<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1999
REGISTRATION NO. 333-74659
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 4
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 18, 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.
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 $10.00 and $12.00 per share. Application has been made for quotation of
the common stock 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
Proposed 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 $11.00 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 $ 150,294
Working capital........................................................... 31,383 70,743 141,664
Total assets.............................................................. 53,889 93,249 162,784
Redeemable convertible preferred stock.................................... 99,035 -- --
Total stockholders' (deficit) equity...................................... (60,232) 78,163 148,273
</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.
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 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.
6
<PAGE>
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, 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;
7
<PAGE>
- 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 AMERICAN 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 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
8
<PAGE>
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. 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.
9
<PAGE>
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 dependent on our ability to hire highly
qualified
10
<PAGE>
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
11
<PAGE>
adversely affect our business, financial condition and results of operations.
WE RELY FOR OUR CONTENT ON THIRD PARTIES WHO MAY MAKE THEIR CONTENT AVAILABLE TO
OUR COMPETITORS
We constantly attempt to determine what content, features and functionality
our target audience wants. We rely to a large extent on third parties for our
content, much of which is easily available from other sources. If other networks
present the same or similar content in a superior manner, it would adversely
affect our visitor traffic.
IF WE FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH CONTENT
PROVIDERS, ELECTRONIC COMMERCE MERCHANTS AND TECHNOLOGY PROVIDERS, WE MAY NOT
BE ABLE TO ATTRACT AND RETAIN USERS
We have focused on establishing relationships with leading content
providers, electronic commerce merchants, and technology and infrastructure
providers. Our business depends extensively on these relationships. Because most
of our agreements with these third parties are not exclusive, our competitors
may seek to use the same partners as we do and attempt to adversely impact our
relationships with our partners. We might not be able to maintain these
relationships or replace them on financially attractive terms. If the parties
with which we have these relationships do not adequately perform their
obligations, reduce their activities with us, choose to compete with us or
provide their services to a competitor, we may have more difficulty attracting
and maintaining visitors to our network and our business, financial condition
and results of operations could be materially and adversely affected. Also, we
intend to actively seek additional relationships in the future. Our efforts in
this regard may not be successful.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY INFRASTRUCTURE
UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM FAILURES MAY RESULT IN REDUCED
VISITOR TRAFFIC, REDUCED REVENUE AND HARM TO OUR REPUTATION
In the past, we have experienced:
- system disruptions;
- inaccessibility of our network;
- long response times;
- impaired quality; and
- loss of important reporting data.
Although we are in the process of improving our network, we may not be
successful in implementing these measures. If we experience delays and
interruptions, visitor traffic may decrease and our brand could be adversely
affected. Because our revenues depend on the number of individuals who use our
network, our business may suffer if our improvement efforts are unsuccessful.
We maintain our central production servers at the New Jersey data center of
Exodus Communications. 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
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<PAGE>
on our business, financial condition and results of operations.
COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS AND MAY
ADVERSELY AFFECT OUR BUSINESS
Computer viruses may cause our systems to incur delays or other service
interruptions. In addition, the inadvertent transmission of computer viruses
could expose us to a material risk of loss or litigation and possible liability.
Moreover, if a computer virus affecting our system is highly publicized, our
reputation could be materially damaged and our visitor traffic may decrease.
YEAR 2000 PROBLEMS MAY DISRUPT OUR INTERNAL OPERATIONS
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Therefore, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations
causing disruptions to our operations. Our failure to correct a material Year
2000 problem could have a material adverse effect on our business, financial
condition and results of operations.
We 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
15
<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 $70.1 million, assuming an initial public
offering price of $11.00 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 $80.9 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.
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 $11.00 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................................................. 24,185 162,544 232,647
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) 78,163 148,273
--------- ----------- -------------
Total capitalization....................................................... $ 42,595 $ 81,955 $ 152,065
--------- ----------- -------------
--------- ----------- -------------
</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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<PAGE>
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 $146.9 million, or $2.76 per share. This
represents an immediate increase in pro forma net tangible book value of $1.11
per share to existing stockholders and an immediate dilution of $8.24 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............................ $ 11.00
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 1.11
---------
Pro forma net tangible book value per share after this offering 2.76
---------
Dilution per share to new investors........................................ $ 8.24
---------
</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 64.0% $ 2.97
New investors.............................. 7,000,000 13.2 77,000,000 36.0 11.00
-------------- ----- ---------------- -----
Total.................................. 53,150,939 100.0% $ 214,168,000 100.0%
-------------- ----- ---------------- -----
-------------- ----- ---------------- -----
</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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<PAGE>
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
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<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 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 barter transactions 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 barter transactions 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 barter transactions 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.
Our capital requirements depend on numerous factors, including:
- market acceptance of our services;
- the amount of resources we devote to investments in the StarMedia network;
- marketing and selling our services; and
- promoting our brand.
We have experienced a substantial increase in our capital expenditures and
operating lease arrangements since our inception consistent with the growth in
our operations and staffing. We anticipate that this will continue for the
foreseeable future. Additionally, we will continue to evaluate possible
investments in businesses, products and technologies, and plan to expand our
sales and marketing programs and conduct more aggressive brand promotions.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and
29
<PAGE>
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 we determine the need
for and the extent of any contingency plans. We plan to finalize our
contingency plans, if any, by November 1999.
30
<PAGE>
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, 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
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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, in order
to establish the capabilities to facilitate the buying and selling of goods on
our network.
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 provide topical directories of Portuguese-language Web sites. In May 1999,
we entered into an agreement to acquire Wass Net S.L., a Spanish-language online
service based in Spain with extensive community applications. 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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<PAGE>
<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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
49
<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 $100,000. The options shown for each executive officer do not
include options cancelled under our 1997 Plan, but do include the immediate
reissuance of options equal to the cancelled options under our 1998 Plan. We
have never granted any stock appreciation rights. The potential realizable value
is calculated based on the term of the option at its time of grant. It is
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<PAGE>
calculated assuming that the fair market value of common stock on the date of
grant appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. The percentage of total
options granted to employees in the last fiscal year is based on options to
purchase an aggregate of 5,782,000 shares of common stock granted under our 1998
Plan to our employees, consultants and directors and under our 1997 Plan to
Messrs. Espuelas and Chen in the year ended December 31, 1998. All options
granted under our 1997 Plan, other than those granted to Messrs. Espuelas and
Chen, have been cancelled and reissued under our 1998 Plan.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
OPTION GRANTS IN LAST FISCAL YEAR ANNUAL RATES
INDIVIDUAL GRANTS OF
--------------------------------------------------------------------------- STOCK PRICE
NUMBER OF APPRECIATION
SECURITIES PERCENT OF TOTAL EXERCISE FOR OPTION
UNDERLYING OPTIONS GRANTED TO PRICE PER FMV ON THE TERM
OPTIONS EMPLOYEES IN SHARE DATE OF GRANT EXPIRATION -------------
NAME GRANTED(#) FISCAL YEAR (%) ($/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 $11.00 per share, less the exercise
price per share, multiplied by the number of shares underlying the options.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END (#) AT FISCAL YEAR END ($)
----------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fernando J. Espuelas............................. 1,750,000 -- $ 17,550,000 $ --
Jack C. Chen..................................... 1,750,000 -- 17,550,000 --
Tracy J. Leeds................................... 82,639 467,361 867,710 4,907,291
Steven J. Heller................................. 36,111 153,889 379,166 1,615,835
Adriana J. Kampfner.............................. 13,333 216,667 139,997 2,275,004
</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 one of our executive officers. 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.
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
Mr. Espuelas is trustee.
(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 Partners is 380 Madison Avenue, 12(th)
Floor, New York, NY 10017.
(12) THE WARBURG, PINCUS STOCKHOLDERS. The Warburg, Pincus stockholders are
comprised of Warburg, Pincus Equity Partners, L.P., including three related
limited partnerships, and Warburg Pincus Ventures International,
L.P. Warburg, Pincus & Co. is the sole general partner of each of these
entities and has a 20% interest in each of their profits. The Warburg Pincus
stockholders are each managed by E.M. Warburg Pincus & Co., LLC. Lionel I.
Pincus is the managing partner of Warburg, Pincus & Co. and the managing
member of E.M. Warburg, Pincus & Co., LLC, and may be deemed to control both
entities.
MR. KARP. Mr. Karp, a director of StarMedia, is a managing director and
member of E.M. Warburg, Pincus & Co., LLC and a general partner of Warburg,
Pincus & Co. Mr. Karp may be deemed to have an indirect pecuniary interest
(within the meaning of Rule 16a-1 under the Securities Exchange of 1934, as
amended) in an indeterminate portion of the shares beneficially owned by the
Warburg, Pincus stockholders.
ADDRESS. The address of the Warburg, Pincus entities is 466 Lexington
Avenue, New York, NY 10017.
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
59
<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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<PAGE>
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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<PAGE>
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
We have applied to list our common stock 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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<PAGE>
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 17,000,000 shares of common stock reserved for
issuance under our 1997 and 1998 Plans and 349,933 shares reserved for issuance
under our other non-qualified options. 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
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registration statement or the exhibits and schedules which are part of the
registration 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 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 700,000 shares of common stock for certain
directors, 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
U-1
<PAGE>
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 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.
StarMedia has applied to list the common stock 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 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. If the fee is paid in stock, Goldman,
Sach & Co. will agree with StarMedia not to transfer or dispose of any 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.
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 230,389
shares of common stock to four purchasers, including an officer and two
employees, upon the exercise of options for an aggregate purchase price
of $264,489.
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.
10.9+u 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.
u Application has been made to the Commission to seek confidential treatment of
certain provisions.
II-3
<PAGE>
(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. 4 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 18th 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. 4 to the registration statement has been signed by the following persons in
the capacities indicated below:
<TABLE>
<S> <C>
Dated: May 18, 1999 /s/ FERNANDO J. ESPUELAS
--------------------------------------------
Fernando J. Espuelas
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Dated: May 18, 1999 *
--------------------------------------------
Jack C. Chen
President and Director
Dated: May 18, 1999 *
--------------------------------------------
Steven J. Heller
Chief Financial Officer(Principal Financial
and Accounting Officer)
Dated: May 18, 1999 *
--------------------------------------------
Douglas M. Karp
Director
Dated: May 18, 1999 *
--------------------------------------------
Christopher T. Linen
Director
Dated: May 18, 1999 *
--------------------------------------------
Gerardo M. Rosenkranz
Director
Dated: May 18, 1999 *
--------------------------------------------
Susan L. Segal
Director
Dated: May 18, 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.
10.9+u 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.
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STARMEDIA NETWORK, INC.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
StarMedia Network, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware,
and the date of its filing of its original Certificate of Incorporation with the
Secretary of State of Delaware was March 5, 1996. A Certificate of Amendment of
the Certificate of Incorporation was filed with the Secretary of State of the
State of Delaware on July 25, 1997. A Certificate of Amendment to the
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on August 24, 1998.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and in the
best interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders of the issued and outstanding Common Stock, $0.001 par value, and
Preferred Stock, $0.001 par value, voting as a single class and as separate
classes, all in accordance with the applicable provisions of Sections 228, 242
and 245 of the General Corporation Law of the State of Delaware;
THIRD: That the resolution setting forth the proposed amendment
and restatement is as follows:
RESOLVED, that the Amended and Restated of Certificate of
Incorporation of the Corporation be amended and restated in its
entirety as follows:
<PAGE>
ARTICLE I
Name
The name of the Corporation is StarMedia Network, Inc.
ARTICLE II
Registered Office
The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road in the City of Wilmington, State of Delaware
19805, County of New Castle. The name of its registered agent at such address is
The Company Corporation.
ARTICLE III
Powers/Term
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law. The Corporation is to have perpetual existence.
ARTICLE IV
Capital Stock
A. CLASSES OF STOCK. The total number of shares of stock which
the Corporation shall have authority to issue is two hundred and ten million
(210,000,000), consisting of ten million (10,000,000) shares of Preferred Stock,
par value $.001 per share (the "Preferred Stock"), and two hundred million
(200,000,000) shares of Common Stock, par value $.001 per share (the "Common
Stock").
