to the By-Laws of the Surviving Corporation or as otherwise provided
under applicable law.
Section 2.5. TAKING OF NECESSARY ACTION; FURTHER ACTION.
Parent, Newco and the Company, respectively, shall take all such lawful action
as may be necessary or appropriate in order to effectuate the transactions
contemplated by this Plan of Merger. If, at any time after the Effective Time,
any further action is necessary or desirable to carry out the purposes of this
Plan of Merger and to vest the Surviving Corporation with full right, title and
possession to all assets, properties, rights, privileges, powers and franchises
of Newco or the Company, the officers and directors of the Surviving Corporation
are fully authorized in the name and on behalf of Newco and the Company or
otherwise to take, and shall take, all such lawful and necessary action.
Section 2.6. TIME AND PLACE OF CLOSING. (a) The Closing shall
take place on (i) September 14, 1999, or (ii) such later date no later than
October 31, 1999 mutually satisfactory to the Company and Parent which is no
later than the fifth business day after satisfaction (or waiver) of the
conditions to the Closing set forth in Articles VII and VIII hereof (other than
those conditions which require the delivery of any documents or the taking of
other action at the Closing) at 10:00 a.m., New York time, at the offices of
Hughes Hubbard & Reed, LLP, One Battery Park Plaza, New York, New York 10004. In
the event that at the Closing no party exercises any right it may have to
terminate this Plan of Merger and no condition to the obligations of the parties
exists that has not been satisfied or waived, the parties shall (i) deliver to
each other at the Closing the certificates and other documents required to be
delivered under this Section 2.6 and Articles VII and VIII hereof and (ii) at
the Closing, or as soon thereafter as practicable, cause the Merger to be
consummated by filing the Certificate of Merger with the Secretary of State of
California.
(b) In addition to the other things required to be done
hereby, at the Closing, the Company shall deliver or cause to be delivered to
Parent the following: (i) a copy of the resolutions of (A) the board of
directors of the Company authorizing the execution, delivery and performance of
this Plan of Merger, the Merger Agreement and the consummation of the
transactions contemplated hereby and thereby and (B) the shareholders of the
Company approving and adopting this Plan of Merger and the Merger Agreement as
required by Section 8.2, and a certificate of the Company's secretary dated as
of the Closing Date, that the resolutions referred to in the foregoing clauses
(A) and (B) were duly adopted and are in full force and effect; (ii) the
corporate seal and all of the minute books and stock transfer books of the
<PAGE>
Company; (iii) the written resignations of all of the officers of the Company
and all of the members of the board of directors of the Company; (iv) good
standing certificates requested by Parent; (v) a duly executed officer's
certificate as required by Section 1103 of the Corporations Code; and (vi) if
not previously delivered to Parent, all other certificates and such other
instruments, releases and documents required pursuant hereto to be delivered by
or on behalf of the Company at or prior to the Closing pursuant to Article VII
or otherwise required, or reasonably requested by Parent, in connection
herewith.
(c) In addition to the other things required to be done
hereby, at the Closing, Parent and Newco shall deliver to the Company the
following: (i) a copy of the resolutions of (A) the board of directors of Newco
authorizing the execution, delivery and performance of this Plan of Merger, the
Merger Agreement and the consummation of the transactions contemplated hereby
and thereby and (B) the sole shareholder of Newco approving and adopting this
Plan of Merger and the Merger Agreement, and a certificate of Newco's secretary,
dated as of the Closing Date, that the resolutions referred to in the foregoing
clauses (A) and (B) were duly adopted and are in full force and effect; and (ii)
if not previously delivered to the Company, all other certificates and such
other instruments and documents required pursuant hereto to be delivered by or
on behalf of Parent or Newco at or prior to the Closing pursuant to Article VIII
or otherwise required, or reasonably requested by the Company, in connection
herewith.
Section 2.7. TAX CONSEQUENCES. It is intended that the Merger
shall constitute a reorganization within the meaning of Section 368(a)(1)(A) and
(a)(2)(E) of the Code. Notwithstanding the foregoing, no representation or
warranty is made by any party hereto regarding the treatment or consequences of
the Merger for purposes of U.S. federal income tax, or foreign, state or local
tax law.
ARTICLE III
CONVERSION AND EXCHANGE OF SHARES
Section 3.1. CONVERSION OF SHARES. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Newco, the
Company or the holders of any of the following securities:
(a) Each share of common stock, par value $.01 per share, of
Newco issued and outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock, no par value per share, of
the Surviving Corporation.
(b) Any shares of Webcast Common Stock which are held in the
Company's treasury immediately prior to the Effective Time shall be canceled,
and no securities of Parent or cash shall be issuable or exchangeable with
respect thereto.
(c) Each share of Webcast Common Stock which is issued and
outstanding immediately prior to the Effective Time shall be converted into and
become the right to receive the Per Share Merger Consideration (as defined
herein). Each holder of Webcast Common Stock
<PAGE>
shall surrender all such holder's certificates formerly representing ownership
of Webcast Common Stock in the manner provided in Section 3.2. All such shares
of Webcast Common Stock, when so converted, shall no longer be outstanding and
shall be canceled and automatically converted into the right to receive the Per
Share Merger Consideration (and cash in lieu of fractional shares) therefor upon
the surrender of such certificate in accordance with Section 3.2. Any payment
made pursuant to this Section 3.1(c) shall be made net of applicable withholding
taxes to the extent such withholding is required by law.
(d) No fractional share of StarMedia Common Stock shall be
issued in connection with the Merger. Each holder of shares of Webcast Common
Stock shall be entitled to receive in lieu of any fractional share of StarMedia
Common Stock to which such holder otherwise would have been entitled pursuant to
this Section 3.1 (after taking into account all shares of Webcast Common Stock
then held of record by such holder) a cash payment in an amount equal to the
product of (i) the fractional interest of a share of StarMedia Common Stock to
which such holder otherwise would have been entitled and (ii) the Conversion
Price. Payment of such amounts shall be made by Parent.
Section 3.2. EXCHANGE OF CERTIFICATES. (a) The Surviving
Corporation shall act as Exchange Agent in the Merger. After the Effective Time,
each holder of a certificate or certificates theretofore evidencing outstanding
shares of Webcast Common Stock, upon surrender of the same, together with a
fully completed and executed Letter of Transmittal (as hereinafter defined), to
the Surviving Corporation or such other agent or agents as shall be appointed by
the Surviving Corporation, shall be entitled to receive in exchange therefor the
Per Share Merger Consideration multiplied by the number of shares of Webcast
Common Stock represented thereby, rounded to the nearest ten-thousandth of a
share. Each holder shall provide the Surviving Corporation with the
certification described in Section 4.6(c) and a properly completed IRS Form W-9,
if required. No interest will be paid or accrue on the Per Share Merger
Consideration payable upon surrender of such certificate. As soon as practicable
after the Effective Time, but in any event, within 20 days, the Surviving
Corporation will send a notice and transmittal form (the "LETTER OF
TRANSMITTAL") to each holder of an outstanding certificate or certificates which
immediately prior to the Effective Time evidenced shares of Webcast Common Stock
advising such shareholder of the terms of the exchange effected by the Merger
and the procedure for surrendering to the Exchange Agent such certificate or
certificates for exchange into the shares of StarMedia Common Stock and cash in
lieu of fractional shares, constituting the Per Share Merger Consideration.
Until so surrendered, each outstanding certificate which, prior to the Effective
Time, represented shares of Webcast Common Stock will be deemed for all
corporate purposes of Parent to evidence ownership of a right to receive without
interest thereon, the number of full shares of StarMedia Common Stock rounded to
the lowest whole share multiplied by the number of shares of Webcast Common
Stock represented thereby, plus the applicable cash amount, if any, in lieu of
fractional shares, constituting the Per Share Merger Consideration. After the
Effective Time there shall be no further registration of transfers on the
records of the Company of shares of Webcast Common Stock and, if a certificate
representing any such shares is presented to the Surviving Corporation, it shall
be canceled and exchanged for the Per Share Merger Consideration as herein
provided.
<PAGE>
(b) If payment of the Per Share Merger Consideration is to be
made to a person other than the registered holder of the certificate or
certificates surrendered in exchange therefor, it shall be a condition of such
payment that the certificate or certificates so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the Person
requesting such exchange pay to the Surviving Corporation any transfer or other
taxes required by reason of the payment to a Person other than the registered
holder of the certificate or certificates surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
payable.
(c) Notwithstanding anything to the contrary in this Section
3.2, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Webcast Common Stock for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
Section 3.3. LOST, STOLEN OR DESTROYED CERTIFICATES. In the
event any certificates evidencing shares of Webcast Common Stock shall have been
lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such shares of StarMedia Common Stock and other
amounts, if any, as may be required pursuant to this Article 3; PROVIDED,
HOWEVER, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct against
any claim that may be made against Parent or the Exchange Agent with respect to
the certificates alleged to have been lost, stolen or destroyed.
Section 3.4. DISSENTING SHARES.
(a) Notwithstanding any provision of this Plan of Merger to
the contrary, any shares of Webcast Common Stock held by a holder who has
exercised and perfected appraisal rights for such shares in accordance with the
Corporations Code and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal rights ("DISSENTING SHARES"), shall not be
converted into or represent a right to receive the Per Share Merger
Consideration pursuant to Section 3.1, but the holder thereof shall only be
entitled to such rights as are granted by the Corporations Code.
(b) Notwithstanding the provisions of subsection (a) above, if
any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) his or her appraisal rights, then, as of the
later of the Effective Time or the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive the Per Share Merger Consideration as provided in Section 3.1, without
interest thereon, upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demand for appraisal received by the Company pursuant to the applicable
provisions of the Corporations Code and (ii) the opportunity to participate in
all negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, or as
<PAGE>
required under the Corporations Code, voluntarily make any payment with respect
to any such demands or offer to settle or settle any such demands.
Section 3.5. STOCK LEGEND. Stock certificates for StarMedia
Common Stock issued in the Merger as Per Share Merger Consideration shall
contain the legend specified on Schedule 3.5.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to and for the
benefit of Parent and Newco as follows:
Section 4.1. INCORPORATION; AUTHORIZATION; CAPITALIZATION. (a)
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. The Company (i) has all
requisite corporate power to own its properties and assets and to carry on its
business as it is now being conducted and (ii) is in good standing and is duly
qualified to transact business in each jurisdiction in which the nature of
property owned or leased by it or the conduct of its business requires it to be
so qualified, except where the failure to be in good standing or to be duly
qualified to transact business would not, individually or in the aggregate, have
a Material Adverse Effect on the Company. The Company has previously delivered
to Parent true and correct copies of the articles of incorporation and by-laws
of the Company. The Company has no Subsidiaries. Except as set forth on Schedule
4.1(a), the Company has no investments in, or joint venture arrangements with,
any other Person.
