<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1999
REGISTRATION NO. 333-74659
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 7
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>
SUBJECT TO COMPLETION. DATED MAY 25, 1999.
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>
<TABLE>
<S> <C> <C>
7,000,000 Shares
STARMEDIA NETWORK, INC.
</TABLE>
Common Stock
------------------
This is an initial public offering of shares of common stock of StarMedia
Network, Inc. All of the 7,000,000 shares of common stock are being sold by
StarMedia.
At the request of StarMedia, the underwriters have reserved at the initial
public offering price up to 1,150,000 shares of common stock for sale to certain
directors, stockholders, employees and associates of StarMedia.
Before this offering, there has been no public market for the common stock.
StarMedia currently anticipates that the initial public offering price will be
between $13.00 and $15.00 per share. The common stock has been approved for
quotation on the Nasdaq National Market under the symbol "STRM".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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 public offering price..................... $ $
Underwriting discount............................. $ $
Proceeds, before expenses, to StarMedia........... $ $
</TABLE>
The underwriters may, subject to the terms of the underwriting agreement,
purchase up to an additional 1,050,000 shares from StarMedia at the initial
public offering price 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.
SALOMON SMITH BARNEY
------------------------
WIT CAPITAL CORPORATION
FACILITATOR OF INTERNET DISTRIBUTION
------------------------------
Prospectus dated , 1999.
<PAGE>
[A FOLD-OUT WITH COLOR PICTURES OF THE STARMEDIA WEB SITE HOME PAGE
AND VARIOUS OTHER PAGES WITHIN THE STARMEDIA WEB SITE;
THE STARMEDIA LOGO AND WEB SITE ADDRESS; AND THE FOLLOWING TEXT:
"TARGETING 500 MILLION PEOPLE . . . 23 COUNTRIES . . . 1 COMMUNITY";
"PAN-REGIONAL COMMUNITY AND EXTENSIVE LOCAL CONTENT";
"HIGHLY ATTRACTIVE ADVERTISING PLATFORM";
"MARKET LEADERSHIP THROUGH BRAND"; AND
"THE LEADING ONLINE NETWORK TARGETING LATIN AMERICA WITH 17 TOPICAL AREAS AND
EXTENSIVE WEB-BASED COMMUNITY FEATURES IN SPANISH AND PORTUGUESE".]
<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 online network targeting Latin America. Our network
consists of 17 interest-specific areas or 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.
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 Latin Americans a pan-regional 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
and Ziff-Davis. We also provide advertisers and merchants targeted access to
Latin American Internet users, an audience with a highly desirable demographic
profile.
The total number of Web pages our users access on our network in a month,
referred to as our monthly page views, have grown from approximately 7 million
in December 1997 to approximately 60 million in March 1999. In addition, as of
March 31, 1999, we had approximately 425,000 registered e-mail users.
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 StarMedia appeals
to advertisers and merchants because of our:
- focus on Latin America;
- powerful brand image in Latin America;
- highly-targeted and attractive demographic user base; and
- dedicated client services team that assists advertisers in developing,
targeting and analyzing their campaigns.
Consequently, we have been able to attract leading advertisers and sponsors
such as Banco Santander, Bradesco, Ford, Fox Television, IBM, Nokia,
Outpost.com, SkyTel, Sony and USA Networks. These customers, in the aggregate,
accounted for approximately 25.63% of total revenues in the three months ended
March 31, 1999 and 34.70% of total revenues for the year ended December 31,
1998.
OUR MARKET OPPORTUNITY
We believe that growth of Internet usage in Latin America will significantly
outpace growth of worldwide Internet usage over the next several years.
According to Nazca Saatchi & Saatchi, the number of Internet users in Latin
America is expected to increase from 7 million users at the end of 1997 to 34
million users by the end of 2000. In Latin America, 20% of the population
controls an estimated 65% of the overall buying power. Nazca Saatchi & Saatchi
also reports that 90% of Latin American Internet users are from upper and middle
socio-economic classes. This group represents an attractive demographic audience
for advertisers and businesses.
OUR STRATEGY
Our objective is to strengthen our position as the leading online network
across Latin America by:
- aggressively extending our brand recognition;
3
<PAGE>
- enhancing and expanding our network of Spanish and Portuguese content and
pan-regional community;
- pursuing strategic acquisitions and alliances;
- offering Internet access service to our community of users; and
- expanding into additional Spanish- and Portuguese-speaking markets.
RECENT DEVELOPMENTS
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 work closely with our strategic investors in order to develop
new content and to add new features to our network.
OUR HISTORY
We were incorporated in Delaware in March 1996. We commenced operations in
September 1996 and launched the StarMedia network in December 1996. As of March
31, 1999, we had an accumulated deficit of approximately $72.4 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 Sao Paulo, Mexico City, Buenos Aires, Bogota,
Santiago, Montevideo, Caracas and Miami. Our Internet address is
www.starmedia.com. The information on our Web site is not a part of this
prospectus.
OUR TRADEMARKS
STARMEDIA and the STARMEDIA logo are registered trademarks and service marks
of StarMedia. STARMEDIA.COM, TALKPLANET, BUSCAWEB, ORBITA, PIZARRAS and (V)PULSE
are trademarks and service marks of StarMedia. All other trademarks and service
marks used in this prospectus are the property of their respective owners.
THE OFFERING
The following information assumes that the underwriters do not exercise the
option we have granted to them to purchase additional shares in this offering.
Please see "Underwriting".
<TABLE>
<S> <C>
Shares offered by StarMedia... 7,000,000 shares
Shares to be outstanding after
this offering...............
53,150,939 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
March 31, 1999 and gives effect to the conversion of all outstanding shares of
redeemable convertible preferred stock into 31,996,667 shares of common stock
automatically on the closing of this offering and 3,727,272 additional shares of
common stock issued to strategic investors at $11.00 per share subsequent to
March 31, 1999. This information excludes:
- 8,229,100 shares subject to options outstanding as of March 31, 1999 at a
weighted average exercise price of $1.92 per share;
- 8,770,900 additional shares that could be issued under our stock option
plans; and
- 1,500,000 additional shares available for issuance under our employee
stock purchase plan.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the financial data for our business. You
should read this information with the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes to those statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
PERIOD FROM MARCH 5, DECEMBER 31, MARCH 31,
1996 (INCEPTION) TO ----------------------- -------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
--------------------- --------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................... $ -- $ 460 $ 5,329 $ 256 $ 1,541
Operating expenses:
Product and technology development... 36 1,229 6,816 794 3,562
Sales and marketing.................. 12 2,108 29,274 1,816 9,657
General and administrative........... 78 648 4,600 450 2,410
Depreciation and amortization........ 2 38 774 79 467
Stock-based compensation expense..... -- -- 10,421 2 1,417
-------- --------- ------------ --------- --------------
Total operating expenses............. 128 4,023 51,885 3,141 17,513
-------- --------- ------------ --------- --------------
Operating loss......................... (128) (3,563) (46,556) (2,885) (15,972)
Interest income, net................. -- 35 670 28 421
-------- --------- ------------ --------- --------------
Net loss............................... (128) (3,528) (45,886) (2,857) (15,551)
-------- --------- ------------ --------- --------------
Preferred stock dividends and
accretion............................ -- (185) (4,536) (295) (2,541)
Net loss available to common
shareholders......................... $ (128) $ (3,713) $(50,422) $ (3,152) $ (18,092)
-------- --------- ------------ --------- --------------
-------- --------- ------------ --------- --------------
Basic and diluted net loss per share... $ (0.01) $ (.37) $ (4.94) $ (.31) $ (1.74)
-------- --------- ------------ --------- --------------
Shares used in computing basic and
diluted net loss per share........... 9,147 10,012 10,202 10,012 10,410
-------- --------- ------------ --------- --------------
Pro forma basic and diluted net loss
per share............................ $ (1.09) $ (.37)
------------ --------------
------------ --------------
Shares used in computing pro forma
basic and diluted net loss per
share................................ 42,199 42,406
------------ --------------
------------ --------------
</TABLE>
The following table is a summary of our balance sheet at March 31, 1999. The
pro forma data give effect to the conversion of our redeemable convertible
preferred stock and the sale of 3,727,272 shares of common stock at $11.00 per
share subsequent to March 31, 1999 and the application of the net proceeds
therefrom. The pro forma as adjusted data reflect the sale of 7,000,000 shares
of common stock at an assumed initial public offering price of $14.00 per share,
after deducting underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 40,588 $ 79,948 $ 169,824
Working capital........................................................... 31,383 70,743 161,194
Total assets.............................................................. 53,889 93,249 182,314
Redeemable convertible preferred stock.................................... 99,035 -- --
Total stockholders' (deficit) equity...................................... (60,232) 78,163 167,803
</TABLE>
5
<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 the StarMedia brand 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 March 31, 1999, we had an accumulated
deficit of approximately $72.4 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 three months ended March 31, 1999, we derived approximately $424,000, or
28% of revenues, from these arrangements. In the year ended December 31, 1998,
we derived approximately $2.4 million, or 45% 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. 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
6
<PAGE>
significantly lower during the first calendar quarter of the year because:
- it includes the summer months in much of Latin America;
- our target audience tends to take extended vacations during these months;
and
- schools and universities are generally closed.
As a result, advertisers have historically spent less in the first and second
calendar quarters. 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 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,
7
<PAGE>
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, including Brazil and
Argentina, 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.
IF INTERNET USE IN LATIN AMERICA DOES NOT GROW, OUR BUSINESS WILL SUFFER
The Latin American Internet market is in an early stage of development. Our
future success depends on the continued growth of the Internet in Latin America.
Our business, financial condition and results of operations will be materially
and adversely affected if Internet usage in Latin America does not continue to
grow or grows more slowly than we anticipate. Internet usage in Latin America
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
8
<PAGE>
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 LATIN
AMERICAN USERS
Latin America is made up of a number of diverse markets that differ
historically, culturally, economically and politically. We use a pan-regional
approach of customizing our content and advertisements to a particular user
based on the user's location. Users, however, may prefer content which is
specifically created for a local audience within Latin America 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 PROVIDE INTERNET ACCESS SERVICES IN LATIN
AMERICA
We intend to offer Internet access services beginning in the second half of
1999. We have contracted with IBM 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 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.
WE MAY NOT BE ABLE TO DEVELOP THE STARMEDIA BRAND AND ATTRACT USERS TO OUR
NETWORK
Maintaining the StarMedia brand 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 Latin America 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 the StarMedia brand will also depend
on our success in providing high quality content, features and functionality. If
we fail to promote our brand successfully or if visitors to our network or
advertisers do not perceive our services to be of high quality, the value of the
StarMedia brand could be diminished. This could have a material and adverse
effect on the 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.
9
<PAGE>
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.
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 Latin America, accounted for approximately
23% of our total advertising revenues. In 1998, our top five advertisers
accounted for approximately 62% of our total revenues. In the first quarter of
1999, our top advertiser, Netscape, accounted for approximately 19% of our total
revenues. In the first quarter of 1999, our top 5 advertisers accounted for
approximately 60% 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 March 31, 1999, our advertising sales department
consisted of over 75 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
10
<PAGE>
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, in
the first and second quarter of 1999, we acquired two Internet companies in
Brazil and have entered into an agreement to acquire an Internet company in
Spain. The closing of our acquisition in Spain is subject to a number of
conditions. Therefore, we may not be able to complete the acquisition as
planned. Moreover, we may be unable to integrate or implement these joint
ventures, acquisitions or alliances effectively. 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 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.
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<PAGE>
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. We also have a second co-location facility at Digital
Island in New York. A failure by Exodus or Digital Island to protect their
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 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.
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<PAGE>
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 are currently conducting an inventory, and developing 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.
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 in the United
States and throughout Latin America, 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.
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<PAGE>
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 the United States and in Latin American countries 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:
- 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
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<PAGE>
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.
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 62.3% of the outstanding shares
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<PAGE>
of our common stock, and after the offering will beneficially own approximately
54.6% 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 initial 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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<PAGE>
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.
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<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of common stock
offered by us are estimated to be $89.6 million, assuming an initial public
offering price of $14.00 per share and after deducting the estimated
underwriting discount and offering expenses. If the underwriters' over-allotment
option is exercised in full, we estimate that the net proceeds we will receive
will be $103.3 million.
As of the date of this prospectus, we have not made any specific expenditure
plans with respect to the proceeds of this offering. Therefore, we cannot
specify with certainty the particular uses for the net proceeds to be received
upon completion of this offering. Accordingly, our management will have
significant flexibility in applying the net proceeds of the offering.
In addition, we intend to use our existing cash and cash equivalents, cash
from operations as well as the net proceeds of this offering for working capital
and to fund our operations.
The principal purposes of this offering are to increase our working capital,
to create a public market for our common stock, to facilitate future access to
the public capital markets, and to increase our visibility in the marketplace.
Pending any use, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
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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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to (1) the automatic conversion
of all outstanding shares of our convertible preferred stock into common
stock, (2) the sale of 3,727,272 additional shares of our common stock at
$11.00 per share subsequent to March 31, 1999 and the application of the
net proceeds therefrom, and (3) an increase in our authorized common stock
to 200,000,000 shares and a decrease in our authorized preferred stock to
10,000,000 shares; and
- on a pro forma as adjusted basis to reflect our sale of shares of common
stock at an assumed initial public offering price of $14.00 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
You should read this information together with our consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------------------
<S> <C> <C> <C>
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
--------- ----------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations--current portion................................. $ 166 $ 166 $ 166
Long-term debt............................................................. 3,626 3,626 3,626
Preferred stock, 60,000,000 shares authorized (actual); 10,000,000 shares
authorized (pro forma and pro forma as adjusted):
Series A redeemable convertible preferred stock, $.001 par value;
7,330,000 shares authorized, issued and outstanding (actual); no
shares authorized, issued or outstanding (pro forma and pro forma as
adjusted)............................................................ 4,311 -- --
Series B redeemable convertible preferred stock, $.001 par value;
8,000,000 shares authorized, issued and outstanding (actual); no
shares authorized, issued or outstanding (pro forma and pro forma as
adjusted)............................................................ 13,246 -- --
Series C redeemable convertible preferred stock, $.001 par value;
16,666,667 shares authorized, issued and outstanding (actual); no
shares authorized, issued or outstanding (pro forma and pro forma as
adjusted)............................................................ 81,478 -- --
Stockholders' (deficit) equity:
Common stock, $.001 par value; 100,000,000 shares authorized (actual);
200,000,000 shares authorized (pro forma and pro forma as adjusted);
10,427,000 shares issued and outstanding (actual); 46,150,939 shares
issued and outstanding (pro forma); 53,150,939 shares issued and
outstanding (pro forma as adjusted).................................. 10 46 53
Additional paid in capital................................................. 24,185 162,544 252,177
Deferred compensation...................................................... (11,854) (11,854) (11,854)
Other comprehensive income................................................. (218) (218) (218)
Accumulated deficit........................................................ (72,355) (72,355) (72,355)
--------- ----------- -------------
Total stockholders' (deficit) equity....................................... (60,232) 78,163 167,803
--------- ----------- -------------
Total capitalization....................................................... $ 42,595 $ 81,955 $ 171,595
--------- ----------- -------------
--------- ----------- -------------
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999. It does not
include:
- 8,229,100 shares subject to options outstanding as of March 31, 1999 at a
weighted average exercise price of $1.92 per share;
- 8,770,900 additional shares that could be issued under our stock option
plans; and
- 1,500,000 additional shares available for issuance under our employee
stock purchase plan.
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DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately
$75.9 million, or $1.65 per share of common stock. Pro forma net tangible book
value per share is determined by dividing the amount of our total tangible
assets less total liabilities by the pro forma number of shares of common stock
outstanding at that date, assuming conversion of all outstanding shares of our
convertible preferred stock into common stock and the sale of 3,727,272
additional shares of our common stock at $11.00 per share after deducting
related commissions. 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 pro forma net tangible book value as of
March 31, 1999 would have been $166.4 million, or $3.13 per share. This
represents an immediate increase in pro forma net tangible book value of $1.48
per share to existing stockholders and an immediate dilution of $10.87 per share
to new investors purchasing shares in this offering. If the initial public
offering price is higher or lower, the dilution to the new investors will be
greater or less, respectively. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................ $ 14.00
Pro forma net tangible book value per share at March 31, 1999.............. $ 1.65
Increase in pro forma net tangible book value per share attributable to
this offering 1.48
---------
Pro forma net tangible book value per share after this offering 3.13
---------
Dilution per share to new investors........................................ $ 10.87
---------
</TABLE>
------------------------
The following table summarizes, on a pro forma basis, as of March 31, 1999,
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 an assumed initial public
offering price of $11.00 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...................... 46,150,939 86.8% $ 137,168,000 58.3% $ 2.97
New investors.............................. 7,000,000 13.2 98,000,000 41.7 14.00
-------------- ----- ---------------- -----
Total.................................. 53,150,939 100.0% $ 235,168,000 100.0%
-------------- ----- ---------------- -----
-------------- ----- ---------------- -----
</TABLE>
This discussion and table assume no exercise of any stock options
outstanding as of March 31, 1999. As of March 31, 1999, there were options
outstanding to purchase a total of 8,229,100 shares of common stock with a
weighted average exercise price of $1.92 per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data as of December 31, 1997 and
1998 and the selected consolidated statement of operations data for the period
from March 5, 1996 (inception) to December 31, 1996 and the years ended December
31, 1997 and 1998 have been derived from our audited consolidated financial
statements included elsewhere in this prospectus. The selected consolidated
balance sheet data as of March 31, 1999 and the consolidated statement of
operations for the three months ended March 31, 1998 and 1999 have been derived
from unaudited 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 unaudited 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
those periods. Results of operations for the three months ended March 31, 1999
are not necessarily indicative of the results that may be expected for the
entire year or for any future period. The selected consolidated financial data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the notes to those statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996
(INCEPTION) TO YEAR ENDED DECEMBER THREE MONTHS
DECEMBER 31, 31, ENDED MARCH 31,
--------------- --------------------- ---------------------
1996 1997 1998 1998 1999
--------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ -- $ 460 $ 5,329 $ 256 $ 1,541
------- --------- ---------- --------- ----------
Operating expenses:
Product and technology development................... 36 1,229 6,816 794 3,562
Sales and marketing.................................. 12 2,108 29,274 1,816 9,657
General and administrative........................... 78 648 4,600 450 2,410
Depreciation and amortization........................ 2 38 774 79 467
Stock-based compensation expense..................... -- -- 10,421 2 1,417
------- --------- ---------- --------- ----------
Total operating expenses........................... 128 4,023 51,885 3,141 17,513
Operating loss......................................... (128) (3,563) (46,556) (2,885) (15,972)
Interest income, net................................. -- 35 670 28 421
------- --------- ---------- --------- ----------
Net loss............................................... (128) (3,528) (45,886) (2,857) (15,551)
------- --------- ---------- --------- ----------
Preferred stock dividends and accretion................ -- (185) (4,536) (295) (2,541)
Net loss available to common shareholders.............. $ (128) $ (3,713) $ (50,422) $ (3,152) $ (18,092)
------- --------- ---------- --------- ----------
------- --------- ---------- --------- ----------
Basic and diluted net loss per share................... $ (0.01) $ (0.37) $ (4.94) $ (.31) $ (1.74)
------- --------- ---------- --------- ----------
Shares used in computing basic and diluted net loss per
share................................................ 9,147 10,012 10,202 10,012 10,410
------- --------- ---------- --------- ----------
------- --------- ---------- --------- ----------
Pro forma basic and diluted net loss per share(1)...... $ (1.09) $ (.37)
---------- ----------
---------- ----------
Shares used in computing pro forma basic and diluted
net loss per share(1)................................ 42,199 42,406
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) Assumes conversion of all outstanding shares of redeemable convertible
preferred stock into 31,996,667 shares of common stock. See note 4 to our
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.
21
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
-------------------------------- ----------
<S> <C> <C> <C> <C>
1996 1997 1998 1999
--------- --------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 230 $ 436 $ 53,141 $ 40,588
Working capital...................................................... 284 146 47,512 31,383
Total assets......................................................... 313 786 60,986 53,889
Capital lease obligations............................................ 18 220 166
Total current liabilities............................................ 324 7,763 12,419
Long-term debt....................................................... 2,541
Redeemable convertible preferred stock............................... 3,833 96,494 99,035
Total stockholders' (deficit) equity................................. 313 (3,400) (43,393) (60,232)
</TABLE>
22
<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 online network targeting Latin America. 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 1999, we expanded our operations in Latin America by acquiring two
leading Brazilian Internet guides, Achei Internet Promotion Ltda. and KD
Sistemas de Informacao Ltda., which primarily categorize and review
Portuguese-language Web sites. The aggregate purchase price paid by us for these
acquisitions was approximately $6.1 million. We are obligated to make additional
payments, estimated to be $7 million, to the former stockholders of KD Sistemas
if various performance targets are achieved. These acquisitions were accounted
for as purchases.
In May 1999, we entered into an agreement to purchase Wass Net S.L., a
Spanish-language online service with extensive community applications. The
aggregate purchase price for this acquisition is $17 million. The purchase price
is payable in our common stock at the initial public offering price. The closing
of the acquisition is contingent on the satisfaction of a number of conditions,
including the completion of our initial public offering. As a result, we may not
be able to successfully complete this acquisition.
In addition, we recently completed the sale of 3,727,272 shares of our
common stock to a number of strategic investors for $41 million.
To date, we have derived substantially all of our revenues from the sale of
advertisements and sponsorships on our network.
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;
- which of the specific channels within the StarMedia network display the
impressions; 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
23
<PAGE>
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 Latin America and USA Networks. 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
markets, including the Internet advertising market.
We have incurred significant net losses and negative cash flows from
operations since our inception. At March 31, 1999, we had an accumulated deficit
of $72.4 million. These losses have been funded primarily through the issuance
of preferred stock. 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 $23.7 million
through March 31, 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, either immediately or generally over three years. Of the
total deferred compensation amount, approximately $10.4 million and $1.4 million
was amortized during the year ended December 31, 1998 and the three months ended
March 31, 1999, respectively. In the second quarter of 1999, we expect to record
additional deferred compensation of approximately $2.5 million due to options
granted in this period. 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--$6.3 million;
- 2000--$5.4 million;
- 2001--$3.2 million;
- 2002--$850,000; and
- 2003--$50,000.
24
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
1999 AND 1998
REVENUE
Revenues increased to $1.5 million for the three months ended March 31, 1999
from $256,000 for the three months ended March 31, 1998. The increase in
revenues was primarily due to an increase in the volume of advertising
impressions and sponsorships. During 1999, we continued to:
- expand our sales force; and
- increase the number of impressions available on our network by adding
channels and by increasing our marketing efforts.
In the three months ended March 31, 1998, two advertisers each accounted for
greater than 10% of total revenues and four advertisers during the same period
accounted for 100% of total revenues. In the three months ended March 31, 1999,
three advertisers, Netscape, Teleglobe and Outpost.com, each accounted for
greater than 10% of total revenues. Our five largest advertisers during the same
period accounted for 60% of total revenues. In the three months ended March 31,
1999, 28% 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 include:
- personnel costs;
- hosting and telecommunications 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.
Product and technology expenses increased to $3.6 million, or 231% of total
revenues, for the three months ended March 31, 1999, from $794,000, or 310% of
total revenues, for the three months ended March 31, 1998. The increase in
product and technology expenses was primarily attributable to an increase of
approximately $1.5 million related to staffing levels required to support the
StarMedia network and related systems and approximately $700,000 to enhance the
content and features on 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. 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 $9.7 million, or 627% of total
revenues, for the three months ended March 31, 1999, from $1.8 million, or 709%
of total revenues, for the three months ended March 31, 1998. The
25
<PAGE>
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
$5.9 million; and
- higher personnel expenses, including sales commissions, of approximately
$1.8 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 $2.4 million, or 156% of
total revenues, for the three months ended March 31, 1999, from $450,000, or
176% of total revenues, for the three months ended March 31, 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 $700,000 to support the growth of our business. 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. 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 $467,000, or 30% of
revenues, for the three months ended March 31, 1999, from $79,000, or 31% of
revenues, for the three months ended March 31, 1998. The dollar increases were
primarily attributable to the increase in fixed assets of approximately $2.4
million during 1999 and $5.8 million during 1998.
STOCK-BASED COMPENSATION EXPENSE
We recorded additional deferred compensation of $4.6 million during the
three months ended March 31, 1999. Of the cumulative deferred compensation
amount, $1.4 million was recorded as an expense during the three months ended
March 31, 1999. 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 $421,000 for the three months ended March 31, 1999 from
$28,000 for the three months ended March 31, 1998. 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.
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIOD FROM MARCH 5, 1996
(INCEPTION) TO DECEMBER 31, 1996
REVENUES
Revenues increased to $5.3 million for the year ended December 31, 1998 from
$460,000 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. During 1998, we:
26
<PAGE>
- 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 62% of total revenues. In 1998, 45% 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 $6.8
million, or 128% of total revenues, for the year ended December 31, 1998, from
$1.2 million, or 267% 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 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 549% of total revenues, for the year ended December 31, 1998, from
$2.1 million, or 458% 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 $4.6 million, or 86% of total revenues, for the year ended December 31, 1998,
from $648,000, or 141% 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 $774,000, or 15% 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 $5.8 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
27
<PAGE>
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 $670,000 for the year-ended December 31, 1998 from
$35,000 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.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for each of the five quarters ended March 31, 1999. In the opinion of
management, this information has been prepared substantially on the same basis
as the audited financial statements appearing elsewhere in this prospectus, and
all necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the unaudited
quarterly results of operations data. The quarterly data should be read with our
consolidated financial statements and the notes to those statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues...................... $ 256 $ 589 $ 1,308 $ 3,176 $ 1,541
Operating expenses:
Product and technology
development............... 794 2,384 1,552 2,086 3,562
Sales and marketing......... 1,816 4,199 7,725 15,534 9,657
General and
administrative............ 450 574 857 2,719 2,410
Depreciation and
amortization.............. 79 169 204 322 467
Stock-based compensation
expense................... 2 3,248 666 6,505 1,417
--------- -------- ------------- ------------ ---------
Total operating
expenses................ 3,141 10,574 11,004 27,166 17,513
--------- -------- ------------- ------------ ---------
Loss from operations.......... (2,885) (9,985) (9,696) (23,990) 15,972
--------- -------- ------------- ------------ ---------
Net loss...................... $(2,857) $(9,922) $(9,624) $(23,483) $(15,551)
--------- -------- ------------- ------------ ---------
</TABLE>
The operating results for any quarter are not necessarily indicative of the
operating results for any future period. In particular, because of our limited
operating history, we have limited meaningful financial data to estimate
revenues and operating expenses. In addition, we believe that we will continue
to experience seasonality in our business, with use of our network being lower
during the Latin American summer vacation period in the first calendar quarter
of the year. This may adversely affect our advertising revenue during the first
calendar quarter.
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;
- 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
28
<PAGE>
telecommunications infrastructure in Latin America;
- competition in our markets;
- foreign currency exchange rates that affect our international operations;
and
- general economic conditions in Latin America.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have primarily financed our operations through the sale of our
preferred stock. As of March 31, 1999, we had approximately $40.6 million in
cash and cash equivalents.
Net cash used in operating activities was $12.3 million for the three months
ended March 31, 1999, $30.6 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 by:
- the amortization of deferred compensation;
- depreciation and amortization;
- increases in accounts payable and accrued expenses; and
- deferred revenues.
Net cash used in investing activities was $3.7 million for the three months
ended March 31, 1999, $4.6 million for the year ended December 31, 1998,
$280,000 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 $3.6 million for the three
months ended March 31, 1999, $88 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.
Our principal commitments consist of obligations outstanding under capital
and operating leases. As of March 31, 1999, we have spent approximately $8.1
million on capital expenditures, excluding capital lease arrangements. 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 million credit line for the acquisition
of computer equipment and furniture and fixtures. At March 31, 1999,
approximately $3.6 million was outstanding under the equipment line. Amounts
outstanding are payable in monthly installments of principal and interest of
approximately $126,000, bear interest at approximately 13.7% per annum and are
secured by certain computer equipment and furniture and fixtures of the Company.
The credit line requires us to maintain of at least $10 million in cash and cash
equivalents.
We have entered into an agreement with IBM under which we will offer
Internet access services in Argentina, Brazil, Chile, Colombia and Mexico. Under
the agreement, we are obligated to pay IBM a minimum of approximately $7.6
million in 1999 and approximately $16.6 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
29
<PAGE>
and technologies, and plan to expand our sales and marketing programs and
conduct more aggressive brand promotions.
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 to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. The incurrence of 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
30
<PAGE>
we determine the need for and the extent of any contingency plans. We 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. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
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 online network targeting Latin America. Our network
consists of 17 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. We
promote user affinity to the StarMedia community by providing Spanish and
Portuguese language e-mail, chat rooms, instant messaging and personal
homepages.
At a time when content on the Internet is overwhelmingly in English, we
offer Latin Americans a large, pan-regional community experience, combined with
a broad array of Spanish and Portuguese content tailored for regional dialects
and local cultural norms. We also provide advertisers and merchants targeted
access to Latin American 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 97 million at the end of 1998 to approximately 320 million by the
end of 2002. 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
$1.9 billion in 1998 to approximately $7.7 billion in 2002, representing a
compound annual growth rate of 42%. The growth in the use of the Internet is
also providing businesses with a platform to conduct electronic commerce.
According to IDC, consumer transactions on the Internet are expected to increase
from $11.3 billion in 1998 to approximately $93.7 billion in 2002, representing
a compound annual growth rate of 70%.
INTERNET USE IN LATIN AMERICA
Latin America is comprised of 23 countries with a total population of
approximately 500 million people. These countries consist of:
<TABLE>
<S> <C>
- - Argentina - Guyana
- - Belize - Guatemala
- - Bolivia - Honduras
- - Brazil - Mexico
- - Chile - Nicaragua
- - Colombia - Panama
- - Costa Rica - Paraguay
- - Dominican Republic - Peru
- - Ecuador - Suriname
- - El Salvador - Uruguay
- - Falkland Islands - Venezuela
- - French Guiana
</TABLE>
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 65% 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 of these factors,
the Latin American market represents a highly desirable demographic profile for
advertisers and businesses. According to a study conducted in December 1998 by
Zenith Media, overall advertising spending across all media in Latin America was
$27 billion in 1998 and is estimated to grow to $34 billion in 2001. According
to the Forrester Research, Internet advertising in Latin America was $20 million
in 1998 and is estimated to grow to $230 million in 2001.
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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 Nazca Saatchi &
Saatchi, the number of Internet users in Latin America is expected to increase
from 7 million users in 1997 to 34 million users 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;
- 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,
more than 80% of the content on the Internet remains in English. We believe that
an increasing number of Latin American Internet users are seeking a full-service
Internet destination 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; and
- sophisticated Internet applications and tools like e-mail, chat, instant
messaging, bulletin boards, personal homepages and search capabilities.
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
been generally 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 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 demographics.
THE STARMEDIA SOLUTION
We are the leading online network targeting Latin America. We provide
original and third-party branded content through 17 interest-specific channels,
extensive Web-based community features and sophisticated search capabilities in
Spanish and Portuguese. We believe that we have created an online network that
uniquely addresses the needs of Latin American Internet users and provides
advertisers and merchants with a highly desirable platform for targeting
affluent Latin American consumers. Our monthly page views have grown from
approximately 7 million in December 1997 to approximately 60 million in March
1999. In addition, as of March 31, 1999, we had approximately 425,000 registered
e-mail users.
We believe that our success to date is attributable to the following key
factors:
FOCUS ON LATIN AMERICA. We serve the interests and needs of Latin American
Internet users and have developed both a product and a business infrastructure
to support our focus on this market. We designed our network around the needs of
our users, providing them with:
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- customized global, regional and local content covering a variety of topics
in the appropriate Spanish and Portuguese dialects based on the
self-reported geographic location of our users;
- 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 other Latin Americans with similar
interests;
- an easy-to-use interface and a consistent navigation experience that
facilitates usage by the growing number of Latin Americans coming online
for the first time; and
- search capabilities that can be customized by country, region and/or
language.
In addition, we have developed a business infrastructure designed to address
the needs of our Latin American users by maintaining a strong local presence
throughout Latin America and employing a high percentage of Latin Americans both
in the U.S. and abroad. These are critical to maintaining our network's Latin
American focus and flavor.
Our Latin American 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. We have offices throughout Latin America in Sao Paulo, Mexico City, Buenos
Aires, Bogota, Santiago, Caracas and Montevideo. Each office is staffed
predominantly with sales 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 the
StarMedia network 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 brand 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 LOCAL CONTENT AND BROAD PAN-REGIONAL COMMUNITY STRUCTURE. We
believe that our extensive local content, combined with our community of
Internet users throughout Latin America, gives us a competitive advantage and is
key to our continued leadership as the Internet destination of choice in the
region. We provide our users with a broad array of relevant and in-depth local
content. In addition, our users throughout Latin America can use our network as
a virtual central plaza to meet other Latin Americans, 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. For
example, in order to better understand the demands of our users, we have
developed a special EU QUERO/LO QUIERO, or "I Want It", area which is accessible
from every page on our network. This feature enables our users to make requests
for additions or modifications to the 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:
- the leading Internet brand in Latin America;
- a highly desirable user demographic profile; and
- users with a high degree of affinity and involvement through e-mail, chat,
bulletin boards and personal homepages.
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Internet advertising is new to Latin America, 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 in Latin
America. 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 Latin American Web sites and provides us with a significant
competitive advantage.
As a result, we have been able to:
- attract high-profile advertisers, including Bradesco, Ford, Fox Latin
America, IBM, Microsoft, Motorola, Nokia and Sony;
- enter into relationships with leading electronic commerce companies,
including barnesandnoble.com, Outpost.com, Disney, and N2K; and
- charge premium advertising rates.
STRATEGY
Our objective is to strengthen our position as the leading online network
across Latin America. In order to accomplish this, we will:
AGGRESSIVELY EXTEND OUR BRAND RECOGNITION. Our goal is to make the
StarMedia brand synonymous with the Internet in Latin America. We believe that
continuing to enhance our brand recognition will enable us to capitalize on our
leading position in Latin America and will make us more attractive to
advertisers and businesses conducting electronic commerce. This will increase in
importance as more Latin American consumers move online and as additional
Internet sites compete for these users.
We intend to continue to build our brand through:
- extensive television, print, Internet and outdoor advertising;
- public relations programs;
- conference sponsorships;
- new strategic alliances; and
- additional distribution relationships.
ENHANCE AND EXPAND OUR NETWORK. We intend to continue to add new content
and features to the StarMedia network. We believe that this will:
- further differentiate our network 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.