B. PREFERRED STOCK. The Preferred Stock may be issued from time
to time in one or more series. The Board of Directors is hereby authorized to
provide for the issuance of shares of Preferred Stock in one or more series and,
by filing a certificate pursuant to the applicable law of the State of Delaware
(the "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The authority of the Board
of Directors with respect to each series shall include, but not be limited to,
determination of the following:
(a) The designation of the series, which may be by distinguishing
number, letter or title.
2
<PAGE>
(b) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding).
(c) The amounts payable on, and the preferences, if any, of shares
of the series in respect of dividends, and whether such dividends, if any, shall
be cumulative or noncumulative.
(d) Dates at which dividends, if any, shall be payable.
(e) The redemption rights and price or prices, if any, for shares
of the series.
(f) The terms and amount of any sinking funds provided for the
purchase or redemption of shares of the series.
(g) The amounts payable on, and the preferences, if any, of shares
of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(h) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series, or any other security, of
the Corporation or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates at which
such shares shall be convertible or exchangeable and all other terms and
conditions upon which such conversion or change may be made.
(i) Restrictions on the issuance of shares of the same series or
of any other class or series.
(j) The voting rights, if any, of the holders of shares of the
series.
C. COMMON STOCK; VOTING. The Common Stock shall be subject to the
express terms of the Preferred Stock and any series thereof. Except as may
otherwise be provided in this Certificate of Incorporation, in a Preferred Stock
Designation or by applicable law, the holders of shares of Common Stock shall be
entitled to one vote for each such share upon all questions presented to the
stockholders, the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to vote at or receive notice of any meeting of
stockholders.
The number of shares of authorized Common Stock may be increased or
decreased (but not below the number then outstanding) by the affirmative vote of
the holders of a majority in voting power of the outstanding shares of capital
stock of the Corporation entitled to vote thereon, voting together as a single
class notwithstanding the provisions of Section 242(b)(2) of the General
Corporation Law of the State of Delaware.
The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize
3
<PAGE>
any equitable or other claim to, or interest in, such share on the part of any
other person whether or not the Corporation shall have notice thereof, except as
expressly provided by applicable law.
ARTICLE V
Directors
A. NUMBER. The number of directors of the Corporation shall be
such number, not less than seven (7) nor more than fifteen (15) (exclusive of
directors, if any, to be elected by holders of preferred stock of the
Corporation, voting separately as a class), as shall be set forth from time to
time in the bylaws, provided that no action shall be taken to decrease or
increase the number of directors unless at least 66.67% of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose approve such decrease or
increase. Vacancies in the Board of Directors of the Corporation, however
caused, and newly created directorships shall be filled by a vote of a majority
of the directors then in office, whether or not a quorum, and any director so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of the class to which the director has been
chosen expires and when the director's successor is elected and qualified.
B. Classified Board of Directors. The Board of Directors shall be
and is divided into three classes: Class I, Class II and Class III, each of
which shall be as nearly equal in number as possible. Each director shall serve
for a term ending on the date of the third annual meeting of stockholders
following the annual meeting at which the director was elected; provided,
however, that each initial director in Class I shall hold office until the
annual meeting of stockholders in 2000; each initial director in Class II shall
hold office until the annual meeting of stockholders in 2001; and each initial
director in Class III shall hold office until the annual meeting of stockholders
in 2002. Notwithstanding the foregoing provisions of this ARTICLE V, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal.
Subject to the provisions of this ARTICLE V, should the number of
directors not be equally divisible by three, the excess director or directors
shall be assigned to Classes I or II as follows: (i) if there shall be an excess
of one directorship over a number equally divisible by three, such extra
directorship shall be classified in Class I; and (ii) if there shall be an
excess of two directorships over a number divisible by three, one shall be
classified in Class I and the other in Class II.
In the event of any increase or decrease in the authorized number of
directors, (1) each director than serving as such shall nevertheless continue as
a director of the class of which he is a member until the expiration of his
current term, or his earlier resignation, removal from office or death, and (2)
the newly created or eliminated directorship resulting from such increase or
decrease shall be appointed by the Board of Directors among the three classes of
directors so as to maintain such classes as nearly equal as possible.
4
<PAGE>
C. Removal of Directors. Notwithstanding any other provisions of
this Amended and Restated Certificate of Incorporation or the bylaws of the
Corporation, any director or the entire Board of Directors of the Corporation
may be removed, at any time, but only for cause and only by the affirmative vote
of the holders of not less than 66.67% of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the stockholders
called for that purpose. Notwithstanding the foregoing, whenever the holders of
any one or more series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect one or more directors of the
Corporation, the preceding provisions of this ARTICLE V shall not apply with
respect to the director or directors elected by such holders of preferred stock.
ARTICLE VI
Stockholder Meetings
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation. The stockholders of the
Corporation may not take any action by written consent in lieu of a meeting.
ARTICLE VII
Limitation of Directors' Liability
A director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal. If the General Corporation Law of the State of Delaware is amended after
approval by the stockholders of this ARTICLE VII to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
ARTICLE VIII
Indemnification
A. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter
5
<PAGE>
be amended, any person (a "Covered Person") who was or is made is threatened to
be made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "proceeding"), by
reason of the fact that he, or a person for whom he is the legal representative,
is or was a director or officer of the Corporation or, while a director or
officer of the Corporation, is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity, including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
Covered Person. Notwithstanding the preceding sentence, except as otherwise
provided in this Article VIII, the Corporation shall be required to indemnify a
Covered Person in connection with a proceeding (or part thereof) commenced by
such Covered Person only if the commencement of such proceeding (or part
thereof) by the Covered person was authorized by the Board of Directors of the
Corporation.
B. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred by a Covered person in defending any
proceeding in advance of its final disposition, PROVIDED, HOWEVER, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Covered Person to repay all amounts advanced if it should be ultimately
determined that the Covered person is not entitled to be indemnified under this
Article VIII or otherwise.
C. CLAIMS. If a claim for indemnification or advancement of
expenses under this Article VIII is not paid in full within thirty days after a
written claim therefor by the Covered Person has been received by the
Corporation, the Covered Person may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to be paid
the expense of prosecuting such claim. In any such action the corporation shall
have the burden of proving that the Covered Person is not entitled to the
requested indemnification or advancement of expenses under applicable law.
D. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any Covered
Person by this Article VIII shall not be exclusive of any other rights which
such Covered Person may have or hereafter acquire under any statute, provision
of the certificate of incorporation, these bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
E. OTHER SOURCES. The Corporation's obligation, if any, to
indemnify or to advance expenses to any Covered person who was or is serving at
its request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such Covered Person may collect as indemnification or
advancement of expenses from such other corporation, partnership, joint venture,
trust, enterprise or non-profit enterprise.
F. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VIII shall not adversely affect any right
or protection hereunder of any Covered Person in respect of any act or omission
occurring prior to the time of such repeal or modification.
6
<PAGE>
G. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES. This Article
VIII shall not limit the right to the Corporation to the extent and in the
manner permitted by law, to indemnify and to advance expenses to persons other
than Covered Persons when and as authorized by appropriate corporate action.
ARTICLE IX
Amendment of Bylaws
In furtherance of and not in limitation of powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
adopt, repeal, alter, amend and rescind the bylaws of the Corporation by vote of
66.67% of the Board of Directors.
ARTICLE X
Amendment of Certificate of Incorporation
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in ARTICLES V, VI, VII, VIII, IX and this
ARTICLE X may not be repealed, altered, amended or rescinded in any respect
unless the same is approved by the affirmative vote of the holders of not less
than 66.67% of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as a single class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed repeal, alteration, amendment or
rescission is included in the notice of such meeting).
* * *
FOURTH: That said amendments were duly adopted in accordance
with the provisions of Sections 242 and 245 of the General Corporation Law.
7
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the President and the Secretary of the
Corporation this ___ day of May, 1999.
--------------------------------
Jack C. Chen, President
--------------------------------
Justin K. Macedonia, Secretary
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Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
STARMEDIA NETWORK, INC.
ARTICLE I
CERTIFICATE OF INCORPORATION AND BYLAWS
Section 1. These By-Laws are subject to the Certificate of
Incorporation of the Corporation, as amended to date. In these By-Laws,
references to law, the Certificate of Incorporation and By-Laws mean the law,
the provisions of the Certificate of Incorporation and the By-Laws as from time
to time in effect.
ARTICLE II
OFFICES
Section 1. The registered office of the Corporation in the State
of Delaware shall be at 1013 Centre Road, in the city of Wilmington, state of
Delaware. The registered agent at such address shall be the Company Corporation.
Section 2. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE III
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
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Section 2. Annual meetings of stockholders shall be held at such
date and time as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting, at which they shall elect by a
plurality vote the directors to be elected at such meeting, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the chairman of the board or president and shall
be called by the chairman of the board, the president or secretary at the
request in writing of two-thirds of the Board of Directors.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the Certificate of
Incorporation, the Chairman of the Board may adjourn a meeting of stockholders
from time to time, without notice other than announcement at the meeting. No
notice of the time and place of an adjourned meeting need be given except as
required by law.
Section 12.
A. Annual Meetings of Stockholders
1. Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders only (a) pursuant to the
Corporation's notice of meeting (or any supplement thereto), (b) by or at the
direction of the Board of Directors or (c) by any stockholder of the Corporation
who was a stockholder of record at the time of giving of notice provided for in
this Section 12, who is entitled to vote at the meeting and who complies with
the notice procedures set forth in this Section 12.
2. For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(a)(1) of this Section 12, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to the first anniversary of the date of the
preceding year's annual meeting; provided, however, that if either the date of
the annual meeting is more than thirty (30) days before or more than seventy
(70) days after such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the close of business on the one hundred
twentieth (120th) day prior to such annual meeting and not later than the close
of business on the later of the ninetieth (90th) day prior to such annual
meeting or the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
Corporation. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each
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case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director it elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, the text of the proposal or
business (including the text of any resolutions proposed for consideration and
in the event that such business includes a proposal to amend the By-laws of the
Corporation, the language of the proposed amendment), the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner, (ii) the class and number of shares of capital stock of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner, (iii) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to propose such
business or nomination, and (iv) a representation whether the stockholder or the
beneficial owner, if any, intends or is part of a group which intends (a) to
deliver a proxy statement and/or form of proxy to holders of at least the
percentage of the Corporation's outstanding capital stock required to approve or
adopt the proposal or elect the nominee and/or (b) otherwise to solicit proxies
from stockholders in support of such proposal or nomination. The Corporation may
require any proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed nominee to
serve as a director of the Corporation.
3. Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased Board of
Directors at least one hundred (100) days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this Section
12 shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive office of the Corporation not later than
the close of business on the tenth (10th) day following the day on which such
public announcement is first made by the Corporation.
B. Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time notice provided for in
this Section 12 is delivered to the Secretary of the Corporation, who is
entitled to vote at the meeting and upon such election, who complies with the
notice procedures set forth in this Section 12. If the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder entitled to vote in
such election of directors may nominate a person or persons (as the case may
be), for election to such position(s) as specified in the Corporation's notice
of meeting, if the stockholder's notice
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required by paragraph (A)(2) of this Section 12 shall be delivered to the
Secretary at the principal executive offices of the Corporation not earlier than
the close of business on the one hundred twentieth (120) day prior to such
special meeting and not later than the later of (x) the close of business of the
ninetieth (90th) day prior to such special meeting or (y) the close of business
of the tenth (10th) day following the day on which public announcement is first
made of the date of such special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment or postponement of a special meeting commence a
new time period (or extend any time period) for the giving of a stockholder's
notice as described above.
C. General.
1. Only such persons who are nominated in accordance with
the procedures set forth in this Section 12 shall be eligible to be elected at
an annual or special meeting of stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 12. Except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws, the chairman of the meeting shall
have the power and duty (a) to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 12 (including
whether the stockholder or beneficial owner, if any, on whose behalf the
nomination or proposal is made solicited (or is part of a group which solicited)
or did not so solicit, as the case may be, proxies in support of such
stockholder's nominee or proposal in compliance with such stockholder's
representation as required by clause (A)(2)(c)(iv) of this Section 12) and (b)
if any proposed nomination or business was not made or proposed in compliance
with this Section 12, to declare that such nomination shall be disregarded or
that such proposed business shall not be transacted.
2. For purposes of this Section 12, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 and 15(d) of the Exchange Act.
3. Notwithstanding the foregoing provisions of this Section
12, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 12 shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors pursuant
to any applicable provisions of the certificate of incorporation.