(b) The Company has full power and authority (corporate or
otherwise) to execute, deliver and perform this Plan of Merger, the Merger
Agreement and all other agreements and instruments to be executed in connection
herewith and therewith (collectively, the "TRANSACTION DOCUMENTS"). Subject only
to the receipt of the requisite approval of the Company's shareholders referred
to in Section 8.2 hereof, (i) the execution, delivery and performance by the
Company of this Plan of Merger has been duly authorized by all necessary action
(corporate or otherwise) on the part of the Company, and (ii) as of the Closing
Date, the Merger Agreement and the other Transaction Documents to which the
Company is a party will be duly authorized by all necessary action (corporate or
otherwise) on the part of the Company. This Plan of Merger has been duly
executed and delivered by the Company, and, as of the Closing Date, the Merger
Agreement and the other Transaction Documents to which the Company is a party
will be duly executed and delivered by the Company. Assuming due authorization,
execution and delivery by Parent and Newco of this Plan of Merger, this Plan of
Merger is a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court. As of the Closing Date, assuming due authorization, execution and
delivery by Parent of this Plan of Merger and the receipt of the requisite
approval
<PAGE>
of the Company's shareholders referred to in Section 8.2 hereof, the
Merger Agreement and the other Transaction Documents to which the Company is a
party will constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
(c) The execution, delivery, and performance by the Company of
this Plan of Merger, the Merger Agreement and the other Transaction Documents to
which it is a party does not, and the consummation by the Company of the
transactions contemplated hereby and thereby, will not, (a) upon receipt of the
requisite approval of the Company's shareholders referred to in Section 8.2,
violate, conflict with or result in the breach of any provision of the Articles
of Incorporation or by-laws of the Company or (b) violate, conflict with, result
in a breach of, or constitute a default (or an event which would, with the
passage of time or the giving of notice or both, constitute a default) under,
require any consent under, or result in or permit the termination, amendment,
modification, acceleration, suspensions, revocation or cancellation of, or
result in the creation or imposition of any Lien of any nature whatsoever upon
any of the assets of the Company or give to others any interests or rights
therein under (i) any Contract, or (ii) any judgment, injunction, writ, award,
decree, restriction, ruling, or order of any court, arbitrator or other
Governmental Entity or any applicable constitution or Law, to which the Company
is subject or which is applicable to the Company's assets.
(d) The authorized capital stock of the Company consists of
(i) 10,000,000 shares of Webcast Common Stock, of which 7,237,500 shares are
issued and outstanding, and (ii) 560,000 shares of Series A preferred stock, no
par value, of the Company (the "PREFERRED STOCK"), of which 541,650 shares are
issued and outstanding. All of the outstanding shares of capital stock of the
Company have been duly authorized, validly issued, are fully paid and
non-assessable, and have not been issued in violation of any preemptive rights
created by statute, regulation, the articles of incorporation or bylaws of the
Company or any agreement to which the Company is a party or by which it is
bound, or in violation of any federal or state securities laws. The Company has
reserved 541,650 shares of Webcast Common Stock for issuance upon conversion of
the Preferred Stock and 1,100,000 shares of Webcast Common Stock under the
Company's 1999 Stock Option Plan (the "OPTION PLAN") for employees, officers,
directors and consultants of the Company as may be determined and approved by
the Company's Board of Directors from time to time. Except as disclosed in this
Section 4.1(d) and in Schedule 4.1(d) and for the transactions contemplated by
this Plan of Merger, there is no security, option, warrant, right (including
preemptive rights), put, call, subscription, agreement, commitment,
understanding or claim of any nature whatsoever, fixed or contingent, to which
the Company is a party or by which it is bound that directly or indirectly (i)
calls for the issuance, sale, pledge, delivery or other disposition of any
securities of the Company or any securities convertible into, or other rights to
acquire, any securities of the Company, (ii) relates to the voting or control of
any securities of the Company or (iii) obligates the Company or any of its
Affiliates to grant, offer or enter into any of the foregoing.
(e) Schedule 4.1(e) contains a complete and correct list of
the record and
<PAGE>
beneficial ownership of Webcast Common Stock and Preferred Stock by each
shareholder of the Company designating each officer and director of the Company
and the current mailing address of each such shareholder.
Section 4.2. FINANCIAL STATEMENTS. (a) Attached hereto as
Schedule 4.2(a) are true, correct and complete copies of the (i) unaudited
balance sheet of the Company as of June 30, 1999 and the related unaudited
income and cash flow statements for the Company for the six-month period then
ended, and (ii) unaudited balance sheet of the Company as of December 31, 1998
and the related unaudited income and cash flow statements for the Company for
the twelve [sic]-month period then ended. The foregoing financial statements are
collectively referred to as the "FINANCIAL STATEMENTS."
(b) The Financial Statements were prepared in accordance with
the books and records of the Company and fairly present the financial condition,
results of operations and cash flows of the Company, as of the dates and for the
periods indicated, in each case in conformity with GAAP throughout the periods
specified.
Section 4.3. UNDISCLOSED LIABILITIES. The Company does not
have any liabilities or obligations of any nature (whether known or unknown, due
or to become due, absolute, accrued, contingent or otherwise), and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability or obligation, including any liabilities
or obligations under Environmental Laws or any unfunded obligation under any
Benefit Plan, except as (i) set forth in Schedule 4.3, (ii) disclosed in the
Financial Statements, or (iii) incurred in the ordinary course of business since
June 30, 1999 which do not individually or in the aggregate have a Material
Adverse Effect.
Section 4.4. PROPERTIES. (a) The Company does not own, and has
never owned, any interest in real property.
(b) Schedule 4.4(b) hereto contains descriptions of all items
of tangible personal property of every kind or description owned by the Company
having a current net book value in excess of $2,500. The Company has good and
marketable title to, or holds by valid and existing lease or license, all assets
and properties (including without limitation all assets reflected on the
Financial Statements (other than Intellectual Property, which is the subject of
the corresponding representation set forth in Section 4.8 below)), free and
clear of all Liens, except (1) as set forth on Schedule 4.4(b)(i) and (2) for
liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not detract from the value or interfere with the present use, of the
property subject thereto or affected thereby.
(c) All material tangible assets of every kind or description
owned or leased by the Company are in good operating condition and repair,
ordinary wear and tear excepted.
Section 4.5. ABSENCE OF CERTAIN CHANGES. Except as disclosed
in Schedule 4.5, since December 31, 1998, there has been no:
<PAGE>
(a) event that, individually or together with any other events
has, or is reasonably likely to have, a Material Adverse Effect on the Company;
(b) physical damage, destruction or loss of any assets of the
Company in an amount exceeding $10,000 in the aggregate affecting the Company
not remedied within 30 days;
(c) increase in compensation payable or to become payable to
any of the employees, consultants or directors of the Company, or any bonus
payment made or promised to any employee, consultant or director of the Company,
or any material change in personnel policies, insurance benefits, Benefit Plans
or other compensation arrangements affecting the employees, consultants or
directors of the Company (other than increases in wages and salaries or bonus
payments or other compensation made in the ordinary course of business and
consistent with past practice or except as otherwise contemplated by this Plan
of Merger or the Transaction Documents, but in no event increases greater than
3% per annum);
(d) waiver of any rights by the Company under any Contract
which waivers, individually or in the aggregate, could have a Material Adverse
Effect on the Company;
(e) mortgage, pledge or subjection to any Lien of any of the
properties or assets of the Company;
(f) sale or transfer of the properties or assets of the
Company including Intellectual Property, other than insignificant transfers in
the ordinary course of business which individually or in the aggregate are not
material;
(g) change in any method of accounting or accounting practice
except as required by GAAP as in effect from time to time;
(h) dividend or other distribution paid or declared by the
Company in respect of any of its capital stock and the Company has not, directly
or indirectly, purchased, acquired or redeemed or split, combined or
reclassified any shares of the capital stock of the Company;
(i) entrance into any material transaction or Contract
involving a total commitment by or to any party thereto of more than $20,000 on
an annual basis or more than $100,000 on its remaining term which cannot be
terminated on no more than 60 days' notice without penalty or additional cost to
the Company as the terminating party (except as otherwise contemplated by this
Plan of Merger, the Merger Agreement or the Transaction Documents); or
(j) material tax election or change in tax accounting by the
Company.
Section 4.6. TAXES. (a) The Company (which, for purposes of
this Section 4.6, shall include any predecessor of the Company) has timely filed
all Returns which are required to be filed (giving effect to any timely
extensions), and all Taxes shown to be due on such Returns have been timely
paid. All such Returns are true, accurate and complete. The Company has provided
Parent with complete and accurate copies of all Returns filed by the Company for
<PAGE>
periods for which the statute of limitations is still open. The Company has paid
all Taxes required to be paid. The Company has not been included in any
consolidated, combined or unitary Returns. Except as disclosed in Schedule
4.6(a), the Company does not have in effect, nor has been requested to make, any
waiver or extension of any statute of limitations with respect to Taxes.
(b) No property of the Company is subject to a tax benefit
transfer lease subject to the provisions of former Section 168(f)(8) of the
Internal Revenue Code of 1954.
(c) None of the shareholders of the Company is a foreign
person subject to withholding under Section 1445 of the Code and the regulations
promulgated thereunder, and certification to that effect will be delivered to
Parent.
(d) The Company has complied with all applicable laws, rules
and regulations relating to information reporting with respect to payments made
to third parties and the withholding of and payment of withheld Taxes and has
timely withheld from employee wages and other payments and paid over to the
proper taxing authorities all amounts required to be so withheld and paid over
for all periods under all applicable laws.
(e) There are no pending, proposed, or, to the knowledge of
the Company, threatened, audits, Actions, assessments or deficiencies, asserted
with respect to Taxes of the Company. There is no pending, proposed, or, to the
knowledge of the Company, threatened, claim by any Taxing Authority in any
jurisdiction in which the Company does not pay Taxes or file Returns that the
Company is required to pay Taxes or file Returns.
(f) The Company has not made an election under Section 341(f)
of the Code.
(g) The Company has not agreed nor is required to make any
adjustment under Section 481(a) of the Code.
(h) The Company will not have any liability under any tax
sharing agreement or tax indemnity agreement on or after the Closing Date.
(i) All deficiencies asserted or assessments made as a result
of any examination of Returns referred to in Section 4.6(a) have been paid in
full.
Section 4.7. LITIGATION; ORDERS. There is no Action pending,
or to the knowledge of the Company, threatened, against the Company by or before
any court, arbitrator, panel or other Government Entity that would prevent the
consummation of any of the transactions contemplated hereby. Except as disclosed
in Schedule 4.7, there is no Action pending, or to the knowledge of the Company,
threatened, against the Company or any of its business, properties or rights by
or before any court, arbitrator, panel or other Government Entity. There are no
judgments, orders, injunctions, decrees, stipulations or awards rendered by any
Government Entity or arbitrator against the Company or any of its properties
that would individually or in the aggregate have Material Adverse Effect on the
Company.
<PAGE>
Section 4.8. INTELLECTUAL PROPERTY. (a) Schedule 4.8(a)
contains a true, accurate and complete list as of the date hereof of all
patents, patent applications, trademark and service marks and corresponding
registrations and applications for registration thereof, and copyrights and
corresponding registrations and applications for registration thereof,
worldwide, as are now owned, used or held for use by the Company. Schedule
4.8(a) further sets forth a true, accurate and complete list as of the date
hereof of all Outstanding IP Licenses (other than non-negotiated IP Licenses to
the Company for off-the-shelf Software having a license fee, in the aggregate
for all copies licensed, of less than $5,000), identifying the other parties
thereto and the subject matter and date thereof, any royalty or other payment
obligations, the term thereof, and any exclusivity obligations. Except as set
forth in Schedule 4.8(a)(i), the Company owns, or is licensed or otherwise
possesses legally enforceable rights to use all subject matter set forth in
Schedule 4.8(a), free and clear of Liens (including any rights or claims of
present or former employees, consultants, officers and directors of the Company
or any other Persons) and of any obligations to pay royalties or other
remuneration to any Person. There are no Outstanding IP Licenses other than as
identified in Schedule 4.8(a), oral or written, and except as may be
specifically stated in Schedule 4.8(a), no Outstanding IP License requires any
payment of any nature, cash or noncash, or approval from, any past or present
officer, director, shareholder or Affiliate of the Company.