Since January 1998, we have added 10 new channels to our network and expect
to add a number of other new channels in the remainder of 1999. We currently
have relationships with leading content providers, including Fox Latin America,
Internet Securities, Quote.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 70 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 aggressively 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,
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fulfillment and transaction software companies, as well as merchants.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. We plan to expand our user
base, revenues and competitive position through strategic acquisitions and
alliances. Since January 1999, we have broadened our operations by acquiring KD
Sistemas de Informacao Ltda. and Achei Internet Promotion Ltda. Through these
acquisitions, we acquired two leading Brazilian Internet sites, Cade? and Zeek!,
which are free Web-based portals that provide topical directories of Portuguese-
language Web sites. We believe that these acquisitions significantly enhance our
presence in the Brazilian market and enable us to reach a broader base of users
and advertisers. In May 1999, we entered into an agreement to acquire Wass Net
S.L., a Spanish-language online community offering e-mail, chat, classifieds,
bulletin boards, home pages and search capabilities. We believe that Wass Net's
presence in the Spanish and U.S. Hispanic market complements the StarMedia
network and gives us a competitive advantage in these markets. We anticipate
closing this acquisition after the completion of our initial public offering. We
intend to aggresively seek other opportunities to acquire or form alliances with
other companies that will complement our network.
OFFER INTERNET ACCESS TO USERS IN THE LOCAL LATIN AMERICAN
MARKETS. Beginning in the second half of 1999, we plan to offer Internet access
to users in a number of Latin American markets. We believe this service will
enable us to develop an additional source of revenue and to create closer ties
with Internet users in Latin America. We have entered into an agreement with IBM
under which we will offer Internet access services in Argentina, Brazil, Chile,
Colombia and Mexico. IBM 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 brand and StarMedia
will be the pre-programmed home page for the service. We will charge users
monthly access fees with pricing based on rates that are competitive in each
local market.
EXPAND INTO ADDITIONAL SPANISH- AND PORTUGUESE-SPEAKING MARKETS. We seek to
make StarMedia 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 7.7 million Spanish-and Portuguese-speaking
Internet users dispersed through the United States, Spain and Portugal. The
Hispanic population is growing more rapidly than any other minority group within
the U.S. population. 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. Hispanics
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.
As the number of Spanish- and Portuguese-speaking Internet users outside
Latin America increases, advertisers and electronic commerce marketers will
increasingly seek an effective means to reach these audiences. To take advantage
of these opportunities, we are expanding our advertising and marketing campaigns
in the United States and Spain. In addition, we intend to expand our presence in
Spain by opening a local office.
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THE STARMEDIA NETWORK
The StarMedia network is currently organized around 17 channels, all of
which may be accessed by our users for free. These channels are grouped into:
- community services; and
- content and commerce services.
Our Welcome Screen--www.starmedia.com-- is the gateway to our network. It
provides a guide to the network channels, features special content and
promotions, offers direct access to the search, e-mail and chat services and
displays real-time news headlines. When users first visit the StarMedia network
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. Our
unique design and layout provides a consistent navigation experience allowing
users to access any channel on our network from any other channel on the
service. Additionally, this design allows for persistent branding throughout the
network. The following is a description of the StarMedia network.
COMMUNITY SERVICES
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- -------------------------------- --------------------------------------------------------------------------------
<S> <C>
STARMEDIA TALKPLANET (CHAT) StarMedia TalkPlanet is our chat community and the foundation of our network.
TalkPlanet creates "virtual communities" where participants can interact in
group or one-on-one discussions in both Spanish and Portuguese. These
communities include broad interest areas like sports, romance and current
events. Our users can host their own scheduled chats, create their own
interest-specific rooms or participate in moderated celebrity events.
STARMEDIA MAIL StarMedia Mail is our free Web-based e-mail service and is offered in both
(E-MAIL) Spanish and Portuguese. We currently have over 500,000 registered e-mail users.
StarMedia Mail allows users to access electronic mail from any computer with a
standard Web browser. We believe that providing this service increases user
loyalty and therefore, increases traffic on our network. We have also developed
a series of "I-mails", which are interactive greeting cards that users can send
to friends and family members.
STARMEDIA ORBITA/ORBITA StarMedia Orbita/Orbita enables users to create personalized Web pages on the
(PERSONAL HOMEPAGES) StarMedia network. Using a variety of proprietary publishing tools in Spanish
and Portuguese, users are able to quickly and easily create fully personalized
homepages. Individual homepages reside in designated communities of interest
like family, business and technology. We believe that users will be more
attracted to our network when they can publish content and share experiences
with others through their personalized homepages.
QUADRO DE AVISOS/ PIZARRAS Our bulletin board area--Quadro de Avisos/Pizarras--further enhances user
(BULLETIN BOARDS) interaction. From politics and religion to music and travel, this user-generated
content augments each channel and maintains a record of ongoing communication
about a particular topic on our network.
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- -------------------------------- --------------------------------------------------------------------------------
<S> <C>
STARMEDIA EXPRESS (INSTANT This instant messaging service enables users to know whether their friends and
MESSENGER) other users with similar interests are online and to send messages directly to
them. Our partnership with PeopleLink enables users to subscribe to specific
interest groups and communicate with people from around the world who share
similar interests.
STARMEDIA CLASSIFICADOS/ StarMedia Classificados/Clasificados is our classifieds marketplace, spanning
STARMEDIA CLASIFICADOS numerous product and service areas from electronics to real estate. Buyers and
(CLASSIFIEDS) sellers from across Latin America can trade timely information on goods and
services.
NAMORO PERSONET/ ROMANCE Namoro Personet/Romance Personet is an interactive meeting place for visitors in
PERSONET (PERSONALS) search of new friends and relationships. Personet connects people from a wide
range of interests, backgrounds and origins. On Personet, people meet in a
variety of ways, including through personal ad postings and in discussion
forums.
STARMEDIA JOGOS/JUEGOS The newest StarMedia channel, StarMedia Jogos/Juegos, offers a compilation of
(ONLINE GAMES) interactive games in which our users can participate and compete for prizes.
These games include fantasy sport games such as Beisbol Virtual and Ole, as well
as a variety of trivia games. In addition, StarMedia Jogos/Juegos offers a host
of free, downloadable games, which are updated several times per week. This
channel also includes a guide to our editors' picks of the best in Spanish and
Portuguese online game sites.
</TABLE>
CONTENT AND COMMERCE SERVICES
We have built our content and commerce services around our successful
community environment. We enhance the effectiveness of our community services by
wrapping them around engaging content like information, news, entertainment and
shopping.
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- -------------------------------- --------------------------------------------------------------------------------
<S> <C>
STARMEDIA NOTICIAS/ NOTICIAS StarMedia Noticias/Noticias delivers a comprehensive selection of international,
(NEWS) regional and local news. Content for news and all information services is
provided by top syndicated wire services, local partnerships and by our team of
editors, producers and writers throughout Latin America. Users can react to the
latest headlines through chats, debates and polls. Our partners include Reuters,
Agencia EFE and Agence France Presse.
STARMEDIA ESPORTES/ DEPORTES Through the StarMedia Esportes/Deportes channel, we provide comprehensive local,
(SPORTS) regional and global sports news and information. Users can access headlines,
results, commentary, analysis and daily polls. They can also purchase
merchandise and win prizes through our interactive games. In addition, we are
the exclusive webcaster of FUTBOL DE PRIMERA, one the world's most popular
syndicated radio talk shows about soccer, hosted by Andres Cantor.
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- -------------------------------- --------------------------------------------------------------------------------
<S> <C>
STARMEDIA MONEY (FINANCE) StarMedia Money provides online financial news and information. In addition,
users can obtain research about top Latin American companies, access information
on personal banking products and services, and track their individual investment
portfolios in Spanish and Portuguese. Information is provided by a host of
leading financial information publishers, including Avance Economico, Enfoque,
El Economista, El Universal and Quote.com.
STARMEDIA DIGITAL (TECHNOLOGY) StarMedia Digital offers the latest in technology news, product reviews and free
downloads from ZDNet. The information provided by ZDNet helps users make
informed buying decisions about technology products, which they can purchase
through StarMedia's relationship with vendors like Outpost.com.
STARMEDIA ENTRETENIMENTO/ Entertainment and music are united in the StarMedia Entretenimento/
ENTRETENIMIENTOS (ENTERTAINMENT) Entretenimientos channel. Our partnerships with USA Networks, Fox Latin America,
Billboard, eDrive, Retila, Successo CD and N2K provide content that creates a
bridge between online and traditional programming. (V)Pulse offers a popular
selection of easily playable music videos. StarMedia TV and StarMedia Radios
provide Internet broadcasts of popular television and radio stations from Latin
America and around the world.
STARMEDIA SHOPPING (ELECTRONIC StarMedia Shopping acts as a virtual central plaza for online Latin American
COMMERCE) consumers. Users are able to purchase a variety of merchandise, including
computers, books and CDs, from a host of global and local retailers like
barnesandnoble.com, N2K, CIM and Outpost.com. Products from the StarMedia
Shopping channel are also merchandised within appropriate channels. For example,
there are direct links that allow a literary chat group to easily purchase books
of interest from barnesandnoble.com.
STARMEDIA BUSCAWEB (SEARCH AND StarMedia BuscaWeb is our Internet search engine. It utilizes Inktomi's
GUIDE) sophisticated search capabilities, which have been customized to support
country-specific, regional and worldwide searches in both Spanish and
Portuguese.
STARMEDIA VIAGENS/VIAJES The travel channel offers travel guides and news through an exclusive
(TRAVEL) relationship with Lonely Planet, as well as advice about preparing for a trip,
links to travel resources on the Web and a forum for exchanging travel stories
and tips.
STARMEDIA TEMPO/TIEMPO (WEATHER) StarMedia Tempo/Tiempo provides up-to-the-minute weather conditions and extended
forecasts for 3,000 cities around the globe.
</TABLE>
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 will be the only Internet company 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.
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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
content 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
- Billboard--entertainment news and featured content
- Bottle Rocket--interactive sports games
- BusinessWire--business news
- Critical Path--email services
- eDrive--entertainment news and featured content
- eShare--chat software
- Agencia EFE--news and information
- 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
- 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--book purchases
- CIM--Brazilian music
- Disney--branded merchandise
- Music Boulevard (N2K)--music products, CDs, clothing, posters and books
- Outpost.com--computer and technology merchandise
- SportsSuperstore--sports merchandise
- Tickets.com--event information and ticketing
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 our network.
StarMedia Noticias/Noticias appears as a ticker on the Netscape Latin America
and Brazil homepages and directs users to our network's general 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
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Internet. We are the only in-language Internet company 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.
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 work closely with our strategic investors in order to develop
new content and to add new features to our network.
ADVERTISING SALES
We have built a direct sales organization of over 60 professionals located
in eight offices: Sao Paulo, Mexico City, Buenos Aires, Bogota, Santiago,
Caracas, Miami and New York.
SALES ORGANIZATION
Our sales organization is dedicated to maintaining close relationships with
top advertisers and leading advertising agencies throughout Latin America. 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 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 it
is 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
During 1998, 72 companies advertised on the StarMedia network, up from 6
advertisers in 1997. 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 Sony
Fox Television SkyTel
IBM USA Networks
</TABLE>
These customers, in the aggregate, accounted for approximately 25.63% of
total revenues in the three months ended March 31, 1999 and 34.70% 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 first quarter of 1999, we had 45
advertisers, up from four advertisers in the first quarter of 1998. In the first
quarter of 1999, three advertisers, Netscape, Teleglobe and Outpost.com, each
accounted for greater than 10% of total revenues. During the same period, our
five largest advertisers accounted for 60% of total
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revenues. In 1998, two advertisers, Fox Latin America and Netscape, each
accounted for greater than 10% of total revenues. During the same period, our
five largest advertisers accounted for 62% 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 Latin America, USA Networks and other 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 also have a second co-location facility at Digital
Island in New York. We maintain regional network operating centers in Brazil and
Argentina. Our operations depend on the ability of Exodus or Digital Island to
protect their systems against damage from fire, hurricanes, power loss,
telecommunications failure, break-ins, or other events.
Exodus and Digital Island provide comprehensive facilities management
services, including human and technical monitoring of all production servers 24
hours per day, 7 days per week. Exodus and Digital Island also provide
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
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both monthly access fees and per minute usage charges.
A few years ago, Internet service providers, or ISPs, in Latin America
charged an average of more than $80 per month for basic Internet access. In
addition to access charges, local calls to connect to the ISP range in cost from
$.01 - $.03 per minute in some countries, including Peru, Chile and Colombia,
and up to $.12-$.15 per minute in Mexico and Argentina. These per minute
charges, which are in addition to access charges, may make 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.
Recently, monthly ISP access fees have decreased to an average of $20-25 per
month. While per minute charges have not declined as rapidly, 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 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 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:
- Spanish- and Portuguese-language versions of U.S. services like Yahoo!,
America Online and Prodigy Communications; and
- services like Zaz (Brazil), Telefonos de Mexico (Mexico) and Universo
Online (Brazil), that target particular Latin American countries.
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.
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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:
- 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 Spain against our application for
registration of the StarMedia trademark, 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 trademark registrations in the United States, Peru,
Uruguay, Colombia and Paraguay for the StarMedia trademark 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
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<PAGE>
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 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 March 31, 1999, we had 270 full-time employees, of whom 76 worked in
sales, 10 in editorial, 20 in marketing, 116 in product and technology and 48 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:
- Sao Paulo, Brazil;
- Mexico City, Mexico;
- Buenos Aires, Argentina;
- Bogota, Colombia;
- Santiago, Chile;
- Montevideo, Uruguay;
- Caracas, Venezuela; and
- Miami, Florida.
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......................... 32 Chairman of the Board of Directors
and Chief Executive Officer
Jack C. Chen................................. 32 President and Director
Tracy J. Leeds............................... 34 Chief Operating Officer
Steven J. Heller............................. 33 Chief Financial Officer
Adriana J. Kampfner.......................... 26 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 the Chief Operating Officer of StarMedia since
September 1998, and prior to that served as StarMedia's Vice President, Business
Operations since July 1997. From 1996 to 1997, 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.
STEVEN J. HELLER has been the Chief Financial Officer of StarMedia since May
1999,
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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 ventures. Prior to his employment with
Time Warner Direct, Mr. Linen held various top-level executive positions at Time
Life, including
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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 to the adequacy of our internal accounting
controls. The audit committee consists of
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<PAGE>
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
Chief Operating Officer
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 $100,000. The options shown for each executive officer do not
include options cancelled under our 1997 Plan, but do include the immediate
reissuance of options equal to the cancelled options under our 1998 Plan. We
have never granted any stock appreciation rights. The potential realizable value
is calculated based on the term of the option at its time of grant. It is
50
<PAGE>
calculated assuming that the fair market value of common stock on the date of
grant appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. The percentage of total
options granted to employees in the last fiscal year is based on options to
purchase an aggregate of 5,782,000 shares of common stock granted under our 1998
Plan to our employees, consultants and directors and under our 1997 Plan to
Messrs. Espuelas and Chen in the year ended December 31, 1998. All options
granted under our 1997 Plan, other than those granted to Messrs. Espuelas and
Chen, have been cancelled and reissued under our 1998 Plan.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
OPTION GRANTS IN LAST FISCAL YEAR ANNUAL RATES
INDIVIDUAL GRANTS OF
--------------------------------------------------------------------------- STOCK PRICE
NUMBER OF APPRECIATION
SECURITIES PERCENT OF TOTAL EXERCISE FOR OPTION
UNDERLYING OPTIONS GRANTED TO PRICE PER FMV ON THE TERM
OPTIONS EMPLOYEES IN SHARE DATE OF GRANT EXPIRATION -------------
NAME GRANTED(#) FISCAL YEAR (%) ($/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 the
assumed initial public offering price of $14.00 per share, less the exercise
price per share, multiplied by the number of shares underlying the options.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END (#) AT FISCAL YEAR END ($)
----------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fernando J. Espuelas............................. 1,750,000 -- $ 22,800,000 $ --
Jack C. Chen..................................... 1,750,000 -- 22,800,000 --
Tracy J. Leeds................................... 82,639 467,361 1,115,627 6,309,374
Steven J. Heller................................. 36,111 153,889 487,499 2,077,502
Adriana J. Kampfner.............................. 13,333 216,667 179,996 2,925,005
</TABLE>
51
<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.
52
<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
53
<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.
54
<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.
After this offering, all of the series A redeemable convertible preferred stock
will automatically convert into an aggregate of 7,330,000 shares of common
stock.
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. After this offering, the
series B redeemable convertible preferred stock will automatically convert into
an aggregate of 8,000,000 shares of common stock.
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 Fund 1998/99 is controlled
by Mr. Wilson. The notes were repaid in full.
55
<PAGE>
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. After this offering, the series C redeemable
convertible preferred stock will automatically convert into an aggregate of
16,666,667 shares of common stock.
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.
In May 1999, we granted Steve Heller, our chief financial officer, options
to purchase 140,000 shares of common stock at the initial public offering price.
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.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, as of May 7, 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 May 7, 1999, but excludes shares of common
stock underlying options held by any other person. Percentage of beneficial
ownership is based on 46,346,328 shares of common stock outstanding as of May 7,
1999, assuming the conversion of the redeemable convertible preferred stock, and
53,346,328 shares of common stock outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
SHARES BENEFICIALLY OWNED
BENEFICIALLY --------------------------------------
NAME OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER OFFERING
- ----------------------------------------------------------------- ------------- ------------------- -----------------
<S> <C> <C> <C>
Fernando J. Espuelas(1).......................................... 6,250,000 13.0% 11.3%
Jack C. Chen(2).................................................. 6,290,000 13.1 11.4
Tracy J. Leeds(3)................................................ 357,391 * *
Steven J. Heller(4).............................................. 52,778 * *
Adriana J. Kampfner(5)........................................... 62,777 * *
Douglas M. Karp(6)............................................... 4,760,417 10.3 8.9
Christopher T. Linen(7).......................................... 300,000 * *
Gerardo M. Rosenkranz(8)......................................... 588,055 1.3 1.1
Susan L. Segal(9)................................................ 11,378,333 24.6 21.3
Frederick R. Wilson(10).......................................... 1,155,000 2.5 2.2
Chase Venture Capital Associates, L.P.(11)....................... 11,378,333 24.6 21.3
Warburg, Pincus Equity Partners, L.P.(12)........................ 2,380,209 5.1 4.5
Warburg, Pincus Ventures International, L.P.(12)................. 2,380,208 5.1 4.5
All directors and executive officers as a group (12 persons)..... 31,194,751 62.3 54.6
</TABLE>
- ------------------------
* Indicates less than one percent of the common stock.
(1) Includes (a) 1,750,000 shares issuable upon the exercise of currently
exercisable stock options and (b) 1,000,000 shares held by a trust, of which
Ms. Espuelas and Mr. Chen are trustees.
(2) Includes (a) 1,750,000 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.
57
<PAGE>
(3) Includes (a) 31,250 shares issuable upon the exercise of currently
exercisable stock options and stock options which vest within 60 days and
(b) an aggregate of 250,000 shares held by a trust, of which Ms. Leeds is
trustee.
(4) Consists of 52,778 shares issuable upon the exercise of currently
exercisable stock options and stock options which vest within 60 days.
(5) Consists of 62,777 shares issuable upon the exercise of currently
exercisable stock options and stock options which vest within 60 days.
(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) 520,833 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. Chase has expressed an interest to
purchase additional shares of common stock in this offering at the initial
public offering price.
(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.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
StarMedia's amended and restated certificate of incorporation, which will
become effective upon the closing of this offering, 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 May 7, 1999, 14,349,661 shares of common stock were
outstanding and 31,996,667 shares of convertible preferred stock convertible
into the same amount of shares of common stock were issued and outstanding. As
of May 7, 1999, StarMedia had 97 stockholders.
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. After the closing of this offering, there will be no shares
of preferred stock outstanding.
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. All outstanding shares of preferred stock will be
automatically converted into common stock upon the closing of this offering. We
have no current plans to issue any additional shares of preferred stock.
REGISTRATION RIGHTS
Under the terms of our amended and restated registration rights agreement,
at any time on or after the first anniversary of the effective date of this
offering, each of Chase Venture Capital Associates, Warburg, Pincus Equity
Partners and the holders of a majority of the outstanding shares of common stock
issuable after conversion of the shares of our preferred 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 issuable upon conversion of the
preferred shares held by them. We are also obligated to register any of the
shares of common stock issuable upon conversion of the preferred shares 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 preferred stock which is a party to the
registration rights
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<PAGE>
agreement may require us to file a registration statement on Form S-3 under the
Securities Act with respect to the shares of common stock issuable upon
conversion of its preferred stock. We are also obligated to register the shares
of common stock issuable upon conversion of the preferred shares 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
preferred stock which are parties to the registration rights agreement will be
entitled to require us to register the common stock issuable upon conversion of
their preferred 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 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
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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 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.
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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 prospective 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.
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
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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 has been approved for quotation 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,
since no shares will be available for sale shortly after this offering because
of the contractual and legal restrictions on resale described below, sales of
substantial amounts of common stock in the public market after these
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
53,346,328 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. The remaining 46,346,328 shares of common stock held by existing
stockholders 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
All of our officers, directors and substantially all of our stockholders
have signed lock-up agreements under which they 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 180 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.
Subject to the provisions of Rule 144, 144(k) and 701, restricted shares
totaling 42,619,056 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, 180 days after the date of this prospectus.
In addition, the holders of 3,727,272 shares of our common stock have agreed
not to transfer or dispose of any of their shares of common stock for a period
of one year after the date on which they purchased the shares in April and May
1999.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 533,463 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
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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 provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
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 90 days after the effective date of this offering 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 42,017,272 shares of our
common stock, or their transferees will be entitled to request that we register
their shares under the Securities Act.
STOCK PLANS
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 18,875,140 shares of common stock reserved for
issuance under our 1997, 1998 and 1999 Plans. This registration statement is
expected to be filed as soon as practicable after the effective date of this
offering.
At March 31, 1999, options to purchase 8,229,100 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 and for the
underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998, and for the
period from March 5, 1996 (date of inception) to December 31, 1996 and the years
ended December 31, 1997 and 1998 as set forth in their reports. We have included
our 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.
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. 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.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
STARMEDIA NETWORK, INC.
<TABLE>
<S> <C>
Report of Independent Auditors.................................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999
(Unaudited)................................................................... F-3
Consolidated Statements of Operations 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 three months ended March 31, 1998 and 1999 (Unaudited)................ F-4
Consolidated Statements of Changes in Stockholders' Deficit 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 three months ended March 31, 1998 and 1999
(Unaudited)................................................................... F-5
Consolidated Statements of Cash Flows 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 three months ended March 31, 1998 and 1999 (Unaudited)................ F-6
Notes to Consolidated Financial Statements...................................... F-7 - F-19
</TABLE>
F-1
<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 the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the period from March 5, 1996 (date of inception) to December 31, 1996
and the years ended December 31, 1997 and 1998. 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 the results of their
operations and their cash flows for the period from March 5, 1996 (date of
inception) to December 31, 1996 and the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
New York, New York
March 5, 1999,
except for Note 12, as to which
the date is March 14, 1999
F-2
<PAGE>
STARMEDIA NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 PRO FORMA
------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 436,000 $ 53,141,000 $ 40,588,000 $ 40,588,000
Accounts receivable net of allowance for bad debts of
$0, $60,000 and $141,000 as of December 31, 1997 and
1998 and March 31, 1999, respectively................ 27,000 460,000 973,000 973,000
Other current assets................................... 7,000 1,674,000 2,241,000 2,241,000
----------- ------------ ------------ -------------
Total current assets..................................... 470,000 55,275,000 43,802,000 43,802,000
Fixed assets, net........................................ 263,000 5,403,000 7,308,000 7,308,000
Intangible assets, net of accumulated amortization of
$1,000, $93,000 and $124,000 as of December 31, 1997
and 1998 and March 31, 1999, respectively.............. 30,000 179,000 492,000 492,000
Goodwill, net............................................ 920,000 920,000
Other assets............................................. 23,000 129,000 1,367,000 1,367,000
----------- ------------ ------------ -------------
$ 786,000 $ 60,986,000 $ 53,889,000 $ 53,889,000
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable....................................... $ $ 286,000 $ 3,732,000 $ 3,732,000
Accrued expenses....................................... 227,000 6,442,000 6,845,000 6,845,000
Due to principal stockholders.......................... 67,000
Loan payable, current portion.......................... 1,085,000 1,085,000
Capital lease obligations, current portion............. 10,000 220,000 166,000 166,000
Deferred revenues...................................... 20,000 815,000 591,000 591,000
----------- ------------ ------------ -------------
Total current liabilities................................ 324,000 7,763,000 12,419,000 12,419,000
Capital lease obligations................................ 8,000
Loan payable, long term.................................. 2,541,000 2,541,000
Deferred rent............................................ 21,000 122,000 126,000 126,000
Preferred stock, authorized 60,000,000 shares:
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 March 31, 1999, respectively, stated at
liquidation value, net of related expenses........... 3,833,000 4,218,000 4,311,000
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 March 31, 1999, respectively, stated at
liquidation value, net of related expenses........... 12,944,000 13,246,000
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 March 31, 1999, respectively, stated at
liquidation value, net of related expenses........... 79,332,000 81,478,000
Stockholders' deficit:
Common stock, $.001 par value, 100,000,000 shares
authorized, 10,012,000 shares, 10,392,000 shares and
10,427,000 shares issued and outstanding at December
31, 1997 and 1998 and March 31, 1999, respectively,
and 42,423,667 shares outstanding on a pro forma
basis................................................ 10,000 10,000 10,000 42,000
Additional paid-in capital............................. 431,000 19,563,000 24,185,000 123,188,000
Deferred compensation.................................. (8,666,000) (11,854,000) (11,854,000)
Other comprehensive loss............................... (37,000) (218,000) (218,000)
Accumulated deficit.................................... (3,841,000) (54,263,000) (72,355,000) (72,355,000)
----------- ------------ ------------ -------------
Total stockholders' (deficit)............................ (3,400,000) (43,393,000) (60,232,000) 38,803,000
----------- ------------ ------------ -------------
Total liabilities and stockholders' deficit.............. $ 786,000 $ 60,986,000 $ 53,889,000 $ 53,889,000
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
STARMEDIA NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5,1996
(DATE OF THREE MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31 MARCH 31,
DECEMBER ----------------------------- -----------------------------
31, 1996 1997 1998 1998 1999
-------------- ------------- -------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................. $ $ 460,000 $ 5,329,000 $ 256,000 $ 1,541,000
Operating expenses:
Product and technology development..... 36,000 1,229,000 6,816,000 794,000 3,562,000
Sales and marketing.................... 12,000 2,108,000 29,274,000 1,816,000 9,657,000
General and administrative............. 78,000 648,000 4,600,000 450,000 2,410,000
Depreciation and amortization.......... 2,000 38,000 774,000 79,000 467,000
Stock-based compensation expense....... 10,421,000 2,000 1,417,000
-------------- ------------- -------------- ------------- --------------
Total operating expenses................. 128,000 4,023,000 51,885,000 3,141,000 17,513,000
-------------- ------------- -------------- ------------- --------------
Loss from operations..................... (128,000) (3,563,000) (46,556,000) (2,885,000) (15,972,000)
Other income (expense):
Interest income........................ 35,000 715,000 56,000 459,000
Interest expense....................... (45,000) (28,000) (38,000)
-------------- ------------- -------------- ------------- --------------
Net loss................................. (128,000) (3,528,000) (45,886,000) (2,857,000) (15,551,000)
Preferred stock dividends and
accretion.............................. -- (185,000) (4,536,000) (295,000) (2,541,000)
-------------- ------------- -------------- ------------- --------------
Net loss available to common
shareholders........................... $ (128,000) $ (3,713,000) $ (50,422,000) $ (3,152,000) $ (18,092,000)
-------------- ------------- -------------- ------------- --------------
-------------- ------------- -------------- ------------- --------------
Historical basic and diluted net loss per
common share........................... $ (0.01) $ (0.37) $ (4.94) $ (0.31) $ (1.74)
-------------- ------------- -------------- ------------- --------------
-------------- ------------- -------------- ------------- --------------
Historical number of shares used in
computing basic and diluted net loss
per share.............................. 9,147,223 10,012,000 10,202,000 10,012,000 10,409,500
-------------- ------------- -------------- ------------- --------------
-------------- ------------- -------------- ------------- --------------
Pro forma basic and diluted net loss per
share.................................. $ (1.09) $ (0.37)
-------------- --------------
-------------- --------------
Number of shares used in computing pro
forma basic and diluted net loss per
share.................................. 42,198,667 42,406,167
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
STARMEDIA NETWORK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
PERIOD FROM MARCH 5, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996, AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER
----------------------- PAID-IN ACCUMULATED DEFERRED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION INCOME TOTAL
---------- ----------- ----------- ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 5,
1996 (date of
inception)........... $ $ $ $ $ $
Sale of common stock... 10,012,000 10,000 431,000 441,000
Net loss for the
period............... (128,000) (128,000)
---------- ----------- ----------- ------------- -------------- --------------- ------------
Balance at December 31,
1996................. 10,012,000 10,000 431,000 (128,000) 313,000
Accretion of preferred
stock................ (185,000) (185,000)
Net loss for the
year................. (3,528,000) (3,528,000)
---------- ----------- ----------- ------------- -------------- --------------- ------------
Balance at December 31,
1997................. 10,012,000 10,000 431,000 (3,841,000) (3,400,000)
Deferred compensation
related to stock
options, net of
cancellations........ 19,087,000 (19,087,000)
Amortization of
deferred
compensation......... 10,421,000 10,421,000
Exercise of common
stock options........ 380,000 45,000 45,000
Preferred stock
dividends and
accretion............ (4,536,000) (4,536,000)
Net loss for the
year................. (45,886,000) (45,886,000)
Translation
adjustment........... (37,000) (37,000)
------------
Comprehensive loss..... (45,923,000)
---------- ----------- ----------- ------------- -------------- --------------- ------------
Balance at December 31,
1998................. 10,392,000 10,000 19,563,000 (54,263,000) (8,666,000) (37,000) (43,393,000)
Deferred compensation
related to stock
options, net of
cancellations........ 4,605,000 (4,605,000)
Amortization of
deferred
compensation......... 1,417,000 1,417,000
Exercise of common
stock options........ 35,000 17,000 17,000
Preferred stock
dividends and
accretion............ (2,541,000) (2,541,000)
Net loss for the
period............... (15,551,000) (15,551,000)
Translation
adjustment........... (181,000) (181,000)
Comprehensive loss..... (15,732,000)
---------- ----------- ----------- ------------- -------------- --------------- ------------
Balance at March 31,
1999 (unaudited)..... 10,427,000 $ 10,000 $24,185,000 $(72,355,000) $(11,854,000) $(218,000) $(60,232,000)
---------- ----------- ----------- ------------- -------------- --------------- ------------
---------- ----------- ----------- ------------- -------------- --------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
STARMEDIA NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996
(DATE OF THREE MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31 MARCH 31,
DECEMBER --------------------------- ----------------------------
31, 1996 1997 1998 1998 1999
-------------- ------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................... $ (128,000) $ (3,528,000) $ (45,886,000) $ (2,857,000) $ (15,551,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 1,000 38,000 774,000 79,000 467,000
Provision for bad debts................. 60,000 81,000
Amortization of deferred compensation... 10,421,000 2,000 1,417,000
Deferred rent........................... 21,000 101,000 20,000 4,000
Changes in operating assets and
liabilities:
Accounts receivable................... (27,000) (493,000) (12,000) (542,000)
Other assets.......................... (30,000) (1,773,000) (708,000) (1,805,000)
Accounts payable and accrued
expenses............................ 227,000 5,356,000 907,000 3,828,000
Deferred revenues..................... 20,000 795,000 (224,000)
-------------- ------------ ------------- ------------- -------------
Net cash used in operating activities....... (127,000) (3,279,000) (30,645,000) (2,569,000) (12,325,000)
INVESTING ACTIVITIES
Purchase of fixed assets.................... (30,000) (249,000) (4,395,000) (253,000) (2,420,000)
Intangible assets........................... (31,000) (241,000) (98,000) (344,000)
Cash paid for acquisition................... (921,000)
-------------- ------------ ------------- ------------- -------------
Net cash used in investing activities....... (30,000) (280,000) (4,636,000) (351,000) (3,685,000)
FINANCING ACTIVITIES
Issuance of common stock.................... 441,000 45,000 17,000
Issuance of redeemable convertible preferred
stock, net of related expenses............ 3,647,000 88,125,000 11,936,000
Issuance of convertible subordinated notes.. 6,000,000 4,000,000
Proceeds from long-term debt................ 3,752,000
Repayment of long-term debt................. (126,000)
Repayment of convertible subordinated
notes..................................... (6,000,000) (4,000,000)
Loans (to) from stockholders................ (54,000) 67,000
Repayments (to) from stockholders........... 54,000 (67,000) (67,000)
Payments under capital leases............... (3,000) (112,000) (1,000) (54,000)
-------------- ------------ ------------- ------------- -------------
Net cash provided by financing activities... 387,000 3,765,000 87,991,000 11,868,000 3,589,000
Effect of exchange rate changes on cash and
cash equivalents.......................... (5,000) (132,000)
-------------- ------------ ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents............................... 230,000 206,000 52,705,000 8,948,000 (12,553,000)
Cash and cash equivalents, beginning of
period.................................... 230,000 436,000 436,000 53,141,000
-------------- ------------ ------------- ------------- -------------
Cash and cash equivalents, end of period.... $ 230,000 $ 436,000 $ 53,141,000 9,384,000 40,588,000
-------------- ------------ ------------- ------------- -------------
-------------- ------------ ------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid............................... $ $ $ 45,000 $ 28,000 $
-------------- ------------ ------------- ------------- -------------
-------------- ------------ ------------- ------------- -------------
NON-CASH FINANCING ACTIVITIES
Acquisition of fixed assets through capital
leases.................................... $ $ 21,000 $ 314,000 $ $
-------------- ------------ ------------- ------------- -------------
-------------- ------------ ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<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 THREE MONTHS
ENDED MARCH 31, 1999
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 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 develops and maintains www.starmedia.com, a branded Internet online
network (the "Network") located on the World Wide Web (the "Web"). The Network
is organized around interest specific channels, community features, search
capabilities and online shopping in Spanish and Portuguese, targeted to Latin
America.
INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET (UNAUDITED)
In February 1999, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission ("SEC") that would permit
the Company to sell shares of the Company's common stock in connection with a
proposed initial public offering ("IPO"). In conjunction with a qualified IPO,
all outstanding shares of Series A, B and C Redeemable Convertible Preferred
Stock, automatically convert into shares of Common Stock on a one for one basis.
Accordingly, the effect of the conversions has been reflected in the
accompanying unaudited pro forma balance sheet as if they had occurred as of
March 31, 1999.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1999, and for the three months ended
March 31, 1998 and 1999 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 March 31,
1999 and the results of operations and cash flows for the three months ended
March 31, 1998 and 1999 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.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for any future interim
period or for the year ending December 31, 1999.
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
F-7
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
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 three months ended March 31, 1998 and 1999, revenues
derived from barter transactions, were approximately $2.4 million, $224,000 and
$424,000, 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.
F-8
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
March 31, 1999 and for the three months ended March 31, 1999 was approximately
$1,000.
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 three months ended March 31, 1998 and 1999, advertising expense
amounted to approximately $0, $1,610,000, $21,246,000, $1,068,000 and
$5,380,000, respectively. For the years ended December 31, 1997 and 1998 and the
three months ended March 31, 1998 and 1999, advertising expense includes
F-9
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
approximately $460,000, $2.4 million, $224,000 and $424,000 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 5).
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.