Notwithstanding any other provision of law, the Certificate of
Incorporation or these By-Laws, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least 66.67% of the votes which all the stockholders would be entitled to cast
at any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Section 12.
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ARTICLE IV
DIRECTORS
Section 1. The number of directors which shall constitute the
whole Board shall be determined by resolution of the Board of Directors or by
the stockholders at the annual meeting of the stockholders, except as provided
in Section 2 of this Article. The Board shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected and qualified.
The Board of Directors shall be classified in accordance with the provisions of
the Corporation's Certificate of Incorporation. Directors need not be
stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by
66.67% of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
the next annual election at which such director's class is to be elected and
until their successors are duly elected and shall qualify, unless sooner
displaced. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. If, at the time of filling any
vacancy or any newly created directorship, the directors then in office shall
constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of the shares at the time outstanding having the
right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
Section 3. The business of the Corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these By-Laws directed or required
to be exercised or done by the stockholders.
Meetings of the Board of Directors
Section 4. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board. Members of the Board of Directors may participate in
regular or special meetings by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other. Such participation shall constitute presence in person.
Section 6. Special meetings of the Board may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director
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either personally or by telegram; special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two directors unless the Board consists of only one director, in which case
special meetings shall be called by the chairman of the board or the president
or secretary in like manner and on like notice on the written request of the
sole director.
Section 7. At all meetings of the Board a majority of the
directors fixed by Section 1 shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 8. Unless otherwise restricted by the Certificate of
Incorporation of these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Committees of Directors
Section 10. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or
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exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-Laws of the Corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 11. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Compensation of Directors
Section 12. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Director and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Removal of Directors
Section 13. Any director or the entire Board of Directors may be
removed only in accordance with the provisions of the Corporation's Certificate
of Incorporation.
ARTICLE V
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the Certificate of Incorporation or of these By-Laws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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ARTICLE VI
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the
Board of Directors and shall consist of a chief executive officer, chief
financial officer, president, treasurer and a secretary. The Board of Directors
may elect from among its members a Chairman of the Board and a Vice Chairman of
the Board. The Board of Directors may also choose one or more vice-presidents,
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or these
By-Laws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a chief executive officer, a
president, a treasurer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 4. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
The Chairman of the Board
Section 6. The Chairman of the Board shall be the chief executive
officer of the Corporation and shall preside at all meetings of the stockholders
and directors. The Chairman shall conduct general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the Chairman of the Board, to any other officer or officers of the
Corporation. The Chairman shall have the general powers and duties of
supervision and management usually vested in the office of Chairman of the Board
of a corporation. Such individual shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some officer or agent of the Corporation.
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President
Section 7.
The President shall conduct general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the President, to any other officer or officers of the Corporation.
The President shall have the general power and duties of supervision and
management usually vested in the office of President of a corporation. In the
absence of the Chairman and Vice Chairman of the Board, the President shall
preside at all meetings of the stockholders and the Board of Directors.
Such individual shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
The Vice-Presidents
Section 8.
In the absence of the president or in the event of his inability or
refusal to act, the vice-president, if any, (or in the event there be more than
one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
The Secretary and Assistant Secretary
Section 9.
The secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the Corporation and of the Board of Directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. Such individual shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or president, under whose supervision such individual shall be. Such individual
shall have custody of the corporate seal of the Corporation and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature.
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Section 10. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of directors
may from time to time prescribe.
The Treasurer and Assistant Treasurers
Section 11. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
Section 12. The treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the Corporation.
Section 13. If required by the Board of Directors, such individual
shall give the Corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
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ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by,
the chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the Corporation, certifying the number of shares owned
by him in the Corporation.
If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions or such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
individual were such office, transfer agent or registrar at the date of issue.
Lost Certificates
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
12
<PAGE>
Transfer of Stock
Section 4. Upon surrender to the Corporation or the transfer agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Fixing Record Date
Section 5. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Registered Stockholders
Section 6. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Dividends
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation.
13
<PAGE>
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Checks
Section 3. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Fiscal Year
Section 4. The fiscal year of the Corporation shall end on
December 31, unless otherwise fixed by resolution of the Board of Directors.
Seal
Section 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
Section 6. No contract or transaction between the Corporation and
one or more of the directors or officers, or between the Corporation and any
other corporation, partnership, association, or other organization in which one
or more of the directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because such director or officer is present at or participates in the meeting of
the Board of Directors or a committee of the Board of Directors which authorizes
the contract or transaction or solely because his, her or their votes are
counted for such purpose, if:
(1) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum;
(2) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
14
<PAGE>
(3) The contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified, by the Board
of Directors, a committee of the Board of Directors, or the stockholders. Common
or interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IX
AMENDMENTS
These By-Laws may be repealed, altered, amended or rescinded by the
stockholders of the Corporation by vote of not less than 66.67% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting). In addition, in accordance with the
Corporation's Certificate of Incorporation, the Board of Directors may repeal,
alter, amend or rescind these By-Laws by vote of 66.67% of the Board of
Directors.
15
<PAGE>
Exhibit 4.1
- --------------------------------------------------------------------------------
------NUMBER------
SM
------------------
- --------------------------------------------------------------------------------
(C) SECURITY COLUMBIAN UNITED STATES BANKNOTE CORPORATION
--------SHARES--------
----------------------
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 855546 10 7
[LOGO]
STARMEDIA(R)
www.starmedia.com
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 EACH OF THE
COMMON STOCK OF
======================STARMEDIA NETWORK, INC.======================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Jack C. Chen
President
[STAMP]
STARMEDIA NETWORK, INC.
CORPORATE
SEAL
1996
DELAWARE
/s/ Fernando J. Espuelas
Chairman and Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
BY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- ...............Custodian.................
(Cust) (Minor)
under Uniform Gifts to Minors Act...........
(State)
Additional abbreviations may also be used though not in the above list.
For value received _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby,
irrevocably constitute, and appoint ___________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________
________________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATION AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[BROBECK, PHLEGER & HARRISON LLP LETTERHEAD]
May 18, 1999
StarMedia Network, Inc.
29 West 36th Street
Fifth Floor
New York, NY 10018
Ladies and Gentlemen:
We have assisted in the preparation and filing by StarMedia
Network, Inc. (the "Company") of a Registration Statement on Form S-1, as
amended through May 18, 1999 (the "Registration Statement"), with the
Securities and Exchange Commission, relating to the sale of up to 8,050,000
shares (the "Shares") of common stock, $.001 par value (the "Common Stock"),
of the Company. A form of underwriting agreement (the "Underwriting
Agreement") is filed as an exhibit to the Registration Statement.
We have examined such records and documents and have made such
examination of laws as we considered necessary to form a basis for the
opinion set forth herein. In our examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity with the originals of all documents submitted
to us as copies thereof.
Based upon and subject to the foregoing, we are of the opinion that
the Shares have been duly authorized and, when sold and paid for in accordance
with the terms of the Underwriting Agreement, will be validly issued, fully
paid and non-assessable.
We hereby consent to the use of our name in the Registration
Statement under the caption "Validity of Common Stock" in the related
prospectus and consent to the filing of this opinion as an exhibit thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
--------------------------------------
Brobeck, Phleger & Harrison LLP
<PAGE>
Exhibit 10.12
STARMEDIA NETWORK, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of StarMedia Network, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CASH EARNINGS" shall mean the (i) base salary payable to a
participant by the Company and/or Designated Subsidiary during such individual's
period of participation in one or more Offering Periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, current profit-sharing
distributions and other incentive-type payments. Such Cash Earnings shall be
calculated before deduction of (A) any income or employment tax withholdings or
(B) any pre-tax contributions made by the participant to any Code Section 401(k)
salary deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Company or any corporate affiliate. However, Cash
Earnings shall NOT include any contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the participant's behalf by the Company
or any corporate affiliate to any employee benefit or welfare plan now or
hereafter established.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "COMMON STOCK" shall mean the common stock of the Company.
(e) "COMPANY" shall mean StarMedia Network, Inc. and any
Designated Subsidiary of the Company.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per
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<PAGE>
week and more than five (5) months in any calendar year. For purposes of the
Plan, the employment relationship shall be treated as continuing intact while
the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each
Purchase Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock the
last market trading day prior to the date of determination, as reported in THE
WALL STREET JOURNAL or such other source as the Board deems reliable;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 15 and
November 15 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement
-2-
<PAGE>
effective and ending on the last Trading Day on or before May 14, 2001. The
duration and timing of Offering Periods may be changed pursuant to Section 4 of
this Plan.
(l) "PLAN" shall mean this 1999 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
-3-
<PAGE>
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 15 and November 15 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
May 14, 2001. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not less than two percent (2%) and not
exceeding ten percent (10%) of the Cash Earnings which he or she receives on
each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
-4-
<PAGE>
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 2,500
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn pursuant
to Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the
-5-
<PAGE>
Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
-6-
<PAGE>
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any reason, he
or she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be one million five hundred thousand (1,500,000) shares, plus an annual
increase to be added on July 1 each year beginning in the year 2000 equal to the
lesser of (i) 500,000 shares, (ii) 1% of the outstanding shares on such date or
(iii) a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and
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<PAGE>
the designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the
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<PAGE>
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
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<PAGE>
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Cash Earnings, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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<PAGE>
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE>
STARMEDIA NETWORK, INC.
and
[NAME OF RIGHTS AGENT]
(Rights Agent)
RIGHTS AGREEMENT
DATED AS OF MAY __, 1999
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Certain Definitions..............................................1
Section 2. Appointment of Rights Agent......................................5
Section 3. Issue of Rights Certificates.....................................5
Section 4. Form of Rights Certificates......................................7
Section 5. Countersignature and Registration................................8
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates.....................................................8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights...........................................................9
Section 8. Cancellation and Destruction of Rights Certificates.............11
Section 9. Reservation and Availability of Preferred Stock.................11
Section 10. Preferred Stock Record Date.....................................12
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights..........................................................13
Section 12. Certificate of Adjusted Purchase Price or Number of Shares......20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power...................................................21
Section 14. Fractional Rights and Fractional Shares.........................23
Section 15. Rights of Action................................................24
Section 16. Agreement of Rights Holders.....................................25
Section 17. Rights Certificate Holder Not Deemed a Stockholder..............25
Section 18. Concerning the Rights Agent.....................................26
Section 19. Merger or Consolidation or Change of Name of Rights Agent.......26
Section 20. Duties of Rights Agent..........................................27
Section 21. Change of Rights Agent..........................................29
Section 22. Issuance of New Rights Certificates.............................29
Section 23. Redemption and Termination......................................30
i.
<PAGE>
Section 24. Exchange........................................................31
Section 25. Notice of Certain Events........................................32
Section 26. Notices.........................................................33
Section 27. Supplements and Amendments......................................33
Section 28. Successors......................................................34
Section 29. Determinations and Actions by the Board of Directors............34
Section 30. Benefits of This Agreement......................................34
Section 31. Severability....................................................35
Section 32. Governing Law...................................................35
Section 33. Counterparts....................................................35
Section 34. Descriptive Headings............................................35
EXHIBITS
Exhibit A - Form of Certificate of Designation of Series A Junior Participating
Preferred Stock
Exhibit B - Form of Rights Certificate
Exhibit C - Summary of Rights to Purchase Shares of Series A Preferred Stock
ii.
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT (the "Agreement"), dated as of May __, 1999,
between StarMedia Network, Inc., a Delaware corporation (the "Company"), and
[NAME OF TRANSFER AGENT], a [New York] banking corporation (the "Rights Agent").
WHEREAS, effective May 4, 1999 (the "Rights Dividend Declaration
Date"), the Board of Directors authorized and declared a distribution of one
Right (each, a "Right") for each share of Common Stock (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
upon the consummation of the Company's initial public offering (the "Record
Date"), each Right initially representing the right to purchase one
ten-thousandth of a share (a "Unit") of Preferred Stock (as hereinafter defined)
upon the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each share of
Common Stock that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date or the Final Expiration
Date (as such terms are hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
"Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the shares of
Common Stock of the Company then outstanding but shall not include (1) the
Company, any Subsidiary (as such term is hereinafter defined) of the Company,
any employee benefit plan of the Company or any Subsidiary of the Company, or
any entity holding shares of Common Stock for or pursuant to the terms of any
such plan, (2) Chase Venture Capital Associates, L.P., ("Chase") or any
Affiliates or Associates of Chase (the "Chase Group") to the extent that the
members of the Chase Group shall beneficially own in the aggregate up to, but
not exceeding, 25% of the shares of Common Stock of the Company then
outstanding, (3) Fernando J. Espuelas or any Affiliates or Associates of Mr.