(b) The Company has sufficient title, ownership or IP Licenses
of Intellectual Property Rights (whether or not listed in Schedule 4.8(a))
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement of the rights of others and such
Intellectual Property Rights will not be materially adversely affected by the
execution and delivery of this Plan of Merger or the consummation of the
transactions contemplated hereby.
(c) The Company has not been and is not now interfering with,
infringing upon, misappropriating, or otherwise in conflict with or violating
any Intellectual Property Rights of other Persons, nor has the Company received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the Intellectual Property Rights of
any other Person, nor to the Company's knowledge, is there any basis for the
making of any such allegation.
(d) Schedule 4.8(d) sets forth a list of all patents relating
to any field of business or proposed business of the Company as to which the
Company has either sought an opinion of counsel or been advised that it should
seek an opinion of counsel.
(e) There is not pending, nor to the Company's knowledge, has
there been threatened, any action or proceeding to contest, oppose, cancel or
otherwise challenge the validity, ownership or enforceability of any of the
Company's Intellectual Property.
(f) The Company has no knowledge that any Person is infringing
any of its Intellectual Property.
(g) The Company is not aware after due inquiry of its
employees that any of
<PAGE>
its employees are obligated under any contract (including IP Licenses, covenants
or commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any Governmental Entity, that would interfere with the use of
the best efforts of such employee to promote the interests of the Company or
that would conflict with the Company's business as currently proposed to be
conducted. The Company is not aware after due inquiry of its consultants that
any of its consultants is obligated under any contract (including IP Licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any Governmental Entity, that would interfere with
such consultant's performance of its contractual obligations or other currently
contemplated duties to the Company. Neither the execution nor delivery of this
Plan of Merger or the consummation of the transactions contemplated hereby, nor
the carrying on of the Company's business by the employees of and the
consultants to the Company, nor the conduct of the Company's business as
proposed, will, to the Company's knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
law, contract, covenant or instrument to or under which any of such employees or
consultants is now subject to or obligated. The Company does not believe it is
or will be necessary to utilize any inventions of any of its employees or
consultants (or Persons it currently intends to hire or retain as consultants)
made prior to their employment or engagement by the Company.
(h) Schedule 4.8(h) sets forth a complete list of all Internet
domain names now used or contemplated to be used by the Company. All such domain
names are currently registered and in good standing, and the Company is shown on
the records of the registrar thereof as the sole owner thereof. The Company has
received no notice or communication stating that any Person is challenging the
right of the Company to use any such domain name.
(i) All Software which has been used and which is now being
used by the Company has and is being used in compliance with all applicable
License requirements.
Section 4.9. LICENSES, APPROVALS, OTHER AUTHORIZATIONS,
CONSENTS, REPORTS, ETC. (a) The Company has all licenses, permits, franchises,
registrations, certificates, consents, and other authorizations of any
Government Entity necessary to the conduct of the business of the Company (the
"LICENSES"). All Licenses are in full force and effect. No Action is pending or,
to the knowledge of the Company, threatened, by or before any court, arbitrator,
panel or other Government Entity seeking the revocation, modification or
limitation of any License.
(b) No filing, consent, waiver, approval or authorization of
any Government Entity or of any third party on the part of the Company is
required in connection with the execution, delivery and performance by the
Company of this Plan of Merger, the Merger Agreement, or the other Transaction
Documents to which it is a party or the consummation of any of the transactions
contemplated hereby or thereby, except in connection with or in compliance with
the provisions of the Corporations Code.
Section 4.10. LABOR MATTERS.
(a) Schedule 4.10(a) sets forth a complete and correct list of
all employees of the Company, including for each such employee his or her (i)
name; (ii) job title; (iii) status as a
<PAGE>
full-time or part-time employee; (iv) base salary or wage rate; and (v) 1998
bonus. Schedule 4.10(a) also lists each employee of the Company who is not
actively at work for any reason other than vacation, and the reason for such
absence.
(b) Schedule 4.10(b) sets forth a complete and correct list of
all individuals who perform services for the Company as an independent
contractor or a leased employee, the services they perform, and their rate of
compensation.
(c) The Company is not presently, nor has in the past been a
party to, or bound by any collective bargaining agreement with respect to its
employees. No employees of the Company are, or within the last three years have
been, represented by a union or other bargaining agent with respect to their
employment with the Company, and, to the knowledge of the Company, no employee
organizing efforts are pending with respect to employees of the Company. Within
the last three years, there has been no strike, work slowdown or other material
labor dispute with respect to employees of the Company, nor to the knowledge of
the Company, is any strike, work slowdown or other material labor dispute
pending. The Company is not involved in nor, to the knowledge of the Company,
threatened with any arbitration, lawsuit or administrative proceeding relating
to labor matters involving the employees of the Company (excluding any routine
workers' or unemployment compensation claims).
(d) Each individual who performs, or has performed, services
for the Company and has been classified by the Company as an independent
contractor (rather than as an employee) for purposes of income tax withholding
and employment taxes is and has been properly classified as an independent
contractor for such purposes.
Section 4.11. COMPLIANCE WITH LAWS. The conduct of the
business of the Company has complied with, and the Company and its properties
are in compliance with all Laws applicable thereto other than Laws, the
violations of which would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 4.12. INSURANCE. Schedule 4.12 lists all insurance
policies owned or held by the Company. The Company's insurance policies afford
coverage to the Company and its assets or business in amounts and against all
risks normally insured against by Persons possessing similar assets or operating
similar businesses in similar locations. All such policies are in full force and
effect, all premiums with respect thereto have been paid to the extent due, and
no notice of cancellation or termination has been received with respect to any
such policy.
Section 4.13. CONTRACTS. Schedule 4.13 sets forth a list of
all written, and a description of all oral, employment Contracts, regardless of
amount, and all other Contracts, except for individual unrelated Contracts which
could not involve the payment or receipt by the Company of more than $10,000 per
calendar year; PROVIDED, HOWEVER, that such schedule also sets forth those
Contracts which do not satisfy the $10,000 threshold but are otherwise material
to the Company. Except for all failures to be valid, binding and enforceable and
breaches, defaults, events, waivers and disputes which would not, individually
or in the aggregate, have a Material Adverse Effect on the Company, (a) all of
the Contracts are valid and binding on and enforceable against the Company, in
accordance with their terms and, to the knowledge of the
<PAGE>
Company, on and against the other parties thereto, (b) neither the Company nor,
to the knowledge of the Company, any other party to any Contract, is in breach
or default under any Contract, (c) the Company has not waived any material right
under any Contract, (d) no event has occurred that, with the giving of notice or
the lapse of time or both, would constitute a breach or default under any
Contract, and (e) there are no unresolved disputes under any of the Contracts.
True and complete copies of all written, and accurate summaries of all oral,
Contracts set forth on Schedule 4.13 have been provided to Parent.
Section 4.14. TRANSACTIONS WITH AFFILIATES. Schedule 4.14 sets
forth a complete and accurate (a) list of all Contracts to which any
shareholder, director or officer of the Company, or any of its Affiliates,
Associates or Relatives (the "INSIDERS"), on the one hand, and the Company, on
the other hand, is a party and (b) description of all material transactions
which are not the subject of the agreements described in clause (a) above (the
"INSIDER TRANSACTIONS") between the Company, on one hand, and any Insider, on
the other hand, that have occurred since July 1, 1998.
Section 4.15. OSHA MATTERS. The Company is in compliance with
the requirements of the Occupational Safety and Health Act and the regulations
promulgated thereunder and any similar laws or regulations of any state or local
jurisdiction ("OSHA") other than violations of OSHA which would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
The Company has not received any citation from the Occupational Safety and
Health Administration or any comparable administration of any state or local
jurisdiction (an "ADMINISTRATION") or any Administration inspector setting forth
any respect in which the facilities or operations of the Company are not in
compliance with OSHA, or the regulations thereunder, which non-compliance has
not been corrected or remedied to the satisfaction of such Administration or
inspector. The Company has heretofore furnished to Parent copies of any
citations heretofore issued to the Company under OSHA during the three years
prior to the date of this Plan of Merger and copies of all correspondence from
and to such Administration and any Administration inspectors during the past
three years.
Section 4.16. TOTALITY OF ASSETS. The assets of the Company
which Parent, through the Surviving Corporation, will acquire at the Closing by
virtue of the Merger include all of the assets or rights necessary for the
continued operation of the business of the Company substantially in the same
manner as currently operated.
Section 4.17. ENVIRONMENTAL MATTERS. (a) The Company has made
available to Parent all material information which it possesses or controls
pertaining to the use, generation, storage, handling, treatment or disposal of
Hazardous Materials on any real property, used or leased by the Company and any
sampling and test results obtained, samples, tests and monitoring programs taken
or conducted by the Company (or otherwise in its possession or control) at and
around any real property used or leased by the Company with respect to Hazardous
Materials.
(b) The Company has complied with, and the Company and any
real property used or leased by the Company, is in compliance in all material
respects with, the provisions of all applicable Environmental Laws.
<PAGE>
(c) The Company has not received any written notice or is
otherwise aware of any existing claim or the basis for any claim by any
Government Entity or any third party that the Company or the condition of any
real properties used or leased by the Company has violated or is subject to
liability pursuant to any Environmental Law.
(d) There are no facts, events or conditions with respect to
the past or present operation of business of the Company or any environmental
conditions at any of the real properties used or leased by the Company which
could reasonably be expected to interfere with or prevent continued compliance
with, or could reasonably be expected to give rise to any action, suit, claim or
proceeding under, Environmental Laws.
(e) The Company is not subject to any liability, past or
present, fixed or contingent under any Environmental Law.
(f) To the knowledge of the Company, there are no underground
storage tanks on or under the real property used or leased by the Company.
(g) To the knowledge of the Company, no underground storage
tanks were located on or under the real property used or leased by the Company
which were removed or filled.
(h) The Company has not caused Hazardous Materials to be
discharged, disbursed, released, stored, treated, generated, disposed of, or
allowed to escape on, in, over or under the real property used or leased by the
Company, and, to the knowledge of the Company, no other Person has caused
Hazardous Materials to be discharged, disbursed, stored, treated, generated or
allowed to escape on, in, over or under the real property used or leased by the
Company.
(i) No asbestos or asbestos containing materials have been
installed, used, incorporated into, or disposed of on the real property used or
leased by the Company, by the Company or, to the knowledge of the Company, by
any other Person.
(j) To the knowledge of the Company, no PCBs have been located
on or in the real property used or leased by the Company, whether in electrical
transformers, fluorescent light fixtures with ballasts, cooling oils, or
otherwise.
Section 4.18. EMPLOYEE BENEFITS.
(a) Schedule 4.18(a) sets forth a complete and correct list of
(i) any "employee benefit plan" within the meaning of Section 3(3) of ERISA,
(ii) any other employee benefit plan, arrangement or policy, including without
limitation, any stock option, stock purchase, stock award, stock appreciation,
phantom stock, deferred compensation, pension, retirement, savings, profit
sharing, incentive, bonus, health, life insurance, cafeteria, flexible spending,
dependent care, fringe benefit, vacation pay, holiday pay, disability, sick pay,
workers compensation, unemployment, severance, employee loan or educational
assistance plan,
<PAGE>
arrangement or policy, and (iii) any employment, indemnification, consulting,
severance or change-in-control agreement, in each case, which is sponsored or
maintained by the Company or any of its Affiliates, or to which the Company or
any of its Affiliates contributes or is required to contribute, on behalf of
current or former employees, consultants or directors of the Company or their
beneficiaries or dependents, whether or not written ("BENEFIT PLANS"). Neither
the Company nor any of its Affiliates has communicated to present or former
employees of the Company or formally adopted or authorized any additional
Benefit Plan or any change in or termination of any existing Benefit Plan. No
Benefit Plan covers employees other than employees of the Company.