F-10
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
FOREIGN CURRENCY AND INTERNATIONAL OPERATIONS
The functional currency of the Company's active subsidiaries in Argentina,
Brazil, Chile and Colombia is the local currency. The financial statements of
these subsidiaries are translated to U.S. dollars using year-end rates of
exchange for assets and liabilities, and average rates for the year for
revenues, costs, and expenses. Translation gains and losses are deferred and
accumulated as a component of stockholders' deficit. 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 year-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 and 1998.
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 March 31, 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-11
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------- MARCH 31,
1997 1998 1999
----------- ------------- -------------
<S> <C> <C> <C>
Computer equipment................................. $ 172,000 $ 4,738,000 6,782,000
Furniture and fixtures............................. 7,000 446,000 759,000
Leasehold improvements............................. 121,000 938,000 921,000
----------- ------------- -------------
300,000 6,122,000 8,462,000
Less accumulated depreciation and amortization..... (37,000) (719,000) (1,154,000)
----------- ------------- -------------
$ 263,000 $ 5,403,000 $ 7,308,000
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
3. STOCKHOLDERS' DEFICIT
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") are 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 are 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.
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 are 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 has 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.
No Preferred Stock dividends have been declared or paid as of March 31, 1999. At
December 31, 1997 and 1998, and March 31, 1999, total cumulative dividends in
arrears, that would be payable upon a liquidation, were approximately $183,000,
$4,233,000 and $6,625,000, respectively.
The Company has recorded issuance costs incurred in connection with the
Preferred Stock as discounts at issuance and is accreting the discounts from the
date of issuance through the date of mandatory redemption on December 31, 2004.
F-12
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
3. STOCKHOLDERS' DEFICIT (CONTINUED)
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. 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 THREE MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31 MARCH 31,
DECEMBER ----------------------------- --------------------------------
31, 1996 1997 1998 1998 1999
-------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss..................... $ (128,000) $ (3,528,000) $ (45,886,000) $ (2,857,000) $ (15,551,000)
Preferred stock dividends and
accretion.................. -- (185,000) (4,536,000) (295,000) (2,541,000)
-------------- ------------- -------------- --------------- ---------------
Numerator for basic and diluted
loss per share-- net loss
available for common
stockholders................. $ (128,000) $ (3,713,000) $ (50,422,000) $ (3,152,000) $ (18,092,000)
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
Denominator:
Denominator for basic and
dilutive loss per
share--weighted average
shares..................... 9,147,223 10,012,000 10,202,000 10,012,000 10,409,500
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
Basic and diluted net loss per
share........................ $ (0.01) $ (0.37) $ (4.94) $ (0.31) $ (1.74)
-------------- ------------- -------------- --------------- ---------------
-------------- ------------- -------------- --------------- ---------------
</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 three month period ended March 31, 1998 and 1999, does not include the
effect of options to purchase 0, 1,804,933, 6,131,933, 1,889,933 and 8,229,100
shares of common stock, respectively, or 0, 7,330,000, 31,996,667, 15,330,000
and 31,996,667 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-13
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. 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>
THREE MONTH
YEAR ENDED ENDED
DECEMBER MARCH
31, 1998 31, 1999
--------------- ---------------
<S> <C> <C>
Numerator:
Net loss available to common stockholders................ $ (50,422,000) $ (18,092,000)
Preferred Stock dividends and accretion.................. 4,536,000 2,541,000
--------------- ---------------
Numerator for pro forma loss available to common
stockholders............................................. $ (45,886,000) $ (15,551,000)
--------------- ---------------
--------------- ---------------
Denominator:
Weighted average number of common shares................. 10,202,000 10,409,500
Assumed conversion of Preferred Stock to common shares
(if converted method).................................. 31,996,667 31,996,667
--------------- ---------------
Denominator for pro forma basic and diluted loss per
share.................................................... 42,198,667 42,406,167
--------------- ---------------
--------------- ---------------
Pro forma basic and diluted net loss per share............. $ (1.09) $ (0.37)
--------------- ---------------
--------------- ---------------
</TABLE>
5. 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 $4,605,000. 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 three months ended
March 31, 1998 and 1999 amounted to approximately $10,421,000, $2,000 and
$1,417,000, respectively.
F-14
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. STOCK OPTIONS (CONTINUED)
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........................................................ 2,232,500 4.88
Canceled....................................................... (100,333) .66
Exercised...................................................... (35,000) .50
------------
Outstanding, March 31,1999 8,229,100 $ 1.92
------------
------------
</TABLE>
The following table summarizes information concerning outstanding options at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------- OPTIONS EXERCISABLE
WEIGHTED- -------------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ---------------------------------------------- ------------ --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$0.50......................................... 4,415,433 6.75 $ 0.50 3,062,987 $ 0.50
$1.60......................................... 1,716,500 7.00 $ 1.60 1,500,000 $ 1.60
------------ ------------
6,131,933 4,562,987
------------
------------
</TABLE>
The following table summarizes information concerning outstanding options at
March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------- OPTIONS EXERCISABLE
WEIGHTED- -------------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ---------------------------------------------- ------------ --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$0.50......................................... 4,295,100 6.75 $ 0.50 3,127,157 $ 0.50
$1.60......................................... 2,120,000 7.00 $ 1.60 1,507,500 $ 1.60
$5.64......................................... 1,814,000 9.9 $ 5.64
------------ ------------
8,229,100 4,634,657
------------
------------
</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
F-15
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. STOCK OPTIONS (CONTINUED)
value method of the statement. The fair value for these options was estimated
using the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
ASSUMPTIONS 1997 1998
- ------------------------------------------------------------------------------ --------------- ----------------
<S> <C> <C>
Average risk-free interest rate............................................... 6.00%-6.40% 4.440%-5.70%
Dividend yield................................................................ 0.0% 0.0%
Average life.................................................................. 5 years 5 years
</TABLE>
Because the determination of fair value of all options granted after such
time as the Company becomes 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.
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1997 1998
-------------- ---------------
<S> <C> <C>
Pro forma net loss available to common stockholders.............................. $ (3,749,000) $ (51,276,000)
Pro forma basic and diluted loss per share....................................... $ (0.37) $ (5.03)
</TABLE>
6. INCOME TAXES
For Federal income tax purposes at December 31, 1998, the Company had net
operating loss carryfowards of approximately $36,500,000 which expire from 2011
through 2018. 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.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
<S> <C> <C>
1997 1998
-------------- ---------------
Federal net operating loss carryforwards..................... $ 1,200,000 $ 12,422,000
Depreciation and amortization................................ (6,000) (227,000)
Deferred rent................................................ 9,000 55,000
Other........................................................ 27,000
-------------- ---------------
1,203,000 12,277,000
Valuation allowance.......................................... (1,203,000) (12,277,000)
-------------- ---------------
$ -- $ --
-------------- ---------------
-------------- ---------------
</TABLE>
F-16
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
The effective income tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996
(DATE OF YEAR ENDED DECEMBER
INCEPTION) TO 31
DECEMBER 31, --------------------
1996 1997 1998
--------------- --------- ---------
<S> <C> <C> <C>
Statutory rate................................................................. (34%) (34%) (34%)
Non deductible losses from foreign operations.................................. 2
Permanent differences.......................................................... 8
Valuation allowance............................................................ 33 33 23
Other.......................................................................... 1 1 1
----- --------- ---------
Effective tax rate............................................................. --% --% --%
----- --------- ---------
----- --------- ---------
</TABLE>
7. LONG-TERM DEBT
The Company has entered into a $12 million credit line for the acquisition
of computer equipment and furniture and fixtures. At March 31, 1999,
approximately $3.6 million was outstanding under the credit line. Amounts
outstanding are payable in monthly installments of principal and interest of
approximately $126,000, bear interest at approximately 13.7% per annum and are
secured by some of our computer equipment and furniture and fixtures. The credit
line requires the Company to maintain at least $10,000,000 in cash and cash
equivalents.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Product and technology development........................ $ 14,000 $ 490,000 $ 618,000
Sales and marketing....................................... 64,000 3,639,000 4,215,000
General and administrative................................ 132,000 1,108,000 728,000
Accrued fixed asset and intangible purchases.............. 17,000 1,059,000 1,080,000
Other..................................................... -- 146,000 204,000
------------- ------------- -------------
$ 227,000 $ 6,442,000 $ 6,845,000
------------- ------------- -------------
------------- ------------- -------------
</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.
F-17
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. 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 December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Year ended December 31:
1999........................................................... $ 330,000
2000........................................................... 330,000
2001........................................................... 330,000
2002........................................................... 286,000
2003........................................................... 182,000
----------
$1,458,000
----------
----------
</TABLE>
Rent expense amounted to approximately $0, $66,000, $392,000 for the period
from March 5, 1996 (date of inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998, respectively.
10. 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.
11. SIGNIFICANT CUSTOMERS AND GEOGRAPHICAL CONCENTRATION
For the three months ended March 31, 1999, three customers accounted for
approximately 19%, 12% and 12% of the Company's total revenue, respectively.
For the three months ended March 31, 1998, two customers accounted for
approximately 45% and 42% of the Company's total revenue, respectively.
For the year ended December 31, 1997, three customers accounted for
approximately 38%, 23%, and 18% of the Company's total revenue, respectively.
For the year ended December 31, 1998, two customers accounted for
approximately 23% and 16% of the Company's total revenue, respectively.
F-18
<PAGE>
STARMEDIA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
12. ACQUISITION
On March 10, 1999, the Company acquired all of the outstanding stock of
Achei Internet Promotion Ltda. in exchange for cash of $810,000. The Company
accounted for the acquisition under the purchase method of accounting and the
results of the operations have been included in the financial statements of the
Company from the date of acquisition. The excess purchase price over the fair
value of the net assets acquired, including expenses incurred by the Company,
has been recorded as goodwill.
On a pro forma basis, if the acquisition 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.
13. SUBSEQUENT EVENTS (UNAUDITED)
On April 13, 1999, the Company acquired all of the outstanding stock of KD
Sistemas de Informacao Ltda. ("KD Sistemas") in exchange for a cash payment of
$5,320,000 at closing, $570,000 due 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"). 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. Under Rule 3:05 of Regulation S-X the Company is required to
file with the SEC audited financial statements of KD Sistemas as soon as
possible, but in no event more than 75 days from the consummation of the
acquisition.
Between April 30 and May 5, 1999, the Company sold an aggregate of 3,727,272
shares of common stock at $11 per share, or approximately $39,400,000, net of
related commissions, to a group of third party investors. The new 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 4, 1999, the Company entered into an agreement to acquire all of the
outstanding stock of Wass Net, S.L. The agreement is subject to, among other
matters, the successful consummation of the Company's IPO. The aggregate
purchase price of $17,000,000 is to be paid in common stock of the Company
valued at the IPO price.
F-19
<PAGE>
UNDERWRITING
StarMedia 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. and Salomon Smith Barney Inc. 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...........................................................................
Salomon Smith Barney Inc.............................................................................
-----------
Total..........................................................................................
-----------
-----------
</TABLE>
------------------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from 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. 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>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any 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 public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
StarMedia and its directors, officers and substantially all of its
stockholders have agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of 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.
At the request of StarMedia, the underwriters have reserved for sale, at the
initial public offering price, up to 1,150,000 shares of common stock for
certain directors, stockholders, employees and associates of StarMedia. There
can be no assurance that any of the reserved shares will be so purchased. The
number of shares available for sale to the general public in the offering will
be reduced by the number of reserved shares sold. Any reserved shares not so
purchased will be offered to the general public on the same basis as the other
shares offered hereby.
Prior to this offering, there has been no public market for the shares. The
initial public
U-1
<PAGE>
offering price will be negotiated among StarMedia and the representatives. Among
the factors to be considered in determining the initial public offering price of
the shares, in addition to prevailing market conditions, will be StarMedia's
historical performance, estimates of the business potential and earnings
prospects of StarMedia, an assessment of StarMedia's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "STRM".
In connection with this 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 this 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.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
StarMedia estimates that its share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately
$1,500,000.
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 of $1,640,000 to Goldman,
Sachs & Co. for such services. Upon the mutual agreement of the parties,
StarMedia will pay the fee in cash or shares of common stock priced at the
private placement price of $11.00 per share. If the fee is paid in stock,
Goldman, Sachs & Co. will receive a maximum of 149,091 shares and will agree
with StarMedia not to sell, transfer, assign, pledge or hypothecate any such
shares for one year after the date of this 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 has agreed to indemnify the several underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
[EXAMPLE OF STARMEDIA PRINT MEDIA ADVERTISEMENT
PREPARED BY OGILVY & MATHER. TEXT OF AD STATES:
(1) WITH A TARGET MARKET OF MORE THAN 10 MILLION
LATIN AMERICANS USING THE INTERNET, ACCORDING TO A 1997
NAZCA SAATCHI & SAATCHI STUDY, THE CHOICES ARE CLEAR:
YOU EITHER INCLUDE INTERNET IN YOUR MIX AND ENJOY THE
OPPORTUNITIES, OR YOU IGNORE IT, AND FACE THE CONSEQUENCES - SEE LEFT.
(2) STARMEDIA IS THE LEADING ONLINE NETWORK TARGETING
LATIN AMERICA WITH 17 TOPICAL AREAS AND EXTENSIVE WEB-BASED
COMMUNITY FEATURES IN SPANISH AND PORTUGUESE. WE OFFER
OUR USERS A WIDE RANGE OF FREE CHOICES - FROM CHAT TO
NEWS, FROM EMAIL TO SHOPPING, PERSONAL HOMEPAGES AND MORE.
OUR CONTENT IS TAILORED TO REGIONAL AND COUNTRY-SPECIFIC
INTERESTS AND IS ENTIRELY IN SPANISH AND PORTUGUESE; (3) A SURVEY
OF STARMEDIA VISITORS CONDUCTED BY THE LAREDO GROUP IN
DECEMBER 1998 REVEALED THAT OUR USERS SPEND
APPROXIMATELY 37% OF THEIR ONLINE TIME ON STARMEDIA, 87%
ARE EMPLOYED OR UNIVERSITY ATTENDEES AND 61% HOLD CREDIT
CARDS. ADDITIONALLY, IN LATIN AMERICA, 20% OF THE POPULATION
CONTROLS AN ESTIMATED 65% OF THE BUYING POWER; (4) AND
WE BELIEVE THE MARKET HOLDS SIGNIFICANT OPPORTUNITY. BY
THE END OF YEAR 2000, NAZCA SAATCHI & SAATCHI ESTIMATES
THAT 34 MILLION LATIN AMERICANS WILL BE ONLINE, SIGNIFICANTLY
OUTPACING THE GROWTH OF INTERNET USAGE WORLDWIDE; AND
(5) WITH A DEDICATED SALES TEAM IN EIGHT COUNTRIES AND A
FOCUS ON THE NEEDS OF THE LATIN AMERICAN POPULATION,
STARMEDIA IS WELL POSITIONED TO TAKE ADVANTAGE OF THE
GROWING LATIN AMERICAN INTERNET MARKET.]
<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......................... 6
Forward-Looking Statements; Market
Data............................... 17
Use of Proceeds...................... 18
Dividend Policy...................... 18
Capitalization....................... 19
Dilution............................. 20
Selected Consolidated Financial
Data............................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Business............................. 33
Management........................... 47
Certain Transactions................. 55
Principal Stockholders............... 57
Description of Capital Stock......... 59
Shares Eligible for Future Sale...... 64
Validity of Common Stock............. 65
Experts.............................. 65
Where You Can Find More Information.. 65
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>
------------------------
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as underwriter and with respect to an unsold allotment or
subscription.
7,000,000 Shares
STARMEDIA NETWORK, INC.
Common Stock
---------------
[LOGO]
------------
GOLDMAN, SACHS & CO.
BANCBOSTON
ROBERTSON STEPHENS
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
Representatives of the Underwriters
------------------------
WIT CAPITAL CORPORATION
FACILITATOR OF INTERNET DISTRIBUTION
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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........................................... $ 26,885
NASD filing fee................................................ 10,160
NASDAQ listing fee............................................. 95,500
Legal fees and expenses........................................ 500,000
Accountants' fees and expenses................................. 400,000
Printing expenses.............................................. 250,000
Blue sky fees and expenses..................................... 5,000
Transfer Agent and Registrar fees and expenses................. 15,000
Miscellaneous.................................................. 197,455
----------
Total.................................................... $1,500,000
----------
----------
</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.
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.
II-1
<PAGE>
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.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of 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.
3.1+ Certificate of incorporation, as amended.
3.2+ Form of amended and restated certificate of incorporation to be in effect upon the closing of this
offering.
3.3+ Bylaws.
3.4+ Form of amended and restated bylaws to be in effect upon the closing of this offering.
4.1+ Specimen common stock certificate.
4.2+ Please see Exhibits 3.1, 3.2, 3.3 and 3.4 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.
10.2+ 1998 stock plan.
10.3+ Lease dated September 15, 1997 between Clemons Management Corp. and StarMedia, as amended.
10.4+ Amended and restated registration rights agreement.
10.5+ Amendment no. 1 to amended and restated registration rights agreement.
10.6+ Series A convertible stock purchase agreement, dated as of July 25, 1997, between StarMedia and
several purchasers named in attached schedule.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.7+ Series B convertible stock purchase agreement, dated as of February 20, 1998, between StarMedia and
several purchasers named in attached schedule.
10.8+ Series C convertible stock purchase agreement, dated as of August 24, 1998, between StarMedia and
several purchasers named in attached schedule.
10.9u IBM Business Partner Agreement, dated as of April 1, 1999, by and between StarMedia and International
Business Machines Corporation.
10.10+ 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.
10.11+ Master Loan and Security Agreement No. 4231, dated as of March 31, 1999, by and between StarMedia and
Charter Financial, Inc.
10.12+ StarMedia 1999 Employee Stock Purchase Plan.
10.13+ Stock Purchase Agreement between StarMedia and Hearst Communications, Inc. dated as of April 30,
1999.
10.14+ Stock Purchase Agreement between StarMedia and Reuters Holding Switzerland SA dated as of April 30,
1999.
10.15+ Stock Purchase Agreement between StarMedia and eBay Inc. dated as of April 30, 1999.
10.16+ Stock Purchase Agreement between StarMedia and Europortal Holding S.A. dated as of April 30, 1999.
10.17+ Stock Purchase Agreement between StarMedia and Critical Path, Inc. dated as of May 3, 1999.
10.18+ Stock Purchase Agreement between StarMedia and Europortal Holding S.A. dated as of May 5, 1999.
10.19+ Share Purchase Agreement dated as of May 4, 1999 between StarMedia and Wass Net S.L., Geradons, S.L.,
Salvador Porte and Eduardo Kawas.
10.20+ Stock Purchase Agreement between StarMedia and National Broadcasting Company, Inc. dated as of May 4,
1999.
10.21+ Registration Rights Agreement dated as of April 30, 1999 between StarMedia and Hearst Communications,
Inc.
10.22+ Registration Rights Agreement dated as of April 30, 1999 between StarMedia and Reuters Holdings
Switzerland SA.
10.23+ Registration Rights Agreement dated as of April 30, 1999 between StarMedia and eBay Inc.
10.24+ Registration Rights Agreement dated as of May 3, 1999 between StarMedia and Europortal Holding S.A.
10.25+ Registration Rights Agreement dated as of May 3, 1999 between StarMedia and Critical Path, Inc.
10.26+ Registration Rights Agreement dated as of May 5, 1999 between StarMedia and Europortal Holding S.A.
10.27+ Registration Rights Agreement dated as of May 4, 1999 between StarMedia and Geradons, S.L.
10.28+ Registration Rights Agreement dated as of May 4, 1999 between StarMedia and National Broadcasting
Company, Inc.
10.29+ Employment Agreement dated as of April 29, 1999 by and between StarMedia and Fernando J. Espuelas.
10.30+ Employment Agreement dated as of April 29, 1999 by and between StarMedia and Jack C. Chen.
10.31+ Form of Rights Agreement.
21.1+ List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2+ 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.
II-3
<PAGE>
u Application has been made to the Commission to seek confidential treatment of
certain provisions. Omitted material for which confidential treatment has
been requested 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 7 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 25th day of May, 1999.
STARMEDIA NETWORK, INC.
BY: /S/ FERNANDO J. ESPUELAS
-----------------------------------------
Fernando J. Espuelas
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 7 to the registration statement has been signed by the following persons in
the capacities indicated below:
<TABLE>
<S> <C>
Dated: May 25, 1999 /s/ FERNANDO J. ESPUELAS
--------------------------------------------
Fernando J. Espuelas
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Dated: May 25, 1999 *
--------------------------------------------
Jack C. Chen
President and Director
Dated: May 25, 1999 *
--------------------------------------------
Steven J. Heller
Chief Financial Officer(Principal Financial
and Accounting Officer)
Dated: May 25, 1999 *
--------------------------------------------
Douglas M. Karp
Director
Dated: May 25, 1999 *
--------------------------------------------
Christopher T. Linen
Director
Dated: May 25, 1999 *
--------------------------------------------
Gerardo M. Rosenkranz
Director
Dated: May 25, 1999 *
--------------------------------------------
Susan L. Segal
Director
Dated: May 25, 1999 *
--------------------------------------------
Frederick R. Wilson
Director
</TABLE>
<TABLE>
<S> <C>
/s/ FERNANDO J. ESPUELAS
------------------------------------------
Fernando J. Espuelas
*By: ATTORNEY-IN-FACT
</TABLE>
II-5
<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 the period from March 5, 1996 (date of
inception) to December 31, 1996 and the years ended December 31, 1997 and 1998,
and have issued our report thereon dated March 5, 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
March 5, 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>
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... $ 60,000 $ 81,000 -- --
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>
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts...... $ 141,000
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>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1+ Form of underwriting agreement.
3.1+ Certificate of incorporation, as amended.
3.2+ Form of amended and restated certificate of incorporation to be in effect upon the closing of this
offering.
3.3+ By-laws.
3.4+ Form of amended and restated bylaws to be in effect upon the closing of this offering.
4.1+ Specimen common stock certificate.
4.2+ Please see Exhibits 3.1, 3.2, 3.3 and 3.4 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.
10.2+ 1998 stock plan.
10.3+ Lease dated September 15, 1997 between Clemons Management Corp. and StarMedia, as amended.
10.4+ Amended and restated registration rights agreement.
10.5+ Amendment no. 1 to amended and restated registration rights agreement.
10.6+ Series A convertible stock purchase agreement, dated as of July 25, 1997, between StarMedia and
several purchasers named in attached schedule.
10.7+ Series B convertible stock purchase agreement, dated as of February 20, 1998, between StarMedia and
several purchasers named in attached schedule.
10.8+ Series C convertible stock purchase agreement, dated as of August 24, 1998, between StarMedia and
several purchasers named in attached schedule.
10.9u IBM business partner agreement, dated as of April 1, 1999 by and between StarMedia and International
Business Machines Corporation.
10.10+ 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.
10.11+ Master Loan and Security Agreement No. 4231, dated as of March 31, 1999, by and between StarMedia and
Charter Financial, Inc.
10.12+ StarMedia 1999 Employee Stock Purchase Plan.
10.13+ Stock Purchase Agreement between StarMedia and Hearst Communications, Inc. dated as of April 30,
1999.
10.14+ Stock Purchase Agreement between StarMedia and Reuters Holdings Switzerland SA dated as of April 30,
1999.
10.15+ Stock Purchase Agreement between StarMedia and eBay Inc. dated as of April 30, 1999.
10.16+ Stock Purchase Agreement between StarMedia and Europortal Holding S.A. dated as of April 30, 1999.
10.17+ Stock Purchase Agreement between StarMedia and Critical Path, Inc. dated as of May 3, 1999.
10.18+ Stock Purchase Agreement between StarMedia and Europortal Holding S.A. dated as of May 5, 1999.
10.19+ Share Purchase Agreement dated as of May 4, 1999 between StarMedia and Wass Net S.L., Geradons, S.L.,
Salvador Porte and Eduardo Kawas.
10.20+ Stock Purchase Agreement between StarMedia and National Broadcasting Company, Inc. dated as of May 4,
1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.21+ Registration Rights Agreement dated as of April 30, 1999 between StarMedia and Hearst Communications,
Inc.
10.22+ Registration Rights Agreement dated as of April 30, 1999 between StarMedia and Reuters Holdings
Switzerland S.A.
10.23+ Registration Rights Agreement dated as of April 30, 1999 between StarMedia and eBay Inc.
10.24+ Registration Rights Agreement dated as of May 3, 1999 between StarMedia and Europortal Holding S.A.
10.25+ Registration Rights Agreement dated as of May 3, 1999 between StarMedia and Critical Path, Inc.
10.26+ Registration Rights Agreement dated as of May 5, 1999 between StarMedia and Europortal Holding S.A.
10.27+ Registration Rights Agreement dated as of May 4, 1999 between StarMedia and Geradons, S.L.
10.28+ Registration Rights Agreement dated as of May 4, 1999 between StarMedia and National Broadcasting
Company, Inc.
10.29+ Employment Agreement dated as of April 29, 1999 by and between StarMedia and Fernando J. Espueles.
10.30+ Employment Agreement dated as of April 29, 1999 by and between StarMedia and Jack. C. Chen.
10.31+ Form of Rights Agreement.
21.1+ List of subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2+ 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.
u Application has been made to the Commission to seek confidential treatment of
certain provisions. Omitted material for which confidential treatment has
been requested has been filed separately with the Commission.
<PAGE>
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
EXHIBIT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IBM Business Partner Agreement
International Solution Provider Profile
- --------------------------------------------------------------------------------
We welcome you as an IBM Business Partner-Solution Provider.
This Agreement covers the details of your approval to actively market Eligible
Services. As our Solution Provider, you enhance Eligible Services with your
solution to provide Services capable of satisfying the Customer's requirements.
By signing below, each of us agrees to the terms of the following (collectively
called the "Agreement"):
(a) this Profile;
(a) General Terms (BXGT-02-00 11/98);
(a) the applicable Attachments referred to in this Profile; and
(a) the Exhibit and applicable Transaction Documents.
This Agreement and its applicable transaction documents are the complete
agreement regarding this relationship, and replace any prior oral or written
communications between us. Once this Agreement is signed, 1) any reproduction of
this Agreement or a transaction document made by reliable means (for example,
photocopy or facsimile) is considered an original, to the extent permissible
under applicable law, and 2) all Products and Services you market and Services
you perform under this Agreement are subject to it. If you have not already
signed an Agreement for Exchange of Confidential Information (AECI), your
signature on this Agreement includes your acceptance of the AECI provided to
you.
After signing this Agreement, please return a copy to the IBM address shown
below.
Agreed to: Agreed to:
StarMedia Network Inc. International Business Machines
Corporation
By: /s/ Betsy Scolnik By: /s/ Roger L. Dudley
------------------------------- ---------------------------------
Authorized Signature Authorized Signature
Name (type or print): Betsy Scolnik Name (type or print): Roger L. Dudley
Date: 3/31/99 Date: 4/1/99
Agreement number:
IBM Business Partner number:
Business Partner Address: IBM Address:
29 W. 36th Street IBM Global Services
New York City, NY 10018 3405 W. Dr. M. L. King, Jr. Blvd.
Tampa, FL 33607
Attention: Order Fulfillment Services
Page 1 of 4
<PAGE>
1. DETAILS OF OUR AGREEMENT
1.
1. Contract Start Date: March xx, 1999 Duration: 5 years
1.
This Agreement shall commence on March xx, 1999, and terminate on March xx,
December 2004.
The effective date of this Agreement and all modifications to this Agreement are
effective on the first day of the month after signature by you and acceptance by
IBM.
Should each of us decide to continue our relationship for an additional term
upon expiration of the term of this Agreement, this Agreement shall remain in
effect until terminated by both parties or replaced by a new Agreement.
Relationship Approval/Acceptance of AdditionalTerms:
Each of us agrees to the terms of the following by signing this Agreement.
Copies of the Attachments are included.
Approved Relationship Attachment Reference
Solution Provider Attachment BXSP-02-00 11/98
Remarketer Terms Attachment BXRT-02-00 11/98
IBM Global Services' Network Services BPIGN 4/99 (SM)
Terms Attachment for Remarketing
International Attachment BPIA-00 1/99 Draft 3
You are approved to remarket Eligible Services to Customers in the countries
specified in this Profille.
Eligible Services Approval:
You are approved to market under Remarketer Terms Eligible Services in the
following IBM Global Services offering categories from the Network Services
business segment. The terms of the Exhibit apply to these Eligible Services.
o Managed Internet and Intranet Services
o IBM Internet Connection Services
o Customized Internet Access Kit Redistribution, Supplement for Custom
Solution Number ____________
1. Minimum Revenue Commitment
The minimum gross revenue commitment for the Agreement will be based on the
number of End Users as follows:
For each month of this agreement and for each country shown, StarMedia Network
shall commit to a monthly base level of end users asshown below, for the five
year term of End Users as shown below, from the Contract Start Date of this
Agreement, for the five year term for IBM Services outlined in this Agreement.
This volume commitment shall come from StarMedia Network's remarketing of IBM
Internet Connection Services (IBM ICS) directly to End Users in the countries
identified in this Agreement. All the End Users registering for IBM ICS using a
StarMedia offer code in each calendar month of the term of this Agreement shall
count toward this volume commitment.
Volume Commitment
---------------------------------------------------------------------------
Country Argentina Brazil Chile Colombia Mexico
---------------------------------------------------------------------------
Volume Commitment [****] [****] [****] [****] [****]
---------------------------------------------------------------------------
Months in Contract Year One [****] [****] [****] [****] [****]
---------------------------------------------------------------------------
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
Page 2 of 4
<PAGE>
(Note: Contracts Year two thru five require 12 month commitment in each country)
At the first annual reconciliation, the number of months in Contract Year One
will be adjusted for any delay in the start of service in each country.
Annual Reconciliation
The volume commitment will be reconciled annually based on the annual volume
commitments shown above. If StarMedia Network fails to achieve the annual volume
commitment levels specified above, IBM will assess an annual adjustment charge.
Such adjustment charge shall be calculated as follows:
1. Calculate the actual number of hours billed to StarMedia Network in the
contract year being reconciled in each country.
1. Calculate the committed hourly volume for each country by multiplying the
number of committed months in the contract year being reconciled by the
committed volume from the table above and multiplying the result by the
projected hours in the table below.
1. If the result from the calculation in item 2 is greater than the calculation
in item 1, a shortfall will exist and an adjustment charge will be calculated by
multiplying the corresponding hourly charge (basic charge + help desk + billing)
times the shortfall.
Projected Hourly Usage
-------------------------------------
Projected
Country Hourly Usage
-------------------------------------
Argentina [****] hours
-------------------------------------
Brazil [****] hours
-------------------------------------
Chile [****] hours
-------------------------------------
Columbia [****] hours
-------------------------------------
Mexico [****] hours
-------------------------------------
In the event you terminate this Agreement and you have not met your minimum
annual revenue commitment, the adjustment charges shall be calculated as of the
termination date and may be due and payable based on the terms of Section 1.7 of
the Exhibit. In the event IBM terminates this Agreement with cause, you will be
required to pay the adjustment charges. In the event IBM terminates this
Agreement without cause, you will not be required to pay the adjustment charges.
In no instance will the billing volumes used during the Wind Down Period be
counted toward the committed volume.
1. Value-Added Enhancement Description
You will provide the following value-added enhancement and support services with
Eligible Services:
o StarMedia Network Internet Home Page
o Identification of End Users
Participating Business Partner Companies and IBM Companies
- --------------------------------------------------------------------------------
Country Business Partner Company IBM Company Address
Address
- --------------------------------------------------------------------------------
Argentina StarMedia Network Inc. IBM Argentina S.A.
Av. Alicia Moreau deJusto 170 Ing. Enrique Butty 275
Piso 3, Dock 1 (1107) 1300 Buenos Aires
Buenos Aires, Argentina
- --------------------------------------------------------------------------------
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
Page 3 of 4
<PAGE>
- --------------------------------------------------------------------------------
Brazil StarMedia Network Inc. IBM Brasil
Ave. das Nacoes Unidas Rua Tutoia, 1157
12.551 15o. Andar, cjs.1508 10 Andar Cep 04707-900
Sao Paulo, SP Brazil Sao Paulo SP
04578-903
- --------------------------------------------------------------------------------
Chile StarMedia Network Inc. ISSC Chile
Alcantra 44, Piso 12 Avenida Providencia 655
Las Condes Santiago Chile Castilla 3630
Santiago
- --------------------------------------------------------------------------------
Colombia StarMedia Network Inc. IBM Colombia S.A.
Carrera 11 A, No. 93A-22 Transversal 38 No. 100-25
Oficina 405 Bogota
Santa Fe de Bogata,
Colombia
- --------------------------------------------------------------------------------
Mexico StarMedia Network Inc. IBM Global Services
Andres Bello, No. 10 Piso 12 Colonia Irrigacion
Colonia Polanco 11560 C.P. 11520 Mexico D.F.
Mexico D.F., Mexico
- --------------------------------------------------------------------------------
Page 4 of 4
<PAGE>
[LOGO] IBM
IBM Business Partner Agreement
IBM Global Services' Network Services Exhibit
- --------------------------------------------------------------------------------
This Transaction Document describes special charges, additional terms, and
modifications to the General Terms, Solution Provider Terms, Remarketer Terms,
and IBM Global Services' Network Services Terms Attachment for Remarketing,
which apply to your remarketing of IBM Global Services' network Services, to
which both of us have agreed.
1. Charges
Unless otherwise stated, all charges are measured and assessed at a
country level. Except as provided in section 1.1, the charges specified in
this Exhibit will not be increased during the Agreement term.
1.1 Internet Dial Services Charges
Charges for IBM Internet Connection Services are measured on an hourly
"per access" basis, from the initiation of the link to the IBM Global
Network until the connection terminates (modem synchronization to modem
hang-up at the Local Internet Gateways (LIGs)). Charges apply for each
physical connection regardless of the number of concurrent logical
sessions within that physical connection. Accordingly, the charge for
Internet Services shall be billed to StarMedia for each hour, or portion
of hour, of usage, per user ID and per physical connection.
IBM will bill StarMedia Network for the usage of this Service based on the
total number of hours of connection time to the LIG for all End Users.
Session time is calculated in 36 second intervals for every access, by
rounding up to the next 36 second interval, which is equivalent to
rounding up to the next 100th of an hour. IBM Internet Connection Services
are usage based, per connection session. IBM will multiply the session
time by the appropriate charges specified in this section 1.1. At the end
of each calendar month, IBM will total the cumulative session times and
charges for all of StarMedia's End Users.
IBM will use a Consolidated Statement to invoice you for all local user
IDs in US currency in the US. Consolidated statement terms are described
in the Attachment for Consolidated Statement. The Consolidated Statement
will not be used in countries where it would have an adverse tax effect on
either party or would not comply with local laws.
The hourly charges for the IBM Internet Connection Services are:
Charges for IBM Internet Connection Services
-------------------------------------
Country Hourly Charges
------- --------------
-------------------------------------
Argentina US$[****]
-------------------------------------
Brazil US$[****]
-------------------------------------
Chile US$[****]
-------------------------------------
Colombia US$[****]
-------------------------------------
Mexico US$[****]
-------------------------------------
31 March 1999 Page 1 of 17
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
<PAGE>
IBM and StarMedia Network agree to establish baseline prices for each
country. The baseline price shall be the average published price offered
by a mutually agreed to set (not to exceed four) of the largest Internet
service providers (ISP) in the respective countries, for unlimited
service. The initial baseline price shall be set by selecting the four
largest ISPs as identified in the 1998 International Data Corporation
(IDC) Latin America Internet Access Provider as of the Contract Start
Date.