Espuelas (the "Espuelas Group") to the extent that the members of the Espuelas
Group shall beneficially own in the aggregate up to, but not exceeding, 20% of
the shares of Common Stock of the Company then outstanding, or (4) Jack C. Chen
or any Affiliates or Associates of Mr. Chen (the "Chen Group") to the extent
that the members of the Chen Group shall beneficially own in the aggregate up
to, but not exceeding, 20% of the shares of Common Stock of the Company then
outstanding. Notwithstanding the foregoing:
(i) no Person shall become an "Acquiring Person" as the result
of an acquisition of shares of Common Stock by the Company which, by
reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 15% or more of the
shares of Common Stock of the Company then outstanding; (or, in the case
of (A) the Chase Group, more than 25% of the shares of Common Stock of the
Company then outstanding, or (B) either the Espuelas Group or the
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Chen Group, more than 20% of the shares of Common Stock of the Company
then outstanding); provided, however, that if a Person shall become the
Beneficial Owner of 15% or more of the shares of Common Stock of the
Company then outstanding (or, in the case of (C) the Chase Group, more
than 25% of the shares of Common Stock of the Company then outstanding, or
(D) either the Espuelas Group or the Chen Group, more than 20% of the
shares of Common Stock of the Company then outstanding) by reason of share
purchases by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of any additional shares of Common
Stock of the Company (or, in the case of the members of any of the Chase
Group, the Espuelas Group or Chen Group, become the Beneficial Owner of
any additional shares of Common Stock of the Company), then such Person
shall be deemed to be an "Acquiring Person" hereunder; and
(ii) if the Board of Directors of the Company determines in
good faith that a Person who would otherwise be an "Acquiring Person" as
defined pursuant to the foregoing provisions of this paragraph (a), has
become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares of Common Stock so that such
Person would no longer be an "Acquiring Person" (as defined pursuant to
the foregoing provisions of this paragraph (a)), then such Person shall
not be deemed to be an "Acquiring Person" for any purpose of this
Agreement.
"Adjustment Shares" has the meaning set forth in Section 11(a)(ii).
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act (as such term is hereinafter defined).
A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes of
Section 13(d) of the Exchange Act and Rule 13d- 3 thereunder (or any
comparable or successor law or regulation); or
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire (whether
such right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing, other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner
of, or to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided further, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially own,"
any security under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
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<PAGE>
agreement, arrangement or understanding: (x) arises solely from a
revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the Exchange Act and the Exchange Act Regulations, and (y)
is not reportable by such Person on Schedule 13D under the Exchange Act
(or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding, (whether or not in writing, other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), for
the purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to (B) of subparagraph (ii) above) or
disposing of any securities of the Company; provided, however, that in no
case shall an officer or director of the Company be deemed (A) the
Beneficial Owner of any securities beneficially owned by another officer
or director of the Company solely by reason of actions undertaken by such
persons in their capacity as officers or directors of the Company or (B)
the Beneficial Owner of securities held of record by the trustee of any
employee benefit plan of the Company or any Subsidiary of the Company for
the benefit of any employee of the Company or any Subsidiary of the
Company, other than the officer or director, by reason of any influence
that such officer or director may have over the voting of the securities
held in the plan;
Notwithstanding anything in this definition of "Beneficial Owner" and
"beneficially own" to the contrary, the phrase "then outstanding," when used
with reference to a Person who is the Beneficial Owner of securities of the
Company, shall mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to beneficially own hereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in the State of New York or the state in
which the principal office of the Rights Agent is located are authorized or
obligated by law or executive order to close.
"Close of Business" on any given date shall mean 5:00 P.M., New York
time, on such date; provided, however, that if such date is not a Business Day
it shall mean 5:00 P.M., California time, on the next succeeding Business Day.
"Common Stock" when used with reference to the Company shall mean
the shares of common stock, par value $.001, of the Company. "Common Stock" when
used with reference to any Person other than the Company shall mean the capital
stock (or other equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
"Company" shall have the meaning set forth in the recitals to this
Agreement.
"current per share market price" shall have the meaning set forth in
Section 11(d)(i) hereof.
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<PAGE>
"Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Distribution Date" shall have the meaning set forth in Section 3(a)
hereof.
"equivalent preferred shares" shall have the meaning set forth in
Section 11(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Act Regulations" shall mean the General Rules and
Regulations under the Exchange Act.
"Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
"Expiration Date" shall have the meaning set forth in Section 7(a)
hereof.
"Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
"NASDAQ" shall have the meaning set forth in Section 11(d) hereof.
"Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" shall mean shares of Series A Preferred Stock, par
value $.001, of the Company having the rights and preferences set forth in the
Form of Certificate of Designation attached to this Agreement as Exhibit A.
"preferred stock equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Purchase Price" shall have the meaning set forth in Section 7(b)
hereof.
"Record Date" shall have the meaning set forth in the recitals to
this Agreement.
"Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
"Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
"Right" shall have the meaning set forth in the recitals to this
Agreement.
"Rights Agent" shall have the meaning set forth in the recitals to
this Agreement.
"Rights Certificate" shall have the meaning set forth in Section
3(a) hereof.
"Rights Dividend Declaration Date" shall have the meaning set forth
in the recitals to this Agreement.
"Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii)(A), (B) or (C) hereof.
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<PAGE>
"Section 11(a)(ii) Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Section 13 Event" shall mean any event described in clause (x), (y)
or (z) of Section 13(a) hereof.
"Section 24(a) Exchange Ratio" has the meaning set forth in Section
24(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such.
"Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
"Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
"Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
"Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
"Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Rights Certificates.
(a) Until the earlier of (i) the Close of Business on the Shares
Acquisition Date and (ii) the Close of Business on the tenth Business Day (or
such later date as may be determined by action of the Company's Board of
Directors prior to such time as any Person becomes an Acquiring Person and of
which the Company will give the Rights Agent prompt written notice) after the
date that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding shares of Common Stock for or
pursuant to the terms of any such plan) is first published or sent or given
within the meaning of Rule 14d-4(a) of the Exchange Act Regulations or any
successor rule or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding shares of Common Stock for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer, if upon consummation thereof such Person
would be the Beneficial Owner of 15% or more
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<PAGE>
of the shares of Company Common Stock then outstanding (the earlier of (i) and
(ii) above being the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
shares of Common Stock registered in the names of the holders thereof (which
certificates shall also be deemed to be Rights Certificates) and not by separate
Rights Certificates, and (y) the right to receive Rights Certificates will be
transferable only in connection with the transfer of shares of Common Stock. As
soon as practicable after the Distribution Date, the Company will notify the
Rights Agent thereof and the Company will prepare and execute, the Rights Agent
will countersign, and the Company will send or cause to be sent (and the Rights
Agent will, if requested, send) by first-class, insured, postage-prepaid mail,
to each record holder of shares of Common Stock as of the Close of Business on
the Distribution Date, at the address of such holder shown on the records of the
Company, a Rights Certificate, in substantially the form of Exhibit B hereto (a
"Rights Certificate"), evidencing one Right for each share of Common Stock so
held. As of the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of shares of Common
Stock as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to certificates for
shares of Common Stock outstanding as of the Record Date, until the Distribution
Date, the Rights will be evidenced by such certificates registered in the names
of the holders thereof together with a copy of the Summary of Rights attached
thereto. Until the Distribution Date (or the Expiration Date), the surrender for
transfer of any certificate for shares of Common Stock outstanding on the Record
Date, with or without a copy of the Summary of Rights attached thereto, shall
also constitute the transfer of the Rights associated with the shares of Common
Stock represented thereby.
(c) Certificates for shares of Common Stock which become outstanding
(including, without limitation, reacquired shares of Common Stock referred to in
the last sentence of this paragraph (c)) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date shall have impressed
on, printed on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between StarMedia
Network, Inc. and [NAME OF RIGHTS AGENT], dated as of May, __, 1999,
(the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal
executive offices of StarMedia Network, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be
evidenced by this certificate. StarMedia Network, Inc. will mail to
the holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Agreement, Rights
issued to any Person who
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<PAGE>
becomes an Acquiring Person (as defined in the Rights Agreement),
whether currently held by or on behalf of such person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of the Distribution Date and the Expiration Date, the Rights associated
with the shares of Common Stock represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
shares of Common Stock represented thereby. In the event that the Company
purchases or acquires any shares of Common Stock after the Record Date but prior
to the Distribution Date, any Rights associated with such shares of Common Stock
shall be deemed cancelled and retired so that the Company shall not be entitled
to exercise any Rights associated with the shares of Common Stock which are no
longer outstanding.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase
Units of Preferred Stock and of assignment to be printed on the reverse thereof)
shall be substantially the same as Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or transaction reporting system on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates shall entitle the holders thereof to purchase the number of Units
of Preferred Stock as shall be set forth therein at the price per Unit of
Preferred Stock set forth therein, but the number of such Units of Preferred
Stock and the Purchase Price shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant hereto that represents
Rights beneficially owned by: (i) an Acquiring Person or any Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
such Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect avoidance of Section 7(e) hereof shall
contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms
are defined in the Rights Agreement between StarMedia Network, Inc.
and [NAME OF TRANSFER AGENT], as Rights
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Agent, dated as of May __, 1999 (the "Rights Agreement").
Accordingly, this Rights Certificate and the Rights represented
hereby may become null and void in the circumstances specified in
Section 7(e) of the Rights Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President, any of its Vice Presidents,
or its Treasurer or Chief Financial Officer, either manually or by facsimile
signature, shall have affixed thereto the Company's seal or a facsimile thereof,
and shall be attested by the Secretary or an Assistant Secretary of the Company,
either manually or by facsimile signature. The Rights Certificates shall be
manually countersigned by the Rights Agent and shall not be valid for any
purpose unless countersigned. In case any officer of the Company who shall have
signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Rights Certificates had not ceased
to be such officer of the Company; and any Rights Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated for such purpose, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 4(b), 7(e) and 14 hereof,
at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the Expiration Date, any Rights Certificate or
Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of Units of Preferred Stock (or, following a
Triggering Event, other securities, cash or other assets, as the case may be) as
the Rights Certificate or Rights Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Rights Certificate or Rights Certificates shall make
such request in writing delivered to the Rights Agent, and shall surrender the
Rights Certificate or Rights Certificates to be transferred, split up, combined
or exchanged at the office of the Rights Agent designated for such purpose.
Neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the
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Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request. Thereupon the Rights Agent
shall, subject to Sections 4(b), 7(e) and 14 hereof, countersign and deliver to
the person entitled thereto a Rights Certificate or Rights Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company will make and deliver a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Except as provided in Sections 23(c) and 7(e), the registered
holder of any Rights Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Rights Certificate, with the form of
election to purchase and certification on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the Purchase Price for each Unit of
Preferred Stock as to which the Rights are exercised, at or prior to the
earliest of (i) the Close of Business on the tenth anniversary hereof (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at
which such Rights are exchanged as provided in Section 24 hereof (the earlier of
(i), (ii) and (iii) being the "Expiration Date").