(b) The Company has delivered to Parent complete and correct
copies of each Benefit Plan, or written summaries of any unwritten Benefit Plan,
any employee handbook applicable to employees of the Company, and, with respect
to each Benefit Plan, the current summary plan description, related trust
agreements or insurance contracts, the latest IRS determination letter, the last
three annual financial statements, and the last three annual reports on IRS Form
5500 (including all required schedules and accountant's opinions).
(c) Each Benefit Plan is and has been operated and
administered in accordance with its terms and all applicable laws. Each Benefit
Plan intended to be tax-qualified under Section 401(a) of the Code has received
a favorable determination letter from the IRS as to its tax-qualified status
under the Code and nothing has occurred since the date of such favorable
determination letter which would adversely affect the qualified status of such
plan.
(d) All contributions and premium payments required to have
been paid under or with respect to any Benefit Plan have been timely paid.
(e) No Benefit Plan provides health, life insurance or other
welfare benefits to retirees or other terminated employees of the Company, other
than continuation coverage required by Section 4980B of the Code or Sections
601-608 of ERISA ("COBRA"), and the Company does not have any current or
projected liability for any such benefits.
(f) The Company has never maintained or contributed to a trust
which is or was intended to be a voluntary employees' beneficiary association
under Section 501(c)(9) of the Code.
(g) Except as set forth in Schedule 4.18(g) hereto, no Benefit
Plan is funded with, or provides for benefits in the form of, stock or other
securities of the Company.
(h) Except as set forth in Schedule 4.18(h), there has been no
change, since January 1, 1999, in any Benefit Plan, or its related funding
vehicle, which would significantly increase the Company's cost, or the benefits
payable, with respect to such plan.
(i) Schedule 4.18(i) hereto lists each individual who is
receiving, or who is entitled to elect, COBRA continuation coverage under any
Benefit Plan which is a group health plan.
<PAGE>
(j) The Company has never maintained or contributed to, or had
an obligation to contribute to, (i) a "single-employer plan" within the meaning
of Section 4001(a)(15) of ERISA, (ii) a plan subject to Section 412 of the Code,
(iii) a plan subject to Section 4063 or 4064 of ERISA, or (iv) a multiemployer
plan within the meaning of Section 3(37) or 4001(a)(3) of ERISA.
(k) No event has occurred and no condition exists with respect
to any Benefit Plan which could subject any Benefit Plan, the Company, Parent or
any of their employees, agents, directors or Affiliates, directly or indirectly
(through an indemnification agreement or otherwise), to liability for a breach
of fiduciary duty, a "prohibited transaction," within the meaning of Section 406
of ERISA or Section 4975 of the Code, or a tax, penalty or fine under Section
502 or 4071 of ERISA or Subtitle D, Chapter 43 of the Code.
(l) There are no actions, suits, or claims (other than routine
claims for benefits in the ordinary course) with respect to any Benefit Plan
pending which could give rise to a material liability, or to the knowledge of
the Company, threatened, and the Company has no knowledge of any facts which
could give rise to any such actions, suits or claims (other than routine claims
for benefits in the ordinary course). No Benefit Plan is currently under
governmental investigation or audit and, to the best knowledge of the Company,
no such investigation or audit is contemplated or under consideration.
(m) No event has occurred and no condition exists with respect
to (i) any terminated employee benefit plan or arrangement previously maintained
or contributed to by the Company, or (ii) any employee benefit plan or
arrangement currently or previously maintained or contributed to by any
Affiliate of the Company which, in either case, could subject the Company,
Parent or any of their employees, agents, directors or Affiliates, directly or
indirectly (through an indemnification agreement or otherwise), to any
liability, including, without limitation, liability under Section 412, 4971 or
4980B of the Code or Title IV of ERISA.
(n) Except as set forth on Schedule 4.18(n) hereto and as
otherwise contemplated by this Plan of Merger, the Transaction Documents or the
transactions contemplated hereby and thereby, neither the execution of this Plan
of Merger nor the consummation of the transactions contemplated by this Plan of
Merger, will (i) increase the amount of benefits otherwise payable under any
Benefit Plan, (ii) result in the acceleration of the time of payment,
exercisability, funding or vesting of any such benefits, or (iii) result in any
payment (whether severance pay or otherwise) becoming due to, or with respect
to, any current or former employee, consultant, or director of the Company. No
payment or series of payments that would constitute a "parachute payment"
(within the meaning of Section 280G of the Code) has been made or will be made
by the Company, directly or indirectly, to any employee, consultant or director
in connection with the execution of this Plan of Merger or as a result of the
consummation of the transactions contemplated hereby.
(o) Substantially adequate and complete records have been and
are maintained with respect to each Benefit Plan and are in the custody of the
Company or a third party service provider retained by the Company.
<PAGE>
Section 4.19. YEAR 2000. The "YEAR 2000" problem, consisting
of the inability of certain computer applications to recognize and properly
perform date-sensitive functions involving dates on or about or subsequent to
December 31, 1999, will not have a Material Adverse Effect on the Company. The
Company reasonably anticipates that all computer applications which are material
to its business will, in a timely basis, be able to properly perform
date-sensitive functions for all dates on and after January 1, 2000. The
Software and related services used by the Company (except for off-the-shelf,
shrink-wrap Software that is commercially available for retail purchase) and/or
sold or licensed by the Company will not require any additional expenditures in
order to be "YEAR 2000 COMPLIANT," which term shall include the following
capabilities: (a) accurately processing date information before, during and
after January 1, 2000, including, but not limited to, accepting date input,
providing date output and performing calculations on dates or portions of dates;
(b) functioning accurately and without interruption before, during and after
January 1, 2000, without any change in operations associated with the advent of
the new century; (c) responding to two-digit year date input in a way that
resolves the ambiguity as to century in a disclosed, defined and predetermined
manner; and (d) storing and providing output of date information in ways that
are unambiguous as to century. The Company has contacted its principal vendors
of hardware, Software and services, and other Persons with whom the Company has
material business relationships, and all such vendors and other Persons have
notified the Company that their hardware, Software and services are Year 2000
Compliant to the extent affecting the Company. Upon Parent's request from time
to time, the Company shall provide to Parent assurance that the Company's
systems and Software are or will be in all material respects Year 2000 Compliant
on a timely basis, all in form and substance reasonably satisfactory to Parent.
Section 4.20. POOLING. The Company was incorporated in 1998
and has never been a subsidiary or division of another corporation. At the date
of this Plan of Merger, the Company had no investment in Parent and has not
acquired any investment in Parent to date. The Company has not had any
transactions changing the total equity interest of its common stock in
contemplation of the Merger from the date of its incorporation to the date of
this Plan of Merger, nor are there any equity transactions of this type planned
prior to the Closing. The Company has purchased no treasury shares since the
date of its incorporation nor are any purchases planned prior to the Closing. To
the knowledge of the Company, Parent does not intend and has not agreed to
effect any of the following transactions: (a) retire or reacquire, directly or
indirectly, all or part of the Webcast Common Stock issued to effect the Merger,
(b) enter into financial arrangements for the benefit of the former shareholders
of the Company (except as previously disclosed to Parent), or (c) dispose of a
significant part of the assets of the Company within two years after the
Effective Time, other than disposals in the ordinary course of business and to
eliminate duplicate facilities or excess capacity or to comply with an order of
a Governmental Entity. The Company has not disposed of any significant assets in
the two years prior to the date of this Plan of Merger and between the date of
this Plan of Merger and the Closing, except for disposals in the ordinary course
of business. Notwithstanding the foregoing, no representation or warranty is
made by the Company regarding the treatment or consequences of the Merger being
accounted for as a pooling or a purchase transaction.
<PAGE>
Section 4.21. VOTE REQUIRED. Other than the approval of the
Merger by the affirmative vote of a majority of the holders of the outstanding
shares of Webcast Common Stock and the Preferred Stock entitled to vote on the
question, no vote of the holders of any class or series of the capital stock of
the Company is required to approve this Plan of Merger, the Merger Agreement and
the Merger.
Section 4.22. INTENTIONALLY OMITTED.
Section 4.23. BROKERS, FINDERS, ETC. No broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with this Plan of Merger or the transactions
contemplated hereby based upon any agreements, written or oral, made by or on
behalf of the Company or by or on behalf of any director, officer, employee,
agent or Affiliate of the Company.
Section 4.24. MINUTE BOOKS. The minute books of the Company
contain an accurate summary of all meetings of directors and shareholders of the
Company since the time of the Company's incorporation. True and complete copies
of the minute books of the Company have been made available to Parent.
Section 4.25. DISCLOSURE. No representation, warranty or
statement made by the Company in this Plan of Merger, the Merger Agreement or
the other Transaction Documents contains (or will contain) any untrue statement
of a material fact or omits (or will omit) to state a material fact necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances under which they were made.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO
Parent and Newco hereby jointly and severally represent and
warrant to the Company as follows:
Section 5.1. INCORPORATION; AUTHORIZATION; CAPITALIZATION. (a)
Each of Parent and Newco is a corporation duly incorporated, validly existing
and in good standing under the laws of its state of incorporation. Each of
Parent and Newco has all requisite corporate power to own its respective
properties and assets and to carry on its respective business as it is now being
conducted.
(b) Each of Parent and Newco have full power and authority
(corporate or otherwise) to execute, deliver and perform this Plan of Merger,
the Merger Agreement and the other Transaction Documents to which Parent or
Newco is a party. The execution, delivery and performance by Parent and Newco of
this Plan of Merger, the Merger Agreement and the other Transaction Documents to
which Parent or Newco is a party have been duly authorized by all necessary
action (corporate or otherwise) on the part of each of Parent and Newco. This
Plan of
<PAGE>
Merger has been duly executed and delivered by each of Parent and Newco,
and, as of the Closing Date, the Merger Agreement and the other Transaction
Documents to which Parent or Newco is a party will be duly executed and
delivered by Parent or Newco, as the case may be. This Plan of Merger is a
legal, valid and binding obligation of each of Parent and Newco, enforceable
against each of them in accordance with its terms, except as such enforceability
may be limited by applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization or affecting creditors' rights generally and except
to the extent that injunctive or other equitable relief is within the discretion
of a court. As of the Closing Date, the Merger Agreement and the other
Transaction Documents to which Parent or Newco is a party will constitute legal,
valid and binding obligations of Parent or Newco, as the case may be,
enforceable against Parent or Newco in accordance with their terms, except as
such enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
(c) The execution, delivery, and performance by each of Parent
and Newco of this Plan of Merger, the Merger Agreement, and the other
Transaction Documents to which Parent or Newco is a party and the consummation
by Parent and Newco of the transactions contemplated hereby and thereby, do not,
(a) violate, conflict with or result in the breach of any provision of the
Articles of Incorporation or by-laws (or similar organizational documents) of
Parent or Newco or (b) violate, conflict with, result in a breach of, or
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, require any consent
under, or result in or permit the termination, amendment, modification,
acceleration, suspensions, revocation or cancellation of, or give to others any
interests or rights therein under (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit or other agreement
or commitment, oral or written, to which Parent or Newco is a party, or (ii) any
judgment, injunction, writ, award, decree, restriction, ruling, or order of any
court, arbitrator or other Governmental Entity or any applicable constitution or
Law, to which Parent or Newco is subject, except for such violations, conflicts,
breaches, defaults, failures to obtain consents, terminations, modifications,
accelerations, revocations and cancellations as would not individually or in the
aggregate have a Material Adverse Effect on Parent's or Newco's ability to
perform their obligations hereunder.