The baseline market price for the delivery of IBM Internet Connection
Services as of the Contract Start Date, for each country, shall be for
each country, determined by mutual agreement of the parties within 30 days
following the date of the signing of this Agreement.
Every six months IBM and StarMedia Network agree to review the baseline
price in each country to determine its currency and competitiveness in
relationship to the current market conditions and price in the respective
countries at the time of such review. Such review shall be based on a
comparison between the current baseline price and the average of the then
current published unlimited usage price of a mutually agreed set (not to
exceed four) of the largest ISPs as identified in any mutually agreed to
independent publication. Further, either party may request such review at
any time but no more often than once per calendar quarter.
If after such review, the baseline price in a country varies by plus or
minus 10% from the calculated average price as described above, the
baseline price for that country shall be reset to the calculated average
price as described above.
In the event the baseline is reset during a review, either party shall
have the right to request that the parties adjust the hourly charges for
the IBM Internet Connection Services by the same percentage as the
adjustment in the baseline price with the exception that, if IBM does not
agree to reduce the price by this percentage, StarMedia Network will have
the option to terminate this Agreement with respect to the country being
adjusted. Upon such termination the non-PTT related termination charges
will be reduced by 50%.
1.2 Custom End User Support Services Charges
The charges for custom End User Support Services as specified in section 8
are as follows:
----------------------------------------
Country Charges Excess
Per Hour Call Rate
Charge Per
Ticket
----------------------------------------
Argentina US$[****] $[****]
----------------------------------------
Brazil US$[****] $[****]
----------------------------------------
Chile US$[****] $[****]
----------------------------------------
Colombia US$[****] $[****]
----------------------------------------
Mexico US$[****] $[****]
----------------------------------------
1.3 Global Roaming Charges
"Global Roaming Charges" are the rate surcharges applicable when use of
the IBM Internet Connection Services are used at a location outside of the
Geographic Region, as subsequently defined, in which a user ID was issued.
The four "Geographic Regions" used to determine such charges are: (i)
Europe, Middle East and Africa, (ii) Latin America, (iii) North America,
and (iv) Asia Pacific. Such Global Roaming Charges are charged in addition
to those rates normally charged for IBM Internet Connection Services usage
in the particular country within a Geographic Region in which a user ID
was issued.
Under the terms of section 9, "Billing," IBM will invoice you for End
Users' Global Roaming Charges generated by their usage of the IBM Internet
Connection Service outside of the Geographic Region in which their user ID
was issued.
The "Global Roaming Rates" applicable to IBM Internet Connection Service
End Users will be the generally
31 March 1999 Page 2 of 17
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
<PAGE>
available rates in effect as of the Contract Start Date and specified by
country in the IBM Global Services Managed Internet and Intranet Services
Schedule of Charges. Such Global Roaming Rates are subject to change as
IBM adjusts its generally available Global Roaming Rates for all IBM
Internet Connection Services customers from time to time.
IBM Internet Connection Services shall not be available to End Users who
(i) reside or travel in a single country for more than thirty one (31)
consecutive days in a calendar year outside of the country in which their
user ID was issued or (ii) who reside or travel in a single country for
more than ninety (90) non-consecutive days in a calendar year outside of
the country in which their user ID was issued. Such End Users residing or
traveling for longer than said periods described above must secure new
user IDs from the appropriate local IBM Affiliate.
1.4 Billing Charges
There are ongoing monthly charges for the development, customization and
provisioning of the billing services as described in section 8.
Billing Charges
- --------------------------------------------------------------------------------
Argentina Brazil Chile Colombia Mexico
- --------------------------------------------------------------------------------
Monthly US$[****] US$[****] US$[****] US$[****] US$[****]
Charge per
hour
- --------------------------------------------------------------------------------
1.5 Project Office Charges
There shall be an on-going monthly charge for the IBM Project Management
as described in section 4. These charges will be billed in the United
States.
- --------------------------------------------------------------------------------
Contract Contract Contract Contract Contract
Year 1 Year 2 Year 3 Year 4 Year 5
- --------------------------------------------------------------------------------
Annual Project
Management Charges $[****] $[****] $[****] $[****] $[****]
- --------------------------------------------------------------------------------
1.6 Taxes
All prices are exclusive of any applicable taxes.
1.7 Termination Charges
In the absence of any material default by IBM under this Agreement, there
are one time charges, payable by StarMedia Network, in the event of
StarMedia Network's termination of this Agreement prior to the expiration
of the term of this Agreement. Upon termination of this Agreement by
StarMedia Network without cause, StarMedia Network shall be liable for the
greater of (1) the adjustment charges calculated under the terms of the
Profile or (2) the termination charges specified below. In either case IBM
will additionally invoice StarMedia Network the actual termination charges
imposed on IBM by local Post Telegraph Telephone (PTT) or other
telecommunication circuit providers. The parties agree to work together
with the PTT to minimize the PTT termination charges and develop an
appropriate wind down plan. StarMedia Network shall have the right to
particpate in all discussions related to the discontinuance of PTT
services and have access to the relevant documents.
The charges associated with the volume commitment stated in the Profile
are shown in the following table:
31 March 1999 Page 3 of 17
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
<PAGE>
Base Termination Charges
- --------------------------------------------------------------------------------
Argentina Brazil Chile Colombia Mexico
- --------------------------------------------------------------------------------
Contract Year One $[****] $[****] $[****] $[****] $[****]
- --------------------------------------------------------------------------------
Contract Year Two $[****] $[****] $[****] $[****] $[****]
- --------------------------------------------------------------------------------
Contract Year Three $[****] $[****] $[****] $[****] $[****]
- --------------------------------------------------------------------------------
Contract Year Four $[****] $[****] $[****] $[****] $[****]
- --------------------------------------------------------------------------------
Contract Year Five $[****] $[****] $[****] $[****] $[****]
- --------------------------------------------------------------------------------
If, during any month prior to StarMedia Network's termination of this
Agreement without cause, the actual number of End Users exceeds the
committed number of End Users (based on a monthly proration) additional
termination charges will be due and payable by StarMedia Network. For each
additional increment of users shown below, the additional charges shall be
assessed. The charges shall be based on eighty percent (80%) of the number
of End Users in excess of the committed volume. Such usage and termination
charges shall be prorated for usage not in multiples of 10,000.
Excess Usage Termination Charges
----------------------------
Excess
Usage
Termination
Excess Usage Charge
----------------------------
[****] End Users $[****]
----------------------------
1.8 Favored Business Partner
IBM will extend to StarMedia Network the benefit of prices, terms and
conditions at least as favorable as those IBM offers to other Business
Partner Remarketers providing private branded Internet access services to
individual end users in Latin America, who have made commitments and
agreed to terms substantially similar to those in this Agreement.
2. Implementation Dates
IBM agrees to implement the Services, capable of supporting the specified
volumes, on the dates specified below:
- --------------------------------------------------------------------------------
Country Implementation Date Month 4 forecast volume
- --------------------------------------------------------------------------------
Brazil 30 June 1999 [****]
- --------------------------------------------------------------------------------
Mexico 31 July 1999 [****]
- --------------------------------------------------------------------------------
Argentina 31 July 1999 [****]
- --------------------------------------------------------------------------------
Chile 31 July 1999 [****]
- --------------------------------------------------------------------------------
Colombia 30 August 1999 [****]
- --------------------------------------------------------------------------------
3. Project Office
As part of a global Project Office, IBM shall appoint the following
qualified staff members to act as the principal points of interface
between IBM and StarMedia Network during the country-specific roll-out of
any IAK to new End Users and to provide on-going management of the
delivery of IBM Services during the term of this Agreement. The IBM
Project Office personnel shall be staffed based on the staffing levels
identified in the table below and shall perform the services described
below.
Part of the responsibility of the Project Office is to be responsible to
monitor the IBM web site for changes in the information that has been
downloaded by StarMedia Network to its web site. For major changes to the
structure and/or content of the IBM web site IBM will use commercially
reasonable effort to provide StarMedia Network 60 days' prior notice of
such change to the IBM web site.
IBM Project Executive
31 March 1999 Page 4 of 17
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
<PAGE>
The Project Executive shall act as an overall project manager with respect
to the performance by IBM of its obligations hereunder.
The IBM PE will serve as StarMedia Network's single-point-of-contact for
the complete range of services contracted. To effectively respond to
StarMedia Network's needs, StarMedia Network will provide its list of
authorized representatives to act as interface to the IBM PE. The PE has
his staff as well as the resources of IBM Global Services' Network
Services at his disposal to ensure an efficient transition and delivery of
high quality services. The IBM PE, being the central point of contact for
StarMedia, has authority and responsibility for all aspects of IBM's
performance including customer service and customer satisfaction.
IBM Service Executive
The Service Executive shall act as the focal point for service delivery
and reporting issues. The Service Manager will review and analyze
StarMedia Network's service performance and will sustain communication
channels with the customer to review action plans to resolve service
issues. In addition, he/she will inform StarMedia Network of scheduled
changes being performed to enhance the Service.
IBM Project Manager
The IBM Project Manager shall have responsibility for the coordination of
IBM support for the production ramp up of the IBM Services. This person
shall be the key day-to-day contact during the transition phases of this
project.
The Project Manager works with the PE and focuses on the implementation of
specific phases of the implementation of IBM Services, including initial
network installation and IAK development and deployment. The Project
Manager provides StarMedia Network a focal point for planning, scheduling
and resolution of any issues that may arise throughout the deployment of
IBM Services. In addition to the lead Project Manager, IBM may assign
Project Managers in other countries or geographies to support the lead
Project Manager. These support personnel will take direction from the lead
Project Manager.
IBM Delivery Executive
The IBM Delivery Executive is responsible for the coordination of day to
day delivery of IBM Services. Working directly with the IBM Service
Executive the Delivery Executive is responsible for among other things
addressing network operation issues, coordinating help desk services and
billing.
StarMedia Network Service Executive
StarMedia Network shall have a single point of contact for the IBM Project
Executive.
Project Office Staffing Levels
- --------------------------------------------------------------------------------
Support Classification Contract Contract Contract Contract Contract
- --------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5
- --------------------------------------------------------------------------------
Project Executive [****] [****] [****] [****] [****]
- --------------------------------------------------------------------------------
Project Manager [****] [****] [****] [****] [****]
- --------------------------------------------------------------------------------
Service Executive [****] [****] [****] [****] [****]
- --------------------------------------------------------------------------------
Delivery Executive [****] [****] [****] [****] [****]
- --------------------------------------------------------------------------------
While not reducing the total amount of support provided to StarMedia
Network during the term of the contract, and in order to maintain
flexibility to allocate resources to support the complete range of issues
and service requirements, except for the Project Executive, IBM shall have
the sole right to determine the specific levels of each support
classification and the selection of individuals providing such support.
4. End User Charges
31 March 1999 Page 5 of 17
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
<PAGE>
StarMedia Network is solely responsible for establishing its End User
Internet access charges. StarMedia Network will notify IBM by the tenth
day of the calendar month preceeding the month in which a plan change or
new plan is to take effect.
31 March 1999
Page 6 of 17
<PAGE>
5. Forecast
On a monthly basis, beginning on the Contract Start Date, StarMedia
Network shall provide IBM with a good faith eight month rolling forecast
by LIG area as specified below, forecasting by month the anticipated
number of IBM Intenet Connection Service End Users. Each StarMedia Network
forecast shall include a commentary on potential forecasting variances
which may result from marketing campaigns or special promotions. StarMedia
Network will use commercially reaasonable efforts to provide IBM 120 days'
advance notice of major marketing campaigns. Each rolling eight month
forecast shall be provided to IBM by StarMedia Network by the fifth
business day of each month. In the absence of a city by city forecast, it
is understood that a situation may temporarily occur where an overage or
underage of physical infrastructure may exist in one or more locations.
IBM capacity planning for the LIG infrastructure in each country shall
include the StarMedia Network forecast.
In conjunction with the StarMedia Network forecast, IBM shall make
commercially reasonable efforts to expand the physical infrastructure
required to meet its obligations under this Agreement relative to the
actual and forecasted number of StarMedia Network End Users. Such
expansion will be based on IBM's capacity planning models, taking into
consideration the StarMedia Network forecast. IBM shall maintain the
physical infrastructure capable of supporting the StarMedia Network End
User forecast at a month ahead of the current month's forecast.
At its sole discretion, IBM shall determine the required physical
infrastructure to support the number of forecasted StarMedia Network End
Users. IBM will review with StarMedia Network, on a quarterly basis upon
StarMedia Network's request, technology status for the purpose of
exploring more efficient means of providing Services hereunder.
In the event the actual number of StarMedia Network End Users in a single
month falls more than 10% below the forecasted number of End Users for
that month (Variance Factor), IBM's obligation to continue the expansion
of the physical infrastructure shall be waived until such time as the
StarMedia Network forecast to actual comparison is within the Variance
Factor.
-------------------------
LIG area
-------------------------
Buenos Aires
-------------------------
Remainder of
Argentina
-------------------------
Rio de Janeiro
-------------------------
Sao Paulo
-------------------------
Remainder of Brazil
-------------------------
Chile
-------------------------
Colombia
-------------------------
Mexico City
-------------------------
Remainder of Mexico
-------------------------
6. Compliance With Laws
The following terms are added to item 1 in section 2 in the IBM Global
Services' Network Services Terms Attachment for Remarketing.
"Further, you agree to comply with the laws and business practices of each
country outside of the United States where you are enabling or marketing
Eligible Services as an IBM Business Partner, including, but not limited
to --
a. obtaining a business license is each country as required by local
law,
b. to the extent reasonably possible, establishing a presence by
engaging an agent, representative or any other satisfactory means to
receive mail, business notices, legal notices, and the like,
31 March 1999 Page 7 of 17
<PAGE>
c. paying business, income, service, VAT or any other taxes required by
the country as required by law,
d. representing StarMedia Network to your customers and prospects
consistent with the terms or this Agreement, local business
practices and local laws, and
e. becoming aware of and staying current with local laws and business
practices in each country where you conduct business as an
authorized IBM Business Partner;"
The following terms are added at the end of the paragraph titled "Your
Liability" in section 9 of the IBM Business Partner Agreement - General
Terms.
"..., or your failure to comply with local laws and regulations for doing
business in each country where you are an IBM Business Partner for network
services, as specified in the Profile."
7. End User Customer Care
7.1 Support Services
Upon StarMedia Network's request, as an option under this Exhibit and for
the charges stated in Section 1.2, IBM will provide End User Support
Services via help desk services for the following:
o Installation, setup and usage of the IAK,
o Connectivity related access, problems and outages,
o registering for and using the Internet Connection Service,
o obtaining IAK updates we may provide, and
o billing.
This help desk will provide native language telephone contact for
StarMedia Network End Users, and will be available in each country during
the hours shown in the table below, and can be accessed via a number
specified in the IAK, such number to be a local call in Sao Paulo and toll
free elsewhere in Brazil. IBM will use commercially reasonable efforts to
implement toll free numbers in all other countries. We will identify
ourselves as "StarMedia Network" or such other identity which StarMedia
Network reasonably designates. All calls received will be logged and
assigned a unique ticket number.
There may be instances where undetected, non-network management, End User
related issues may arise during the non-operational help desk hours. IBM
and StarMedia Network agree to implement procedures to minimize such
occurences.
IBM shall also provide support to StarMedia Network End Users by providing
StarMedia Network the ability to receive relevant customer care and
support content from the IBM web site. StarMedia Network shall be solely
responsible for any changes it makes to the customer care and support
content it downloads from IBM. IAK program updates may be made available
at StarMedia Network's Internet web site. StarMedia Network may translate
and make such content available on its Internet web site.
------------------------------------------------
Country Customer Care Hours
------------------------------------------------
Argentina 9 am to midnight 7 days/week
9 am to 11 pm 7 days/week
(winter)
------------------------------------------------
Brazil 7 am to 1 am 5 days per week
(Brasilia 7 am to 7 pm S/S/national
Time) holidays
------------------------------------------------
Chile 9 am to Midnight 7 days/week
9 am to 11 pm 7 days/week
(winter)
------------------------------------------------
Colombia 7 am to 10 pm 5 days per week
10 am to 3 pm Saturday
------------------------------------------------
Mexico 8am - 7pm M-F
------------------------------------------------
IBM will direct all other End User suppport issues to StarMedia Network
for resolution. Accordingly, StarMedia Network will establish procedures
for handling all other End User Support issues not related to
31 March 1999 Page 8 of 17
<PAGE>
those specified above and IBM and StarMedia Network shall establish
mutually agreed procedures for call transfer to StarMedia Network.
The charges specified in section 1.2 are based on an assumption of an End
User Support call rate of 1.1% per day. This means that 1.1% of the End
User population will contact the End User Support Center, requiring the
opening of a problem ticket, each day. IBM will supply StarMedia Network
an End User Support report identifying the total number of monthly calls
handled. Call rates per country in excess of this 1.1% shall be charged to
StarMedia Network at the rates shown in section 1.2.
Calls placed to the help desk during normal maintenance windows as
specified in section 12.1 and unscheduled network outages that are calls
related to network outages whether taken through the VRU or ticketed as a
result of the outage will not be counted toward the 1.1% call rate
calculation and will not be charged to StarMedia Network.
7.2 Customer Care Measurements
The service design objective of the IBM Customer Care Service is that an
IBM Customer Care representative will answer calls from StarMedia Network
or End Users within the Average Speed of Answer shown below during the
hours shown in section 7.1. When a help desk telephone call is received by
IBM, a single help desk representative will be assigned the responsibility
for such telephone call and such representative will manage the problem
reported or the request made until the matter is resolved and StarMedia
Network or the End User is contacted.
IBM Customer Care Service shall perform to the following measurements:
One-stop servicing [****]
Average Speed of [****]
Answer
Calls abandoned [****]
"One-stop servicing" means the IBM representative taking a help desk call
is responsible to resolve the reported problem.
Average Speed of Answer is measured from the time a call leaves the IBM
VRU via option selection and enters the agent queue until such time as an
IBM representative takes the call.
7.3 Customer Care Response
The response time measurements for the IBM Customer Care Service are shown
below. IBM prioritizes work to resolve StarMedia Network and End User
reported problems based on the severity levels described below:
---------------------------------------------------------------------------
Severity Level Reported Problems Assigned to IBM Help Desk Representative
---------------------------------------------------------------------------
1 Within [****] minutes
---------------------------------------------------------------------------
2 Within [****] hours
---------------------------------------------------------------------------
3 Within [****] hours
---------------------------------------------------------------------------
4 Within [****] hours
---------------------------------------------------------------------------
IBM will achieve the response times stated above for [****] of the
problems reported.
The following definitions are the guidelines for the assignment of problem
management severity levels:
31 March 1999 Page 9 of 17
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
<PAGE>
----------------------------------------------------------------------------
Severity Level Description
----------------------------------------------------------------------------
SEV1 (Critical) The End User or StarMedia
Network has described a problem
which causes a severe and
pervasive impact to the use of
the IBM Services. The IBM
Services are unusable and/or
not available. The End User is
completely out of service and
unable to do any productive
work.
----------------------------------------------------------------------------
SEV2 (Major) End Users can connect to the
network but normal service
and/or functions are either
interrupted or severely
degraded: work may be performed
by the End User but not at
expected levels of performance
and productivity.
----------------------------------------------------------------------------
SEV3 (Minor) The End User is experiencing a
problem which does not affect
product or network availability
and functionality.
----------------------------------------------------------------------------
SEV4 (Miscellaneous) There is no significant impact
to the End User. This code may
reflect either dissatisfaction
with some aspects of the
product or service or that a
circumvention to the problem
has been found.
----------------------------------------------------------------------------
IBM may reassign, with StarMedia Network's consent, the severity level of
a reported problem if the requested severity differs from the above
definitions. IBM will notify StarMedia Network of all changes of severity
level for a problem impacting End Users.
7.4 Web Site Information for End User Support
IBM will provide and StarMedia Network will use the IBM provided facility
to create a private branded, customized account center environment in
which the following tools will be available to End Users:
o Manage your account: change address, change credit card, change
access plan if applicable, cancel account, obtain billing
information
o Manage your user ID: add user ID, change user ID, cancel user ID,
change password, reset password, obtain user information.
o Manage your IBM provided e-mail, forward your IBM provided e-mail,
change IBM provided e-mail ID, delete IBM provided e-mail, delete
IBM provided e-mail ID.
IBM will also provide StarMedia Network with areas linked from the account
center, described above, containing facilities for downloading StarMedia
Network's Internet access kit, frequently asked questions, help desk
files, network status and access numbers. StarMedia Network will be
responsible for all translations from the English language and will be
required to work with IBM's web development team to create their own
custom environment.
IBM and StarMedia Network agree to jointly establish procedures for the
development and maintenance of the account center environment.
8. Billing Services
IBM shall provide to StarMedia Network administrative billing services to
facilitate the billing of End Users on StarMedia Network's behalf at rates
solely determined by StarMedia Network. The parties agree to modify the
individual responsibilities in each country to conform to with local and
national laws and customs.
IBM shall be responsible for the following:
1. real time credit card verification. Such verification will
include the fee for the first month's charges based
31 March 1999 Page 10 of 17
<PAGE>
on StarMedia Network's rate plan unless otherwise specified by
StarMedia Network;
2. initiating access only upon valid credit verification;
3. monthly billing for the base rate in advance, excess usage
billing in arrears;
4. including all appropriate taxes in the amount passed to the
credit card company to be billed to each End User's credit card. The
credit card company will remit collected taxes and a report
concerning such taxes to StarMedia Network for direct payment by
StarMedia Network to the appropriate governmental agency;
5. following StarMedia Network's approval, termination, and
communication guidelines;
6. recording End User usage;
7. extracting the StarMedia Network End User billing data on a 30
day delay basis and posting the data to an IBM web site branded for
StarMedia Network under IBM's functional design and operational
control;
8. supporting international credit cards and national credit cards
which are co-branded with international credit cards. The support
for national credit cards will be limited to those supported by the
international banking system. IBM will work with StarMedia Network
to develop and maintain the list of accepted credit cards;
9. dispute resolution with the credit card company with StarMedia
Network's assistance;
10. making current billing data for End Users available to Customer
Care; and
11. ensuring that the remitted funds are deposited to the account
specified by StarMedia Network.
IBM will indemnify and hold StarMedia Network harmless for losses arising
out of billing activities that IBM performs at its sole discretion,
without direction from StarMedia Network, under this section.
StarMedia Network shall be responsible for the following:
1. setting the rate plan;
2. providing IBM End User approval, termination, and communications
guidelines;
3. referring End Users to the web site identified in item 7 above
for current billing issues;
4. providing IBM appropriate StarMedia Network branding for the web
site in item 7 above;
5. providing IBM the necessary information to allow credit card
companies to remit funds to StarMedia Network;
6. assumption and collection of bad debt;
7. the direct relationship with each governmental agency;
8. working with IBM, upon request, to resolve issues arising from
End User questions and or issues.
9. Wind-Down Period
Upon receipt of the other party's notice of termination of this Agreement
for convenience or for cause, the party receiving such notice may exercise
the wind-down period described in this section. Notwithstanding the
foregoing, if StarMedia Network is in default of its payment obligations,
and has failed to place all disputed amounts in a standard escrow account,
StarMedia Network shall not be entitled to a wind-down period, as
hereinafter defined.
The wind-down period will commence upon receipt of the other party's
request to exercise this option, and will continue until such date as
StarMedia Network specifies in writing to IBM that the IBM Services are no
longer required to be provided; provided, however, that in no event shall
IBM be required to provide wind-down period support for more than 270 days
following commencement of the wind-down period.
During the wind-down period, IBM will provide the IBM Services in
accordance with the terms and conditions of this Agreement. IBM will
provide mutually agreeable transition assistance to StarMedia Network, and
will cooperate with StarMedia Network and any successor service provider
designated by StarMedia Network to ensure a coordinated orderly transition
for StarMedia Network and StarMedia Network End Users without service
disruptions or service quality issues.
Throughout the wind-down period, this Agreement shall continue in effect
without modification. StarMedia Network shall make any other undisputed
payments as set forth in this Agreement during the Service Wind-Down
Period.
31 March 1999 Page 11 of 17
<PAGE>
StarMedia Network will use reasonable efforts to advise IBM initially and
on a continuing basis of its plan to transfer StarMedia Network End Users
to a successor service provider. Thirty days after the termination date of
this Agreement, StarMedia Network and IBM shall prepare, review with their
respective Project Executives, modify and approve a detailed wind-down
period project plan to be effective over the remaining days of the
wind-down period. To the extent feasible and upon request by StarMedia
Network, during the wind-down period, IBM will transfer all applicable
electronic and/or magnetic information to any successor service provider,
including but not limited to, the registered user names of and billing
information for all users of the StarMedia Network services.
10. Cure Period
In the event of IBM's written notification to you of your failure to
comply with material business or financial terms of this Agreement, IBM
will provide you 30 days to cure such default. This cure period does not
apply to network usage issues, where IBM may have to act immediately to
prevent damage to the network and other customer and users. However, IBM
will take reasonable steps to implement less disruptive protective
measures before exercising termination or service disconnection where
reasonably possible. You agree to provide IBM with 30 days to cure IBM's
default following your written notification.
11. Withdrawal of Services from Marketing
IBM shall provide StarMedia Network 12 months' prior written notice of the
withdrawal of Eligible Services from marketing. In the event of such
written notice by IBM to StarMedia Network, StarMedia Network may
terminate this Agreement without obligation to pay the termination charges
specified in section 1.7 and exercise the wind-down provisions described
in this Exhibit. Such notice of termination shall be made within 90 days
of receipt of the IBM written notice to withdraw an Eligible Service from
marketing.
12. Network Maintenance Windows, Availability, and Reports
12.1 Network Maintenance Windows
The normal network maintenance window for changes is 2:00 AM to 6:00 AM
EST on Sunday. For Brazil, the normal network maintenance window for
changes is 1:00 AM to 5:00 AM local time. Should a change be planned that
extends beyond this designated window, IBM shall make reasonable effort to
provide StarMedia Network 14 days' advance notice of such outage. IBM may
perform scheduled Local Interface Gateway (LIG) maintenance for individual
LIGs between 3:00 am and 5:00 am local time on a single morning per week
other than Sunday. IBM will use reasonable efforts to limit such scheduled
maintenance outside the standard Sunday morning maintenance window to an
assigned day of the week for each city. Although we use reasonable efforts
to notify customers in advance of emergency maintenance outages, we are
unable to provide advance notice to customers in some situations. We use
reasonable effort to schedule extended maintenance and emergency
maintenance during regularly scheduled maintenance windows or at times
which will minimize disruption to customers' network Services usage.
12.2 Backbone Availability
The IBM Latin America network backbone availability shall be [****] (not
including the scheduled maintenance windows) as measured on a monthly
basis in each country in which IBM delivers IBM Services under this
Agreement. IBM will report the availability of the backbone to StarMedia
Network on a monthly basis. If IBM fails to meet this service level
objective in one or more countries, IBM will pay StarMedia Network [****]
percent ([****]%) of the gross charges invoiced by IBM to StarMedia
Network for IBM ICS in the particular month in which the failure occurred
for the countries in which IBM has failed to meet this service level
objective.
12.3 LIG Availability
The IBM Latin America network LIG availability shall be [****]% (not
including the scheduled maintenance windows) as measured on a monthly
basis in each country in which IBM delivers IBM Services under this
31 March 1999 Page 12 of 17
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
<PAGE>
Agreement. IBM will report LIG availability to StarMedia Network on a
monthly basis. If IBM fails to meet this service level objective in one or
more countries, IBM will pay StarMedia Network one percent (1%) of the
gross charges invoiced by IBM to StarMedia Network for IBM Services in the
particular month in which the failure occurred for the countries in which
IBM has failed to meet this service level objective.
12.4 Availability Action Plans
Failure to meet the monthly performance measurements stated above shall
require the development of action plans by IBM which shall include
documentation and implemention plans for any needed corrections to the IBM
Services.
12.5 Reports
IBM shall provide StarMedia Network with quantitative and qualitative
reports for the purpose of measuring and analyzing End User usage
activities and trends.
The reports below shall be generated and distributed to StarMedia Network
on a monthly basis:
o LIG Availability
o Backbone Network Availability
o Help Desk tickets by Severity Level with associated mean time to
repair (MTTR) data
o Average Speed of Answer
o Calls Abandoned Rate
o Billing information.
12.6 Additional Terms
You agree that your sole remedy for our failure to meet service level
objectives is as specified in this Exhibit. You may terminate this
Agreement for IBM's failure to comply with IBM's service level objectives
if you do not accept payment for failure to meet backbone or LIG
availability in any month, by providing notice and a cure period to IBM as
provided in this Agreement.
IBM will not be responsible for our failure to meet service level
objectives because of:
1. major network upgrade and maintenance activities up to four times
per year communicated to you in writing or electronically via the
IBM Global Network with at least 30 days' prior notice;
2. local or international regulatory or governmentally imposed
ethical issues that limit or prevent the ability of IBM to offer or
comply with service level objectives; and
3. your lack of availability to respond to incidents which require
your participation for resolution. Times you are not available may
include times that you have requested IBM not to contact you, such
as times outside your normal business hours.
The following terms amend or otherwise modify the terms in the referenced parts
of the IBM Business Partner Agreement only for your remarketing of IBM Global
Services' network Services. All terms not modifed or amended remain in effect.
13. Customers and End Users
For the purpose of this Agreement, references to "your Customers and their
End Users" in the IBM Global Services' Network Services Attachment for
Remarketing mean StarMedia Network's End Users, because StarMedia Network
is remarketing Services directly to End Users rather than through
intermediary companies.
IBM may use the data it gathers from End Users in the management of the
IBM Global Network and the delivery of the Services described herein.
However, IBM shall not use the data gathered from End Users in any direct
marketing campaign or sell the data. Except as may be necessary for the
management of the IBM
31 March 1999 Page 13 of 17
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Global Network, IBM agrees to use commercally reasonable efforts to locate
and transfer to StarMedia Network all End User data in its possession in
the event of termination or expiration of the Agreement. With the
exception of the End User data gathered by IBM for the purposes of
managing the IBM Global Network, StarMedia shall have the right to use End
User data in any way. StarMedia Network shall indemnify IBM against all
claims arising out of its use of such End User data.
14. General Terms
14.1 Section 2, "Agreement Structure and Contract Duration"
Conflicting Terms, item 1, is modified:
1. a transaction document prevail over those of all the other documents;
14.2 Section 3, "Our Relationship"
Responsibilities
Item 3 is replaced with the following:
3. neither of us will disclose the terms of this Agrement, unless both
of us agree in writing to do so, or unless required by law. However,
either of us may disclose the existence of and purpose of this
Agreement without further permission from the other;
Item 10 is replaced with the following:
10. each of the parties shall be excused from any delay or failure in
its performance hereunder caused by reason of any acts of God,
fires, floods, wars, civil disturbances, sabotage or disputes with
organized labor; provided however, that each party agrees to use
reasonable effort to minimize the extent and the impact of any
inability by it to perform hereunder. The obligations and rights of
the party so excused shall be extended on a day-to-day basis for the
period of time equal to that of the underlying cause of the delay;
Other Responsibilities
Item 1 is replaced with the following:
1. to be responsible for customer satisfaction for all your activities,
and to participate in the development and implementation of customer
satisfaction programs that we jointly determine;
Item 5 is replaced with the following:
5. not to assign or otherwise transfer this Agreement, your rights
under this Agreement, or any of its approvals, or delegate any
duties, unless expressly permitted to do so in this Agreement or as
we otherwise agree, such permission not to be unreasonably withheld.
Otherwise, any attempt to do so is void;
Item 6 is deleted as not applicable. If network services other than IBM
Internet Connection Services are added to this Agreement, both of us will
agree to appropriate processes for order entry.
Item 8 is replaced with the following:
8. to promptly provide us with documents relevant to the Services we
provide to you, which we may reasonably require from you or the End
User when applicable; and
Our Review of Your Compliance with this Agreement
The first two sentences of the first paragraph are replaced with the
following:
31 March 1999 Page 14 of 17
<PAGE>
We may periodically review your compliance with this Agreement. Upon our
request, but no more than once per year, you agree to provide us with
records that are relevant to your performance under the terms of this
Agreement.
The following is added as an additional paragraph between the existing
first and second paragraphs:
Upon your request, but no more than once per year, we agree to provide you
with a billing tape and such other reasonable information to allow you to
verify our charges to you and to your End Users.
14.3 Section 4, "Status Change"
The following sentences replace the last sentence of this section,
beginning "Upon notification ...":
Upon notification of such change, (or in the event of failure to give
notice of such change) IBM may, at its sole discretion, immediately
terminate this Agreement if such change materially and adverse affects our
business relationship or your ability to perform your responsibilities
under this Agreement. IBM will not terminate this Agreement if the only
change to your status is an ownership change due to an initial public
stock offering. You will notify IBM of such a status change when it takes
effect. Advance notification is not required.
14.4 Section 9, "Liability"
The following is added to this Section:
Items for Which You are Liable
Circumstances may arise where, because of a default on your part or other
liability, we are entitled to recover damages from you. In each such
instance, regardless of the basis on which we are entitled to claim
damages from you (including fundamental breach, negligence,
misrepresentation, or other contract or tort claim), you are liable for no
more than:
1. damages for bodily injury (including death) and damage to real
property and tangible personal property;
2. any damages associated with your infringement or violation of IBM's
intellectual property rights, specifically including, but not
limited to, your violation of your obligations with respect to
Programs specified in the section entitled "Programs" in the
Remarketer Terms Attachment and your obligations with respect to
licensed internal code, or your infringement or violation of a third
party's intellectual property rights; and
3. the amount of any other actual direct damages, including any lost
profits associated with the product or Service which were inherent
in the Agreement, up to the greater of US $100,000 (or equivalent in
local currency) or the charges (if recurring or usage, 12 months'
charges apply) for the Service or Program that is the subject of the
claim.
Items for Which You are Not Liable
Under no circumstances are you liable for any of the following:
1. third party claims against us for any losses or damages (other than
those in the first two items listed above); or
2. special, incidental, or indirect damages or for any economic
consequential damages (including lost profits or savings), even if
you are informed of their possibility; however, notwithstanding the
foregoing, you shall be liable for consequential or incidental
damages associated with the damages for which you are liable as set
forth above in items 1 and 2, "Items For Which You are Liable."
14.5 Section 11, "Changes to the Agreement Terms"
An additional sentence is added following the first sentence in this
section:
31 March 1999 Page 15 of 17
<PAGE>
Notwithstanding the foregoing, IBM will give you at least three months'
advance written notice of any changes to the IBM Global Services' Network
Services Exhibit. Further, the sections titled "Eligible Services
Approval," Minimum Revenue Commitment," "Annual Reconciliation," and
"Value-Added Enhancement Description" in the Solution Provider Profile
will not be changed except upon mutual agreement of both of us. Upon your
receipt of notice of an IBM change which materially and adversely affects
your business relationship with IBM, you may terminate this Agreement
without obligation to pay the termination charges specified in section 1.7
and may exercise the wind-down provisions described in the IBM Global
Services' Network Services Exhibit.