(b) The Purchase Price for each Unit of Preferred Stock pursuant to
the exercise of a Right shall initially be the amount equal to the product of
four times the average daily closing price of the Common Stock for the first
five days of trading subsequent to the consummation of the initial public
offering of the Common Stock, and shall be subject to adjustment from time to
time as provided in Sections 11 and 13 hereof and shall be payable in lawful
money of the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the number of Units of Preferred Stock (or
other securities or property, as the case may be) to be purchased and an amount
equal to any applicable transfer tax required to be paid by the holder of such
Rights Certificate in accordance with Section 9 hereof in cash, or by certified
check or cashier's check payable to the order of the Company, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Stock (or make available, if the Rights
Agent is the transfer agent for the Preferred Stock) a certificate or
certificates for the number of Units of Preferred Stock to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests or (B)
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if the Company shall have elected to deposit the total number of Units of
Preferred Stock issuable upon exercise of the Rights hereunder with a depositary
agent, requisition from the depositary agent of a depositary receipt or
depositary receipts representing such number of Units of Preferred Stock as are
to be purchased (in which case certificates for the Units of Preferred Stock
represented by such receipt or receipts shall be deposited by the transfer agent
with the depositary agent) and the Company hereby directs the depositary agent
to comply with such request, (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt
thereof, deliver such cash to or upon the order of the registered holder of such
Rights Certificate. The payment of the Purchase Price (as such amount may be
reduced (including to zero) pursuant to Section 11(a)(iii) hereof) may be made
in cash or by certified bank check or bank draft payable to the order of the
Company. In the event that the Company is obligated to issue other securities of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing a number of Rights equivalent to the number of Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of such
Rights Certificate or to such registered holder's duly authorized assigns,
subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Triggering Event, any Rights beneficially
owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such,
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which a majority of the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e) or (iv) any subsequent transferee shall become null and void
without any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Company shall use all reasonable efforts to ensure
that the provisions of this Section 7(e) and Section 4(b) hereof are complied
with, but shall have no liability to any holder of Rights Certificates or to any
other Person as a result of its failure to make any determinations with respect
to an Acquiring Person or any of such Acquiring Person's Affiliates, Associates
or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a
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registered holder upon the occurrence of any purported exercise as set forth in
this Section 7 unless such registered holder shall have (i) completed and signed
the certificate contained in the form of election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Stock.
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of and to the extent of
its authorized and unissued Units of Preferred Stock not reserved for another
purpose that will be sufficient to permit the exercise in full of all
outstanding Rights. Upon the occurrence of any events resulting in an increase
in the aggregate number of shares of Preferred Stock (or other equity securities
of the Company) issuable upon exercise of all outstanding Rights above the
number then reserved, the Company shall make appropriate increases in the number
of shares so reserved.
(b) If the Units of Preferred Stock to be issued and delivered upon
the exercise of the Rights are at any time listed on a national securities
exchange or included for quotation on any transaction reporting system, the
Company shall during the period from the Distribution Date to the Expiration
Date use its best efforts to cause all shares reserved for such issuance to be
listed on such exchange or included for quotation on any such transaction
reporting system upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event in which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act, with respect to
the securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the Expiration Date. The Company
will also take such action as may be appropriate under, or to ensure compliance
with, the
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securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. Notwithstanding any provision of this Agreement to
the contrary, the Rights shall not be exercisable in any jurisdiction, unless
the requisite qualification in such jurisdiction shall have been obtained, or an
exemption therefrom shall be available and until a registration statement has
been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Units of Preferred Stock (and,
following the occurrence of a Triggering Event, any other securities that may be
delivered upon exercise of Rights) shall, at the time of delivery of the
certificates for such Units of Preferred Stock (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
non-assessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Rights Certificates
or of any Units of Preferred Stock upon the exercise of Rights. The Company
shall not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Rights Certificates to a person other
than, or the issuance or delivery of certificates or depositary receipts for
Units of Preferred Stock in a name other than that of, the registered holder of
the Rights Certificate evidencing Rights surrendered for exercise or to issue or
to deliver any certificates or depositary receipts for Units of Preferred Stock
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name
any certificate for Units of Preferred Stock (or, following the occurrence of a
Triggering Event, other securities) is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the Units of
Preferred Stock (or, following the occurrence of a Triggering Event, other
securities) represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock (or, following the occurrence
of a Triggering Event, other securities) transfer books of the Company are
closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open; provided
further, however, that if delivery of Units of Preferred Stock is delayed
pursuant to Section 9(c), such Persons shall be deemed to have become the record
holders of such Units of Preferred Stock only when such Units first become
deliverable. Prior to the exercise of the Rights evidenced thereby, the holder
of a Rights Certificate shall not be entitled to any rights of a stockholder of
the Company with respect to securities for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate shall not be entitled to any rights of a holder
of a Unit of Preferred Stock for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
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distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number
of Rights. The Purchase Price, the number and kinds of securities covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) (i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding shares
of Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of shares Preferred Stock or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including any
such reclassification in connection with a consolidation or merger in
which the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a), the Purchase Price in effect at
the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind
of shares of capital stock issuable on such date, shall be proportionately
adjusted so that the holder of any Rights exercised after such time shall
be entitled to receive the aggregate number and kind of shares of capital
stock which, if such Rights had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the Company
were open, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination
or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii), the
adjustment provided for in this Section 11(a)(i) shall be in addition to,
and shall be made prior, to any adjustment required pursuant to Section
11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event
that (A) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the date of this Agreement, directly
or indirectly, shall (1) merge into the Company or otherwise combine with
the Company and the Company shall be the continuing or surviving
corporation of such merger or combination and shares of Company Common
Stock shall remain outstanding and unchanged, (2) in one transaction or a
series of transactions, transfer any assets to the Company or any of its
Subsidiaries in exchange (in whole or in part) for shares of Company
Common Stock, for other equity securities of the Company or any such
Subsidiary, or for securities exercisable for or convertible into shares
of equity securities of the Company or any of its Subsidiaries (whether
shares of Company Common Stock or otherwise) or otherwise obtain from the
Company or any of its Subsidiaries, with or without consideration, any
additional shares of such equity securities or securities exercisable for
or convertible into such equity securities other than pursuant to a pro
rata distribution to all holders of shares of Company Common Stock, (3)
sell, purchase, lease, exchange, mortgage, pledge, transfer or otherwise
acquire or dispose of, in one transaction or a series of transactions, to,
from or with the Company or any of its Subsidiaries or any employee
benefit plan maintained by the Company or any
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<PAGE>
of its Subsidiaries or any trustee or fiduciary with respect to such plan
acting in such capacity, assets (including securities) on terms and
conditions less favorable to the Company or such Subsidiary or plan than
those that could have been obtained in arm's-length negotiations with an
unaffiliated third party, other than pursuant to a transaction set forth
in Section 13(a) hereof, (4) sell, purchase, lease, exchange, mortgage,
pledge, transfer or otherwise acquire or dispose of, in one transaction or
a series of transactions, to, from or with the Company or any of its
Subsidiaries or any employee benefit plan maintained by the Company or any
of its Subsidiaries or any trustee or fiduciary with respect to such plan
acting in such capacity (other than transactions, if any, consistent with
those engaged in, as of the date hereof, by the Company and such Acquiring
Person or such Associate or Affiliate), assets (including securities or
intangible assets) having an aggregate fair market value of more than
$5,000,000, other than pursuant to a transaction set forth in Section
13(a) hereof, (5) receive, or any designee, agent or representative of
such Acquiring Person or any Affiliate or Associate of such Acquiring
Person shall receive, any compensation from the Company or any of its
Subsidiaries other than compensation for full-time employment as a regular
employee at rates in accordance with the Company's (or its Subsidiaries')
past practices, or (6) receive the benefit, directly or indirectly (except
proportionately as a holder of shares of Company Common Stock or as
required by law or governmental regulation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or
other tax advantages provided by the Company or any of its Subsidiaries or
any employee benefit plan maintained by the Company or any of its
Subsidiaries or any trustee or fiduciary with respect to such plan acting
in such capacity; or (B) any Person shall become an Acquiring Person,
unless the event causing the Person to become an Acquiring Person is a
transaction set forth in Section 13(a); or (C) during such time as there
is an Acquiring Person, there shall be any reclassification of securities
(including any reverse stock split), or recapitalization of the Company,
or any merger or consolidation of the Company with any of its Subsidiaries
or any other transaction or series of transactions involving the Company
or any of its Subsidiaries, other than a transaction or transactions to
which the provisions of Section 13(a) apply (whether or not with or into
or otherwise involving an Acquiring Person), which has the effect,
directly or indirectly, of increasing by more than 1% the proportionate
share of the outstanding shares of any class of equity securities of the
Company or any of its Subsidiaries that is directly or indirectly
beneficially owned by any Acquiring Person or any Person or any Associate
or Affiliate of any Acquiring Person;
then promptly following the occurrence of an event described in Section
11(a)(ii)(A), (B) or (C) (a "Section 11(a)(ii) Event"), proper provision shall
be made so that each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive for each Right, upon exercise
thereof in accordance with the terms of this Agreement and payment of the
then-current Purchase Price, in lieu of the number of Units of Preferred Stock
for which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, such number of Units of Preferred Stock as shall equal
the result obtained by multiplying the then-current Purchase Price by the then
number of Units of Preferred Stock for which a Right was exercisable (or would
have been exercisable if the Distribution Date had occurred) immediately prior
to the first occurrence of a Triggering Event, and dividing that product by 50%
of the current per share market price (determined pursuant to Section 11(d)
hereof) for shares of
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Common Stock on the date of occurrence of the Triggering Event (such number of
Units of Preferred Stock being hereinafter referred to as the "Adjustment
Shares").
(iii) In the event that the number of Units of Preferred Stock
which are authorized by the Company's Amended and Restated Certificate of
Incorporation but not outstanding or reserved for issuance for purposes
other than upon exercise of the Rights are not sufficient to permit the
exercise in full of the Rights, or if any necessary regulatory approval
for such issuance has not been obtained by the Company, the Company shall,
in lieu of issuing Units of Preferred Stock in accordance with Section
11(a)(ii) hereof: (A) determine the excess of (1) the value of the Units
of Preferred Stock issuable upon the exercise of a Right (the "Current
Value") over (2) the Purchase Price (such excess being referred to as the
"Spread") and (B) with respect to each Right, make adequate provision to
substitute for such Units of Preferred Stock, upon exercise of the Rights,
(1) cash, (2) a reduction in the Purchase Price, (3) other equity
securities of the Company (including, without limitation, Common Stock or
shares or units of shares of any series of preferred stock which the Board
of Directors of the Company has deemed to have the same value as the Units
of Preferred Stock (such shares or units of preferred stock are herein
called "preferred stock equivalents")), except to the extent that the
Company has not obtained any necessary regulatory approval for such
issuance, (4) debt securities of the Company, except to the extent that
the Company has not obtained any necessary regulatory approval for such
issuance, (5) other assets or (6) any combination of the foregoing, having
an aggregate value equal to the Current Value, where such aggregate value
has been determined by the Board of Directors of the Company based upon
the advice of a nationally recognized investment banking firm selected by
the Board of Directors of the Company; provided, however, if the Company
shall not have made adequate provision to deliver value pursuant to clause
(B) above within thirty (30) days following the later of (x) occurrence of
a Section 11(a)(ii) Event, and (y) the date on which the Company's right
of redemption pursuant to Section 23(a) expires (the later of (x) and (y)
being referred to herein as the "Section 11(a)(iii) Trigger Date"), then
the Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, Units of
Preferred Stock (to the extent available), [except to the extent that the
Company has not obtained any necessary regulatory approval for such
issuance,] and then, if necessary, cash, which Units and/or cash have an
aggregate value equal to the Spread.