(d) The authorized stock of Parent consists of 200,000,000
shares of Common Stock, $.001 par value, of which 57,222,000 shares were issued
and outstanding as of the quarter ended June 30, 1999, and 10,000,000 shares of
undesignated preferred stock, $.001 par value. No shares of Parent's preferred
stock were issued or outstanding as of the quarter ended June 30, 1999. The
authorized capital stock of Newco consists of 1,000 shares of Common Stock, $.01
par value, 1,000 shares of which, as of the date hereof, are issued and
outstanding and are held by Parent. All such shares of Parent and Newco have
been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable. As of the date hereof, Parent
has also reserved 18,500,000 shares of its Common Stock for issuance pursuant to
its employee and director stock and option plans, 9,374,776 shares of which were
subject to outstanding options at July 31, 1999.
<PAGE>
(e) The shares of StarMedia Common Stock to be issued as the
Per Share Merger Consideration in accordance with this Plan of Merger and the
Merger Agreement when issued and delivered in accordance with the terms of this
Plan of Merger and the Merger Agreement, will have been duly authorized, validly
issued, fully paid and non-assessable, and will not be issued in violation of
any preemptive rights or any U.S. federal or state securities laws.
Section 5.2. CONSENTS, ETC. No filing, consent, approval or
authorization of any Government Entity or of any third party on the part of the
Parent or Newco is required in connection with the execution, delivery and
performance of this Plan of Merger, the Merger Agreement and the other
Transaction Documents to which Parent or Newco is a party by Parent or Newco or
the consummation by Parent or Newco of any of the transactions contemplated
hereby or thereby, except in connection with or in compliance with the
provisions of the Corporations Code, the laws of certain foreign jurisdictions
under which a filing may be required in connection with the Merger, and
compliance with applicable state blue sky laws.
Section 5.3. SEC DOCUMENTS. Parent has made available to the
Company a true and complete copy of Amendment No. 7 to Parent's S-1 Registration
Statement (including all exhibits thereto) relating to Parent's initial public
offering, Form 10-Q for the quarter ended June 30, 1999 filed by Parent with the
Securities and Exchange Commission (the "SEC"), and the Form 8-K's filed on June
10, 1999, June 25, 1999 and August 10, 1999 by Parent with the SEC
(collectively, the "PARENT SEC DOCUMENTS"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Documents, and
as of their respective filing dates, none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Parent included in the Parent SEC Documents (collectively, the
"PARENT FINANCIAL STATEMENTS") were prepared in accordance with GAAP (except as
may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q) and fairly present in all
material respects the financial position of Parent as of the respective dates
thereof or the results of operations and cash flows for the respective periods
then ended, as the case may be, subject, in the case of unaudited interim
financial statements, to normal, recurring adjustments which are not material in
the aggregate. Since June 30, 1999 and until the date of this Plan of Merger,
there has been no material change in Parent's accounting policies which would
require disclosure in the Parent's Financial Statements under GAAP.
Section 5.4. NO MATERIAL ADVERSE CHANGE. Since the date of the
balance sheet included in the Parent's report on Form 10-Q for the quarter ended
June 30, 1999 and until the date of this Plan of Merger, there has not occurred
any material adverse change in the business, assets, liabilities, operations,
results of operation, prospects or financial condition of Parent and its
subsidiaries, taken as a whole.
<PAGE>
Section 5.5. BROKERS, FINDERS, ETC. No broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with this Plan of Merger, the Merger Agreement or the
transactions contemplated hereby and thereby based upon any agreements, written
or oral, made by or on behalf of Parent or Newco or by or on behalf of any
director, officer, employee, agent or Affiliate of Parent or Newco.
Section 5.6. POOLING. To Parent's knowledge, Parent does not
intend and has not agreed to effect any of the following transactions: (a)
retire or reacquire, directly or indirectly, all or part of the Webcast Common
Stock issued to effect the Merger, (b) enter into financial arrangements for the
benefit of the former shareholders of the Company (except as previously
disclosed to the Company), or (c) dispose of a significant part of the assets of
the Company within two years after the Effective Time, other than disposals in
the ordinary course of business and to eliminate duplicate facilities or excess
capacity or to comply with an order of a Governmental Entity. Notwithstanding
the foregoing, no representation or warranty is made by Parent regarding the
treatment or consequences of the Merger being accounted for as a pooling or a
purchase transaction.
Section 5.7. LITIGATION, ETC. As of the date of this Plan of
Merger, to Parent's knowledge, there is no action, suit, proceeding, claim,
arbitration or investigation pending or as to which Parent has received any
notice of assertion against Parent, which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Plan of Merger.
Section 5.8. TAXES. Parent has no present plan or intention
after the Merger to (i) reacquire any of its stock issued in the Merger, (ii)
liquidate the Surviving Corporation; (iii) merge the Surviving Corporation with
or into another corporation; (iv) sell or otherwise dispose of the stock of
Surviving Corporation, except for transfers of stock to corporations controlled
by Parent; or, (v) cause the Surviving Corporation to sell or otherwise dispose
of any of its assets or of any of the assets acquired from Newco, except for
dispositions made in the ordinary course of business or transfers of assets to a
corporation controlled by the Surviving Corporation.
ARTICLE VI
COVENANTS
Section 6.1. COVENANTS OF THE COMPANY. The Company agrees to
observe and perform the following covenants and agreements:
(a) CONDUCT OF THE BUSINESS PRIOR TO THE CLOSING DATE. Except
as contemplated in this Plan of Merger, prior to the Closing, the Company will:
(1) not make or permit any material change in the
general nature of its business;
<PAGE>
(2) maintain its business in accordance with prudent
business judgment and consistent with past practice and
policy, and maintain its assets in good repair, order and
condition, reasonable wear and tear excepted;
(3) preserve the Company as an ongoing business and
use reasonable efforts to maintain the goodwill associated
with the Company;
(4) preserve all of the Company's Licenses;
(5) not enter into any material transaction or
Contract involving a total commitment by or to any party
thereto of more than $10,000 on an annual basis or more than
$30,000 on its remaining term which cannot be terminated on no
more than 60 days' notice without penalty or additional cost
to the Company as the terminating party, except in the
ordinary course of business and consistent with past practice;
(6) not purchase, sell, lease, dispose of or
otherwise transfer or make any contract for the purchase,
sale, lease, disposition or transfer of, or subject to Lien,
any of the assets of the Company;
(7) not hire any new employee unless such new
employee is hired at-will and such new employee's total
compensation is the same or less than present employees of the
Company as of the date hereof;
(8) not voluntarily change in any material respect or
terminate any insurance policies disclosed on Schedule 4.12
that presently are in effect unless equivalent coverage is
obtained;
(9) not make any changes in financial policies or
practices, or strategic or operating policies or practices;
(10) comply in all material respects with all
applicable Laws and permits, including without limitation
those relating to the filing of reports and the payment of
Taxes due to be paid prior to the Closing, other than those
contested in good faith;
(11) not adopt, amend (other than amendments that
reduce the amounts payable by Parent or any of its
subsidiaries or amendments required by law) or assume an
obligation to contribute to any Benefit Plan or collective
bargaining agreement or enter into any employment, consulting,
severance or similar Contract with any Person (including
without limitation, contracts with management of the Company
or any of its Affiliates that might require payments be made
upon consummation of the transactions contemplated hereby) or
amend any such existing contracts to increase any amounts
payable thereunder or benefits provided thereunder;
<PAGE>
(12) except in the ordinary course of business or as
required by the terms of any existing Contract or Benefit
Plan, not grant any increase or change in total compensation,
benefits or pay any bonus to any employee, director or
consultant;
(13) not grant or enter into or extend the term of
any Contract with respect to continued employment or service
for any employee, officer, director or consultant;
(14) not make any loan or advance to any Person other
than to any officer, director, shareholder or employee in the
ordinary course of business and consistent with past practice;
(15) not amend any of its organizational
documents; and
(16) not incur any indebtedness.
(b) ACCESS TO THE COMPANY'S OFFICES, PROPERTIES AND RECORDS;
UPDATING INFORMATION.
(1) From and after the date hereof and until the
Closing Date, the Company shall permit Parent and its
representatives to have, on reasonable notice and at
reasonable times, reasonable access to such of the offices,
properties and employees of the Company, and shall disclose,
and make available to Parent and its representatives all
books, papers and records to the extent that they relate to
the ownership, operation, obligations and liabilities of or
pertaining to the Company, its business, assets and
liabilities. Without limiting the application of the
Confidentiality Agreement dated August 1999 between the
Company and Parent (the "CONFIDENTIALITY AGREEMENT"), all
documents or information furnished by the Company hereunder
shall be subject to the Confidentiality Agreement.
(2) The Company will notify Parent as promptly as
practicable of any significant change in the operation of the
Company and of any material complaints, investigations or
hearings (or communications indicating that the same may be
contemplated) by any Governmental Entity, or the institution
or overt threat or settlement of any material Action involving
or affecting the Company or the transactions contemplated by
this Plan of Merger, and shall use reasonable efforts to keep
Parent fully informed of such events and permit Parent's
representatives access to all materials prepared in connection
therewith.
(3) As promptly as practicable after Parent's
request, the Company will furnish such financial and operating
data and other information pertaining to the Company and its
business and assets as Parent may reasonably request.
(c) GOVERNMENTAL APPROVALS; THIRD PARTY CONSENTS. The Company
will use
<PAGE>
its reasonable best efforts to obtain all necessary consents, approvals
and waivers from any Person required in connection with the transactions
contemplated hereby.
(d) DIVIDENDS. The Company shall not: (i) declare or pay any
dividends on or make other distributions in respect of any of its capital stock;
or (ii) redeem, repurchase or otherwise acquire any shares of its capital stock.
(e) ISSUANCE OF SECURITIES. Except for Webcast Common Stock
(i) issued pursuant to the exercise of options to purchase Webcast Common Stock
outstanding on the date hereof; (ii) issued upon the conversion of the Preferred
Stock; or (iii) released from the Company's repurchase option pursuant to
restricted stock purchase agreements between the Company and the Shareholders,
the Company shall not issue, agree to issue, deliver, sell, award, pledge,
dispose of or otherwise encumber or authorize or propose the issuance, delivery,
sale, award, pledge, disposal or other encumbrance of, any shares of its capital
stock of any class or any securities convertible into or exchangeable for, or
any rights, warrants or options to acquire, any such shares or convertible or
exchangeable securities.
(f) ACCOUNTING. The Company shall not make any changes in its
accounting methods, principles or practices except as required by law, rule,
regulation or GAAP.
(g) CONVERSION OF STOCK. Prior to the Closing, the Company
shall cause the holders of all of the issued and outstanding shares of Preferred
Stock to convert such shares of Preferred Stock to Webcast Common Stock in
accordance with the terms of such Preferred Stock, effective immediately prior
to the Effective Time and conditioned upon the effectiveness of the Merger.
(h) WEBCAST SHAREHOLDERS' APPROVAL. The Company shall, as soon
as reasonably practicable after the date hereof, but in no event later than
seven days after the date hereof, (i) take all steps necessary to duly call,
give notice of, convene and hold a meeting of its shareholders (including all
adjournments thereof, the "COMPANY MEETING," which term shall also include any
action by written consent of shareholders) for the purpose of securing the
affirmative vote of 98% of the outstanding shares of Webcast Common Stock and
Preferred Stock, and (ii) subject to the fiduciary duties of its Board of
Directors, recommend to its shareholders the approval and adoption of this Plan
of Merger and the Merger Agreement and the transactions contemplated hereby and
thereby. The Company will (i) promptly prepare and, after consultation with and
approval by Parent as to the form and substance thereof, promptly mail to each
holder of shares of Webcast Common Stock and of Preferred Stock, a proxy
statement describing the Merger, soliciting the approval and adoption of this
Plan of Merger by such holders and containing such other information as the
Company shall determine or as Parent may reasonably request and (ii) use its
best efforts to obtain the necessary approvals by its shareholders of this Plan
of Merger.