14.6 Section 12, "Internal Use Products"
This section is replaced by section 3 in the IBM Global Services' Network
Services Terms Attachment for Remarketing.
14.7 Section 13, "Demonstration, Development and Evaluation Products"
This section is deleted because it does not apply to this engagement.
15. Solution Provider Terms Attachment
15.1 Section 3, "Your Responsibilities to IBM"
Item 1 is replaced with the following:
1. to develop a business plan with us, if we require one. Such plan
will document each of our marketing plans as they apply to our
relationship. We will review the plan, at a minimum, once a year.
Such business plan will include a basic go-to-market strategy
outlining marketing plans, advertising campaigns, market
segmentation and other business items relevant to the attraction of
End Users to StarMedia Network services and IBM Services:
Item 5 is replaced with the following:
5. to provide us, on our request but no more than once a year,
reasonably relevant financial information about your business,
indicating your ability to perform your responsibilities under this
Agreement. Such information shall not be unreasonably withheld;
15.2 Section 4, "Your Responsibilities to End Users"
Item 1 is replaced with the following:
1. assist the End Users to select the appropriate services you provide
to meet the End Users' needs, to achieve productive use of your
solution, and assist IBM as reasonably necessary to communicate with
the End User about IBM Products and Services you remarket under this
Agreement;
Item 2 is deleted because it does not apply to this business engagement.
Item 3 is deleted. Its terms have been included in the revised item 1
above.
Item 4 is replaced with the following:
4. not make representations that IBM is responsible for the Product
configurations and/or Services and their ability to satisfy the End
User's requirements;
Item 5 is replaced with the following:
5. advise the End User of Product installation requirements as provided
by IBM;
31 March 1999 Page 16 of 17
<PAGE>
Item 6 is deleted. Its terms have been included in the revised item 1
above.
Item 7 is deleted because it does not apply to this business engagement.
Item 8 is deleted because it is replaced by more pertinent terms in the
Statement of Work for Custom Solution and the IBM Global Services' Network
Services Exhibit.
Item 9 is deleted because it does not apply to this business engagement.
Item 10 is deleted because it does not apply to this business engagement.
Item 11 is replaced with the following:
11. provide warranty information to the End User. This requirement is
satisfied by your use of license and Service terms provided by IBM
that are included in your license and service terms to your End
Users.
16. Remarketer Terms Attachment
16.1 Section 1, "Our Relationship"
Item 4 is deleted because it does not apply to this business engagement.
16.2 Section 2, "Ordering and Delivery"
This section is deleted because it does not apply to this business
engagement.
16.3 Section 3, "Inventory Adjustments"
This section is deleted because it does not apply to this business
engagement.
16.4 Section 4, "Price, Invoicing, Payment and Taxes"
Failure to Pay Any Amounts Due
Item 1 is replaced with the following:
1. impose a finance charge, up to 1.5 percent per month on the unpaid
balance of your invoice which was not paid during the required
period;
Item 3 is deleted because it does not apply to this business engagement.
16.5 Section 6, "Machine Code"
This section is deleted because it does not apply to this business
engagement.
16.6 Section 16, "Ending the Agreement"
The following sentence is added to the end of the first paragraph of this
section:
Upon either party's termination of this Agreement for convenience, the
wind-down provisions described in section 9, "Wind-Down Period," of the
IBM Global Services' Network Services Exhibit may be exercised.
Additionally, in the event of either party's notice of termination for
cause, the cure provisions in section 10, "Cure Period," in that Exhibit
will apply. StarMedia Network may terminate this Agreement, for
convenience or for cause, entirely or separately for any participating
country listed in the Profile
17. IBM Global Services' Network Services Terms Attachment for Remarketing
31 March 1999 Page 17 of 17
<PAGE>
17.1 Section 2, "Our Relationship"
Item 6 is modified to add the following sentence at the end of the item:
For the purpose of this business engagement, provision of the service
license containing IBM terms to End Users, is sufficient to satisfy this
requirement for End Users;
Item 9 is modified to add the following sentence at the end of the item:
For the purpose of this business engagement, including a statement in your
terms to End Users to the effect that "No third party provider of network
connectivity services is liable to the End User for information and data
the End User transmits using the services," is sufficient to satisfy this
requirement;
17.2 Section 5, "Price, Invoicing, Payment, and Taxes"
Price and Discount Changes
The first paragraph of this subsection is replaced with the following:
Mutually agreed to increases become effective on the first day of a month.
If the effective date as we mutually agree is other than the first day of
a month, the increase applies on the first day of the following month.
31 March 1999 Page 18 of 17
<PAGE>
IBM Business Partner Agreement [IBM LOGO]
Remarketer Terms Attachment
- --------------------------------------------------------------------------------
1. Our Relationship
As our IBM Business Partner, you market to your Customers the Products and
Services (including shrink-wrap Services) we provide to you. These terms
apply to a Business Partner whose method or distribution is under our
remarketer terms, and includes Distributors, Resellers, Solution
Providers, and Systems Integrators.
Responsibilities
Each of us agrees:
1. each of us is free to set its own prices and terms; and
2. neither of us will discuss its Customer prices and terms in the
presence of the other.
Other Responsibilities
You agree to:
1. refund the amount paid for a Product or Service returned to you if
such return is provided for in its warranty or license. You may
return the Product to us for credit at our expense, as we specify in
the operations guide;
2. provide us with sufficient, free and safe access to your facilities,
at a mutually convenient time, for us to fulfill our obligations;
3. retain records, as we specify in the operations guide, of each
Product and Service transaction (for example, a sale or credit) for
three years;
4. provide us with marketing, soles, installation reporting and
inventory information for our Products and Services, as we specify
in the operations guide;
5. when you are approved to market to Remarketers, market Products and
Services which require certification, only to Remarketers who are
certified to market them;
6. comply with all terms regarding Program upgrades;
7. provide a dated sales receipt (or its equivalent, such as an
invoice) as we specify in the operations guide, to your Customers,
before or upon delivery of Products and Services; and
8. report to us any suspected Product defects or safety problems, and
to assist us in tracing and locating Products.
2. Ordering and Delivery
You may order Products and Services from us as we specify in the
operations guide. You agree to order them in sufficient time to count
toward your minimum annual attainment, if applicable.
We will agree to a location to which we will ship. We may establish
criteria for you to maintain at such location (for example, certain
physical characteristics, such as a loading dock), as we specify in the
operations guide.
Upon becoming aware of any discrepancy between cur shipping manifest and
the Products and Services received from us, you agree to notify us
immediately. We will work with you to reconcile any differences.
BXRT-02-00 11/98 Page 2 of 28
<PAGE>
IBM Business Partner Agreement [IBM LOGO]
Remarketer Terms Attachment
- --------------------------------------------------------------------------------
Table of Contents
Section Title Page
1. Our Relationship ............................................ 2
2. Ordering and Delivery ....................................... 2
3. Inventory Adjustments ....................................... 3
4. Price, Invoicing, Payment and Taxes ......................... 3
5. Licensed Internal Code ...................................... 4
6. Machine Code ................................................ 5
7. Programs .................................................... 5
8. Export ...................................................... 5
9. Title ....................................................... 5
10. Risk of Loss ................................................ 6
11. Installation and Warranty ................................... 6
12. Warranty Service ............................................ 7
13. Marketing of Services ....................................... 7
14. Marketing of Financing ...................................... 8
15. Engineering Changes ......................................... 8
16. Ending the Agreement ........................................ 9
BXRT-02-00 11/98 Page 1 of 28
<PAGE>
Although we do not warrant delivery dates, we will use reasonable efforts
to meet your requested delivery dates.
We select the method of transportation and pay associated charges for
Products and Services we ship.
We may not be able to honor your request for modification or cancellation
of an order. We may apply a cancellation charge for orders you cancel
within 10 business days before the order is scheduled to be shipped. If a
cancellation charge applies, we will specify the cancellation percentage
in the Exhibit. We will advise you if the cancellation charge applies to
an order you cancel.
3. Inventory Adjustments
We will specify in your Exhibit the Products and Services to which this
section applies.
Products and Services you return to us for credit must have been acquired
directly from us. You must request and receive approval from us to return
the Products and Services.
Products and Services must be received by us within one month of our
approving their return, unless we specify otherwise to you in writing. We
will issue a credit to you when we accept the returned Products and
Services.
Certain Products may be acquired only as Machines and Programs packaged
together as a solution. These Products must be returned with all their
components intact.
For certain Products and Services you return, a handling charge applies.
We will specify the handling charge percentage in the Exhibit. We
determine your total handling charge by multiplying the inventory
adjustment credit amount for the Products and Services by the handling
charge percent.
You agree to pay transportation and associated charges for Products and
Services you return.
Unless we specify otherwise, returned Products and Services must be in
their unopened and undamaged packages.
You agree to ensure the returned Products and Services are free of any
legal obligations or restrictions that prevent their return. We accept
them only from locations within the country to which we ship Products and
Services.
We will reject any returned Products and Services that do not comply with
these terms.
4. Price, Invoicing, Payment and Taxes
Price and Discount
The price, and discount if we specify one, for each Product and Service
will be made available to you in a communication which we provide to you
in published form or through our electronic information systems or a
combination of both.
The price for each Product and Service is the lower of the price in effect
on the date we receive your order, or the date we ship a product or
"shrink wrap" Service, or the start date of a Service, if it is within six
months of the date we receive your order.
Price and Discount Changes
We may change prices and increase discounts at any time. We may decrease
discounts on one month's written notice.
We will specify in your Exhibit if the following credit terms do not apply
to Products and Services we approve you to market.
BXRT-02-00 11/98 Page 3 of 28
<PAGE>
If we decrease the price or increase the discount for a Product or
Service, you will be eligible to receive a price decrease credit or a
discount increase credit for those you acquired directly from us that are
in your inventory, or in transit, or if the Products date of installation
or Service start date has not occurred. However, Products acquired from us
under a special offering (for example, a promotional price or a special
incentive) may not be eligible for a full credit. You must certify your
inventory to us in writing within one month of the effective date of the
change. The credit is the difference between the price you paid, after any
adjustments, and the new price.
The following terms apply to Programs licensed on a recurring-charge
basis:
We may increase a recurring charge for a Program by giving you three
months' written notice. An increase applies on the first day of the
invoice or charging period on or after the effective date we specify in
the notice.
Invoicing Payment and Taxes
Amounts are due upon receipt of invoice and payable as specified in a
transaction document. You agree to pay accordingly, including any late
payment fee. Details of any late payment fee will be provided upon request
at the time of order and will be included in the notice.
You may use a credit only after we issue it.
If any authority requires us to include in our invoice to you a duty, tax,
levy, or fee which they impose, excluding those based on our net income,
upon any transaction under this Agreement then you agree to pay that
amount.
Failure to Pay Any Amounts Due
If you fail to pay any amounts due in the required period of time, you
agree that we may do one or more of the following, unless precluded by
law:
1. impose a finance charge, as we specify to you in writing, up to the
maximum permitted by law, on the portion which was not paid during
the required period;
2. require payment on or before delivery of Products and Services;
3. repossess any Products and Services for which you have not paid. If
we do so, you agree to pay all expenses associated with repossession
and collection, including reasonable attorneys' fees. You agree to
make the Products and Services available to us at a site that is
mutually convenient;
4. not accept your order until any amounts due are paid;
5. terminate this Agreement; or
6. pursue any other remedy available at law.
We may offset any amounts due you, or designated for your use (for
example, marketing funds or promotional offerings), against amounts due us
or any of our Related Companies.
In addition, if your account with any of our Related Companies becomes
delinquent, we may invoke any of these options when allowable by
applicable law.
5. Licensed Internal Code
Machines (Specific Machines) containing Licensed Internal Code (Code) will
be identified in the Exhibit. We grant the rightful possessor of a
Specific Machine a license to use the Code (or any replacement we provide)
on, or in conjunction with, only the Specific Machine, designated by
serial number, for which the Code is provided. We license the Code to only
one rightful possessor at a time. You agree that you are bound by the
terms of the separate license agreement that we will provide to you.
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<PAGE>
Your Responsibilities
You agree to inform your Customer, and record on the sales receipt, that
the Machine you provide is a Specific Machine using Licensed Internal
Code. The license agreement must be provided to the Customer before the
sale is finalized.
6. Machine Code
For certain Machines we may provide basic input/output system code,
utilities, diagnostics, device drivers, or microcode (collectively called
"Machine Code"). This Machine Code is licensed to the End User under the
terms of the agreement provided with it. You agree to ensure the End User
is provided such agreement.
7. Programs
You agree to ensure the End User has signed the license agreement for a
Program requiring a signature, as we specify in the Exhibit, before such
Program is provided to the End User, and to provide any required
documentation to us. All other Programs are licensed under the terms of
the agreement provided with them. You agree, where applicable, to provide
the Program license to the End User before such Program is provided to the
End User.
We will ship the media and documentation to you or to the End User, as
specified in your order transaction document.
Programs licensed to you on a recurring-charge basis are licensed for the
period indicated in our invoice. You may market such Programs only on the
same basis as licensed to you. You may not charge an End User a one-time
charge for a Program you license from us on a recurring-charge basis.
However, you may charge the End User whatever amount you wish for the
recurring-charge.
Program Services
Program Services are described in the Program's license agreement. You are
responsible to provide your Customers, who are licensed for a Program, the
Program Services we make available to you.
If the End User agrees in writing, you may:
1. delegate this responsibility to another IBM Business Partner who is
approved to market the Program, or
2. provide an enhanced version of this support through the applicable
IBM Service you market to the End User.
If you delegate your support responsibilities to another IBM Business
Partner, you retain customer satisfaction responsibility. However, if you
market our applicable Services to the End User, we assume customer
satisfaction responsibility for such support.
8. Export
You may actively market Products and Services only within the geographic
scope specified in this Agreement. You may not market outside this scope,
and you agree not to use anyone else to do so.
If a Customer acquires a Product for export, our responsibilities, if any,
under this Agreement no longer apply to that Product unless the Product's
warranty or license terms state otherwise. You agree to use your best
efforts to ensure that your Customer complies with all export laws and
regulations, including those of the United States and the country
specified in the Governing Law Section of this Agreement, and any laws and
regulations of the country in which the Product is imported or exported.
Before your sale of such Product, you agree to prepare a support plan for
it and obtain your Customer's agreement to that plan. Within one month of
sale, you agree to provide us with the Customers name and address, Machine
type/model, and serial number if applicable, date of sale, and destination
country.
We exclude these Products from:
BXRT-02-00 11/98 Page 5 of 28
<PAGE>
1. any of your attainment toward your objectives; and
2. qualification for applicable promotional offerings and marketing
funds.
We may also reduce future supply allocations to you by the number of
exported Products.
9. Title
When you order a Machine, we transfer title to you upon payment of all
amounts due.
Any prior transfer to you of title to a Machine reverts back to IBM when
it is accepted by us as a returned Machine.
We do not transfer a Program's title.
10. Risk of Loss
We bear the risk of loss of, or damage to, a Product or Service up to and
including its initial delivery from us to you or, if you request and we
agree, delivery from us to your Customer. Thereafter, you assume the risk.
11. Installation and Warranty
We will ensure that Machines we install are free from defects in materials
and workmanship and conform to specifications, We provide instructions to
enable the setoup of Customer-Set-Up Machines. We are not responsible for
the installation of Programs or non-IBM Machines, We do, however, preload
Programs onto certain Machines. We provide a copy of our applicable
warranty statement to you. You agree to provide it to the End User for
review before the sale is finalized, unless we specify otherwise.
We calculate the expiration date of an IBM Machine's warranty period from
the Machine's Date of Installation. Warranty terms for Programs are
described in the Programs' license terms.
We provide non-IBM Products WITHOUT WARRANTIES OF ANY KIND, unless we
specify otherwise. However, non-IBM manufacturers, suppliers, or
publishers may provide their own warranties to you.
For non-IBM Products we approve you to market, you agree to inform your
Customer in writing 1) that the Products are non-IBM, 2) the manufacturer
or supplier who is responsible for warranty (if any), and 3) of the
procedure to obtain any warranty service.
Date of Installation for a Machine We are Responsible to install
The Date of Installation for a Machine we are responsible to install is
the business day after the day 1) we install it or, 2) it is made
available for installation, if you (or the End User) defer installation.
Otherwise (for example, if others install or break its warranty seal), it
is the day we deliver the Machine to you (or the End User). In such event,
we reserve the right to inspect the Machine to ensure its qualification
for warranty entitlement.
The Date at Installation for a Customer-Set-Up Machine
The Date of Installation for a Customer-Set Up Machine is the date the
Machine is installed which you or your Remarketer, if applicable, record
on the End Users sales receipt, You must also notify us of this date upon
our request.
BXRT-02-00 11/98 Page 6 of 28
<PAGE>
Installation of Machine Features, Conversions, and Upgrades
We sell features, conversions and upgrades for installation on Machines,
and, in certain instances, only for installation on a designated, serial
numbered Machine. Many of these transactions involve the removal of parts
and their return to us. As applicable, you represent that you have the
permission from the owner and any lien holders to 1) install features,
conversions and upgrades and 2) transfer the ownership and possession of
removed parts (which become our property) to us. You further represent
that all removed parts are genuine, and unaltered, and free from defects
in materials and workmanship and conform to specifications. A part that
replaces a removed part will assume the warranty and maintenance Service
status of the replaced part. You agree to allow us to install the feature,
conversion, or upgrade within 30 days of its delivery. Otherwise, we may
terminate the transaction and you must return the feature, conversion, or
upgrade to us at your expense.
12. Warranty Service
We will specify in the Exhibit whether you or we are responsible to
provide Warranty Service for a Machine.
When we are responsible for providing Warranty Service for Machines, you
are not authorized to provide such Service, unless we specify otherwise in
the Exhibit.
When you are responsible for providing Warranty Service, you agree to do
so according to the terms we specify in the Warranty Service Attachment.
13. Marketing of Services
The following are the conditions under which you may market Services:
1. if you marketed a Product to the End User, you may market the
Services, specified in the Exhibit; or
2. regardless of whether you marketed a Product to the End User you may
market the Services we specify in your Profile.
If you are an IBM Distributor the following paragraph applies:
The following are the conditions under which you may market Services:
1. If your Remarketer marketed a Product to the End User, you may
market the Services, specified in the Exhibit, to your Remarketer
only for the Remarketer's marketing to such End User; and
2. regardless of whether your Remarketer marketed a Product to the End
User you may market the Services we specify in your Profile to your
Remarketer, who may market such Services.
You may market Services on eligible non-IBM Products regardless of whether
you marketed a Machine or Program to the End User.
Marketing of Services for a Fee
The terms of this subsection apply when we perform the Services to the End
User at prices we set and under the terms of our Service agreement, signed
by the End User. We pay you a fee for marketing such Services.
You will receive a fee for marketing eligible Services when 1) you
identify the opportunity and perform the marketing activities, 2) you
provide us with the order and any required documents signed by the End
User, and 3) a standard Statement of Work is used and there are no
changes, and no marketing assistance from us is required.
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<PAGE>
Alternatively, you will receive a fee for a lead for eligible Services
when it 1) is submitted on the form we provide to you, 2) is for an
opportunity which is not known to us, and 3) results in the End User
ordering the Service from us within six months from the date we receive
the lead from you.
We will not pay you the fee if 1) the machine or program is already under
the applicable Service, 2) we have an agreement with the End User to place
the machine or program under the applicable Service, or 3) the Service was
terminated by the End User within the last six months.
If the Service is terminated within three months of the date payment from
the End User was due us, you agree to reimburse us for any associated
payments we made to you. The reimbursement may be prorated if the Service
is on a recurring charge basis.
We periodically reconcile amounts we paid you to amounts you actually
earned. We may deduct amounts due us from future payments we make to you,
or ask you to pay amounts due us. Each of us agrees to promptly pay the
other any amounts due.
Remarketing of Services
We provide terms in an applicable Service Attachment governing your
remarketing of eligible Services the End User acquires from you and which
we perform under the terms of the IBM Service agreement with the End User.
Shrink-wrap Services are performed under the terms or the agreement
provided with them. If the terms of the agreement are not visible on the
shrink-wrap package, you agree to provide (or, if applicable, request your
Remarketer to provide) the Services terms to the End User before such
Services are acquired by the End User.
Services We Perform As Your Subcontractor
If approved on your Profile, we will provide terms in an applicable
Service Attachment governing our provision of the Services we perform as
your subcontractor. Such Services are those an End User purchases from you
under the terms of your service agreement.
14. Marketing of Financing
If we approve you on your Profile, you may market our Financing Services
for Products and Services and any associated products and services you
market to the End User. If you market our Financing Services, we will pay
you a fee as we specify to you in your Exhibit.
We provide Financing Services to the End User under the terms of our
applicable agreements signed by the End User. You agree, that for the
items that will be financed, 1) you will promptly provide us any required
documents including invoices, with serial numbers, if applicable, 2) the
supplier will transfer clear title to us, and 3) you will not transfer to
us any obligations under your agreements with the End User.
We will make payment for the items to be financed when the End User has
initiated financing and acknowledged acceptance of the items being
financed. Payment will be made to you, or the supplier, as appropriate.
15. Engineering Changes
You agree to allow us to install mandatory engineering changes (such as
those required for safety) on all Machines in your inventory, and to use
your best efforts to enable us to install such engineering changes on your
Customers' Machines. Mandatory engineering changes are installed at our
expense and any removed parts become our property.
During the warranty period, we manage and install engineering changes at:
1. your or your Customer's location for Machines for which we provide
Warranty Service; and
2. your location for other Machines.
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<PAGE>
Alternatively, we may provide you with the parts (at no charge) and
instructions to do the installation yourself. We will reimburse you for
your labor as we specify.
16. Ending the Agreement
Regardless of the contract duration specified in the Profile, or any
renewal period in effect, either of us may terminate this Agreement, with
or without cause, on three months' written notice. if, under applicable
law, a longer period is mandatory, then the notice period is the minimum
notice period allowable.
If we terminate for cause (such as you not meeting your minimum annual
attainment), we may, at our discretion, allow you a reasonable opportunity
to cure. If you fail to do so, the date of termination is that specified
in the notice.
However, if either party breaches a material term of the Agreement, the
other party may terminate the Agreement on written notice. Examples of
such breach by you are: if you do not maintain customer satisfaction; if
you do not comply with the terms of a transaction document; if you
repudiate this Agreement; or if you make any material misrepresentations
to us. You agree that our only obligation is to provide the notice called
for in this section and we are not liable for any claims or losses if we
do so.
At the end of this Agreement, you agree to:
1. pay for or return to us, at our discretion, any Products or
shrink-wrap Services for which you have not paid; and
2. allow us, at our discretion, to acquire any that are in your
possession or control, at the price you paid us, less any credits
issued to you.
Products and shrink-wrap Services to be returned must be in their unopened
and undamaged packages and in your inventory (or in transit from us) on
the day this Agreement ends. We will inspect them, and reserve the right
of rejection. You agree to pay all the shipping charges.
At the end of this Agreement, each of us agrees to immediately settle any
accounts with the other. We may offset any amounts due you against amounts
due us, or any of our Related Companies as allowable under applicable law.
You agree that if we permit you to perform certain activities after this
Agreement ends, you will do so under the terms of this Agreement.
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<PAGE>
COUNTRY UNIQUE TERMS FOR THE REMARKETER TERMS ATTACHMENT
The following modify the terms of this Attachment in the specific countries, as
noted.
ASIA PACIFIC
The following terms apply to all countries in Asia Pacific:
Section 4- Price, Invoicing, Payment and Taxes
Add the following term as the last paragraph in the subsection entitled
"Invoicing, Payment and Taxes":
If you are claiming any income or transaction tax exemption relating to the
Products and Services you acquired from us or that we provided, then you agree
to provide us with all appropriate documentation.
The following terms apply to the specific countries in Asia Pacific, as noted:
ASEAN COUNTRIES
The following terms apply to all the Asean countries:
Section 2- Ordering and Delivery
The following replaces the fifth paragraph:
You or your carrier will take delivery at a location we specify.
Section 10- Risk of loss
The following replaces the first sentence in this Section:
We bear the risk of loss of, or damage to, a Product until its initial delivery
from us to you or your agent or carrier.
AUSTRALIA
Section 4- Price Invoicing Payment and Taxes
Add the following as the third paragraph of the subsection entitled "Invoicing,
Payment and Taxes":
You agree to pay importation cost recovery charges where applicable. Such
charges include freight, insurance, duties and taxes.
INDOCHINA COUNTRIES
The following terms apply to all the Indochina countries (Cambodia, Laos,
Myanmar and Vietnam):
Section 4- Price, Invoicing, Payment and Taxes
The following is added as the last sentence in the first paragraph:
All products are provided F.O.B. at the designated shipping location unless we
specify otherwise in the operations guide.
The following replaces the first sentence in the subsection entitled "Invoicing,
Payment and Taxes":
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<PAGE>
You agree to pay in full all prices and charges in accordance with our invoice,
in United States Dollars, by irrevocable confirmed letters of credit in favor of
IBM, drawn on a bank acceptable to IBM, at least 45 days prior to our shipment
to you, or by telegraphic transfer. Mode of payment will be determined at IBM's
discretion.
Section 9- Title
The following replaces the first sentence:
When you order a Machine, we transfer title to you over international waters,
prior to entry into the port of importation in (country name).
The following terms apply to the specific country in Asia Pacific, as noted:
JAPAN
Section 4- Price, Invoicing, Payment and Taxes
Delete Item 1 in the subsection entitled "Failure To Pay Any Amounts Due".
Section 7- Programs
The following follows the first sentence of the first paragraph of this Section:
Alternatively, if we specify approval in your Profile, we authorize you to sign
the applicable license agreement on behalf of IBM under the following
conditions:
1. Agreements
a. The agreement that you are authorized to sign on behalf of IBM will
be the IBM designated agreement entitled "Terms and Conditions for
IBM Licensed Programs and IBM Internal Code" (called "IBM Licensed
Terms and Conditions").
b. If you acquire prior written approval from us, you may use your own
contract document with the IBM License Terms and Conditions
incorporated into it in lieu of the IBM License Terms and
Conditions.
c. You agree to fill in any details regarding the program on the IBM
License Terms and Conditions in accordance with IBM's guidance.
2. Scope of Authorization
a. Your authorization is limited to signing the IBM License Terms and
Conditions with the End User on behalf of IBM. You have no authority
or rights to add, amend, modify or delete any of its terms. You will
be liable for any damages resulting from your addition, amendment,
modification or deletion of its terms.
b. You agree to obtain the End User's signature on the IBM License
Terms and Conditions prior to ordering an applicable Program or a
Machine containing Licensed Internal Code (called Specific Machine)
from IBM.
c. Unless we give you prior written authorization, you are not
authorized to delegate, assign or transfer your authority to sign
the IBM License Terms and Conditions on behalf of IBM to any third
party.
d. Your authorization to sign on behalf of IBM is limited to the IBM
License Terms and Conditions and IBM does not authorize any rights
regarding system integration, software development, outsourcing nor
procurement of machines or equipment.
3. Custody of Agreements
a. You agree to keep the applicable IBM license agreements or your
contract documents that are signed by End Users, and present or
submit them to us immediately on our request.
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<PAGE>
Section 11- Installation and Warranty
The following replaces the first sentence of the subsection entitled "Date of
Installation for a Machine We Are Responsible To Install":
The Date of Installation for a Machine we are responsible to install is 1) the
expiration date of the inspection period (the inspection period for a Machine
commences on the day following the day IBM installs it and will expire on the
tenth day), or 2) the business day after the day it is made available for
installation, if you or the End User defer installation,
Section 16- Ending the Agreement
Delete the following from the next to last paragraph in this Section:
or any of our Related Companies.
NEW ZEALAND
Section 4- Price, Invoicing, Payment and Taxes
The following term replaces Item 1 in the subsection entitled "Failure to Pay
Any Amounts Due":
Impose a penalty interest, as we specify in writing, up to the maximum permitted
by law, on the portion that was not paid during the required period:
PEOPLE'S REPUBLIC OF CHINA
Section 4 Price, Invoicing, Payment and Taxes
The following replaces the first sentence of the third paragraph of the
subsection entitled "Price and Discount Changes":
If we decrease the price or increase the discount for a Product or Service, you
will be eligible to receive a price decrease credit or discount increase credit
for those you acquired directly from us during the two months prior to the
effective date of the change.
The following are additional terms in the subsection entitled "Invoicing,
Payment and Taxes":
You will pay by Letter of Credit for each shipment, or other form of payment as
instructed by us.
If the government imposes a duty, tax (other than an income tax) or fee on the
Agreement or any Product or Service provided under it, not otherwise provided
for in our prices and charges, you agree to pay it when we invoice you.
Letter of Credit for Each Shipment
Payment in full for each Product and Service and for other charges referred to
herein will be made in United States dollars through an irrevocable and
confirmed Letter of Credit which shall be in a form acceptable to us. You agree
to open such an irrevocable Letter of Credit no later than 14 days prior to our
scheduled shipment date on the basis of a pro forma invoice indicating the
current price of the Product and Service and other estimated charges. Such
Letter of Credit shall expire no earlier than 30 days after the latest shipment
date on which the Products and Services are delivered to your designated
location as agreed to by us. You further agree to adjust the amount of such
Letter of Credit on the basis of shipment and other charges referred to herein.
The irrevocable Letter of Credit shall be negotiable by us upon submission to
the bank of the related commercial invoices and the shipping documents specified
in the credit, evidencing shipment.
Any fees, however designated, levied by a bank to open or amend a Letter of
Credit, or effect payment in United States dollars by the opening bank, shall be
borne by you. Any fees, however designated, levied by the advising or collecting
bank shall be borne by the IBM World Trade Corporation.
Other invoices for adjustments, additional charges, taxes, etc., if any, payable
or reimbursable by you to us under this Agreement, may be issued subsequent to
delivery to you and shall be payable in full in United States dollars within
thirty days of the date of the invoice.
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<PAGE>
Failure by you to establish a Letter of Credit in accordance with the provisions
of this Section will entitle us to cancel this Agreement without liability on
our part.
Section 9- Title
The following replaces the first paragraph:
We transfer title to a Product to you at the point of entry into the People's
Republic of China unless we specify otherwise in the Exhibit.
EMEA
The following terms apply to all countries in EMEA:
Section 1- Our Relationship
In the subsection entitled "Other Responsibilities" the following replaces Item
5:
5. when you are approved to market to Remarketers selective distribution
Products and Services, market them only to Remarketers that IBM specifically
approves to market such Products and Services;
Section 4- Price, Invoicing, Payment and Taxes
In the subsection entitled "Price and Discount", in the second paragraph,
replace "six months" with "three months"
In the subsection entitled "Price and Discount Changes", paragraph four which
applies to Programs licensed on a recurring charge, is not applicable.
The following replaces the first paragraph in the subsection entitled "Invoicing
Payment and Taxes":
Amounts are due upon receipt of invoice and payable in accordance with the
payment option you selected. Details of any payment options will be specified in
the operations guide. You agree to pay accordingly, including any late payment
fee.
In the subsection entitled "Failure to Pay Any Amounts Due":
In item 1, replace the words "in writing" with "in the operations guide"
The following replaces the second paragraph:
We may offset any amounts due you, or designated for your use (for example,
marketing funds or promotional offerings), against any amounts due us.
The third paragraph is not applicable.
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<PAGE>
Section 7- Programs
The following replaces the first sentence in the first paragraph:
You agree to ensure the End User and you have signed the license agreement for a
Program requiring a signature, as we specify in the Exhibit, before such Program
is provided to the End User, and to provide any required documentation to us.
The third paragraph is not applicable.
Section 11- Installation and Warranty
The following replaces the first sentence of the second paragraph:
We calculate the expiration date of an IBM Machine's warranty period from the
Machine's Date of Installation for Machines we install and from the Warranty
Start Date for Customer-Set-Up Machines.
Change the title of the subsection entitled Date of Installation for a Customer
Set-Up-Machine" to "Warranty Start Date For a Customer Set-Up-Machine" and
replace the first sentence in the subsection with the following:
The Warranty Start Date is the date of first purchase by an End User, which you
or your Remarketer, if applicable, record on the End Users sales receipt.
Section 13- Marketing of Services
The following replaces the first paragraph:
You may market the Services we specify in your applicable Profile.
Paragraphs two and three are not applicable.
Add the following as the first paragraph in the subsection entitled "Marketing
of Services for a Fee":
Refer to your applicable Profile to determine whether the terms of this
subsection apply.
The subsection entitled "Services We Perform As Your Subcontractor" is not
applicable.
Section 14- Marketing of Financing
The following two paragraphs replace the first paragraph:
Refer to your applicable Profile to determine whether the terms of this section
apply.
If we approve you on your Profile, you may market our Financing Services, as we
specify in the Exhibit, for Products and Services and any associated products
and services you market to the End User.
Section 15- Engineering Changes
The following replaces the last sentence in this Section:
We will reimburse you for your labor as we specify in the operations guide.
Section 16- Ending the Agreement
The following replaces the second sentence in the sixth paragraph:
We may offset any amounts due you against amounts due us.
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<PAGE>
The following terms apply to the countries in EMEA, as noted:
Section 8- Export
The following terms apply to all countries in Western Europe:
The following replaces the entire Section:
You may actively market Products and Services only within Western Europe. You
may market Programs as permitted by their licensing terms. You may not market
outside this scope, and you agree not to use anyone else to do so. Your
responsibilities under this Agreement apply wherever you provide Products and
Services in Western Europe.
If a Customer acquires a Product for export outside Western Europe, our
responsibilities, if any, under this Agreement no longer apply to that Product
unless the Product's warranty or license terms state otherwise. Before your sale
of such Product, you agree to prepare a support plan for it and obtain your
Customer's agreement to that plan. Within one month of sale, you agree to
provide us with the Customer's name and address, Machine type/model, and serial
number if applicable, date of sale, and destination country.
We exclude such Products from:
1. any of your attainment toward your objectives; and
2. qualification for applicable promotional offerings and marketing funds.
We may also reduce future supply allocations to you by the number of exported
Products. In all cases, you agree to use your best efforts to ensure that your
Customer complies with all export laws and regulations, including those or the
United States and the country specified in the Governing Law Section of this
Agreement, and any laws and regulations of the country in which the Product is
imported or exported.
The following terms apply to the Republic of South Africa. Namibia, Swaziland
and Lesotho.
The following replaces the entire Section:
You may actively market Products and Services only within the Republic of South
Africa, Namibia, Swaziland and Lesotho. You may market Programs as permitted by
their licensing terms. You may not market outside this scope, and you agree not
to use anyone else to do so. Your responsibilities under this Agreement apply
wherever you provide Products and Services in such countries.
If a Customer acquires a Product for export outside such countries, our
responsibilities, if any, under this Agreement no longer apply to that Product
unless the Product's warranty or license terms state otherwise. Before your sale
of such Product, you agree to prepare a support plan for it and obtain your
customers agreement to that plan. Within one month of sale, you agree to provide
us with the Customer's name and address, Machine type/model, and serial number
if applicable, date of sale, and destination country.
We exclude such Products from:
1. any of your attainment toward your objectives; and
2. qualification for applicable promotional offerings and marketing funds.