(b) In the event that the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Units of Preferred
Stock entitling them (for a period expiring within 45 calendar days after such
record date) to subscribe for or purchase Units of Preferred Stock (or shares
having the same rights, privileges and preferences as the Preferred Stock
("equivalent preferred stock")) or securities convertible into Units of
Preferred Stock or equivalent preferred stock at a price per Unit of Preferred
Stock or equivalent preferred share (or having a conversion price per share, if
a security convertible into Units of Preferred Stock or equivalent preferred
stock) less than the then current per share market price of a Unit of Preferred
Stock (as determined pursuant to Section 11(d)) on such record date, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Units of
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Preferred Stock outstanding on such record date plus the number of Units of
Preferred Stock which the aggregate offering price of the total number of Units
of Preferred Stock and/or equivalent preferred stock so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Units of Preferred Stock outstanding on such record
date plus the number of additional Units of Preferred Stock and/or equivalent
preferred stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Units of
Preferred Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution
to all holders of Units of Preferred Stock (including any such distribution made
in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash (other
than a regular quarterly cash dividend), assets (other than a dividend payable
in Units of Preferred Stock but including any dividend payable in equity
securities other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(d) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price (as
determined pursuant to Section 11(d)) of the Preferred Stock on such record
date, less the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holder of rights) of the cash, assets or evidences of indebtedness to be
distributed or of such subscription rights or warrants distributable in respect
of a share of Preferred Stock and the denominator of which shall be such current
per share market price (as determined pursuant to Section 11(d)) of a share of
Preferred Stock. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made,
the Purchase Price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the
purpose of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the
thirty (30) consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that in the event that
the "current per share market price" of the Security is determined during
a period following the announcement by the issuer of such Security of (A)
a dividend or distribution on such Security payable in shares of such
Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to
the expiration of thirty (30) Trading Days after the ex-dividend date for
such dividend or
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distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current per share
market price" shall be appropriately adjusted to reflect the "current
market price" per share equivalent of such Security. The closing price for
each day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the Nasdaq National Market System
("NASDAQ") or, if the Security is not listed or admitted to trading on the
NASDAQ, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading
or, if the Security is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the NASDAQ or such other system then in use, or, if
on any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of
Directors of the Company. If on any such date no market maker is making a
market in the Security, the "current per share market price" of such
Security on such date as determined in good faith by the Board of
Directors of the Company as provided for above shall be used. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open
for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Stock shall be
determined in accordance with the method set forth in Section 11(d)(i). If
the "current per share market price" of the Preferred Stock cannot be
determined in the manner provided above or if the Preferred Stock is not
publicly held or listed or traded in a manner described in clause (i) of
this Section 11(d), the "current per share market price" of the Preferred
Stock shall be conclusively deemed to be an amount equal to $10,000 (as
such amount may be appropriately adjusted for such events as stock splits,
stock dividends and recapitalizations with respect to shares of Company
Common Stock occurring after the date of this Agreement) multiplied by the
current market price per share of Company Common Stock. If shares of
neither the Company Common Stock nor Preferred Stock is publicly held or
so listed or traded, "current per share market price" of the Preferred
Stock shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding
on the Rights Agent and the holders of the Rights. For all purposes of
this Agreement, the "current market price" of a Unit of Preferred Stock
shall be equal to the "current market price" of one share of Preferred
Stock divided by 10,000.
(e) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations
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under this Section 11 shall be made to the nearest cent or to the nearest one
ten-thousandth of a share of Preferred Stock or one one-hundredth of any other
share or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) hereof, the holder of any Rights thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other than Units
of Preferred Stock, thereafter the number of such other shares so receivable
upon exercise of any Rights and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Section 11(a), (b), (c), (d), (e), (g), (h), (i), (j), (k), (l) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Stock
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Units of Preferred Stock
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of Units of Preferred
Stock (calculated to the nearest one ten-thousandth of a share of Preferred
Stock) obtained by dividing (i) the product obtained by multiplying (x) the
number of Units of Preferred Stock covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price by, (ii) the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of Units of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of Units of Preferred Stock
for which a Right was exercisable immediately prior to such adjustment. Each
Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least ten days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such
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holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates to be so
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Rights Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of Units of Preferred Stock issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Purchase Price per Unit and the number of Units of Preferred
Stock which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value of the number of Units of Preferred
Stock issuable upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable number of
Units of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Rights exercised after such record date
of that number of Units of Preferred Stock and other capital stock or securities
of the Company, if any, issuable upon such exercise over and above the Units of
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares (fractional or otherwise) upon the occurrence
of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any (i) consolidation or subdivision of the Preferred Stock, (ii)
issuance wholly for cash of any Unit of Preferred Stock at less than the current
market price, (iii) issuance wholly for cash of Preferred Stock or securities
which by their terms are convertible into or exchangeable for Preferred Stock,
(iv) dividends on Preferred Stock payable in Preferred Stock or (v) issuance of
rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of Units of its Preferred Stock shall not be taxable to
such stockholders.
(n) The Company shall not, at any time after the Distribution Date,
(i) consolidate with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o)), (ii) merge with or into any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o)), or (iii) sell or
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transfer (or permit any Subsidiary to sell or transfer), in one transaction, or
a series of transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with Section
11(o)), if (x) at the time of or immediately after such consolidation, merger or
sale there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale, the Person which constitutes, or would constitute the "Principal Party"
for purposes of Section 13(a) shall have distributed or otherwise transferred to
its stockholders or other persons holding an equity interest in such Person
Rights previously owned by such Person or any of its Affiliates and Associates;
provided, however, this Section 11(n) shall not affect the ability of any
Subsidiary of the Company to consolidate with, merge with or into, or sell or
transfer assets or earning power to, any other Subsidiary of the Company.
(o) After the Distribution Date, the Company shall not, except as
permitted by Section 23 or Section 26, take (or permit any Subsidiary to take)
any action if at the time such action is taken it is reasonably foreseeable that
such action will diminish substantially or otherwise eliminate the benefits
intended to be afforded by the Rights.
(p) In the event that, at any time after the date of this Agreement
and prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on outstanding shares of Common Stock payable in shares of Common Stock
or (ii) effect a subdivision, combination or consolidation of the Common Stock
(by reclassification or otherwise than by payment of dividends in shares of
Common Stock) into a greater or lesser number of shares of Common Stock, then in
any such case the number of Units of Preferred Stock purchasable after such
event upon proper exercise of each Right shall be determined by multiplying the
number of Units of Preferred Stock so purchasable immediately prior to such
event by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately before such event and the denominator of which is
the number of shares of Common Stock outstanding immediately after such event.
The adjustments provided for in this Section 11(p) shall be made successively
whenever such a dividend is declared or paid or such a subdivision, combination
or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 and 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the shares of
Common Stock or Units of Preferred Stock a copy of such certificate and (c) mail
a brief summary thereof to each holder of a Rights Certificate in accordance
with Section 25 hereof. Notwithstanding the foregoing sentence, the failure by
the Company to make such certification or give such notice shall not affect the
validity of or the force or effect of the requirement for such adjustment. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment contained therein and shall not be deemed to have knowledge of
such adjustment unless and until it shall have received such certificate.
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Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) Except as provided in Section 13(b) hereof, in the event that,
following a Shares Acquisition Date, directly or indirectly, (x) the Company
shall consolidate with, or merge with and into, any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)),
and the Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(o)) shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the shares of
Common Stock shall be changed into or exchanged for stock or other securities of
any other Person or cash or any other property, or (z) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer) to any Person or Persons (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o)), in one or more transactions,
directly or indirectly, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole),
(any such event being a "Section 13 Event"), then, and in each such case, proper
provision shall be made so that: (i) each holder of a Right, except as provided
in Section 7(e), shall thereafter have the right to receive, upon the exercise
thereof at the then current Purchase Price, such number of validly authorized
and issued, fully paid and non-assessable shares of Common Stock of the
Principal Party (as such term is hereinafter defined), which shares shall not be
subject to any liens, encumbrances, rights of first refusal, transfer
restrictions or other adverse claims, as shall be equal to the result obtained
by (1) multiplying the then current Purchase Price by the number of Units of
Preferred Stock for which a Right is exercisable immediately prior to the first
occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred
prior to the first occurrence of a Section 13 Event, multiplying the number of
such Units of Preferred Stock for which a Right would be exercisable hereunder
but for the occurrence of such Section 11(a)(ii) Event by the Purchase Price
which would be in effect hereunder but for such first occurrence) and (2)
dividing that product (which, following the direct occurrence of a Section 13
Event, shall be the "Purchase Price" for all purposes of this Agreement) by 50%
of the current per share market price (determined pursuant to Section 11(d)) of
the shares of Common Stock of such Principal Party on the date of consummation
of such Section 13 Event; (ii) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such Section 13 Event, all the obligations
and duties of the Company pursuant to this Agreement; (iii) the term "Company"
shall, for all purposes of this Agreement, thereafter be deemed to refer to such
Principal Party, it being specifically intended that the provisions of Section
11 shall apply only to such Principal Party following the first occurrence of a
Section 13 Event; (iv) such Principal Party shall take such steps (including,
but not limited to, the reservation of a sufficient number of shares of its
Common Stock) in connection with the consummation of any such transaction as may
be necessary to ensure that the provisions of this Agreement shall thereafter be
applicable to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and (v) the provisions of Section 11(a)(ii) shall be of
no further effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
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(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a), (A) the Person that is the
issuer of any securities into which shares of Company Common Stock are
converted in such merger or consolidation, or, if there is more than one
such issuer, the issuer of shares of Common Stock that has the highest
aggregate current market price (determined pursuant to Section 11(d)) and
(B) if no securities are so issued, the Person that is the other party to
such merger or consolidation, or, if there is more than one such Person,
the Person the Common Stock of which has the highest aggregate current
market price (determined pursuant to Section 11(d)); and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the largest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same portion of the
assets or earning power transferred pursuant to such transaction or
transactions or if the Person receiving the largest portion of the assets
or earning power cannot be determined, whichever Person the Common Stock
of which has the highest aggregate current market price (determined
pursuant to Section 11(d)); provided, however, that in any such case, (1)
if the Common Stock of such Person is not at such time and has not been
continuously over the preceding twelve-month period registered under
Section 12 of the Exchange Act ("Registered Common Stock"), or such Person
is not a corporation, and such Person is a direct or indirect Subsidiary
of another Person that has Registered Common Stock outstanding, "Principal
Party" shall refer to such other Person; (2) if the Common Stock of such
Person is not Registered Common Stock or such Person is not a corporation,
and such Person is a direct or indirect Subsidiary of another Person but
is not a direct or indirect Subsidiary of another Person which has
Registered Common Stock outstanding, "Principal Party" shall refer to the
ultimate parent entity of such first-mentioned Person; (3) if the Common
Stock of such Person is not Registered Common Stock or such Person is not
a corporation, and such Person is directly or indirectly controlled by
more than one Person, and one or more of such other Persons has Registered
Common Stock outstanding, "Principal Party" shall refer to whichever of
such other Persons is the issuer of the Registered Common Stock having the
highest aggregate current per share market price (determined pursuant to
Section 11(d)); and (4) if the Common Stock of such Person is not
Registered Common Stock or such Person is not a corporation, and such
Person is directly or indirectly controlled by more than one Person, and
none of such other Persons has Registered Common Stock outstanding,
"Principal Party" shall refer to whichever ultimate parent entity is the
corporation having the greatest stockholders' equity or, if no such
ultimate parent entity is a corporation, shall refer to whichever ultimate
parent entity is the entity having the greatest net assets.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13, and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that the Principal Party will:
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(i) (A) file on an appropriate form, as soon as practicable
following the execution of such agreement, a registration statement under
the Securities Act with respect to the shares of Common Stock that may be
acquired upon exercise of the Rights, (B) cause such registration
statement to remain effective (and to include a prospectus complying with
the requirements of the Securities Act) until the Expiration Date, and (C)
as soon as practicable following the execution of such agreement take such
action as may be required to ensure that any acquisition of such shares of
Common Stock upon the exercise of the Rights complies with any applicable
state securities or "blue sky" laws; and
(ii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which comply
in all respects with the requirements for registration on Form 10 under
the Exchange Act.
(d) In case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or Bylaws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue, in connection with, or as a
consequence of, the consummation of a transaction referred to in this Section
13, shares of Common Stock of such Principal Party at less than the then current
market price per share (determined pursuant to Section 11(d)) or securities
exercisable for, or convertible into, shares of Common Stock of such Principal
Party at less than such then current marker price (other than to holders of
Rights pursuant to this Section 13) or (ii) providing for any special payment,
tax or similar provisions in connection with the issuance of the shares of
Common Stock of such Principal Party pursuant to the provisions of this Section
13, then, in such event, the Company shall not consummate any such transaction
unless prior thereto the Company and such Principal Party shall have executed
and delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall have been cancelled, waived
or amended, or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with, or as a consequence
of, the consummation of the proposed transaction.
(e) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. In the event
that a Section 13 Event shall occur at any time after the occurrence of a
Section 11(a)(ii) Event, the Rights which have not theretofore been exercised
shall thereafter become exercisable in the manner described in Section 13(a).
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights
or to distribute Rights Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise
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issuable. The closing price for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NASDAQ or, if the Rights are not listed or
admitted to trading on the NASDAQ, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or admitted to
trading or, if the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
NASDAQ or such other system then in use or, if on any such date the Rights are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Rights
selected by the Directors. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Stock (other than fractions which are integral multiples of one
ten-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Stock (other than
fractions which are integral multiples of one ten-thousandth of a share of
Preferred Stock). Fractions of Preferred Stock in integral multiples of one
ten-thousandth of a share of Preferred Stock may, at the election of the
Company, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Company and a depositary selected by it; provided,
however, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of one ten-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one a share of Preferred Stock as
determined pursuant to Section 11(d).