(i) RULE 145 LETTERS. The Company shall promptly identify to
Parent all officers and directors of the Company and any other persons who are
"affiliates" within the meaning of such term as used in Rule 145 under the
Securities Act ("RULE 145 AFFILIATES"), and the Company shall use its reasonable
efforts to provide to Parent undertakings from such persons
<PAGE>
("RULE 145 LETTERS") to the effect that no disposition of shares of StarMedia
Common Stock received in the Merger will be made by such persons except within
the limits and in accordance with the applicable provisions of said Rule 145, as
amended from time to time, or except in a transaction which, in the opinion of
legal counsel satisfactory to Parent, is exempt from registration under the
Securities Act.
(j) CONVERTIBLE SECURITIES. As of the Closing, there shall be
no security, option, warrant, right (including preemptive rights), put, call,
subscription, agreement, commitment, understanding or claim of any nature
whatsoever, fixed or contingent, to which the Company is a party or to which it
is bound, that directly or indirectly (a) calls for the issuance, sale, pledge,
delivery or other disposition of any securities of the Company or any securities
convertible into, or other rights to acquire, any securities of any of the
Company, (b) relates to the voting or control of any securities of the Company
or (c) obligates the Company or any of its Affiliates to grant, offer or enter
into any of the foregoing.
Section 6.2. ADDITIONAL AGREEMENTS.
(a) FURTHER ASSURANCES. Each of Parent and the Company agrees
to take all such reasonable and lawful action as may be necessary or appropriate
in order to effectuate the Merger in accordance with this Plan of Merger as
promptly as possible. If, at any time after the Effective Time, any such further
action is necessary or desirable to carry out the purpose of this Plan of Merger
and to vest the Surviving Corporation with full right, title and possession to
all assets, property, rights, privileges, powers and franchises of the Company,
the Company's shareholders and the officers and directors of the Company
immediately prior to the Effective Time are fully authorized in the name of the
Company or otherwise to take, and will take, all such lawful and necessary
action.
(b) PUBLIC ANNOUNCEMENTS. From the date of this Plan of Merger
until the earlier of the date of termination of this Plan of Merger or the
Effective Time, neither the Company, Newco nor Parent will disclose or permit
their respective agents or Affiliates to disclose to any third parties (other
than the Company's shareholders) the fact of the proposed Merger, issue, or
permit any of their respective agents or Affiliates to issue, any press releases
or otherwise make, or permit any of their respective agents or Affiliates to
make, any public or other statements, or to release any information intended for
or reasonably likely to result in public or other dissemination thereof, with
respect to this Plan of Merger, the Merger Agreement and the transactions
contemplated hereby and thereby without the prior written consent of all the
other parties hereto, except in the case of Parent, as may be required, in the
opinion of Parent's counsel, by law or by the rules of the Nasdaq Stock Market.
Section 6.3. EMPLOYEE MATTERS. Nothing in this Plan of Merger
shall be construed to require the Surviving Corporation, any of its Affiliates
or Parent to continue the employment of any employee of the Company or any of
its Affiliates or, to continue in effect any employee benefit plan or
arrangement; PROVIDED, HOWEVER, that each employee of the Company who becomes an
employee of Parent after the Effective Time shall be eligible to receive salary
and benefits (such as health insurance, bonuses, stock options) consistent with
Parent's standard
<PAGE>
human resource policies.
Section 6.4. EXCLUSIVITY. Neither the Company nor its
officers, directors or Affiliates will take any action, directly or indirectly,
to encourage, solicit, initiate, engage in, or continue discussions or
negotiations with, or provide any information to, any Person, group or other
entity, other than Parent, concerning any purchase of any capital stock or
assets of the Company or any merger or similar transaction involving the
Company.
Section 6.5. INTENTIONALLY OMITTED.
Section 6.6. NASDAQ LISTING. Parent agrees to use reasonable
efforts to cause the listing on the Nasdaq National Market the shares of
StarMedia Common Stock issuable in the Merger, upon official notice of issuance.
Section 6.7. COMPANY'S AUDITORS. The Company will use its
commercially reasonable efforts to cause its management and its independent
auditors to facilitate on a timely basis (i) the preparation of financial
statements (including pro forma financial statements if required) as required by
Parent to comply with applicable SEC regulations, and (ii) the review of any
Company audit or review work papers since inception, including the examination
of selected interim financial statements and data.
Section 6.8. INTENTIONALLY OMITTED.
Section 6.9. FORM S-8. As of the date of this Plan of Merger,
Parent represents and warrants that it is eligible to register shares on Form
S-8. The Assumed Options will be covered under a registration statement on Form
S-8 and Parent shall use its reasonable efforts to maintain the effectiveness of
such registration statement consistent with Parent's practice with similar
registration statements related to employee stock plans.
Section 6.10. INDEMNITY AGREEMENT. Parent agrees that it will
cause the Surviving Corporation to honor that certain indemnity agreement
between the Company and Scott Heldfond dated as of July 1, 1999.
Section 6.11. WEBCAST STOCK OPTIONS. (a) At the Effective
Time, each option to purchase shares of Webcast Common Stock issued under the
Company's Option Plan which is outstanding and unexercised immediately prior to
the Effective Time (a "WEBCAST OPTION") shall cease to represent a right to
acquire shares of Webcast Common Stock and shall be converted automatically into
an option to purchase shares of StarMedia Common Stock (an "ASSUMED OPTION") in
an amount and at an exercise price determined as follows:
(i) the number of shares of StarMedia Common Stock
subject to an Assumed Option shall be equal to the product of
(A) the number of shares of Webcast Common Stock subject to
the original Webcast Option, and (B) an amount equal to the
Per Share Merger Consideration, provided that any fractional
shares of StarMedia Common Stock resulting from such
multiplication shall be rounded down to the nearest number of
whole shares; and
<PAGE>
(ii) the exercise price per share of StarMedia Common
Stock under an Assumed Option shall be equal to (A) the
exercise price per share of Webcast Common Stock under the
original Webcast Option, divided by (B) an amount equal to the
Per Share Merger Consideration, provided that the resulting
exercise price shall be rounded up to the nearest cent.
(b) Except as provided in subsection (a) above, each Assumed
Option shall continue to be subject to the same terms and conditions as applied
immediately prior to the Effective Time (except that all references to the
Company shall be deemed to be references to Parent).
ARTICLE VII
CONDITIONS TO PARENT'S AND NEWCO'S OBLIGATIONS TO CLOSE
Parent's and Newco's obligations to consummate the Closing and
effect the Merger shall be subject to the satisfaction at or prior to the
Closing, or waiver by Parent and Newco, of each of the following conditions (any
of which may be waived by Parent and Newco in their sole discretion):
Section 7.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY. Each of the representations and warranties of the Company contained in
this Plan of Merger or in any Schedule, certificate, document or instrument
delivered in connection herewith shall be true and correct in all material
respects on and as of the date of this Plan of Merger and on and as of the
Effective Time, except for representations and warranties that speak as of a
specific date or time other than the Effective Time (which need only be true and
correct in all material respects as of such date or time); PROVIDED, HOWEVER,
that if any portion of any such representation or warranty is already qualified
by materiality, for purposes of determining whether this condition has been
satisfied with respect to such portion of such representation or warranty, such
portion of such representation or warranty as so qualified shall be true and
correct in all respects. The Company shall have performed and complied in all
material respects with all covenants and agreements required by this Plan of
Merger to be performed or complied with by the Company at or prior to the
Effective Time. The Company shall deliver to Parent and Newco a certificate,
dated the Closing Date and signed by a senior executive officer of the Company,
to the effect that the conditions set forth in this Section 7.1 have been
satisfied.
Section 7.2. SHAREHOLDERS.
(a) This Plan of Merger and the Merger shall have been
approved and adopted by 98% of the holders of Webcast Common Stock and Preferred
Stock.
(b) The Indemnity and Non-Compete Agreement shall have been
entered into by the Shareholders and be in full force and effect.
<PAGE>
(c) Each of the Shareholders and all of the other officers and
directors of the Company shall have executed and delivered to the Company and
Parent a General Release, in the form attached hereto as Exhibit C, providing
for, among other things, the release of the Company of all obligations owed to
the Shareholders.
Section 7.3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
SHAREHOLDERS. Each of the representations and warranties of the Shareholders
contained in the Indemnity and Non-Compete Agreement shall be true and correct
in all material respects on and as of the date of this Plan of Merger and on and
as of the Effective Time; PROVIDED, HOWEVER, that if any such representation or
warranty is already qualified by materiality, for purposes of determining
whether this condition has been satisfied, such representation or warranty as so
qualified must be true and correct in all respects. The Shareholders shall have
performed or complied with all covenants and agreements required by the
Indemnity and Non-Compete Agreement to be performed or complied with by them at
or prior to the Effective Time. Each of the Shareholders shall have delivered to
Parent and Newco a certificate, dated the Closing Date and signed by each of the
Shareholders, to the effect that the conditions set forth in this Section 7.3
have been satisfied.
Section 7.4. FILINGS; CONSENTS. All registrations, filings,
applications, notices, consents, releases, approvals, orders, qualifications and
waivers required in connection with the consummation of the transactions
contemplated hereby, including the approval of the Company's shareholders
contemplated by Section 7.2, shall have been filed, made, obtained or received.
Section 7.5. NO INJUNCTION. (a) There shall be no injunction,
restraining order or decree of any nature of any court or other Government
Entity of competent jurisdiction that is in effect that restrains or prohibits
the consummation of the transactions contemplated hereby, (b) no Action shall
have been instituted by or before any court, panel, arbitrator or other
Government Entity or any other Person to restrain or prohibit, or to obtain
substantial damages in respect of, the consummation of the transactions
contemplated hereby, and (c) none of the parties hereto shall have received
notice from any Government Entity or any other Person of (i) its intention to
institute any Action to restrain or enjoin or nullify this Plan of Merger or the
consummation of the transactions contemplated hereby or to commence any
investigation into the consummation of the transactions contemplated hereby or
(ii) the actual commencement of such an investigation.
Section 7.6. DOCUMENTS. The Company shall have delivered to
Parent at the Closing such other documents and instruments as shall be
reasonably necessary to effectuate the transactions contemplated by this Plan of
Merger. The Company and the Shareholders shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by each such person hereunder.
Section 7.7. CONVERTIBLE SECURITIES. As of the Closing, there
shall be no security, option, warrant, right (including preemptive rights), put,
call, subscription, agreement, commitment, understanding or claim of any nature
whatsoever, fixed or contingent, to which the Company is a party or to which it
is bound that directly or indirectly (a) calls for the issuance,
<PAGE>
sale, pledge, delivery or other disposition of any securities of the Company or
any securities convertible into, or other rights to acquire, any securities of
any of the Company, (b) relates to the voting or control of any securities of
the Company or (c) obligates the Company or any of its Affiliates to grant,
offer or enter into any of the foregoing.
Section 7.8. RULE 145 LETTERS. Each Rule 145 Affiliate shall
have executed and delivered to Parent a Rule 145 Letter, in form and substance
reasonably satisfactory to Parent and its counsel.
Section 7.9. APPRAISAL RIGHTS. There shall not be any demand
for payment for shares or any appraisal thereof by more than 2% of the
outstanding shares of Webcast Common Stock and Preferred Stock pursuant to the
Corporations Code with respect to the Merger.