We may also reduce future supply allocations to you by the number of exported
Products. in all cases, you agree to use your best efforts to ensure that your
Customer complies with all export laws and regulations, including those of the
United States and the country specified in the Governing Law Section of this
Agreement and any laws and regulations of the country in which the Product is
imported or exported.
The following terms apply to all other countries in EMEA:
The following replaces the first paragraph:
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<PAGE>
You may actively market Products and Services only within (country name). You
may market Programs as permitted by their licensing terms. You may not market
outside this scope, and you agree not to use anyone else to do so.
The following terms apply to the specific country, or group of countries, in
EMEA, us noted:
AFRICAN COUNTRIES
The following terms apply to all countries in Africa:
Section 3- Inventory Adjustments
The terms of this Section are not applicable.
The following terms apply to the following African countries:
Algeria, Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic,
Chad, Congo, Djibouti, D.R. of Congo, Equatorial Guinea, Gabon, Gambia, Guinea,
Guinee Bissau, Ivory Coast, Mali, Mauritania, Morocco, Niger, Senegal, Togo,
and Tunisia.
Section 2- Ordering and Delivery
The following replaces the second paragraph:
We will deliver the Products and Services in France to the forwarding agent you
designate in accordance with the 1990 FCA Incoterm.
The fifth paragraph (starting with "We select...") is not applicable.
Section 9- Title
The following replaces the first paragraph in this Section:
When you order a Machine, we transfer title to you upon delivery in France to
your forwarding agent.
Section 10- Risk of Loss
The following replaces the entire section:
We bear risk of loss, or damage to, a Product or Service until its initial
delivery from us to your forwarding agent in France or, if you request and we
agree, delivery from us to your Customer in France. Thereafter, you assume the
risk.
AUSTRIA
Section 9- Title
The following replaces the first paragraph in this Section:
We retain title to Machines until full payment has been received. You agree to
assign your claim against your Customer in the event you sell Products before we
receive full payment.
Section 11- Installation and Warranty
The following replaces the fourth paragraph:
For non-IBM Products we provide to you, the same warranties apply as for IBM
Products, unless we specify otherwise in a transaction document Warranty Service
for non-IBM Products may be performed by other than IBM personnel.
CENTRAL AFRICA
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<PAGE>
The following terms apply to all countries in Central Africa:
Section 2- Ordering and Delivery
The following replaces the second paragraph:
Products ordered will be delivered Free Carrier at Schipol Airport, Amsterdam or
any other exporting point as IBM may direct from time to time.
The following replaces the fifth paragraph;
You pay all transportation and associated charges from the IBM shipping
location.
Section 4- Price, Invoicing, Payment and Taxes:
The following replaces the first sentence in the subsection entitled "Invoicing,
Payment and Taxes";
Unless otherwise agreed to by us in writing, payment for each order shall be due
and payable to our account in New York, U.S.A. (or another such account as is
designated by IBM in writing) by means of a confirmed and irrevocable Letter of
Credit, in a form acceptable to us, to be issued prior to delivery to Free
Carrier in accordance with INCOTERMS 1980 of the International Chamber of
Commerce.
Add the following as the second paragraph:
All payments by either party to the other under any provisions of this Agreement
shall be made in United States dollars.
Section 9- Title
The following replaces the first paragraph:
When you order a Machine, we transfer title to you upon payment of all amounts
due, or upon delivery, whichever occurs later.
CENTRAL EUROPE and RUSSIA
The following terms apply to all countries in Central Europe and Russia except
Czech Republic:
Section 2- Ordering and Delivery
The following two paragraphs replace the second paragraph:
The Products are delivered to the local country platform under standard delivery
terms. In this connection, if the Agreement refers to shipment to you or your
End User, it is understood as the designation of the party entitled to receive
the Products at the local country platform. In specific situations we may agree
to deliver Products to your platform. You will act as importer and pay customs
duties.
In specific situations we may agree to deliver Products to a different location,
provided you comply with the relevant provisions set forth in the operations
guide or as we otherwise specify to you in writing.
Add the following as the last sentence in the fifth paragraph:
However, you agree to pay handing and transportation charges when we specify.
Section 3- inventory Adjustments
The following replaces the second sentence in the third paragraph:
We will issue a credit or refund the price you paid, to your account at our
discretion.
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<PAGE>
Section 4- Price, Invoicing, Payment and Taxes
In the subsection entitled "Invoicing, Payment and Taxes" the following replaces
the first paragraph:
You agree to pay in accordance with the payment terms specified on the invoice
or as otherwise agreed and communicated by IBM, including any late payment fee.
Details of payment terms are specified in the operations guide.
Add the following at the end of the second paragraph:
However, IBM reserves the right to make the respective payment at its election
in U.S. dollars or in local currency, based on the official exchange rate on the
date of payment, to your account in the country in which you are located instead
of crediting your account with IBM.
Section 8- Export
The following replaces the entire Section:
You may actively market Products and Services only within your applicable
Territory. You may market Programs as permitted by their licensing terms. You
may not market outside this scope, and you agree not to use anyone else to do
so. Your responsibilities under this Agreement apply whenever you provide
Products and Services in your applicable Territory.
If a Customer acquires a Product for export, our responsibilities, if any, under
this Agreement no longer apply to that Product unless the Product's warranty or
license terms or our own separate agreement with this Customer state otherwise.
Before your sale of such Product, you agree to prepare a support plan for it and
obtain your Customers agreement to that plan. Within one month of sale, you
agree to provide us with the Customer's name and address, Machine type/model and
serial number if applicable, date of sale, and destination country.
Unless such export is otherwise approved in our own separate agreement with this
Customer we exclude Products exported outside your approved Territory from any
of your attainment objectives and qualification for applicable promotional
offerings and marketing funds.
In all cases, you agree to use your best efforts to ensure that your Customer
complies with all export laws and regulations including those of the United
States and the original county of export, and any laws and regulations of the
country in which the Product is imported or exported.
Section 9- Title
The following replaces the first sentence in the first paragraph:
When you order a Machine, title passes to you upon shipment provided IBM has
received payment in full. Otherwise, title passes when IBM receives payment in
full.
Section 13- Marketing of Services
Add the following as the first paragraph of the Section:
Where IBM Services are available, this Section is assigned to the local IBM
Company, listed in the operations guide. Local law and local jurisdiction will
apply to such transactions. Payment terms will be included in the operations
guide. All other provisions of the Agreement apply.
DENMARK
Section 9- Title
The following replaces the first sentence in this Section:
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<PAGE>
When you order a Machine, we transfer title to you on the date you receive
delivery from IBM.
EGYPT
Section 3- Inventory Adjustments
The terms of this Section are not applicable.
Section 4- Price, Invoicing, Payment and Taxes
The following are additional terms in the subsection entitled "Invoicing,
Payment and Taxes":
You will pay by Letter of Credit for each shipment, or other form of payment as
instructed by us.
If the government imposes a duty, tax (other than an income tax), or fee on the
Agreement or any Product or Service provided under it, not otherwise provided
for in our prices and charges, you agree to pay it when we invoice you.
Letter of Credit for Each Shipment
Payment in full for each Product and Service and for other charges referred to
herein will be made in United States dollars through an irrevocable and
confirmed Letter of Credit which shall be in a form acceptable to us. You agree
to open such an irrevocable Letter of Credit no later than 14 days prior to our
scheduled shipment date on the basis of a pro forma invoice indicating the
current price of the Product and Services and other estimated charges. Such
Letter of Credit shall expire no earlier than 30 days after the latest shipment
date on which they are delivered to your designated location as agreed to by us.
You further agree to adjust the amount of such Letter of Credit on the basis of
shipment and other charges referred to herein. The irrevocable Letter of Credit
shall be negotiable by us upon submission to the bank of the related commercial
invoices and the shipping documents specified in the credit, evidencing
shipment.
Any fees, however designated, levied by a bank to open or amend a Letter of
Credit, or effect payment in United States dollars by the opening bank, shall be
borne by you. Any fees, however designated, levied by the advising or collecting
bank shall be borne by the IBM World Trade Corporation.
Other invoices for adjustments, additional charges, taxes, etc., if any, payable
or reimbursable by you to us under this Agreement, may be issued subsequent to
delivery to you and shall be payable in full in United States dollars within
thirty days of the date of the invoice.
Failure by you to establish a Letter of Credit in accordance with the provisions
of this Section will entitle us to cancel this Agreement without liability on
our part.
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you when the Machine is shipped.
ESTONIA
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you on the date you receive
delivery from IBM.
FINLAND
Section 9- Title
The following replaces the first sentence in this Section:
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<PAGE>
When you order a Machine, we transfer title to you on the date of delivery from
IBM.
GERMANY
Section 9- Title
The following replaces the first paragraph in this Section:
We retain title to Machines until full payment has been received. You agree to
assign your claim against your Customer in the event you sell Products before we
receive full payment.
Section 11- Installation and Warranty
Add the following as the first paragraph:
We provide warranty to you only by repair or replacement. If we are unable to do
so in reasonable time, you may request either a partial refund equal to the
reduced value of the unrepaired Machine or return the Machine and receive a full
refund of the amount paid.
The following replaces the terms in the fourth paragraph:
For non-IBM Products we provide to you, the same warranties apply as for IBM
Products, unless we specify otherwise in a transaction document. Warranty
Service for non-IBM Products may be performed by other than IBM personnel.
Section 13- Marketing of Services
The following replaces the first sentence in the fifth paragraph in the
subsection entitled "Marketing of Services for a Fee":
If the Service is terminated within three months of the date the payment from
the End User was due us and IBM is not responsible for the termination, you
agree to reimburse us for any payments we made to you associated with it.
ITALY
Section 1- Our Relationship
The following replaces the second sentence in Item 1 in the subsection entitled
"Other Responsibilities":
You may return the Products to us at our expense, as we specify in the
operations guide. We will issue credit to you after we accept the returned
Products and we receive your invoice for them.
Section 3- Inventory Adjustments
The following replaces the second sentence in paragraph three:
We will issue a credit to you after we accept the returned Products and we
receive your invoice for the returned Products.
Section 4- Price, Invoicing, Payment and Taxes
Add the following at the end of the first paragraph in the subsection entitled
"Invoicing, Payment and Taxes":
Such fees will be apportioned to the number of days of the delay. We may
transfer the credit to a factoring company. If we do so we will advise you in
writing.
Section 9- Title
The following replaces the first sentence in this Section:
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<PAGE>
When you order a Machine, we transfer title to you on delivery from IBM to you.
LATVIA
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you on the date you receive
delivery from IBM.
LITHUANIA
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you on the date you receive
delivery from IBM.
NAMIBIA
Section 4- Price Invoicing, Payment and Taxes
Add the following as the last paragraph of the subsection entitled "Price and
Discount":
The price of Index-Linked Machines shall be increased or decreased by a currency
adjustment which is equal to the price specified in the order, adjusted, if
applicable, in terms of any price changes, multiplied by a percentage specified
in the Order (Index-Link Percentage), multiplied by (Closing index minus Base
index) divided by the Base Index.
Definitions
Base Index: means the index on which IBM's current Product prices are based, and
is specified on the invoice and upon request from IBM.
Closing Index: means the Index ruling on the Business Day prior to Shipment and
is specified on the invoice and upon request from IBM.
Index: means the South African Rand, equivalent to one European Currency Unit
(ECU), at any time, and any other currency unit as specified by IBM in the
Order.
Index-Linked Machine: means any Machine so designated by IBM, which is subject
to a currency adjustment.
NORWAY
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you on the date you receive
delivery from IBM.
SOUTH AFRICA
Section 4- Price, Invoicing, Payment and Taxes.
Add the following as the last paragraph of the subsection entitled "Price and
Discount":
The price of Index-Linked Machines shall be increased or decreased by a currency
adjustment which is equal to the price specified in the order, adjusted, if
applicable, in terms of any price changes, multiplied by a percentage specified
in the Order (Index-Link Percentage), multiplied by (Closing Index minus Base
Index) divided by the Base Index.
Definitions
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<PAGE>
Base Index: means the Index on which IBM's current Product prices are based, and
is specified on the invoice and upon request from IBM.
Closing Index: means the Index ruling on the Business Day prior to Shipment and
is specified on the invoice and upon request from IBM.
Index: means the South African Rand. equivalent to one European Currency Unit
(ECU), at any time, and any other currency unit as specified by IBM in the
Order,
Index-Linked Machine: means any Machine so designated by IBM, which is subject
to a currency adjustment.
SPAIN
Section 4- Price, Invoicing, Payment and Taxes
And the following at the end of the first paragraph in the subsection entitled
"Invoicing. Payment and Taxes:
Such fee will be apportioned to the number of days of the delay. We may transfer
the credit to a factoring company.
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you when the Machine is shipped.
Section 16- Ending the Agreement
The following replaces the first sentence:
Regardless of the contract duration specified in the Profile, or any renewal
period in effect, you may terminate this Agreement, with or without cause, on
three months' written notice and we may terminate, with or without cause, on six
months' written notice.
SWEDEN
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you on the date you receive
delivery from IBM.
TURKIYE
Section 2- Ordering and Delivery
The following replaces the fifth paragraph in this Section:
We select the method of transportation. We will specify in the related
transaction document the party who is responsible for the associated
transportation charges.
Section 4- Price, Invoicing, Payment and Taxes
Add the following as the last sentence of the subsection entitled "Failure To
Pay Any Amounts Due":
For future legal obligations, the related party will be responsible for its own
part.
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you when the Machine is shipped.
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<PAGE>
United Kingdom
Section 9- Title
The following terms replace the entire Section:
When you order a Product we transfer title to you upon payments of all amounts
due under this Agreement to 1) IBM, or 2) IBM United Kingdom Financial Services
Limited (FSL), if you have entered into a Dealer Financing Agreement with FSL.
We do not transfer a Program's title.
Products are owned by IBM until title has been transferred to you.
You shall clearly identify Products as IBM property. Such Products are presumed
to belong to IBM unless you can prove otherwise.
Your right to possession of Products owned by IBM will cease if 1) your actions
entitle any person to appoint a receiver or administrative receiver of your
property, 2) you become subject to any form of insolvency proceedings (or IBM
has reason to believe any of the preceding events is likely to occur), 3) you
fail to make payments hereunder when due, or 4) the Agreement is terminated. We
may then, in addition to any other remedies available to us, enter any premises
to recover our property and require you not to resell or part with possession or
Products until you have paid us, in full, all sums due us.
You will pass title to any returned Products to IBM free from all encumbrances.
ZIMBABWE
Section 4- Price, Invoicing, Payment and Taxes
Add the following as the last paragraph of the subsection entitled "Price and
Discount":
The price of a Machine shall be increased or decreased by a currency adjustment
which is equal to the currency exchange differential between the Opening Index
and the Closing index.
Definitions:
Closing index: means the Index specified on the Customs Bill of Entry.
Customs Bill of Entry: means the document provided by the Zimbabwean Customs
Authority to IBM upon clearance of the Machine through such Customs into
Zimbabwe.
Index: means the Zimbabwean Dollar equivalent, at any time, to one United States
of America dollar.
Opening Index: means the index specified in the order.
LATIN AMERICA
The following terms apply to all countries in Latin America:
Section 2- Ordering and Delivery
The following replaces the fifth paragraph in this Section:
We select the method of transportation. We are responsible for payment of
transportation charges unless we specify otherwise to you in writing.
Section 4- Price, Invoicing, Payment and Taxes
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<PAGE>
In the subsection entitled "Price and Discount Changes", paragraph four which
applies to Programs licensed on a recurring charge, is not applicable.
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you on the date of delivery from
IBM.
The following terms apply to the specific countries in Latin America, as noted:
BRAZIL
Section 4- Price, Invoicing, Payment and Taxes
Add the following as the last paragraph of the subsection entitled "Price and
Discount":
If country law regarding price policies is altered, allowing monetary
readjustment of price in shorter periods of time than the one already in effect,
each of us agrees that our prices to you may be revised as frequently and as
soon as the law allows. However, it for any reason the official adjustment index
becomes extinct or worthless, it is agreed that monetary readjustment will be
based upon any similar index produced by the second most important economic
institution in the country, or by a new official index the local government
establishes.
In the subsection entitled "Price and Discount Changes", paragraph four which
applies to Programs licensed on a recurring charge, is not applicable.
The following replaces the second paragraph in the subsection entitled "Failure
To Pay Any Amounts Due":
We may offset any amounts due you, or designated for your use (for example,
marketing funds or promotional offerings), against any amounts due us.
The third paragraph is not applicable.
Section 9- Title
The following replaces the entire Section:
Property to an IBM Machine is not transferred when the Machine is delivered to
the Business Partner. IBM holds domain, property and the constructive possession
of a Machine and the Business Partner holds only actual possession of such
Machine until IBM receives payments of all amounts due, at which time title
passes to the Business Partner.
We do not transfer a Program's title. We only grant a license to a Program.
Section 16- Ending the Agreement
The following replaces the second sentence in the sixth paragraph:
We may offset any amounts due you against amounts due us.
CHILE
Section 4- Price, Invoicing, Payment and Taxes
Add the following as the second paragraph in the subsection entitled "Price and
Price Discount Changes":
When our price to you is in local currency, price increases or discount
reductions apply. When our price to you is in United States dollars, price
increases do not apply.
LATIN AMERICA SOUTH
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<PAGE>
The following terms apply to all countries in Latin America South:
Section 4- Price, Invoicing, Payment and Taxes
Add the following as the second paragraph of the subsection entitled "Invoicing,
Payment and Taxes":
The invoiced amounts shall be paid in United States dollars or their equivalent
in legal currency, at the exchange rate applicable to dividends and/or, profits,
foreign transfers made by private natural or legal persons, on the payment date,
at the domicile of IBM, or whatever it may be determined by the latter, on the
dates established in the respective invoices. In the case of a bank holiday, the
opening exchange rate shall be applied.
The payment shall be considered as duly made when IBM effectively receives the
funds. in the subsection entitled "Failure to Pay Any Amounts Duet
The following replaces the second paragraph:
We may offset any amounts due you, or designated for your use (for example,
marketing funds or promotional offerings), against any amounts due us.
The third paragraph is not applicable.
Section 18- Ending the Agreement
The following replaces the second sentence in the sixth paragraph:
We may offset any amounts due you against amounts due us.
MEXICO
Section 4- Price, Invoicing, Payment and Taxes
Add the following as the second paragraph in the subsection entitled "Price and
Discount Changes":
When our price to you is in local currency, price increases are effective on the
date of announcement.
Add the following after the first paragraph in the subsection entitled
"Invoicing, Payment and Taxes":
The invoiced amounts shall be paid in United States dollars or their equivalent
in legal currency, at the exchange rate applicable to dividends end/or profits,
foreign transfers made by private natural or legal persons, on the payment date,
at the domicile of IBM, or whatever it may be determined by the latter, on the
dates established in the respective invoices. In the case of a bank holiday, the
opening exchange rate shall be applied.
The payment shall be considered as duly made when IBM effectively receives the
funds.
The following replaces the first item in the list in the subsection entitled
"Failure to Pay Any Amounts Due":
Impose a finance charge, as we specify to you in writing, on the portion which
was not paid during the required period;
PERU
Section 4- Price, Invoicing, Payment and Taxes
In the subsection entitled "Failure to Pay Any Amounts Due" the following
replaces the second paragraph:
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<PAGE>
We may offset any amounts due you, or designated for your use (for example,
marketing funds or promotional offerings), against any amounts due us.
The last paragraph is not applicable.
VENEZUELA
Section 4- Price, Invoicing. Payment and Taxes
Add the following as the last paragraph of the subsection entitled "Price and
Discount":
If country law regarding price policies is altered, allowing monetary
readjustment of price in shorter periods of time than the one already in effect,
each of us agrees that our prices to you may be revised as frequently and as
soon as the law allows. However, if for any reason the official adjustment index
becomes extinct or worthless, it is agreed that monetary readjustment will be
based upon any similar index produced by the second most important economic
institution in the country, or by a new official index the local government
establishes.
The following replaces the second paragraph in the subsection entitled "Failure
To Pay Any Amounts Due":
We may offset any amounts due you, or designated for your use (for example,
marketing funds or promotional offerings), against any amounts due us.
The third paragraph is not applicable.
Section 16- Ending the Agreement
The following replaces the second sentence in the sixth paragraph:
We may offset any amounts due you against amounts due us.
NORTH AMERICA
The following terms apply to the specific countries in North America, as noted:
CANADA
Section 4- Price, Invoicing, Payment and Taxes
The following is an additional subsection and follows the subsection entitled
"Invoicing, Payment and Taxes":
Purchase Money Security Interest
You grant us a purchase money security interest in your proceeds from the sale
of, and your accounts receivable for, Products and Services, until we receive
the amounts due. You agree to sign an appropriate document, to permit us to
perfect our purchase money security interest.
Section 7- Programs
The following replaces the second paragraph:
We will ship the media and documentation to you.
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you when we ship the Machine.
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<PAGE>
CARIBBEAN NORTH DISTRICT
Section 4- Price, Invoicing, Payment and Taxes
Add the following as the next to last paragraph in the section:
If any authority requires us to withhold taxes from our payments to you, we will
do so and remit such to the taxing authority. if we are assessed withholding
taxes, interest or penalties by such authority with respect to payments we made
to you, you will reimburse us for such tax and for interest and penalties which
are not due to IBM's negligence.
UNITED STATES OF AMERICA
Section 1- Our Relationship
Add the following as the first item in the subsection entitled
"Responsibilities":
1. we offer a money-back guarantee to End Users for certain Products. You agree
to inform the End User of the terms of this guarantee before the applicable
sale. For any such Product, you agree to 1) accept its return in the time frame
we specify 2) refund the full amount paid to you for it, and 3) dispose of it
(including all its components) as we specify. We will pay a transportation
charge for return of the Product to us and will give you an appropriate credit.
Section 2- Ordering and Delivery
Add the following as the last paragraph in the Section:
If we are unable to stop shipment of an order you cancel, and you return such
Product to us after shipment, our inventory adjustment terms apply.
The following replaces the last two sentences in the last paragraph:
The Exhibit will specify if a cancellation charge applies and where we will
specify the charge.
Section 4- Price, Invoicing, Payment and Taxes
Add the following as the second sentence, in the first paragraph, in the
subsection entitled "Price and Discount":
Unless we specify otherwise, discounts do not apply to Program upgrades,
accessories, or field-installed Machine features conversions, or upgrades.
The following are additional subsections and follow the subsection entitled
"Invoicing, Payment and Taxes":
Reseller Tax Exemption
You agree to provide us with your valid reseller exemption documentation for
each applicable taxing jurisdiction to which we ship Products and Services, if
we do not receive such documentation, we will charge you applicable taxes and
duties. You agree to notify us promptly if this documentation is rescinded or
modified. You are liable for any claims or assessments that result from any
taxing jurisdiction refusing to recognize your exemption.
Purchase Money Security Interest
You grant us a purchase money security interest in your proceeds from the sale
of, and your accounts receivable for, Products and Services, until we receive
the amounts due. You agree to sign an appropriate document (for example, a
"UCC-1") to permit us to perfect our purchase money security interest.
Section 7- Programs
The following replaces the second paragraph:
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<PAGE>
We will designate in the Exhibit if 1) we will ship the media and documentation
to you or, if you request and we agree, to the End User, 2) you may copy and
redistribute the media and documentation to the End User, or 3) you must copy
and redistribute the media and documentation to the End User. If we ship the
media and documentation, we may charge you. We will specify such charge 10 you
in writing. If you copy and redistribute, you must be licensed to use the
Program from which you make the copies. A Program license you acquired for use
under the Demonstration, Development and Evaluation Products terms fulfill this
requirement.
Section 9- Title
The following replaces the first sentence in this Section:
When you order a Machine, we transfer title to you when we ship the Machine.
BXRT-02-00 11/98 Page 28 of 28
<PAGE>
IBM Business Partner Agreement [IBM LOGO]
Solution Provider Attachment
- --------------------------------------------------------------------------------
These terms prevail over and are in addition to or modify the Remarketer Terms
Attachment and the Complementary Marketing Terms Attachment.
1. Marketing Approval
You may be approved as a Solution Provider under a remarketer relationship
or under a complementary marketing relationship, or both, if we approve
you to market the same Products and Services under both remarketer and
complementary marketing terms, all transactions will be under remarketer
terms. You may unilaterally elect not to participate under remarketer
terms for a specific transaction or business segment by providing us a
signed IBM Business Partner Statement of Election. if you meet the
requirements of the Marketing Approval section of the Complementary
Marketing Terms Attachment, you may participate under those terms.
2. Value Added Enhancement
For Products we specify in the Exhibit, you are required to have a
solution which is a value added enhancement that we approve and specify on
your Profile and which significantly adds to the Product's function and
capability.
3. Your Responsibilities To IBM
You agree:
1. to develop a mutually acceptable business plan with us, if we
require one. Such plan will document each of our marketing plans as
they apply to our relationship. We will review the plan, at a
minimum, once a year;
2. that, unless precluded by applicable law, one of the requirements
for you to retain this relationship is that you achieve the minimum
annual attainment we specify in your Profile;
3. to order Products and Services, as we specify in the operations
guide;
4. to maintain trained personnel, as we specify in your Profile or
Exhibit, as applicable;
5. to provide us, on our request, relevant financial information about
your business so we may, for example, use this information in our
consideration to extend credit terms to you;
6. to have access to the Products you are approved to market for 1)
demonstration purposes, 2) providing support to your End Users and
3) supporting your value added enhancement;
7. to maintain the capability to demonstrate Products we approve you to
market; and
8. that the products and deliverables you market in conjunction with
IBM Products and Services are Year 2000 Ready. A product (for
example, a machine or program) or a deliverable is Year 2000 Ready
if the product or deliverable when used in accordance with its
associated documentation is capable of correctly processing,
providing and/or receiving date data within and between the
twentieth and twenty-first centuries, provided that all products
used with the product or deliverable properly exchange accurate date
data with it.
BXSP-02-00 11/98 Page 1 of 5
<PAGE>
4. Your Responsibilities To End Users
You agree to:
1. assist the End User to achieve productive use of your solution and
the Products and Services you marketed;
2. configure Products we approve you to market. On your request, we may
assist you;
3. identify and select the required technology based upon the End
User's requirements, and confirm that the Product configuration is
fully capable of the satisfactory performance of your solution;
4. not make representations that IBM is responsible for the Products'
configuration and their ability to satisfy the End Users
requirements;
5. advise the End User of Product installation requirements;
6. develop a plan, agreed to by the End User, for installation and
post-installation support for the offering you market. For Products
and Services we approve you to market, such support includes your
being the primary contact for Product and Services Information,
technical advice and operational advice associated with the
offering.
However, you may delegate these support responsibilities for
Products and any other associated products to another IBM Business
Partner who is approved to market such Products. If you do, you
retain customer satisfaction responsibility. Alternatively, such
support responsibilities will be provided by IBM if you market the
applicable IBM Services to the End User. If you do, we assume
customer satisfaction responsibility for such support;
7. assist the End User in Product problem determination and resolution,
unless this responsibility is delegated as specified in Item 6
above;
8. give written notice to the End User of any modification you make to
a Product and the name of the warranty service provider and advise
that such modification may void the warranty for the Product;
9. support the End User in planning fulfillment of Product training and
education requirements, including informing the End User of
educational offerings, as applicable;
10. inform the End User that the sales receipt (or other documentation,
such as Proof of Entitlement, if it is required) will be necessary
for proof of warranty entitlement or for Program upgrades; and
11. provide warranty information to the End User.
BXSP-02-00 11/98 Page 2 of 5
<PAGE>
Country Unique Terms For The Solution Provider Attachment
The following modify the terms of this Attachment in the specific countries, as
noted:
ASIA PACIFIC
The following applies to all countries in Asia Pacific:
Section 1- Marketing Approval
The following replaces all the terms of the Section:
You may be approved as a Business Partner under a remarketer relationship or
under a complementary marketing relationship, or both, but not for the same
Product or Service.
The following applies to all countries in Asia Pacific, except Australia:
Section 1- Marketing Approval
The following is an additional term:
We may specify the type of account in your Profile or specific industry codes to
which you may market Products and Services. if we do so, you agree to comply.
The following applies to the countries in Asia Pacific, as noted:
AUSTRALIA
Section 2- Value Added Enhancement
The following are additional terms to this Section:
Your value added enhancement must be the primary justification for the End
User's acquisition of the Products and Services you market. The exception to
this is when the End User is acquiring an upgrade to a system you installed with
your value added enhancement which is still in productive use. However, your
value added enhancement must be the primary justification for a processor
upgrade requiring a processor serial number change. Upgrades include processor
upgrades, peripherals, and programs. A sale to an End User without your value
added enhancement, when it is required, is a material breach of the Agreement.
EMEA
The following terms apply to ill the countries in EMEA:
Section 4- Your Responsibilities To End Users
Delete items 8 and 11 and add the following as the last item in the Section:
Inform the End User, in writing, from whom to obtain warranty service and of any
other applicable warranty information, as well as any modification made to a
Product and advise that such modification may void the warranty.
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<PAGE>
NORTH AMERICA
The following applies to the countries in North America, as noted:
CANADA
Section 1- Marketing Approval
The following are additional terms to this Section:
We may specify the type of account or specific industry codes to which you may
market Products and Services. When you do so, you agree that, at a minimum, 80%
of your annual IBM system unit sales (measured by the price you paid IBM) will
be to those accounts.
Section 2- Value Added Enhancement
The following are additional terms to this Section:
You agree to market Products and Services only with your approved value added
enhancement as part of an integrated solution for End Users. Certain Products we
specify do not require a value added enhancement.
In the event we withdraw approval of your value added enhancement, we also
withdraw your approval as an IBM Business Partner for that value added
enhancement.
We may, at any time, modify the criteria for approval of your value added
enhancement. You are responsible to modify your value added enhancement to meet
these criteria.
You agree to market Products, including processor upgrades requiring a processor
serial number change, to only End Users for whom your value added enhancement is
their primary reason for acquiring the Products, and who intend the on-going use
of such enhancement. A sale to an End User without a value added enhancement,
when required, is a material breach of the Agreement.
However, your value added enhancement is not required to be the End User's
primary reason for acquiring upgrades to systems you previously installed with
your enhancement and where your enhancement is still in productive use. Upgrades
include processor upgrades (non-serial number change), peripherals and programs.
Unless we specify otherwise in writing, you may market upgrades only to those
End Users where you have installed your value added enhancement, and who intend
on-going use of that value added enhancement.
UNITED STATES OF AMERICA
Section 1- Marketing Approval
The following is an additional term to this Section:
We may specify the specific industry codes to which you may market Products and
Services, if we do so, you agree to comply.
Section 2- Value Added Enhancement
The following are additional terms to this Section:
BXSP-02-00 11/98 Page 4 of 5
<PAGE>
You agree to market Products and Services only with your approved value added
enhancement as part of an integrated solution for End Users. Certain Products we
specify do not require a value added enhancement.
In the event we withdraw approval of your value added enhancement we also
withdraw your approval as an IBM Business Partner for that value added
enhancement.
We may, at any time modify the criteria for approval of your value added
enhancement. You are responsible to modify your value added enhancement to meet
these criteria.
You agree to market Products, including processor upgrades requiring a processor
serial number change, to only End Users for whom your value added enhancement is
their primary reason for acquiring the Products, and who intend the on-going use
of such enhancement. A sale to an End User without a value added enhancement,
when required, is a material breach of the Agreement.
However, your value added enhancement is not required to be the End User's
primary reason for acquiring upgrades to systems you previously installed with
your enhancement and where your enhancement is still in productive use. Upgrades
include processor upgrades (non-serial number change), peripherals and programs.
Unless we specify otherwise in writing, you may market upgrades only to those
End Users where you have installed your value added enhancement, and who intend
on-going use of that value added enhancement.
Section 4- Your Responsibilities to End Users
Add the following as the preamble to this Section:
When you market Products and Services under complementary marketing terms, Items
2 and 5 only apply when you use our central order facility. Items 10 and 11 are
not applicable.
BXSP-02-00 11/98 Page 5 of 5
<PAGE>
IBM Business Partner Agreement -
General Terms
- --------------------------------------------------------------------------------
Table of Contents
Section Title Page
1. Definitions .......................................................2
2. Agreement Structure and Contract Duration .........................3
3. Our Relationship ..................................................4
4. Status Change .....................................................5
5. Confidential Information ..........................................5
6. Marketing Funds and Promotional Offerings .........................6
7. Production Status .................................................6
8. Patents and Copyrights ............................................6
9. Liability .........................................................7
10. Trademarks ........................................................7
11. Changes to the Agreement Terms ....................................8
12. Internal Use Products .............................................8
13. Demonstration, Development and Evaluation Products ................8
14. Electronic Communications .........................................9
15. Geographic Scope ..................................................9
18. Governing Law .....................................................9
BXGT-02-00 11/98 Page 1 of 25
<PAGE>
IBM Business Partner Agreement -
General Terms
- --------------------------------------------------------------------------------
1. Definitions
Business Partner is a business entity which is approved by us to market
Products and Services under this Agreement.
Customer is either an End User or a Remarketer. We specify in your Profile
if we approve you to market to End Users or Remarketers, or both.
End User is anyone, who is not part of the Enterprise of which you are a
part, who uses Services or acquires Products for its own use and not for
resale.
Enterprise is any legal entity (such as a corporation) and the
subsidiaries it owns by more than 50 percent. An Enterprise also includes
other entities as IBM and the Enterprise agree in writing.
Licensed Internal Code is called "Code". Certain Machines we specify
(called "Specific Machines") use Code. International Business Machines
Corporation or one of its subsidiaries owns copyrights in Code or has the
right to license Code. IBM or a third party owns all copies of Code,
including all copies made from them.
Machine is a machine, its features, conversions, upgrades, elements,
accessories, or any combination of them. The term "Machine" includes an
IBM Machine and any non-IBM Machine (including other equipment) that we
approve you to market.
Product is a Machine or Program, that we approve you to market, as we
specify in your Profile.
Program is an IBM Program or a non-IBM Program provided by us, under its
applicable license terms, that we approve you to market.
Related Company is any corporation, company or other business entity:
1. more than 50 percent of whose voting shares are owned or controlled,
directly or indirectly, by either of us, or
2. which owns or controls, directly or indirectly, more than 50 percent
of the voting shares of either of us, or
3. more than 50 percent of whose voting shares are under common
ownership or control, directly or indirectly, with the voting shares
of either of us.
However, any such corporation, company or other business entity is
considered to be a Related Company only so long as such ownership or
control exists. "Voting shares" are outstanding shares or securities
representing the right to vote for the election of directors or other
managing authority.
Remarketer is a business entity which acquires Products and Services, as
applicable, for the purpose of marketing.
Service is performance of a task, provision of advice and counsel,
assistance, or access to a resource (such as a network and associated
enhanced communication and support) that we approve you to market.
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<PAGE>
2. Agreement Structure and Contract Duration
Profiles
We specify the details of our relationship (for example, the type of
Business Partner you are) in a document called a "Profile." Each of us
agrees to the terms of the Profile, the General Terms, the applicable
Attachments referred to in the Profile, and the Exhibit (collectively
called the "Agreement") by signing the Profile.
General Terms
The General Terms apply to all of our Business Partners.