(c) The holder of a Right by the acceptance of the Right expressly
waives such holder's right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of
certificates representing shares of Common Stock); and any registered holder of
any Rights Certificate (or, prior to the Distribution Date, a certificate
representing shares of Common Stock), without the consent of the Rights Agent or
of the holder of any other Rights Certificate (or, prior to the Distribution
Date, of a certificate representing shares of Common Stock), may, in such
holder's own behalf and for such holder's own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, such holder's right to exercise the
Rights evidenced by such Rights Certificate in the manner provided in such
Rights Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically
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<PAGE>
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations hereunder, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of shares of the Company's Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer;
(c) subject to Sections 6(a) and 7(f) hereof, the Company and the
Rights Agent may deem and treat the person in whose name the Rights Certificate
(or, prior to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Units of Preferred
Stock or any other securities of the Company which may at any time be issuable
upon the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Rights Certificate be construed to confer upon the
holder of any Rights Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 hereof), or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
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Section 18. Concerning the Rights Agent. The Company agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
gross negligence, or willful misconduct on the part of the Rights Agent, for any
action taken, suffered or omitted by the Rights Agent in connection with the
execution, acceptance and administration of this Agreement and the exercise and
performance hereunder of its duties, including the costs and expenses of
defending against and appealing any claim of liability in the premises. The
indemnity provided herein shall survive the termination of this Agreement and
the expiration of the Rights. The costs and expenses incurred in enforcing this
right of indemnification shall be paid by the Company.
The Rights Agent may conclusively rely upon and shall be protected
and shall incur no liability for, or in respect of any action taken, suffered or
omitted by it in connection with, its administration of this Agreement and the
exercise and performance of its duties hereunder in reliance upon any Rights
Certificate or certificate for Units of Preferred Stock or shares of Common
Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
26
<PAGE>
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions and no implied duties or obligations shall be read into this
Agreement against the Rights Agent, by all of which the Company and the holders
of Rights Certificates, by their acceptance thereof, shall be bound:
(a) Before the Rights Agent acts or refrains from acting, it may
consult with legal counsel of its choice (who may be legal counsel for the
Company), and the advice or opinion of such counsel shall be full and complete
authorization and protection to the Rights Agent as to any action taken,
suffered or omitted by it in good faith and in accordance with such advice or
opinion.
(b) Whenever in the administration, exercise and performance of its
duties under this Agreement the Rights Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking, suffering or omitting any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken, suffered or omitted in good faith by
it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own gross negligence or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any liability or
responsibility in respect of the legality, validity or enforceability of this
Agreement or the execution and delivery hereof (except the due execution hereof
by the Rights Agent) or in respect of the legality, validity or enforceability
or the execution of any Rights Certificate (except its countersignature thereof
and has actual knowledge of such change or adjustment); nor shall it be liable
or responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Rights Certificate; nor shall it be
responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Rights Certificates after receipt
of the certificate described in Section 12 hereof or
27
<PAGE>
has actual knowledge of such change or adjustment); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Units of Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any
Preferred Stock will, when issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the administration, exercise and performance of its
duties hereunder from any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Secretary or the Treasurer of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be responsible or liable for any
action taken, suffered or omitted by it in good faith in accordance with
instructions of any such officer or for any delay in acting while waiting for
those instructions. Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in writing
any action proposed to be taken or omitted by the Rights Agent under this
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually received such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
the Rights Agent in good faith believes that
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<PAGE>
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise, transfer, split up, combination or exchange, the
certification on the form of assignment or form of election to purchase, as the
case may be, that the Rights evidenced by the Rights Certificate are not owned
by an Acquiring Person, or an Affiliate or Associate thereof, has either not
been completed or in any manner indicates any other response thereto, the Rights
Agent shall not take any further action with respect to such requested exercise,
transfer, split up, combination or exchange, without first consulting with the
Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company and to
each transfer agent of the Common Stock or Preferred Stock (as to which the
Rights Agent has received prior written notice) by registered or certified mail,
and the Company shall mail notice thereof to the holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon thirty (30) days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock or Preferred Stock (as to which the Rights Agent has
received prior written notice) by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall fail
to make such appointment within a period of thirty (30) days after giving notice
of such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit such holder's Rights
Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of any state of the United
States, in good standing, authorized under such laws to exercise corporate trust
or stock transfer powers, and subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock or Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option,
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<PAGE>
issue new Rights Certificates evidencing Rights in such form as may be approved
by its Board of Directors to reflect any adjustment or change in the Purchase
Price and the number or kind or class of shares or other securities or property
purchasable under the Rights Certificates made in accordance with the provisions
of this Agreement. In addition, in connection with the issuance or sale of
shares of Common Stock following the Distribution Date and prior to the
Expiration Date, the Company (a) shall, with respect to shares of Common Stock
so issued or sold pursuant to the exercise of stock options or under any
employee benefit plan or arrangement or upon the exercise, conversion or
exchange of securities of the Company currently outstanding or issued at any
time in the future by the Company and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued and this sentence shall be null and void ab initio if, and to
the extent that, such issuance or this sentence would create a significant risk
of or result in material adverse tax consequences to the Company or the Person
to whom such Rights Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements' failing
to qualify for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
(a) The Company may, at its option, upon approval by the Board of
Directors, at any time on or prior to the close of business (or such later date
as may be determined by the Board of Directors) on the earlier of (i) the Shares
Acquisition Date, or (ii) the Final Expiration Date redeem all but not less than
all the then outstanding Rights at a redemption price of $0.001 per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"), and the Company may, at its
option, pay the Redemption Price either in cash, shares of Common Stock (based
on the current per share market price thereof (as determined pursuant to Section
11(d) hereof) at the time of redemption), or any other form of consideration
deemed appropriate by the Board of Directors. The redemption of the Rights by
the Board of Directors may be made effective at such time on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within ten (10) days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and shall mail a notice of redemption to all the
holders of the then outstanding Rights at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Stock. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption
30
<PAGE>
Price will be made. Neither the Company nor any of its Affiliates or Associates
may redeem, acquire or purchase for value any Rights at any time in any manner
other than that specifically set forth in this Section 23 or in Section 24
hereof, and other than in connection with the purchase of shares of Common Stock
prior to the Distribution Date.
(c) Notwithstanding anything contained in this Agreement to the
contrary, the Rights shall not be exercisable pursuant to Section 7(a) at any
time when the Rights are redeemable hereunder.
Section 24. Exchange.
(a) The Company, at its option, upon approval by the Board of
Directors, at any time after any Person becomes an Acquiring Person, may
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
7(e) hereof) for Units of Preferred Stock at an exchange ratio equal to, subject
to adjustment to reflect stock splits, stock dividends and similar transactions
occurring after the date hereof, that number obtained by dividing the Purchase
Price by the then current per share market price per Unit of Preferred Stock on
the earlier of (i) the date on which any Person becomes an Acquiring Person and
(ii) the date on which a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan maintained by
the Company or any of its Subsidiaries or any trustee or fiduciary with respect
to such plan acting in such capacity) is first published or sent or given within
the meaning of Rule 14d-4(a) of the Exchange Act Regulations or any successor
rule, if upon consummation thereof such Person would be the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding (such exchange ratio
being hereinafter referred to as the "Section 24(a) Exchange Ratio").
Notwithstanding the foregoing, the Company may not effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan maintained by the Company or any of its Subsidiaries,
or any trustee or fiduciary with respect to such plan acting in such capacity),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the shares of Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Units of Preferred Stock equal
to the number of such Rights held by such holder multiplied by the Section 24(a)
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of Units of Preferred Stock for Rights
will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other
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<PAGE>
than Rights which have become void pursuant to the provisions of Section 7(e)
hereof) held by each holder of Rights.
(c) In the event that the number of shares of Preferred Stock which
are authorized by the Company's Certificate of Incorporation but not outstanding
or reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit any exchange of Rights as contemplated in accordance
with this Section 24, the Company shall take all such action as may be necessary
to authorize additional shares of Preferred Stock for issuance upon exchange of
the Rights or make adequate provision to substitute (1) cash, (2) Company Common
Stock or other equity securities of the Company, (3) debt securities of the
Company, (4) other assets, or (5) any combination of the foregoing, having an
aggregate value equal to the Adjustment Spread, where such aggregate value has
been determined by the Board of Directors. To the extent that the Company
determines that some action need be taken pursuant to subsection (a) of this
Section 24, the Board of Directors may temporarily suspend the exercisability of
the Rights for a period of up to sixty (60) days following the date on which the
event described in Section 24(a) shall have occurred, in order to seek any
authorization of additional shares of Preferred Stock and/or to decide the
appropriate form of distribution to be made pursuant to the above provision and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended.
(d) The Company shall not be required to issue fractions smaller
than or to distribute certificates which evidence fractions smaller than one
ten-thousandth of a share of Preferred Stock. In lieu thereof, the Company shall
pay to the registered holders of the Rights Certificates with regard to which
such fractional Units would otherwise be issuable an amount in cash equal to the
same fraction of the current market value (as determined pursuant to Section
11(d)(i) hereof) of one Unit of Preferred Stock.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Stock or to make
any other distribution to the holders of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Stock rights or warrants to subscribe for or to purchase any additional Units of
Preferred Stock or shares of stock of any class or any other securities, rights
or options, (iii) to effect any reclassification of its Preferred Stock (other
than a reclassification involving only the subdivision of outstanding Preferred
Stock), (iv) to effect any consolidation or merger into or with any other Person
(other than a Subsidiary of the Company in a transaction which complies with
Section 11(o)), or to effect any sale or other transfer (or to permit one or
more of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Stock payable in shares of Common Stock or to effect
a subdivision, combination or consolidation of the shares of Common Stock (by
reclassification or otherwise than by payment of dividends in shares of Common
Stock), then, in each such case, the Company shall give to each holder of a
Rights Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the
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purposes of such stock dividend, or distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Common Stock and/or shares
of Preferred Stock, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least ten
(10) days prior to the record date for determining holders of the shares of
Preferred Stock for purposes of such action, and in the case of any such other
action, at least ten (10) days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the shares of
Common Stock and/or shares of Preferred Stock, whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Rights Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof. In the event any Person becomes an Acquiring Person, the Company will
promptly notify the Rights Agent thereof.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
______________________________
______________________________
______________________________
Attention:____________________
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sent by registered or
certified mail and shall be deemed given upon receipt and addressed (until
another address is filed in writing with the Company) as follows:
StarMedia Network, Inc.
29 West 36th Street
Fifth Floor
New York, New York 10018
Attention: Jack C. Chen, President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution
Date, the Company may supplement or amend this Agreement in any respect, without
the approval of any holders of Rights, by action of its Board of Directors, and
the Rights Agent shall, if the Company so directs, execute such supplement or
amendment. From and after the Distribution Date, the
33
<PAGE>
Company may from time to time supplement or amend this Agreement without the
approval of any holders of Rights, by action of its Board of Directors in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder or (iv) to change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates (other than an Acquiring Person or an Affiliate
or Associate of an Acquiring Person), including, without limitation, to change
the Purchase Price, the Redemption Price, any time periods herein specified, and
any other term hereof, any such supplement or amendment to be evidenced by a
writing signed by the Company and the Rights Agent; provided, however, that from
and after such time as any Person becomes an Acquiring Person, this Agreement
shall not be amended in any manner which would adversely affect the interests of
the holders of Rights. Upon receipt of a certificate from an appropriate officer
of the Company that the proposed supplement or amendment is consistent with this
Section 27 and, after such time as any Person has become an Acquiring Person,
that the proposed supplement or amendment does not adversely affect the
interests of the holders of Rights, the Rights Agent shall execute such
supplement or amendment.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the Exchange Act. The Board of
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing), which are done or made by the
Board of Directors in good faith, shall (x) be final, conclusive and binding on
the Company, the Rights Agent, the holders of the Rights Certificates and all
other parties and (y) not subject the Board of Directors to any liability to the
holders of the Rights.
Section 30. Benefits of This Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company,
the Rights Agent and the registered holders of the Rights Certificates (and,
prior to the Distribution Date, shares of Common Stock) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Rights Certificates (and, prior to the Distribution Date, shares
of Common Stock).