ARTICLE VIII
CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE
The Company's obligation to consummate the Closing and effect
the Merger is subject to the satisfaction at or prior to the Closing, or waiver
by the Company, of all of the following conditions (any of which may be waived
by the Company in its sole discretion):
Section 8.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
PARENT. Each of the representations and warranties of Parent and Newco contained
in this Plan of Merger or in any Schedule, certificate, document or instrument
delivered in connection herewith, shall be true and correct in all material
respects on and as of the date of this Plan of Merger and on and as of the
Effective Time, except for representations and warranties that speak as of a
specific date or time other than the Effective Time (which need only be true and
correct in all material respects as of such date or time); PROVIDED, HOWEVER,
that if any portion of any such representation or warranty is already qualified
by materiality, for purposes of determining whether this condition has been
satisfied with respect to such portion of such representation or warranty, such
portion of such representation or warranty as so qualified shall be true and
correct in all respects. Parent and Newco shall have performed and complied in
all material respects with all covenants and agreements required by this Plan of
Merger to be performed or complied with by them at or prior to the Effective
Time. Parent shall deliver to the Company a certificate, dated the Closing Date
and signed by an officer of Parent, to the effect that the conditions set forth
in this Section 8.1 have been satisfied.
Section 8.2. SHAREHOLDER APPROVALS. This Plan of Merger and
the Merger shall have been approved and adopted by the shareholders of the
Company by the requisite vote under applicable law and the Company's Articles of
Incorporation.
Section 8.3. NO INJUNCTION. There shall be no injunction,
restraining order or decree of any nature of any court or other Government
Entity of competent jurisdiction that is in effect that restrains or prohibits
the consummation of the Merger and the other transactions contemplated hereby.
<PAGE>
Section 8.4. NASDAQ LISTING. The shares of StarMedia Common
Stock issuable to shareholders of the Company pursuant to this Plan of Merger
and such other shares required to be reserved for issuance in connection with
the Merger shall have been authorized for listing on the Nasdaq Stock Market
upon official notice of issuance.
ARTICLE IX
SURVIVAL
Section 9.1. SURVIVAL. All of the representations, warranties,
covenants and agreements of the parties contained in this Plan of Merger or in
any certificate, document or other instrument delivered in connection herewith
shall survive (and not be affected in any respect by) the Effective Time and any
investigation conducted by any party hereto and any information which any party
may receive. Notwithstanding the foregoing, the representations and warranties
contained in or made pursuant to this Plan of Merger shall terminate on, and no
claim or Action with respect thereto may be brought after, the first anniversary
of the Effective Time, PROVIDED, HOWEVER, that to the extent a breach of a
representation or warranty made by the Company is discovered during the audit by
Parent's accountants of Parent's consolidated financial statements for the year
ended December 31, 1999, such representation and warranty insofar as it relates
to such discovered matter shall terminate on the date of the issuance of such
accountants' report with respect such consolidated financial statements. The
representations and warranties which terminate on the first anniversary of the
Effective Time and the representations and warranties which terminate on the
issuance of such accountants' report, and the liability of the Shareholders with
respect thereto under the Indemnity and Non-Compete Agreement, shall not
terminate with respect to any claim, whether or not fixed as to liability or
liquidated as to amount, with respect to which the appropriate Person has been
given written notice setting forth the facts upon which the claim for
indemnification is based and, if possible, a reasonable estimate of the amount
of the claims prior to the first anniversary of the Effective Time, or the date
of the issuance of such accountants' report, as the case may be.
ARTICLE X
TERMINATION
Section 10.1. TERMINATION. This Plan of Merger may be
terminated at any time prior to the Closing by:
(a) the mutual written consent of the Company and Parent; or
(b) the Company or Parent, if the Closing has not occurred by
the close of business on October 31, 1999; PROVIDED, that neither the Company,
in the case of termination by the Company, or Parent or Newco, in the case of
termination by Parent, is in material default hereunder.
<PAGE>
Section 10.2. PROCEDURE AND EFFECT OF TERMINATION. In the
event of termination of this Plan of Merger pursuant to Section 10.1, written
notice thereof shall forthwith be given by the terminating party to the other
party or parties hereto, and this Plan of Merger shall thereupon terminate and
become void and have no effect, and the transactions contemplated hereby shall
be abandoned without further action by the parties hereto, except that the
provisions of this Section 10.2 and of Sections 11.8, 11.9 and 11.13 shall
survive the termination of this Plan of Merger; PROVIDED, HOWEVER, that such
termination shall not relieve any party hereto of any liability for any breach
of this Plan of Merger.
ARTICLE XI
MISCELLANEOUS
Section 11.1. ENTIRE AGREEMENT. This Plan of Merger and the
documents and agreements referred to herein and to be delivered pursuant hereto
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof, and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions of the parties, whether oral or
written.
Section 11.2. BENEFIT; ASSIGNMENT. This Plan of Merger shall
be binding upon and inure to the benefit of and shall be enforceable by the
parties hereto and their respective successors and permitted assigns. This Plan
of Merger shall not be assigned by any party hereto without the prior written
consent of the other parties hereto; PROVIDED, HOWEVER, that Parent may assign
any or all of its rights hereunder to one or more Affiliates of Parent without
the consent of the Company. Any assignment of this Plan of Merger in violation
of the terms hereof shall be null and void AB INITIO.
Section 11.3. NO PRESUMPTION. Parent and the Company have
participated jointly in the negotiation and drafting of this Plan of Merger. In
the event any ambiguity or question of intent or interpretation arises, this
Plan of Merger shall be construed as if drafted jointly by Parent, Newco and the
Company and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Plan of Merger.
Section 11.4. NOTICES. All notices, requests, claims, demands
and other communications provided for herein shall be in writing and shall be
deemed given only if delivered to the party personally or sent to the party by
telecopy, by registered or certified mail (return receipt requested) with
postage and registration or certification fees thereon prepaid, or by any
nationally recognized overnight courier, addressed to the party at its address
set forth below:
<PAGE>
If to Company: Webcast Solutions, Inc.
300 Brannan Street, Suite 601
San Francisco, CA 94107
Attn: Cory A. Smith
Telephone No.: (415) 284-9999
Telecopy No.: (415) 284-9219
With a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attn: Steven L. Berson
Michael S. Russell
Telephone No.: (650) 493-9300
Telecopy No.:(650) 461-5375
If to Parent or Newco: StarMedia Network, Inc.
29 West 36th Street, 5th Floor
New York, NY 10018
Telecopy No: (212) 548-9650
Attn: Justin K. Macedonia
With a copy to: Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Telecopier: (212) 422-4726
Attn: Jeffrey R. Coleman
or to such other address as a party may from time to time designate in writing.
All notices, requests, claims, demands and other communications given to any
party hereto in accordance with the provisions of this Plan of Merger shall be
deemed to have been given on the date of receipt.
Section 11.5. COUNTERPARTS; HEADINGS. This Plan of Merger may
be executed in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed an original,
but all of which taken together shall constitute one and the same Plan of
Merger. The Article and Section headings in this Plan of Merger are inserted for
convenience of reference only and shall not constitute a part hereof or affect
in any way the meaning or interpretation of this Plan of Merger.
Section 11.6. SEVERABILITY. If any term, provision, clause or
part of this Plan of Merger or the application thereof under certain
circumstances is held invalid, illegal or incapable of being enforced by any Law
or public policy, all other terms, provisions and parts of this Plan of Merger
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term,
provision or part of this Plan of Merger is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in
<PAGE>
good faith to modify this Plan of Merger so as to effect the original intent of
the parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
Section 11.7. NO RELIANCE. Except for any assignees permitted
by Section 11.2 of this Plan of Merger:
(a) no third party is entitled to rely on any of the
representations, warranties or agreements of the parties hereto contained in
this Plan of Merger; and
(b) the parties hereto assume no liability to any third party
because of any reliance on the representations, warranties or agreements of such
parties contained in this Plan of Merger.
Section 11.8. GOVERNING LAW. This Plan of Merger shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws, except to the extent that the
terms and consummation of the Merger are subject to the laws of the State of
California, in which case the applicable provisions hereof shall be governed by
the laws of the State of California.
Section 11.9. SUBMISSION TO JURISDICTION; WAIVERS. The parties
hereto hereby irrevocably and unconditionally agree that:
(a) All suits, actions and proceedings arising out of or
relating to this Agreement shall be heard and determined in any New York state
or Federal court sitting in the City of New York and any appellate court from
any thereof, and each of the parties hereto hereby irrevocably submits to the
exclusive jurisdiction of such courts in any such suit, action or proceeding and
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of any such suit, action or
proceeding and any objection to any such suit action or proceeding whether on
the grounds of venue, residence or domicile. A final judgment in any such suit,
action, or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or any other manner provided by law.
(b) Service of process in any such suit, action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to such party at its
address as provided in Section 11.4.
Section 11.10. WAIVER. Any party to this Plan of Merger may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties, (b) waive any inaccuracies in the representations and
warranties of the other parties contained herein or in any document delivered by
the other parties pursuant hereto or (c) waive compliance with any of the
agreements or conditions of the other parties contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party to be bound thereby. Any waiver of any term or condition
shall not be construed as a waiver of any subsequent breach or a subsequent
waiver of the same term or condition, or a waiver of any other term or
condition, of this Plan of Merger. The failure of any party to assert any of its
rights
<PAGE>
hereunder shall not constitute a waiver of any such rights.
Section 11.11. AMENDMENT. This Plan of Merger may not be
amended, modified or supplemented except by an instrument in writing signed by,
or on behalf of, each of the parties hereto.
Section 11.12. SPECIFIC PERFORMANCE. The parties hereto agree
that irreparable damage would occur in the event any provision of this Plan of
Merger was not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
Section 11.13. EXPENSES. Whether or not the Merger is
consummated, all legal expenses and all other costs and expenses incurred in
connection with this Plan of Merger, the Merger Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such costs
and expenses.
<PAGE>
IN WITNESS WHEREOF, this Plan of Merger has been signed by or
on behalf of each of the parties as of the day first above written.
WEBCAST SOLUTIONS, INC.
By: /s/ Cory A. Smith
Cory A. Smith
President and Chief Executive Officer
STARMEDIA NETWORK, INC.
By: /s/ Jack Chen
Name: Jack Chen
Title: President
S MEDIA ACQUISITION CORP.
By: /s/ Jack Chen
Name: Jack Chen
Title: President
<PAGE>
EXHIBIT D
1. For purposes of this Plan of Merger, the following terms
shall have the following meanings:
"ACTION" shall mean any actual or threatened action (at law or
in equity), suit, arbitration, review, inquiry, proceeding or investigation.
"AFFILIATE" (and, with a correlative meaning, "AFFILIATED")
shall mean, with respect to any Person, any other Person that directly, or
through one or more intermediaries, controls or is controlled by or is under
common control with such first Person. As used in this definition, "control"
(including, with correlative meanings, "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of the power to direct or
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
"AGGREGATE SHARE MERGER CONSIDERATION" shall mean:
(1) that number of shares of StarMedia Common Stock determined
as follows: (x) if the Conversion Price is less than or equal to $41.50 and
greater than or equal to $31.50, 1,000,000, (y) if the Conversion Price is less
than $31.50, then an amount equal to (i) 1,000,000 multiplied by (ii) $31.50,
divided by (iii) the Conversion Price, provided, however, that if the amount
determined pursuant to this clause (y) without giving effect to this proviso is
more than 1,500,000, then such amount shall be deemed to equal 1,500,000, or (z)
if the Conversion Price is greater than $41.50, then an amount equal to (i)
1,000,000 multiplied by (ii) $41.50, divided by (iii) the Conversion Price,
provided, however, that if the amount determined pursuant to this clause (z)
without giving effect to this proviso is less than 500,000, then such amount
shall be deemed to equal 500,000,
minus (2) 10,278.