Attachments
We describe, in a document entitled an "Attachment", additional terms that
apply. Attachments may include, for example, terms that apply to the
method of Product distribution (Remarketer Terms Attachment or
Complementary Marketing Terms Attachment) and terms that apply to the type
of Business Partner you are, for example, the terms that apply to a
Distributor relationship as described in the Distributor Attachment. We
specify in your Profile the Attachments that apply.
Exhibits
We describe in an Exhibit, specific information about Products and
Services, for example, the list of Products and Services, and warranty
information about the Products.
Transaction Documents
We will provide to you the appropriate "transaction documents." The
following are examples of transaction documents, with examples of the
information and responsibilities they may contain:
1. invoices (item, quantity, payment terms and amount due); and
2. order acknowledgements (confirmation of Products and quantities
ordered).
Conflicting Terms
If there is a conflict among the terms in the various documents, the terms
of:
1. a transaction document prevail over those of all the documents;
2. an Exhibit prevail over the terms of the Profile, Attachments and
the General Terms;
3. a Profile prevail over the terms of an Attachment and the General
Terms; and
4. an Attachment prevail over the terms of the General Terms.
If there is an order of precedence within a type of document, such order
will be stated in the document (for example, the terms of the Distributor
Attachment prevail over the terms of the Remarketer Terms Attachment, and
will be so stated in the Distributor Attachment).
Our Acceptance of Your Order
Products and Services become subject to this Agreement when we accept your
order by:
1. sending you a transaction document; or
2. providing the Products or Services.
BXGT-02-00 11/98 Page 3 of 25
<PAGE>
Acceptance of the Terms in a Transaction Document
You accept the terms in a transaction document by doing any of the
following:
1. signing it (those requiring a signature must be signed);
2. accepting the Product or Services;
3. providing the Product or Services to your Customer; or
4. making any payment for the Product or Services.
Contract Duration
We specify the contract start date and the duration in your Profile.
Unless we specify otherwise in writing, the Agreement will be renewed
automatically for subsequent two year periods. However, you may advise us
in writing not to renew the Agreement. Each of us is responsible to
provide the other three months' written notice if this Agreement will not
be renewed.
3. Our Relationship
Responsibilities
Each of us agrees that:
1. you are an independent contractor, and this Agreement is
non-exclusive. Neither of us is a legal representative or legal
agent of the other. Neither of us is legally a partner of the other
(for example, neither of us is responsible for debts incurred by the
other), and neither of us is an employee or franchise of the other,
nor does this Agreement create a joint venture between us:
2. each of us is responsible for our own expenses regarding fulfillment
of our responsibilities and obligations under the terms of this
Agreement;
3. neither of us will disclose the terms of this Agreement, unless both
of us agree in writing to do so, or unless required by law;
4. neither of us will assume or create any obligations on behalf of the
other or make any representations or warranties about the other,
other than those authorized;
5. any terms of this Agreement, which by their nature extend beyond the
date this Agreement ends, remain in effect until fulfilled and apply
to respective successors and assignees;
6. we may withdraw a Product or Service from marketing at any time;
7. we will allow the other a reasonable opportunity to comply before it
claims the other has not met its obligations, unless we specify
otherwise in the Agreement;
8. neither of us will bring a legal action against the other more than
two years after the cause of action arose, unless otherwise provided
by local law without the possibility of contractual waiver;
9. failure by either of us to insist on strict performance or to
exercise a right when entitled does not prevent either of us from
doing so at a later time, either in relation to that default or any
subsequent one;
10. neither of us is responsible for failure to fulfill obligations due
to causes beyond the reasonable control of either of us:
11. IBM reserves the right to assign, in whole or in part, this
Agreement to a Related Company, but may assign its rights to payment
or orders placed hereunder to any third party;
12. IBM does not guarantee the results of any of its marketing plans;
and
13. each of us will comply with all applicable laws and regulations
(such as those governing consumer transactions).
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Other Responsibilities
You agree:
1. to be responsible for customer satisfaction for all your activities,
and to participate in customer satisfaction programs as we
determine:
2. that your rights under this Agreement are not property rights and,
therefore, you can not transfer them to anyone else or encumber them
in any way. For example, you can not sell your approval to market
our Products or Services or your rights to use our Trademarks;
3. to maintain the criteria we specified when we approved you;
4. to achieve and maintain the certification requirements for the
Products and Services you are approved to market, as we specify in
your Profile;
5. not to assign or otherwise transfer this Agreement, your rights
under this Agreement, or any of its approvals, or delegate any
duties, unless expressly permitted to do so in this Agreement.
Otherwise, any attempt to do so is void;
6. to conduct business activities with us (including placing orders)
which we specify in the operations guide, using our automated
electronic system if available. You agree to pay all your expenses
associated with it such as your equipment and communication costs;
7. that when we provide you with access to our information systems, it
is only in support of your marketing activities. Programs we provide
to you for your use with our information systems, which are in
support of your marketing activities, are subject to the terms of
their applicable license agreements, except you may not transfer
them;
6. to promptly provide us with documents we may require from you or the
End User (for example, our license agreement signed by the End User)
when applicable; and
9. to comply with the highest ethical principles in performing under
the Agreement. You will not offer or make payments or gifts
(monetary or otherwise) to anyone for the purpose of wrongfully
influencing decisions in favor of IBM, directly or indirectly. IBM
may terminate this Agreement immediately in case of 1) a breach of
this clause or 2) when IBM reasonably believes such a breach has
occurred or is likely to occur.
Our Review of Your Compliance with this Agreement
We may periodically review your compliance with this Agreement. You agree
to provide us with relevant records on request. We may reproduce and
retain copies of these records. We, or an independent auditor, may conduct
a review of your compliance with this Agreement on your premises during
your normal business hours.
If, during our review of your compliance with this Agreement, we find you
have materially breached the terms of this relationship, in addition to
our rights under law and the terms of this Agreement, for transactions
that are the subject of the breach, you agree to refund the amount equal
to the discount (or fee, if applicable) we gave you for the Products or
Services or we may offset any amounts due to you from us.
4. Status Change
You agree to give us prompt written notice (unless precluded by law or
regulation) of any change or anticipated change in your financial
condition, business structure, or operating environment (for example, a
material change in equity ownership or management or any substantive
change to information supplied in your application). Upon notification of
such change, (or in the event of failure to give notice of such change)
IBM may, at its sole discretion, immediately terminate this Agreement.
5. Confidential Information
This section comprises a Supplement to the IBM Agreement for Exchange of
Confidential information. "Confidential Information" means:
1. all information IBM marks or otherwise states to be confidential;
2. any of the following prepared or provided by IBM;
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a. sales leads,
b. information regarding prospects or Customers
c. unannounced information about Products and Services,
d. business plans, or
e. market intelligence;
3. any of the following written information you provide to us on our
request and which you mark as confidential;
a. reporting data,
b. financial data, or
c. the business plan.
All other information exchanged between us is nonconfidential, unless
disclosed under a separate Supplement to the IBM Agreement for Exchange of
Confidential Information.
6. Marketing Funds and Promotional Offerings
We may provide marketing funds and promotional offerings to you. If we do,
you agree to use them according to our guidelines and to maintain records
of your activities regarding the use of such funds and offerings for three
years. We may withdraw or recover marketing funds and promotional
offerings from you if you breach any terms of the Agreement. Upon
notification of termination of the Agreement, marketing funds and
promotional offerings will no longer be available for use by you, unless
we specify otherwise in writing.
7. Production Status
Each IBM Machine is manufactured from new parts, or new and used parts. In
some cases, the IBM Machine may not be new and may have been previously
installed. Regardless of the IBM Machine's production status, our
appropriate warranty terms apply. You agree to inform your Customer of
these terms in writing (for example, in your proposal or brochure).
8. Patents and Copyrights
For the purpose of this section only, the term Product includes Licensed
Internal Code (if applicable).
If a third party claims that a Product we provide under this Agreement
infringes that party's patents or copyrights, we will defend you against
that claim at our expense and pay all costs, damages, and attorneys' fees
that a court finally awards, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.
If you maintain an inventory, and such a claim is made or appears likely
to be made about a Product in your inventory, you agree to permit us
either to enable you to continue to market and use the Product, or 10
modify or replace it. If we determine that none of these alternatives is
reasonably available, you agree to return the Product to us on our written
request. We will then give you a credit, as we determine, which will be
either 1) the price you paid us for the Product (less any price-reduction
credit), or 2) the depreciated price.
This is our entire obligation to you regarding my claim of infringement.
Claims for Which We Are Not Responsible
We have no obligation regarding any claim based on any of the following:
1. anything you provide which is incorporated into a Product;
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2. your modification of a Product, or a Program's use in other than its
specified operating environment;
3. the combination, operation, or use of a Product with any Products
not provided by us as a system, or the combination, operation, or
use of a Product with any product, data, or apparatus that we did
not provide; or
4. infringement by a non-IBM Product alone, as opposed to its
combination with Products we provide to you as a system.
9. Liability
Circumstances may arise where, because of a default or other liability,
one of us is entitled to recover damages from the other. In each such
instance, regardless of the basis on which damages can be claimed, the
following terms apply as your exclusive remedy and our exclusive
liability.
Our Liability
We are responsible for no more than:
1. payments referred to in the "Patents and Copyrights" section above;
2. damages for bodily injury (including death) caused by our
negligence;
3. actual direct loss or damage to real property or tangible personal
property caused by our negligence; and
4. the amount of any other actual direct loss or damage arising from
our negligence or breach of this Agreement, up to the greater of
U.S. $100,000 (or equivalent) or the charges for the Product or
Service that is the subject of the claim.
Items for Which We Are Not Liable
Under no circumstances (except as required by law) are we liable for any
of the following:
1. third-party claims against you for damages (other than those under
the first three items above in the subsection entitled "Our
Liability");
2. loss of, or damage to, your records or data; or
3. special, incidental, or indirect damages, or for any economic
consequential damages (including lost profits or savings) even if we
are informed of their possibility.
Your Liability
In addition to damages for which you are liable under law and the terms of
this Agreement, you will indemnify us for claims made against us by others
(particularly regarding statements, representations or warranties not
authorized by us) arising out of your conduct under this Agreement or as a
result of your relations with anyone else.
10. Trademarks
We will notify you in written guidelines of the IBM Business Partner title
and emblem which you are authorized to use. You may not modify the emblem
in any way. You may use our Trademarks (which include the title, emblem,
IBM trade marks and service marks) only:
1. within the geographic scope of this Agreement;
2. in association with Products and Services we approve you to market;
and
3. as described in the written guidelines provided to you.
The royalty normally associated with non-exclusive use of the Trademarks
will be waived, since the use of this asset is in conjunction with
marketing activities for Products and Services.
You agree to promptly modify any advertising or promotional materials that
do not comply with our guidelines. If you receive any complaints about
your use of a Trademark, you agree to promptly notify us. When this
Agreement ends, you agree to promptly stop using our
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Trademarks, if you do not, you agree to pay any expenses and fees we incur
in getting you to stop.
You agree not to register or use any mark that is confusingly similar to
any of our Trademarks.
Our Trademarks, and any goodwill resulting from your use of them, belong
to us.
11. Changes to the Agreement Terms
We may change the terms of this Agreement by giving you one month's
written notice. We may, however, change the following terms without
advance notice:
1. those we specify in this Agreement as not requiring advance notice;
2. those of the Exhibit unless otherwise limited by this Agreement; and
3. those relating to safety and security.
Otherwise, for any other change to be valid, both of us must agree in
writing. Changes are not retroactive. Additional or different terms in any
written communication from you (such as an order), are void.
12. Internal Use Products
You may acquire Products you are approved to market for your internal use
within your Business Partner operations. Except for personal computer
Products, you are required to advise us when you order Products for your
internal use.
We will specify in your Exhibit the discount or price, as applicable, at
which you may acquire the Products for internal use. Except for personal
computer Products, such Products do not count toward 1) your minimum
annual attainment 2) determination of your discount or price, as
applicable or 3) determining your marketing or promotional funds.
Any value added enhancement or systems integration services otherwise
required by your relationship is not applicable when you acquire Products
for internal use. You must retain such Products for a minimum of 12
months, unless we specify otherwise in the Exhibit.
13. Demonstration, Development and Evaluation Products
You may acquire Products you are approved to market for demonstration,
development and evaluation purposes, unless we specify otherwise in the
Exhibit. Such Products must be used primarily in support of your Product
marketing activities.
We will specify in your Exhibit the Products we make available to you for
such purposes, the applicable discount or price, and the maximum quantity
of such Products you may acquire and the period they are to be retained.
The maximum number of input/output devices you may acquire is the number
supported by the system to which they attach.
If you acquired the maximum quantity of Machines, you may still acquire a
field upgrade, if available.
We may decrease the discount we provide for such Products on one month's
written notice.
You may make these Products available to Customer for the purpose of
demonstration and evaluation. Such Products may be provided to an End User
for no more than three months. For a Program, you agree to ensure the
Customer has been advised of the requirement to accept the terms of a
license agreement before using the Program.
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<PAGE>
14. Electronic Communications
Each of us may communicate with the other by electronic means, and such
communication is acceptable as a signed writing to the extent permissible
under applicable law. Both of us agree that for all electronic
communications, an identification code (called a "user ID") contained in
an electronic document is sufficient to verify the sender's Identity and
the document's authenticity.
15. Geographic Scope
All the rights and obligations of both of us are valid only in (country
name).
16. Governing Law
The laws of (country name) govern this Agreement.
The "United Nations Convention on Contracts for the International Sale of
Goods" does not apply.
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<PAGE>
IBM Business Partner Agreement -
General Terms
- --------------------------------------------------------------------------------
Country Unique General Terms
The following terms amend the General Terms, in the specific Countries, as
noted.
ASIA PACIFIC
The following terms apply to all countries in Asia Pacific except Australia and
New Zealand.
Section 1- Definitions
The following replaces the definition of End User
End User is anyone who uses Services or acquires Products for its own use and
not for resale
Section 12- Internal Use Products
The following paragraph replaces the second paragraph:
We will specify in your Exhibit the discount or price, as applicable, at which
you may acquire the Products for Internal use.
The following terms apply to the specific countries in Asia Pacific, as noted:
ASEAN COUNTRIES
Section 16- Governing Law
For personal computer Products acquired X-hub, add the following at the end of
this Section:
Disputes and differences arising out of or in connection with this Agreement
shall be finally settled by arbitration which shall be held in Singapore in
accordance with the Rules of the International Chamber of Commerce (ICC). The
arbitrator or arbitrators designated in conformity with those rules shall have
power to rule on their own competence and on the validity of the Agreement to
submit to arbitration. The arbitration award shall be final and binding for the
parties, without appeal, and the arbitral award shall be in writing and set
forth the findings of fact and the conclusion of law.
All proceedings shall be conducted, including all documents presented in such
proceedings, in the English language. The number of arbitrators shall be three,
with each side to the dispute being entitled to appoint one arbitrator. The two
arbitrators appointed by the Parties shall appoint a third arbitrator before
proceeding upon the reference. The third arbitrator shall act as chairman of the
proceedings. Vacancies to the post of chairman shall be filled by the president
of the ICC. Other vacancies shall be filled by the respective nominating party.
Proceedings shall continue from the stage they were at when the vacancy
occurred.
If one of the parties refuses or otherwise fails to appoint an arbitrator within
one month of the date the other party appoints its, the first appointed
arbitrator shall be the sole arbitrator, provided that the arbitrator was
validly and properly appointed.
AUSTRALIA
Section 9- Liability
Add the following after the subsection entitled "Our Liability":
Where we are in breach of a condition or warranty implied by the Trade Practices
Act of 1974: 1) our liability is limited to, for services, the payment of the
cost of having the services supplied again, and for goods, the repair or
replacement of the goods or the supply of equivalent goods; and 2) where this
condition or warranty relates to the right to sell, quiet possession or clear
title (i.e.,
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<PAGE>
Section 69 of the Trade Practices Act), or the goods are of a kind ordinarily
acquired for personal, domestic, or household use or consumption, then none of
the limitations in this Section apply.
INDIA
Section 3- Our Relationship
In the subsection entitled "Responsibilities" the following replaces Item 8:
If no suit or other legal action is brought within two years after the cause of
action arose, in respect to any claim that either of us may have against the
other, the rights of the concerned party in respect to such claim shall be
forfeited and the other party shall stand released from its obligations in
respect to such claim;
Section 9- Liability
In the subsection entitled "Our Liability" the following replaces Items 2, 3,
and 4:
2. liability for bodily injury (including death) or damage to real property and
tangible personal property shall be limited to that caused by our negligence;
and
3. as to any other actual loss or damage arising in any situation involving
non-performance by us pursuant to, or in any way related to the subject of this
Agreement, our liability will be limited to the charge paid by you for the
individual Product or Service that is the subject of the claim. For purposes of
this tern, the term "Product" includes License Internal Code and Materials.
INDOCHINA COUNTRIES
The following terms apply to all countries in Indochina (Cambodia, Laos, Myanmar
and Vietnam):
Section 8. Patents and Copyrights
Add the following after the third paragraph in the Section:
We make no representation or warranties regarding the copyright status of
Products and Services in (country name).
Section 16- Governing Law
Add the following after the second paragraph in this Section:
Disputes and differences arising out of or in connection with this Agreement
shall be finally settled by arbitration which shall be held in Singapore in
accordance with the Rules of the International Chamber of Commerce (ICC). The
arbitrator or arbitrators designated in conformity with those rules shall have
power to rule on their own competence and on the validity of the Agreement to
submit to arbitration. The arbitration award shall be final and binding for the
parties without appeal and the arbitral award shall be in writing and set forth
the findings of fact and the conclusions of law.
All proceedings shall be conducted, including all documents presented in such
proceedings, in the English language. The number of arbitrators shall be three,
with each side to the dispute being entitled to appoint one arbitrator.
The two arbitrators appointed by the parties shall appoint a third arbitrator
before proceeding upon the reference. The third arbitrator shall act as chairman
of the proceedings. Vacancies in the post of chairman shall be filled by the
president of the ICC. Other vacancies shall be filled by the respective
nominating party. Proceedings shall continue from the stage they were at when
the vacancy occurred.
If one or the parties refuses or otherwise fails to appoint an arbitrator within
3D days of the date the other party appoints its, the first appointed arbitrator
shall be the sole arbitrator, provided that the arbitrator was validly and
properly appointed.
The English language version of this Agreement prevails over any (country name)
language version.
JAPAN
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<PAGE>
When creating the local Japan contract do not include items 9 and 10 in Section
3- Our Relationship, subsection "Responsibilities".
Section 8- Patents and Copyrights
After the word "patents" in the second paragraph, add the following:
(including utility model registrations and design registrations)
Section 9- Liability
The following is an additional term and follows item 4 in the subsection
entitled "Our Liability":
However, if you cancel the contract for the Machine that is the subject of the
claim and you purchase a substitute Machine as a replacement for that Machine
during its warranty period, IBM will only be liable for the difference of the
price between the substitute Machine and the subject Machine.
You agree to insert the following IBM Limitation of Liability statement into
your contract with your End User. If you do not, you agree to compensate IBM for
any End User claim, which we settle and pay, which exceeds IBM's limitation of
liabilities as described in this Section.
"For any defects in an IBM Machine which an End User acquires from you, IBM (for
the purpose of this article only, the term IBM includes IBM Corporation and its
direct or indirect Related Companies) will be liable, including but not limited
to, liability under Japan's Product Liability Law, to the End User only within
the limit set forth hereunder:
1. repair or replacement of the IBM Machine as specified in the Statement of
Limited Warranty provided with the IBM Machine; and
2. bodily injury, including death, or damage to tangible property for which
IBM is legally liable.
In no event will IBM be liable for loss of intangible property including, but
not limited to, data or programs.
If there is a conflict between the terms of the Statement of Limited Warranty
and these terms, the term of the Statement of Limited Warranty will prevail."
Section 16- Governing Law
Add the following after the first paragraph in this Section:
Any doubts concerning this Agreement will be initially resolved between us in
good faith and in accordance with the principle of mutual trust.
NEW ZEALAND
Section 9- Liability
Add the following after the subsection entitled "Our Liability":
The Consumer Guarantees Act 1993 will not apply in respect to any goods and
services which we provide if you require the goods or services for the purpose
of a business as defined in the Act. The implied warranties of merchantability
and fitness for a particular purpose are also excluded. Where services are not
required for the purposes of a business as defined in the Consumer Guarantees
Act 1993 the limitations in this Section are subject to the limitations in that
Act.
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<PAGE>
PEOPLE'S REPUBLIC OF CHINA
Section 16- Governing Law
The following replaces the first paragraph in this Section:
The laws of the State of New York govern this Agreement.
EMEA (EUROPE, MIDDLE EAST, AFRICA)
Listings of the countries or group of countries follows:
ALGERIA
CAPE VERDE
CENTRAL AFRICAN REPUBLIC
CHAD
D.R. OF CONGO
EGYPT
EQUATORIAL GUINEA
ESTONIA
GUINEE BISSAU
ISRAEL
IVORY COAST
LATVIA
LITHUANIA
MOROCCO
PAKISTAN
SOUTH AFRICA
TUNISIA
TURKIYE
IBM CENTRAL AFRICA
Benin Eritrea Malta Sudan
Botswana Ethiopia Mauritania Tanzania
Burkina Faso Gabon Mozambique Toga
Burundi Gambia Niger Uganda
Cabo Verde Ghana Nigeria Zambia
Cameroon Guinea Republique Centre Africaine Zimbabwe
Congo Kenya Rwanda
Cote d'Ivoire Malawi Senegal
Djibouti Mali Sierra
IBM CENTRAL EUROPE AND RUSSIA
Albania Croatia Kirghizia Russia
Armenia Czech Republic Moldavia Slovakia
Azerbaijan
Belarus Georgia Poland Slovenia
Tajikistan
Turkmenistan
Bosnia-Hercegovina Hungary Romania Ukraine
Uzbekistan
Bulgaria Kazakhstan FR Yugoslavia
Former Yugoslav Republic of Macedonia-FYROM
WESTERN EUROPE
Austria Germany Luxembourg Sweden
Belgium Greece Netherlands Switzerland
Denmark Iceland Norway United Kingdom
Finland Ireland Portugal
France Italy Spain
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<PAGE>
EMEA
The following terms apply to all countries in EMEA:
Section 1- Definitions
Enterprise
The second sentence of the definition is not applicable.
Section 3- Our Relationship
The following replaces item 6 of the subsection entitled "Responsibilities":
we may withdraw a Product or Service from 1) a type of Business Partner or a
method of distribution with six months notice, and 2) marketing at any time;
In the subsection entitled "Other Responsibilities":
- the following replaces item 3
- - to maintain the criteria we specify, if any, in the Exhibit;
- Item 4 is not applicable.
- in item 5, add at the end of the first sentence: "or in writing"
the following replaces item 8:
to promptly provide us with documents we may require from you or the End User
(for example, our license agreement signed by the End User and you) when
applicable;
Section 15- Geographic Scope
The terms of this section are not applicable.
The following terms apply to the countries in EMEA, as noted:
The following terms apply to Western Europe:
Section 1- Definitions
Add the following definition:
Western Europe is the following countries:
Austria Germany Luxembourg Sweden
Belgium Greece Netherlands Switzerland
Denmark Iceland Norway United Kingdom
Finland Ireland Portugal
France Italy Spain
The following terms apply to all countries in EMEA except Austria, Germany,
Italy, South Africa and Switzerland, and the countries of Central Europe and
Russia:
Section 3- Our Relationship
Add the following as the last item of the subsection entitled "Other
Responsibilities";
that we may use data about your organization, including your addresses, contact
names revenue data and any other types of data you provide under this Agreement
(Your Data), for the purpose of this Agreement, other related purposes including
the marketing of, and provisions of information about, Products, offerings and
other activities, and for any other business purpose.
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Additionally, you agree that for the above purposes we may disclose or transfer
Your Data to any of our Related Companies (which may also use and transfer Your
Data as described) and to third parties, including subcontractors and
consultants. You agree that Your Data may be transferred to such Related Company
or third party in any country whether or not a member of the European Union.
To the extent that Your Data comprises data about a natural person (for example,
a contact name), you agree to inform that person of the purpose for which such
data are disclosed to us, to obtain their informed consent to that disclosure
and the subsequent use or transfer of that data by us, and to fulfill all other
legal requirements necessary to make such use and transfers legal.
Section 10- Trademarks
The following terms of the TRADEMARKS Section apply to the countries in EMEA, as
noted:
The following terms apply to all countries in Western Europe:
The following replaces item 1 in the first paragraph;
within Western Europe;
The following terms apply to the Republic of South Africa, Namibia, Swaziland
and Lesotho:
The following replaces item 1 in the first paragraph;
in the Republic of South Africa, Namibia, Swaziland and Lesotho;
The following terms apply to all countries in Central Europe and Russia, except
Czech Republic:
The following replaces item 1 in the first paragraph:
within your applicable Territory.
The following terms apply to all other countries in EMEA:
The following replaces item 1 in the first paragraph:
within (country name);
The following terms apply to the specific countries in EMEA, as noted:
AFRICAN COUNTRIES
The following terms apply to the following African countries:
Algeria, Benin, Burkina Paso, Cameroon, Cape Verde, Central African Republic,
Chad, Congo, Djibouti, D.R. of Congo, Equatorial Guinea, Gabon, Gambia, Guinea,
Guinee Bissau, Ivory Coast, Mali, Mauritania, Morocco, Niger, Senegal, Togo, and
Tunisia.
Section 16- Governing Law
The following replaces the entire section:
The laws of France govern this Agreement.
The "United Nations Convention on Contracts for the International Sale of Goods"
does not apply.
All disputes arising out of this Agreement or relating to its violation or
execution, shall be settled by the Commercial Courts of Paris even in matters
concerning multiple parties or impleader actions or emergency protective actions
in summary proceedings or on ex parte motion,
AUSTRIA
Section 3- Our Relationship
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Add the following as the last item of the subsection entitled "Other
Responsibilities":
that we may use data about your organization, including your addresses, contact
names, revenue data and any other types of data you provide under this Agreement
(Your Data), for the purpose of this Agreement, other related purposes including
the marketing of, and provisions of information about, Products, offerings and
other activities, and for any other business purpose.
Additionally, you agree that for the above purposes we may disclose or transfer
Your Data to any of our Related Companies (which may also use and transfer Your
Data as described) and to third parties, including subcontractors and
consultants. You agree that Your Data may be transferred to such Related Company
or third party in any country whether or not a member of the European Union.
To the extent that Your Data comprises data about a natural person (for example,
a contact name) or a legal person (for example, your customer's data), you agree
to inform these persons of the purpose for which such data are disclosed to us,
to obtain their informed consent to that disclosure and the subsequent use or
transfer of that data by us, and to fulfill all other legal requirements
necessary to make such use and transfers legal.
Section 9- Liability
The following replaces item 4 in the subsection entitled "Our Liability":
the amount of any other actual direct loss or damage arising from our slight
negligence in case of the violation of essential contractual terms or breach of
this Agreement, up to the greater of ATS 1,500,000 or the charges for the
Product that is the subject of the claim. This limitation does not apply to
damages caused by us with fraud or gross negligence and for express warranty.
Section 16- Governing Law
The following replaces the first paragraph in this Section:
This Agreement is governed by the substantive laws of Austria.
CENTRAL AFRICA
The following terms apply to all countries in Central Africa:
Section 9- Liability
The following replaces item 4 in the subsection entitled "Our Liability":
the amount of any other actual direct loss or damage arising from our negligence
or breach of this Agreement up to the charges for the Product or Service that
is the subject of the claim.
CENTRAL EUROPE AND RUSSIA
The following terms apply to all countries in Central Europe and Russia except
Czech Republic:
Section 1- Definitions
Add the following at the end of the definition of "Service":
Any reference to IBM with regard to Service shall mean the respective local IBM
Company to which such part of the Agreement has been assigned.
Section 2- Agreement Structure and Contract Duration
Add the following as a new paragraph before the subsection entitled "Pro
files":
IBM World Trade Corporation's signature may be replaced by a written
confirmation by IBM Central Europe and Russia Inc. or the relevant IBM country
organization, that IBM World Trade Corporation has accepted the subject
Agreement or other documents as applicable.
The following replaces the terms of the subsection entitled "Our Acceptance of
Your Order":
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<PAGE>
Products and Services become subject to this Agreement when we accept your order
by confirming our acceptance of your order in writing, but no later than when
the Products or Services are provided to you.
Section 3- Our Relationship
In the subsection entitled "Responsibilities":
Add the following as the second sentence of item 3:
However, you agree that IBM may disclose the terms of the Agreement and submit
relevant documents to a financial institution under a non-disclosure obligation
if you request deviations from the pre-payment terms. For this purpose, such
information shall not be considered confidential even if so marked.
In item 8 replace the words "local law" with "applicable law".
The following is added to Item 11:
IBM reserves the right to have this Agreement or any part thereof performed by
another IBM organization or designee. The names of the local IBM organizations
and designees are provided in the operations guide.
Add the following as the last items in the Section:
14. IBM's or its designee's performance under this Agreement is subject to
export licensing, and that such licensing is beyond IBM's control and that IBM
does not assume any responsibility for it. You agree to provide any information
necessary to apply for such approvals and to comply with all conditions of such
approvals.
Notwithstanding the definition of your authorization to market Products and
Services, you should be aware that export, relocation or re-direction of
Products and Services and related items is subject to regulations, for example,
of the country of installation, the United States of America and the original
country of export, and may be prohibited by law. It is your responsibility to
comply with any such regulations and to obtain all necessary licenses as
applicable.
We may terminate this Agreement on written notice if we have reason to believe
that you have violated these terms or that such violation is likely to occur;
15. IBM will make any payments under this Agreement at its election in U.S.
dollars or in the local currency of the country in which the responsibilities
have been performed, based on the official exchange rate on the date of payment,
to your bank account held in your name in the country in which the
responsibilities have been performed or in which you are located.
Add the following as the last item in the subsection entitled "Other
Responsibilities":
that, to the extent permitted by applicable law, we may use data about your
organization, including your addresses, contact names, revenue data and any
other types of data you provide under this Agreement (Your Data), for the
purpose of this Agreement, other related purposes including the marketing of,
and provisions of information about, Products, offerings and other activities,
and for any other business purpose.
Additionally, you agree that for the above purposes we may disclose or transfer
Your Data to any of our Related Companies (which may also use and transfer Your
Data as described) and to third parties. Including subcontractors and
consultants. You agree that Your Data may be transferred to such Related Company
or third party in any country whether or not a member of the European Union.
To the extent that Your Data comprises data about a natural person (for example,
a contact name), you agree to inform that person of the purpose for which such
data are disclosed to us, to obtain their informed consent to that disclosure
and the subsequent use or transfer of that data by us, and to fulfill all other
legal requirements necessary to make such use and transfers legal.
Section 16- Governing Law
BXGT-02-00 11/98 Page 17 of 25
<PAGE>
Change the title of the "Governing Law" section to "Governing Law and
Arbitration/Jurisdiction".
The following replaces the first paragraph in this Section:
All disputes arising out of this Agreement or related to its violation,
termination or nullity shall be finally settled under Rules of Arbitration and
Conciliation of the Federal Economic Chamber in Vienna (Vienna Rules) by three
arbitrators appointed in accordance with these rules. The arbitration shall be
held in Vienna, Austria and the official language of the proceedings shall be
English. The decision of the arbitrators shall be final and binding upon both
parties and therefore the parties pursuant to paragraph 598 (2) of the Austrian
Code of Civil Procedure expressly waive the application of paragraph 595 (1)
Figure 7 of the said code. The clause set forth above shall, however, in no way
limit IBM's right to institute proceedings in any competent court.
This Agreement is governed by the substantive laws of Austria exclusive or its
conflict of laws provisions.
CZECH REPUBLIC
Section 3. Our Relationship
Add the following as the last item in the subsection entitled "Other
Responsibilities":
that, to the extent permitted by applicable law, we may use data about your
organization, including your addresses, contact names, revenue data and any
other types of data you provide under this Agreement (Your Data), for the
purpose of this Agreement, other related purposes including the marketing of,
and provisions of information about, Products, offerings and other activities,
and for any other business purpose.
Additionally, you agree that for the above purposes we may disclose or transfer
Your Data to any of our Related Companies (which may also use and transfer Your
Data as described) and to third parties, including subcontractors and
consultants. You agree that Your Data may be transferred to such Related Company
or third party in any country whether or not a member of the European Union.
To the extent that Your Data comprises data about a natural person (for example,
a contact name), you agree to inform that person of the purpose for which such
data are disclosed to us, to obtain their informed consent to that disclosure
and the subsequent use or transfer of that data by us, and to fulfill all other
legal requirements necessary to make such use and transfers legal.
Section 18- Governing Law
Add the following as the second paragraph of this Section:
All disputes arising out of this Agreement or related to its violation,
termination or nullity shall be finally settled by Commercial Court in Prague.
ESTONIA
Section 15- Governing Law The following replaces the first paragraph of this
Section:
All disputes arising in conjunction with this Agreement shall be settled in
arbitration. Each party shall appoint an arbitrator and the parties shall
jointly appoint the Chairman. If the parties can not agree on who the Chairman
will be, then the Central Chamber of Commerce in Helsinki will appoint the
Chairman. In arbitration, the Law on Arbitration will be binding. The
arbitrators shall come together in Helsinki.
Finnish law will apply.
FRANCE
Section 16- Governing Law
Add the following as the second paragraph of this Section:
BXGT-02-00 11/98 Page 18 of 25
<PAGE>
All disputes arising out of this Agreement or related to its violation or
execution, including summary proceedings, shall be settled exclusively by the
Commercial Court of Paris.
GERMANY
Section 1- Definitions
Add the following at the end of the definition of End User:
The End User may also be a lessor when it finances Products for use by a
designated End User and a Certification is signed by the lessor and the
designated End User.
Section 3- Our Relationship
Add the following to the beginning of item 5 in the subsection entitled "Other
Responsibilities":
notwithstanding the regulations set forth in 354a HGB.
Add the following in bold typeface, as the last item of the subsection entitled
"Other Responsibilities":
that we may use data about your organization, including your addresses, contact
names, revenue data and any other types of data you provide under this Agreement
including personal data (Your Data), for the purpose of this Agreement, other
related purposes including the marketing of, and provisions of information
about, Products, offerings and other activities, and for any other business
purpose.
Additionally, you agree that for the above purposes we may disclose or transfer
Your Data to any of our Related Companies (which may also use and transfer Your
Data as described) and to third parties, including subcontractors and
consultants. You agree that Your Data may be transferred to such Related Company
or third party in any country whether or not a member of the European Union.
To the extent that Your Data comprises data about a natural person (for example,
a contact name), you agree to inform that person of the purpose for which such
data are disclosed to us, to obtain their informed consent to that disclosure
and the subsequent use or transfer of that data by us, and to fulfill all other
legal requirements necessary to make such use and transfers legal.
Section 9- Liability
The following replaces item 4 in the subsection entitled "Our Liability":
The amount of any other actual direct loss or damage arising from our slight
negligence in case of the violation of essential contractual terms or breach of
this Agreement, up to the greater of DM 1.000.000 or the charges for the Product
that is the subject of the claim. This limitation does not apply to damages
caused by us with fraud or gross negligence and for express warranty.
IRELAND
Section 9- Liability
The following replaces the fourth item in the subsection entitled "Our
Liability":
The amount of any other actual direct loss or damage arising from our negligence
or breach of this Agreement up to the greater of U.S. $100,000 (or equivalent)
or 125% of the charges for the Product or Service that is the subject of the
claim.