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Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the tenth Business Day following
the date of such determination by the Board of Directors of the Company.
Section 32. Governing Law. This Agreement and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several sections of this Agreement are inserted or convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the day and year first above written.
ATTEST: STARMEDIA NETWORK, INC.
By: By:
--------------------------------- ---------------------------------
Name: Name:
---------------------------- ---------------------------
Title: Title:
--------------------------- --------------------------
ATTEST: [RIGHTS AGENT]
By: By:
--------------------------------- ---------------------------------
Name: Name:
---------------------------- ---------------------------
Title: Title:
--------------------------- --------------------------
36
<PAGE>
Exhibit A
FORM OF
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
STARMEDIA NETWORK, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
----------------------------------
StarMedia Network, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on May 4, 1999;
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of the Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $.001 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be five hundred thousand (500,000). Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
A-1
<PAGE>
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior
to the Series A Preferred Stock with respect to dividends, each
holder of a share of Series A Preferred Stock, in preference to the
holders of shares of Common Stock, par value $.001 per share (the
"Common Stock"), of the Corporation, and of any other junior stock,
shall be entitled to receive, when declared by the Board of
Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to, subject to the
provision for adjustment hereinafter set forth, Ten Thousand
(10,000) times the aggregate per share amount of all cash dividends,
and Ten Thousand (10,000) times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions,
other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the
first issuance of a share or fraction of Series A Preferred Stock.
In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
shares of Series A Preferred Stock as provided in paragraph (A) of
this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided, however, that, in the event no
dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Distribution Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of
$10,000 per share of Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on each
outstanding share of Series A Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of
such share of Series A
A-2
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Participating Preferred Stock, unless the date of issue of such
share is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such share shall begin to
accrue from the date of issue of such share, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares
at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder
thereof to Ten Thousand (10,000) votes on all matters submitted to a
vote of the stockholders of the Corporation. In the event the
Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
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<PAGE>
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are
in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on the
shares of Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could,
under paragraph (A) of this Section 4, purchase or otherwise acquire
such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in
A-4
<PAGE>
the Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received Ten Thousand Dollars
($10,000) per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 10,000 times the aggregate amount to
be distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full to the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
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<PAGE>
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to Ten Thousand (10,000) times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Amended and Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of at least a majority of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
A-6
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President and its corporate seal attested by
its Secretary this __day of May, 1999.
Name:
--------------------------------
Title:
-------------------------------
Attest:
Name:
---------------------------------
Title:
--------------------------------
A-7
<PAGE>
Exhibit B
Form of Rights Certificate
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER [TEN YEAR ANNIVERSARY OF RECORD DATE] OR
EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT THE OPTION OF THE COMPANY AT $.001 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER
CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER
OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY
THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON
WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE
OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SUCH AGREEMENT.]*
Rights Certificate
STARMEDIA NETWORK, INC.
This certifies that , or registered assigns, is the registered owner
of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of May __, 1999 (the "Rights Agreement"), between StarMedia
Network, Inc., a Delaware corporation (the "Company"), and [NAME OF RIGHTS
AGENT] (the "Rights Agent"), to purchase from the Company at any time
- --------
* The portion of the legend in bracket shall be inserted only if
applicable and shall replace the preceding sentence.
B-1
<PAGE>
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., New York time, on May __, 2009 at the office of the
Rights Agent designated for such purpose, or at the office of its successor as
Rights Agent, one one-thousandth (a "Unit") of a fully paid non-assessable share
of Series A Junior Participating Preferred Stock, par value $.001 per share (the
"Series A Preferred Stock") of the Company, at a purchase price per Unit of
Series A Preferred Stock shall initially be the amount equal to the product of
four times the average daily closing price of the Common Stock for the first
five days of trading subsequent to the consummation of the initial public
offering of the Common Stock (the "Purchase Price"), upon presentation and
surrender of this Rights Certificate with the Form of Election to Purchase duly
executed. The number of Rights evidenced by this Rights Certificate (and the
number of Units of Series A Preferred Stock which may be purchased upon exercise
hereof) set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of the date of the consummation of the Company's initial
public offering based on the Series A Preferred Stock as constituted at such
date. As provided in the Rights Agreement, the Purchase Price and the number of
Units of Series A Preferred Stock which may be purchased upon the exercise of
the Rights evidenced by this Rights Certificate are subject to modification and
adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of Series A Preferred Stock as the Rights evidenced by the
Rights Certificate or Rights Certificates surrendered shall have entitled such
holder to purchase. If this Rights Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at a redemption
price of $.001 per Right.
No fractional shares of Series A Preferred Stock will be issued upon
the exercise of any Rights or Rights evidenced hereby (other than fractions
which are integral multiples of one one-thousandth of a share of Series A
Preferred Stock, which may, at the election of the Company, be evidenced by
depositary receipts), but in lieu thereof a cash payment will be made, as
provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of Units of
Series A Preferred Stock or of any other securities of the Company which may at
any time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the
B-2
<PAGE>
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Rights or Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the signature of the proper officers of the Company and its
corporate seal. Dated as of May __, 1999.
ATTEST: STARMEDIA NETWORK, INC.
By
- ----------------------------- ---------------------------------
Name: Name:
Title: Title:
Countersigned:
[NAME OF RIGHTS AGENT]
as Rights Agent
By
Authorized Signatory
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<PAGE>
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Rights Certificate.)
FOR VALUE RECEIVED______________________ hereby sells, assigns and
transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint________________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ______________, __
________________________________________________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a participant in a Securities
Transfer Association Inc. recognized signature guarantee medallion program.
B-4
<PAGE>
CERTIFICATE
The undersigned hereby certifies that the Rights evidenced by this
Rights Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________________________________________________________________________
Signature
--------------------------------
NOTICE
The signature in the foregoing Form of Assignment must conform to
the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment is not completed, the Company and the Rights Agent will deem the
beneficial owner of the Rights evidenced by this Rights Certificate to be an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement) and such Assignment will not be honored.
B-5
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Rights Certificate.)
To: STARMEDIA NETWORK, INC.
The undersigned hereby irrevocably elects to exercise_______________
Rights represented by this Rights Certificate to purchase the units of Series A
Preferred Stock issuable upon the exercise of such Rights and requests that
certificates for such Series A Preferred Stock be issued in the name of:
Please insert social security
or other identifying number ____________________________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number ____________________________________________________
(Please print name and address)
Dated: ______________, __
________________________________________________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a participant in a Securities
Transfer Association Inc. recognized signature guarantee medallion program.
B-6
<PAGE>
CERTIFICATE
The undersigned hereby certifies that the Rights evidenced by this
Rights Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________________________________________________________________________
Signature
----------------------------------
NOTICE
The signature in the foregoing Form of Election to Purchase must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Election to Purchase, as the case may be, is not completed, the Company and the
Rights Agent will deem the beneficial owner of the Rights evidenced by this
Rights Certificate to be an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and such Election to Purchase will
not be honored.
B-7
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF SERIES A PREFERRED STOCK
On May 4, 1999, the Board of Directors of StarMedia Network, Inc.
(the "Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of Common Stock (the "Common Stock"), par
value $.001 per share, of the Company. The dividend is payable upon the
consummation of the Company's initial public offering (the "Record Date") to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one one-thousandth of a share (a "Unit") of Series
A Junior Participating Preferred Stock, par value $.001 per share (the "Series A
Preferred Stock"), of the Company at a price per Unit equal to the product of
four times the average daily closing price of the Common Stock for the first
five days of trading subsequent to the consummation of the initial public
offering of the Common Stock (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement dated as
of May __, 1999 (the "Rights Agreement") between the Company and [NAME OF RIGHTS
AGENT], as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) the close of business on the first
date of a public announcement that a person or group of affiliated or associated
persons (an "Acquiring Person") have acquired beneficial ownership of 15% or
more of the outstanding Common Stock or (ii) 10 business days (or such later
date as may be determined by action of the Board of Directors prior to such time
as any Person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of such outstanding Common Stock (the earlier of such dates
being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Stock certificates outstanding as of the Record
Date, by such Common Stock certificate with a copy of this Summary of Rights
attached thereto.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date, upon transfer or new
issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock, outstanding as of the Record Date, even without such notation or a
copy of this Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the Common Stock as of the Close of Business on the
Distribution Date and such separate Rights Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire at the close of business on May __, 2009 (the "Final
Expiration Date"), unless the Final
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<PAGE>
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of Units of Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) upon the grant to holders of the Units of Preferred Stock
of certain rights or warrants to subscribe for or purchase Units of Preferred
Stock at a price, or securities convertible into Units of Preferred Stock with a
conversion price, less than the then current market price of the Units of
Preferred Stock or (iii) upon the distribution to holders of the Units of
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in Units of Preferred Stock) or of subscription rights or warrants
(other than those referred to above).
The number of outstanding Rights and the number of Units of
Preferred Stock issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock dividend
on the Common Stock payable in Common Stock or subdivisions, consolidations or
combinations of the Common Stock occurring, in any such case, prior to the
Distribution Date.
Units of Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each Unit of Preferred Stock will be entitled to a
dividend equal to any dividend declared per share of Common Stock. In the event
of liquidation, each Unit of Preferred Stock will be entitled to a payment equal
to any payment made per share of Common Stock. Each Unit of Preferred Stock will
have one vote, voting together with the Common Stock. Finally, in the event of
any merger, consolidation or other transaction in which shares of Common Stock
are exchanged, each Unit of Preferred Stock will be entitled to receive an
amount equal to the amount received per share of Common Stock. These rights are
protected by customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting
rights, the value of each Unit of Preferred Stock purchasable upon exercise of
the Rights should approximate the value of one share of Common Stock.
In the event that, after the Rights become exercisable, the Company
is acquired in a merger or other business combination transaction with an
Acquiring Person or an affiliate thereof, or 50% or more of its consolidated
assets or earning power are sold to an Acquiring Person or an affiliate thereof,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon exercise thereof at the then current exercise
price of the Rights, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the Rights.
In the event that any person or group of affiliated or associated
persons becomes the beneficial owner of 15% or more of the outstanding shares of
Common Stock proper provision shall be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive
C-2
<PAGE>
upon exercise that number of shares of Common Stock or Units of Preferred Stock
(or cash, other securities or property) having a market value of two times the
exercise price of the Rights.
At any time after the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 15% or more of the outstanding
shares of Common Stock and prior to the acquisition by such person or group of
50% or more of the outstanding Common Stock, the Board of Directors of the
Company may exchange all or part of the Rights (other than Rights owned by such
person or group which have become void) for Units of Preferred Stock at an
exchange ratio (subject to adjustment) which shall equal, subject to adjustment
to reflect stock splits, stock dividends and similar transactions occurring
after the date hereof, that number obtained by dividing the Purchase Price by
the then current per share market price per Unit of Preferred Stock on the
earlier of (i) the date on which any Person becomes an Acquiring Person and (ii)
the date on which a tender or exchange offer is announced by any Person, if upon
consummation thereof such Person would be the Beneficial Owner of 15% or more of
the shares of Company Common Stock then outstanding.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock will be issued
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts) and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Units of Preferred Stock on the
last trading day prior to the date of exercise.
At any time before the close of business on the date a person or
group of affiliated or associated persons acquire beneficial ownership of 15% or
more of the outstanding Common Stock or within ten (10) business days after the
announcement of a tender or exchange offer (unless the Board of Directors extend
such ten-day period), the Board of Directors of the Company may redeem the
Rights in whole, but not in part, at a price of $.001 per Right (the "Redemption
Price"). The redemption of the rights may be made effective at such time on such
basis and with such conditions as the Board of Directors in its sole discretion
may establish. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price. The Rights are also redeemable under
other circumstances as specified in the Agreement.
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights except that from
and after a Distribution Date no such amendment may adversely affect the
interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number
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of rights being acquired. The Rights should not interfere with any merger or
other business combination approved by the Board of Directors because the Rights
may be redeemed by the Company at the Redemption Price prior to the occurrence
of a Distribution Date.
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement, which is hereby incorporated herein by reference.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 5, 1999 (except Note 12, as to which the date is
March 14, 1999) in Amendment No. 4 to the Registration Statement (Form S-1 No.
333-74659) and the related Prospectus of StarMedia Network, Inc. for the
registration of its common stock.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
New York, New York
May 18, 1999