"AGGREGATE WEBCAST OPTION NUMBER" shall mean the product of:
(a) the Aggregate Share Merger Consideration, times (b) a fraction, the
numerator of which is the number of shares of Webcast Common Stock subject to
options to purchase under the Company's Option Plan which options are
outstanding and unexercised immediately prior to the Effective Time
("Outstanding Option Shares"), and the denominator of which is the sum of the
Effective Time Shares and the Outstanding Option Shares.
"ASSOCIATE" of a specified Person shall mean (a) a corporation
or other organization of which such Person is a director, officer or partner or
is, directly or indirectly, the beneficial owner of 5% or more of any class of
equity securities, (b) any trust or other estate in which such Person has such a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar capacity and (c) any Relative of such Person who has the same home
as such Person.
<PAGE>
"CLOSING" shall mean the consummation of the Merger and the
other transactions contemplated hereby as described in Article II.
"CLOSING DATE" shall mean the date on which the Closing
occurs.
"CONTRACTS" shall mean all contracts, agreements, leases,
arrangements, commitments or understandings, whether oral or written, whether
existing as of the date hereof or arising prior to the Effective Time, to which
the Company is a party or is otherwise bound.
"CONVERSION PRICE" shall mean the average of the closing price
of shares of StarMedia Common Stock on the Nasdaq Stock Market for the five
trading day period ending on the day before the Effective Time.
"CORPORATIONS CODE" shall mean the California Corporations
Code as in effect from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor thereto.
"EFFECTIVE TIME SHARES" shall mean the number of shares of
Webcast Common Stock outstanding immediately prior to the Effective Time after
giving effect to the conversion of all outstanding shares of Preferred Stock.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and
foreign statutes and codes or regulations, rules or ordinances issued,
promulgated, or approved thereunder (including those with respect to asbestos or
asbestos-containing material or exposure to asbestos or asbestos-containing
material) relating to (a) emissions, discharges, releases or threatened releases
of pollutants, contaminants, chemicals or industrial toxic or hazardous
constituents, substances or wastes, including any Hazardous Material, petroleum,
including crude oil or any fraction thereof, any petroleum product or other
waste, chemicals or substances regulated by any Environmental Law into the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), (b) the manufacture, processing, distribution, use,
generation, treatment, storage, disposal, transport or handling of any Hazardous
Material, petroleum, including crude oil or any fraction thereof, any petroleum
product or other waste, chemicals or substances regulated by any Environmental
Law, and (c) underground storage tanks and related piping, and emissions,
discharges and releases or threatened releases therefrom.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any successor law, and regulations and rules issued by the SEC
pursuant to that act or any successor law.
"GAAP" shall mean generally accepted accounting principles in
the United States as in effect from time to time consistently applied.
"GOVERNMENTAL ENTITY" OR "GOVERNMENT ENTITY" means (i) any
multinational,
<PAGE>
federal, provincial, state, municipal, local or other governmental or public
department, court, commission, board, bureau, agency or instrumentality,
domestic or foreign; (ii) any subdivision, agent, commission, board, or
Governmental Entity of any of the foregoing; or (iii) any quasi-governmental or
private body exercising any regulatory, expropriation or taxing Governmental
Entity under or for the account of any of the foregoing.
"HAZARDOUS MATERIALS" shall mean substances defined as
"hazardous substances," "hazardous materials," "hazardous wastes," or "toxic
substances," or otherwise regulated under Environmental Laws, including
petroleum, its derivatives and petroleum products.
"IP LICENSE" means any option, license, or agreement of any
kind relating to the exercise, use, non-use, registration, enforcement,
non-enforcement of or remuneration for any Intellectual Property Right.
"IRS" shall mean the Internal Revenue Service.
"INDEMNITY AND NON-COMPETE AGREEMENT" shall mean the agreement
in the form of Exhibit B hereto executed as of the date of this Plan of Merger
by the Shareholders and Parent.
"INTELLECTUAL PROPERTY" means the Intellectual Property Rights
identified in Schedules 4.8(a), 4.8(d) and 4.8(h), together with all other
Intellectual Property Rights owned, used or held for use in connection with the
business of the Company as currently conducted.
"INTELLECTUAL PROPERTY RIGHTS" means all (i) patents,
copyrights, trademarks, service marks, trade identification, trade dress, trade
names, copyrights, trade secrets, know-how, proprietary information (including
without limitation proprietary software algorithms and designs), mask work
rights, database rights, publicity rights, privacy rights and other rights of a
similar nature for which legal protection may be obtained, in the United States
and/or any other country or jurisdiction; (ii) pending applications to register
or otherwise obtain legal protection for any of the foregoing; (iii) rights to
make application in the future to register or otherwise obtain legal protection
for any of the foregoing; (iv) rights of priority under national laws and
international conventions with respect to any of the foregoing; (v)
continuations, continuations-in-part, divisions, renewals, extensions, patents
of addition, reexaminations, or reissues of any of the foregoing and all related
applications therefor; (vi) goodwill associated with any of said trademarks,
service marks, trade identification, trade dress and trade names; and (vii)
rights to sue with respect to past and future infringements of any of the
foregoing.
"LAWS" means all statutes, codes, ordinances, decrees, rules,
regulations, municipal by-laws, judicial or arbitral or administrative or
ministerial or departmental or regulatory judgments, orders, decisions, rulings
or awards, policies, voluntary restraints, guidelines, or any provisions or
interpretations of the foregoing, including general principles of common and
civil law and equity, binding on or affecting the Person referred to in the
context in which such word is used.
"LIEN" means any lien, (including, without limitation,
environmental and tax
<PAGE>
liens) charge, claim, pledge, security interest, conditional sale agreement or
other title retention agreement, lease, mortgage, security agreement, right of
first refusal, option, restriction, tenancy, license, covenant, right of way,
easement or other Lien (including the filing of, or agreement to give, any
financing statement under the Uniform Commercial Code or statute or law of any
jurisdiction) preferential arrangement or restriction of any kind (including,
without limitation, any restriction on the use, voting, transfer, receipt of
income or other exercise of any attributes).
"MATERIAL ADVERSE EFFECT" when used with reference to a Person
or Persons shall mean a material adverse effect on the business, assets,
liabilities, operations, results of operation, prospects or financial condition
of such Person or Persons.
"OUTSTANDING IP LICENSE" means any IP License by or to the
Company or to which the Company is otherwise a party, or by which the Company or
any of its Intellectual Property or other property is subject or bound.
"PER SHARE MERGER CONSIDERATION" shall mean an amount equal to
(x) the Aggregate Share Merger Consideration, (y) minus the Aggregate Webcast
Option Number, (z) divided by the Effective Time Shares rounded to the nearest
ten-thousandth of a share.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
other form of business or legal entity or Government Entity.
"RELATIVE" of a Person shall mean such Person's spouse, such
Person's parents, sisters, brothers, children and the spouses of the foregoing
and any member of the immediate household of such Person.
"RETURNS" shall mean all returns, declarations, statements,
reports, estimates, forms or other documents or information, including any
amendments to any of the foregoing, required to be filed with or supplied to any
Taxing Authority.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor law, and regulations and rules issued by the SEC
pursuant to that act or any successor law.
"SHAREHOLDERS" shall mean Cory Smith, Bradley L. Knop, Jon Fox
and Erin McCarthy.
"SOFTWARE" means any and all (i) computer programs, including
any and all software implementations of algorithms, models and methodologies,
whether in source code or object code; (ii) databases and compilations,
including any and all data and collections of data, whether machine readable or
otherwise, (iii) descriptions, flow-charts and other work product used to
design, plan, organize and develop any of the foregoing, and (iv) all
documentation, including user manuals and training materials, relating to any of
the foregoing.
"STARMEDIA COMMON STOCK" shall mean the common stock, par
value $0.001 per
<PAGE>
share of StarMedia Network, Inc.
"SUBSIDIARY" means, with respect to any specified Person, any
other corporation, partnership, joint venture, association or other entity in
respect of which such specified Person directly, or indirectly through one or
more other subsidiaries, owns not less than 50% of the overall economic equity.
"TAXES" shall mean (a) all taxes (whether federal, state,
county, local or foreign), fees, levies, customs duties, assessments, or charges
of any kind whatsoever, including without limitation gross income, net income,
gross receipts, profits, windfall profits, sales, use, occupation, value-added,
AD VALOREM, transfer, license, franchise, withholding, payroll, employment,
excise, estimated, stamp, premium, capital stock, production, net worth,
alternative or add-on minimum, environmental, business and occupation,
disability, severance, or real or personal property taxes, together with any
interest, penalties, or additions to tax imposed with respect thereto and (b)
any obligations under any tax sharing, tax allocation, or tax indemnity
agreements or arrangements with respect to any Taxes described in clause (a)
above.
"TAXING AUTHORITY" shall mean any Government Entity having
jurisdiction over the assessment, determination, collection, or other imposition
of any Tax.
<PAGE>
2. The following terms shall have the meanings ascribed to
them in the section of this Plan of Merger indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION
<S> <C>
"Administration"...................................................................... 4.15
"Benefit Plans"....................................................................... 4.18(a)
"Certificate of Merger"............................................................... 2.2
"COBRA"............................................................................... 4.18(e)
"Company"............................................................................. Preamble
"Company Meeting"..................................................................... 6.1(h)
"Confidentiality Agreement"........................................................... 6.1(b)(1)
"Effective Time"...................................................................... 2.2
"Financial Statements"................................................................ 4.2(a)
"Insider Transactions"................................................................ 4.14
"Insiders"............................................................................ 4.14
"Letter of Transmittal"............................................................... 3.2(a)
"Licenses"............................................................................ 4.9(a)
"Merger".............................................................................. Preamble
"Merger Agreement".................................................................... Preamble
"Newco"............................................................................... Preamble
"Option Plan"......................................................................... 4.1(d)
"OSHA"................................................................................ 4.15
"Parent".............................................................................. Preamble
"Parent Financial Statements"......................................................... 5.3
"Parent SEC Documents"................................................................ 5.3
"Plan of Merger"...................................................................... Preamble
"Preferred Stock"..................................................................... 4.1(d)
"Rule 145 Affiliates"................................................................. 6.1(i)
"Rule 145 Letters".................................................................... 6.1(i)
"SEC"................................................................................. 5.3
"Surviving Corporation"............................................................... 2.1
"Transaction Documents"............................................................... 4.1(b)
"Webcast Common Stock"................................................................ Preamble
"Webcast Shareholders' Approval"...................................................... 4.21
"Year 2000"........................................................................... 4.19
"Year 2000 Compliant"................................................................. 4.19
</TABLE>
<PAGE>
SCHEDULE 3.5
1933 Act Legend
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE
SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION IS RECEIVED STATING THAT SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
SECTION 4(2) THEREUNDER.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-1) and related Prospectus of StarMedia Network,
Inc. for the registration of 6,000,000 shares of its common stock and the use of
our reports dated September 14, 1999 with respect to the consolidated financial
statements and the use of our reports dated September 14, 1999 with respect to
the supplemental consolidated financial statements of StarMedia Network, Inc.
ERNST & YOUNG LLP
New York, New York
September 23, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated June 10, 1999 with
respect to the financial statements of KD Sistemas de Informacao Ltda. in the
Registration Statement (Form S-1) and related Prospectus of StarMedia Network,
Inc. for the registration of its common stock.
ARTHUR ANDERSEN S/C
/s/ Arthur Andersen s/c
Rio de Janeiro, Brazil
September 23, 1999