Add the following as the last item in the subsection entitled "Items for Which
We Are Not Responsible":
except as expressly provided in these terms and Section 12 of the Sale of Goods
Act 1893 as amended by (Section 39 of) the Sale of Goods and Supply of Services
Act 1980, all conditions and warranties (express or implied, statutory or
otherwise) are excluded, including without limitation any warranties implied by
the Sale of Goods Act 1893 as amended by the Sale of Goods and Supply of
Services Act 1980.
BXGT-02-00 11/98 Page 19 of 25
<PAGE>
ITALY
Section 2- Agreement Structure and Contract Duration
Add the following as the last paragraph of the subsection entitled "Acceptance
of the Terms in a Transaction Document":
You must give your express acceptance of specific clauses.
Section 3- Our Relationship
Add the following as the last item of the subsection entitled "Other
Responsibilities":
that we may use data about your organization, including your addresses, contact
names, revenue data and any other types of data you provide under this Agreement
(Your Data), for the purpose of this Agreement, other related purposes including
the marketing of, and provisions of information about, Products, offerings and
other activities, and for any other business purpose.
Additionally, you agree that for the above purposes we may disclose or transfer
Your Data to any of our Related Companies (which may also use and transfer Your
Data as described) and to third parties, including subcontractors and
consultants. You agree that Your Data may be transferred to such Related Company
or third party in any country whether or not a member of the European Union.
To the extent that Your Data comprises data about a natural person (for example,
a contact name) or a legal person (for example, your customers data), you agree
to inform these persons of the purpose for which such data are disclosed to us,
to obtain their informed consent to that disclosure and the subsequent use or
transfer of that data by us, and to fulfill all other legal requirements
necessary to make such use and transfers legal.
Section 7- Production Status
The following replaces the first sentence:
Each IBM Machine is manufactured from new parts, or new and recycled parts.
Section 9- Liability
The following replaces, in its entirety, the subsection entitled "Our
Liability":
Unless otherwise provided by mandatory law, we are liable only for:
1. payments referred to in the "Patents and Copyrights" section above;
2. damages for bodily injury (including death) and damage to real property
and tangible personal property caused solely by our negligence; and
3. as to any other actual loss or damage arising in all situations involving
non-performance by us pursuant to, or in any way related to, the subject
matter of this Agreement, our liability will be limited to the total
amount you paid for the Product or Service that is the subject of the
claim. For purposes of this Item, the term "Product" includes Licensed
internal Code and Materials.
This limit also applies to any of our subcontractors and Program
developers. It is the maximum for which we and our subcontractors and
Program developers are collectively responsible.
The following replaces in its entirety the terms in the subsection entitled
"Items for Which We Are Not Liable":
Unless otherwise provided by mandatory law, we, our subcontractors and our
Program developers are not liable for any of the following:
1. third party claims against you for damages (other than those under the
first two items above in the subsection entitled "Our Liability"):
2. loss of, or damage to, your records or data; or
3. indirect damages, even if we are informed of their possibility.
Section 16- Governing Law
BXGT-02-00 11/98 Page 20 of 25
<PAGE>
Add the following as the second paragraph in this Section:
All disputes arising out of this Agreement or related to its violation and
execution shall be exclusively settled by the court of Milan.
LATVIA
Section 16- Governing Law
The following replaces the first paragraph in this Section:
All disputes arising in conjunction with this Agreement shall be settled in
arbitration. Each party shall appoint an arbitrator and the parties shall
jointly appoint the Chairman. If the parties can not agree on who the Chairman
will be, then the Central Chamber of Commerce in Helsinki will appoint the
Chairman. In arbitration, the Law on Arbitration will be binding. The
arbitrators shall come together in Helsinki.
Finnish law will apply.
LITHUANIA
Section 16- Governing Law
The following replaces the first paragraph in this Section:
All disputes arising in conjunction with this Agreement shall be settled in
arbitration. Each party shall appoint an arbitrator and the parties shall
jointly appoint the Chairman. If the parties can not agree on who the Chairman
will be, then the Central Chamber of Commerce in Helsinki will appoint the
Chairman. In arbitration, the Law on Arbitration will be binding. The
arbitrators shall come together in Helsinki.
Finnish law will apply.
SOUTH AFRICA
Section 3- Our Relationship
Add the following as the last item of the subsection entitled "Other
Responsibilities":
that we may use data about your organization, including your addresses, contact
names, revenue data and any other types of data you provide under this Agreement
(Your Data), for the purpose of this Agreement, other related purposes including
the marketing of, and provisions of information about, Products, offerings and
other activities, and for any other business purpose.
Additionally, you agree that for the above purposes we may disclose or transfer
Your Data to any of our Related Companies (which may also use and transfer Your
Data as described) and to third parties, including subcontractors and
consultants. You agree that Your Data may be transferred to such Related Company
or third party in any country whether or not a member of the European Union.
To the extent that Your Data comprises data about a natural person (for example,
a contact name) or a legal person (for example, your customer's data), you agree
to inform these persons of the purpose for which such data are disclosed to us,
to obtain their informed consent to that disclosure and the subsequent use or
transfer of that data by us, and to fulfill all other legal requirements
necessary to make such use and transfers legal.
Section 9- Liability
The following replaces item 4 in the subsection entitled "Our Liability":
the amount of any other actual direct loss or damage arising from our negligence
or breach of this Agreement, up to the charges for the Product or Service that
is the subject of the claim.
SPAIN
BXGT-02-00 11/98 Page 21 of 25
<PAGE>
Section 2- Agreement Structure and Contract Duration
The following replaces the last sentence in the subsection entitled "Contract
Duration":
You are responsible to provide us with three months' written notice if you will
not be renewing this Agreement. We are responsible to provide you with six
months' written notice if we will not be renewing this Agreement.
SWITZERLAND
Section 3- Our Relationship
Add the following as the last item of the subsection entitled "Other
Responsibilities":
that we may use data about your organization, including your addresses, contact
names, revenue data and any other types of data you provide under this Agreement
(Your Data), for the purpose of this Agreement, other related purposes including
the marketing of, and provisions of information about, Products, offerings and
other activities, and for any other business purpose.
Additionally, you agree that for the above purposes we may disclose or transfer
Your Data to any of our Related Companies (which may also use and transfer Your
Data as described) and to third parties including subcontractors and
consultants. You agree that Your Data may be transferred to such Related Company
or third party in any country whether or not a member of the European Union.
To the extent that Your Data comprises data about a natural person (for example,
a contact name) or a legal person (for example, your customer's date), you agree
to inform these persons of the purpose for which such data are disclosed to us,
to obtain their informed consent to that disclosure and the subsequent use or
transfer of that data by us, and to fulfill all other legal requirements
necessary to make such use and transfers legal.
TURKIYE
Section 3- Our Relationship
The following replaces the last item in the subsection entitled
"Responsibilities":
each of us will comply with all laws and regulations (such as the provisions of
the Consumer Protection Law and all related communiques).
Section 7- Production Status
The following replaces the terms in the Section:
IBM fulfills Customer orders for IBM Machines as newly manufactured in
accordance with IBM's production standards.
Section 15.. Governing Law
Add the following as the second paragraph in this Section:
All conflicts arising from this Agreement will be finally settled by the Courts
of Commerce and Execution Offices of the Main Courthouse of Istanbul
(Sultanahmet).
UNITED KINGDOM
Section 9- Liability
The following replaces item 4 in the subsection entitled "Our Liability":
the amount of any other actual direct loss or damage arising from our negligence
or breach of this Agreement up to the greater of U.S. $100,000 (or equivalent)
or 125% of the charges for the Product or Service that is the subject of the
claim.
BXGT-02-00 11/98 Page 22 of 25
<PAGE>
Add the following as item 5 in the subsection entitled "Our Liability":
any breach of the obligations implied by Section 12 of the Sales of Goods Act
1979 or Section 2 of the Supply of Goods and Services Act 1982.
LATIN AMERICA
Listings of the countries and groups of countries follow:
Brazil
Costa Rica
Dominican Republic*
El Salvador*
Guatemala*
Honduras'
Mexico
Nicaragua*
Panama*
Andean
Bolivia
Colombia
Ecuador
Peru
Venezuela
Latin America South
Argentina
Chile
Paraguay
Uruguay
(*) This country is covered by General Business Machines (GBM) and not by IBM
locally.
The following terms apply to all countries in Latin America:
Section 2- Agreement Structure and Contract Duration
The following term replaces Item 1 in the subsection entitled "Conflicting
Terms"
a transaction document if it is a signed document, prevails over those of all
the documents;
The following terms apply in the specific country in Latin America, as noted:
COLOMBIA
Section 1- Definitions
Add the following at the end of the End User definition:
and who is not on the Colombia Denial List.
NORTH AMERICA
Listing of the countries and group of countries follows:
CANADA
CARIBBEAN NORTH DISTRICT
BXGT-02-00 11/98 Page 23 of 25
<PAGE>
Bahamas and its sales territories of:
Turks and Caicos Islands
Barbados and its sales territories of:
Antigua Dominica, Grenada, St Kitts, St Lucia and Tortolla
Bermuda
Jamaica and its sales territory of:
Cayman Islands
Netherlands Antilles and its sales territories of:
St. Maarten, Bonaire and Aruba
Suriname
Trinidad and its sales territory of:
Guyana
UNITED STATES OF AMERICA
The following terms apply to Canada and the United States of America:
Section 12- Internal Use Products
The following replaces the second sentence in the second paragraph in this
Section:
Such Products do not count, unless we specify otherwise in the Exhibit, toward
1) your minimum annual attainment, 2) determination of your discount or price,
as applicable, or 3) determining your marketing or promotional funds.
Section 13- Demonstration, Development and Evaluation Products:
Add the following as the third sentence in the first paragraph in this Section;
Additionally, such Products do not count, unless we specify otherwise in the
Exhibit, toward 1) your minimum annual attainment, 2) determination of your
discount or price, as applicable, or 3) determining your marketing or
promotional funds.
The following terms apply in the specific country in North America. as noted;
CANADA
Section 9- Liability
The following replaces items 2, 3 and 4 in the subsection entitled "Our
Liability":
2) bodily injury (including death), and damage to real property and tangible
personal property caused by our negligence: and
3) the amount of any other actual direct damage arising from our negligence or
breach of this Agreement, including fundamental breach, tort or our
misrepresentation, up to the greater of $100,000 or the charges (if recurring,
12 months' charges apply) for the Product or Service that is the subject of the
claim.
The following replaces item 1 the subsection entitled "Items for Which We Are
Not Liable":
1) third-party claims against you for damages (other than those under the first
two items above in the subsection entitled `Our Liability'):"
Section 16- Governing Law
The following replaces the first paragraph in this Section:
The laws of the Province of Ontario govern this Agreement.
BXGT-02-00 11/98 Page 24 of 25
<PAGE>
CARIBBEAN NORTH DISTRICT
Section 9 - Liability
The following replaces items 2, 3 and 4 in the subsection entitled "Our
Liability":
2) bodily injury (including death), and damage to real property and tangible
personal property caused by our negligence; and
3) the amount of any other actual direct damage arising from our negligence or
breach of this Agreement, including fundamental breach, tort or our
misrepresentation, up to the greater of US $100,000 or the charges (if
recurring, 12 months' charges apply) for the Product that is the subject of the
claim.
The following replaces item 1 in the subsection entitled "Items for Which We Are
Not Liable":
1) third-party claims against you for damages (other than those under the first
two items above in the subsection entitled `Our Liability');"
UNITED STATES OF AMERICA
Section 9- Liability
The following replaces items 2, 3 and 4 in the subsection entitled "Our
Liability":
2) bodily injury (including death), and damage to real property and tangible
personal property caused by our Products; and
3) the amount of any other actual loss or damage, up to the greater of $100,000
or the charges (if recurring, 12 months' charges apply) for the Product or
Service that is the subject of the claim.
The following replaces Item 1 in the subsection entitled "Items for Which We Are
Not Liable":
1) third-party claims against you for damages (other than those under the first
two items above in the subsection entitled `Our Liability');"
Section 16- Governing Law
The following replaces the first paragraph in this Section:
The laws of the State of New York govern this Agreement.
BXGT-02-00 11/98 Page 25 of 25
<PAGE>
International Business Partner Agreement [IBM LOGO]
Attachment for Consolidated Statement
- --------------------------------------------------------------------------------
1. Description
The IBM Lead Company ("we") will provide to the Business Partner Lead
Company ("you") a consolidation of your Invoices and those of your local
Business Partner Companies and others we approve (for the purpose of this
Attachment, collectively referred to as "Business Partner Companies") into
a single billing statement (called a "Consolidated Statement"). The local
IBM Companies also will send invoices to you or, at your request, to the
applicable local Business Partner Companies. There is no charge for the
Consolidated Statement Service.
2. Your Responsibilities
You agree to:
1. give us the names and addresses of your Business Partner Companies
that will be included in the Consolidated Statement;
2. notify your Business Partner Companies that you are receiving this
Service and ensure that they have a copy of the IBM Business Partner
Agreement, or any equivalent agreement, that has been signed by you
and us;
- --------------------------------------------------------------------------------
Each of us agrees that the complete agreement between us about this transaction
consists of 1) this Attachment, any other applicable Attachments and Transaction
Documents, and 3) the IBM Business Partner Agreement (or any equivalent
agreement signed by both of us).
Agreed to: (Business Partner Lead Company name)
StarMedia Network Inc.
By: /s/ Betsy Scolnik
------------------------
Authorized Signature
Name (type or print):
Date:
Agreement Number:
Business Partner Lead Company number:
Business Partner Lead Company address:
29 W 36th Street
New York, NY 10016
Agreed to: (IBM Lead Company name)
International Business Machines Corporation
By: /s/ R.L. Dudley
------------------------
Authorized Signature
Name (type or print):
Date:
Attachment number:
IBM Lead Company address:
3405 W. Dr. M. L. King, Jr. Blvd.
Tampa, FL 33607
Attention: Order Fulfillment Services
- --------------------------------------------------------------------------------
After signing, please return a copy of this Agreement to the
"IBM Lead Company address" shown above.
- --------------------------------------------------------------------------------
3/99 Page 1 of 3
<PAGE>
3. comply with the applicable terms we provide to you covering invoices
you will pay on behalf of organizations outside your Enterprise that
you desire to be included in your Consolidated Statement;
4. let us know which currency you want to use to pay the amount
invoiced to you in your Consolidated Statement. Your currency of
choice is subject to our approval. The approved currency will be
specified in the Consolidated Statement. It is the only currency you
may use to make payment under these terms;
5. pay the following by wire (electronic transfer) --
a. undisputed amounts specified in the Consolidated Statement.
Payment must be made to the bank we designate. You must notify
the responsible IBM Lead Company coordinator of any disputed
items in an invoice. The IBM Lead Company coordinator is
identified on each Consolidated Statement;
b. the late payment fee described in section 3, if applicable.
You will not be responsible for payment of late payment fees
on reasonably disputed items; and
c. any banking fees related to your use of this Service,
including any foreign exchange losses suffered by us due to
your fault: and
6. verify that this Service is adequate to meet your needs.
3. Overdue Payments
Your account will be overdue unless you have paid the full amount
specified in your Consolidated Statement within 30 days after the
statement date. When your account becomes overdue, and for each 30 day
period thereafter, we will charge you a late payment fee equal to 1 1/2%
of the unpaid balance. If payment has not been received within 90 days
after the statement date, we will:
1. suspend Invoice consolidation and send unpaid current invoices and
all future invoices to your local Business Partner Companies, who
will be responsible to pay the invoices upon receipt; and
2. keep open unpaid outstanding Consolidated Statements until payment
has been received by our facilitator bank.
When all outstanding amounts due from you and your Business Partner
Companies have been paid, we will reactivate the Consolidated Statement
Service. However, if any Consolidated Statement is not fully paid after
six months, we will immediately terminate the Consolidated Statement
Service and you will be responsible for the charges associated with our
then canceling outstanding Consolidated Statements with our facilitator
bank. Upon cancellation of a Consolidated Statement, we will refer unpaid
balances to the applicable local IBM Companies for collection under their
terms.
4. Credits and Adjustments
Credit entries referring to a previous month's invoice will be converted
to the single currency specified in the Consolidated Statement, using the
current month's foreign exchange rate, not the foreign exchange rate in
effect for the previous month. Invoices received prior to the
consolidation date from a local IBM Company will be included in your
monthly consolidated statement. Invoices received after the consolidation
date will be included in the next month's Consolidated Statement.
5. Termination
You may terminate this Attachment and discontinue your use of the Service
provided under this Attachment, at the end of any month, by giving one
month's written notice to us.
3/99 Page 2 of 3
<PAGE>
We may terminate this Attachment and discontinue the provision of the
Service provided under this Attachment upon three months' written notice
to you, and for late payment as described in section 3 above.
Your obligation to pay in full to us certain charges (for example,
applicable late fees) will survive the termination of this Attachment or a
Consolidated Statement. If applicable, we will inform you of the charges
you are required to pay.
3/99 Page 3 of 3
<PAGE>
[IBM LOGO] Business Partner Agreement
Statement of Work for Custom Solution
- --------------------------------------------------------------------------------
1. Term
This Statement of Work for Custom Solution ("SOW") began upon execution of
the Letter of Authorization to Begin Services between IBM and StarMedia
Networks, dated February 10, 1999, ("Start Date") and shall end
concurrently with the term of your IBM Business Partner Agreement.
2. Definitions
a. "Dialer and Registration Client program" (DRC) shall mean the IBM
owned interactive, communication driven, event-oriented code,
including enhancements and maintenance modifications thereto, which
provides automated dialer, setup and help screen function to the
branded Internet access that will be provided to StarMedia Network
for access to the IBM network and/or IBM Global Network.
b. "StarMedia-branded" shall mean products or services bearing or
reflecting the trademarks or service marks of StarMedia Network.
c. "Enhancements" shall mean any changes or additions to the DRC and
related documentation, including new releases or updates and all
local versions, that improve function, add new function, or improve
performance by changes in system design or coding.
d. "Internet Access Kit" shall mean packaging material, documentation
supplied with and/or containing the DRC customized for StarMedia
Network, StarMedia Network and third party trademarks or service
marks required by all parties.
- --------------------------------------------------------------------------------
Each of us agrees that the complete agreement between us about this transaction
consists of 1) this Statement of Work, 2) the IBM Business Partner Agreement and
its applicable Attachments (or any equivalent agreement signed by both or us),
and 3) other applicable Transaction Documents.
Agreed to
StarMedia Network Inc.
By: /s/ Betsy Scolnik
------------------------
Authorized Signature
Name(type or print): Betsy Scalnik
Date: 3/31/99
Enterprise number:
Business Partner address:
29 W. 36th Street
New York, NY 10018
Agreed to:
International Business Machines Corporation
By: /s/ R.L. Dudley
------------------------
Authorized Signature
Name(type or print): R.L. Dudley
Date: 4-1-99
Agreement number:
Custom Solution number:
IBM Office address:
3405 W. Dr. M. L. King, Jr. Blvd.
Tampa, FL 33607
Attention: Order Fulfillment Services
- --------------------------------------------------------------------------------
After signing, please return a copy of this Statement of Work
to the IBM Office address above.
- --------------------------------------------------------------------------------
March 31, 1999 Page 1 of 6
<PAGE>
3. Description
IBM will provide to you, as a Service ("Custom Solution"), a package of
programs ("Internet Access Kit" or "IAK") that you will remarket to your
End Users for accessing the Internet through the IBM Internet Connection
Service. End Users install the IAK on personal computers that they
provide. We assist End Users with installing the IAK and registering and
connecting to your service. We will customize the IAK program (for
example, to access a World Wide Web home page of your choice) and the
packaging of the IAK (for example, to identify your company). We provide
an Internet electronic mailbox for each registered User Identification.
Each End User will contract with you via an Agreement for Access to
Internet Services and its associated fee schedule that appear when the End
User initially installs the IAK and registers for the Service and which
the End User accepts by using the Service. We will charge the End User for
IBM Internet Connection Service usage by invoicing a credit card number
that the End User provides us during registration.
An End User of the IBM Internet Connection Service may access a range of
Internet applications and utilities such as e-mail, news groups and the
World Wide Web. Some of the networks through which an End User may access
the Internet will be neither owned nor under the control of IBM. We
provide the entry point through which the End User may access these other
networks and the Internet.
End Users that register for your Internet Connection Service will be
identified with a unique identification code ("Offer Code") we assign to
you. This Offer Code enables us to recognize the IAKs you distribute.
IBM does not provide any information or data content hosting services to
you under this SOW and assumes no liability for data or information you
may provide to End Users of the IAK or others.
Neither party makes any representations, or assumes or creates any
obligations, on behalf of the other.
3.1 IAK Components
The IAK consists of:
1. the following programs and documentation on CD-ROM media:
a. an IBM Dialer and Registration Client program ("DRC"),
b. a third party Transmission Control Protocol/Internet Protocol
("TCP/IP") program,
c. a third party World Wide Web browser program, either Microsoft
Internet Explorer or Netscape Navigator as selected by
StarMedia Network, including an integrated e-mail program, and
d. files containing an online user's installation guide; and
2. the following hard copy documents:
a. an IBM Program License Agreement for the IAK branded for
StarMedia Network; and
b. End User instructions for Installing the IAK branded for
StarMedia Network, registering for the Service, and requesting
assistance from IBM.
The DRC provides:
1. dialing to the IBM Internet Connection Service. End Users can dial
any access number provided by IBM Global Services. End Users are
responsible for selecting their initial dial access number during
registration. End Users may subsequently change their dial access
number; and
2. End User registration to the IBM Internet Connection Service. This
includes presenting the End User with the Agreement for StarMedia
Network Access to Internet Services, which contains the terms for
use of the IBM Internet Connection Service, and a fee schedule
specifying the charges
March 31, 1999 Page 2 of 6
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for the IBM Internet Connection Service usage. StarMedia Network may
include customized header and trailer text around IBM'S standard
service agreement and licensing terms.
The IAK Is provided for installation on personal computers running
Windows(R) 3.1, Windows(R) 95, Windows(R) 98, or Windows(R) NT 4.0 with
Service Pack 3 only, and Apple(R) Macintosh. We license TCP/IP programs,
World Wide Web browser programs, and e-mail programs from third party
providers, and we provide them in the IAK as a convenience to End Users.
IBM (or its licensors) retains all title and ownership of the IAK; the
individual programs in the IAK; and any fixes, updates, enhancements or
revisions thereto. IBM reserves the right to change the program components
of the AK without notice to you. You or any other party shall have no
right to modify the IAK or to create derivative works thereof You agree
not to:
1. reverse assemble, reverse compile, or translate the AK programs
except as permitted bylaw without the possibility of contractual
waiver;
2. transfer, rent, lease, or assign the IAK programs, or any copy of
them, except as specifically set forth herein; and
3. modify, patch, alter, or otherwise change the IAK programs, except
as specifically set forth herein
You agree not to alter the terms of the IBM Program License Agreement, the
Agreement for IBM Global Network Access to Internet Services, and its
associated fee schedule, except by adding a customized header and trailer
to which we mutually agree.
THE SERVICE AND ANY PROGRAM OR PRODUCT WE PROVIDE TO YOU AS PART OF THE
SERVICE ARE PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WE AND OUR LICENSORS
DO NOT WARRANT THAT THE SERVICE OR ANY PROGRAM OR PRODUCT WE PROVIDE WILL
MEET YOUR REQUIREMENTS OR THE REQUIREMENTS OF THE END USERS, OR THAT THEIR
OPERATION WILL BE UNINTERRUPTED OR ERROR-FREE. IN ADDITION, WE DO NOT
WARRANT THAT THE SERVICE OR ANY PROGRAM OR PRODUCT WE PROVIDE TO YOU AS
PART OF THE SERVICE IS CAPABLE OF CORRECTLY TRANSMITTING, PROCESSING,
PROVIDING AND/OR RECEIVING DATE DATA WITHIN AND BETWEEN THE TWENTIETH AND
TWENTY-FIRST CENTURIES.
3.2 Traveling User Support
Traveling User Support is intended for incidental travel usage and not to
be used for longer than thirty consecutive days or for more than ninety
nonconsecutive days in a year. Traveling User Support is provided under
the terms and conditions of the IBM Global Services local country network
services provider. End Users who use the IAK and the IBM Internet
Connection Service to access the Internet from countries other than the
United States are responsible for complying with all applicable laws,
including (but not limited to) all matters related to the import and
export of technical data, computer equipment, and software. End Users are
responsible for local country dial telephone access charges as applicable,
3.3 IAK Program Customization
We will provide you with a copy of the "Customizing the IBM Internet
Connection" document, which specifies the guidelines for customization of
the IAK programs. At your request, we will customize the programs to meet
your requirements subject to these guidelines. IBM agrees that we will
customize the IAK Programs so the entire End User interface shall be in
Spanish or Portuguese languages, depending on the local native language.
March 31, 1999 Page 3 of 6
<PAGE>
3.4 IAK Packaging Customization
StarMedia Network shall have the right to distribute the IAK to personal
computer manufacturers and vendors.
We will provide you a copy of the "IBM Internet Connection Packaging
Guidelines" document, and all customized packaging shall be in strict
accordance with this document and this Section 3.4. At your request, we
will customize the packaging to meet your requirements subject to these
guidelines. You agree to provide IBM a sample or representative mockup of
your desired IAK package. CD-ROM labels, and flyers and/or hard copy
inserts for our review and you agree to make changes that IBM may request
before distributing the AK.
Only StarMedia Network's branding and branding of third parties designated
by StarMedia Network will appear on the IAK shipping package, CD-ROM,
installation screens; registration; icon and program group names: default
installation directory; dialer message screens during installation and
documentation; marketing materials, press releases, promotional or sales
presentations; and in advertising, (collectively "Marketing Materials")
Some IBM and third party trademarks, service marks, and logos may be
necessary on the packaging to refer to product content, as opposed to
branding. Each party acknowledges the other party's rights in and to their
respective trademarks, service marks. logos, and other proprietary marks
(collectively "Marks"). Nothing in this SOW shall be construed to grant
either party any rights in or to the other party's Marks.
Each party shall use its specific trademark(s), trade name(s) and product
name(s) (designated as either "IBM Marks" (which shall include third party
Marks licensed to IBM) or "Your Marks") as mutually agreed between the
parties from time to time in conjunction with the advertising and
marketing of the IAK and the IBM Service. Each party shall be responsible
for determining the artwork and communication standards related to the use
of its Marks. The parties shall mutually review and comment on any
proposed Marketing Materials which reference its Marks and take reasonable
steps (at such part/s sole expense) to modify such Marketing Materials if
necessary. Each party must obtain written approval from the other in order
to use the other's Marks.
The use of each party's Marks shall comply with any local laws or customs.
Any goodwill generated by the use of the IBM Marks shall accrue to the
sole benefit of IBM or its licensors, as the case may be. Any goodwill
generated by the use of Your Marks shall accrue to your sole benefit.
Neither party nor its successors in interest shall (or shall cause others
to) challenge, file suit, or initiate proceedings, or contest in any
manner the other party's ownership rights or rights to use such party's
Marks to identify any goods of such party.
The owner or licensor of the Mark may discontinue the use of any or all of
its Marks on any Marketing Materials or the like if the other party fails
to abide by the conditions set forth herein, or if the owner or licensor
of the Mark is threatened with a claim of infringement by a third party
relating to the use of such Mark.
Neither party shall disclose, publish or release any advertising,
publicity, press release or the like which references the other party's
name or Marks, without the prior written approval of the other party.
3.5 IAK Indemnification
Notwithstanding anything to the contrary, IBM shall indemnify, defend, and
hold you and your directors, officers, and employees harmless from and
against any claim or action and expenses (including reasonable attorney's
fees and court costs) arising out of your marketing of the DRC where it is
alleged that the DRC contains defects or the DRC or IBM Marks infringe on
any US copyright trademark, trade secret, patent, or any other proprietary
right protected under US law of any third party or where IBM has
misrepresented the capabilities of the DRC. Such indemnification shall be
predicated upon your providing IBM with prompt written notice of any such
claim; your providing all reasonable assistance and cooperation to IBM in
its defense against such claim; IBM having control over the litigation,
March 31, 1999 Page 4 of 6
<PAGE>
defense of such claim, and any settlement related thereto; and your not
making any admission or taking any action which may be prejudicial to the
defense of the claim or which may adversely affect IBM's ability to
negotiate settlement to the claim.
Notwithstanding the foregoing, IBM will have no liability under this
Section for any claim or suit of copyright, trademark, trade secret,
patent or other intellectual property right infringement to the extent
such claim or suit is based upon the IAK programs (except as otherwise
specifically set forth above relating to IBM's indemnification obligations
for the DRC); the integration, combination, or modification of the DRC or
IAK programs with any other programs or equipment not provided by IBM; or
use of the DRC or IAK programs in a manner not intended by IBM or its
licensors in the respective published specifications.
Notwithstanding anything to the contrary, you shall indemnify, defend, and
hold IBM and its licensors and their respective affiliates, directors,
officers, and employees harmless from and against any claim or action and
expenses (including reasonable attorney's fees and court costs) arising
out of your marketing of the INC where it is alleged that you have
misrepresented the capabilities of the IAK (including, but not limited to.
the DRC and/or the IBM Service) or any other claim relating to your
distribution of the IAK for which IBM is not otherwise liable hereunder.
Such indemnification shall be predicated upon IBM providing you with
prompt written notice of any such claim: IBM providing all reasonable
assistance and cooperation to you in your defense against such claim; your
having control over the litigation, defense of such claim, and any
settlement related thereto; and IBM not making any admission or taking any
action which may be prejudicial to the defense of the claim or which may
adversely affect your ability to negotiate settlement to the claim,
3.6 IAK Enhancements or Other Modifications
IBM shall promptly notify StarMedia Networks of any proposed enhancements
(other than bug fixes) not less than 45 days prior to such enhancements
becoming available, and subject to StarMedia Network's consent, which
consent shall not be unreasonably withheld or delayed, IBM shall include
such enhancement in the IAK and notify StarMedia Network's End Users by
e-mail of such enhancement, or such notification will be posted on
StarMedia Network's Internet home page. IBM shall offer such enhancements
or other modifications (1) if provided to other similar regular customers
of IBM at no additional charge, then at no additional charge to you,
and/or your End Users, or (2) if provided to other users at an additional
charge, then at an additional charge to you and/or your End Users, such
charge not to exceed the additional charge that IBM charges to other
similar End Users. Such enhancements shall automatically become a part of
the IAK.
3.7 Registration
Each End User is responsible for complying with all applicable terms and
conditions, including but not limited to, payment of all applicable
charges. During registration, each End User will be asked to provide,
among other information, your Offer Code and their credit card number to
which charges will be invoiced.
3.8 Ordering the IAK
When you place your order for this Custom Solution, specify that you are
using the "Bulk order option." You must order the IAK in minimum order
quantities of 100,000 with the lead times specified in the table below.
IBM grants you the right to distribute to your End Users these IAKs only
in the countries specified in your Solution Provider Profile, Nothing
herein shall be deemed to grant you a license to distribute any program in
the IAK separately or otherwise unbundle the IAK. You are responsible for
the distribution of the IAK and for all costs associated with the
distribution of the IAK.
- --------------------------------------------------------------------------------
IAK Order Quantity Minimum Lead Order Time
- --------------------------------------------------------------------------------
100,000 - 499,999 2 weeks
- --------------------------------------------------------------------------------
500,000 - 999,999 3 weeks
- --------------------------------------------------------------------------------
1,000,000 or greater 4 weeks
- --------------------------------------------------------------------------------
March 31, 1999 Page 5 of 6
<PAGE>
4. Your Additional Responsibilities
You agree:
1. not to promote the use of applications involving the transmission of
voice or fax with this Custom Solution. This does not apply to third
party advertisements about their separate services that do not use
this Custom Solution;
2. to be responsible for invoicing and collection of any fees which you
charge to users of the Internet who access your home page
information and data content; and
3. to be solely responsible for all support relating to the use of your
home page information and data content and for ensuring that your
information and data does not contain any data or information which
violates any law or regulation.
5. Charges
5.1 IAK Customization and Updates
You agree to pay:
1. a $[****] one time charge for our customization of the IAK
packaging and a $[****] one time charge for each artwork
change you request after our initial production of the IAK
packaging. This version will allow StarMedia Network to brand
the IAK with its brand, graphics, trademarks and service marks
or those of a third party designated by StarMedia Network,
with the exception of trademarks, service marks required by
our third party software providers. StarMedia Network is
responsible for providing all artwork, graphics in accordance
with "Customizing IBM Internet Connection Packaging
Guidelines.
2. a $[****] charge for each subsequent changes to the
packaging, per occurrence;
3. a $[****] one time charge for our customization of the IAK
programs for each operating system client code based upon the
parameters outlined in "Customizing IBM Internet Connection
Service;" and
4. a $[****] one time charge for any program customization you
request after the completion of our initial program testing.
5.2 CD-ROM Manufacturing
You agree to pay $1.50 for each CD-ROM ordered under this Statement of
Work for CD-ROM manufacturing. This charge does not include shipping
costs, taxes, and broker's fees which will be mutually agreed upon by the
parties and documented separately from this Statement of Work.
6. Changes and Termination
Changes to and termination of this SOW are subject to the terms of your
IBM Business Partner Agreement.
March 31, 1999 Page 6 of 6
**** Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended. Omitted material for which confidential treatment has
been requested has been filed separately with the Securities and
Exchange Commission.
<PAGE>
IBM Business Partner Agreement [IBM LOGO]
International Attachment
- --------------------------------------------------------------------------------
The terms at this Attachment are in addition to and prevail over the terms of
the IBM Business Partner Agreement.
Under the terms of this Attachment, the Business Partner Lead Company agrees to
coordinate the activities of its local Business Partner Companies, and the IBM
Lead Company agrees to coordinate the activities of the local IBM organizations
(local IBM Companies). All such local Business Partner Companies and local IBM
Companies are specified in your Profile in the Schedule of Participating Local
Companies. The IBM Lead Company may, through notice to the Business Partner Lead
Company, terminate approval or any such local Business Partner Company.
The "Schedule of Local Participating Companies" identifies for each country the
Local Business Partner Company and the Local IBM Company that are approved to
transact under this Agreement For each such country 1) all references in the
Agreement to "Country Name" are deemed to be the country associated with the two
parties, 2) terms that are unique to such country are included in each of the
Agreement's applicable documents, and 3) Products and Services acquired from the
Local IBM Company may be marketed only in such country unless specified
otherwise in this Agreement.
The Business Partner Lead Company will distribute copies of the Agreement
(including this Attachment) to their local Business Partner Companies. The IBM
Lead Company will distribute copies of the Agreement (including this Attachment)
to their local IBM Companies. The local Business Partner Company and the local
IBM Company will acknowledge between each other, written acceptance of the
Agreement either by the initial order or Products and Services under this
Agreement, or by other written confirmation.
As the Business Partner Lead Company, you warrant that, in accepting the terms
of this Attachment, all your local Business Partner Companies are Related
Companies.
The Agreement (including this Attachment, but not necessarily transaction
documents and the Exhibit) is written in English.
BPIA-00 1/99 Draft 3 Page 1 of 1
